INTRODUCTION

Introduction of Ghee/Oil Industry

G
hee industry was introduced in the sub continent in mid thirties, and since then it has grown
tremendously in face of all environmental hazards. It has been subjected to serious edible Oil
shortages, government inconsistent policies and severe variations between demand and supply in
the domestic market.
The country which was self sufficient in edible Oil production (0.154 million MT), till 1960, and
paying not a single dollar against the import bill, is today importing well over 1.160 million MT
against an import bill of no less that Rs.33000 million per year, being the third largest edible Oil
importing country of the world, after China and the European Union. All these imports
originated from Malaysia.
During the past 21 years of interrupted and partially half hearted efforts of successive
governments since 1979, the country has been able to procure only 0.5 million MT of edible Oil
from indigenous resources while the rest of the 1.1 million MT is procured from imports.
The structure of Ghee/Oil industry is just like all the other developing industries of Pakistan.
There are certain well-established companies working with good brand names, serving the nation
as a whole. Along with them there are certain units, which are working in limited areas, meeting
the requirements of these niche markets. Some of the vegetable Ghee mills are working under
the control of government and other are held privately.
The raw material required for the production of Ghee/Oil is imported from different countries
and this is the biggest imported item in food category. The prices of Ghee/Oil are very much
influenced by the duties on these imports and the international price fluctuations of these items.
In early 1990s there had been a serious crisis in the Ghee industry, and the main reason for this
was that production of Ghee was greater than the demand. In this period due to the heavy looses
on account of these units government privatize so many Ghee producing units.
Vegetable Ghee is the commercial term for vegetable Oil hardened by the process of
hydrogenation. Cottonseed, soybean Oil, Sun Flower Oil, corn Oil, is being mainly used in
Pakistan for the manufacturing of Oil/Ghee. Pakistan is importing Palm Oil and Soyabean Oil
from America, Indonesia and Malaysia. During 1999-2000 Pakistan imports of soyabean Oil and
palm Oil has drastically decreased both in quantity and value. Pakistan imported soyabean Oil
worth $75.8 million and Palm Oil $267.8 million in year 1999-2000.

Ghee Industry in Pakistan

In Pakistan ghee industry is flourished over the years. Today there are many Locals and National
companies as well as international companies engage in the production of ghee and oil working
in Pakistan. Among multinational companies includes Lever Brothers (Pvt.) Ltd. They
manufacture DALDA and PLANTA cooking oil and ghee. Some other companies are as follows.
1) Al Hilal Vegetable Ghee Mills engages in the production of Sultan Banaspati Ghee. It is
situated in Multan.
2) Shehbaz Ghee Mills is engage in the production of Shebaz Banaspati. It is situated in Rahim
Yar Khan.
3) Wazeer Ali Industries Ltd. engages in the production of Tallo Banaspati ghee and cooking
oil. It is situated in Hyderabad.
4) Fatima Enterprises Ltd.
5) Refahan Maize Product Company involved in the production of Rafhan Corn Oil and it is
situated in Faislabad.
6) Ahmad Food Industries manufactures Ahmad Soyabean Oil.
07) Ghee Corporation of Pakistan (G.C.P) under which 26 units engaged in the production of
ghee are working all over the country.
Apart from these combines there are many other firms manufacturing ghee.

Introduction of Hoor Ghee Mills

Hoor Ghee Mill is situated 3 km away from Multan at Vehari Road. This Ghee and Oil
manufacturing unit was established in 2007 and start production in 19th October 2007.
Hoor Ghee Mill occupied a land area of approximately 8 acres.
The area of Hoor Ghee Mill is divided in two heads:
a. Production Area
b. Non Production Area
Non-production area consists of offices, parking facility, and a big lawn. In non-production area
they have their own nursery. Hoor Ghee Mill has a very attractive outlook because they have
wide variety of plants and flowers in the lawn and nursery. The office interior of Hoor Ghee Mill
is very good because the offices are fully air-conditioned and heaters are also available in cold
weather.
In production area there are different sections related to productions, stores, printing, and
packaging of Ghee and Oil in different sizes.
Hoor Ghee Mill is not incorporated in Stock Exchange. Hoor Ghee Mill has a capacity of 150
tons per day but currently they are using 50% of their total capacity.
Mahmood Agr Group of Industries
Mr. Ansar Haq Khan Babefr is the chairman of Hoor group of industries, who is one of the best
businessmen in Multan region.
Mahmood Agro Group of Industries involved in the following businesses:
MAJOR BUSINESSES
Hoor Oil Industries (pvt) Limited (Ghee Unit)
Hoor Oil Industries (pvt) Limited (Solvent)
Aqeela Cotton Industries
Rab Nawaz Industries (Pvt) Limited
Mahmood Agro Industries (Pvt) Limited
3

Mahmood Feed Pvt. Ltd.

