lotte pak

2014

KEZIA NATASHA KNOWLES

LOTTE Chemical Pakistan Ltd.

7/12/2014

RESEARCH REPORT

INTERNSHIP-PROJECT BY KEZIA KNOWLES

2

1996- 1998

construction stage of PTA under the supervison of ICI

The PLANT was actually comissioned in 1998

2000 - 2008

It was demerged from ICI and became a part of

Pakistan PTA ltd

akzonaobel acquiced ICI AS whole .

2009

KP chemnical acquired PPTA as a part of LOTTE

2012

Changed its identity and

then continued working on it

efficieny

LOTTE CHEMICALS PAKISTAN

LOTTE GROUP

LOTTE is a multinational Group of business units engaging individuals in such a diverse industry as confectionary, beverages,

hotels, food, retail, financial services, heavy chemicals, electronics and entertainment etc. Dealing with 120 corporations

worldwide, first established in 1948 in Tokyo, and then traced South Korea in 1967 in the food industry that is Lotte

confectionery. Lotte tends to be Korea’s key holder in conglomerates, exporting to more than 70 countries and looks forward

to be the global conglomerate depending on it past experiences and working steadily to achieve new businesses in Asia,

holding a vision of being in Asian top 10 global group of corporations by 2018.

LOTTE CHEMICALS PAKISTAN PTA LIMITED Lotte Chemical Pakistan Ltd is the sole producer of Purified Terephthalic Acid (PTA) i.e. the main raw material for polyester. The plant is located at Port Qasim Karachi, which was built using ICI’s state-of-the-art technology and was commissioned in

1998, with an investment of $490mn and holding the ability to operate its nameplate capacity of 500,000 tons per annum.

HISTORY


3

IMPORTANCE OF PTA & LOTTE PTA

Terephthalic acid is the organic compound a chemical commodity, used principally as a precursor to the PSF, PFY and PET.

In Asia, the growth in PTA consumption has been driven by strong polyester fiber demand, nearly two-thirds of global

polyester demand. In 2013, textile exports alone were $13.1bill ion out of the total exports that is $24.6billion.

Pakistan being agriculture based economy due to large production of cotton. Textile industry contributes 52% of the total

export revenue that is generated.

Lotte chemical is the only PTA manufacturing chemical company in Pakistan that plays an important role for textile industries

producing products which usually combines to make textile goods .The domestic production and availability of PTA helps in

bringing down the trade deficit of Pakistan which is 45%.

http://en.wikipedia.org/wiki/Organic_compound

http://en.wikipedia.org/wiki/Chemical_compound


4

TEXTILE INDUSTRY

TEXTILE INDUSTRY FACTS

In Asia, Pakistan is the 8thlargest exporter of textile products.

The contribution of this industry to the total GDP is 8.5%. It provides employment to about 15 million people, 30% of the country work force of about 49million. Pakistan is the world’s 4th largest producer and 3rd largest consumer of cotton. Textile sector is considered as the backbone of the economy.

On the other hand, it is facing tough competition in the international market due to increase in cost of production, which is making it less competitive than the neighboring countries India, Bangladesh & China. According to Pakistan Textile Journal, Pakistan is among top 10 textile exporters of the world.


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PAKISTAN 5 YEARS EXPORT ANALYSIS

EXPLANATION According to the graphical representation the textile export of Pakistan has shown a tremendous growth in the year 2010-11

of almost 67% that is 9% from 2010, after which a huge decline of 15% could be seen from the year 2011-12 because of poor investments and governmental initiatives, impropriate equipment and programs, short term governmental planning and weak research techniques due to which Pakistan’s textile exports remain stagnant until 2014.

0

10

20

30

40

50

60

70

80

0

5,000

10,000

15,000

20,000

25,000

30,000

TOTAL EXPORTS (US mn) TEXTILE EXPORTS (US mn) PERCENTAGE

2010 2011 2012 2013 2014


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COTTON INDUSTRY

INTRODUCTION Cotton is an economic asset of Pakistan, it’s a natural fiber used as a primary raw material in Textile industry. The leading

producers of cotton are USA, china, India, Pakistan and turkey. The reason for no substantial growth in the textile industry are due to poor investment in the value added sector, less

research, short term actions, load shedding and old method along equipment’s and inconsistent policies of the government.

