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Our special thanks to Mr. Khalid Mansoor, (Director Placements Lahore School of Economics,
Ex Director Marketing and Sales Berger Paints Pakistan) for his support and mentorship and
Professor FA Freedy for continuously encouraging us to stretch push limits. We would also like
to extend our gratitude to management at Berger Pakistan for providing us with their valuable
time and information regarding the company.

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Table of Contents
Introduction................................................................................................................ 4
Industry Analysis........................................................................................................ 6
Competitors Analysis................................................................................................ 11
Review Of The Information Collected........................................................................18
Sales force structure................................................................................................. 18
Sales Forecasting...................................................................................................... 20
Seasonality............................................................................................................... 20
Sales Process............................................................................................................ 21
Territory Design........................................................................................................ 22
Sales Force Compensation........................................................................................ 22
Sales Quotas............................................................................................................. 23
Dealer Incentives...................................................................................................... 23
Abolishment of Excise Duty and Tokens in the Paint.................................................23
Operations and Supply Chain................................................................................... 24
Problems................................................................................................................... 25
Solution to Demand Fluctuation Problem.................................................................27
Hub and Spoke System............................................................................................. 28
Hub and Spoke Typology.......................................................................................... 29
Recommendations.................................................................................................... 30
Appendix I................................................................................................................ 31
Appendix II............................................................................................................... 33
Appendix III............................................................................................................... 41
Appendix IV.............................................................................................................. 42
Appendix V............................................................................................................... 43
Reffrences................................................................................................................ 46

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Executive Summary

The report starts with an overview of the company, its product lines and the nature of its
operations, followed by an industry analysis. The next section in the report shed light on the
competitive situation of the paint market in Pakistan .the following section is based on the Berger
paints current sales force structure and practices. In the same section information regarding
companys distribution and dealer network is provided. The later portion is based on a few
problems faced by the company with regards to fluctuating demand and operational efficiency. In
the last part of the report, the team has made an effort to come with solutions to the problems that
have been identified in the previous sections, the report ends with recommendations and other
important information regarding the company in the appendices.

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Berger is a 200 years old UK based company which came into Pakistan soon after independence.
Berger Paints Pakistan Limited (Berger Pakistan) became a public limited company in 1974,
when 49.38% of its shares were acquired by Pakistani investors, while the remaining 50.62%
held by parent company Jenson and Nicholson. Berger Pakistan is a chemical manufacturing
company of Pakistan which started operations in 1950 and is headquartered in Lahore. It has
regional offices in Lahore and Islamabad. It produces decorative and industrial paints, coatings
for interior and exterior of buildings, wood and fibrous, plaster and cement, aluminum, iron,
steel, and ferrous and has an ISO-9001-2000 certification. In 1991, the management of the
company was acquired by Slot rapid Limited, a U.K. based company.
Paint can be defined as A chemical oriented liquid used to protect & decorate different kind of
surfaces. Its production process is generally formed by three main classes of material: 1) A resin
or mixture of resins, which forms the paint film. Also known as the binder, its gives a clear film
and can be varied to enable the paint to have whatever final properties are required. 2) Pigments
to give color to the paint film and also to enable the coat of paint to hide what is underneath. 3)
Solvents to dissolve or suspend the binder and give the paint the correct consistency (viscosity)
for easy application. They must also evaporate after application to allow the paint to dry.
Also two major classifications are the decorative (or households segment) and the industrial
Overview of its procurement process:
Total No. of Materials = 2500 different materials
Average Imported Materials = 60% (i.e. 1500 materials)
Most important and Expensive Material = Titanium Di-Oxide (TiO2) Purpose = Adds Durability
to the products. (Only used by Berger and ICI)
Usage = 200 ton/month
Economic Order Quantity (EOQ) = 600 tons
Price = $2000/ton
Its direct competitors include I.C.I Paints, Berger Paints, Master, Diamond, Silver Sand,
Marvell, Black Horse Gobi etc. Its indirect competitors are Tiles, Wood peeling, Wallpapers,
Rockwall, and Paint Puree etc.
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Berger's sales volume increased to Rs. 8.53m. From Rs. 6.87 m. in 2008 it continued to rise. The
major factor was the expenses done to increase market awareness which also brought about a rise
of 63% in profits of Rs. 33 m.
The target group for Berger is homeowners, professionals and industry users. Berger enjoys
excellent reputation among consumers, is one of the only top two brands in Pakistan and is also
has a sophisticated and huge supplier and distribution network. One major drawback is its high
reliance on the decorative segment. Its USPs is Performance, Customer First, Ethical Practice
and Valuing People. However it lacks badly in R&D and innovation in Pakistan.
Due to the demands of the current challenging time, the company entered into international
partnerships recently. But that created problems in solving matters and supply chain. Hence, it
bought an Oracle integrated system that reduced the month-end account closing time from seven
days to two days, reduced staff-process time by 25%, and decreased inventory by 11%. This
helped cut down efficiency and increased sales by around 17%.
According to company sources, the sales of Berger are divided as follows in different areas.





Kashmir 25%

Lahore 20%
Faisalabad 15%
Rawalpindi 20%


Sargodha 5%
Others 10%
Karachi 5%

The main products offered by the company are divided into its business lines. These are
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Decorative paints ( Berger, Buxly and Jensoline)

Automotive Businesses
General Industrial Finishes
Powdered Coatings
Protective Coatings
Vehicle Refinishes
Road Safety
Government & Marine
Construction Chemicals
Printing inks

Mission Statement:
We will lead by innovative ideas and technological development in the paints and associated
products in Pakistan ensuring efficient utilization of resources yielding high returns. We will
ensure highest level of commitment to achieve best quality products and services. We will
vigorously promote and safeguard the interests of employees, shareholders, business associates.
We will act as a good corporate citizen ensuring service towards community and shall focus on
environment, health and safety.
We will become the leading paints and associated products manufacturing and marketing
company in Pakistan ensuring best returns to our investors & highest customer satisfaction.

