RECONFIGURING THE SUPPLY CHAIN AT XTRA POWER ENERGY SYSTEMS SUBMITTED BY

AKSHIT JAINALI MAVLI

ALMAS FIROZAMAN BAIJAL

AMAN SWARUP SRIVASTAVA

AMBER BHARDWAJ

Xtra Power needs to make changes in order to grow Key issues to address

LOGISTICS-Lead time

-Retail needs

DEMAND-Growing

-Production capacity-Potential for

reconditioned peaks

CONSUMER-After sales service

-Competitive Product

Xtra Power Energy Systems

They are one of the leading suppliers of automotive components in the

domestic market (2 WHEELERS)

They have 2 separate business divisions

Xtra Power Auto

Industries

Xtra Power Energy

Systems

Demand is growing for batteries Industrial sector and economy are developing Battery market is estimated to be Rs. 200 billions Organized/unorganized market: 45% of the market Imports: 55% of the market Market for batteries is growing at an annual rate of 25% Lead acid batteries (account for 70% - 75% share of the market) Guided by frequent power cuts Replacement battery market is Rs. 5b units/year

Bank batteries account for the largest percentage of sales for your company

65%5%

30%

REVENUES SOURCE

NEW BANK BATTERIES

RECONDITIONED BANK BATTERIES

SINE WAVES/INVETORS/UPS SYSTEMS

You don’t have the total control ofyour value chain

Suppliers Manufacturer Sales After sales ‐

Lead time: 2 days

Raw materials

To retailers

Transportation Transportation

Changing your value chain will decrease lead time and help you meet demand

LEAD TIME (DAYS)

8 6

Avani International Galaxy Electrical Cretto SERVICE 2 imp. Components -Plastic container -Internal Lead plates -Lead terminals -Battery acid - Others

Transportation

12

Able to slash prices

down

Good relationship with clients Larger player Highest lead time Retailer dissatisfaction

COST LOW Rs.200/Unit (Rs.400 to Rs.1450/cell)

STRENGTHS Market share almost 20% Quality supplies

WEAKNESSES Market share is been declining

The average lead time of theindustry is 7 days

Dolphin Power

SERVICE

LEAD TIME(DAYS)

4 Reduced

More expensive

STRENGTHS Reduced lead timesProximity to yourCompany’s plant

Haley Power & Electricals

DLSP

-Plastic casing -Battery leads -Lead terminals -Electrolyte

Transportation

4

More expensive

Reliable and

consistent in services Least lead time in the industry

COST Rs. 220/unit

Weaknesses

How does the future looks like?

The  market for batteries is expected to keep growing at  an annual  rate  of  25%  (till  2015) Both  new  and  reconditioned  batteries  

  Total  demand  for  your  company bank batteries would be 2.000  units/year  

 Your  supply  chain  would  only  be  able  to  cate

25%  of  that demand  

S W O T

Good

customer service

Diversified Product portfolio

Total supply chain lead time highly dependable on the logistics partner

Ineffective response to demand peaks

Gap between demand and supply of lead acid batteriesr Energy demand growth rate higher than electrical energy system

expansion rate Increase adopti on and necessity for renewable energies (solar PV)

Many players in the batt ery market High fragmentati on of lead acid batt ery market

Your company has many optionsfor changing the supply chain

Supply Chain Shift

logistics

6 day lead time is already lowest Higher cost Not highest priority

Higher cost 8 day lead time still not most

pressing issue

Too much all at once Not smart to replace all parts of mostly functioning business

Take over most

pressing problem

Logistics/lead

Time core to

Business success&

reconditioned

Replace Galaxy with Haley

Replace Avani and Cretto

with Dolphin

Replace all suppliers

and logistics

Internal

Strategies

Strategy  1:  Internalize  logistics

Cretto lead time unacceptably high Lack of response from Cretto Dependence of external company for core business

factor Retailer dissatisfaction Agility for peak time hindered

PROBLEM

Strategy  1:  Internalize  logistics

Start internal logistics department

Slowly over time to learn and not disrupt business or value chain

Year 1- 2 : 25%, Year 2- 3 : 50%, Year 4 and on :75% ‐ ‐ Don’t do 100% in order to accommodate additional peak time capacity

