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Subhojit Ghosh
A REPORT ON
By
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A REPORT ON
Submitted to : Dr. Subir Sen (Faculty Guide) Dept. of Finance, IBS Kolkata Vippin Datta (Company Guide)
Regional Service Manager-East, Carrier Airconditioning & Refrigeration Limited, Kolkata
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AUTHORIZATION
This is to certify that the report titled Value Chain Analysis undertaken in Carrier Airconditioning & Refrigeration Limited, Kolkata and analysis pertaining to it under the subject to indicate and illustrate the Value Chain Management of the company is being submitted as partial fulfillment of the requirement of PGPM Program of Icfai Business School, Kolkata.
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Acknowledgements
I wish to express my gratitude to Carrier Airconditioning & Refrigeration Limited management for giving me an opportunity to be a part of their esteemed organization and enhance my knowledge by granting permission to pursue my Summer Internship Program under their kind guidance. I am grateful to Mr. Vippin Datta (Company Guide) Regional Service Manager-East, my guide and mentor, for his invaluable guidance and cooperation during the course of the program. He provided me with his guidance and support whenever needed that has been instrumental in completion of this project. I am also sincerely thankful to my faculty guide, Dr. Subir Sen (Faculty, IBS-Kolkata) who had immense patience to take up my all queries and provide me with his invaluable suggestions. His guidance and encouragement enlightened the path to fulfillment of my project. Finally, Im very grateful to all the staff of Carrier Airconditioning & Refrigeration Limited and my friend Mohit Damani who have been a great help in the overall development and completion of this project.
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Table of Contents
CONTENTS
1. Executive Summary
PAGE NO.
3
2. 3. 4. 5. 6. 7. 8.
Industry Profile Company Background & Business Profile Basic framework of VALUE CHAIN CARRIERs Value Chain Conclusion and Recommendations Annexure References
4 5 6 10 32 33 36
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Executive Summary
The concept of a Value Chain has existed for twenty five years but we find it still is an unclear concept. There is a need to relate the concepts of the value chain and the supply chain. It has been suggested that the third generation supply chain is based on customer intimacy and is fully synchronized. The report discusses different aspects of the value chain and synchronizing value that optimized business performance at Carrier Airconditioning &Refrigeration Limited. Carrier the premier in Air-Conditioning industry in the country is one of the largest sellers of heating, ventilation, air conditioning and refrigeration (HVACR) systems in India. Even in such a competitive market carrier retains a very high revenue growth over the years. When the other contenders fight hard to make its margin Carrier makes a smooth flow of revenue with very unique revenue building model based on the brilliant value chain management technique. The Value Chain concept was developed and popularized in 1985 by Michael Porter, in Competitive Advantage, a work on the implementation of competitive strategy to achieve superior business performance. Porter defined value as the amount buyers are willing to pay for what a firm provides, and he conceived the value chain as the combination of nine generic value added activities operating within a firm activities that work together to provide value to customers. Porter linked up the value chains between firms to form what he called a Value System; however, in the present era of greater outsourcing and collaboration the linkage between multiple firms value creating processes has more commonly become called the value chain. As this name implies, the primary focus in value chains is on the benefits that accrue to customers, the interdependent processes that generate value, and the resulting demand and funds flows that are created. Effective value chains generate profits. Current economic situation is so volatile that its getting tougher and tougher to make a good cost budget. So for any manufacturing company the margin of profit has narrowed drastically. Even though most of the other manufacturers are planning to drop down their prices further to ensure market building, Carriers ACs are in general priced at 1015% above competitors products. Carrier outlook is not to sell the cheapest product while Carriers target segment is pretty much evolved and is not particularly the first time buyers. Instead, they cater to customers who are looking for a repeat purchase. Though the company currently manufactures its full range of residential products in India, 50-60% of its commercial range is still imported from its factories in US, China and other parts of the world, one reason for the upper marked pricing. The company is now planning to localize its offerings in India to control costs. It already have a sustainable design centre in India and are planning to take it forward to a higher level, particularly with respect to localized products. With high inflation and increasing competition it is true that different means of revenue generation is very much necessary for the sustainability of the company. Carrier thrive the industry for Air-Conditioning and Refrigerations Services and Maintenance both in the commercial as well as the residential sector. Carrier achieves such a success by implying a dedicated work force over its franchise and dealership model. And at the heart of this operation which is the main reason for its success is its excellent Value Chain management. Even with the hot waves of stiff competition, Carrier makes smooth sail with its Value Chain management to make some cool moves to fight the heat.
