FFBL Management Report

PRINCIPLES OF MANAGEMENT(FAUJI FERTILIZER BIN QASIM LTD.)

MADE FOR INSTITUTE OF BUSSINESS MANAGEMENT

COURSE: MAN 401

COURSE IN CHARGE: MR. HASHIM ZIA JAFRI

GROUP MEMBERS:

SYED FRAZ HUSSAIN RIZVI

FURQAN RASHEED KHAN

MUHAMMED SHOAIB KHAN

MUHAMMAD JUNAID KHAN

SAAD MEHMOOD SIQDIQUI

10455

10090

10343

10584

09838

PROGRAM MBA (INDUSTRIAL MANAGEMENT)

DATE: 19 DEC - 2009

FAUJI FERTILIZER BIN QASIM LTD.Date: 19 DEC,

2009Page 2 of 20

TABLE OF CONTENTS

letter Of Authorization..........................................................................................3

Importance Of Management In Business............................................................4

Acknowledgement..................................................................................................5

Executive Summary:..............................................................................................6

1 Introduction.....................................................................................................8

1.1 HISTORY .............................................................................................................................................8

1.2 PRODUCTION CAPACITY .....................................................................................................................8

1.3 MARKET SHARE .................................................................................................................................9

1.4 COMPETITORS ....................................................................................................................................9

1.5 SWOT ANALYSIS ................................................................................................................................9

2 Opportunity & Issue Analysis.....................................................................13

2.1 ANALYZING OPPORTUNITIES ............................................................................................................13

3 Objectives......................................................................................................14

3.1 GOAL FORMULATION .......................................................................................................................14

3.2 MISSION STATEMENT .......................................................................................................................14

3.3 VISION .............................................................................................................................................14

3.4 PLANNING PROGRAMS .....................................................................................................................14

4 Problem Or Issues.........................................................................................15

5 Financial Projections:...................................................................................16

5.1 BUDGET PLAN: ................................................................................................................................17

Bcg Matrix Of B.P Products:..............................................................................18

6 Competitive Edge:........................................................................................18

7 A Systems Model For Ims............................................................................37

7.1 BACKGROUND ..................................................................................................................................37

7.2 MODEL .............................................................................................................................................38

Made For:Institute of Business Management


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8 A METHODOLOGICAL ANALYSIS OF IMS........................................39

8.1 Background.....................................................................................................................................39



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LETTER OF AUTHORIZATION

Dear Readers,

We as students of Principles of Management, with the authorization of our

course instructor Mr. Hashim Zia Jafri have prepared a report about the “Management

operations at FAUJI FERTILIZER BIN QASIM LTD.”. The purpose of this report is to

acquire all the possible information about the different aspects of Management that

FFBL practices.

Sincerely,

Syed Fraz Hussain Rizvi ID # 10455

Furqan Rasheed Khan ID # 10090

Muhammed Shoaib Khan ID # 10343

Muhammad Junaid Khan ID # 10584

Saad Mehmood Siqdiqui ID # 09838



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IMPORTANCE OF MANAGEMENT IN BUSINESS

“Management is the most important aspect and the quintessential science to business

anywhere. Whilst most businesses may or may not be familiar with the terminology we

study in books today most businessmen still do use these same management techniques

that have been referred to in our books with specific names.”



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ACKNOWLEDGEMENT

To see how the principles of management were applied at FFBL (Fauji Fertilizer Bin

Qasim ltd.), we visited the company located at Bin Qasim in outskirts of Karachi. We

met with the company’s Senior Executive Lt. Col. Mohammad Asif Khan (Ret.) &

Distribution Executive Muhammad Javaid Iqbal to gain insight into the various

management roles they perform within the organization, and the extent to which they

follow the principles of management in their organization.

Presented below is a summary of all the information we managed to gather, starting from

a general discussion of the management system as a whole, proceeding to questions

pertaining to the different management functions of planning, organizing, influencing

and control, taking each in turn and elucidating on its components.



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EXECUTIVE SUMMARY

Problem

High competition of fertilizer producing industries in Pakistan.

Research Objective

To identify the factors leading to improve the organization at large & the variance

between the actual and projected sales by analyzing the following possible areas:

Awareness about the product and most effective medium of promotion.

Organization structure & goals.

Analysis of different products & target market.

SWOT Analysis of the organization.

1.1.1.1 Method of Research:

Method of research used in this report is Exploratory Research.

1.1.1.2

1.1.1.3 Research Instruments and Technique:

Data was collected through interview-based questionnaires. This is a semi-structured

instrument for asking information directly from the respondent concerning perception. It

was kept slightly open ended so that better understanding could be developed about the

market and hence prepare a more comprehensive report.