EXPLANATION The above graph il lustrates that the polyester mix has not witnessed any increase. Therefore, the total exports of Pakistan have been stagnant around 13-15%. Polyester is an important raw material in the value added sector.

85 86 86 8587

15 14 14 1513

1 2 3 4 5

PAKISTAN

Percentage of Cotton Percentage of Polyester


7

EXPLANATION The above graph il lustrates that the polyester mix in the textile industry is around 14- 20 %, which is comparatively higher then Pakistan. Hence, the polyester mix contributes in the downstream production of the value added sector.

86 86 81 80 81

14 14 19 20 19

1 2 3 4 5

INDIA

Percentage of Cotton Perscentage of Polyester


8

EXPLANATION The above graph il lustrates that the polyester mix in the textile industry is comparatively higher then both Pakistan and Ind ia

that is almost 41-55%. This helps in increasing the total textile exports of china in the downstream production of the value added sector.

EXPLANATION According to the above graph the polyester mix in the textile industry of Vietnam is comparatively in between Pakistan, India and China. It shows a 2% increase in 2011 with a huge decline of 12% in 2013, but with the increase of polyester production it shows a positive increase of 4% in 2014.

4759 56 51 45

5341 44 49 55

1 2 3 4 5

CHINA


78 75 82 87 83

22 25 18 13 17

1 2 3 4 5

VIETNAM



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DRAWBACKS OF TEXTILE INDUSTRY

The biggest drawback of the Pakistan textile industry is that the government does not take initiative to invest in the value added sector.

Pakistan imports more than exporting goods which results in a trade deficit. The amount of production of polyester is comparatively less in Pakistan than other textile export

countries. Government look forward for short term solutions to solve problems There is no improvement in the textile sector because of old implementation of tools, techniques and

methods. Import huge amount of oil to produce electricity.

RECOMMENDATION To resolve these issue the government of our economy are supposed to investment enough amount to research and develop techniques to check out the quality and improve them through using latest equipment’s and programs to learn new methods

to produce more in order to reduce the imports from other countries plus the government which init iates short term plan should look towards long term growth action plan such as constructing damns instead of making electricity from oil imported by other countries. Building more plants for production rather than supplying from neighboring countries and manufacturing within own state of nature which is blessed by every credentials.


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11

ORGANOGRAM OF COMMERCIAL DEPARTMENT

INTRODUCTION

The commercial department is the main source of revenue since its concern about the volume to sol d which is forecasted a

year before. This department is divided into two categories :

Supply chain department – consisting of engineering purchases, non-engineering purchases and

feedstock.

Sale department – consists of market research and sales operations.

The commercial department looks over the entire need of the business to be proceeded further, determining the

quantity to be produced to generate sales, improving service quality and efficiency of the organization.

COMMERCIAL DEPARTMENT

SUPPLY CHAIN MANAGER SALES MANAGER

ENGRINEERING PURCHASE NON – ENGNEERING FEED STOCK

PARAXYLENE / ACETIC ACID

SALE OPERATION MARKETING RESEARCH


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FEED STOCK

SUPPLY CHAIN (FEED STOCK)

INTRODUCTION

The process begins with a rough draft before a year of production under the consideration of the sales department who

shows the direction for the revenue targets in term of volume which is declared annually, determining the amount of PTA to

be produced.

The point of concern comes to the production department which sees the efficiency, plant situation, condition and stability

etc.

Sales department forecast the PTA volumes to be sold next year.

The production review takes place, in which the production number is declared as to how much raw material is

required which, is acquired by the feedstock department.

FEED STOCK DEPARTMENT

Feedstock department mainly works on two materials that are paraxylene and acetic acid.

FOR EXAMPLE

To produce 1000 tons of PTA we need 0.66 metric tons of paraxylene and 0.0401 metric tons of acetic acid. In which the raw

material purchased is in a l iquid form whereas PTA is a dry product.