Products of Hoor Ghee Mills
Hoor Ghee Mill is manufacturing both Ghee and Oil. The brand names of the product are given
in the table along with their respective weights and prices.

Major Brands

Weight

Packs

Prices Rs.

16 KG

Tin Pack

736

10 KG

Tin Pack

460

5 KG

Tin Pack

250

2.5 KG

Tin Pack

127

12 KG

1 Carton (12 pack of 1KG)

549

12 KG

1 Carton (24 pack of 0.5KG)

549

12 KG

1 Carton (48 pack of 0.25KG)

549

1 KG

Plastic Pack

45.75

16 KG

Tin Pack

736

10 KG

Tin Pack

460

HOOR
BANASPATI

HOOR PURE
COOKING OIL

5 KG

Tin Pack

250

2.5 KG

Tin Pack

127

12 KG

1 Carton (12 pack of 1KG)

549

12 KG

1 Carton (24 pack of 0.5KG)

549

12 KG

1 Carton (48 pack of 0.25KG)

549

1 KG

Plastic Pack

45.75

By products of Hoor Ghee Mills

Hoor Ghee Mill has two types of by products, which are:
Laundry Soap
CO2
Hoor Ghee Mill has sold the laundry soap under the brand name of Mahmood Soap where as
they dispose off the carbon dioxide into the air.

Management Heirarchy
Managing Director
Manager Accountant

Manager Marketing
General Manager Production
Assistant Accountant
Cashier

Clerical Staff
Marketing Representatives
Sales Officers
Process Incharge (Supervisor)
Quality Assurance Manager (Chief Chemist)
Boiler Engineer
Chemists
Helpers
Operators
Labor Boys
Process Foreman
Operators

Helpers

Vision
The development of people of the country specially living in Multan through the creation of
employment and meeting their basic necessities of clothes and foods (Feed, Solvent, Ghee &
Oil).

Mission
Hoor Ghee Mill dont have any written mission statement but through our discussion we came at,
and the mission of the Hoor Ghee Mill should be:
Caring about the health of customers by providing them, wherever they live, the superlative
purity and best quality oil & ghee at comparable prices and continually improve our products
to meet their needs which help us to maximize the wealth of owners who in turn, create more
employment opportunities and provide maximum benefits to employees.

Goals of Hoor Ghee Mill

a) To eliminate the burden of debt.
b) To utilize maximum production capacity.
c) To ensure quality at each step of production for both ghee and oil to care the health of our
consumers.
d) To improve the morale and efficiency of employees.
e) To increase market share in Multan division.
f)

To develop long lasting good relationships with distribution dealers.

g) To dispose and utilize the wastage in a better way.

Objectives of Hoor Ghee Mill

a) They have financed the whole capital through equity and no any debt. They have 10 crore
authorized capital and 7 crore paid up capital.
b) To increase production of ghee and oil from 27000 tons last year to 35000 tons this year.
c) Installation of Levi bond Tento Meter Model to check the color of oil and Spector Photo
Meter to assure zero percentage of Nickel in ghee.
d) To provide two bonuses to every employee in a year and 25% of basic pay as performance
reward. And to provide minimum 10% increment on their basic pay per year to each employee.
e) To sell 8000 tons of ghee and oil in coming year in Multan division, specially in Malsey,
Wehari, Khanewal, and mia channoo.
f)

To give bonuses to dealers Rs. 5/ 16kg beyond the sales target of 200 tons per month.

g) To manufacture the laundry soap from the wastage of ghee & oil and recycle the water for
reuses purposes in the production.
Problem statement
In start the organization has faced a plenty of problems but due to proper planning and well
implementation problems are decreasing day by day. But still the organization is not totally out
of trouble, and facing a problem.
Problem
The major problem is related with the distribution network and utilization of production capacity
of the organization. The organization is utilizing limited production capacity because it has a
limited market and not supply its products all over the country but only in Multan and Multan.
Furthermore firm is relying on private dealers for distribution of its final products. So because of
limited market some times these dealers refuse to take the supply because of having old stock
unsold, so thats why inventory remains in the stores which cause the increase in holding cost
and cash shortage problems for the organization.

