DEPARTMENT OF MANAGEMENT (LSM)

TERM PAPER
OF

OPERATION MANAGEMENT
ON
MANUFACTURING OPERATIONS IN CHEMICAL
INDUSTRIES

SUBMITTED TO: SUBMITTED BY:

MR. SANJAY JINDAL SHUJA QAMMER

REG NO: 10904442
ROLL NO: 03
SECTION: S1906
MBA (IT)
 ACKNOWLEDGEMENT

The most precious moments are those when we get an opportunity to

remember and thank everyone who has in some way or the other
motivated and facilitated us to achieve our goals.

First of all I thank to GOD ALMIGHTY ALLAH for giving me power to

pen down the term paper in its present shape. I thank the entire teaching
staff especially MR. SANJAY JINDAL Lect. LSM for sharing his
valuable knowledge with me & for providing her able guidance and
support. I also thank to my classmate who every time helped me out and
encouraged me for carrying out the task.

I fall short of words to thank my family, who stood beside me while

completion of my task.

SHUJA QAMMER
OVERVIEW

Chemical industry is one of the oldest industries that has contributed significantly to the
industrial and economic growth of India. It is estimated that the size of the Indian chemical
industry is around US$ 30 billion. Volume of production by chemical industry positions India as
third largest producer in Asia (next to China and Japan) and twelfth largest in the world. The
industry, comprising both small scale and large units (including MNCs), produces several
thousands of products and bi-products, ranging from plastics and petrochemicals to cosmetics
and toiletries. A significant share (around one-third) of production by chemical industry is
consumed by itself.

The chemical industry accounts for about 13% share in the manufacturing output and around 5%
in total exports of the country. The chemical industry contributes around 20% of national
revenue by way of various taxes and levies. The chemical industry produced around 8 million
metric tonnes each of basic chemicals and basic petrochemicals, and around 10 million metric
tonnes of petrochemical intermediaries in 2005-06.

Gujarat is the major contributor to the basic chemical as well as petrochemical production with
54% and 59% share in all India production, respectively. Other major states producing basic
chemicals include Maharashtra (9%), Tamil Nadu and Uttar Pradesh (6% each). Other major
states producing petrochemicals include Maharashtra (18%), West Bengal (12%), Uttar Pradesh
(4%), and Tamil Nadu (3%).

India’s export of basic chemicals amounted to over US$ 7 billion in 2005-06. India exported
US$ 4.85 billion worth of organic chemicals, US$ 775 million worth of inorganic chemicals,
US$ 847 million worth of tanning and colouring materials, and US$ 649 million worth of
pesticides, in the year 2005-06. In addition, India exported petrochemicals valued nearly US$ 4
billion. India is also an importer of basic chemicals and the import value amounted to over US$ 8
billion in 2005-06. The composition of India’s chemical imports includes organic chemicals
(63%), inorganic chemicals (28%), dyes (6%) and pesticides (3%). China, USA and Saudi
Arabia are the leading source countries for India’s chemical imports. In addition, India imported
petrochemicals valued over US$ 2 billion. The Indian chemical industry has been receiving
significant investment intentions, including foreign direct investment (FDI). Since August 1991,
and till November 2006, chemical industry has received investment proposals worth Rs.274486
crores, a share of 11.3% in total investment proposals received during this period. FDI, which is
very essential for modern manufacturing of chemicals, has also been flowing into the chemical
sector significantly. During the period August 1991 to October 2006, FDI inflows into the
chemicals sector amounted to US$ 2.2 billion, a share of around 6% in total FDI inflows into the
country.

The chemical industry in India has the potential to grow to around USD 100 billion by 2010
according to KPM s analysis based on a survey of the industry. This would imply an annual
growth rate of 15.5 per cent.. At USD 100 billion, the industry s contribution to India s GDP
will grow from the current 6.7 per cent to 12.1 per cent and its share of the global industry will
increase from 1.9 per cent to 3.9 per cent. In order to fulfill this, the industry needs to focus on
new sources of growth like the Speciality and Knowledge segments. At the Base case, if the
current growth rates are maintained, the industry is expected to grow to USD 60 billion by 2010.
In that case, the industry s contribution to India s GDP would increase to 7.1 per cent and its
share of the global industry would increase to 2.3 per cent. The industry would need to seek
new directions in order to achieve the incremental USD 40 billion over the Base case scenario.
This study seeks to discuss the drivers and imperatives for the industry s growth.