Industry Analysis:
In Pakistan, the paint industry works at the both organized and unorganized sector. Around 22
paint producing units work in the country, including 2 multinationals. These companies have a
collective agency which represents them and is called the Pakistan paint Manufacturers;
Association (PPMA). However, the unorganized sector is relatively bigger with over 350 units
producing paints and varnishes. Many of these are not even covered in the excise and can
therefore flee the tax. Hence they are in a much better position to compete with the organized
sector companies. 50% demand for paints comes through the unorganized and the rest 50% from

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the organized sector. At the same time, many new entrants are coming into the market as a sign
of its growth.







The two multinationals operating are also the only two leading players. These are ICI and Berger.
ICI has 22% and Berger has 15% market share. Other organized players include a UAE based
firm, Juton, and another one called Nippon Paints.

Market Share of Different Paint companies in Pakistan


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Market Share of Different

Paint companies in Pakistan

This shows that he unorganized sector is a big threat to the paint companies of Pakistan as it has
around 50 % of the total market share.
17000000 liters of paint was produces from 87 units during 1991(federal bureau of statistics).
The demand rose by 9.9% in 2008. Furthermore, the paint industry requires almost 300 different
types of raw materials for producing wide variety of paints.
O u t o f t h e s e about 15 percent of the raw materials are petroleum-based. These raw material
requirements are met through both imports and exports. In 1971, around 90% of the raw material
was imported which was later reduced to around 50%. This was possible due to the increased
production within the boundaries of the country. These raw materials include Mineral
Resins, Vegetable Resins and gums. The list of imported raw materials consists of
Pigments, Zinc Oxide, Titanium Oxide and Lithopone.
Per capita consumption of paints in Pakistan is at 0.8 kg per annum which is
lower than other developing countries (4kg per capita in South East Asia), and
even lower than the developed world (22kg per capita).For the world, it is 15 per
With changing market trends, the paint industry is booming. A great opportunity
lies in the fact that people are getting quality conscious. This gives a huge edge to
the organized sector over the unorganized one. Also, earthquake added a boom to
the market and demand rose rapidly. The economic recession and worse political
conditions have however hit the businesses badly. Hence, by increasing varieties
and improving supply chains and production, manufacturers rose the gross margin
by 6%.This resulted in as operating profit improvement of 14.4% over last year to Rs. 262.9
million. However, at the same time the govt. in 2008 increases the general sales tax from 15% to
16%. These factors limit the growth possibilities of the industry. Along with the increase in tax,
energy crisis in Pakistan and high prices of the decorative paint products are other major setbacks
in the growth of this industry. Due to this general rising trend in the economy, price is the only
differentiating factor for any producer.

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Exporting is another opportunity that lies with the producers. Attractive markets
are Middle East and Afghanistan. But that is dependent upon the government authorities. With
their permission ad support, this action can also bring an increase in Pakistan's GDP.
Although Pakistan is not a very large country geographically and has limited resources, its
population is around 180,000,000 and it is the 6th largest country in terms of population.
Following are some of the statistics about the country:
Population: 180,000,000 (2008 EST.)
Growth rate: 1.828% (2007 EST.)
Birth rate: 27.74 births/1,000 population (2007 EST.)
Death rate: 8 deaths/1,000 population (2007 EST.)
Net migration rate: -1.24 migrant(s)/1,000 populations (2007 EST.)
Out of this total population, the urban population is only around 34% rising from 18% in 1950s.
This represents that the rural market is a huge market yet untapped that can be exploited for this
Another factor is that the middle class incomes are rapidly growing and that has increased
consumer spending by above 10% CAGR for the last years and is expected to shoot. The
purchasing power parity of the Pakistani consumer has increased to Rs. 504269 from Rs.
In order to beat the traditional, unorganized segment and be successful, the paint companies
should pay careful attention to the populations; demographical characteristics in order to cater to
their needs accordingly and to build the right marketing campaigns for them. Also it is important
to see different castes and creeds living in Pakistan as that can be curtail for a head strong
marketing campaign. Following are some of the characteristics of the population of Pakistan.
Age structure
0-14 years: 40% (male 33,293,428; female 31,434,314)
15-64 years: 56.9% (male 48,214,298; female 46,062,933)
65 years and over: 4.1% (male 3,256,065; female 3,542,522) (2007 EST.)Gender ratios
Sex ratio at birth: 1.05 male(s)/female
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Under 15 years: 1.06 male(s)/female

15-64 years: 1.05 male(s)/female
65 years and over: 0.92 male(s)/female
Total population: 1.05 male(s)/female (2007 EST.)
Over the age of 15 and can read and write.
Total population: 54% (2004 EST.)
Male: 60%
Female: 42%
Muslims: 174,500,000
Hindus: 2,500,000
Christians: 2,500,000
Ahmadis: over 400,000
Bah's: 30,000
Sikhs: 20,000
Buddhist: 20,000

Market Size estimation of the Paint industry

Total population
Total houses
Total population in urban areas
Total population in rural areas
Total houses in urban areas
Total houses in rural areas


Source: Lahore Chamber of Commerce and Industry

The target market for the paint industry are the people whose income is Rs. 25000 and above.
Such people are numbered 10800000 in the urban and 43200000 this in the rural areas. Hence,
the total target population for the paint industry in Pakistan is 54000000. This is an improvement
from the past years.

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Competitors Analysis:
There are almost 2000 direct and indirect competitors of Berger Paints Pakistan ltd. Some
players are present in unorganized sector, and some are in organized sector. Berger itself has two
low-priced brands:


Buxly and Jasoline are the two other brands of Berger whose target market is different, Buxly
and Jasoline cater to the lower social income class of the country. The retailers of Berger paints
are spread all over the country and these retailers have established their own paint brands.
There are two sectors that operate in the industry, unorganized sector and organized sector. The
organized sector refers mainly to the market that purchases decorative paints from paint
manufacturers and comprises 35% of the market, however the unorganized sector refers to the
market that uses paint substitutes for decorative purposes, this sector comprises 65% of the
market. Berger and ICI come under organized sector of the market.

