Operations Management Report on Lux Soap Essay

Acknowledgement: We thank all those people who helped us in preparing this report. Immense hard work has been done by all the members of our group in compilation of this report. We also thank our instructor Mr Jawad Bhatti, who has helped us always by providing us with the much-needed guidance, kind behavior, moral support and her valuable time. Our contact person in Unilever Pakistan, Ms. Sarah Siddiqui also provided us with her expertise in the construction of the report and we are extremely grateful to her for providing us with valuable insight and information with respect to LUX. The preparation of this report was a wonderful learning experience. We learnt to work in a group efficiently and equally. The experience gained by the preparation of this report will surely be beneficial for us in the future, always. 2 Executive Summary: Lux soap first produced in United Kingdom in 1899. It was produced by British company name Lever Brothers. Lever Brothers was founded in 1885 by William Hesketh Lever and his brother James. They using glycerin and vegetable oil such as palm oil to manufacture soap called â€Å"Sunlight Soap.† The flaked version of soap called Lux soap. Glycerin was a lucrative byproduct of the soap making process, and by the end of 1886, Lever brothers also had a glycerin factory. The beauty soap industry has a few major producers of which Unilever holds market share of slightly less than 50%. Other competing brands like Dove, Rexona and Capri have started to have a strong consumer base, but LUX.’s product features distribution and promotional activities have created high brand loyalty for which it is still the market leader. Since the 1930s, more than 400 of the world’s most famous female celebrities have been associated with Lux. Sarah Jessica Parker, Katrina Kaif, Aishwarya Rai and Mahira Khan are some actresses featured in Lux advertising campaigns in US, India and Pakistan. Today, Lux is the market leader in several countries including Pakistan, Brazil, India, Thailand and South Africa. Developed by Unilever, Lux (soap) is now headquartered in Singapore. Introduction Lux is a global brand developed by Unilever. The range of products includes beauty soaps, shower gels, bath additives, hair shampoos and conditioners. The brand was founded by the Lever Brothers (today known as Unilever) in 1899. The name changed from â€Å"Sunlight Flakes† to â€Å"Lux† in 1900, a Latin word for â€Å"light† and suggestive of â€Å"luxury.† In 1924, it became the first mass market toilet soap in the world. It is noted as a brand that pioneered female celebrity endorsements. As of 2005, Lux revenue is at 1.0 billion euros, with market shares spread out to more than 100 countries across the globe. Lux toilet soap was launched in the United States in 1925 and in the United Kingdom in 1928. Subsequently, Lux soap has been marketed in several forms, including hand wash, shower gel and cream bath soap. Since the 1930s, more than 400 of the world’s most famous female celebrities have been associated with Lux. Sarah Jessica Parker, Katrina Kaif, Aishwarya Rai and Mahira Khan are some actresses featured in Lux advertising campaigns in US, India and Pakistan. Today, Lux is the market leader in several countries including Pakistan, Brazil, India, Thailand and South Africa. Developed by Unilever, Lux (soap) is now headquartered in Singapore. About Unilever Unilever is a multinational consumer product manufacturing giant operating in over hundred countries all around the globe. Unilever Pakistan is the Pakistan chapter of Unilever, where the company holds 60.75% share whereas the Government of Peoples Republic of Pakistan holds 39.25% share. Unilever’s one of the most popular brand in Pakistani  market is LUX. They have segmented the local market for  LUX according to geographical locations. It further  differentiates these segments into Socio Economic Cluster  (SEC) which takes into account the criteria of education  and profession which ultimately measures the financial  ability of consumers. The cluster is divided into five parts starting from A to E. Unilever targets the urban and sub urban upper middle class and middle class segment of the population, who falls under A to C of SEC. Tactical marketing tools, 4P’s,  are extensively used by the  company  to  market  LUX.  Though LUX is produced in  Pakistan, Unilever Pakistan  maintains the same standard  all around the globe. The  product is available in six  different  fragrances  under  three different sizes. Since the  demand  for  beauty  soap  market is to a great extent oligopolistic, variations in price lead to price war which can eventually break down the company’s market share.  