India Glycols Limited

SCM Project Report

Submitted to : Prof. Atanu Chaudhuri & Prof. Sushil Kumar
3/25/2012

Submitted By: Group 2

Anand Pathak PGP 1004 Cobi Sarangal PGP 1011 Kunal Kejriwal PGP 1021 Mohit Rastogi PGP 1025 Ravikant PGP 1029 Ramsiva Linga PGP 1028 Varun Kumar Agarwal PGP 1034

Executive Summary
India Glycols Limited is manufacturing quite diversified although interconnected product group.To understand the supply chain of IGL we can divide its business primarily into three major product category: a.) Spirits Division b.) Chemicals Division c.)Gas Division. The product range and basic manufacturing building blocks of IGL can be understood from following diagram

In this project we visited the IGLs Kashipur plant and understood the manufacturing processes and inquired the management about how flexible is raw material sourcing, how efficient is the production process, how the distribution channel network fits with nature of operations and business strategy. We also tried to gain some insights on customer interactions and their requirements for each of the product divisions. Spirits division which contributes roughly 20% of total revenues is an important by-product of the manufacturing process and financially vital to the organization as the firm enjoys highest ROI in spirits division compared with the other two. The sale of IGL spirits primarily is in Uttarakhand and Uttar Pradesh. Defence Forces Canteen (CSD) are also one of the major consumers of Indian made foreign liquid products of company. The company is critically dependent on agriculture feedstock i.e Molasses as a result the company proactively engages with cane growers and other sugar manufacturing industries to ensure availability of molasses. Other than this molasses is being also used for firing 40 MW captive power plant boiler. Although the company has location advantage in terms of supply of raw material (firm present in sugarcane belt of India) but faces equivalent disadvantage in terms of transporting alcohol. Exports to U.S and Europe are carried from Kashipur to Kandla port. The damage cost and transportation cost are high than ideal. Hence the management is also finalizing construction of railway based logistic services adjacent to existing plant at Kashipur to ensure raw material (molasses availability) and low transportation cost. The chemical division is the chief business of IGL. It brings 70% of total revenue of the firm.

The Chemical segment comprises.) Glycols (MEG, DEG, TEG and Heavy Glycols) b.) Ethylene Oxide Derivatives (EODs). The company boasts of possessing path breaking green approach to manufacturing ethylene oxide and its derivatives. The wide usage of these chemicals can be understood from the variety of industries IGL serves to i.e Emulsifiers: agrochemicals, Brake fluids and coolants to IOCL, BPCL and HPCL, surfactatnts and ethoxylates to local paper industries,fattyamine ethoxylates to Textile industry etc. Hence IGL serves a variety of industry spread geographically all over India. The gas division is another important by-product of manufacturing process and also one of the riskiest operations. The hazards of fire and leakage has prompted the management to install state of the art Fire management system in IGL. The division contributes 11% of total revenues. The CO2 produced is sourced primarily by Pepsi and coca-cola plant in Bazpur, 30-40 kms from IGL factory. Oxygen required for blast furnace process is sourced by the steel products manufacturing plants in Kashipur. IGL has vendor managed inventory system for its bigger customers like Pepsi and KVS. The major challenges for IGL remain up-scaling its operations to meet growing domestic demand. Although the company has ambitious expansion plans but scope of more efficient supply chain is there. Absence of third party logistics provider has forced IGL to develop its own fleet of trucks. Given the strict norms and regulations in transportation of chemicals and gases, IGL has to spend lot of resources on its fleet management. Raw material availability still remains a big concern. Transportation of molasses from other states like Maharashtra and Andhra is an option which will increase transportation costs of raw material. The construction of Railway freight terminal in Kashipur will give a fillip to Managements endeavour to reduce costs.

Introduction
India Glycols is a leading company that manufactures green technology based bulk, specialty and performance chemicals and natural gums, spirits, industrial gases, sugar and nutraceuticals. The company was established as a single mono-ethylene glycol plant in 1983. IGLs integrated facilities manufacture chemicals including glycols, ethoxylates, glycol ethers and acetates, and various performance chemicals. Its product range spans the chemicals, spirits, herbal and other phytochemical extracts and guar gum, industrial gases and realty sectors, and finds application across an increasing number of industries. These products are manufactured in compliance with stringent global standards of plant operations, quality and safety. The companys facilities have been approved and certified by international agencies including Det Norske Veritas (DNV). The operations at all plants are closely monitored through distributed control systems (DCS), which facilitate a high degree of control over the quality of products. Apart from chemicals, India Glycols has a significant presence in the natural active pharmaceuticals and nutraceuticals space with Ennature Biopharma; a well-established natural gum division manufacturing guar gum and a variety of derivatives; a spirits division that manufactures country and Indian-made foreign liquor adhering to the highest quality standards; and Shakumbari Sugar a well-established player in the Indian sugar industry.