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Population Definition:

The population comprises of current fertilizer product users are the lower middle class

people in urban areas with ages from 30 to 60 years.



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1 INTRODUCTION

1.1 History

Fauji Fertilizer Bin Qasim Limited is a modern Granular Urea and Di-Ammonium Phosphate (DAP) fertilizers manufacturing complex, built at a cost of US$ 468 Million and located in Eastern Zone of Bin Qasim, Karachi, with Head Office at Harley Street, Rawalpindi.

Initially named as FFC-Jordan Fertilizer Company (FJFC), weft 17th Nov 1993, with FFC (30%), FF (10%) and JPMC (10%) as main sponsors; the company was formally listed with stock exchanges in May 1996 and commercial production commenced on Jan 2000.

Renamed as Fauji Fertilizer Bin Qasim Ltd. (FFBL) in 2003, as such Jordan Phosphate Mines Co. (JPMC) had sold its entire equity in the company. Accordingly Phosphoric acid supply agreement with Jordan was terminated.

The company turned out to be profitable by 2004 and declared 'maiden dividend' in 2004. Profitability has constantly been on the rise since then and 2007 has been the most profitable year of the company.

1.2 Production Capacity

FFBL fertilizer complex is a state of the art manufacturing facility with advanced Distributed Control System for safe and efficient operation. At present there are three plants operating at FFBL to produce Ammonia, DAP (Di-Ammonium Phosphate) and Granular Urea. Ammonia being the feed for both other plants has its 100% consumption on plant. Production capacity for each plant is provided in table-1.

Table 1: Production Profile

PlantProduction Capacity

(MTPD)

Ammonia 1570

Granular Urea 1920

DAP 2230



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1.3 Market Share

Recently, FFBL is making significant contribution towards agricultural growth of the country by meeting 45% of the demand of DAP and 13% of Urea in domestic market.

1.4 Competitors

Fauji Fertilizer Company ENGRO Chemicals Pvt. Ltd. Fatima Fertilizer Company (production to be commenced soon) National Fertilizer Development Company (Not in production) Dawood Hercules (Not in production)

1.5 SWOT Analysis

Table 2: SWOT Analysis

Strengths Weaknesses

Only DAP Producer in Pakistan Location Authority lies with CEO and

Chairman High Urea quality (large granules) IMS Certification Safety and Health

Marketing being outsourced to FFC Lack in training procedures Unavailability of raw material in

Pakistan Management lies with army men

Opportunities Threats

Unsaturated urea and DAP market in Pakistan

Forward integration Proper R&D

Entrance of new competitors Loss of key staff due to intervening

competitors Depleting natural gas reserves in

Pakistan Unstable economical and political

conditions



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1.5.1 Strengths

1.5.1.1 Only DAP Producers

FFBL is the only fertilizer complex in Pakistan that produces DAP fertilizer, thus makes significant contribution towards agricultural growth of the country by meeting 45% of the demand of DAP.

1.5.1.2 Location

Being located near sea port; FFBL enjoys an ease in transportation of raw material. Phosphoric acid and UF-85 are the major raw materials that are being imported through shipments.

1.5.1.3 Authority lies with CEO and Chairman

All authorities lie with CEO and chairman. There’s a hierarchical reporting system of problems. Junior Staff reports to the senior staff and this report can further go to the GM, CEO or the Chairman depending up on the nature of the issue.

1.5.1.4 High Urea quality

FFBL product, granular urea (Sona Urea) has the cutting edge over the conventional Prilled urea with the following superior qualities:

Cheapest among all nitrogenous fertilizers based on per unit cost of nutrient Less acidifying than many other nitrogenous fertilizers hence most suited for high

pH soils High concentration of nutrients makes packing, storage and transport cost

cheaper Larger granular size Greater granules strength Minimum fines, dust and powder Minimum losses in the air Least caking property Easy to spread in the fields No settling on crops/leaves

1.5.1.5 IMS Certification

FFBL adopted IMS (Integrated Management System) in 2007 which integrated ISO 9001, ISO 18001 and ISO 14001; which is one of the milestone and biggest achievement for the company.

1.5.1.6 Safety & Health

FFBL maintains a safe workplace by following safety and health rules and practices. Accidents, injuries, and unsafe equipment, practices or conditions are immediately



2009Page 12 of 20

reported to a supervisor or other designated person. FFBL is committed to keep the workplace free from hazards.

1.5.2 Weaknesses

1.5.2.1 Marketing being outsources to FFC

FFBL doesn’t have its own marketing department; their products are being marketed by FFC due to which they get their revenue after a week. It may also affect their sales due priority based marketing.

1.5.2.2 Lack of Training

No proper training programs have been defined and conducted for managerial staff.

