University of Kelaniya Faculty of Commerce Financial Management

Higher Diploma in Business

Operation Management

Miranga Rajidam Seanarathana

HDIB-2016-071

“NIPPON PAINT LANKA”

For more than 130 years, Nippon Paint has been in the forefront as one of the world’s premier

manufacturers of paint. The Company entered in to a strategic partnership with Silicone

Coatings (Pvt) Ltd. of Sri Lanka in 2012 combining the technological knowhow and stability

of a global giant together with the strong brand presence and local business acumen of a well-

established Sri Lankan Company.

Today, Nippon Paint is the largest paint manufacturer in Asia and the parent NIPSEA Group

manufactures and sells Nippon Paint products in 15 Asian countries. In terms of volumes, the

Company manufactures over 1 billion liters of paints and coats annually - positioning NIPSEA

Group as the preferred supplier of coating choice in Asia as well as among the top paint

manufacturers in the world.

Industry Process of Nippon Paint

Nippon Paints have harnessed the powers of state of the art supply chain system using cutting

edge technology to integrate all its plants, regional distribution centers, outside processing

centers and branches and two processing centers, 50 raw material and intermediate goods

suppliers, 10 packing material vendors, 10 regional distribution centers and 04 depots are

integrated.

Supplier process of paint

Raw Materials

On an average, raw materials constitute 56% of the total expenditure in paint companies.

Titanium dioxide is one of the major raw materials and price fluctuations in its cost have direct

and substantial impact on the cost of production. Crude oil derivatives are the other major raw

materials and have similar impact. Apart from these a large number of other raw materials are

used for adding/giving specific properties to the wide product range offered by the industry.

Supply Plant Depot Distribution RetailConsumer

Raw material Requirements

• Paint Industry is raw material intensive with RW being 70% of production costs.

• 200 types of raw materials used in manufacturing process

• The most critical ones are

• Titanium Dioxide (TiO2) 30 %

• Phthalic Anhydride (PAN) 20 %

• Pentaerythritol (PENTA) 15 %

Capacity Utilization

Decorative Paints business contributes around 94% in the total paint business. The company

ranks no. 1, in the country in this segment with around 8500 colours to offer to its customers. It

has 2 manufacturing plants operating all over the country, which is strategically located in-

order to cater to the widely spread, market:

Plant Capacity (Kilo liters per annum)

Matara 1,330,000 KL pa

J-ela 1,000,000 KL pa

Total Capacity 2,330,000 KL pa

In Decorative paint segment, the Company operates in 4 main segments i.e. Interior wall

finish, Exterior wall finish, Enamels and Wood Finishes. Besides, the company outsources

around 25-30% of its total production.

Supplier Base

Titanium Dioxide is the largest consumed raw material for manufacture of paints. It

constitutes around 30% of the total manufacturing cost. It is available in two grade i.e.

rutile (imported and mainly used by the Indian paint industry) and anatese

(manufactured domestically). Travancore Titanium Products

There is other petroleum based raw materials which constitute around 40-50% of total

raw material consumed. Hence any movement in crude oil prices will impact the

profitability of the company. These products are mostly supplied by HPCL and BPCL.

Sudarshan Chemicals is major suppliers of pigments to the industry.

Alpha Chem are the suppliers of driers to the company.

20microns ltd., Vimal Minerals, Himalaya minerals are the suppliers of Extenders to

the Company.

Inventory Management

Nippon Paints have been always on an upper hand when compared to others in terms of

inventory management. The inventory cost is lowest in the industry. Average inventory level

equals only 28 days’ sales, while the industry average is 51 days’ sales. This right away

provided a 45 per cent edge in inventory costs compared to its competitors. Stock of finished

goods was just 7 per cent of its net sales while for the others in the industry it was nearly twice

that level. What is particularly striking in this achievement is that offered customers and

dealers a high level of service in product delivery compared to its competitors and yet kept the

inventory costs down by 45 per cent compared to the competitors. But large credit outstanding,

running beyond two months or more, was a natural concomitant of the distribution strategy

chosen by Nippon Paint. The dealers are required to maintain stocks of all the SKUs that are

on demand in the territory. It pushes up inventory levels at the outlets. They need credit

allowed15-21 day’s credit for dealers located in the major towns and 22-30 days’ credit for

dealers in upcountry regions. Nippon Paints had to pull off a smart credit control strategy for

survival. It resolved the thorny problem through an innovative dealer incentive scheme.

Nippon Paints stipulated that each of its dealers should pay for the supplies within a specified

time norm and offered them as attractive incentive scheme for doing so. It consisted of two

components:

Special discount of 3.5 %. This was referred to as the discount for perfection in

payments. It was passed on at the end of the year, provided each and every payment

throughout the year was made within the stipulated time norms.

Cash discount of 5 %. This was paid for all outright cash purchases. It was given

whenever payments were received within 24 hours of the supply/invoice. In respect of

outstation accounts, the payments have been made in advance by draft in order to be

eligible for the cash discount. The scheme was a grand success. Credit outstanding

always stood below 25 days, while the outstanding of the other major companies were

in the range of 40 days and above. Systematic computerization also helped to maintain

the credit outstanding within limits.

Logistic Management

The warehousing facilities are well maintained.

The Company specially looks after the environmental aspects and tries to avoid

pollution and pollutants by adapting eco-friendly production methods.

The Company keeps low inventories in off seasons, and high inventory in festival

seasons.

The Company has huge base of raw material suppliers, giving company bargaining

power resulting in higher profit margins than competitors.

The company has succeeded in establishing themselves in rural parts of India by large

distribution network, retail outlets etc.

Nippon Paints has around 10,600 stock-keeping units (SKU; one SKU would mean a product

of a particular pack and shade), of which around 300-350are fast moving with extremely high

liquidity at the counter. This puts great pressure on the demand forecasting and inventory

management functions of the company.

Certain Issues

Movement of paints and hazardous goods including raw materials have a series of

safety checks to be adhered to, starting with a material safety data sheet.

All materials transport from factories to the depots is insured through a blanket

insurance policy, which fixes a minimum liability for loss, damage, pilferage or leakage

is higher.

Suggestions to improve process

Introduce an ERP solution (linked with factory, retailer)

Without Depot and distributor’s direct deliver plant to retailer (when reach minimum

order quantity plants produce required EOQ and Production direct deliver from plant

to the retailer)

Start a new factory in North Province (it was a very easy and reduce a deliver cost)

Supply Plant RetailConsumer

Conclusion

Nippon paint is the large paint company in the srilanka, the company manufactures over 1

billion liters of paints and coats annually they have a large customer base in whole country

because they have to cost effective manufacturing process, cost effective and quick delivery

process

I suggest to start a third factory in north province and direct delivery to retailer from

factory that can be able to reduce delivery cost, depot cost and other cost My other things is I

suggest to implement a ERP solution for all retailers, factory and suppliers they can identify

retailer stock, factory complete stock, WIP stock, material stock. Then retailer reach minimum

order quantity (economic order quantity production time + deliver time) start production and

deliver to before exceed re-order level

Source

http://www.nipponpaint.com.lk/

Mr Nemantha Abeysinghe General Manager – Sales and Marketing

Mr Indika Sreenith Manager – Production (Matara Factory)

Mr Jude Manager – Production (Jela Factory)

Thank You…