Production Flow System

Source: Rinc research India Glycols' chemicals division has integrated state-of-the-art technology with its captive feedstock of raw materials to manufacture chemicals in a cost-efficient and environmentally responsible manner. Constant innovation and a passion to consistently provide quality products have helped the company to establish itself as a market leader in a number of segments in the chemicals industry. IGL's plants are ISO 9001:2008, ISO 14001:2004, and OHSAS 18001:2007 certified.

Spirits Division
The spirits division of IGL commenced operations in 2002. With IGL being the sole supplier of Bacardi the company has a strong presence in the semi premium, regular and prestige segments within the whisky, rum, brandy, vodka and gin product categories. The company has three distilleries in Kashipur (Uttarakhand), Gorakhpur (Uttar Pradesh) and Todarpur (Saharanpur, Uttar Pradesh) with a total distillery capacity of 280,000KLPA for the production of ethyl alcohol, out of which, 80,000KLPA

is for potable alcohol. At present, the distillery is working on the 'smart distillery concept' capable of producing alcohol from different raw materials, i.e., molasses, grain and sugarcane. Apart from producing industrial alcohol for its captive consumption, IGL also exports ENA (neutral spirit). With a production capacity of bottling (potable liquor) 1.50 million cases per annum, Kashipur is the only bottling plant in India to adopt ISO 22000 (food safety management systems) quality standards in addition to ISO 9000, 14000 and 18000.

Products
Indian-made foreign liquor (IMFL) Extra neutral alcohol / rectified spirit

Country liquor

Sourcing
The main raw material for all the three type of product group of the division is alcohol which in turn ids derived from molasses. Both the processes of converting molasses into alcohol and alcohol into spirits are done in-house.

Manufacturing
With an installed capacity of 4.25 lakh litre per day capacity, IGL is one of the largest players in this segment. Although currently only 2.5 lakh litre is used because of the pollution norms set up by Central Pollution Control Board. These restrictions came into being in the last 3-4 years since the declaration of Ganga as a National river which in turn resulted in a Zero discharge policy. The company has plan to resume production at full capacity by 2013 by implanting the new boilers which it had commissioned based on pollution guidelines and which are nearing completion. Below is a diagram showing the steps involved in Alcohol production at IGL.

Distribution
With customers spreading throughout the world the transportation and distribution of liquor is a major challenge for IGL. Using modern technology coupled with smart ideas IGL seeks to minimize its losses. The distribution of liquor happen using two storage mediums, the first being glass bottles and the second being in tanks. Kashipur plant has a bottling plant to help package the liquor for destinations where directly glass bottles are transported. The other medium of transporting tankers is used to transport to Bottling tie ups in Maharashtra, Haryana and Kerala. The company has a strong international presence with export markets including the United States, Europe and Middle East. To all these location except Yemen Liquor is transported sans glass bottles. The reason for not directly supplying using glass bottles is the high duty on liquor-140%. With a loss percentage in glass bottles pegged at 4-5%, due to breakage, which is very high by any standard the company, incurs more losses in terms of duty than in the production cost involved. The company also has commissioned a new bottling plant at Hazira and is in process of identifying Kandla Port as a future hub for its exports.

Challenges
IGL has its set of challenges some of which are inherent to the company location and other which have been imposed on it by various factors. The biggest challenge in our eye as well as the management is the distance from the port. At 1500 km, the nearest port is a still a whole lot of distance away from IGL mother plant at Kashipur. With majority of its product destined for export IGL has to incur a great deal of costs in transportation of liquor which is already plagued by high loss percentage of 2-3%. The company has tried to mitigate this problem by having tie ups with bottling plant in various states in India as well as abroad but still the company uses glass bottle up to 500 km distance. Another challenge faced by the company lays the fact that it has to obtain permission for transportation of flammable liquid which imposes upon it strict procedural checks and the need for specialized tankers to transport the liquor. On the raw material side the biggest challenge lies in the fact that the supply of molasses is seasonal and this seasonality imposes stiff challenge in the form of price sensitivity. Molasses is a very price sensitive product with price varying as much as 5-6 times the normal price in a single month itself. Also because of this seasonality the company has to maintain a safety stock of almost 3 months to continue smooth production which creates a huge burden of carrying cost. One peculiar trait of the company is its unwillingness to tie itself with long term contracts with its supplier of molasses, despite molasses being a critical to the smooth functioning of the plant. This stance of the company lays the fact that the company although wanting to safeguard itself from the price rises, also want to take full advantage of times when the prices of molasses are at prohibitively low. Another raw material which imposes challenge is the coal required for its boiler. With its boilers not designed to handle high caloric coal from abroad, IGL is forced to depend on Coal India for its supply of coal which in turn has fixed allocation policy often resulting in shortages.