GLOBAL SCENARIO

The size of the global chemical industry is estimated at approximately USD 2.4 trillion in 2007.
The industry is currently under-performing due to the recession . Some of the emerging trends
of the global chemical industry that can be leveraged for growth are:

 increasing globalisation as growth in mature markets drives leading players to explore

new developing markets;
 consolidation to leverage economies of scale in the Basic and Knowledge segments;
 increasing focus on core businesses, resulting in diversified chemical and
 multi-product companies divesting businesses or exiting non-core product lines;
 cost optimisation assuming critical importance in the face of slow growth coupled
 with a pressure on prices due to competition;
 increasing investments in R&D (especially in the Speciality and Knowledge segments)
 to gain competitive advantage.
MAJOR CHEMICAL PRODUCTS

The major products included in this sector are:

 Alkali- Soda Ash, Caustic soda, Liquid Chlorine, etc

 Inorganic- Aluminum Fluoride, Calcium Carbide, Carbon Black, Red Phosphorous, etc.
 Organic- Acetic acid, Methanol, Formaldehyde, Citric Acid, Chloro Methane, Ethyl
Acetate, etc.
 Pesticides-Pesticides/Insecticides registered under section 9(3) of the Insecticide Act
1968.
 Dyes & Dye stuffs- Azo Dyes, Acid Direct Dyes, Basic Dyes, Ingrain Dyes, Oil Soluble
Dyes, Sulphur Dyes, Food Colours and Other Dyes.

CHEMICAL INDUSTRY IN INDIA

 Chemical Industry is an important constituent of the Indian economy having approx. US

$ 28 billion turnover which is approx. 7% of India’s GDP.
 In terms of volume, it is 12th largest in the world, and 3rd largest in Asia
 Within India, it constitutes about 15% of manufacturing capacity and20% of the Excise
revenue to the Government of India.Chemical industry has weightage of about 13% in the
index of industrial production.
 The global chemical industry is valued at about US $ 2.4 trillion. Of which,
India’s chemical sector accounts for just 2%
 India’s present share in Global Trade is 0.6% i.e. USD 45 Billion & it has been expected
to increase the same to 1% i.e. USD 80 Billion by 2011.
 Chemical & Pharmaceutical Industry is the most important Foreign Exchange earner with
major value additions through out the value chain. The value is added using Knowledge,
energy and Capital.
 The Indian Chemical sector accounts for 13-14% of total exports and 8-9% of total
imports of the country.
SWOT ANALYSIS OF THE INDIAN CHEMICAL INDUSTRY

STRENGTHS

 Diversified Manufacturing Base

 Vibrant downstream industries in different segments
 Competitive core industries
 Capability to produce world-class end products
 Strong presence in the export market in sub-segments
 Large domestic market
 Major raw material component sources within the country
 Good R&D base

WEAKNESSES

 Infrastructure
  Cost Advantages

 Scale of production
Cost Disadvantages - India vs. Other Developing Countries
 Technology
4.5
 Multiplicity
4 of taxes
Percentage of Net Sales

3.5
 Labour 3Laws India
2.5 China
2 Thailand
1.5 Indonesia
1
0.5
0
Power Interest Local Taxes Import Duties
Name of the Country

OPPORTUNITIES

 Challenge to compete globally by concentrating on weaknesses

 Markets in the developed countries
 A large number of products going off patent.
 Advantages in certain categories can be used for boosting exports.
 Close to middle-east- cheaper and abundant source for petrochemicals feedstock.
 Stringent environmental laws in the western countries
 Climatic conditions in India
 Competencies to utilize renewable resources
 Competency to emerge as a global player in the area of Specialty chemicals.

THREATS

 Imports of chemicals, intermediates and end products

 Tariff levels for chemicals
 Greater competition due to
 Chinese products
 Bilateral/multilateral trade agreements
 The labor laws, power supply and infrastructure facilities
MAJOR PRODUCTION CENTERS

• United Phosphorous Ltd, Mumbai

• P.I Industries, Jaipur
• Excel India, Mumbai
• Colour Chem. Ltd., Mumbai
• Sudarshan Chemical Industries, Pune
• Colourtex, Ahmedabad
• Jubilant Organosys Ltd., New Delhi
• Herdilia-Schentady Ltd. Mumbai
• National Organics Chemicals Ltd., Mumbai
• Gujarat Heavy Chemicals Ltd., Ahmedabad.
• India Glycols Ltd., New Delhi
• Gujarat Alkalies and Chemicals Ltd., Baroda
• ICI Calcutta

MAJOR EXPORTERS IN INDIA

• Indian Petrochemical Corporation Limited (IPCL)

• Gas Authority of India Limited (GAIL)

• Haldia Petrochemicals Limited

• Tata Chemicals

• Asian Paints

• Ciba

• Rallis

• Hindustan Organic Chemicals (HOCL)