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Industry Profile
Traditionally, air-conditioners have been considered to be luxury appliances, and therefore, the demand for airconditioners have either come from the institutional segment or from affluent homes in the top metropolitan cities of India. Thats no longer the case. While easy finance options have made air-conditioners more affordable, companies are also going that extra mile to make air-conditioners a must-have appliance in more and more middle class India homes. Price cuts as a strategy to increase sales volumes is definitely in the cards of appliance companies. Clearly the companies are not hoping to garner huge margins from the sales of these air-conditioners but are looking at growing sales volumes. Growing sales volume is crucial for air-conditioner companies. During the last 4 years, the cost of inputsincluding copper, steel and plasticshave been rising steadily while competition too has become intense. This has led to a squeeze on margins. On the positive side, a reduction in excise duties has helped the air-conditioner market to grow rapidly. Last year, the air-conditioner market grew by 20 percent, and this year companies are confident that market growth will register an increase of nearly 25 to 30 percent from last year. While the key players in the popular segment of the air-conditioner market are LG, Voltas, Panasonic, and Samsung, the premium segment is dominated by brands such as Hitachi, Daikin, and Carrier. The spurt in sales of air-conditioners has led to a rush of launches in the premium segment as well. Not surprising, as the high-end air-conditioner segment comprises nearly 12 percent of the total market. Companies feel product differentiation and innovative features will be key to selling premium air-conditioner brands. Due to a vibrant consumer market and large urban population, consumer appliance goods have always been popular and in demand in the Indian marketplace. Air conditioners are in more demand in cities than rural areas. In cities such as Mumbai, Delhi, Chennai and Kolkata, the use of air conditioners have become indispensable. This is mostly due to the tropical weather of India, including the sweltering summers, that has temperatures rising up to 37 degrees Celsius. Carrier delivers global solutions across the broadest range of heating, cooling and refrigeration applications. Carrier serves three markets: Residential and light commercial: homes and small facilities. Carrier supplies furnaces, central air conditioners, heat pumps, air filters, window units, split systems and other home comfort solutions. Commercial building: industrial and multi-level facilities. Carrier supplies chillers, large unitary, airside systems and controls that provide comfort and efficiency in buildings around the world. Refrigeration systems: food retail and transportation. Carrier supplies applications to ensure food supplies are transported and stored for safe consumption as well as products for the air conditioning of passenger buses and recreational vehicles. India has the fastest-growing middle-class society in Asia. As per a recent report of National Council for Applied Economic Research, a family with an annual income between 3.4 lakh to 17 lakh (at 2009-10 price levels) falls in the middle class category. The country's middle-income group is expected to grow 19% a year for the next five years, according to a report by brokerage and investment banking services provider CLSA last year. The report, 'Mr and Mrs Asia', also forecasted that discretionary spending in India will increase 18% every year. There are two kinds of room air conditioners in India; the split air conditioner and window. There are many brands of air conditioners in India. The most popular brands are foreign. Some of these brands are Samsung, LG, Voltas, Onida, Whirpool, Electrolux, Godrej, Carrier, Haier, Lloyd, Videocon, Sanyo, Kenstar, Hitachi, Bluestar, O general and TCL. The country's room AC market, which is expected to touch 3.6 million units in 2011 from 3 million last year, is dominated by split ACs that account for two-thirds of the market. Indian AC market estimated at close to Rs 9,400crore and growing more than 20% a year. Rising incomes among consumers in a flourishing economy along with rising summer temperatures across the country and increasing affordability are expected to drive up demand for ACs in the country for several years.
