Strategic Procurement and SCM

Project Report

ENGRO POLYMERS AND CHEMICALS

Submitted to Dr. Arsalan Zahid

Submitted by:

Mishaal Asim

Atika Rizwan

Perwaiz Ahmed

Rehan Ali

Saqif Qasmi

Hassan Jawed

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Table of Contents
Mission of EPCL....................................................................................................................................3
Vision of EPCL......................................................................................................................................4
Product Line / Products............................................................................................................................4
Urban and Rural Applications of PVC:...............................................................................................5
SWOT Analysis..........................................................................................................................................6
Strengths................................................................................................................................................6
Weaknesses............................................................................................................................................7
Opportunities.........................................................................................................................................7
Threats...................................................................................................................................................8
Supply Chain Map.....................................................................................................................................8
Supply Chain Process................................................................................................................................8
What is PVC?.........................................................................................................................................9
Suppliers of Raw Materials.................................................................................................................10
Supplier Selection................................................................................................................................10
Vendor Development...........................................................................................................................10
Raw Material Warehousing................................................................................................................11
Demand and Supply Planning............................................................................................................11
Production Facilities............................................................................................................................11
Manufacturing.....................................................................................................................................12
Product Warehousing..........................................................................................................................12
Servicing and Logistics........................................................................................................................12
Customers............................................................................................................................................13
THINK PVC:.....................................................................................................................................13
Value Chain.............................................................................................................................................13
Recommendations for improvements.....................................................................................................14
Conclusion................................................................................................................................................14

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Company Profile

Engro Corp was founded in the year 1965 which started initially as a fertilizer business. Since
then, the company has become a distinguished conglomerate with an incredibly diverse range of
businesses and over 2.6 thousand employees in its workforce.

It is one of the largest group of companies in Pakistan, with its headquarters in the metropolitan
city of Karachi. Engro Corp mainly targets four verticals namely Food & Agriculture, Energy &
Related Infrastructure, Petrochemicals, and Telecommunication Infrastructure.

To name a few of its significant subsidiaries where the conglomerate excels and flourishes are
Engro Polymer & Chemicals, Engro Enfrashare, Engro Powergen Thar, Engro Elengy Terminal,
Engro Vopak Terminal,  Engro Fertilizers, Engro Eximp Agriproducts, Engro Eximp FZE, Engro
Energy, and Engro Powergen Qadirpur.

For conducting this project, we have selected the Petrochemical vertical of Engro Corp with the
subsidiary of Engro Polymer & Chemicals Limited (EPCL). It is a domestic manufacturer of
polymer which manufactures and markets PVC and Chlor-vinyl allied products. It was
established in 1997, under the Company Act of 2017. EPCL is the sole domestic manufacturer of
PVC Resin.

Mission of EPCL

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Our mission is to achieve innovative growth which creates value for our stakeholders, customers,
and employees. Our commitment is to maintain the highest standards of ethics, safety, and
environmental responsibility.

Vision of EPCL

Lead Pakistan in Polymers & Allied Chemicals with International Footprint.

Engro Polymer and Chemicals Limited too has its subsidiaries which are Engro Peroxide Private
Limited, Engro Polymer Trading (Private) Limited. Apart from being the only PVC resin
manufacturer of Pakistan, it also produces Caustic Soda, Sodium Hypochlorite, EDC and VCM.

This division of Engro Corp, actively works on the purposes of ensuring sustainability of the
environment, by establishing a business where the end customer is familiarized with the concept
of PVC products. Additionally, giving their audience a viable option of quality premium goods
and services that offer a more durable, luxurious feel, modern and updated designs alternatives to
plastic and wooden goods. New markets are continuously being tapped by its Business
Development team for its product applications and creating awareness and usage of these
products.