MAJOR EXPORT DESTINATIONS

 • UAE

• United States

• United kingdom

• China

SEGMENTS OF THE INDIAN CHEMICAL INDUSTRY

speciality
basic
knowledge
chemicals
&chemicals
fine chemicals

17%
26%

57%

The Indian chemical industry is divided into 3 segments which are :

1.Basic Chemicals

2.Speciality and fine chemicals

3.Knowledge chemicals

Segments Characteristics Constituent Industries

Basic • High Volume • Petrochemicals

• Limited product • Fertilizers

differentiation
• Organic Chemicals

• Other Industrial Chemicals

Specialty • Typically small production • Adhesive sealants

units
• Catalysts
• High product differentiation
• Industrial gases
• Low capital investments
• Plastic additives

Knowledge • Differentiated chemical and • Agrochemicals

biological substances.
• Pharmaceuticals
• High investments in R&D
• Biotechnology
and marketing.

FTP PROVISIONS FOR THE CHEMICAL INDUSTRY

 Exports and Imports shall be free, except where regulated by FTP or any other law in
force.

 The procedure for facilitating foreign direct investment has been simplified. Most of the
chemical items fall under the RBI automatic approval route for FDI/NRI investment up to
100 per cent.

 Expansion of FMS – Focus Market Scheme (FMS) has been expanded by adding 26 new
markets, out of which 16 are in Latin America and 10 in Asia-Oceania. Incentive under
the scheme has been enhanced from 2.5% to 3%.

 Expansion of FPS – Incentive under the scheme has been enhanced from 1.25% to 2%.

 Duty free import of specialized inputs /chemicals and flavoring oils is allowed to the
extent of 1% of FOB value of preceding financial year’s export.

 Free imports of samples by exporters - Number of free samples allowed is increased

from 15 to 50 as per para 49 of Highlights of Foreign Trade Policy announced on 27-8-
2009. It seems the change will be effective after relevant customs notification is suitably
modified.

 Customs Duty
1.)The peak rate of Customs Duty on most Chemicals is 7.5%
2.)On basic raw materials like sulphur, rock phosphate, natural borates is 5%
3.)On most building blocks & feedstock the duty is 5% (ethylene, propylene, benzene,
toluene, xylene )
 Excise Duty-On almost all chemicals the excise duty is 16%

 EPCG scheme
Zero duty EPCG scheme - A ‘zero duty’ EOCG scheme has been introduced in FTP
2009-14 for a limited period i.e. upto 31-3-2011.The scheme is available for exporters of
engineering and electronic products, basic chemicals and pharmaceuticals, apparels and
textiles, plastics, handicrafts, chemicals and allied products and leather and leather
products, except those excluded in HBP Vol. 1.

 Manufacture under Bond -Under the Manufacture under Bond Scheme, all factories
registered to produce their goods for export are exempted from import duty and other
taxes on inputs used to manufacture such goods. Against this the manufacturer is allowed
to import goods without paying any customs duty. The production is made under the
supervision of customs or excise authority.

 Duty exemption and remission schemes-The Government has been taking various steps
for augmenting the export. Some of the important measures taken by the Government are
as follows:-

i) Extension of the Duty Entitlement Pass Book (DEPB) Scheme upto December
31,2009;

ii) Providing pre and post-shipment credit assistance in rupees as well as in dollars;

iii) Reduction in import duties of raw materials; and

iv) Reduction in interest rates on export finance; etc

Supply Chain:

The supply chain structure of chemical industries:

Raw
materials

Supplier

Manufacture Inventory

Distributor

Dealer Direct Sale

Consumer

Graph: supply chain structure

Also follows ------------------

QUALITY CONTROL IN CHEMICAL SECTOR

The chemical industry is one of the most regulated activity sectors, where regulation includes
specific quality systems such as good laboratory practice (GLP), good clinical practice (GCP)
and good manufacture practice (GMP). On the other hand, accreditation to these practices covers
technical performance and is not suitable for pharma research and development (R&D) as it is
almost impossible to comply with the requirements of the European standard in the pharma
environment. The challenge is, therefore, to develop quality systems, compatible with various
principles, that not only cover formal quality items, but also ensure good scientific and technical
performance.

Quality Assurance (QA), is the activity of providing evidence needed to establish quality in
work, and that activities that require good quality are being performed effectively all those
planned or systematic actions necessary to provide enough confidence that a product or service
will satisfy the given requirements for quality. QA introduces the rules—'fit for purpose' and 'do
it right the first time'. It can be achieved by introducing appropriate standard operating
procedures (SOPs) in-house.

