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
Rahim Yhar Khan 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.
Doves 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.

Production Process:
The production method 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 particular 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 Lifebuoy.

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 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)

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

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,

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