Market Sector

Unorganized sector


Organized sector

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The organized sector is further divided into three categories:

1. Premium
2. Mid-tier
3. Low tier

Low tier

On the top of the pyramid is the premium class, where more margins are present, Berger operates
in the premium sector. In the middle is the mid-tier, where the Pakistans market is expanding,
Buxly is present in the mid-tier, also Master paints, Gobi and Nippon lie in the mid-tier who are
the competitors of Buxly, that is the sub-brand of Berger. And at the bottom is the low-tier, where
Jasoline is present and large volumes are concentrated in the low tier of the pyramid.
ICI paints Pakistan Ltd:
ICI Paints Pakistan Ltd is the direct competitor of Berger Paints Pakistan Ltd as ICI operates in
the premium sectors. Private sector covers the total share of the paint industry in Pakistan, where
the two big names are Berger and ICI. ICI Pakistan limited is a 75.81% owned subsidiary of ICI
plc, UK. ICI is a public limited company and is present in Pakistan since 1952. ICI is the worlds
largest producers of chemicals and paints and in Pakistan ICI is one of the leaders in chemical
and paint industry. The company offers a well-diversified product range.
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SWOT Analysis of Berger Vs ICI:

Berger gained reasonable market share in a ICI products are known as the best products in
very short period of time despite of the Karachi the paint industry, brand name
factory incident in 2003 and 2004
Multi-national company
Brand name
Comparatively fast supply of products
Good discount and incentives for the dealers

Multi-national company
More than 80 years of experience in the paint
Wider dealer network
Wide range of products
Having production setup in more than 55
ICI has made Kid-Zone product especially for
kids in which the target market is exclusive to
the kids

Poor dealer network as compared to ICI
Very low discount for business partners
Complaint often arises in the product while Complex supply chain configuration
Low range of products. The product portfolio Comparatively less convenient delivery of the
is not very diversified as compared to ICI
Lack of formulating competent strategies

products as business partners are in 1000s

Meeting demand becomes a challenge in the
peak demand season

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Berger should formulate its strategies and Pakistan is a developing country and a lot of
develop its product keeping in view about the business growth potential is in this country, so
growth opportunity in this country

seeking new markets in this area is great

Higher standard of living and awareness Finding solutions to the painting problems can
developing in Pakistan

also help to grow. Such products are still

absent in the market which can gain the
attention of customers. So to work on those
problems leads to a great opportunity
ICI has got a lot of resources and skills to grow
in their target market

Threat of the expanding market of ICI paint
Fake Paints
Threats of other new entrants in the paint Threats of other new entrants in the paint
market e.g. Nippon Paints Japan has entered market e.g. Nippon Paints Japan has entered
the market of Pakistan
Political instability in the country
Economic instability
Threat of innovative products of ICI

the market of Pakistan

Political instability in the country
Economic instability in the country

Market Share:
The organized sector comprises of 35% of the market sector. ICI, Berger, Master paints, Gobi,
Silver sand, Black horse, Happilac etc comes under the organized sector. ICI has gained 60% of
market share in the organized sector and Berger has gained 20% of market share in the organized
sector in the industry, still the remaining 20% is gained by other players such as Black horse,
Master Paints, Happilac, Silver sand etc in the organized sector.

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Market Share



ICI has the largest market share in the industry, followed by Berger and then others. ICI
commands prices in the external market; all the players in the paint industry in Pakistan follow
the same marketing strategies. However, the price of Bergers weather coat is 5% less than that
of ICIs weather shield. All the paint companies except for the ICI have recently started to give
incentives to painters and contractors by offering them discount tokens ranging from Rs 50 to Rs
300. As the painters and contractors have significant influence on the consumers, this token
system has helped the paint providers to increase their sales.
BCG Matrix:
The BCG matrix categorizes brands according to the two parameters; the rate of growth and the
relative market share, there are four categories under which brands may fall:

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Star: high market growth and high relative market share

Cash cow: low market growth and high relative market share
Question Mark: high market growth and low relative market share
Dog: low market growth and low market share

Question mark



Cash cow







Relative market share:

ICI paints have the highest market share and highest relative market growth, so it is
categorized under star. Berger and Master Paints have relatively low growth potential in
market, therefore they have categorized as Cash cow. Nippon has high growth in the market
but low market share therefore it is categorized as Question Mark. Royal paints have low
market share and low relative market growth, so classified as Dog.

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Review of The Information Collected1

Sales force structure:
Director Sales &


National Sales

Sales Manager

Sales Manager

Sales Manager
North 1

Sales Manager
North 2

Ast Sales
Manager * 12

1 Information in this section has been obtained from the company sources. Names
and contact numbers of the concerned individuals have been attached in the
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The sales force is being head by the director sales and marketing. Next to this position is the post
of the general manager who heads the national sales manager. Berger paints has divided the
entire country into three broad regions, namely
The northern region ( Comprising of areas north to Jhelum)
The Central Region( Comprising of area below Jhelum till Rehim Yard khan)
The southern Region ( Comprising of area below Rahim Yar Khan till the coastal belt of
the country)
Each of these regions are headed by a sales manager, however the northern region is an
exception since it is being looked after by two sales managers, due to its depth in terms of
potential markets and also due to larger number of customers present in the region.
Each of the sales managers has twelve assistant sales managers who then head a sales force of
approximately hundred people. To assist these sales people are the color consultants that help the
end customers make decisions regarding the choice of colors.
On average each assistant sales manager has eight sales representatives and four color
consultants reporting to him.
Responsibilities of the sales representatives:
The sales representatives are responsible for the following tasks:
1. Taking orders from the registered dealers and conveying them to the factory.
2. Perusing the retailers to purchase the companys products, through paying them frequent
visits and informing them about incentives and promotions that the company is
3. Maintaining data about the purchases made by a dealer.
4. Helping the small retailers and the dealers with the inventory count, thereby saving them
the trouble of keeping records. This also helps in getting more orders, since the inventory
count helps the dealer realize the inventory shortfall.
5. Relationship building with the dealers and retailers.

