Papad making cooperative


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Detailed analysis on the external environmental analysis on Papad making industry, cost structure, margins in the value chain, proposed business model for the cooperative, organizational structure, activities of the members and proposed checks and balances.

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  • The collective may not be a cooperative as the membership cannot be voluntary in our model; The more members, more equipment required
  • Papad making cooperative

    1. 1. Dadi Sa Cooperative Ankita Sirohi Megha Chaudhary Pavan Chengalvala Akshata Kari Rridhee Malhotra Puneet Jain Prateek Bhatia Institute of Rural Management 2013
    2. 2. PAPAD and its market  Papad is a popular and tasty snack item  Major Players : Lijjat, Bikajiwala, MDH & Shakti Bhog  Traditionally papad making has been confined to households through sun drying by women in the house.  Three types of processing techniques used are: 1. Handmade and then Sun-dry 2. Semi-automatic 3. Fully automatic (Dryer is Used)  Handmade Papad preferred more than the machine made ones; its more crispy and tastes better.  Latent demand for Handmade/ Semi handmade Papad
    3. 3.  Demand generally goes up by 15 to 20% during Diwali     season(Nov.– Feb.) Variants like single mari, double mari, jeera mari, garlic and punjabi papad Perishibility of 2months Uttarsanda is the biggest cluster of papad making units in Gujarat catering to domestic as well as international markets. Others include Bikaner, Mumbai, Kheda. Huge export potential
    4. 4. Raw Materials Required For 1 kg Papad,  Urad Dhal flour (Black Gram) – 1 kg  Black Pepper Dal – 25 gm  Soda-Bicarbonate (NaHCO3) – 35 gm  Salt– 35 gm  Asafoetida (Hing) – 12.5 gm  Edible Oil – 25 gm  Flavors (as per choice) - ground black pepper or garlic, or chili  Water - 350 ml
    5. 5. Manufacturing Process overview
    6. 6. Porter’s Five Forces Model Threat of New Entran ts Low Entry Barriers  Economies of Scale  Access to distribution channels  Cost Disadvantages other than Size Related Moderate Reactions from Competitors  Resources of existing participants Moderate Buyer Power Profitability of buyers Switching costs Availability of Information Large number of competitors in the market Local producers, Lijjat, Bikajiwala, MDH, Shakti Bhog Handmade Papad as substitute No complements High Supplier Power Product differentiation Information available to buyers Switching costs Proportion of revenue represented by sales
    7. 7. Factor Conditions  Easy Availability of Raw material. Scattered suppliers across Himmatnagar, Indore, Dahod, Rajkot, low switching costs between suppliers and low concentration of sellers.  Suitable Agro-climatic availability for sun drying component of the manufacturing process; 320 days of bright sunlight in a year.  Easy availability of capital through member contribution, government subsidies of up to 35% on a loan amount of 10lac and above for setting up of business unit.  Strong infrastructural support in the state of Gujarat
    8. 8. Industry Conditions Demand Conditions  Large number of buyers and  Increasing demand to the sellers  Large number of competitors and relative size, each vying for the share in total value pie.  Low Entry Barriers, less barriers in raising of capital, low uncertainty in the industry  Quality & Quantity of raw materials assured extent that the industry is unable to meet it through its current capacity  Latent demand for Handmade and Semi handmade Papad  Transparency in quality through appropriate grading criteria and fairness in quantity measurement
    9. 9. Economies of scale, scope, Integration  Low fixed costs for semi hand made method of     preparation Economies of scale exist but limited No Economies of scope Less scope for Backward integration. Forward integration possible by establishing own sales and distribution network- Economies of Integration exist
    10. 10. Cost structure Cost / Kg. Raw material Variable costs (including raw material) Rs. 50.37 Fixed costs Rs. 7.53 Cost of Goods sold Rs. 70.50 Raw material cost / COGS 71.45% Rs. 62.94
    11. 11. Margin model (per Kg.) Margin=56.02% Margin=20% Cost for collective Distributors Cost Retailers/Hotel Cost Rs. 70.5/- Rs. 110/- Rs. 125/- Margin=13.6% Customer Cost Rs. 150/-
    12. 12. The Proposed Setup Product Portfolio  Production centers in 25 Papad  Khakra  Chaurafali & Mathia (Seasonal Production)   Pickles tier-1 and tier-2 cities of Gujarat Decentralized production at 50 production centers managed by HO All sales under single brand name- Dadi-sa Semi handmade and handmade products as USP Catering to upper middle class target segment in urban areas of Gujarat
    13. 13. Individual Production Center (Monthly stats) 85 members Papad Khakra Pickles 15000 kg 6250 kg 333 kg 50 members 25 members 5 members
    14. 14. Business model Hotels Training, Maintenance, Promotions Head Office Marketing and Sales Production Center Supply of Raw Materials Distributors Retailers/ Own shop Consumer
    15. 15. Production risk  Low uncertainty in supply of raw material  Labour pool available  Process risks low  Availability of Sunlight for drying
    16. 16. Purpose of the Collective  Utilize and enhance the skills of women members  Giving a stable source of income  Build a reputed brand in home-made food products  Build a reliable and efficient sales & distribution network to help members market the items they produce
    17. 17. Member centrality  Without Collective (Existing scenario per member) Wage rate / day= Rs.125- Rs.150 Annual earnings= Rs.37,500- Rs.45,000  Membership fee = Rs.2500 Deposit= Rs.8000 Annual opportunity cost of investment (@10%)= Rs.1050
    18. 18.  With Collective (per member) Wage rate = Rs.125 Annual wages= Rs.37500 Bonus on Annual wages (@10%)= Rs.3750 Share in retained earnings = Rs. 1,57,240 Net benefit per annum= Rs. 1,52,440