Chemicals Division
The Chemicals segments product range includes Glycols (MEG, Di-ethylene Glycols and Heavy Glycols) and EO derivatives (Ethoxylates, Glycol Ethers and other Performance Chemicals). Glycols contributed 43% and EO derivatives 38% in FY08 sales and were the main drivers of revenues. MEG as a key product accounted for ~51% within Chemicals, and ~41% of total gross sales in FY08.

MEG demand-supply scenario

MEG is mainly consumed by polyester fibres (~70%) i.e. Partially Oriented Yarn (POY)/Polyester Filament Yarn (PFY) and Polyester Staple Fibre (PSF). Apart from fibres, Polyethylene Terephthalate (PET) resins (12%), polyester films (7%) and others (12%) viz. anti-freeze and coolants are the key consumers of MEG.

Sales
7 12 PET PSF 27 POY Film Others 42 12

India Glycols has set up its ethylene glycol plant in technical collaboration with Scientific Design Inc, USA. The plant produces three derivatives of ethylene glycols monoethylene glycol (MEG), diethylene glycol (DEG) and triethylene glycol (TEG). IGL has been manufacturing bio-MEG derived from bio-ethanol since 1989, and meeting stringent international specifications as required by the polyester fiber, yarn, film and PET resin industries. IGL has 2 distilleries of capacity of 300klpd and 400klpd at Kashipur and Gorakhpur respectively. These cater to the requirements of its MEG/EO manufacturing unit and also enable IGL to run fullfledged Indian Made Foreign Liquor (IMFL) operations of ~11klpd. Acidic acid (1500 tonnes) is imported from China and Singapore.

Sourcing
Sugarcane is the major raw material for IGL. This is a highly politically motivated crop as the prices are fixed by the government. Sugar mills are running in loss due to the price fluctuations. Once in 4-5 years molasses are imported because of high price fluctuations and to ensure that prices are in control. Molasses is the product obtained from Sugarcane which is the direct raw material for IGL. Due to seasonality of the crop an inventory of 2 to 3 months is maintained. Coal is one other highly procured product. Coal regulation is as done by government of India, who allot in terms of coal mines. 20-25 % of coal is purchased from Coal India Limited, and rest from open market in India. Although the calorific value of coal from Malaysia, Indonesia and Iran is better import is restricted as the boilers do not support these types of coal. New boilers are being built to suit the requirements and would be up and running by early 2013.

Backward integration to boost value chain

In Dec'07, IGL acquired a majority stake in Shakumbari Sugar & Allied Industries (Shakumbari) for Rs470mn. This brought into its fold 3,200tcd cane crushing capacity, 40klpd distillery and a 3MW power plant. Plans are underway to expand these capacities to 8,000tcd, 300klpd and 26MW.

Distribution
Textile, Automotive, Agro, packaging are the major industries which constitute the buyer segment. Distribution is done through IGL fleet. Advanced GPS tracking mechanisms are used to ensure the timely delivery of products. Also we found that the concept of VMI is not being implemented and thus orders are placed as requested. Major portion of the chemicals are also exported through Kandla port, Gujarat. This causes for 25% of their product cost. The reason for choosing Kashipur as a location was the availability of raw material and fiscal incentives. Plans of establishing a warehouse in Gujarat near to the port is in talks, as quoted.

Natural gum
Guar gum, a natural, high molecular weight polysaccharide due to its high water-binding ability, finds use in a number of applications. IGLs state-of-the-art facility manufactures a wide range of guar products such as treated and pulverized guar gum, depolymerized guar gum and derivatised guar gum, etc Given below are the industry-wide applications that it serves: Healthcare and food processing: Dairy and frozen foods, bakery products, canned foods, sauces and salad dressing, beverages and instant mixes, slimming regimens, special dietetics and diabetic diets, soluble fiber and various clinical nutrition recipes Oil and gas: Deep oil well drilling, enhanced oil recovery, plugging holes and pour point depressants Textile: Textile fabric and carpet printing, textile sizing and crisp finishing of clothes Paper: Wet and dry end additives, reducing drainage of fines, increasing strength and burst factor, and improving rattling Pharmaceuticals: Tablet binding, viscosifying syrups, disintegrating aids and suspending agents Building and paint industry: Binding, setting and cement plaster There is a huge surge in demand recently due to its application in binding of oil wells. This also led to an expansion of the plant from 450 tonnes to 3000 tonnes (planned). This demand also resulted in moving the loss making unit into a cash cow.

Sourcing:

It is primarily the ground endosperm of guar beans. The guar seeds are dehusked, milled and screened to obtain the guar gum. It is typically produced as a free-flowing, pale, offwhite-colour, coarse to fine ground powder.