Thereby, also bringing a movement to decrease deforestation and increased economic welfare. It
promotes the concepts of green supply chain in certain aspects where their PVC products are an
alternative to plastic materials which reduces plastic wastage which is extremely beneficial as it
does not have decomposition properties diminishing the environment. Furthermore, it also
provides an alternative to wooden furniture which reduces the cutting down of trees, preserving
nature and helping the environment.

Product Line / Products

Main product: PVC RESIN OR VINYL

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Engro polymer is basically the sole manufacturer of PVC (Poly vinyl chloride) that falls under
the category of thermoplastic resin. It is the primary product of Engro polymer which is
produced in the variety of different grades: SABZ (AU 58, AU 60, AU 72, AU 67S, and AU
67R). Each grade has its own varied characteristics and properties that gives a different finishing
look and texture to each product. PVC resin is used in the production of different PVC, WPC
based products, covering almost 55% share of the market, such as doors, pipes and fittings,
flooring, cable compound, foam board, film, and sheet, etc. PVC is a highly versatile and durable
material that is more affordable than many alternatives.

PVC was popular for only construction purpose due to its resistance to light, corrosion, and
chemicals but today PVC is widely used in healthcare, medical devices, IT, transportation,
architecture, and textile as well.

Urban and Rural Applications of PVC:

 Furniture
 Doors and windows
 Water supply
 Drainage
 Garden hose
 Cable compounds
 Landscape irrigation
 Tube wells
 Piped irrigation
 Micro irrigation system
 PVC Geo-membrane for Canal
 Wardrobe and vanities

Chlor Alkali: The products that fall under the chemical line of EPCL are:

1-CAUSTIC SODA:

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 Another product of Engro polymer and chemicals is caustic soda. It captured the domestic
market instantly as soon as it was launched. Caustic soda is used in textile industry in wet
processing, in soap industry for saponification and in water treatment at industrial complexes and
power generation units along with other small segments. Engro polymer & Chemicals ltd supply
caustic soda in the form of,

Flakes (99% concentration)

Liquid (50% concentration)

2- SODIUM HYPOCHLORITE:

Sodium hypochlorite is a chlorine derivative which is used as a bleaching agent. It is the

byproduct in manufacturing caustic soda.

3- HYDROCHLORIC ACID:

It is another product in the Chlor alkali chain. It is used extensively in processes like steel
pickling, effluent, and water treatment, surfactant manufacturing and oil well acidizing. EPCL
has its footprint in South region primarily where the bulk of production is consumed.

SWOT Analysis

Strengths

 Strong branding of Engro group

 Sole manufacturer of PVC
 No local competitor
 Ninety percent market share
 Six Sigma

EPCL fall under the umbrella of the parent company Engro corporation which is why they
are backed with a strong branding of Engro group. EPCL are the sole manufacturers of PVC

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 and have no other local competitor in the market, as a result capturing 90% of the market
share and working as monopolist.
They also claim to follow six sigma, hence most of their products are sold out and are free of
defects. EPCL has numerous customers. They do not sell out their main product that is PVC
to retail market but only to the manufacturing facilities. The idea of not selling PVC to
retailers is to avoid the threat of another emerged market.
PVC made products are more durable and are a better substitute to wood and plastic. So
EPCL also aims at eco-friendly products. The market is not easy to enter because it requires a
big investment and advanced storage capacities are required that only Engro possess.

Weaknesses

 Expensive maintenance
 Less awareness
 Outsourcing

EPCL faces minor challenges regarding awareness of PVC to the public. Majority of the
people in Pakistan are not aware of what PVC is and how it can be used if diverse ways. So,
it would require a significant effort to spread awareness and do marketing of this venture.
EPCL outsources its labor as well as warehousing facilities that are outside Karachi. Other
than this the plants and machines operated in the production process require really expensive
maintenance.