Thus Unilever cannot provide a better price than its competitors. But the price is affordable by most of the people. Unilever Pakistan has outsourced its distribution channels to third party distributors which allow them to distribute LUX in massive  bulks amounting to around ten million pieces. It undertakes the largest promotional activities in the beauty soap industry. The beauty soap industry has a few major producers of which Unilever holds market share of slightly less than 50%. Other competing brands like Dove, Rexona and Capri have started to have a strong consumer base, but LUX.’s product features distribution and promotional activities have created high brand loyalty for which it is still the market leader. History of lux soaps: Lux soap first produced in United Kingdom in 1899. It  was produced by British company name Lever  Brothers. Lever Brothers was founded in 1885 by  William Hesketh Lever and his brother James. They  using glycerin and vegetable oil such as palm oil to  manufacture soap called â€Å"Sunlight Soap.† The flaked  version of soap called Lux soap. Glycerin was a  lucrative byproduct of the soap making process, and  by the end of 1886, Lever brothers also had a glycerin  factory. Lever opened their small office in New York in 1895. The company started selling Sunlight and Lifebuoy but did not doing well until 1916. Lux soap was first launched in United States in 1916. The Lux trademark  was registered in United States in 1900.  Lux soap was launched in India in 1929  and later in Pakistan. The soap’s very first  advertisement  featured  actress  Leela  Chitnis as its brand ambassador. It was  popularly known as ‘the beauty soap of  film stars.  From 1930s right through 1970s, Lux soap colors and packaging were altered several times to reflect fashion trends. In 1958 five colors were made up the range: pink, white, blue, green and yellow. In 1990s, Lux launching its own range of shower gels, liquid soaps and moisturizing bars. Today, Lux soap is sold in 100 countries and sales achieved 1.0 billion euros in 2005 alone. From 1930s right through 1970s, Lux soap colors and packaging were altered several times to reflect fashion trends. In 1958 five colors were made up the range: pink, white, blue, green and yellow. In 1990s, Lux launching its own range of shower gels, liqui d soaps and moisturizing bars. Today, Lux soap is sold in 100 countries and sales achieved 1.0 billion euros in 2005 alone. Building the Beauty Soap Credentials: Introduced in the US in 1924, Lux became the world’s first mass market toilet soap with the tagline â€Å"made as fine as French Soap†. In the first 2 years of launch, Lux concentrated on building its beauty soap credentials. Advertisements offered consumers â€Å"a beauty soap made in the French method† at an affordable price, with the promise of smooth skin. Made with fine-texture, rich in fragrance, and manufactured using a method created in France, the first Lux toilet soap was sold for 10 cents apiece. 1928–1940: 9 out of 10 stars  This era saw key launches of LUX in the UK, India,  Argentina and Thailand. The brand concentrated on  building its association with the increasingly popular  movie world, focusing more on movie stars and their roles  rather than on the product. In 1929, advertising featured  26 of the biggest female stars of the day, creating a huge  impact among the movie-loving target audience. This was  followed by Hollywood Directors talking about the  importance of smooth and youthful skin. This pioneered  the trend of celebrity product endorsements.  In 1931, Lux launched a campaign with older stars, â€Å"I am over 31†. The series of print ads had stars talking about preserving youthful skin. Lux also launched campaigns featuring interviews with Stars and Close Ups of Stars, bringing to life the ‘9 out of 10’ idea 40s & 50s: Romancing the consumer Using movie star as role models, Lux’s strategy was to build relevance by looking at beauty through the consumer’s eyes. While still retaining the star element, the focus  shifted to the consumer and the role of the brand in her life. Advertising commercials showed ordinary looking women with direct references to stars, such as Deanna Durbin. 60s: Romancing the brand The 60’s saw a shift in advertising to product stories and the romanticizing of brand through its â€Å"sensorial & emotional† dimensions. This was the era of ‘the film star feeling’ and the ‘Golden Lux’, featuring stars such as Sandra Dee, Diana Rigg and Samantha Eggar. The bathing ritual, the ‘fantasy’ element that has been the imagery of Lux, was created in this era. The brand also moved forward with launching LUX in the Middle East, entering a more conservative market. 