Responsibilities of the Color Consultants:

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Company has hired graduates in arts for these posts, and these are mostly females. These are
basically the sales support staffs, who are involved in marketing and customer service.
Generally these consultants provide with assistance to the end customer who purchases the
product, especially the ones who have to paint the entire house. Once Berger paints kit is
purchased from the dealer or retailer, the dealer sends in the color consultant to the provided
address. The color consultant then helps the end customer with color combinations for their
The second responsibility of these support staff is the pay visits to the houses that are under
construction in each particular area and provide them with information regarding the product
range of the company and looking out for potential customers who might be willing to buy
Bergers products. If a customer shows the willingness to use Bergers product the support
staff then informs the sales representative who further takes care of the customer.

Sales Forecasting:
Sales forecast is made using moving averages; however these averages are adjusted with the
inputs received from the territory managers. The kind of detail that the forecasting requires can
be understood from the fact that the company has to make forecasts for each color in the product
line in each territory. It is crucial for the company to do it with this detail because, each color has
a unique demand in a given region and also because each color requires seven to eight raw
materials. According to the company sources 80% of the raw materials are imported and
therefore have the lead time of two to three months. The company therefore has to stay ahead of
time in terms of its supply chain as well, which then becomes a direct function of its sales
The business year for the company starts in June. The last quarter i.e. April to June is marked by
highest sales every year, since the weather conditions are favorable for construction businesses.
The first and second quarter go slow in terms of sales due to monsoon season followed by the
winters. According to the company sources, months of July and august are marked with a
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decrease in sales every year, due to the monsoon season. The same is true for the months of
December, January and February.
1. Sales forecast is made for every quarter. Taking into account the historical data and inputs
from the managers.
2. The forecast for the first month is usually firm, which means that lesser changes are made
to it later. However the forecast for the remaining three months is subjected to changes
keeping in mind the market conditions that prevail during that time.
3. These sales figures are then provided to the supply chain department, which then
manages raw materials and inventories accordingly.

Sales Process:
As mentioned in the introduction of the report, the company is into various businesses. However
the sales process for the decorative paints in elaborated in the figure 1 in the appendix.
Company has registered dealers in the central and southern regions where as it has distributors in
the northern regions. The reason for having distributors in the northern region the fact that
companys manufacturing facilities are located in the Lahore and Karachi (Karachi factory is no
more functional due to fire break out incident, a few years back) hence it s easier for the
company to respond to the demand in these areas, however the northern region which usually has
the highest demand for Berger paints cannot be reached out as quickly. The company therefore
has distributors in this region which stock the inventory for the company and contractors as well
as independent retailers contact the distributors for the product. The sales representatives in the
northern region proactively market the products and take demand from the retailers and the end
customers to the distributor. Who is solely responsible for maintaining stock levels for the stock?
In southern and central region where the company uses a dealer network, the demand to the
dealer is given by the small retailers, contractors and other customers. If the dealer has the stock
he sells the products, however in case he does not have the product, and the demand is placed
with the sales representative of that area, who then calls the factory to place the order. If the
factory has the product in the finished goods inventory it dispatches the order to the dealer

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immediately, in other case the order in manufactured with a lead time of one to two days and is
then dispatched to the dealer.

Territory Design:
The country is divided into three broad regions
The northern region ( Comprising of areas north to Jhelum)
The Central Region( Comprising of area below Jhelum till Rehim Yar khan)
The southern Region ( Comprising of area below Rahim Yar Khan till the coastal belt of
the country)
Within these regions, territories have demarcated on the volume of sales. The company has
storage godouns in some territories which have highest volume of sales. Also territories that have
more volume of sales are broken down into even smaller regions, to facilitate the sales force.
For example: Lahore is divided into a number of territories, and within these territories those
generating more volume of sales have been assigned more number of sales people.
In general the northern region is by far the most profitable region for the company mainly
because of the reconstruction going on after 2007 earthquake. Also it was told by the company
sources that in the year 2008 when the country was hit by recession, Bergers export sales to
Afghanistan drastically improved due to rehabilitation program being carried by the NATO
forces. However exports comprise only 6-7% of the total decorative product line sales of the

Sales Force Compensation:

The following is the compensation package of the field sales force:
A sales representative is provided with a base salary of Rs 15000 to Rs18000, plus the
commission that he receives on making sales above the assigned quota plus the fuel
After a year of experience the sales representative in promoted to sales assistant sales
officer, however his general responsibilities remain the same (that is why sales assistants
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have not been mentioned in the organo gram). At this stage the employee is provided with
a car loan and a small increase in the salary.

Sales Quotas:
The sales quotas are set on two factors:
1. Current business
2. Future Business
The quotas are set based on each sales representatives territory. If a sales territory has more
potential accounts (due to construction activity taking place) then considerable weight is
assigned to gauging these accounts in the quotas of the sales reps for these territories.
As a general rule of thumb a threshold is decided upon by the marketing and sales department,
which can bring maximum sales from a territory and at the same time gauge maximum potential

Dealer Incentives:
Company has been aggressively involved in dealer incentives since 2003. According to an Ex
Manager, dealers are usually taken to trips to foreign countries if they exceed the sales forecasts.
Apart from that company holds functions for its successful dealers periodically to acknowledge
their contributions.

Abolishment of Excise Duty and Tokens in the Paint:

When the government of Pakistan lifted excise duty of 10% from the paint manufacturers in
Pakistan, it brought a cost benefit to all of players in the industry. Where ICI the major
competitor of Berger, decided to transfer the benefit to the end consumer and lowered its prices,
Berger had a smarter strategy in mind. Out of the 10% cost benefit that was not available to
Berger, it decided to give 3% of the margin to the dealers, it used another 3% to lower its prices
and used the remaining 4% to insert tokens in the form of cash in its paint boxes.

2 Company officials were reluctant to share the exact method of quota setting.
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Token wale Paint: According to the company sources, this decision was taken to persuade
the paint workers. Since the end consumer usually takes the final opinion about the
paints quality from the painter, due to token money inserted in the paint box the painter
would recommend Berger. The strategy was actually extremely successful and Bergers
sales went up to a whopping 131% in the year 2003-2004.