(Annexure 1)


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How do we do it? – FEED STOCK PURCHASE

ANNUAL BULK CONTRACTS

MONTHLY PROCUREMENT PLAN

PROCUREMENT

IMPORT PROCESS

LOGISTICS OPERATIONS

APPROVAL OF FEEDSTOCK PROVISIONAL

PRICES FOR MONTH (PO)

EMAIL PURCHASE REQUISITION (PR)

PURCHASE ORDER APPROVAL PROCESS (PO)

LC REQUEST TO FINANCE

BANK ISSUES THE LETTER via BANKING CHANNEL

SELLER MAKES THE DELIVERY

BUYER RECEIVES THE GOODS AND ISSUES THE GRN

VALUATION OF IMPORT

GOODS DELIVERED TO THE INVENTORY

ANNUAL BUDGET REVIEW

LOGISTICS OPERATION

CLOSING

DOCUMENTS

SOP

(A)

(B)

EMAIL

ORACLE (DOCUMENT)

SCIS

ORACLE- SHIPPING

DOCUMENT

GOOD/PORT CLEARANCE

ORACLE

FINANCIAL COSTING

ORACLE (SYSTEM

PROCESS)


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ANNUAL BUDGET REVIEW

The annual budget is based on the sales forecast which gives us the revenue target declared annually; determining the

volume of PTA to be produced, which in term helps us acknowledging how much raw material is required to produce that

specific amount of PTA.

This is done on yearly basis as 1000ton of raw material is essential to be available at the plant.

ANNUAL BULK CONTRACT

The company divides the volume among different suppliers in order to buy the raw material to perform the demand of the

customers. Inspecting their quality, standard and prices and availability of raw material needed.

PROCUREMENT

Procurement is divided into two parts that is:

Import Process

Logistic Operation

IMPORT PROCESS

Import process begins after the approval of the concerned authority for the raw material required to be purchased.

The process begins:

APPROVAL OF FEEDSTOCK PROVISIONAL PRICE IN THE MONTH (PO)

The pricing of the raw material is done on provisional basis for the feedstock, as the prices keeps fluctuating weekly. This

particular price cannot be negotiated; instead the price is agreed by both parties through email. In return a document i.e.

Performa invoice (PFI) is raised after which the supplier’s role is completed.

Considering if the amount of payments is small and paid of quarterly there is no big hurdle, but if the amount is

bigger the company needs to open an LC for security purpose. For e.g. payment of $70,000,000

PURCHASE REQUSITION

It is a document which is approved by the concerned authority, to pur chase the required raw material, which is done under

oracle document format.

PURCHASE ORDER (PO)

Final purchase order approved by the authority; for the final pricing of feedstock to be purchased.


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LC REQUEST TO FINANCE

LC request is done via financial system for the purpose of guarantee to the supplier for the payment of huge amount, which is

generated after the approval of the above document, done under (SCIS) system.

Just in case a situation arises where there is an increase in access quantity, LC amendments are required.

BANK ISSUES THE LETTER via BANKING CHANNELS

Bank using the channel (swift) an international process through which the LC from buyer to supplier is transferred.

LOGISTIC OPERATION

The logistic operation starts as the contract with the supplier, i s made and pen down. Determining how much raw materials

are required to be purchased in order to fulfi l l the demand of the customer .

FOR EXAMPLE

To produce 1370 metric tons we need 1000 tone of Paraxylene per day in order to process PTA.

LOTTE in order to stock the vessels hire a supplier that is Engro co. PAC who possess 5 tanks, 3 of Paraxylene and 2 of acetic

acid.

3 Paraxylene tanks = 10k each

2 acetic acid = 2500 each

SELLER MAKES THE DELIVERY

Once the seller receives the LC from the buyer the vessels are sent to the buyer’s port. This is done under the ORACLE

shipment document format.

GOODS / PORT CLEARANCE

Once the shipping document, invoice, packing list is received by the purchaser, he sends this document to the hired agent for

the clearance of the vessels purchased along with the number of PTA to be produced.

The shipping document is to be endorsed by the treasury department of any respective bank.

Mainly two document:

Commercial invoice (value and price)

Bill of lading (volume)


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Four important dates are to be remembered:

Letter of credit (LC) Date

Shipment Date

Maturity Date = the final payment date

Value Date = the amount in hand/bank

THE AGENT ROLE

The agent is basically hired in order to understand the rule and laws of the port for which the agent demand the company to

submit the required documents with price. He then takes the documents to the custom office from where the goods are

shifted to the plant after its clearance.