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The term Margin implies that organizations realize a profit margin that depends on their ability to manage the linkages between all activities in the value chain. In other words, the organization is able to deliver a product / service for which the customer is willing to pay more than the sum of the costs of all activities in the value chain.
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Some thought about the linkages between activities: These linkages are crucial for corporate success. The linkages are flows of information, goods and services, as well as systems and processes for adjusting activities. Their importance is best illustrated with some simple examples: Only if the Marketing & Sales function delivers sales forecasts for the next period to all other departments in time and in reliable accuracy, procurement will be able to order the necessary material for the correct date. And only if procurement does a good job and forwards order information to inbound logistics, only than operations will be able to schedule production in a way that guarantees the delivery of products in a timely and effective manner as predetermined by marketing. In the result, the linkages are about seamless cooperation and information flow between the value chain activities. In most industries, it is rather unusual that a single company performs all activities from product design, production of components, and final assembly to delivery to the final user by itself. Most often, organizations are elements of a value system or supply chain. Hence, value chain analysis should cover the whole value system in which the organization operates.
Within the whole value system, there is only a certain value of profit margin available. This is the difference of the final price the customer pays and the sum of all costs incurred with the production and delivery of the product/service (e.g. raw material, energy etc.). It depends on the structure of the value system, how this margin spreads across the suppliers, producers, distributors, customers, and other elements of the value system. Each member of the system will use its market position and negotiating power to get a higher proportion of this margin. Nevertheless, members of a value system can cooperate to improve their efficiency and to reduce their costs in order to achieve a higher total margin to the benefit of all of them (e.g. by reducing stocks in a Just-In-Time system). A typical value chain analysis can be performed in the following steps: Analysis of own value chain which costs are related to every single activity Analysis of customers value chains how does our product fit into their value chain Identification of potential cost advantages in comparison with competitors Identification of potential value added for the customer how can our product add value to the customers value chain (e.g. lower costs or higher performance) where does thecustomer see such potential.
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As seen from the above diagram, Cost Differentiation strategy is consistent with a low cost structure, high willingness to pay (value to the consumer) and a price below the average in the industry. Cost Leader has the lowest cost structure and charges the lowest fee. At the same time, consumers demonstrate a lower willingness to pay for possibly inferior product offering. Differentiation strategy is consistent with higher cost structure, higher prices and higher utility to the consumer. Current economic situation is so volatile that its getting tougher and tougher to make a good cost budget. So for any manufacturing company the margin of profit has narrowed drastically. Even though most of the other manufacturers
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INBOUND LOGISTICS: the receiving and warehousing of raw materials and their distribution to
manufacturing as they are required. 31-Mar-09 RM Inventory (days consumption) 46.70 31-Mar-08 42.50
The level of RM Inventory the company looks good, which is for around 46 days of usage. Minimum RM inventory coverage represents the minimum time to prepare RM for production.
Operations: the processes of transforming inputs into finished products and services.
i. ENERGY CONSERVATION MEASURES TAKEN Retrofitting/Minor Modifications of existing equipment Replacement of incandescent lamps/tube-lights with compact fluorescent lamps Replacement of damaged/leaking compressed air pipe lines Replacement/Installation/Modernization of old and inefficient existing equipment and systems Modification in old thermopac with atomization modulation thermopac resulting in fuel saving. Replaced old400 KVA DG Sets with 250 KVA DG sets to adjust for low load requirement resulting in fuel saving. Replacement of old air/gas compressor with efficient one Replacement of state electricity board old independent feeder with new one, thus improving the quality of power and reduction in captive power generation Energy substitution/switching measures Substitution of electricity use in any other specific equipment with renewable energy source e.g. solar, winds, agro-waste, etc. (Eco Ventilator) Substitution of fuel with low cost fuel (Fuel CIX) in boilers/furnaces for energy cost reduction Process Monitoring and Controls Temperature monitoring and control system Combustion control system in boilers/furnaces Surface temperature monitoring system
ii.
