Professional Documents
Culture Documents
Section E
Group 9
Statement
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Ajanta Packaging: Business Dilemma | Business Case
Table of Contents
Table of Contents ........................................................................................................................ 2
Summary ..................................................................................................................................... 4
Statement of the Problem ......................................................................................................... 5
1 Changing Times and Global Landscape ........................................... 5
1.1 Glass Packaging Industry ...............................................................................................5
.... 1.1.1 Evolution of Glass Packaging Industry ..................................................................5
.... 1.1.2 Organisation Overview...........................................................................................5
.... 1.1.3 Business Need ........................................................................................................5
.... 1.1.4 Changing Environment ...........................................................................................6
1.2 Strategic Fit ....................................................................................................................6
1.3 Detailed Description of the Business Need ....................................................................6
.... 1.3.1 Opportunity ............................................................................................................6
.... 1.3.2 Prioritized Requirements (High Level) ..................................................................6
.... 1.3.3 Assumptions ...........................................................................................................6
Table B: Key Assumptions behind the scenario.........................................................................6
.... 1.3.4 Constraints..............................................................................................................6
.... 1.3.5 Dependencies .........................................................................................................7
Table C: Major Dependencies and their behavior ....................................................................7
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Ajanta Packaging: Business Dilemma | Business Case
Appendices ................................................................................................................................ 14
Cost-Benefit Appendix .......................................................................................................14
Sources of funding .............................................................................................................14
Costs and Revenue .............................................................................................................14
Payback period ...................................................................................................................14
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Ajanta Packaging: Business Dilemma | Business Case
Summary
Ajanta Packaging is the leader in the supply of glass bottles in India. This industry has a derived
demand from industries such as liquor, soft-drinks and pharmaceutical products. The industry is
seeing a transitioning from the conventional glass bottle to alternative materials such as PET
bottles, tetra pack, aluminum cans etc. The case discusses the stiff competition that this industry
faces because of substitutes products and increasing bargaining power of the clients. The
competition for maintaining the market share has been intensified and contribution per unit has
been squeezed. The bargaining power of the supplier has been reduced. Thus, the customer
demands renegotiated prices. This has led to price war and ugly competition in the competitive
glass-bottle industry.
The case critically analyses and presents the possibilities of the positive and the negative prospects
in the future. It then, describes the stiff completion that has set in the glass-bottle industry. With
the reduced profit and increased competition, the owner of the Ajanta Packaging has to decide the
best way to adapt to the newer reality. The various feasible solutions include setting up of the
business for PET bottles, maintaining a status-quo or diversifying the business to provide many
other packaging materials.
The company has to take a decision whether to remain in the niche segment and exploit the industry
with fewer competitors or to enhance it reach by diversification of products by investing other
offerings.
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Ajanta Packaging: Business Dilemma | Business Case
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Ajanta Packaging: Business Dilemma | Business Case
As the traditional glass bottle industry faces consolidation and downturn, there seems to be need
for the company to reinvent themselves to be competitive in the long run. The company needs to
invest to increase its capacity in the desired offerings such as PET, tetra pack.
1.3.3 Assumptions
Table B: Key Assumptions behind the scenario
Effects on Reliability Level:
It is assumed that:
investment: High/Medium/Low
Assumption 1 There is still demand for glass bottles Not much Medium
Ajanta will be able to capture market for
Assumption 2 High Medium
PET leveraging upon relationships
1.3.4 Constraints
The company faces constraints both internal as well as external. The product has to meet the
minimum qualified set of benchmarks set by the government. Above that, the government also
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Ajanta Packaging: Business Dilemma | Business Case
regulates the amount of pollutants that the company can emit during production. The government
has also banned sale of liquor in PET bottles. These restrictions should be heeded while planning
for future investments.
There has been a rise in awareness about environment conservation. Environmental activists are
demanding that the companies producing the PET bottles must also take responsibility for
recycling dumped material. In such a case, the cost of procurement and delivering the waste might
add up to the cost of production.
Ajanta also seems to lack subject matter expertise in the new technology. The company may also
have to take a loan to finance the expansion of the infrastructure and the production capabilities.
1.3.5 Dependencies
Table C: Major Dependencies and their behavior
Number Element: Is dependent upon [action] from [entity]:
Dependency 1 Raw Material Delivery from Suppliers
Dependency 2 Demand of PET Sales pitch by Marketing Team
Dependency 3 Just in Time Delivery Storage Capacity at each warehouse
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Ajanta Packaging: Business Dilemma | Business Case
50% glass 50% PET Through this option they can cater to their existing glass customers
and acquire and invest their efforts in the new market of PET.
30% glass 70% PET Through this option, Ajanta can become a major player in PET
packaging while keeping its existing glass customers reasonably in happy.
Only PET Because of the decline in the product life cycle of the glass industry, Ajanta should
look for new technology. Through this option Ajanta can establish in an entirely new customer
base.
90% glass 10% PET- In this option the recyclability is high as 90% of the products are glass.
The safety of the product is low due to fragile nature of glass bottles. The transportation costs
are also high with huge offering in glass. As with this option, Ajanta will be serving its existing
market with around 10% offerings as PET bottles, future demand sustainability is low. Initial
investment would also be low. Raw material and production cost will be lower as most of it
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Ajanta Packaging: Business Dilemma | Business Case
would be recycled glass. Profits margin would also be low in this case. This option can be
considered for further analysis and can be a viable option.