    19. 19. The Products – Marketing Perspective Point/Product Portfolio Papad Pickles Khakra/Mathiya/ Chaurafali Points of purchase Grocery shops and next-door provision stores Grocery shops, snack shops and next-door provision stores Snack shops, sweet marts and next-door provision stores Consumption cycle and pattern Daily with meals Daily with meals and other snacks Daily as breakfast or as snacking options Purchase cycle Weekly Occasional and longer 3 to 5 days Product type Very high margin- high volume High demand High marginlow volume Moderate demand High Demand
    20. 20. Requirements from the setup Members Stable income Higher than current returns Low investment requirements Limited skills Patronage Centrality Consumer Business Consistent in quality and taste Cost-effective Accessible Reliable Brand value Competitive skills Adequate returns Growth and expansion opportunities
    21. 21. Core and Periphery Activities Core Production of Papad, Khakra, Pickles, Mathiyan, Chaurafali Maintaining the consistency of quality Periphery Training of members in adhering to quality standards Training in functional activities like marketing, financial reporting
    22. 22. Capital Structure  Long term   Share Capital: Rs. 2500 per member Member’s Deposit  5 years lock-in-period  10% annual interest  Rs. 8000 per member  Short term : Working Capital as per weekly operating cycle of Rs. 3,14,197  Source: Short term bank loan of Rs. 1,80,000
    23. 23. Member Profile 1. Women residents living within a radius of 8 km of each center 2. Capable of making a small investment (Rs. 8,000+2,500)
    24. 24. Member Induction • Initial orientation of a week to make them well versed with the various process and machine operations • The members would have to undergo a probation period of one and a half month, failing to successfully complete which the member would be refunded the membership fee. • On-the-job training by rotation on all the processes involved
    25. 25. Probation Period S no Weeks Training of  Mandatory job 1 1 Papad rotation hence training on variety of skills required.  Appointment of trainer for training on quality management 2 2 Khakra/Mathiyan /Chaurafali 3 1 Pickle 4 1 Quality Assurance 5 1 Packaging & Accounting skills
    26. 26. Structure – Organization Level Management Committee (25) Board of Directors(5) President Vice President Secretaries (2) Treasurer (2)
    27. 27. Roles & Responsibilities Units Roles & Responsibilities Production Units – Khakra, Papad and Pickles Supervisors (part of Committee) 1. Management of daily production responsibilities of their respective products. 2. Product innovation. 3. Check of quality standards of each product. Sales and Distribution 1. Taking orders 2. Distribution of products 3. Inventory control 4. Transportation handling Product Innovation and Marketing 1. Team would be formed if and when required on ad hoc basis 2. Members from other units like Sales and Committee will be present 3. Market survey will be conducted if required. Committee 1. Sanchalika is the one responsible for all decisions at branch level, for profits and welfare of all members in the branch
    28. 28. Structure – Centre Level Management Committee (organization level) Unit Head Record Keeping & Accounts Supervising Committee (5) Khakra Group Pickles Group (25) (5) Papad( 50)
    29. 29. Decision-Making Decision Responsibility Rule New member entry Coordination Committee 2/3 Majority Employee recruitment Coordination Committee 2/3 Majority Termination of membership General body 2/3 Majority Exit or retirement of members Chairperson As per the rule book Flow of people
    30. 30. Decision-Making.. Decisions Tackle Rule Issues with members deposits General Body 2/3 Majority Treatment of surplus General Body 2/3 Majority Expansion and related investments General Body 2/3 Majority Working capital investment and management Coordination Committee Consensus Flow of money
    31. 31. Decision-Making.. Decisions Tackle Rule Input arrangement Product committee Consensus Seasonality Management Committee Consensus New product development General Body Consensus Managing distribution channels Distribution committee Consensus Terms of trade General Body Consensus Functional aspects
    32. 32. Decision-Making Decisions Responsibility How Arrangement of member duties Management Committee Consensus Training and skill development Management Committee Consensus Dispute settlement General body Consensus Elections General body Consensus
    33. 33. Meetings Committee/Units Frequency Purpose Production Units Every week To decide members tasks for the week. The members required for the week vary according to demand. Management Committee would advise the production units. Quorum: 30 Management Committee Every Week If required this meeting would take place and advise the production units. Quorum: 5
    34. 34. Meetings Committee/Units Frequency Purpose Management Committee Every quarter Quarterly Review and review the product profile. Quorum: 5 Management Committee Whenever required New product approval, new policies regarding packaging, orders etc. Quorum: 5 Sales and Distribution Group To review the sales of the week , get the feedback and draw tasks for the next week. Quorum: 3 Weekly
    35. 35. Member Compliance Working Time Members will have to sign in the registry both in the morning and evening with time specification. Task Allocation Member should follow the task instruction. Rotation of job should be followed strictly. No request for change of task is entertained more than once in a month. Meetings No member can absent herself from any meetings. A cut of one day wage would be imposed. Exceptional conditions would be considered. Uniform In order to comply with cleanliness and quality, and also to maintain uniformity, the members have to wear uniform, apron and a pair of gloves.