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Particulars 31-Mar-09 1. Electricity (a) Purchased Units (in Lakhs) Total amount (Rs. in Lakhs) Rate/ unit (Rs.) (b) Own generation Through diesel generator Units (in Lakhs) Units per litre of diesel oil Cost/unit (Rs.) 14.87 3.40 10.00 23.82 3.65 9.25 19.74 89.41 4.53 17.13 76.78 4.48 31-Mar-08
iv.
Electricity (Kwh/box)
9.00
v.
Operations Outlook 31-Mar-09 31-Mar-08 6.40 0.20 50.60 5.90 0.20 52.90
Operating Margin (%) Working Capital to Sales (NS) * Working Capital Days (days gross sales)
Additional investments and proposals, implemented for reduction of consumption of energy Additional investments and proposals: Rs 7.2 lakhs (Rupees Seven Lakhs Twenty Thousand) The reduction of energy consumption and consequent impact on the cost of production of goods As a result of energy conservation measures undertaken by the Company, as mentioned hereinabove, 15% of the energy was saved during the year 2008-2009. Total energy consumption and energy consumption per unit of production
Days of finished goods inventory ratio reflects the time it takes the company to sell the products it manufactures, and calculated with respect to cost of goods sold. *Reference to Annexure
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Marketing & Sales: the identification of customer needs and the generation of sales.
Particulars 31-Mar-09 Advertisement & Business Promotion(in Lakhs) Advertisement & Business Promotion as a percentage of Total Expenses: 839.67 1.14% 31-Mar-08 959.49 1.33%
Service: the support of customers after the products and services are sold to them.
Particulars 31-Mar-09 (in Lakhs) Cost of Services Service Income 3139.65 17921.09 31-Mar-08 (in Lakhs) 311070 15283.18
31-Mar-09 Service income as a percentage of turnover: Net Profit income as a percentage of turnover: 22 % 4.32 %
Service Cost as a percentage of Manufacturing and other Expenses (excluding Spares and Components) : 4.29%
The Service Value Chain is the progression of a service opportunity from beginning to end. Small improvements at each step can translate to significant improvement in sales. The Service Value Chain closes the loop with the customer. Once the service work is completed, Carrier builds an ongoing relationship with the customer in order to get repeat business and referrals. Carrier thrive the industry for Air-Conditioning and Refrigerations Services and Maintenance both in the commercial as well as the residential sector.
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The infrastructure of the firm: organizational structure, control systems, company culture, etc.
Debtors Turnover Ratio Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. Particulars 31-Mar-09 Sundry Debtors (in Lakhs) Debtors Turnover Ratio Outstanding over Six Month as a percentage of total Sundry Debtors 15997.86 4.97 7.4% 31-Mar-08 14101.37 5.38 4.4%
Accounts receivable turnover ratio or debtors turnover ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm.
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Indigenous
Though the company currently manufactures its full range of residential products in India, 50-60% of its commercial range is still imported from its factories in US, China and other parts of the world, one reason for the upper marked pricing. The company is now planning to localize its offerings in India to control costs. It already have a sustainable design centre in India and are planning to take it forward to a higher level, particularly with respect to localized products.
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iv. Expenditure on R&D During the period under review, the Company has incurred following expenditure on R&D: Particulars 31-Mar-09
B. Technology absorption, adaptation and innovation i. Efforts, in brief, made towards technology absorption, adaptation and innovation Introduction of CDU/WRAC/AHU by using global platform designs, Introduction of BUS AC/Truck Refrigeration by using Global Designs.
ii.
Benefits derived as a result of the above efforts, e.g., product improvement, cost reduction, product development, import substitution etc,
The above stated efforts have resulted in product development, cost reduction and quality improvement.
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At Carrier managers motivation, preferences, feelings of comfort and trust create value for individuals that engage in trading relationships. These trading relationships are extremely influential in the determination of successful exchange.