Manufacturing:

As mentioned, this division is in the growth stage and thus IGL is working

towards rapid expansion. Plans are on to almost triple the current outputs by end of 2013. Seeds drier fine grind mixing (addition of chemicals and preservatives) 450 tonnes 1100 tonnes (current) 3000 tonnes per day (after setting up new plant )

Distribution:

Due to recent surge in demand from US market, almost 100% of the outputs are

exported through Kandla port, Gujarat. Negotiations are directly on with the buyers with minimal intervention from DGFT as this is a general licensed product. Negotiations with container carriers are directly done through the IGL and without any intermediates. This is one area which could be worked upon as introduction of 3PLs would bring in efficiencies into the system. Apart from the surge demand in binding of oil wells, gum is also used in seasonings of Pizzas. It is exported to China and USA largely for the same. One suggestion could be moving to other markets and thus reducing the fluctuations in global economy.

Gas Division
IGL produces and distributes argon, nitrogen, oxygen and carbon dioxide. These gases are picked inhouse i.e. they are obtained as a by-product of the manufacturing process. The total of gases production is around 5000 metric tonnes per month. Carbon dioxide constitutes the major portion (70%) of gas produced, while Argon, Nitrogen and Oxygen constitute the remaining 30%. The company produces CO2 without using any chemicals for purification. The raw CO2 is purified using washing, scrubbing and absorption methods, and a specially designed NOx removal system. The CO2 produced is liquid beverage grade at plants in Kashipur and Gorakhpur, with purity level of 99.99%. CO2 is purified using washing and adsorption methods. [Source: http://www.gasworld.com/india-glycols-enters-indian-industrial-gases-market/3387.article] There are stringent government norms regarding the transportation of gases. Prior permission has to be obtained from the Explosives Department for transporting the gases. IGL maintains its own fleet of tankers for delivery of gases. The drivers are trained for handling any untoward incidents. The entire fleet is tracked continuously via a GPS system. The major customers for gases are situated in Orissa, Sikkim, UP and Bhutan. There is no distribution centre for the gases and they are transported in tankers on trucks directly to the customer premises from the factory. IGL is using Vendor Managed Inventory for some of its regular clients. For others, the demand is made by the customers and the gas is supplied to the client. IGL has installed storage tanks in customer locations and manages their replenishments to satisfy customer demands by coordinating the deliveries. Short-term distribution planning decisions involve deciding which customers receive

deliveries each day, when to deliver, how much to deliver, and then combining deliveries into routes and determining which truck or trailer for each delivery and the capacity of each truck for delivery. The long-term inventory decisions involve deciding how many tanks and when to install. For clients where VMI is implemented, IGL receives data regularly at a frequency of 2-5 days from the customer about the inventory level. The frequency of data collection depends on the rate of consumption. Due to the high lead time of about 5-6 days in some cases, a high amount of inventory is maintained at the customer premises. The company currently has a fleet of 19 trucks at Kashipur plant for distributing the gases. They also face a problem of shortage of distribution trucks sometimes, especially when the demand is high, like in the summer months demand for CO2 is high by the soft-drink bottlers. The company has a storage capacity of 440 tonnes. Generally, the gases are a critical component of the industries where they are used. Most of their customers, especially in the medical, chemical and food industries require high-availability and highpurity in the gases. They currently face a marketing constraint for their gases. It is difficult and expensive to maintain steel cylinders in a clean condition due to rough handling and aggressive industrial environment.

Carbon Dioxide is sold to soft-drink bottlers like Coca Cola, Pepsi Co etc Nitrogen is used in packaged food Industry Oxygen is used for metal fabrication/production and steel manufacturing Argon is used for glass window manufacturing, filling incandescent and fluorescent bulbs

Distribution of Industrial Gases Source: http://www.vrv-group.com/upl/ckuploads/images/Supply/industrial.jpg

Source Due to the high lead time and supply of gases directly from the plant, a large fleet of tankers is required. The company may go in for having a distribution centre at a place where the client concentration is high. Then, the gases may be supplied to the distribution centre by train or by trucks and the lead time can be reduced. Thus, instead of maintaining inventory at each customers premises, they may consolidate the inventory and thus a smaller total inventory is required. The lead time will be reduced and customer service level will thus be improved. In the short run, They may consider increasing the fleet of the distribution tankers.

References
http://www.vrv-group.com/upl/ckuploads/images/Supply/industrial.jpg www,IGL.com http://www.gasworld.com/india-glycols-enters-indian-industrial-gases-market/3387.article] http://you.mccormick.northwestern.edu/papers/11IECR_PX1.pdf Pinc Research on IGL www.indiaglycols.com/divisions/ethylene_glycols.htm as on 17/03/2012