A test report is also submitted to the company after the survey by PERAC Research and Development Foundation

(PRD), for the evaluation of the standard volume and quality required by the prospective company.

BUYER RECEIVES THE GOOD AND ISSUES GRN

This document is internally generated for the company’s personal records, after the agent clears and shifts the vessels to the

plant. GRN is basically a good receiving note which assures that the good have been received by the company according to

their specification in oracle format.

VALUATION OF IMPORTS

This is done by the company’s finance department (financial costing) in which their compare the quality of the product with

the test reports also evaluates the standard of volume and the amount received.

GOOD DELIVERY TO THE INVENTORY

It is an (oracle) system processes whereby after evaluation of the above steps the raw material is proceeded further in order

to produce the PTA.

CLOSING

The process is closed once the raw material in proceeded to make PTA for the customer.


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SALES DEPARTMENT

SALES OPERATION

INTRODUCTION

Sales department basically, shows the direction to the company as to what should be the revenue targets for the year in

terms of volume.

The sales set parameters which help in setting the provisional prices that are:

PRICE SETTING PARAMETERS

Last month’s average which are set in

accordance with the international markets in

terms of dollars.

Trends, whether they are upward or downward.

Freights

SALES OPERATION PLAN

Sales department conduct monthly meeting for SOP

(Sales Operating Plan). In this meeting they meet with

the production department working at site; to decide

how much production will be done and in agreement to that how much sales will be made.

Lotte being a B2B company only has 7 customers from which the maximum domestic sales are generated.

The sales department main focus relies on:

Smooth dispatch of their products from the site to the customer

narrowed customers complaints

Raised customer complaints to be settled as swiftly as possible.


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HOW DO WE DO IT – SALES OPERATIONS

ANNUAL BUDGET

RECONFIRMATION OF VOLUME BETWEEN

LOTTE CHEMICALS AND CUSTOMERS

PROFORMA INVOICE (PFI) TO BE

ISSUED BY LOTTE

LETTER OF CREDIT (LC) TO BE ESTABLISHED

ACORDING TO (PFI)

CONFORMATION OF LC AT

ADVISING BANK

DISPATCH ADVICE (DA) TO BE

ISSUED AS PER LC

VEHICLES/ LOGISTICS TO BE ARRANGED

BY THE CUSTOMERS

COMMERCIAL INVOICE, OTHER

DOCUMENTS TO BE MADE FOR

SUBMISSION IN THE NEGOTIATION BANK


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VOLUME DEFINED

The sales volume is reconfirmed with the customer on monthly basis.

PROFORMA INVOICE

In the second step the supplier generates the Performa invoice in which the specification of quantity, price and total value

are mentioned, which is approved by the concerned authority.

LC FORWARDED TO SUPPLIERS

The customer generates the letter of credit (LC) at sight basis or on usage (as agreed) which is forwarded to the supplier as a

guarantee against the payment to be received.

DISPATCH ADVICE TO CUSTOMER

Dispatch advice (DA) is a document which is forwarded to the customer from the supplier , against which, delivery of their

agreed volume is made.

Since Lotte works on ex-works basis, the customer actually needs to l ine up their vehicles at site, where the

products are loaded and dispatched. This all comes under customer’s consideration.

COMMERCIAL INVOICE SUBMITTED TO CUSTOMERS

It is basically a shipping document sent after the delivery of the product which is submitted to the customer.


20

ENGINEERING / NON-ENGINEERING PROCESS

ENGINEERING / NON – ENGINEERING DEPARTMENT

INTRODUCTION

The engineering or non- engineering department refers to the purchase of a material when required by the end users. These

are classified into two categories:

NON -ENGINEERING: The purchase of office supplies required at the office, this includes stationeries, seating chairs, and any

other sort of purchased to be made by the office.

ENGINEERING: A purchase made when there’s a need required by the plant, it includes chemical machineries, equipment’s ,

spare parts, damage parts which need to be repaired or brought in, and other tools to be purchased for the efficiency of the

production at plant.