3
CHAPTER THREE

10

SITUATION ANALYSIS

ANALYSIS OF HOOR GHEE MILLS

First to analyze the environment as a whole, two techniques are used. Which are
PEST Analysis and Structural Analysis. And for the specific analysis of company Value
chain analysis, SWOT and Financial Analysis is used.
PEST Analysis
PEST analysis is used to assess what environmental factors are affecting the organization, which
of them are most important and how they will effect in next years. It is an indicator of political,
economical, social and technological influences on organization. The analysis of Hoor Ghee
Mills is as under:
Political and Legal Factors

Industrial Laws
Industrial laws regarding unions has no impact upon the Hoor Ghee Mills because no union exit
in the organization, but if in future it become so, then the company has to consider these laws in
their decision making concerning wage rates, bonuses, and benefits of the employees.

Foreign Trade
This matter will be of a key concern for Hoor Ghee Mills. Because the Hoor Ghee Mills is
importing four different types of oil from Singapore and Malaysia, which are not available
locally, but the Government dont provide any support to import these raw materials and dont
provide any relaxation in import duty upon the imported raw materials. So if Government bring
any change in its foreign policy, then it will be very much important to cope with that.

Environmental Protection Laws

Although the laws regarding environment are not very sophisticated in Pakistan but even if they
become so, they will not be hampering for Hoor Ghee Mills, because in Hoor Ghee Mills all the
wastes are considered as by products and used or sold. The water is also recycled for reuses
purposes. The only emission is of the carbon dioxide, which is within the prescribed range of
pollution.

Taxation Policy

11

The Hoor Ghee Mills is paying tax each year. In last year the Hoor Ghee Mills paid income tax
43% of net profit to the Government. But in this year Hoor Ghee Mills has to pay income tax of
45% of net profit, which is equal for all the private companies.

Employment and Government Stability

Employment is not a matter of high concern for the organization because it is already following
all the labor laws. But recently the Government increases the wages of the employees but Hoor
Ghee Mills has not affected by that, because this is a private company. But they are paying more
than the Government announced.
Economic Factors
Among the many of economic factors some are more important for Hoor Ghee Mills, the detail
of these factors is in following:

Interest Rates
Interest rates increase and decrease has no impact upon the financial performance of the Hoor
Ghee Mills, because the company has no loan of any bank. But it in future the company need to
take the loan then it must has to consider this issue.

Inflation
At the moment inflation rate does not seem to be very much related matter, because any increase
in oil prices will be off set by the increase in price of Ghee and cooking oil. Because there is no
close substitute of Ghee and cooking oil, so the sales will not be affected. But if we take it in
longer perspective the inflation in the country will increase the cost of production, which will
increase the sale price. And at high sale price the product will become in-competitive in the
international market if the company will involve in the export. So the pan of export will be
adversely affected by the inflation.

Disposable Income
Within the country the demand will be affected if the disposable income will be reduced. Ghee
and Cooking oil is a basic food ingredient and its primary demand cannot be eliminated. But
other than its direct use, it is also used in bakery and confectionery items and so many other
foods whose demand is dependent on disposable. So any decrease in disposable income of the
consumers will also be affecting Hoor Ghee Mills negatively.
Technological Factors
Technology in ghee industry can be divided into two sectors. First is cotton seed and second is
ghee mills. The technological factors, which are more concerned with Hoor Ghee Mills, are as
under:
12

Government Spending on Research

Usually in order to support some industry and improve economy, government allocates some
fund to R & D. Unfortunately our government doesnt have any money for R & D. Due to this
non-serious behavior of government this sector along with others, is suffering very much. No
single mill owner can support R & D especially in the field of Cottonseed varieties. The
varieties which now a days are being cultivated are of sub-standard qualities. It gives less
recovery and more wastage. There is a need to find out the seeds, which can give better
recovery.