Operations and Supply Chain:

The very fact that eighty percent of the raw material is exported with a lead time of 2-3 months,
not only tells that the sales forecast and supply chain in the company are tightly wound, but also
puts operations management at the heart of the company.
Due to an unprecedented increase in demand in the year 2003-2004 and the shutting down of the
Karachi operations, has put the Lahores facility under tremendous amount of pressure to meet
demand from all over the country.
Capacity of the Lahore Factory:
The factory is located at Multan Road Lahore.

It is currently has an installed capacity if 3 million liters per month.

Total capacity of the plant is around 50 lace liters per month
The factory produces 16-17 liters of paint on average every month.

Problems faced by operations department:

According to the company sources the operations department is under great amount of
pressure to over estimation of sales by the marketing department. Also the demand from
the distributor is received by the company on random basis, due to which the factory has
to respond the situation by spending overtime labor hours and excessive cost of
electricity. To respond to this the factory has started to maintain a large number of
finished goods inventory, which is causing the company to incur holding costs.
Due to fierce competition in the market quick response to demand is imperative for the
company to survive, however over estimations at the part of the forecasting department
and reluctance of the dealers as well distributors to hold inventory before hand is
pressurizing the operations at the factory.

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The respond to this the factory has not only started to keep excess finished goods
inventory but has also started to keep its own forecast measures, through which the
forecasts from the marketing departments are adjusted.
A report generated by the ERP of the company is attached in the appendix (Figure 2). The
sheet was created by the logistics department to present their performance efficiency
against the fluctuating demand orders from the dealer/distributors and industries.
Logistics manager told that the distributors and the dealers never communicated the
demand on time, which left them with smaller lead time to meet demand. Suddenly on
the 25th of every month a demand for 450000 Liters would arise, and that would have to
be fulfilled on a two days notice. According to the manager the management usually saw
the end sales figures but never took a look the abnormal demand patterns, which leaves
the operations department in problems.

The main problem that BERGER has been facing is the increasing expenses for its sales in recent
months. This is issue is hurting their overall efficiency. Paint industry in Pakistan one of the most
competitive industries at present. There is hundreds of paint manufacturers present ready to take
share away from these big players in the market. Almost every paint shop in Lahore has its own
brand. So in this competitive environment big players like ICI and BERGER can only compete
on a very few points like quality and operational efficiency. The logistics manager at BERGER
highlighted this issue of increasing costs due larger number of dispatches for the same order and
longer routes. This was due to inaccurate forecasts from the sales team. So the factory had to
bear the burden of sudden demand and large orders on the 11th hour. He gave us an example of a
big dealer in johar town that used to order large amount of supplies on a one day notice and
usually at the end of the month. So the factory workers had to put in overtime to complete those
orders, and sometimes they had to keep extra inventory in anticipation of these types of orders.
Another problem that was reveled in one of the dealer interviews was that the sales support staff
of BERGER wasnt performing their duties efficiently enough. One the dealers said that when
we send BERGER team to visit a customer who needs advice about paints, they usually do not
show up on time, so we send ICI people instead. It is crucial for the support staff to be very
efficient because they are the ones who interact with the customers directly. The salesperson goes
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to the dealer and the shopkeepers but the support staff people go directly to the customers and
convince them to use BERGER paints.
1. Costs


forecasts/dealer order issues

Understanding of the problem

inaccurate Now, the process of forecasting that BERGER
uses is the moving average method, they use
their historical sales trend to forecast the
upcoming sales demand. The real problem is
coming from the dealers end. Most of the
dealers are registered with more than one paint
brands like ICI, Nippon and BERGER. So their
bargaining power is greater than these paint
suppliers. So they do not hold any extra
inventory and also they do not ever forecast
their own demand to help their suppliers.
Whenever they receive a big order they call
these companies up and ask for supplies on a
one or two days notice. So now all these three
companies are in a competition to meet the
demand of the dealer, because the dealer
always has the option of going to the other
company for the same order. Also some of







companies, as one dealer in johar town sells

100,000 liters of paint every month. So
2. Support Staff not efficient

companies cannot afford to lose these dealers.

BERGERs sales team consists of two types of
1. Salespersons
2. Support staff
Both have different duties but they have the
same agenda to promote sales. Salespersons go
the dealers and get the orders while the sales

25 | P a g e

support staff goes to the potential clients and

convince them to buy BERGER paints and
they also give them advice about how much
paint will be needed of their house. These
support staff members are well educated and
are from good universities like NCA and other






communication between these people and the


Solution to Demand Fluctuation Problem

According to a report published by IBM Business consulting services companies have to be
focused, responsive, variable and resilient to become more adaptable. Similar is the challenge
faced by BERGER Paint. It is faced with an in issue of uncertain demand, where it has no choice
but respond to the ever changing demand patterns that are emerge with each passing quarter. The
companys supply chain and operations therefore has been under great pressure to meet the
uncertain demand that could not even be reflected by companys robust sales forecast method
based on years of historical data. The same report lists out seven strategic levers that company
can adopt to be responsive to such a change. Out of these seven most important one is given
Customer Relationship Management:
Making the sales is the final frontier for any organization. Keeping this in mind the dealers
become even more important for Berger Pakistan. Not only are these dealers serve as conduit for
the company to the customer market but also have a very high bargaining power. As mentioned
in the previous section, the dealers are reluctant to store inventory before the demand arises.
Hence it is clear that they want something closer to just in time inventory management systems.
The companys operations are under pressure because the infrastructure developed by the
company is suitable for very stable demand patterns. However since the dealer network has
become extremely powerful, some infrastructural changes will have to bring in the company, to
respond to this changing situation.
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Hub and Spoke System:

Under the hub and spoke system, the company should establish warehouses in the areas where
demand is fluctuating. Each warehouse will serve as a hub to all the dealers which will act as
spokes. This will decrease the commute and improve flexibility and responsiveness of the
company, towards the fluctuating demand. However this system should be implemented with a
detailed approach, keeping in mind the guidelines given below.

The company should implement a hub and spoke distribution system, through the

following steps.
As a first and for most steps the company should closely work with its dealers to analyze

what demand patterns are present in each dealers customers.

Then the key determinants of these fluctuations (type of customers that generate sudden

and large orders) should be identified.

