UNILEVER UN-CHAINED CASE STUDY

This case study is aimed at understanding the decision making involved during the innovation of new
products in a FMCG sector. The key to success for any new innovation is the speed of implementation of an
idea to a product on the shelf which meets the expectations of the target consumers. While a lot of
consumer studies are on various options, the key to success lies in ensuring that the innovation is
profitable to the company both in top line ( bringing in more revenues to the business) and also in the
bottom line ( ensuring a good margin on the product that we sell).
Attendees
1.
2.
3.
4.
5.

Brand Manager
Packaging Manager
Formulation and Processing Manager
Innovation and Technology Manager
Procurement Manager

Brand Manager of White magic As you are aware after the successful launch of Surf Excel Liquids in our
detergents portfolio, we are now planning to launch the liquids in the White magic brand. Today we have
come together to look at our costs of landing the innovation and what are the ways we can find in the area
of material savings, conversion savings and distribution savings to reduce the overall cost of the product
we want to land in the market.
As you are all aware, Surf Excel is at the top of the Pyramid brand followed by White Magic in the portfolio
of brands we have in detergents. The proposition for Surf Excel has been stain removal while that of white
magic has been brightness/whiteness. It is important to always keep the price point of white magic below
Surf Excel across all formats (be it powders/ liquids).Hence we are very constrained on the price at which
we can sell our new innovation under White magic brand of liquids (though the premium over powders has
already been taken into account). Mentioned below is the price point at which we want to sell White
magic:
Format
Liquid
Powder

Surf Excel Liquids

INR 120
INR 100

White magic
INR 95
INR 85

Given a fixed price at which we can sell the product and basis the volume projects we have currently,
turnover of the innovation is fixed. Our companys average gross margin is currently 40%. Thus it is
important that out new innovation gives us a Gross margin of 40% or more. With the current cost structure
however we still have to cover a gap of 5% to meet the threshold margin of 40%. (Appendix 1 covers the
definition of Gross Margin and current cost structure and GM calculations.)

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We plan to launch one volume fill of 500 gm currently. We have the same grammage we offer in Surf Excel
liquids also.

The current cost structure looks like as follows is provided below in Appendix 1
Problem in hand is:
1. Look at the opportunities in the formulation costs/ Packaging costs to reduce the material cost
2. Look at the opportunities in the conversion and distribution cost reduction

Ideas to start with!

1. Can we look at the preposition of our product that we are offering vs. the opportunities we have in
hand to re-look the formulation? Appendix 2 has the details of the formulation and cost of the
formulation, however you can look at other opportunities to reduce it by using appendix 5 as a
guideline.
2. The proposed packaging for this pack is similar to the Surf Excel liquids i.e. Bottles. However some
work has happened in the area of reduction of weight of the bottle. We have currently only
considered the cost of change of parts due to change in bottle shape. However in few of our other
categories and other industries people are now looking at flexible options, which give the
performance of a bottle/ rigid (easy to handle and easy to store in the conditions at consumers
home). While we can also use traditional pouches, we mostly have given them as refill pouches.
Thus we will need to conduct consumer studies to see if the pouch would be used as a regular pack
by the consumer. Appendix 3 covers the packaging options available as well as the cost of
packaging options vs. the investment in packaging machines for those options.
3. Can we look at optimizing the distribution costs by seeing how best we can manufacture in the sites
where we have capability to do so? Current portfolio of Surf excel liquids is sourced from the West
and we have assumed again that the entire volumes for white magic as well would be served from
the west. But can we explore more and see the opportunities we have?
Assuming the manufacturing costs and overheads as similar at INR 10,000 / Ton of production, can
we look at the sourcing strategy to minimize on the distribution costs?

Regional split of the volumes

Region

% Split

North
West
South

10%
20%
70%

Volumes per
year
100
200
700

Capacities vs. Utilization charts for the 3 sourcing units of liquids manufacturing is currently as given
below. However only one of the Sourcing units has an enzyme handling facility while any of the
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factories can handles other war materials present in the formulation. The current costs have been
built basis the West as the manufacturing site as it already has a enzyme handling system.

