Brand Pipe Company

Submitted by Group 3
Arun Srinivaas 1811212
Prasanna Venkatesh J 1811327
G V Subashree 1811393
Vivek Gaba 1811092
Shreyas Dhongade 1811015
Ramakant 1811145

Is the industry attractive?
Bargaining power of buyer - HIGH
o Commoditised product – compete on price
o Lots of alternative supplier availability
Threat of entry - HIGH
o Fragmented and undifferentiated market
o Low fixed cost
Industry Rivalry - HIGH
o 6 regional and 5 to 8 national producers
o Little differentiation on product features
Threat of substitution - MODERATE
o Growing preference of plastic pipes because of its
advantages over iron, mild steel etc.
Bargaining power of Supplier - NA
Unattractive market
Industry Analysis
Market share across segments
11%
89%
Others Brand Pipe
Total sales: 54.41 Million Pounds
Brand Pipe: 6.12 Million Pounds
Total Growth for 5 years: 42%
Key Characteristics
Commoditised product
Transactional relationship b/w buyer and seller
• No long term contract due to price volatility
• No tech assistance required
Facilitating goods
Though the product is used as a foundation product for the
segments, the characteristics exhibited by this product are
more in line with facilitating goods
What do buyers look for?
Price followed by service
Customers seek Stable prices
Pricing policy forces price wars between suppliers
Convenient source of suppliers are preferred by
customers – hence local suppliers are preferred
 Company and competitor analysis

Brand Pipe Company Competition

Overview Strengths Overview Strengths of other players

• Began operations from 1950’s
• Division of Arnol
Corporation(Unrelated to pipe
manufacturing)
• Serves Pacific Northwest
Brand Pipe Offerings
• Polyethylene pipes
• PVC pipes
• Styrene pipes
• ABS pipes
Customers
• 11 Market segment customers
based on product application
• Most technically advanced
equipment in the industry
• Proximity leading to speed of
delivery
Weaknesses
• Limited staff – inability to improve
process and decision making
issues
• Mis management of the resources
(plant manager opinion not
considered)
• Financial constraint by
management
• No focus market segment
established by the management
• 6 regional players • Sierra Plastics:
controlling 75% of the • Market Leader
market • strong position in
• 5-8 major national Southern Oregon -
competitors controlling Northern California
25% of the market • Focussed on Conduit
• Indirect competition from Market
Copper, Cast Iron, • Tamarack:
Asbestos, Fiber pipes etc. • within 50 miles of BPC
• prominent in other two
sales areas
• focussed on agricultural
irrigation
 What is the key issue faced by company now?
The profitability has been decreasing and company had operated at a loss for past year and half .

What are the causes of this issue?

Environmental factors Internal factors

Issue: Japanese entry to Pacific Northwest market for PVC
– price level decrease from $0.28 to $0.26
Issue: Wasting 30 – 40% of capacity currently. Increased
plant capacity in anticipation of taking over Sierra
account.
Root Cause: They were an OUT suppliers and didn’t
approach the current buyers of Sierra before increasing
capacity. They didn’t try to change it to modified rebuy.
Issue: 7% material waste due to inability to control pipe-
wall thickness
Root Cause: No man power to work on this issue even
though company owns advanced tech equipment
Issue: Change over costs – since management wanted to
hold low inventory
Root Cause: Lack of communication and trust between
engineers and corporate management

How can these issues be tackled?

Reducing cost incurred during Identification of most suitable and attractive

Choosing the right product mix
manufacturing market segment
 Cost Analysis
Cost items Poly PVC ABS Styrene

Gross Sales 0.3625 0.28 0.3648 28%

Less discounts -0.071 -0.01 -0.0378 -0.04

Net sales price 0.2915 0.2622 0.327 0.2385

Less variable costs

-0.28365 -0.20739 -0.315456 -0.19623
Material loss is eliminated (@93%)

Direct margin 0.00785 0.05481 0.011544 0.04227

Less fixed costs

-0.025805 -0.024375 -0.032565 -0.02041
(assuming full utilization)

Profit -0.017955 0.030435 -0.021021 0.02186

Change over cost as a percentage of revenue – as high as 2.45% (Refer Appendix)

Inference

Poly ethylene & ABS are loss making units even after incorporating the ideal scenario of full capacity & no material loss
 Market Segmentation and attractiveness
Macro segmentation of the market is done on the basis of product application – case covers 11 market segments

Market Market Micro-segmentation

Segment
Major Plastic growth size
Macro Segment Attractiveness
type used (All markets) (in 000s lbs) Price vs service Value based Purchasing Organizational
Key criteria DMU
trade off strategy strategy Innovativeness