Opportunities

 Increase in production capacity

 Import restriction on PVC commodity
 Think PVC outlet
 Low price of crude oil

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 EPCL has an opportunity to eliminate the massive use of plastic and wood in the society. In
order to create awareness about it they have launched an outlet in Karachi named Think
PVC. Its sole purpose is to spread awareness regarding the use of PVC.
Being the only local producer of PVC, EPCL can create more opportunities for this sector to
grow by increasing the production capacity. If the government decides to ban the imports, it
is again an opportunity since there would be no international brand to compete. Other than
this if the price of crude oil decreases it is beneficial for the company since crude oil is a RM
for PVC.

Threats

 Macroeconomic factors
 Any new emerging competitor

The macroeconomic threats to EPCL are as follows:

i. If the import price decreases on PVC monomers, EPCL would still be producing on
the same rate and in result manufacturers would prefer not buying locally
ii. Decreasing rate of dollar is also a threat
iii. High Inflation rate is another macroeconomic threat since it would lead to high
overheads and ultimately less profit.
iv. A new emerging competitor in the market is also a threat to monopoly of EPCL.

Supply Chain Map

Demand Supply
START Sourcing Manufacturing
Planning Planning
Quantitative: MRP = 1 year time horizon Refer to sourcing value Flow manufacturing
exponential smoothing MPS = weekly time buckets chain map below

END Return Transportation Distribution

Reducing carbon footprint NMG Connect Warehouse

Reducing deforestation CGL DHL
BSL
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AGILITY
Supply Chain Process

We have chosen the Engro Polymers and Chemicals’ main product which is PVC.

What is PVC?

PVC stands for Poly Vinyl Chloride. It is produced as a result of the polymerization of vinyl
chloride monomer (VCM). The process of forming VCM is done by a series of chemical
reactions. The requisite materials needed for the production of PVC are mainly oil and salt.
Firstly, a chemical reaction known as electrolysis is performed on salt water to extract
chlorine. Then it is reacted with ethylene which then forms ethylene dichloride.

Ethylene is extracted from oil, in a process used by the petrochemical plants known as the
cracking process. The crude oil or natural gas is heated to produce ethylene gas which is
separated and shipped to the respective processing plants. Thirdly, the ethylene dichloride is
subjected to extremely elevated temperatures which causes it to turn into vinyl chloride
monomer. This further undergoes the process of polymerization and refining to create poly
vinyl chloride.

The diagram displays the above process.

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Suppliers of Raw Materials

Engro Polymers and Chemicals works on the prospect of multi-sourcing as well as single
sourcing for the procurement of their materials. For the procurement of EDC (Ethylene
Dichloride), it is imported from multiple vendors across the globe. Mainly from Turkey,
Qatar, and USA. Moreover, they have multiple vendors for supplying bags that are used to
store their end product PVC.

However, for the procurement of salt, they have a strategic alliance with a domestic vendor,
which is their only supplier which is located in Baluchistan. They have long term contracts
with all their suppliers, for instance, they have a three-year contract with their salt vendor.
These contracts include clauses regarding the standard of quality, predetermined rates,
adjustment of inflation rates, adjustment of fuels and so on.

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Supplier Selection

To select their suppliers, they have a predetermined matrix that has a set criterion for the
judgement and selection of the vendors. Usually, it takes about seven to eight business days
to finalize vendors provided that all the necessary formal and legal documentation is readily
available. However, there are some urgent circumstances where they have a more speed up
process, but it is reserved for short term contracts.

Vendor Development

EPCL has formed a joint venture with their strategic partners, for instance, the salt vendor.
They formed a joint venture because the vendors needed support in terms of finance and
infrastructure. As the salt is brought in raw (liquid) form, it is transported through pipelines
as a medium of inbound logistics instead of tankers.

This is done to minimize the carbon footprint that would be otherwise caused by using
tankers. Moreover, it reduces the cost of transportation and the workload. Also avoiding loss
of salt in transportation and accidents.

Raw Material Warehousing

The supply chain process starts from procuring the raw materials. They have three raw
materials, ethylene, salt, and sometimes EDC when there is a shortage or urgency. The
imported materials are received at Karachi Port. From there the materials are stored in either
of the two terminals: the Kemari Terminal and the Port Qasim Terminal.