Appendix 4 shows the distribution cost/ per for various routes and also the sourcing units/ factories
capacities.
Appendix 5 acts as a guideline to help solve this problem in hand. It talks about looking at classifying
each opportunity under the impact of performance vs. benefit to consumer vs. the cost. The less
performance and more cost items should be first tackled and removed from the value chain.

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APPENDIX

Appendix 1
Gross Margin (GM) =
Turnover (Unit Price * Volume) - Raw Material Cost (Raw material cost/ ton of final good *
Volume of final good) - Packaging Material Cost (Packaging material cost / ton of final
good * Volume of final good) Production and Overhead Cost (Manufacturing cost / ton
of final goods * Volume of final good) - Distribution (Distribution cost/ ton of final good *
Volume of final good) Depreciation Impact ( 10 % of the total investment made)

Current cost structure

Components
Turnover per ton
RM cost per ton
PM cost per ton
Manufacturing cost and overheads
Distribution cost
Depreciation impact ( 10% of investment)
Total cost
Gross Margin per ton
GM%

In INR/ ton
98,000.0
35,870.0
12,000.0
10,000.0
5,100.0
500.0
63,470.0
34,530.0
35%

Appendix 2

Material

Function

Surfactant
1
Surfactant
2

Acts as an active detergent for 140

washing, gives foam
Acts as an active detergent for 120
washing, less foam, takes out
grease
Acts as an active detergent
80

Surfactant
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Cost
/ kg

100 kgs
Surf
Excel
Liquids
Existing
Formulation

100 kgs
White Magic
powders
Existing
Formulation

100 kgs
White Magic
Liquids
Proposed
Formulation

2.5

16

2.027

10.0

8.108

12.5

10.135

3
Glycol

Viscosity
Reduction
enzyme stabilization
Fluorescence
For stain removal
for whiteness

and 36

Tinopal
Enzyme
Shading
Dye
Color/ Dye For color of liquid detergent
Perfume
Smell
BIT
Preservative
Water
Filler
Solids
Filler
Total
Sum total of total formulation/ ton

900 2
600 0.5
3000 0

2400 1
500 1.5
1
5
66.00
10
100.0
41190

0.75
1.25

0.075

80.9
100.0
33003

2
0.5
0.075
0.75
1.2
1
71.2
100.0
35870

Appendix 3

Format

Drawing of Pack

Bottles Same shape

as Surf Excel liquids

Bottles Different
shape proposed for
White magic
LEAD
CURRENTLY
CONSIDERED
Pouches

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Cost of packaging
material ( per ton
of product)
INR 17,000

Investment in Investment
packing
Amount
technology
No investment
-

INR 12,000

Investment
in INR 50,00,000
change parts

INR 9,000

Investment in a INR
new
pouch 3,00,00,000
filling machine

OPTION

Pouches with spout at

side

INR 10,000

Investment
in INR
pouch machine 4,00,00,000
with spout

Brick Pouch by Volpack

New technology
which
gives
the
benefits of a bottle

INR 9500

Investment
in INR
new machine for 7,00,00,000
Sure pouch from
Bosch

The depreciation would be on the above investment that we make for the packaging technology and would
have an impact of around 10% each year. Thus 10% should be taken into account when the GM is
calculated.

Appendix 4
Distribution Costs
Source
Unit)
North
North
South
West
West
West

Sourcing unit

Manufacturing Destination
South
North
South
South
North
West

West

Manufacturing
capacity available
8000

North

5000

South

10000

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Distribution cost
9000
2000
2500
6000
5000
2000

Packing
available
Bottling
available
Bottling
available

Bottling
available

capacity Remarks
line
line Need investment of
INR 50,00,000 for
enzyme
handling
unit
line Need investment of
INR 50,00,000 for

enzyme
unit

handling

Please note that in case we choose a new packaging technology apart from bottles then investment needs
to be made at each site.

Appendix 5

ost
High Cost

High Cost

Low performance
Low performance

High performance

Low Cost

Low Cost

Low performance

High performance

Cost

Performance

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