70s: Dimensionalizing beauty Reflecting the shift in beauty trends in the 70s, the Lux stars stepped down from their pedestals and were portrayed as multi-faceted women with natural, wholesome beauty that the ordinary consumer could relate and aspire to. The executions were more of ‘a day in the life’ of the stars with focus on their ‘natural beauty’. Stars included Brigitte Bardot and Natalie Wood. 80s: Owning the category space Establishing itself as THE beauty soap for stars and  beautiful women, the 80s emphasized the importance of  skin care – the first step to beauty. LUX was launched in  China at this time. Sophia Loren, Raquel Welch and Cheryl  Ladd were some famous celebrities used during this time.  In India actresses Hema Malini, Parveen Babi, Madhuri  Dixit, endorsed Lux soap. 90s – Early 2000s: Advanced skin benefits In the 90s, Lux moved from generic beauty benefits to focus on specific benefits and transformation. More emphasis on functionality and variant associations with different 12 skin types as well as mention of ingredients. The communication was far more regional specific and localized, using stars like Malu Mader and Debora Bloch. This period launched product brand extensions Shower Cream and Gels and Lux Super Rich Shampoo in Japan and China. 2000s: Beyond movie stars In early 2000, the focus shifted from specific skin benefits to a stronger emotional space. The brand provided the link between the aspirational role models and real life with the campaign, ‘Lux brings out the star in you’. The benefit was now more than just beauty, it was also about the confidence that comes from beautiful skin. In 2005, Lux encouraged women to celebrate and indulge their femininity with the â€Å"Play with Beauty† philosophy, with stars like Aishwarya Rai. The brand also connected with consumers to take a more ‘active’ stance on beauty. From 2008, building off the brand’s root  strengths, focus has shifted to beauty (vs.  femininity), appealing to consumers’  fantasies and aspirations. Lux believes  that ‘beauty is a female instinct that  shouldn’t be denied’ and showcases the  pleasure that every woman enjoys from  using her beauty, encapsulating that idea  in a simple phrase: Declare your beauty.  Today, LUX products are manufactured at 71 locations with more than 2000 suppliers and associates providing the raw materials. It has key markets in Pakistan, Brazil, USA, China, Bangladesh and South Africa, and is a market leader in India (for soap bars), Pakistan, Brazil, Saudi Arabia (for soap bars), Bangladesh, Thailand and Vietnam. Operations at Lux Unilever has established itself as a leader in the FMCG industry, given its wide product range which consists of home care, skin and hair care, beauty care and oral care products.  An FMCG (Fast-Moving-Consumer-Goods) is a regular model factory. Unilever under its skin care, soap category has 3 skincare brands; Lux (Middle Class), Dove (Upper Class) and Lifebuoy (Lower Class). Lux and Lifebuoy are produced (in-house production) in the factory located at Rahimyaar Khan in Pakistan while Dove is mainly imported as the production methods and procedure are extremely technical and critical to maintain the  high standards of the quality of the product. Another reason for importing Dove is the cost of production. Dove’s manufacturing is expensive due to the ingredients and raw material involved for it to produce in Pakistan and raw materials will be extremely expensive to import. Recently however, a rumor was spread in the market that Unilever Pakistan in order to cut down costs, will be outsourcing its production to Unilever South East Asian countries and will stop all the production in Pakistan. It was a rumor and completely untrue of them to be shifting to Malaysia. Unilever has one of the oldest factories in Pakistan and enjoy high EOS and have denied any intension to move production as it would be too expensive to produce outside Pakistan and import it back. The procurement of palm oil for Lux is the main ingredient in the production and manufacturing of the product. As palm oil is not produced in Pakistan, importing it from foreign suppliers is the best option available and costs are affordable for the company. Before the production is begun, capital expenditure is evaluated after which the setup is done for production in factories. The main raw material is in the production of Lux is palm oil which