1.5.2.3 Raw Material Import

Urea and DAP production at FFBL largely depends upon the imports of raw material including Phosphoric acid, sulfuric acid, sand, coating oil and UF-85. This increases their reliance on imports.

1.5.2.4 Management Lies with Army men

Most of the management in FFBL is controlled by retired army officers who have army mindset due to which the company faces difficulties in problem analyzing and problem solving steps.

.

1.5.3 Opportunities

1.5.3.1 Unsaturated Urea and DAP market in Pakistan

Demand for urea and DAP in Pakistan is higher than the cumulative production of all urea and DAP producers in Pakistan; resulting in urea imports, to bridge up the demand and supply gap. Therefore, there is an opportunity lies with all fertilizer manufacturers to increase with their production to meet the market needs.

1.5.3.2 Forward Integration

FFBL can integrate forward to develop its own marketing staff as well as its own distribution channels to maximize its profits.

1.5.3.3 Proper R&D

Proper Research & Development programs found a bright scope for the further improvement of urea quality as well as for the development of new fertilizer products.



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1.5.4 Threats

1.5.4.1 Entrance of New Competitors

Entrance of new fertilizer companies like Fatima fertilizer and ENGRO Chemicals (Pvt.) Ltd in fertilizer market, pose an apparent threat for the market share of FFBL and other fertilizer companies.

1.5.4.2 Loss of Key Staff due to intervening competitors

The company staff is shifting to new companies in urea business as they are offering better salary packages and facilities. This creates a window of opportunity for the competitors to take advantage of a situation and to poach the executive talent from the company. If this situation is not handled the BEST and BRIGHTEST leave first

1.5.4.3 Depleting Natural Gas reserves in Pakistan

FFBL utilizes Natural Gas as the most important raw material for the production of Ammonia; which is the major input for the production of Urea and DAP. Due to depleting natural gas reserves in Pakistan the price of gas is constantly increasing which poses a certain threat to fertilizer industries in Pakistan.

1.5.4.4 Unstable Political /Economic Conditions

Unstable economic and political conditions are largely effecting the agricultural production of Pakistan which subsequently poses a threat to the Fertilizer Industry.



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2 OPPORTUNITY & ISSUE ANALYSIS

2.1 Analyzing Opportunities

The below mentioned are the opportunities for FFBL. These points are already discussed in SWOT analysis.

Unsaturated urea and DAP market in Pakistan Forward integration Proper R&D



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3 OBJECTIVES

3.1 Goal Formulation

FFBL has achieved the milestone of adopting Integrated Management System (IMS) and directed itself towards advance quality management techniques like TQM with the aim to enhance the customer satisfaction in all deliverables.

3.2 Mission Statement

“Pursue as a team, the progressive strategy based on the principle of maintaining the spirit of excellence to remain among the best companies for delivering competitively priced quality products, achieving sustainable growth rate in all activities and generating optimum profits to the satisfaction of all stakeholders.”

3.3 Vision

Be a leading fertilizer company with a diverse product base Continue to excel in operations Commitment to business ethics, safety, health, environment and involvement in the

community Remain a good corporate citizen Be one of the best corporate employers Keep exploring other project investment opportunities to remain progressive,

flexible and viable

3.4 Planning Programs

3.4.1 Production Planning: Weekly meetings take place between Sales, Marketing & production departments to estimate the amount of production to be made for each product & to make production schedule for the whole coming week.

3.4.2 Future Planning: The Company is actively looking out for further diversification opportunities by

either going for own projects or participating with other investors in opportunities like privatization, Liquefied Natural Gas (LNG) Terminal, Independent Power Projects, Cement Sector etc.

Land of 16 Canals has already been acquired at Defence Housing Authority (DHA) PHASE II, Islamabad for the construction of Head Office building.



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4 PROBLEM OR ISSUES

4.1 Nature of Issue/s or Problems

Bureaucratic environment prevails in the company. All the authority & selection are confined to Army Officials. Inflationary Pressures pushing costs upward. Almost all material costs, Raw

Material, Packing Material, etc. have increased by 52%. Leading the Direct Material (i.e. Raw + Packing) costs from 60% to 80%.

No proper training programs organized by Human Resource Department. No proper advertisement of the product due to which 2nd grade products are

entering the market No proper prints available for the farmer’s education which increases poor farming

practices. FFBL doesn’t have its own marketing department; their products are being

marketed by FFC due to which they get their revenue after a week. It may also effect their sales due priority based marketing.

No Proper Complaint Channel for the farmer. One has to go the Distributor regarding any complaints.

There is no long-term human resource development program to improve qualifications of researchers and extension workers to professional level and also provide for short-term trainings to equip them with knowledge and skills in important areas.