Adjust in- house capacity based on success and future demand ‐ Remain control of crucial supply chain element

Evaluate other aspects of supply chain after this period to lower

lead time & increase capacity further

SOLUTIONS

Strategy  2:  Meet  growing  demand and  increase  production PROBLEM Can’t meet demand

Not taking advantage of peaks/not agile

Production capacity will need to increase with lower lead time

SOLUTION SHORT TERM Evaluating existing facility capacity > increase shifts if possible (up to 3 a day) ‐ Reinforce maintenance of production machinery, ensure quality control and staff

training

Optimize production process(lean manufacturing) Use “just in time” logistics

possibly increase warehouse capacity

Add capacity for inverter production to take advantage of solar

Strategy  2:  Meet  growing  demand and  increase  production (CONTD)

SOLUTION LONG TERM

Build additional production line if needed Designed production line according to “guaranteed”

demand, increase shift to meet peaks Continue to increase inverter capacity

Strategy  3:  Ensure  superior  aftersales  service

POSTIONING Position yourself as the quickest problem solving battery supplier àà to be depended on in all heat Satisfy retailers AND end users

COMMUNICATION

PEOPLE e

Create IT platforms to connect retailers, suppliers and internal

- Optimization of supplies, ensure quality, price and inventory

- Management of product on according to inventory

Ensure training and relationship with retailers Implementation proper response/maintenance team for repairs

and quick response Keep up staffing levels with increased production and

market share

financials

Main Assumptions

– 1.  Xtra Power uses only ONE shift per day in production

– 2.  In/house logistics cost will increase to Rs.1.6/kg/km to

Rs, 2.5/kg/km

3.  In-house logistics needs 100 trucks to replace 100% of Cretto

services

4.  Marketing expenses increase of 50%

Total investment of RS 6102013 2014 2015 2016 2017 2018

Trucks (M RS)

LogisIcs LogisIcs facility (M RS)

IT monitoring and control systems (M RS) Maintenance & Quality Control

Production Staff training

Warehousing Inverters production

IT platform Development

Implementation & OpImizaIon

TOTAL (M RS)

0.75 0 0 0.75 0 0.75

20 20 40 40 60 60

15 15 15 15 15 15

5 5 5 5 5 5

7 7 7 7 7 7

20 20

25 26

34.5 34.5

16.75 16.75 4 4 4

127 144 84 72 91 92

Sales will increase 3x and directcosts will increase 3.6x

OVERHEADSSALARIESUTILITIESMARKETINGTOTAL

SALES 2013 2014 2015 2016 2017 2018 HEAT SHIELDED BATTERY (IN RS)OPEN SHIELDED BATTERY (IN RS)RECONDITIONED SHIELDED BAT.OTHERSTOTAL (IN RS)

DIRECT COSTS (IN RS)RAW MATERIALSPACKAGINGLOGISTICSTOTAL

90 180 180 270 270 270126 252 252 379 379 379

18 36 36 53 53 53126 252 252 378 378 378360 720 720 1080 1080 1080

2013 2014 2015 2016 2017 201890 179 179 269 269 269

8 17 17 25 25 2595 297 297 446 393 393

193 493 493 740 686 686

2013 2014 2015 2016 2017 201841 83 83 124 124 12437 37 37 37 37 37

1 1 2 3 4 680 121 122 164 166 168

NPV of the project is Rs 1050

-40 -39 21 104 137 134

KEY ISSUES

ANALYSIS RECOMMENDATION FINANCIALS RISKS & PLAN

IRR = 62%

NPV = M RS 1050

2013 2014 2015 2016 2017 2018

Profit (M RS)

Free Cash Flow (M RS)

87 105 105 176 228 226

RISKS & PLAN

Risks & Mitigation

Cost will go up

You will become more agile 75% of untapped demand

Impact

Demand might slow India Energy consumption is growing at a higher rate than India Electrical Power Systems Production/Transport/Distribution

Impact

Changing the value chain, might create problems in our process

Slower and flexible changing

Impact

Prob

. Pr

ob.

Prob

.

Implementation Plan

SUMMARYXTRA POWER

LOGISTICS-Lead time

-Retail needs

DEMAND-Growing

-Production capacity-Potential for

reconditioned peaks

CONSUMER-After sales service

-Competitive Product