is imported due to its unavailability in the Pakistani region. This is the major head expense for Lux besides the facility itself. The production method for Lux and Life Buoy is batch processing and Dove is mainly produced through job order processing technique. Production is heavily dependent on palm oil. Production Process: The production method for Lux is batch processing and Dove is mainly produced through job order processing technique. Production is heavily dependent on palm oil. Lux Soap is the combination of animal fat or plant oil and caustic soda. The Soap needs two major raw materials: one is fat and the other one is alkali. Lux soap makers use fat that has been processed into fatty acids. This eradicates various impurities, and it produces as by-product water as an alternative of glycerin. Many vegetable fats, including olive oil and coconut oil, are also used. The alkali most commonly used is sodium hydroxide and sometimes, Potassium hydroxide is also used. Additives are used to enhance the color, texture, and scent of the soap. Palm oil is used for the manufacturing of Lux Soaps which is processed and bleached. This is then divided into two proportions as per the soap requirements; to manufacture Lux and Life buoy. After separation as per the proportions, alkali in the form of sodium hydroxide/ Potassium hydroxide are added to the palm oil barrels. Synthetic chemicals are added to clean and sterilize the mixture to remove any impurities. After this the mixture is divided into categories as per the product variety, after which perfumes and colors are added to give the soap a nice subtle fragrance and attractive color. Fragrances and perfumes are added to the soap mixture to protect the smell of dirt and leave behind a fresh smelling aroma. Substances to enhance the texture of soap include silica, talc, and marble pumice. Soap made without color is of a brown or dull grey color, but Lux manufacturers color the soap to make it more appealing to the end-user. Other material is then added according to the partic ular variety of soap. After the entire process of chemicals and ingredients have been added, the soap is further processed, cut and shaped into bars of soap according to the product specifications and SKUs of the product. The produced soap bars are then sent to packaging, where they are wrapped in the respective prepared packaging and transferred to warehouse until delivery has to be made. Loading and unloading of cargo and also wrapping of cargo is handled by labor but the process is mostly auto mated. Production Flow: Procured Palm Oil Is Processed And Bleached The Oil Is Divided Into Two Portions, For Lux And For Lifebouy Synthetic Chemcials Are Added To Clean And Steerelize The Mixture Other Ingredients Are Added As Per The Requirements Of The Product Variety Perfumes And Colours Are Added To The Mixture The Mixture Is Cooled, Further Processed And Cut Into Soap Bars The Bars Are Sent To Packagining Where They Are Wrapped In The Prepared Packs Packed Soap Bars Are Sent To Warehouses Until Delivery Costing and Expenses: The method of costing used for the manufacture of Lux Soaps is Batch Costing which is a part of Operation Costing. First of all the ingredients of the soap are mixed together in order to make a mixture. The entire mixture for the preparation of the soap produces, approximately, 1 lakh unit of soaps; this 1 lot will be treated as a batch  and will be automatically numbered by the help of machines during the process of packaging. The purpose of manufacturing the soaps using batch costing is that, it becomes easier for the company to track their product in the factory as well as in the market. For example, the end-user finds something wrong with the soap and sent a complain to the company, now if the management finds some defect in the manufacturing of the soap, it can easily track the batch number and withdraw all the soaps from the market that were produced in that particular batch. The cost of unit is determined by dividing the cost of the batch by the number of units produced in that batch. Given below is the cost sheet of Lux soap that shows the Material Cost, Prime Cost as well as the Factory Cost. PARTICULARS AMOUNT (in Rs.) Direct Material Acid Specialty chemicals Ordinary chemicals Perfumes TOTAL 6.45 0.11 0.04 0.81 7.41 Direct Labor 12.6 Direct Expenses 1.73 PRIME COST 21.74 Production Overheads Power 0.62 Maintenance 0.14 FACTORY COST 17 22.50 Revenue Generation and Costing: This table shows the details of the revenue and the cost generated to manufacture Lux Soaps REVENUE AND COST GENERATION OF LUX (Base