New Discoveries and Developments

New discoveries in the field of raw material will be very much beneficial for the company, as it
will reduce the cost of production. But, if there will be any change in the technology of ghee
mills, or process development than it will be very difficult for the company to coup with that
change. In fact the company has made much investment in latest plant and machinery in 1994,
and almost 80% of its total fixed cost is stuck up in this area. So adopting any change means a
loss of all these assets. Which is almost unbearable for the company.
Socio-cultural factors
Socio cultural factors like demographics; income distribution, life style etc. can also affect the
company in different ways. Lets see which of them are more concerned to Hoor Ghee Mills.

Life Style Changes

The consumption of ghee is very much related with the life styles of people. Now people, all
around the world, are becoming more and more health conscious. They are well aware that a
high consumption of ghee will increase the cholesterol, which leads to heart disease. That is
why, a significant change in the consumption of ghee is being observed in last many months.
Although the use of ghee cannot be fully eliminated but if this life style grows at same speed it
will surely decrease the demand of ghee but on the other hand the demand of the cooking oil is
gradually increase in last many months due to the same reason.

Level of Education
Level of education is directly related with awareness and health consciousness. In countries
where education rate is high the ghee consumption rate is low. In Pakistan, as well as in foreign
markets the rate of literary is increasing which will effect the organization negatively. High level
of literacy will lead to low level of ghee consumption and people started switch towards cooking
oil.
Structural analysis
The PEST analysis concerned with broad aspects of the environment while there is always a set
of external influences, which are more immediate, and directly affecting the organization. The
13

structural analysis draws on Five Forces approach prepared by Porter. It is a structured mean of
assessing the competitive environment.
Threat of New Entrance
Threat of entry depends upon the extent to which there are barriers to entry. Ghee mills require a
big manufacturing unit which requires a huge capital investment, like Hoor Ghee Mills has 10
crore authorized capital and 7 crore paid up capital. So we can say that ghee-manufacturing unit
is highly capital intensive and because of high capital investment it has high risk for new to enter
into production.
Suppliers Power
All organizations have to obtain resources and provide goods or services. The suppliers can
affects on strategic freedom of an organization and can influence the margins of that
organization. In Hoor Ghee Mills, there are two types of suppliers. One is a local supplier, and
others are foreign suppliers. Because of many reasons the suppliers of oil have no powers. The
reasons are:
a) As well as the foreign suppliers are concerned they have power of bargain because the
material is not available locally and the buyer dont have any option other than import, so the
buyer charge the high prices and transaction is done through banks by opening letter of credit
and buyer also has to bear high transportation cost and import duties.
b) As well as the local suppliers are concerned they have small oil mills, which separate oil
from seed. Ghee mills are highly capital intensive so they dont have any power because they
cant do forward integration.
c) There are large numbers of oil suppliers in Multan and in other cities so the buyer checks the
quality of suppliers oil and make contract with any one which meet their requirements regarding
quality or price.
Buyers Power
The buyers dont have any power, because the prices of the products are fix, but high
competition among ghee/oil mills leads the company to minimize the prices.

Competitive Rivalry
Organizations will also be concerned with the extent of rivalry between themselves and
competitors. The extent of competitive rivalry depends upon the nature of four forces described
earlier. It could be concluded from previous discussion that the ghee market is highly
competitive.

14

Value chain analysis

Value chain analysis is widely used to determine where cost improvements could be made or
value creation improved. This process involves the analysis of all the activities starting from the
raw material provisions to the distribution of final product. That is why it is necessary to
understand the complete procedure of production and distribution (please see chapter # 1) before
doing such analysis.
Organization Value Chain
All these activities are broadly categorized into two main heads, which are Primary activities and
Support activities.
Primary Activities
The primary activities of the organization are grouped into five main areas: inbound logistics,
operations, outbound logistics, marketing and sales & services. Cottonseed oil mills perform the
inbound activity in Hoor Ghee Mills, which provide basic raw oil to firm. This activity should be
efficient in order to increase recovery rate by obtaining good quality oil. So in order to receive
good quality of oil, Hoor Ghee Mills has its own cotton factories which provide required quality
of cottonseeds. The operations are the production process of ghee/oil where the major value
addition is made (production process of Hoor Ghee Mills is given on next page). The
management subcontracts the outbound activity, and the distribution is through dealers. The
company owner believes that marketing has no benefit until unless they dont utilize the enough
production capacity. The only thing they do for their marketing is to have good relationship with
the dealers and somewhat advertisement in print media in Ramzan. The company doesnt
perform sales and services rather through dealers.