    36. 36. Checks and Balances  A team comprising HO members will be formed for     surprise visits at various centers once every three months to ensure that the quality standards are adhered to. Defaulters will be penalized with a heavy fine of 1% of monthly production The quarterly review committee reports would be shared to all members after the management committee meets. Suggestions from each and every member would be respected and considered in the management committee meetings. Each member would be allotted a target and her performance in work would be evaluated every three months.
    37. 37. Performance Indicators Level Indicators Member Target production Attendance Adherence to Quality Standards Cooperative Return on Capital Return on Capital Employed Market Power Patronage Distribution Social Institution Openness & transparency Socio Economic Upliftment Health Check for members Maternity Loans Education Promotion for children of members
    38. 38. Activity Mix  The activity for the week would be decided on every Saturday.  The number of workers in plant for the week would be decided depending on the demand for the next week.  Every member would be in an activity only for one month at most.  Every week four members from each group would shift (rotate) to another group, ideally two members for each of the other two groups.
    39. 39. Activity Main Task Problem area Skills required Major agencies involved Opportunities Production n packaging Making of papad, khakra, Mathia, pickles Maintaining quality standards, wastages Handling machines Input procurement Purchasing, distribution to different centres Fluctuations in commodity prices inventory management, demand forecasting Traders, APMC mandies Firming up ties with suppliers Training Provide training to new members during probation period Members with longer learning curve Good HR skills Trainer Skill improvement, increased output of workers Quality assurance Monitoring and doing timely quality checks Dealing with inconsistent qualities, rejections Monitoring and Quality evaluation assurance skills team High market demand, profitability Less rejections, standardization
    40. 40. Quality Assurance Standard Manuf. Process Standard Formulation Training Errant Employee Identified Group level check before packing Sealed packs with complete details Sample Testing of Sealed Packs Depot Errant Group Identified Fine Rs. 100 per pack Hotels
    41. 41. Quality Assurance Urad Dal Black Pepper Salt Water Dough • Check the full granules and their whiteness • check for stones and dirt • Powdered form obtained after pulverizing is checked manually with a strainer • Should be properly dried free from any kind of moisture • Spiciness also checked • Checked for any insect and fungal infestation • Ensured that salt purchased is of ISO mark • Whiteness checked manually and Fineness checked by rubbing it in hands • Check the free flow by throwing it down • Ensure that water used in making dough is cold • Ensure appropriate water content in dough • Ensure that the texture, freshness and quality of the dough is retained
    42. 42. Quality Assurance.. Thickness • Ensure uniform thickness • Ensure standards are maintained Packaging • Removal of broken and damaged papads • Removal of papads with excessive oil
    43. 43. Terms of Exchange Members Suppliers Distributors • Daily disbursement of Rs. 150 as wages on cash basis • Bonus disbursed through cheque annually, initial five years at 10% of wages •Operating Cycle – Credit period 2 months- Raw material every 15days’ •Buying raw materials on credit from the suppliers according to the demand of two weeks. •Transportation costs for the raw materials to be borne by the suppliers •Rejection of raw material consignment if quality standards not adhered to by the suppliers. • Final goods to be picked up by the distributor from the center solely on cash basis. • Transportation costs to be borne by the distributors Institutional Buyers • Delivery of demanded lots of final goods solely on cash basis • Ordered once delivered will not be taken back • Transportation costs to be charged to the buyers
    44. 44. Risk mitigation  Technological Risks - Resource re allocation  Planning Errors – Planning inclusive of safety times and buffers  Input Prices fluctuations- Buying in bulk, maintaining a pool of suppliers and establishing good relationships  Input storage – proper storage facilities attached to each centre.  Seasonal fluctuations – Coal drying, more concentration on khakra and other products.  Member falling sick- Job Rotation  Rented Facility – Proper contractual terms and relationships
    45. 45. Break even analysis Retailers Sales Price (Rs. / Kg.) Variable Cost (Rs. / Kg.) Contribution (Rs. / Kg.) Sales-mix Proportionate Contribution Weighted Average of Contribution Total Fixed Cost Breakeven Sales (Units) Time required (including promotion) Hotels Distributors Khakra Pickles 150 125 110 160 135 73.15 73.15 73.15 34.02 89.38 76.85 51.85 36.85 85.98 45.62 7.023 28.09 35.12 28.9 0.87 5.3971755 14.56467 12.94172 24.84822 0.396894 11916 14898 12260 369 58.1486745 2466718 2979 55 days 2 months
    46. 46. Thank You!