50% glass 50% PET with production divided 50-50 between glass and PET the recyclability
of the product is moderate. The safety of product is also moderate with half of the products
being of glass. Future demand sustainability is moderate as it is serving its existing market as
well as fast growing PET bottle market. Initial investment is moderate as Ajanta needs new
production facility for only half of its production. With 50% PET production, raw material and
production cost are also moderate. As 50% of profit is coming from PET bottles, profit margin
is also moderate. This is a viable option and can be considered further.
30% glass 70% PET 70% of the product being PET, recyclability for this option will be
low. Safety of product is comparatively high as PET bottles are safer and have a longer shelf
life. With more focus on fast growing PET market, future demand sustainability is high. Initial
investment is also high as Ajanta needs new production facility for 70% of its production. Raw
materials and production cost are lower. With higher consideration of PET, the profit margins
are also high in this option.
Only PET With a complete shift from glass packaging to PET the recyclability is very low.
All products being PET, the safety of product is very high and weight of product are bound to
be very low. Future demand sustainability is high with growing demand for PET. Initial
investment is very high as Ajanta has to shift entirely to PET production. Raw material and
production cost is low. With less competition and cheaper raw materials profit margin is very
high. As Ajanta has to shift its production entirely this option is not viable.
Screening criterion:
Very high High Moderate Low Very low
Recyclability
Screening criterion:
Very low Low Moderate High Very high
Safety of product
Screening criterion:
Very high High Moderate Low Very low
Weight of product
Screening criterion:
Moderately
Future demand Low Low Moderate High
high
sustainability
Screening criterion: No
Low Moderate High Very high
Initial Investment investment
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Ajanta Packaging: Business Dilemma | Business Case
Screening criterion:
Raw material and High High Moderate Low Low
production cost
Screening criterion:
Very low Low Moderate High Very high
Profit margin
Retained
Summary as Viable Viable Viable Discounted
baseline
90% glass 10 % PET this option maintains existing glass production business and at
the same time peek into the future of PET bottles.
50% glass 50% PET this option maintains a perfect balance between PET and glass.
Any change in the environment will not affect Ajanta with this option.
30% glass 70% PET this option is a big leap in the future and the same time keeping
existing customers happy with 30% glass production
OPTIONS 90% glass 10 % PET 50% glass 50% PET 30% glass 70% PET
Disadvantages Safety of product is Does not excel in any Recyclability is low, and
low, weight is high, of the criteria. initial investment is high.
raw material and
production cost are
high, profit margin is
low and future
demand sustainability
is also low.
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Ajanta Packaging: Business Dilemma | Business Case
2.2 Recommendation
The study suggests three viable options for Ajanta Packaging to adopt in order to overcome the
threats of uncertainty. With growing demand for a rigid, light weight packaging option, Ajantas
existing infrastructure and supremacy in producing glass bottles, we suggest a strategy to produce
a mix of both glass and PET. The three options we suggest are 90% glass 10% PET, 50% glass
50% PET and 30% glass 70% PET.
Based upon the analysis of multiple criteria we recommend Ajanta Packaging to opt for the
strategy to produce 50% glass 50% PET. With this option Ajanta will be able to leverage its
existing infrastructure for producing glass bottles for their existing clients and will also be able to
move into new PET bottle market with a significant capacity. With 50% PET bottle production,
Ajanta would be able to earn sufficient profits to recover its initial investments in PET production.
The PET bottle manufacturing plant has a small footprint, technology by DuPont, new hires
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Ajanta Packaging: Business Dilemma | Business Case
Set up batch
plant
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Ajanta Packaging: Business Dilemma | Business Case
The relationship of the investment to the existing risk register would be dependent upon
The benchmark information which can help better evaluate our options would be
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Ajanta Packaging: Business Dilemma | Business Case
Appendices
Cost-Benefit Appendix
Sources of funding
1. Existing Cash
2. Loan from Bank
3. Micro finance Loans
Payback period
Payback Period = Investment Required
Net Cash Inflows
Option 1: $4.5 M/ $1M =4.5 years
REVENUE AND COSTS over 3 years OPTION 1 OPTION 2 (50% OPTION 3(30%
(payback period) (90% Glass- Glass-50%PET) Glass-
10%PET) 70%PET)
Additional Sales Revenue $ 3 million $ 20 million $ 23 million
New equipment cost -$ 2 million -$ 6 million -$ 7 million
Incremental Raw materials -$ 1 million -$ 5 million -$ 7 million
Equipment setup cost -$ 0.5 million -$ 2 million -$ 3 million
Incremental Wages for sales staff N/A -$ 1 million -$ 1.5 million
Incremental Inventory Costs N/A -$ 0.7 million -$ 1 million
Incremental Utilities -$ 0.3 million -$ 0.6 million -$ 0.9 million
Incremental Maintenance costs -$ 0.2 million -$ 0.7 million -$ 1.1 million
Incremental SG&A expenses -$ 0.5 million -$ 4 million -$ 5 million
Profits before taxes (PBT) ($ 1.5 million) $ 0 million ($ 3.5 million)
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Ajanta Packaging: Business Dilemma | Business Case
Acronym In Full
$M $ Million
References
1. Dhawan, S. (2015). Soft drinks in India. Retrieved from
http://www.euromonitor.com/soft-drinks-in-india/report, accessed Nov, 2016.
2. Ali, A. (2013). How plastic bottles are formed. Retrieved from
https://www.youtube.com/watch?v=ed7XJeXl3b4 , accessed Nov, 2016.
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