CASE METHODOLOGY (CASE 6: POWERLITE BATTERY SDN BHD)

COMPANY BACKGROUND Powerlite Battery Sdn Bhd was part of manufacturing industry and a major supplier of vehicle batteries to the Malaysian government. Being established in 1977 as sole proprietorship by Mr ainal! he started his operation in his bac"yard by reconditioning old batteries with rubber casing! replacing worn out parts and selling them at a lower price than new batteries. Moving on! he started to ma"e new batteries manually in 19#$ and moved into new factory site in %uta industrial town the following year. Mr ainal managed to secure a one year contract in September 19#& to supply batteries in plastic casing to government department in ' states. (he contract was renewed for another $ years in 19#' with the additional e)clusive privileges of also supplying rubber batteries to all government departments throughout Malaysia e)cept for *+ and Selangor. Powerlite also gets the chance to supply motorcycle batteries to all government offices Malaysia wide. (o mechani,e the production of plastic batteries! Powerlite bought new machineries from -ustralia in .ovember 19#& while rubber batteries were still being made manually. By /une 19#'! the nature of the business has been changed from sole proprietorship to company with the assistance of Majlis -manah 0a"yat1M-0-2. M-0- provided financial! managerial! legal and technical assistance to Malaysian companies owned and managed by native Malay to uplift the well being of Malay to be competitive with 3hinese Malays. 4ven M-0- sent Mr ainal to 5* for training program on battery manufacturing for & months. -ll managers and employees were relatives to the owner! Mr ainal e)cept for Mr *amal and the assistant production manager. Mr *amal felt that this "ind of hiring policy made it difficult to control and e)pand company6s operation. PRODUCTS Powerlite manufactured 1$ models of rubber batteries! 17 types of plastic batteries and 11 types of motorcycle. (he rubber batteries are usually use by heavy vehicles li"e truc"s! car owners preferred the plastic batteries and all motorcycle batteries were enclosed in plastic casing.

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CASE METHODOLOGY (CASE 6: POWERLITE BATTERY SDN BHD)

.ormally! the daily production was $88 plastic batteries and 78 rubber batteries where 989 of plastic batteries were use for car and another 189 for motorcycle. (he most common model sold was the 1$:volt 9 plate plastic battery for cars that comprised $79 of sales. (he government contract price was 0M7;.;# per piece while price to dealers who sold to the open mar"et was 0M'7. <owever! the sale to the government agency was on credit with 1:& months given credit term. =or thee dealers! Powerlite had no control over the retail price charged by them but it usually sold between 0M77:97. (he e) factory price to the open mar"et was 0M;7. (he unit cost was 0M&9 with 789 for material and &89 for labor and overhead e)penses. PRODUCTION >n term of its operation! the first step in battery assembly was the manual arrangement of plates and the ne)t step was welding using 0M$7!888 electric power groovening machine. >f the battery failed the air tightness test! the plates and separators could be recovered and reused but the plastic case and cover had to be discarded since both were spoiled after separating them. -s for the rubber batteries and motorcycle batteries! the operations were done manually. (he finished batteries were wrapped with aluminum foil to prevent air from coming in! thus increasing shelf life to one year. .ormally turnover of the inventory was 1:$ months. THE SUPPLY OF PLATES AS ONE OF IMPORTANT RAW MATERIALS Powerlite6s main problem was the supply of the component to ma"e the battery especially plates. >nitially there were $ suppliers! 0obin and <ong that also manufactured their own brands of batteries for e)port. Since these $ companies need to prioriti,e their batteries production first! they could not cope with the sudden $889 increase in Powerlite6s orders. 0obin supplied ;89 of Powerlite6s re?uirement priced at 0M8.;8 per piece with & months credit term while <ong supplied '89 at 0M8.7$ per piece with $ months credit term. Since the $ companies cannot meet up with the increase in plate order! Powerlite added new supplier! *eong in 19#7. (hough it gave the best price at 0M8.'7 per plate! it gave only 1 month credit which was unfavorable to the company. 0oughly in a month! Powerlite needed 178!888