There are competitive forces affecting the market value of any exchange of resources when comparisons can be made between competing offers. Competing offers can erode value (and margins) by making the lowest price a deciding factor in evaluating an exchange.
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For Carrier, the capability of providing value to customers generates revenues in excess of costs creates profit, which in turn generates stakeholder value. Thus, the exchange of value (or the value created in exchange) is the basic engine that drives the company. The upstream (value stream) impact of value creation is stakeholder value. Because value is derived from customer needs, activities that do not contribute to meeting these needs are nonvalue-added waste. Careful consideration of the tasks and functions that occur at Carrier it is observed, considerable waste still available for process improvement activities to uncover and reduce or eliminate. By streamlining the processes that generate the goods and services, fewer resources need to be expended, and the margin between customer value and the cost of delivery can increase, improving firms profit margin. This is the essence of Carriers corporate strategies that focus on operational excellence. In the field of service businesses, up to 40 percent of the opportunities each day are lost forever. By understanding the Service Value Chain companies can improve sales and gross margins by making the most of the opportunities. Field Service is a large and diverse industry. In the broadest sense, there are two categories of field service: 1. Consumer Discretionary. Consumers, both residential and commercial, willcontract for repairs or installations on as as-needed basis. This business is characterized by demand service typically driven by Yellow Page advertising.
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The Service Value Chain at Carrier is the progression of a service opportunity from beginning to end. Small improvements at each step translate to significant improvement in sales. In effect, Carrier grows by 20 percent or more without any change in service demand.
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When its not done right, fewer and fewer opportunities come, and the process slowly grinds to a halt, as does business. The arrows decrease in size during the process because customers and opportunities are lost at each step. Losses at each step may be less than ten percent, but only a relatively small number of customers make it to the repeat customer stage. The Service Value Chain closes the loop with the customer. Once the service work is completed, Carrier builds an on-going relationship with the customer in order to get repeat business and referrals. When everything is done right, the reward is a satisfied customer that provides business again. The process repeats itself and has helped Carrier grow over the years.
Customer Opportunities. Carriers opportunities have come from Sales Channels and from repeat business. Repeat business needs to be thought of as reward for doing a great job in managing the service value chain and customer relationships. If the company is not actively engaged in retaining its customers, only about 24 percent of first time customers will come back. That means 76 percent of customers that took service from the company once will never ask for service in the future. In fact, the majority of consumers cannot even remember the name of the service provider they used after just three days! Historically, Field Service businesses had only one sales channel yellow page advertising and only one method of contact inbound calls. Although most field service businesses continue to operate that way, but Carrier implemented many other sales channels that brought more opportunities to its business: Outbound Calls Direct Sales Self-Service Wholesale Opportunities, Service Brokers Alliances Carriers field service businesses now receive over 50 percent of their work from these channels, freeing the company from total dependence on inbound calls. TCCJ was established in April 1999, as a Joint venture between Toshiba Corporation and Carrier Corporation aiming to reinforce the corporate competitiveness by strategic cooperation from global standpoint. Carrier is the worlds largest HVAC Company and Toshiba is quite strong in the Residential and Light Commercial segment with most advanced technology.
Service Demand. Carrier captures the customer information and arranges a time for a site visit. Typically, calls are handled by Customer Service Representatives (CSRs) or in some cases by dispatchers or managers in the branch. Capturing service demand needs to be handled in a highly professional manner. Reliable methods initiated by Carrier of measuring lost opportunities (Hang-ups) in order to improve performance in the critical area are: Trained specialists should take all inbound customer calls. Empathize with the customer. Dont pre-qualify the customer.
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Carrier identified that the most common reasons for failing to book a service work order: Customer wanted a price quote or estimate over the phone. Customer could not say how they would pay for the service. Customer thought the price was too high. Customer did not agree to the trip charge or diagnostic fee. Customer wanted faster service than the business could provide. Customer wanted a specific appointment time. Therefore Carrier installed the principle of give the best service to the best opportunities. To reduce hang-ups, honesty is needed in reporting. Many CSRs will go out of their way to avoid the stigma of a hang-up. To improve hang-ups, Carrier implemented strong leadership, training programs, good tracking system, and plenty of time spent observing the CSRs and listening in on conversations.