As some of these materials are in the form of gas, they are only stored in special capacity and
Engro Polymers and Chemicals is the sole owner of such facility and capacity. As the
capacity to store this is limited, hence the reason it is stored in two different terminals to meet
storage needs.

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Demand and Supply Planning

Their time horizon for MRP is one year. Though their MPS is done weekly, to be more
specific their time buckets are every Monday. The sales team brings market intel on how
many units of each product is needed and communicates it to the production department.

Then the supply chain department accordingly manages the materials whether it is already in
inventory or is needed to be procured. The demand planning is done by the quantitative
method of exponential smoothing, the data collected by the sales and marketing team over a
period of time.

Production Facilities

EPCL has three production facilities in the respective cities:

 Karachi
 Sahiwal
 Sahianwala
The production facilities are comparatively easy to run, however, the repair and maintenance
costs are extremely high which is why this is not an easy business to enter.

Manufacturing

EPCL works on the prospect of high volume and low variety concept. They follow the
continuous flow manufacturing system. This methodology helps them achieve the optimization
in managing inventory with regards to their production concept.

Product Warehousing

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 EPCL only has one warehouse under their wing which is in Port Qasim as that facility is a
production plus warehouse facility. The rest of their warehousing is all outsourced as they
cannot afford to have a permanent facility to monitor in other locations.
The warehouses are situated in shared places in other provinces to tackle the necessary
demand as the orders are pre-packaged and are ready to dispatch. The packaging is done at
the Port Qasim facility.

Servicing and Logistics

EPCL has a vast servicing sector and for that it has outsourced its operations and workforce.
In this section, the se0rvice activity called “bag loading” is performed where workers transfer
the finished product i.e., PVC are packed into special bags. Each bag weighs up to twenty-
five kilograms.

Then these bags are carefully loaded and stacked properly into containers. Once the
containers are all ready, they are transported to different product warehouses, ready to be
dispatched where necessary. Their transportation and logistics are also outsourced, and they
have multiple vendors for it. For instance, there are five vendors included in the
transportation of salt.

Their vendors for distribution are Connect and DHL and for transportation they have
contracts with vendors such as New Malik Goods (NMG), Chaudhary Goods Limited (CGL),
Basheer Siddique Logistics (BSL), and Agility.

Customers

Engro Polymers and Chemicals mainly works on the B-B model. As they manufacture PVC
which itself is a raw material for products made with PVC. They have a well-developed
business base in other provinces of Pakistan such as Punjab and KPK. As for Sindh, they

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 have deduced that their audience is not aware of the PVC products. To combat this issue,
they have opened an outlet on Shahbaz Commercial called Think PVC.

THINK PVC:
The purpose of PVC THINK outlet is to spread awareness regarding the usage of resin and how
it can be used as an alternative to wood, plastic and all the other non-eco-friendly materials. In
different big cities of Pakistan such as Lahore, Islamabad, Peshawar people are more aware
about the usage of these products. That is why the retail store is located in Karachi and works as
a 3PL.

Value Chain

Recommendations for improvements

i. Engro as a group of company is quite huge and hence has a lot of buying power. Each
subsidiary is buying on its own. If the procurement process could somewhat be
centralized and all the products could be bought as a group, the company would not lose
the power. So, the decentralized system is the area for improvement.

ii. Market Intelligence is another area that could be improved in order to know the demand
and interest of the public. Sometimes the suppliers can provide better market and product
information than the buyer so EPCL can also work upon RFP.

iii. Engro has multiple suppliers for each commodity but if in any case the supplier end has
more power (monopoly), then Engro must build strategies to secure its own interests.

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iv. Pricing decisions could be improved knowing what impact the product has on the
customer.

v. EPCL although has built a physical store to spread awareness regarding PVC, but it
should also advertise it over social platforms.

Conclusion

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