15

Production Process
When decanting tanks of oil entered in the factory first of all they have stored in main storage
tanks with the help of pumps. Then they transfer oil from main storage to refinery section where
first of all the oil pass through pre-neutralizer then through post-neutralizer then after filtration
they pass ghee and oil from pre-bleacher and then post bleacher. Then they pass ghee and oil
from deodorization then after deodorization they got the oil in the final stage where as for ghee
they pass for hydrogenation at particular temperature in the presence of nickel then after
filtration they got ghee in the final stage which is free from nickel. The production process of
Hoor Ghee Mills is shown below
Decanting Tank of Oil
Refinery Section
Main Storage Tank
Pre-Neutralizer for Oil & Ghee

Post-Neutralizer for Oil & Ghee

Pre-Bleacher for Ghee & Oil
After Filtration

Post-Bleacher for Ghee & Oil

After Filtration

Deodorization for Ghee & Oil

Final Shape of Oil
Presence of Nickel

Hydronization for Ghee at particular temperature.

Quality Assurance for Ghee & Oil

Final Storage Tank
After Heating

Filling Chamber

Checking for Weight

Packaging
By Pumps

16

Final Product ready for sale

17

Support Activities
The support activities can be divided into four groups, which are procurement, technology
development, human resource management and infrastructure. As the prime input of ghee is
available locally and some material has to import from out side countries. So procurement for
long time is not possible in case of raw material, which is locally available. Where as the
material that has to be import the company has a lead-time of 2-3 months. So the department of
inbound logistics is sufficiently performing the activity of procurement.
R & D and Process development researches are very important in ghee/oil industry in Pakistan.
So in the company value chain this thing should be emphasized much, rather it has a big
contribution in total value addition. Human resource management involves the training and
development of workers and employees in order to increase their productivity and efficiency.
For this purpose company make their employees to work with the senior worker to get the
experience, but they dont have any separate training program for new employees. The company
has good planning, quality control systems and future orientation, which although does
contribute directly in value addition and increase the effectiveness of whole process. The
organization has the policy that the dealer who distributes their product will not distribute the
products of any other competitors or substitute.
Analysis
All the value creation does not happen in the organization itself rather much of it can be occur in
the supply and distribution chains. So the whole process needs to be analyzed. For this purpose
we can divide it into three areas: suppliers, organization and channel members.

Suppliers
Suppliers play a very vital role in total value creation. The whole of the profitability depends
upon the quality of raw material, if supplier does not provide the good quality of oil then the
desired level of quality of ghee/oil cannot be achieved. The price structure of the country demotivates the grower to produce better quality of cottonseed. But good relationship with the
suppliers and fair and prompt payment can enforce the grower to cultivate better variety.

Organization
Within the organization the value addition activity is focused only on ghee/oil production, which
is their core competence. In order to provide the superior quality of ghee/oil to customers, Hoor
Ghee Mills pass the raw material from two different machines for oil and ghee i.e. PostNeutralizer and Post-Bleacher, Which are not performed by other mills. But they do nothing for
by-products of ghee/oil. The carbon dioxide has directly released in the air and the laundry soap
has been packed and sold under the brand name of Hoor Laundry Soap. Now the further

18

addition in ghee/oil is not possible due to the market conditions but there is a lot of space to
improve in by-products. With a little effort and investment.

Channel Members
There is a difference of 1-2 rupees per Kilogram in the Ex-mill price and market price and the
middlemen create this difference. As shown in the distribution network diagram, the ghee/oil is
not directly sold to the ultimate consumer rather it goes through a long process. And everyone
involves in this process take its share in terms of commission. Here the value addition takes
place in terms of price increase. Currently the company is using traditional distribution network
for ghee/oil sale but with a forward integration the company can increase the profit margin.
Distribution Network
Mill
Dealers

Retailers
Final Consumers

19

SWOT Analysis
Strengths of Hoor Ghee Mills

Professional Leadership
Usually in such kind of traditional organizations leadership is deficient. People are usually
guided through specified rules and regulations. Also the professionalism is lacking in most of
the cases. But Hoor Ghee Mills is clearly different in this aspect from other organizations. After
taking charge of many responsibilities Mr. Ch. Abdul Majeed has worked very hard for the
success of the mill. Due to his professional abilities and leadership qualities he has also achieved
many of his objectives. And now this is the result of his efforts that the company is showing
very good performance and operating on professional basis.