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Dispatch and Logistics. The next step in the Service Value Chain begins with a booked work order. When a customer that has agreed to the service or at least to have a diagnosis done. At this point, Operations takes over. An authorized service dealer will assign a technician, estimator, or salesperson to the work order and send the person to the job site at the appointed time. This process is logistics getting the right technician, with the right parts and equipment to the right customer at the right time. Logistics break down for a variety of reasons; foremost among them is an imbalance between supply and demand. Carrier identified at any given point in time, the service dealers will either have too many technicians or too many service work orders. If this imbalance gets too great, business will suffer and Carrier wont be able to get a technician to the job site either not at all, not fast enough, or not when promised. Customer cancels happen after the service work order is booked but before the technician arrives at the job site. Major reasons for customer cancels are: Technician Did Not Show Up On Time. Customer Booked with a Competitor. Customer Found a Quicker Service Provider. Customer Had to Leave. Customer Fixed Their Problem. There are some hidden opportunities with customer cancels. One study showed that if company calls back all the customers that cancelled service the following day, 20 percent will agree to book again. If the cancel rate is a typical 10 percent, then just by taking this simple step, company can increase its sales instantly by two percent. Carriers most of the customers are entitlement-based that is, under contract or warranty. However, long term captive customers have a way of getting even when exposed to persistent poor service; therefore Carrier never gets too complacent with these customers. Many HVAC companies face fifty percent plus cancellations from customers after their annual contract expires.
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Service Sales. The technician arrives on site, diagnoses the problem, and presents a written estimate for the customer to approve. The customer signs off on the estimate and the work begins (or, at least the job staging process begins). Factors contributing to the success in this process are: Technicians appearance. Condition and cleanliness of the service vehicle. Rapport the technician builds with the customer during the problem diagnosis. Quality and thoroughness of the estimate. Technicians ability to explain the problem and solution. Price. Timing of the work to be done. The end result should be a sale. For repair businesses, a 90 percent success rate is typical. For major repairs or installations, the success rate is normally from 33 to 50percent. A no-sale fails both Carrier and the customer. The cost of getting the technicians to customers front door is from Rs. 500 to Rs. 600, depending on the market. The following are the main reasons a customer declines service:
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Carrier experienced that a high correlation exists between no-sale work order rates and the experience levels of the technicians. If most of technicians are less experienced, a high no-sale rate is expected. If most of the technicians have been with Carrier for three or more years, then the no-sale rate should be well below 10 percent. This is the biggest reason Carrier works hard to maintain low attrition rate.
Job Preparation. If the field service work requires some job staging and job preparation, its unlikely that the company will be able to offer same day service. The staging required in order to install a new Air Conditioning unit in the customers home: Close the sale and arrange for financing. Pull permits for Mechanical and/or Electrical work. Arrange for Public Utility Company rebates and/or Manufacturer rebates. Order A/C unit or pull from inventory. Determine parts and material requirements for ducts, vents, and returns, etc. Order or pull the necessary parts. Set up appointment with the customer and the lead installer for the installation.
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Follow-up. Most businesses consider the process complete when the work is done and the technician collects the payment. However, several steps remain in the Service Value Chain. Re-services and warranty work are common follow-up issues. Technician recommendations, satisfaction surveys, and Customer Relationship Management (CRM) activities have been the most important success drivers for Carrier. Quarter - 1 performance for service delivery parameters, 2011. *Kolkata ranking 1st
Re-services. All field service businesses have a small number of jobs requiring re-servicing. The primary reason is poor quality of service, followed by defective parts. When a technician does not do the job right the first time, he or she has to return, often multiple times, to complete the job. This is costly to the company and annoying to the customer. Carrier stops re-service by the following measures: Sends a qualified and prepared technician to the job site.