SOPs

An SOP is a set of instructions having the force of a directive, covering those features of
operations that lend themselves to a definite or standardised procedure without loss of
effectiveness. Every good quality system is based on its SOPs.

The International Conference on Harmonisation (ICH) defines SOPs as 'detailed, written

instructions to achieve uniformity of the performance of a specific function'. SOPs are necessary
for chemical products development-whether it concerns a pharmaceutical company, a contract
research organisation, an investigator site, or any other party involved to achieve maximum
safety and efficiency of the performed clinical research operations. SOPs provide procedural
information about what needs to be completed to fulfil the obligations of the regulations and
provide auditors and regulatory authority inspectors a tool to monitor adherence.

Inspections and audits

Before any inspection or audit starts, it is customary for the inspector or the auditor to read the
current SOPs for the relevant field. This is to judge the compliance of SOPs, as to how sincerely
they are used by the related personnel, following ICH and other applicable regulatory guidelines.

During inspection the inspectors generally ascertain that appropriate SOPs are available; edition
numbers are correct and all obsolete editions have been withdrawn from circulation; distribution
lists are still correct; SOPs are effective, not leaving parts of the working procedures
uncontrolled; whether the SOP conveys a process that is effective in achieving compliance with
requirements/standards, whether the process that is described in the SOP is an efficient way of
performing the task; can the requirements of the SOP be enforced; and whether the SOP training
records for the staff are in place.
QA paradigms

One of the most widely used paradigms for QA management is the PDCA (Plan-Do-Check-Act)
approach. In order to have the PDCA approach, SOPs may be tailored for--pre-clinical, clinical,
bio-analysis and pharmacokinetics, regulatory affairs, pharma-ovigilance/drug safety, project
management, data management, quality assurance including inspections by competent
authorities, external vendor management, crisis management (including product recall), supply
chain management and change control procedures. In a nutshell, all that can be said is 'write
down what you do, do what is written down'.

ISO STANDARDS FOR CHEMICALS

Inorganic chemicals: ISO 1552:1976 & ISO 3425:1975

Organic chemicals: ISO 1995:1981 & ISO 5280:1979

CHEMICAL MANUFACTURING PROCESS & PRODUCT FORMULATION

Chemical manufacturing is the process through which a chemical is synthesized from raw
materials or other chemical feed stocks. Product formulation is the process by which chemical
products, composed of one or more ingredients, are prepared according to the product formula.
(1) describes the process for manufacturing the chemicals in the use cluster; and (2) describes the
chemical product formulation process, if applicable. In both cases, the descriptions focus on the
industrial or laboratory means of synthesis, the necessary starting materials and feed stocks, by-
products and co-products, isolated or non-isolated intermediates, and relevant reaction conditions
(e.g., temperature, pressure, catalyst, solvents, and other chemicals).
GOALS:
 Describe the processes for manufacturing chemicals in the use cluster.
 Describe the process for formulating chemical products used in the use cluster, if
applicable.
  Compile chemical manufacturing and product formulation data to be used by subsequent
modules if the impacts of these up-stream processes are being evaluated in a CTSA.

PEOPLE SKILLS: The following lists the types of skills or knowledge that are needed to
complete this module.
 Knowledge of chemical feed stocks, synthetic chemical reaction catalysts, and reaction
conditions.
 Understanding of chemical manufacturing processes, including both batch and
continuous processes, as well as chemical equilibria, kinetics, and heat and mass transfer.

Within a business or DfE project team, the people who might supply these skills include a
chemist and a chemical or process engineer. Vendors of the chemicals or chemical formulations
may also be a good resource.

DEFINITION OF TERMS:
Catalyst: A substance that accelerates a chemical reaction but which itself is not consumed in the
reaction.
Chemical By-product: An unintended chemical compound that is formed by a chemical reaction.

Chemical Intermediate: A chemical substance that is formed during the reaction and then
undergoes further reaction to produce a product.
Chemical Product: In a CTSA, refers to products in the use cluster composed of one or more
chemicals for which product formulation data must be obtained.
Chemical Reaction: The process that converts a substance into a different substance.
Feedstock: A raw material, pure chemical, or chemical compound that is used to synthesize a
chemical.
Unit Operation: A process step that achieves a desired function.
APPROACH/METHODOLOGY: The following presents a summary of the approach or
methodology for describing the chemical manufacturing processes and product formulation
methods of chemicals or chemical products.