Territories that have potential determinants of such fluctuations should be identified. Note
that it is not necessary that if a territory has had a certain determinant of fluctuation at
one point in time will have the same determinant at another time as well. The idea is to
identify the reasons for these fluctuations and then foresee those reasons in other

territories as well.
Also the company should look for broader level cities and towns that have generated

highest sales volumes in the past years.

The company should then adjust its sales forecasts after smoothing out such fluctuations.
Based on this information the company should establish warehouses in each important
area/city/town. Inventory should be stalked in these warehouses and the dealer network

should be supplied from these ware houses rather than the factory.
This will minimize the effect of fluctuation in the factory, since it will be producing based
on the forecasting reports and also it will lower the inventory holding costs since owning
warehouses will be less costly as compared to holding inventory at the factory ware

house and paying overtime to the workers in case a sudden demand arises.
Also the company should develop this system on step by step basis, considering it a
project in itself. Unless the forecasts are not adjusted, warehousing will only cause
additional cost.

Hub and Spoke Typology:

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house 1
house 2

house 2


The stars represent the dealer in each city and the circles represent the warehouses.

1. The first issue of the fluctuation demand and inaccurate forecast goes down to the
dealers. These dealers sell huge amount of paints in liters but they cannot store enough
stock at their stores, they never have separate warehouses for storage, they usually want
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the paint companies to store this inventory for them. For BERGER this storage is very
expensive, because if they start storing these paints at the factory warehouse there will be
blockage for the country-wide distribution. As they are also into several other industries
like automotive paints, road marking and industrial chemicals. So the solution for this is
that wherever BERGER has dealers who sell more than a 100,000 liters of paints, they
should open a Depot (warehouse) near that locality which caters to the two three big
dealers of the same area. At that depot they can store extra amount of inventory to deal
with the fluctuating orders at the end of the month. This warehouse will be cheaper than
holding the inventory at the factory and it will also save the transportation costs of
moving the inventory frequently to the retailers.
2. Another important remedy that BERGER needs to consider is that if their dealers are not
forecasting their sales than BERGER could do it for them. They should know the dealers
customers, their trend of buying and use this pattern to smooth their own forecasts and
demand estimation for their supplies to these dealers.
3. The major reason for the support staff not cooperating with the dealers or the salesperson
is that their education level and their background is different, so naturally the
communication is not smooth between the salespersons and the support staff. BERGER
should not send their trained support staff to where they are not needed. There only s
certain type clients from SEC A who require paint color theme guidance. What dealers do
is that the keep calling the support staff for every client, even where they are not needed.
So, BERGER should dedicate salespeople to other clients and only in certain areas of
SEC A they should be sending their support staff team

Appendix I
Selling Process at Berger Paints


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Place Orders

Checks if he has
the inventory

d Dealer

Calls the sales

rep to place
No with
the factory


Makes the

Sales rep
places order
with the

Factory checks the finished

goods inventory to fulfill the

(Figure I, Company Sources)



ERP Report Provided by the Supply Chain Manager (Figure 2)


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Sends the
to the dealer

Appendix II
Transcriptions of the Interviews

Interview from Khalid Mansoor (Former director of Sales and Marketing Berger Pakistan
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Berger Paints Pakistan Ltd was far behind from ICI in 2003 and 2004 as the incident of Karachi
factory happened.
In 2003 and 2004 Karachi factory was caught by fire and everything was destroyed (Nothing
Meanwhile the whole setup was done in Lahore and it took almost 2 to 3 years to get all the set
up back in its place, Berger had to compete with ICI and it is still competing. ICI is one of the
industry players in the country.
The biggest competitor of Berger Paints Pakistan Ltd is ICI . In 2003.
I was with ICI for many years and then I had to quit. I sarted my own business but it did not
work and then I joined Berger and applied all the strategies that were used earlier by ICI (what
ICI used to do was that it used to increase the price of its premium products 2-3 % every month
and hence Berger could not compete with ICI, why ICI adopt this strategy because it is a
premium brand and promises to provide high quality products as compared to the competitors)
I applied the same strategy at Berger and tried to bring the same level of success at Berger.
About the commissions and incentives:
More and more commissions are given to dealers and retailers, the process is as follows : Factory
to distributor to dealer and retailers. The reason for giving the incentives and commissions to
dealers and retailers is to motivate them in order to influence the customer to buy Berger paints
by saying such stuff yeh ajkal chal raha hai, ICI kit u complaints bohat area hain,
Dealers are sent for vacations and the vacation area is closely monitored by the upper
management as dealers are mostly from rural areas and they are uneducated .
The distributors are present in almost every city of Pakistan where Berger is operating. The
competition is very intense, the total number of competitors is 2000 including direct and
indirect, the most intense competition is faced by ICI, others are Master Paints, Gobi, Nippon,
Black Horse, Silver Sand etc.

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Since Berger is a multi-national company so it cannot evade from giving taxes, however all
others in unorganized sector do not give taxes. Berger has to give 10%-20% taxes on their
The organized sector is further divided into three categories that are Premium, Mid tier and Low
tier, High margin is present in the premium category and high volumes are present in the mid-tier
where Pakistans market is expanding.
Berger has two other brands catering to low social income class of the country, they are Buxly
and jasoline.
Factory Visit:
The Berger factory is located on Multan road where Bata and Orient factories are present. Berger
factory is present only in Lahore and all the finished goods are distributed from Lahore to
different areas of Pakistan such as Islamabad, Karachi, Faisalabad, Gujranwala, etc. the factory
layout is vertical which makes it efficient and effective. There are three floors.
1. Second Floor: on the second floor all the raw materials are mixed.
2. First Floor: on the first floor mixing and grinding is done.
3. Ground Floor: on the ground floor final mixing, packaging and distribution is done.
The capacity of the factory is underutilized that is 50% underutilized. Production is not an issue
for the factory.
Lab Visit, Interview from senior Lab officer (Mentor):
The material from all over the world are imported and the final testing and product development
testing is done (based on the demand.
Checking and testing is done on sample basis (small samples are called batches and the large
samples are called tanks)
The demands for the new colors are first tested and checked the feasibility, a sample is tested and
production is based on demand.