FFBL will also stop receiving compensation from the government in lieu of non-implementation of the Fertilizer Policy 1989. It currently has a loan of Rs5.8 billion from the government, which requires payment of Rs648 million per annum. So far, this payment got netted off by receivable from the government. But now, FFBL would need to make actual cash payments. This would enhance the pressure on the Company, already under pressure due to DAP inventory pile-up.

4.2 Current practices/Policies/Procedures

4.2.1 Sales & Marketing FFBL delivers its products to FFC for Sales and Marketing.FFC is responsible for the timely and safe delivery of these goods.FFC sells the products to the Dealers which are responsible for the further sales .Any complains received by dealers are forwarded to FFBL.



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4.2.2 Promotion /Advertising: FFC is responsible for the marketing of DAP and Urea by FFBL.FFC is not interested in marketing as they have a very high demand as compared to production.

4.2.3 Sales Performance: Sona Urea Sales during the quarter ended 31 Mar 2009 are 114 thousand tones showing an achievement of 134% against the target, however this was 30% lower as compared to the sales of 164 thousand tones for the same period of 2008.These sales were limited to product availability during the product under review. Sona DAP sales during the quarter are 105 thousand tones, showing an achievement of 192% against the target, whereas 8000 tones of DAP was sold in the corresponding period of the last year.FFBL share in urea and DAP markets remained 7% and 55% respectively during the period under review.

4.3 Understanding the needs

Due to the current increase in demand FFBL should expand its production plan to meet the needs of today.

FFBL requires its own marketing department. Better advertising and feedback mechanism should be adopted. Development & Implementation of proper research & development programs is

needed. Proper training programs are required.



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5 ACTION PROGRAMS

5.1 Developing Strategies

Capture the available market demand. Marketing Department to be established. Allocation of budget for advertisement Customer complaint Department to be established R&D Programs to be Developed

5.2 Action Plans

5.2.1 Capacity enhancement FFBL planning department needs to carry out a revamp or parallel production unit installation project to increase its production capacity to meet the market demand for urea and DAP.

5.2.2 Establishment of Marketing Department FFBL needs to establish its own sales & marketing department to avoid priority based marketing and selling of its products.

5.2.3 Advertising & Feedback Mechanism FFBL needs to go for proper advertising programs to increase farmer’s awareness and should define a proper feedback mechanism to register complains regarding its products.

5.2.4 Research & Development Programs FFBL needs to organize proper research and development programs for the further improvement of its products’ quality and development of new products.

5.2.5 Employees Training Programs Human Resource Management should pick up the outstanding employees and provide necessary training and skills development education to enhance and shape employees MBO skills. This will motivate employees and empowered them and make them aggressive towards attainment of goal and better business for the company.



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6 FINANCIAL PROJECTIONS

6.1 Budget Plan

No budget plans are available for FFBL to present in this report.

6.2 Mile Stones

Table 3: DAP Projections

Dap Projections2009Tons

2008Tons

2007 Tons

9 Month Actual 1,140,000 291,000 766,0004th Quarter 410,000 484,000 633,000

Full Year Sales 1,550,000 775,000 1,399,000

Table 4: Urea Projections

Urea Projections2009Tons

2008 Tons

2007Tons

9 Month Actual 4,631,000 4,023,000 3,402,0004th Quarter 1,669,000 1,456,000 1,515,000

Full Year Sales 6,300,000 5,479,000 4,917,000



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7 CONTROLS

7.1 Feedback Mechanism

There’s a hierarchical reporting system of problems / issues / day-to-day activities. Junior Staff reports to the senior staff and report can go to the GM, CEO and Chairman depending on the nature of issue.

As far as sales department is concerned they sell their product to the dealers from where the product is being retailed out. Farmers report their feedback to dealers who further forward it to the FFBL.

7.2 Control Mechanism

Appropriate action is taken whenever there’s a need. In this regard, GM, CEO and Chairman direct their subordinates on what strategy to follow or what to do.

Organizational authority lies with the CEO and Chairman of the Fauji Foundation. Supervisors control employee’s performances through key performance indicators

(KPI’s). They have their own quality control department with relation to the product quality.

As far as the documentation of processes is concerned the Quality Assurance is moderate.

To eliminate chances of theft, espionage and violence strict security measure are taken at all entry and exit points under the supervision of army.

Every employee is obligated to protect the Company's confidential information. All information developed or shared as a result of the business process is proprietary to the Company and must be treated as confidential.

Company documents and records are part of the Company's assets, and employees are charged with maintaining their accuracy and safety. Employees are required to use excellent record-management skills by recording information accurately and honestly, and retaining records as long as necessary to meet business objectives and government regulations. Financial records must accurately reflect all financial transactions of the Company.


Documents

FFBL Management Report