Chemical Manufacturing
Step 1: Obtain chemical information, including CAS RNs, synonyms, melting points, and boiling
points from the Chemical Properties module.
Step 2: Determine the primary industrial mode of synthesis for each chemical in the use cluster
Step 3: Develop a chemical manufacturing process flow diagram for the primary mode of
synthesis. The diagram should identify the major unit operations and equipment, as well as all
input and output streams.
Step 4: Identify any chemical intermediates, catalysts, feed stocks, and chemical products or by-
products involved in the synthesis that have the potential for release.

Product Formulation
Step 5: Obtain chemical product formulation data for any chemical products being evaluated in
the CTSA from the Performance Assessment module. When proprietary chemical products are
being used, only generic formulations may be available.
Step 6: Determine the primary industrial method of formulation for each chemical product being
evaluated. Mixing operations, with or without the addition of heat or pressure, are typical
manufacturing processes for product formulations.
Step 7: Develop a process flow diagram for the primary industrial method of formulation. The
diagram should include the unit operations, material flows, and equipment used in the
formulation process.
Step 8: Identify any chemical intermediates, catalysts, feed stocks, and chemical products or by-
products involved in the product formulation process that have the potential for release.
Transferring Information
Step 9: Provide the following information to the modules listed below:
 Energy usage resulting from the chemical manufacturing and product formulation
processes (e.g., heat, pressure, etc.) to the Energy Impacts module.
 Material streams usage resulting from the chemical manufacturing or product formulation
processes (e.g., chemical feedstocks, catalysts, etc.) to the Resource Conservation
module.

. Risk Management for Chemical Industries

The chemical industrial sector is highly heterogeneous encompassing many sectors like organic,
inorganic chemicals, dyestuffs, paints, pesticides, specialty chemicals, etc. Some of the
prominent individual chemical industries are caustic soda, soda ash, carbon black, phenol, acetic
acid, methanol and azo dyes. Chemical manufacturing sector in India is well established and has
recorded a steady growth in the overall Indian industrial scenario. The Chemical and allied
industries have been amongst the faster growing segments of the Indian industry. The Indian
chemical industrial sector had a turnover of around Rs.1200 billion in 2001-2002. The chemical
exports also accounts for more than 16.20% of the total Indian exports during 2001-2002.

The risks associated with the chemical industry are commensurate with their rapid growth and
development. Apart from their utility, chemicals have their own inherent properties and hazards.
Some of them can be flammable, explosive, toxic or corrosive etc. The whole lifecycle of a
chemical should be considered when assessing its dangers and benefits. Though many of
chemical accidents have a limited effect, occasionally there are disasters like the one in Bhopal,
India, in 1984, where lakhs of people were affected and LPG explosion in Vizag refinery where
huge property damage in addition to 60 deaths was experienced. Therefore
chemicals have the potential to affect the nearby environment also.

 Design and Pre-modification review : Improper layout like location

of plant in down wind side of tank farm , fire station near process
area , process area very close to public road and wrong material of
selection had caused severe damages to the work and outside
environment

 Chemical Risk Assessment: Not assessed for new chemicals from the point of view of
compatibility, storage, fire protection, toxicity, hazard index rating, fire and explosion
hazards

 Process Safety Management: HAZOP, FTA, F&E Index calculation, reliability

assessment of process equipment, incorporating safety trips and interlocks, scrubbing
system, etc. not done before effecting major process changes, lack of Management of
Change procedure (MoC), etc.
 Electrical Safety: Hazardous area classification , protection against static electricity ,
improper maintenance of specialized equipment like flameproof etc were ignored.

 Safety Audits: Periodical assessment of safety procedures and practices, performance of

safety systems and gadgets along with follow up measures were not carried out.

 Emergency Planning: Lack of comprehensive risk analysis indicating the impact of

consequences and specific written down and practiced emergency procedures along with
suitable facilities had increased the severity of the emergency situations.

 Training: Safety induction and periodical refresher training for the regular employees and
contract workmen were not carried out.

 Risk Management & Insurance Planning: Thorough identification and analysis of all risks
and insurance planning were not done so that interruption risks and public liability risks
could also be managed effectively.

REFERENCES
 Department of chemicals and petrochemicals, Chem Report 2008
 Overview of the chemical industry, KPMG report 2008
 Organic chemicals annual review, Crisil Research, December 2008
 Datamonitor, Chemicals in India, October 2007
 WTO international trade statistics, 2007
 Chopra Sunil, Meindl Peter-2006 “Supply Chain Management ” third edition, Dorling
Kindersley(India) Ltd.

Websites
 www.chemindia.org
 http://commerce.nic.in/trade/national_ftpp.asp?id=3&trade=n
 http://en.wikipedia.org/wiki/Chemical_industry
 explore.oneindia.in/detail/2/chemicals-nic-in.html