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CASE METHODOLOGY (CASE 6: POWERLITE BATTERY SDN BHD)

pieces of plate for its battery production. (he new allocation of plates supplied from 0obin! <ong and *eong were 789! &89 and $89 respectively. 5nli"e plates! the supply of other components of the battery did not present a serious problem to Powerlite as it e)panded production volume. IN HOUSE PRODUCTION OF PLATES 4stimated total cost @ 0M8.$7 per piece -dditional 0e?uirementA :; new wor"ers : new plate e?uipment that cost 0M$88!888! too" about $ months to be delivered :factory space rental 0M1788 monthly Production will start ; months after the machines were delivered. Plate manufacturing re?uired the same space si,e li"e battery manufacturing17888 s? ft2 >nstead of just for own use! Powerlite could also produced plates and sold to other battery ma"ers in Malaysia Motorcycle plate manufacturing was uneconomical due to its si,e and small volume. <ence! the company just imported them from a /apanese joint venture company in (hailand.

MARKETING Majority of the sales1#892 were to the government and $89 to the open mar"et in 19#' and 19#7. Previously! from the day one of its operation! all batteries were sold to the open mar"et. Bnce the company received ordered from the government! it shifted its focused to fulfill the government order. Powerlite supplied '79 of government order. >t received major competition from Conder that supplied 789 and Super - that supplied 79 for government use. <owever! Conder did not

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CASE METHODOLOGY (CASE 6: POWERLITE BATTERY SDN BHD)

ma"e rubber nor government batteries. Meanwhile Super - did not manufacture plastic batteries. (hese gave advantage for Powerlite to further gain more shares in the batteries supplies for the government. -s for open mar"et! the competition tight as compared to the contract with government. (here were 1& other big manufacturers that consisted of multinationals and companies managed by 3hinsese. GOVERNMENT CONTRACTS By September 19#;! PowerliteDs contract with the government would e)pire. Mr *amal! the e)ecutive director was busy to chec" that all users in the government especially in the military and police with which he had strong connections were all satisfied with their usage of Powerlite batteries. .ormally the government would as" the feedbac" from the users before it renewed the contracts. Eovernment purchases of suppliers were not centrali,ed. (herefore! each unit had its own purchasing agency. Since some of the government vehicles were roughly used! batteries were replaced once a year where the normal car batteries in open mar"et will last for 1.7 years. (herefore! sales to the government were therefore constant and turnover was faster than usual mar"et. >n addition! government usually ordered one year stoc" batteries in advance not just when it need for replacement. PROBLEM STATEMENT (he fact that the company moves towards mechani,ed production recently has increased the monthly sales of the batteries by $889. <owever! suppliers of plates! a major component of the vehicle batteries the company made cannot cope with the sudden increase in the demand due to their constraint production capacity. >t delivered only half of what was ordered and caused a fre?uent 1:$ month delay in its delivery lately. Since the company is renewing the contracts to supply the Malaysian government with batteries in the following month! there is also a possibility increase in amount ordered. (he major criterion used by the government for renewing contracts was prompt delivery of orders. <ence! is it the best way to produce the plates in house or "eep on buying from e)isting suppliers to cater for increase in the demand of its productsF

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CASE METHODOLOGY (CASE 6: POWERLITE BATTERY SDN BHD)

SWOT ANALYSIS STRENGTH :supplied '99 of batteries to government mar"et :produce & types of batteries but the competitors in government mar"et only produce 1 type of batteries only. :hired 4)ecutive %irector! Mr *amal who has a strong connection with the government agency especially military and police since he was a retired captain in the Malaysian -rmy. WEAKNESS :the company had no control over the retail price charged by the dealers in the open mar"et. :the company did not have a certified accountant and subcontracted its accounting operations to accounting firm. (he problem here was the person might not fully understand the operation of the business. >t justified when the company has high amount

:secured government contracts for the sales of its of money in suspense account14)hibit 72 batteries. OPPORTUNITES :hard to manage the relatives of the boss THREAT