for the preparation of Cost Sheet) PARTICULARS UNITS AMOUNT (in Rs.) Revenue Generated Sales Price Rs./packet 25 Sales Volume packets 3,20,000 Sales Revenue Rs. (in lakhs) 80 -Acid paise/ ml 4.5 -Specialty chemicals paise/ ml 2.75 -Ordinary chemicals paise/ ml 1.5 -Perfumes paise/ ml 7 Cost Generated Raw Material Prices Raw Material Volumes -Acid In 1000 litres 14.34 -Specialty chemicals In 1000 litres 0.41 -Ordinary chemicals In 1000 litres 0.29 -Perfumes In 1000 litres 1.15 -Acid Rs. (in lakhs) 6.45 -Specialty chemicals Rs. (in lakhs) 0.11 -Ordinary chemicals Rs. (in lakhs) 0.04 -Perfumes Rs. (in lakhs) 0.81 Rs. (in lakhs) 7.41 Raw Material Cost TOTAL Headcount -Manufacturing Numbers 11 -Marketing professionals Numbers 2 -Corporate employees Numbers 1 18 Average Monthly Salary -Manufacturing Rs./Month 10000 -Marketing professionals Rs./Month 15000 -Corporate employees Rs./Month 16500 Bonus on Salary (% of Salary) 12% Employee Cost -Manufacturing Rs./Month (in 10,000) 12.6 -Marketing professionals Rs./Month (in 10,000) 4.53 -Corporate employees Rs./Month (in 10,000) 1.63 TOTAL 18.76 Power Cost Rs. (in lakhs) 0.62 Packaging Cost Rs. (in lakhs) 1.73 Advertising Costs Rs. (in lakhs) 7.23 Commissions Rs. (in lakhs) 5.3 Maintenance Costs Rs. (in lakhs) 0.14 Insurance Premium Rs. (in lakhs) 0.5 Total Costs Rs. (in lakhs) 41.69 19 Strategy and Competitiveness: Vision: â€Å"We help people around the world meet every day needs for nutrition, hygiene and wellbeing, with brands that help people look good, feel good and get more out of life.† A clear direction: Unilever helps people around the world meet every day needs for nutrition, hygiene and wellbeing, with brands that help people look good, feel good and get more out of life. In 2009, they launched called The Compass – Unilever’s strategy for sustainable growth. At the heart of that vision is the philosophy of working to create a better future every day for their consumers and the communities in which they operate. Another key element of their strategy is our aim of doubling the size of Unilever while reducing our impact on the environment. It’s a goal the company is seeking to achieve by developing new ways of doing business through which can minimize our direct impact. The company is also working with suppliers, consumers and the retailers who sell the brands to improve their sustainability credentials too. By combining our multinational expertise with the deep roots in diverse local cultures, Unilever is continuing to provide a range of products to suit a wealt h of consumers. The company is also strengthening its strong relationships in the emerging markets they believe will be significant for future growth. â€Å"Achieving significant growth objectives while decoupling growth from environmental impact is a bold but challenging vision,† says Unilever CEO Paul Polman. â€Å"Not many companies have yet taken it on. But I believe it’s the only viable vision. One that builds on Unilever’s long-term heritage and achievement, while supporting a responsible future.† . Supply Chain Management: The supply chain of Lux is the core feature which looks after the efficient  running of the entire business production and processes. Supply chain is divided into two parts one is the efficiency and the other looks after quality control. Supply chain is the core of Lux sales since it is responsible to make the deliveries to the depot, distributer and ultimately the shops. To ensure the supply chain is well maintained Lux management has weekly meetings and a software to record our forecast, orders placed by distributors (primary sales) and ultimately the orders delivered to the distributor. MSO is in direct contact with the brand team. He is responsible for required production and also informs organizations about lag or delays in production and all logistics involved and other things related to production. Forecast is based on a trend line that is predicted out of exponential sales trend graph and marketing impact added on. There are 2 major raw materials that go into production besides acid and bases. One is palm oil which is ultimately brought to the factory for further processing. The other is perfume which is globally tested and supplied. Various people within the supply chain department are responsible for various functions such as one for forecast and right demand planning, one for production and quality assurance (R&D) and one for ultimate supply and logistics. The management of the supply chain has the following processes which creates the whole flow of the supply chain network: Planning: Demand Planning: This phase is