(Annexure 2)


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HOW DO WE DO IT - ENGINEERING / NON-ENGINEERING PROCESS

PURCHASE PROCESS/CYCLE

PR – PURCHASE REQUISTION

RFQ - REQUEST FOR QUOTATION

CS – COMPARATIVE STATEMENT

TA – TECHNICAL APPROVAL

PN – PRICE NEGOTIATION

T & M TERM & CONDITIONS

PO - PURCHASE ORDER

DELIVERY

INSPECTION

(REJECTION/ACCEPTED)

REJECTION NOTE GRN – GOOD RECEIVING NOTE

PAYMENT


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PR PURCHASE REQUISTION

Purchase requisition is raised by the end users, which is pre-determined and identified by the item code, to purchase the

required raw material, which is done under oracle document format.

RFQ REQUEST FOR QUOTATION

This is done by the purchaser - purchase department who get the PR approved and then request different number of

suppliers to send their quotation against the required raw materials needed.

Once the purchase department receives the quotation by all the suppliers, he then sends the document with the RFQ

document as the front page for the approval.

CS COMPARATIVE STATEMENT

It is an internal documentation required for companies own records. It is basically a comparison of all the different suppliers’

rates and quantities.

TA TECHNICAL APPROVAL

At this point the end user rejects or accepts the quotation in accordance of it criticalities i.e. the specifications of the product.

PN PRICE NEGOTIATION

Price negotiation usually takes place between the supplier and the purchase department once the end u ser decides which

supplier is eligible for the purchase order. The purchase department after the selection of the supplier by the end user views

the pricing and contacts the reasonable supplier.

T&C TERMS AND CONDITIONS

The company follows a certain standardize procedure while dealing with the supplier regarding the delivery of any material.

PO PURCHASE ORDER

A single document: holding a purchase order for the purchase of a raw material identified by its item code, quantity; and

description and specification.

DELIVERY

The time the goods are delivered to the purchasers store the estimated time of arrival (ETA) / estimated time of delivery

(ETD) is actually evaluated which concerning about the goods loaded in the store.


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INSPECTION (REJECTION/ ACCEPTED)

Once the delivery is made, the store authority calls up the concerned end user who has made the demand to purchase, He

would go to the store and inspect the raw material in order to reject or accept the goods which are delivered by the supplier. REJECTION NOTE If the goods are rejected because it’s not according to the specification as per the mention in the purchase contract the

suppliers has to replace the goods. OR justify if he’s not wrong. GRN GOODS RECEIVING NOTE Once the goods are delivered to the purchaser store and inspected by the end user who projects no faults in the goods

delivered to him, allows the company to generate a GRN – Goods receiving note in order to keep a record for the company purchase order.

PAYMENT

As the goods are delivered and inspected accurately, the purchase department requests the supplier to send the invoice or

the payment is made as per the agreed terms and condition.


24

SERVICES AND CONTRACTS

SERVICES

INTRODUCTION

Services under commercial department refer to any kind of services needed in order to fulfi l l or keep up with the efficiencies

of the firm’s production process.

Services may be a temporary rental purchase of a machine,

or services provided to the existing machineries or any part

of the plant, as the plant is the heart of Lotte Company, so

it needs services to operate with efficiency, as any obstacle

in any single part would damage the sole process of

production. Services are highly required in order to stand

competent and complete the demand of the suppliers as

well as produce goods with more efficiency.

CONTRACTS

INTRODUCTION

Contracts are basically raised by the end users for longer terms and conditions; currently Lotte is dealing with 50 contracts

heading in different entities .

As most of its operations are outsourced, each contracts is headed by different concerned person according to its eli gibil ity

that is, higher the price of a contract the higher level of authority is to be involved in the agreement.

The details mentioned in a contract is reviewed by the legal teams in order to check if they is any mistake or wrong deed

mention which would harm the company performance in longer terms.

(Annexure3)


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HOW DO WE DO IT – SERVICES

SR – SERVICE REQUISTION


CS – COMPARATIVE STATEMENT

TA – TECHNICAL APPROVAL

PN – PRICE NEGOTIATION

T & M TERM & CONDITIONS

SO - SERVICE ORDER

DELIVERY

GRN – GOOD RECEIVING NOTE

PAYMENT

SERVICES


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SR SERVICE REQUISTION

Service requisition is raised by the end users, identifying the item to be serviced. This is where the users state a need for

services in order to keeping on producing without any difficulty.

RFQ REQUEST FOR QUOTATION

The department who get the SR approved, requests different suppliers who provides services to send their quotation against

the required machinery or part which is to be serviced.