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The lab people have nothing to do with the filling and production that is done in the production
If a new color is needed, raw material is available, for that there is a sample request form that
generates sale: Question is given in that in terms of what is needed. Sample forms are filled by
sales people, sample goes to customer and based on that, sales people tell the lab to go ahead.
If approved and given Ok signal then the lab people make the samples based on SKUs. A code is
defined, intimation is sent to the sales person and finally to the lab people that tell them about the
SKUs and the formula is prepared accordingly.
A batch paper has all the raw material codes , what is the plant specification, quality assurance,
minimum and maximum quantity is defined.
Results are posted after the batch is checked and the posted results are then verified and cross
checked that whether this is according to the sample or not.
Testing is processed, the parameters are set such as gloss needed 55% and after testing it comes
out to be 50% then it is further improved and made exact according to the sample.
All the testing is done based on the certain defined parameters. Additives are added and checked
and if the product is still not according to the standards then it is rejected and used with some
other product
All advice is technical against the batch paper, if the product is approved, it is written approved
and OK in from of the codes and entry is made. Entry is made on system. The process
monitoring and collection sheet is released.
Gravity, weight, liter etc are defined. This paper has to be there in the production department for
filling (filling memo)
(The form was not given to us due to security reason)
If a new product has to come in the market then sometimes, a proactive approach is adopted on
the comparative study about the competitors, a comparative analysis is done (where the
competitor is and where we are)
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If a competitor is proactive then we need at least 1.5 to 2 months to bring the same product in the
market, Berger is very proactive, its product range is maximum at this time in the market,
development and production is parallel, what is in demand in the market, based on that the
production is done, if off-white in blue tone is produced and demand is for off-white in violet
tone then, blue tone off-white is stopped in the production plant and off-white in violet tone is
No market research company is used for market research, market and sales department is
responsible for market and sales trends, what the customer wants, what are the customers needs.
Technical and purchasing team, sales forecast, purchase team works on that. Tests cards are
present. Inventory is maintained based on sales and purchase team works on that. Test card is
defined for every product, batch or tank, test parameters are defined, pass or fail.
A sample that goes for batch filling is retained by the lab people to claim further, the sample is
retained for 18 months. If sample is not available, a sealed gallon is ordered from the market for
If any deficiency is encountered, precautionary measures are taken, and everything is done from
the start. Panic is not created, if the problem is adjusted then it is adjusted and the production
carries on, there is no need to get all the merchandise back from market, complaint is also based
on the application, whether all standards are followed while application or not.
If a products demand suddenly stops, what is the procedure for that? Production is stopped? In
some cases yes and in some cases no, production takes place in parallel, production capacity is
huge, suppose if orange is in demand and white is produced then the white color production is
stopped and orange is made, less focus on white and more focus on orange.
Flexibility is there in factory operations, such demand is generated from sales, and production
plant is in Lahore and sales regional offices are spread in the country, when token system was
introduced the demand grew exponentially.
Interview from operations and supply chain manager:

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From 2003 to 2004, demand was not met, there was a constraint due to the Karachi factory
Sales are 16 to 17 lacs litres per month and the capacity is 30 lac liters, space is available.
We cannot expand sales more than 16-17 lacs due to saturation in the market. In 2007 2008
macro factors were the big constraint and fire incident was a big setback. The company is in
profit for the last year only, before that share holders were not given anything due to less profit,
also factory staff was not given anything.
Team development is big challenge, in 2007 to 2008 there was a boom in Afghanistan, inflation
is high that is a macro factor and inevitable.
Raw material stock is 300 tons that is 30 lakh liters, inventory stock is kept for two months, lead
time is 90 days and safety stock is kept based on that, if today is march, we are now planning for
raw materials for May, forecasting is done after every four months based on procurement.
Sales forecasting is a problem for us, more forecasting is generated, leading to under
consumption, 70-75% consumption
Forecasting is more and consumption is less, 30 to 35% stays in inventory. Inventory holding
cost is increased. From 25th of a month, 5 lakh liters are in order and on 28 th, the orders are
reached to 10 lakhs.
No matter how much efficiency is made in operations, some merchandise is left leading to
inefficiencies, increased cost and increased chances of errors.
A plant runs smoothly till 25th of a month and after 25th there is a sudden increase in demand and
plant is over utilized, due to which per day capacity is increased and resource deployment,
pressure on the labor and electricity cost is increased.
If order is not completed, order back up costs, if order is fulfilled, over time is required,
abnormal activity, speed is generated and chances of errors are increased.
The problem is on the sales team side. Although proper meetings are done, sales people vs.
operations people.
36 | P a g e

There are challenges on sales force part as well.

3000 dealers are working all over Pakistan and every dealer has a different psyche.
Interview from supply chain assistant:
I am in Berger since 2010
I am a graduate from UMT and joined as management trainee
The MTO program is for one year.
There is problem on production side (white color is produced more and colored paints are
produced less due to the less demand of colored paints)
70% sale is dependent on white paint, off white and ash white, due to socio economic culture, a
normal person cannot use a gallon worth Rs. 3000 and in rural areas white is preferred more, in
fact in rural areas white paint is called safaidi.
A regular meeting is done with the sales force and the marketing people, who give the insights of
market sentiments.

Dealer Interviews
Interview 1 ( Noor Paint House)
This dealer shop is located on main college road johar town. This is the
second largest dealer shop in the southern Lahore. This dealer was
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registered with ICI, BERGER and Nippon paints. Mr. Tahir was the owner of
the shop. In an answer to a question he told us that the sales of all three
brands are almost equal. The customers who have been using ICI they are
loyal to the brand and they never change it, and the same goes for the other
two brands. When asked about quality he answered that there is a negligible
difference in the quality of the three brands and a normal customer couldnt
even tell the difference. He was almost sure about the fact that all three
brands have same sales. Then on further probing he said that BERGER and
ICI sell slightly better than Nippon, and the reason for that could be that they
are older companies in the market and they already have acquired the larger
chunk of the market. Mr. Tahir never faced any issue with the supply of these
paints from any of these three companies. He said that he gets the delivery
of the paints on the second day of his order. He makes a call for delivery of
paints to BERGER as per the frequency of sales i.e. if on a particular day
more paints were sold than he would call BERGER salesman and him for
delivering the merchandize on the shop, and he normally gets it the second
day. He also mentioned that by the end of the month usually he doesnt get
the supply as quickly as he normally does during the month, because these
are the closing days for the paint companies. In a particular order for
supplies he orders 20 to 30 Dummies of paint. One Drummy equals 15
liters. For the running colors like white& ash white the order size larger than
these numbers. He said that they generally keep a margin for a day or two
for making a call for supplies.