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Recommendations. Technicians are asked to write recommendations for future work on quote estimates and generate invoices. Carrier expects to have good follow-up recommendations on about one third of the invoices written in the field. Typical recommendations are fixture upgrades, maintenance or extended warranty offerings, accessories, or additional work that the customer does not want to have fixed as part of that days work. The technician must review the recommendations with the customer. After several days or weeks, Carriers CSRs places outbound calls in an effort to book the additional work. There are always slack calling periods when they have time for this effort. Carrier is successful about 20 percent of the time. The end result is a 6.6 percent revenue increase for its business.
Satisfaction Surveys. Many, if not all, of service customers are contacted after the work is completed to make sure they were happy with the work and that their problem was solved. Questions asked are, like: Did the technician show up on time? Did the technician explain the problem and how it would be fixed? Did the technician fix the problem and clean up when done? Would you use us again?
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Follow-up CRM. CRM, or Customer Relationship Management, is a process designed to build customer loyalty and customer retention. Occasional reminders that a tune-up is due, special offseason offers, and other mailers are helpful to keep Carriers name in-front of the customer. It costs an estimated five times more to acquire a new customer than it does to retain an existing one, so this effort is money well spent for most field service businesses. Carrier focuses more its energy and money on commercial accounts, where on-going relationships can be built and the mean-time-between service is six months or less.
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While innovation and marketing strategies at Carrier focuses on improving customer perceptions of the value of goods and services by innovatively improving the perception of what gets delivered. Value chain management, increases the margin between delivery cost and perceived value and is the foundation for improved business performance at Carrier Airconditioning & Refrigeration Limited.
Yield is the percentage of opportunities that result in a successful sale. Six Sigma refers to this as flow through yield, since there are several steps along the way that impact yield. In this report, Carriers service business was observed to determine Carriers success. By closely examining each of the segments in its Value Chain, it is evident that there is no magic pill Carrier is doing many things just a little better than its peers. It is seen this time and again the difference between a highly successful business and a struggling one is not just one or two things - the highly successful business is just a little better in twenty or thirty ways, and the differences accumulate.
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Value is highly conditioned by the larger social and economic environment through which complex and numerous interactions affect the human perception of value-based transactions. Advertising, social trends, and economic conditions all influence consumer and business valuations of products, services, and resources flowing through the value systems in our economy. One of the most watched figures in the marketplace is the consumer confidence index based on a survey of households. This index is an aggregate measure of confidence in the economy and a leading indicator of how consumers will value, and therefore how they will spend money on goods and services. When perceptions of value in a marketplace become exaggerated, market bubbles occur such as the recent Sub-Prime bubble. When significant trends take hold in this larger environment it is difficult, if not impossible, for individual companies or households to avoid being swept along in the sudden creation and destruction of value that may result. Carrier is a company founded on a history of innovation. Beginning with Willis Carriers pivotal invention of the first mechanical air conditioning system, Carrier has consistently introduced new technologies and industry "firsts" that have forever changed the way we live, work and play. From revolutionary improvements to health care, manufacturing processes, research, building capacities and food preservation to art and historical conservation, general productivity, indoor comfort, and much more. Carrier is committed to creating new possibilities that enhance peoples comfort and improve their lives. Carrier believes that industry leadership demands environmental leadership. In fact, environmental stewardship is one of the companys core values. Carrier continuously works to improve the environmental performance of their products and services, operations and culture to help achieve a sustainable society. For supply chains to generate maximum value in this dynamic environment, Carrier must synchronize the flows of supply with the flows of value from customers in the form of rapidly shifting tastes, preferences, and demand. Carrier need to stop thinking of supply chains and value chains as different entities, but, rather, should integrate the two. Third generation supply chains require that the material flow and product delivery be synchronized and lean, and that the information, knowledge, and financial flows be fully integrated and instantaneous. SCM 3.0 requires that product design be fully integrated with production capability, delivery processes, and information about customer demand. This can be achieved by taking a holistic view of the end to end business process throughout the product life cycle and across geographical borders. The next level of business performance will be achieved by the company as it integrates fully the concurrent flows of value and supply.