Once the service department receives the quotation by all the suppliers, he then sends the document with the RFQ document

as the front page for the approval.

CS COMPARATIVE STATEMENT

It is an internal documentation required for companies own records. It is basically a comparison of all the different supplie rs’

rates and duration.

TA TECHNICAL APPROVAL


PN PRICE NEGOTIATION

The negotiation of prices are usually between the supplier and the service department once the end user decides which

supplier is eligible to provide services to their required part. The service department after the selection of the supplier by the

end user views the pricing and contacts the reasonable supplier.

T&C TERMS AND CONDITIONS

The company follows a certain standardize procedure while dealing with the supplier regarding the services which are to be

performed.

SO SERVICE ORDER

A document holding a service order, mentioning the equipment of the plants which is to be serviced in order to keep

functioning with efficiency, identified by its role and critical importance in the production process. The more important the

role an equipment plays - more critically it is to be provided service as any wrong would results in large loss.

DELIVER

Under service department they are no such big decisions to be made as the services are provided by the same suppliers in

order to have a trust worthy long term relationship and goodwill. Plus at times the firm thinks it better to be served by the

same supplier whom their deal with mostly in wider prospective.


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GRN GOODS RECEIVING NOTE

Once the services are delivered to the required equipment by the end user who projects no faults in the services delivered to

him, allows the company to generate a GRN – Goods receiving note for internal record of the company.

PAYMENT

Once the services are performed accurately, the imbursement is paid off as agreed on the terms and conditions.

HOW DO WE TO DO IT - CONTRACTS

SCOPE OF WORK


REVIEW OF CONTRACT BY LEGAL TEAM

TECHNICAL APPROVAL + COMPARATIVES

NEGOTIAITION + TERM & CONDITION

APPROVAL OF COMPARATIVE

CONTRACT SIGNING

CONTRACTS


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SCOPE OF WORK

Contracts are made on different hierarchy some are too important to be consider involving the higher authorities and some

are nominal in nature.

When initiating a contract the end users are required to state down the scope of the work which is to be performed by that

particular action, its importance and how it helps the firm achieving it goals or tasks.

For example:

Lotte plant is located at port qasim at a wide area and to have a refreshing environment they have outsourced the gardeners

to look after the greenery at the plant site. This is an example of a nominal contract of the firm.

REQUEST FOR QUOTATION

Quotations are sent to different contractors requesting to send them quotation stating their pricing, Quantity and other

specifications.

REVIEW OF CONTRACT BY LEGAL TEAM

The details mentioned in a contract is reviewed by the legal teams in order to check if they is any mistake or wrong deed

mention which would harm the company performance in longer terms.

TECHNICAL APPROVAL & CS COMPARATIVE


It is an internal documentation required for companies own records. It is basically a comparison of all the different supplie rs’

rates and duration.

NEGOTIATION + TERM & CONDITIONS

Every company follows a certain standardize procedure so do Lotte, while dealing with the supplier regarding any contractual

agreement done under the consideration of the concerned authority.

The negotiations are usually between the supplier and the contracting persons along with a legal team in order to keep an

over view of any kind of mishaps which may cause the firm in longer terms.

APPROVAL OF COMPARATIVE

Once the above steps are performed under the view of legal team members the comparative is a pproved by all the

concerned persons.

CONTRACT SIGNING A contract is made valid under the consideration of all the contractual persons who are responsible in an attempt to draw a

contract with the supplier, as mentioned before -higher the price, higher the involvement of the top level management.


29

SOURCE

Data:

The report in written by our own self study, research work, and management support, along with further

information from the internet for better understanding about the company its different departments and the

material being manufactured.

Departments:

FEEDSTOCK = Mr. Asif Zaheer

SALES = Mr. Riaz

ENGINEERING AND NON – ENGINEERING PURCHASE = Mr. ARSHED

SERVICES AND CONTRACTS = MUHAMMED TABISH

Facts and figures:

The figures are taken by SBP – STATE BANK OF PAKISTAN, and own countries central banks .

Pictures:

Google

lotte pak

Documents

textile export of pakistan

pakistan textile journal

textile exports

textile industries

textile goods

textile exporters

textile sector

lotte confectionery