the pre-production phase where business analysts and managers sit together and create a strategic plan based on two core functions, promotional value selling and the base line target. Demand planning is carried out for a period of 5 years at Lux Promotional Value Selling is where Lux managers sit together with the planning team and set targets to achieve in terms of sales and production after advertising and marketing campaigns Base Line is the bottom line target of sales which can be achieved even without any marketing efforts. This is what the brand will achieve in terms of sale at all costs Supply Planning: In this phase the team forecasts the demands with the supply in order to procure the material required for the manufacturing of the soap bars. The supply plan is derived from the demand plan. Material Requirement Plan is the procurement plan in which  vendors and suppliers are identified and the material is procured. The details of procurement are established and are further shared with the budget control team. Master Production Schedule is the detailed plan of how the product will be produced, All details are included in this portion in terms of batches, number of bars produced, time period, production methods and flow, Procurement is done and the material is sent to the production department Production where the manufacturing and packaging is done and stored Distribution where product is warehoused and further sent to distributors around Pakistan and the distributors further give it to whole sellers. Supply Chain flow: Planning Distribution †¢ Demand plan †¢ Supply plan †¢ Warehousing †¢ Distributors Demand Plan Production †¢Manufacturin g †¢Packaging †¢Promotional Value Selling †¢Base line target Procureme nt Supply Plan †¢MPS †¢MRP †¢Buying Department †¢Warehousing Strategy and R&D: Strategy: The strategy used by Unilever is in two regions, production and campaigns. In order to maintain their strategic function, the factory is one of the oldest in Pakistan. It was Rahim Yar Khan and it was initially Unilever HO. It was initially chosen because of the following factors: 1. Proximity to Labor: Majority of labor working in the factory reside close by in Punjab region which is densely populated 2. Proximity to Source of Supply: Water supply from the rivers flowing close by provide ease of water availability (Punjnad) 3. Storage and Warehousing: Since the factory site was owned by Unilever, there was no space shortage problem so expansion and new installments was possible along with ample space for warehousing. 4. Community Considerations 5. Accessibility Research and Development: In order to maintain the competitive advantage of being the leading beauty soap brand of Pakistan, the R&D department also supervises production and packaging. R & D and Supply both monitor production and quality. Each  machine involved is configured for production according to the amount required and for how much should be in each carton so that the carton does not explode. R & D carries out research and tries to increase efficiency by running machine trials. Further to ensure quality product is produced and any likely flaws are eliminated, batch inspections are done at random to check the quality. The Supply Chain acknowledges the capacity of the machinery and production figures, therefore R & D only work on improvement and monitoring. The R&D department also carries out focus groups and sample testing when introducing new variants in the product according to consumer insight gathered through research and development. The R&D is responsible for the 24  suggestions for upcoming variants, which is then strategically planned by the brand team and tested at a small scale. If successful, the new variant is sent for production. Total quality management: TQM is different for every company and is defined by each with respect to 5 major factors: 1. Conformance to specifications 2. Fitness quality 3. Value for price paid 4. Support services 5. Psychological factors Being a manufacturing firm, Lux observes strict manufacturing quality as the focus is on a tangible product with respect to the features, reliability and conformance. Total Quality management for Lux is split into R&D functions which look into formulation, quality assurance, and packaging and ultimately logistics transit trials. Various people within the supply chain department are responsible for various functions such as forecast and demand planning, one for production and quality assurance (R&D) and one for ultimate supply and logistics. The quality of production at lux relies on the following basic concepts: ï‚ ·