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Annexure
Financial results
Income Statement 31-Mar-09 Profit / Loss A/C Net Sales (NS) Material Cost Increase Decrease Inventories Personnel Expenses Manufacturing Expenses Gross Profit Administration Selling and Distribution Expenses EBITDA Depreciation Depletion and Amortisation EBIT Interest Expense Other Income Pretax Income Provision for Tax Extra Ordinary and Prior Period Items Net Net Profit Adjusted Net Profit Dividend - Preference Dividend - Equity Rs mn 7966.48 4203.10 990.41 651.87 414.89 1706.21 1173.72 532.49 65.70 466.79 7.86 84.81 543.74 199.49 0.00 344.25 344.25 0.00 531.88 %NS 100.00 52.76 12.43 8.18 5.21 21.42 14.73 6.68 0.82 5.86 0.10 1.06 6.83 2.50 0.00 4.32 4.32 0.00 6.68 31-Mar-08 Rs mn 7599.06 4035.68 873.72 499.35 416.06 1774.25 1213.61 560.64 74.75 485.89 9.94 106.78 582.73 210.13 0.00 372.59 372.59 0.00 0.00 %NS 100.00 53.11 11.50 6.57 5.48 23.35 15.97 7.38 0.98 6.39 0.13 1.41 7.67 2.77 0.00 4.90 4.90 0.00 0.00
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Balance Sheet 31-Mar-09 Equity Capital Preference Capital Share Capital Reserves and Surplus Loan Funds Current Liabilities Provisions Current Liabilities and Provisions Total Liabilities and Stockholders Equity (AL) Tangible Assets Net Intangible Assets Net Net Block Capital Work In Progress Net Fixed Assets Investments Inventories Accounts Receivable Cash and Cash Equivalents Other Current Assets Current Assets Loans & Advances Miscellaneous Expenditure Other Assets Total Assets (AL) 1063.77 0.00 1063.77 848.36 0.00 2016.74 1094.10 3110.84 5022.97 491.39 7.10 498.49 18.64 517.12 0.11 1115.40 1599.79 539.86 2.00 3257.04 1218.38 0.00 5022.97 %AL 21.18 0.00 21.18 16.89 0.00 40.15 21.78 61.93 100.00 9.78 0.14 9.92 0.37 10.30 0.00 22.21 31.85 10.75 0.04 64.84 24.26 0.00 100.00 31-Mar-08 1063.77 0.00 1063.77 1126.40 0.00 2057.75 617.22 2674.97 4865.13 308.45 0.06 308.51 159.35 467.87 0.11 1307.87 1410.14 483.07 7.42 3208.51 1158.00 0.00 4865.14 % AL 21.87 0.00 21.87 23.15 0.00 42.30 12.69 54.98 100.00 6.34 0.00 6.34 3.28 9.62 0.00 26.88 28.98 9.93 0.15 65.95 23.80 0.00 100.00
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Ratio Analysis As on Return Related Return on Total Assets (%) Return on Networth (%) Return on Capital Employed (%) Profitability Gross Margin (%) Operating Margin (%) Net Profit Margin (%) Adjusted Net Profit Margin (%) Asset Turnover(x) Leverage Interest Coverage (x) Liquidity Current Ratio (x) Quick Ratio (x) Cash Ratio (x) Per Share Book Value Per Share (Rs) Earnings Per Share (Rs) Dividend Per Share (Rs) Growth(%) Total Sales EBITDA EBIT Net Profit Total Assets 4.84 -5.02 -3.93 -7.61 3.24 -----81.30 14.70 22.70 93.50 15.90 -1.10 1.10 0.30 1.20 0.90 0.20 21.40 5.90 4.30 4.30 3.90 23.30 6.40 4.90 4.90 6.90 24.40 18.00 26.80 22.20 17.00 26.90 31-Mar-09 31-Mar-08
67.70
56.40
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