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Interview 2 (Prime Paints)

This dealer shop is owned by Mr. Rizwan Tariq. This shop is also located in
johar town. Mr. Rizwan tariq (dealer) wasnt available, so Mr. Nazim (sales
staff member) volunteered for the information. Prime Paints are registered
dealers for BERGER and ICI.. It is the biggest dealer shop in the southern part
of Lahore according to BERGERs logistics manager. According to Mr. Nazim
ICI has greater market share than BERGER at the moment. The reason that
he gave was that ICIs marketing is better than BERGER so people prefer ICI
more than BERGER, but there is certainly no difference in the quality of both
the paints. For home dcor ICI has launched PAINTEX STAR in the market. To
compete with PAINTEX STAR BERGER has a brand called SPD in the market
for Emulsions (distemper). He said that only because the marketing effort of
ICI is stronger so their customers know PAINTEX STAR better than SPD of
BERGER. He was reluctant to mention the sales figures of both these brands
but he said that on average they sell around 50 to 60 gallons of paint every
day. They also had a warehouse on the first floor of the shop, where they had
kept an inventory for 3 to 4 days. He said he tries to recommend BERGER to
his clients more than ICI

because BERGER offers more discounts to the

dealer and the retailers and they use these discounts to give discounts to the
customers. They also had their own brand called Value Paints. They
customers who wanted a cheaper brand for paints they sold their own brand
Value paints to them. Then in an answer he mentioned that only two things
are stopping BERGER from taking the market share away from ICI:
1. Their marketing and advertising efforts do not match ICIs level
2. Their support staff isnt as efficient as ICIs
On the supply side he never had any issue with either of the two companies.
He said that both companies deliver supplies within a day or two.
39 | P a g e

Appendix III
Bergers Supply chain Systems Analogy

The diagram on the next page has been provided by the company. It shows a supply chain model
of creative electronics. However it was told that the supply chain model of Berger is also built on
the similar format. The ware houses shown in the document can be replaced by the regions which
cater to the retailer in the towns mentioned in the next tier. Which are the liaison between the end
consumer and the company? The company follows the exact model .The first tier in the
manufacturing represent the final product, which can be replicated by Bergers vast product line.
The 2nd tier represents the raw materials and the third tier represents the raw materials used to
manufacture these raw materials

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Appendix IV
Financial Statements

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Appendix V
Financial Highlights
During the last 6 years (ending in 2013) BEGERs balance sheet has been quite stable. Since the
balance sheet shows the companys current financial position and standing, so it has been stable
in that regard. Their fixed assets have been fluctuating a little bit but they have not gone beyond
the 600 million mark. They had total fixed assets of Rs.614 million in 2008 and in 2013 they
now have assets of Rs.603 million. The only major change occurred in 2009 when company
bought the land and equipment for the new factory in Lahore (Multan Road), their fixed figure
went up to Rs. 1.05 billion. This figure came to a mark of Rs. 600 million when the Karachi
factory fire incident occurred and it was completely destroyed and they had write that of their

Extract 1 from Balance Sheet









Another noticeable trend in the balance sheet of BERGER was that the long term investments for
the company have been declining. In 2008 future investments were Rs. 13.8 million and in 2013
this figure came down to Rs. 4 million. On the other hand their loans have increased by a
considerable amount was 22 million in 2008 and now in 2013 this figure is 37 million in rupees.

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Extract 2 from balance sheet

Investments 13,849,000
Long term 22,072,000







Overall companys financial standing has not improved greatly but it has been relatively stable,
given the margin of the intense competition in the paint industry and fierce competition from a
big company like ICI.
Highlights of Turnover & Profits
Extract 3 (income statement)

Rs. (000)


Rs. (000)

Rs. (000)

Rs. (000)

Rs. (000)

Gp Margin







This probably justifies the overall performance of BERGER during the last 6 years that though
have taken loans their fixed assets have decreased but the company has not lost sales. Sales have
been stable and the operational performance has been improving. Looking at their Gross profit
and the Gp ratio that has been increasing with the time during the last 6 years indicate that the
company has been performing well and its operations have been improving.

EPS Ratio
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2008 = (43.62)
2009 = 2.21
2010 = (8.91)
2011 = (3.81)
2012 = (0.57)
2013 = 3.30
Here again their Earnings per share ratio has been negative for most the years, there are several
factors involved which determine this price. The Karachi factory fire incident played a major part
in this share price fluctuation of BERGER. It can be seen that after 2010 prices and the ratio
again begin to go up until it reaches a positive figure in 2013.

Extract 4 (income statement)

Distribution Cost
Admin Cost

Rs. (000)

Rs. ((000)

In extract 4 it can be seen that the companys distribution and admin costs are increasing. The
logistics manager at BERGER also mentioned that their distribution costs have been increasing
during the past 6 months. He mentioned that the main reason for this increase in costs is the extra
number of visits and dispatched to the dealers and shops. The logistics manager linked this
problem to the inaccurate sales forecasting. The logistics department believed that they could
never control their expenses until they know the real forecast, so they could plan their routes and
distribution schedules accordingly. The operations manager at BERGER discussed the issue of
the increasing admin costs at BERGER. He said that when we do not have the accurate forecasts
so we have to work extra hours to manage activities at the factory and we had to hire extra staff

44 | P a g e

to manage the backend. These steps were taken to make sure of any contingencies in the case of
sudden demand and huge orders.

Khalid manor (Former director sales and marketing of Berger Paints Pakistan ltd)

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