:ability to manufacture its own plates at a cost of : too much dependence on the suppliers for 0M8.$7 per piece :since it6s a Bumi company! the company has been given priority and protection. <ence! the possibility high. plates. >f they not able to supply! Powerlite cannot produce the complete batteries that will disrupt its production.

that it will get the government related projects were :if there were many complaints by the users from the government mar"et! the contract might not be renewed and might be given to its main rival! Conder. :Eovernment purchases of suppliers were not centrali,ed. .eed hard effort to visit one by one and there is possibility for bribery to secure the purchases that will increase the cost to the company

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CASE METHODOLOGY (CASE 6: POWERLITE BATTERY SDN BHD)

RECOMMENDATION Mr *amal proposed to its managing director to manufacture its own plates to cope with the disruption in the production. >n fact! by e)panding its operation via bac"ward integration! the company would be able to reduce material cost and improve profit margins. By ma"ing the plates! the plates can be made cheaply at 0M8.$7 per piece as compared to get it from suppliers where roughly the company needs to pay around 0M8.'7:0M8.;8 depending on the credit terms given. =urthermore! in long term! the prompt supply of plate is vital to the company6s e)isting facilities. >n order to produce its own plates! Powerlite can use its e)isting facilities but it re?uires e)tensive investment in facilities. (he new plate e?uipment that cost 0M$88!888 too" about $ months to be delivered and in need for additional factory space rental of 0M1788 monthly. Based on the fact that the company received large and stable demand! it was supported by stable wor"force and posses6 technical e)pertise in ma"ing similar products. Bn the other hand! the arguments for not ma"ing the plates in house are no facilities available to ma"e part and it was uneconomical to ma"e it with present e?uipment. Besides! the money allocated for the investment of ma"ing in house plates can be used for more profitable investments. >n term of the demand for the plates! it is temporary and seasonal. (o add up! the s"ills of company personnel not readily adaptable and suppliers can utili,e speciali,ed e?uipment and pool orders. =or the e)ternal environment! there are legal barriers in term of patents! >P0 and trade relations barrier. =or the costing! the company6s direct costs substantially higher. Supplier presumably is more efficient due to e)perience. (he fi)ed overhead rarely rises at start up but starts rising when volume e)pand and when it contracts =B is unaffected. -fter weighing the pro and cons of ma"ing or buying from suppliers the plate! it is advisable for the company just to stic" with buying the plates from the suppliers. (hough there6s a delay in the delivery in the suppliers! the company can order from other suppliers in the mar"et. By having more suppliers! the company can reduce the ris" of getting late delivery of the components. >n addition! the advantage of the company was having contract from government contract. So it might want to do joint venture with plate producers and do transfer of technology between two companies. (he joint venture would be a win:win situation for both. Powerlite would secure ade?uate plates supllies and the joint venture company was guaranteed with the plates production volume to fulfill government contract. Powerlite can par" few of its employees there to learn
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CASE METHODOLOGY (CASE 6: POWERLITE BATTERY SDN BHD)

how to ma"e its own plates in the future. (herefore! in long term! Powerlite might be able to produce its own plates. -part from that! the money can be par"ed in money mar"et for the e)press return on the investment in the financial capital mar"et. >n addition! the company was just new to the business of ma"ing new batteries! only about & year. <ence! instead of doing diversification! the company should first secure itself substantial mar"et shares in the mar"et to have enough money to e)pand its operation hori,ontally and vertically. Bnly when it has enough "nowledge and e)pertise then Powerlite will be ready to ma"e its own plates. (he other things that it has to improve now is to hire an accountant to clear the off the suspense account and have proper reporting standard for its financial statement just to "now the financial position of the company. (hen the company will have clear view on the profitability of the company and the real financial position of the company. >f all relatives and family members were in the company! the company might not function properly. (here would be a thin line between family affairs and wor". <ence! its hard to establish professionalism in the company. outsiders. Bnce the company e)panding! it might want to improve on its hiring policy where it should be more open into hiring

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