SANRACHANA-2021, Case Study

SANRACHANA-2021
Case Study
About the Company:

Azure Pvt. Ltd. is a cosmetics manufacturing company that has multiple manufacturing
locations in Pune city. It operates in 2 shifts, each for 12 hours. The company manufactures
various products by processing raw materials and delivers the Stock Keeping Units (SKUs) to
Warehouse. The company expanded its product range, and from 2017 they have started to
produce four products, namely Shampoo, Conditioner, Lotion, and Cream. The company
employs 40 salaried workers and 150 daily wage workers working in 2 shifts.

Problem Statement 1:

Find out the direct production cost/kg of each product for the financial year 21-22.

Since FY 2017-18, Azure has been following the same pricing strategy for all four products
(Shampoo, Conditioner, Lotion, and Cream) such that ratios of direct production cost to
revenue remain 1:2

Azure has hired a new production manager to handle the production department more
efficiently. He refers to the production reports of the last four financial years. He also analyzed
the total production report and observed a pattern that was followed from FY 2017-18 to 2020-
21. There was a 20% YoY rise in the total production quantity (all four combined).

On further analysis, he found that in FY 2017-18 company sold a total of 10000 tons of products
(combining all 4) in which the conditioner was sold in thrice the quantity compared to the
cream, Shampoo was sold four times more than the cream, and the Lotion and Conditioner
were sold in the ratio 2:3.

But for the FY 2018-19, the scenario changed, and the demand for Cream and Lotion raised.
So, now the cream and Lotion were sold (quantity) in the ratio 1:2, sales (quantity) of
conditioner was 20% of the total sales (quantity). At the same time, the ratio of sales (quantity)
of Lotion and Shampoo was 6:7.

For FY 2019-20, sales (quantity) of all four products were the same. In the next financial year
(FY 2020-21), the company faced some quality issues with respect to its cream product, due to
which, customers began to buy cream from other companies, which resulted in the cream
contributing only 19% to the total sales volume(quantity) while the other three products were
not facing any quality issues, so they were sold in equal quantities.

The production manager also found out that there was a rise in the direct production cost of
10% YOY for all the four products from FY 2017-18 to 2020-21. He further concludes that the
trend will remain the same for FY 2021-22.

(Refer to Annexure-1)

FORSE Committee, K J Somaiya Institute of Management

SANRACHANA-2021, Case Study

Problem Statement 2:

The production trainee is given an assignment in which he needs to optimize the

production level of each machine with respect to a particular product in such a way that
the company generates maximum gross profit for FY 2021-22 from the available
resources.

The company manufactures four products, namely Shampoo, Conditioner, Lotion, and Cream.
The company has five departments, namely procurement, manufacturing, production floor,
inventory, and quality control. Let’s walk through the process of production and see what issues
are being faced.

In the manufacturing unit, the products are processed in the mixing vessels M1, M2, M3, M4,
M5 and then transferred to secondary storage tanks. The process flow is given below:

● The production manager plans the quantity to be produced per week/monthly as per the
market demand.
● Required quantity of Raw materials is shared with the Procurement Department. Based
on the availability of the inventory, the material is transferred to the manufacturing
department.
● Once the raw material has arrived, the manufacturing process starts.
● The finished product is then transferred to secondary storage tanks (Time taken is
mentioned in the table)
● The finished product goes through quality control.

There are 5 Mixers (vessels that make the product), each vessel with a different capacity
(volume of product). M1 can manufacture only Shampoo, and all the other mixers can
manufacture all four products. M1 is a comparatively older machine, and due to its continuous
usage over the years, it stopped working on 31st March 2021. The maintenance/repair staff
inspected the M1 machine and determined that it could not be repaired. Due to the pandemic,
the company was facing certain financial issues, so they couldn't afford to purchase any new
machines for the FY 2021-22.

(Refer to annexures 2 and 3)

Problem Statement 3:
Based on your preference, shortlist 3 to 5 most important parameters and select the top
2 suppliers. Justify your choice with explicit assumptions.
Company X has been facing some issues due to the number of suppliers for the raw materials.
To simplify, they have decided to build long-term relations with only 2 out of the eight
suppliers. They have chosen a factor rating method to select the suppliers.

In this method, they gave weightage to each parameter according to requirements suitable to
their business model. Then they gave ratings to each supplier on all parameters. These ratings
are given out of 10. The greater the value, the better is the supplier performance for that
parameter. Select the supplier with the highest score. (You can use the factor rating method or
whichever best possible method to solve this)

FORSE Committee, K J Somaiya Institute of Management

SANRACHANA-2021, Case Study

Since the economy is facing a slowdown post-Covid, manufacturing industries have also been
affected, and raw materials and other factors (land, labour) have increased. Due to inflation,
the capital requirement has increased, leading to manufacturing units selecting suppliers with
flexible payment terms and conditions.

The distributors in the Pune or nearby regions prefer purchasing skincare and haircare products
based on quality, as customers prefer buying products that adhere to the ISO 900 and 1400
standards. After the introduction of GST, companies are required to comply with the filing of
monthly and quarterly GST returns and make the payments of taxes to the government on time.
Any irregularity in filing returns and payment of taxes attracts penalties and may even lead to
the cancellation of GST registrations.