Skilled Labor With High Morale

In most of the factories skilled and semi skilled labor along with unskilled labor is hired from
outside. There is always a risk associated with them that whether they work properly or not.
First of all Hoor Ghee Mills always hire the educated people, you can take the example that they
require at least Matric pass candidate for the post of helper. Hoor Ghee Mills has placed its new
employees with the senior employees and trained them before they actually placed on job. They
have the career opportunity to move upward to become an operator because helper has known all
the responsibilities of the operator. So this will create the most loyal employees with high
morale, which are more productive.

Sophisticated Technology
There are no hard and fast rules in ghee/oil industry regarding the technology or process
implied. Even in some factories fifty years old machinery is also used. Such type of machinery
affects the quality of oil/ghee. Hoor Ghee Mills has the latest machinery and plant. As it is one
of the latest ghee/oil mills build in Pakistan whose machinery is locally available from Multan &
Lahore, so it is using the most modern technology available in Pakistan. This machinery also
gives an edge to the organization over its competitors, because all the ghee/oil industries working
in Pakistan are using By Pass operations means that the same machinery is used for the
production of ghee and oil. Where as the only Hoor Ghee Mills has separate processes for both
ghee and oil to assure the good quality products.

Backward Linkages
Generically the company has got an advantage of access to the sources of raw material. In fact
the owner of the company is big business man of Multan. The raw materials, which are available
in Pakistan, are mostly available in Multan. The other strength of the company is that they take
the oil from their own cotton factories but their cotton factories meet only 10% of the total raw
material required for the current capacity utilization
20

Weaknesses of Hoor Ghee Mills

Lack of Awareness
The major weakness of the Hoor Ghee Mills is the lack of awareness among the consumers,
because the Hoor Ghee Mills dont go for any type of advertising program. Hoor Ghee Mills use
print media one time in a month, where as they had used electronic media in start but now they
dont have any advertisement for their products, so thats why majority of the people even dont
listen the name of company.

Limited Distribution Network

The other weakness of the Hoor Ghee Mills is of having limited distribution network. As we
have already told that Hoor Ghee Mills is distributing their products only in Multan, where they
are distributing their products at mass level and having a market share of 70-80%, but in Multan
division the firm has started its distribution. Because of this limited distribution network the
company is unable to utilize its full capacity because currently Mill is utilizing 50% of its full
capacity which is enough to meet the need of consumers in Multan, and other than Multan the
company dont have so much demand because of no advertisement, and absence of distribution
network which forced the company to operate half capacity.

Dealership Marketing
Hoor Ghee Mills distribute its products through outside dealers which cause increase in price of
the products which the consumers receive, because the dealers and retailers take their margin
which cause a 1-2 rupees difference in the Ex-factory price and Retail price.
Opportunities

Generic Opportunities
The ghee/oil has so many opportunities due to its product nature. It is a necessity and no one can
avoid it. In Pakistan, the consumption rate of ghee/oil is high in the world, and as the population
growth rate is also very high so the company has an opportunity to meet the demand of local
market. Also the product has no substitute, so people have to buy it in any case. These are the
natural opportunities, which the company is enjoying.
Threats

Low Production of Cottonseed

The cotton is not produced sufficiently in the country. It is due to the low productivity of the
varieties and due to the less area cultivation. Due to this low production the mill faces a shortage
of raw oil, which is always a problem for the company.

Decrease in Consumption
21

Due to the increase in awareness level of the people the consumption rate is decreased. The
reduction in disposable income is also a cause of decrease consumption of ghee. The high rate of
heart disease in the country is another cause, which restrict the people to use ghee. Because of
all these factors the consumption rate of ghee is decreasing in Pakistan. Which is a source of
continuous threat for the company.

22

Financial Analysis
In order to see the viability of the company, Financial Analysis is necessary. In this analysis we
calculate financial ratio and some financial indicators.
Profitability Ratio
A profitable company will have to be expanded further. So we can analyze its profitability
through following indicators. The company has authorized capital of 10 crore, and the paid up
capital of 7 crore.