Agricultural Value for Transactional Innovation Many

PVC 17% 16500 Large farmers Yes
irrigation money buyers focused suppliers

Highly
Private potable Transactional Many Plumbing
PVC, Poly, ABS 0% 350 High quality competitive No
water system buyers suppliers contractors
markets

Purchase
Mobile Home Fast growing Few
ABS 75% 1400 Low price Bargain hunters (national No
market markets suppliers
product)

Public potable Transactional Fast growing Many Government

PVC 100% 5000 Low price Yes
water system buyers markets suppliers staff

Transactional Fast growing Many

Industrial market PVC, Poly 45% 1000 High quality Technical staff Yes
buyers markets suppliers
 Market Segmentation and attractiveness

Market Market Micro-segmentation

Segment
Major Plastic growth size
Segment Attractiveness
type used (All markets) (in 000s lbs) Price vs service Value based Purchasing Organizational
Key criteria DMU
trade off strategy strategy Innovativeness

Turf irrigation Fast growing Many Plumbing

PVC, ABS, Poly 57% 5900 Low price Bargain hunters No
market markets suppliers contractors

Drain waste and PVC, Transactional Fast growing Many

35% 1750 High quality Labour unions Yes
vent market ABS (90%) buyers markets suppliers

PVC, Poly, Fast growing Many

Conduit 50% 1000 Low price Bargain hunters Contractors No
Styrene markets suppliers

Sewer and outside Transactional Fast growing Many Government

Styrene, PVC 78% 2800 Low price No
drain buyers markets suppliers staff

Gas transportation Transactional Innovation Many Technical (gas

PVC, Poly, ABS 0% 300 High quality Yes
market buyers focused suppliers company)

Highly
Water well service Many
PVC, Poly 0% 900 Low price Bargain hunters competitive Small farmers No
and stock water suppliers
markets

What products to offer?
Focus on PVC and Styrene pipes, as they are
profitable
Saves changeover costs, frees up resources who
are tied up – can be used for saving material
loss
Recommendations
Which markets to concentrate on?
Agricultural irrigations, Public potable water,
Turf Irrigation, Sewer and outside drain, Conduit
and Water well service and Stock water markets.
Can focus on particular market segments -
increase in overall profitability, increased market
share which can utilize more capacity
Customer Value proposition
Product differentiation through value-adding
features like plastic component sprinkler systems
which will help in capturing a larger share of the
biggest markets like Agricultural irrigation.(biggest
market but only 11% pipes actually plastic)
Can reduce the risk of price dependency and can
charge a margin for the value added services or
bundling
 Interview transcripts
Customer’s perspective – Mr. Ravi Kumar
Contractor of Chennai Metro who sources pipes from
various vendors
Q: What are the main pipes you deal with?
A: HDPE pipes
Q: Describe your buying process
A: Acquires quotation from 4 to 5 well known vendors and
finalizes deals
Q: Do you source via a distributor or manufacturer?
A: Distributor only
Q: What are the important criteria while selecting
distributor?
A: Price first, then quality
Q: Is there price volatility? What do you do for solving that?
A: Yes, price volatility exists. We get re quotes from vendors
when this happens. We change vendors once in two years
approximately and that mainly happens due to the changes
in price.
Q: What’s your biggest pain point?
A: Protection of pipes post acquiring from vendors from
theft and harsh whether.
Inferences: Price is the most important factor and hence its
difficult to change price even if volatility is controlled by
increasing price.
Distributor’s perspective – Mr. Naveen and Mr. Vikas
Vikas Hardware, Baddi and Chandigarh Mill – a distributor of pipes
Q: What segments of customers do you cater to?
A: Most of the customers are using pipes for water (private and public), conduit, industrial
and drainage purposes.
Q: What brands do you deal with in plastic pipes?
A: Kisan, Supreme and Prince
Q: How do prices differ across brands?
A: Prices hardly differ across brands. For E.g., Kisan is around 2% cheaper for I have direct
dealership for this brand and they are not charging freight charges for consignments. This
reduces total cost for Kisan products. The basic cost across brands remains almost similar.
Q: What is the source of communication for product line and offers from suppliers?
A: Sales people from every supplier visit us periodically communicating latest offers and
additions in product line. They also distribute brochures suggesting specifications and
prices for entire product line.
Q: How frequently do you experience price fluctuation in plastic pipes?
A: Price fluctuations are rare. This is generally governed by changes in raw material prices.
Price variation across suppliers is minimal.
Q: How do you decide inventory levels?
A: Shipments are scheduled fortnightly considering space constraints. All three suppliers
are capable of fulfilling orders in a lead time of 1 week.
Inferences: There is limited/ no differentiating factor across suppliers and hence brand
pick suppliers which offer least price
 Appendix

Assuming 250 working days per yr 250

Cost per day 175

Total Cost per yr 43750
Total Revenue 1812574.6
Changeover cost as % Revenue 2.41%