(Refer to Annexure-4)

Problem Statement 4:
Which mixer should Azure purchase for a new product, and when should they sell it?
Azure has identified a new product demand which is shampoo-cum-conditioner, and they are
planning to start the production from FY 2022-23. They will require a new mixer for this type
of product because none of the existing mixers can manufacture it. So, they have decided to
buy a new mixer. They have shortlisted five mixers for this purpose. The quality, quantity, and
production process for each of the five shortlisted mixers are the same. The discount rate of
money is 6% per year. The market for this type of mixer is such that the salvage value comes
down to 25% of the original cost of the mixer irrespective of no. of years it has been used for.
The maintenance cost for each mixer will increase by 1% of the mixer cost every year from the
second year onwards. To get delivery of mixer at the specified time, Azure had to agree to the
condition of payment for the mixer in a single installment.
(Refer to Annexure – 5)

Problem Statement 5:
Azure Pvt Ltd is looking to expand into new territories. They have identified and
shortlisted the following three markets - Ahmedabad, Kolkata, Mumbai- but cannot
decide on which one they should enter first. The cities, as mentioned earlier, have
different demographics and attributes. As the CMO of Azure Pvt Ltd, you have to analyze
the three cities using guesstimate strategies, proper marketing frameworks and develop
promotional campaigns for the same. Also, recommend product differentiation strategies
for the products manufactured by Azure Pvt Ltd.

FORSE Committee, K J Somaiya Institute of Management

SANRACHANA-2021, Case Study

ANNEXURES
Annexure -1

Azure Pvt. Ltd. Profit and Loss statements FY 2017-18 to FY 2020-21 (in million Rs.)
Year ended March 31st 2017-18 2018-19 2019-20 2020-21
Revenues 4400 5940 8015.04 10469.454336
Direct production cost 2200 2970 4007.52 5234.727168
Research & Development expenses
(5%) 220 297 401 523
Sales & marketing expenses (10%) 440 594 802 1047
General & Administrative expenses
(10%) 440 594 802 1047

Note: Percentages written in the brackets remain the same and are always of the revenues
of a particular year.

Annexure-2
Mixers Capacity Shampoo Conditioner Lotion (time Cream (time
of mixers (time taken in (time taken in taken in taken in
(in tons) hours to hours to hours to hours to
manufacture) manufacture) manufacture) manufacture)
M1* 5 3 X X X
M2 2.5 3 3.5 2 2.75
M3 1.5 2.5 3.5 2 3
M4 1.75 2 3 2.75 2.5
M5 2 2.5 3 2 3.5

Note: ‘*’ = Malfunction

Annexure-3
MIXERS No. of turns Length of transfer Batch transfer time
line (in meters) to a storage tank (in
mins)
M1* 16 16.8 60
M2 14 12.9 60
M3 19 30 30
M4 16 22.5 15
M5 18 23 30

Note: ‘*’ = Malfunction

FORSE Committee, K J Somaiya Institute of Management

SANRACHANA-2021, Case Study

Annexure-4

Parameters S1 S2 S3 S4 S5 S6 S7 S8

Cost 8 5 7 7 6 8 6 7
Quality of raw materials 4 4 4 8 8 4 7 6

On time Delivery 5 6 8 5 5 5 8 9
Responsiveness 6 7 5 9 7 6 6 5
Statutory & Ethical
6 4 6 2 9 7 4 4
Compliance
Technology 7 9 7 4 4 9 5 8
Expertise in product type 4 5 9 7 8 4 8 6
Credit cycle 6 7 3 5 8 8 6 5

Annexure - 5
Mixers Cost of Mixer Maintenance cost for 1st
year
A 50,00,000 1,75,000
B 45,00,000 2,00,000
C 48,00,000 90,000
D 52,00,000 80,000
E 55,00,000 70,000

FORSE Committee, K J Somaiya Institute of Management

SANRACHANA-2021, Case Study

Instructions
• The solution has to be submitted in the form of a Powerpoint Presentation and Excel. Solutions
to the problems have to be solved in Excel and the overall solution/summary in PPT
• Team Leader should submit their presentations via D2C. In case of any technical error/ glitch,
please mail it to forse.simsr@somaiya.edu within the deadline. Submission Deadline: 22nd
November, 11:59 PM
• The number of slides should be a minimum of 5 slides and a maximum of 8 slides (excluding
introduction and thank you slide)
• The naming convention is "TEAM NAME_COLLEGE NAME_SANRACHANA 2021"
• Participants are not permitted to add their College Name/College Logo within their
presentations; failing to abide by this rule will result in immediate disqualification of the team
• In case of any dispute, FORSE Committee reserves the right to take the final decision with
respect to any or all participants, at any time, in the best interest of all the stakeholders
• Disclaimer: All of these companies are fictional in nature. Any resemblance to any actual
companies is purely coincidental
• Feel free to refer to outside resources to add to the case analysis. However, the reference should
be added as a footnote in the same slide of the PPT

All the very best!

FORSE Committee, K J Somaiya Institute of Management