Gross Profit Margin

Gross Profit Margin = Gross Profit / Net Sales
Gross Profit Margin = 114270750 / 761805000 = 15%
Hoor Ghee Mills is getting 15% profit margin after paying its cost of goods sold. From that 15%
margin company can easily pays its operating expenses and taxes. As firm is not raising any
long-term dents, so, the profit for the company is enough to pay its operating expenses.

Net Profit Margin

Net Profit Margin = Net Profit / Net Sales
Net Profit Margin = 29966640 / 761805000 = 3.93%
Company is earning very good profit margin, and it is improved from previous year by 0.93%.
Which shows good performance the main reason for that is the increase in sales from previous
year. Company is utilized its equity very well. Shareholders value is also increased.
Activity Ratio
From available data we are only able to calculate inventory turnover ratio. As firm is utilizing its
capacity about 50% and from that, they have to keep some inventory as safety stock.

Inventory Turnover
Inventory Turnover = CGS / Inventory
Inventory Turnover = 647534250 / 190451250 = 3.4 times
It means the firm is able to sell its inventory 3 to 4 times a year. Due to uncertainty they nave to
keep about 25% inventory as ending inventory.
23

4
CHAPTER FOUR

Existing STRATEGIES

Corporate Level Strategies

Corporate level strategy focuses on strategies for enterprises consisting of more than one
business. Hoor Ghee Mills, for instance, comprises several businesses, including consumer
24

goods and industrial goods. Hoor Ghee Mills involve more than one business is said to be
diversified.
Concentric Diversification
Adding new, but related products or services.
Hoor Ghee Mills involved in concentric diversification because Hoor Ghee Mills has two by
products, laundry soap and CO2 gas. Hoor Ghee Mills has developed a setup to sold laundry soap
under brand name of Hoor Laundry Soap so Hoor Ghee Mills is adding new but related
products in to the market. Instead of selling laundry soap as a raw soap to any other soap
manufacturer, they themselves start cutting and packaging of the soap and sold in the market as
their own new products under their own brand name. Then we said it concentric diversification
because they manufacture the soap from the byproducts they receive.
Backward Integration
Seeking ownership or increased control of a firms suppliers.
Hoor Ghee Mills involved in backward integration because they receive the cottonseed oil from
their own cotton factories. Although these three cotton factories provide only 10% of its total
requirement but this will increase the bargaining power of the Hoor Ghee Mills if it has to
negotiate upon the prices of oil purchasing from other factories.
Business Level Strategy
Firms compete directly with one another at what is called the business level of strategic
management, so we will focus on crafting successful competitive strategies. Because competition
takes place at the business level, strategic management at this level is crucial to the overall
success of the firm.
Cost Leadership
In manufacturing and especially in industries where the product differentiation is not possible the
only strategy the organization is left with is "Low Cost Production" or cost leadership. In fact
cost reduction is the only way to stay in the industry. Hoor Ghee Mills has cost leadership
strategy. Hoor Ghee Mills has the following two major competitors:

Major Competitors

Weights

Prices (Rs.)

Weights

Prices (Rs.)

Sultan Banaspati

1kg

48

16 kg

740

Shehbaz Banaspati

1kg

47

16 kg

736
25

Hoor Ghee Mills is following cost leadership because the competitors especially Sultan
Banaspati has a very old name in the ghee industry so Hoor Ghee Mills has to charge the low
prices to compete with the competitors.
Here from the above table we can see that the price of the Shehbaz Banaspati is equal to the
prices of the Hoor Banaspati. But in Multan the sale of Hoor Banaspati is more than Shehbaz
Banaspati, but in Multan division the sale of Sultan Banaspati and Shehbaz Banaspati has more
sales than Hoor Banaspati.
According to the text, the low cost strategy is good when, product cannot be differentiated,
industry is producing standardized product, product has same usage and switching cost is low.
All the characteristics are fully applied in ghee industry. So company is using right strategy.

Operation Level Strategy

Operation level strategy focuses at how to develop capabilities in process execution that will
yield competitive advantages for a firm. This involves applying strategic management concepts
to what is known as the operations level, the level at which work inside the organization actually
takes place. We focus on how organizations go about improving their process capabilities,
including both total quality management and core process reengineering.
Product Development
Seeking increased sales by improving or modifying present products or services.
Currently Hoor Ghee Mills is following the product development strategy, because the Hoor
Ghee Mills is continuously improving the quality of the ghee/oil for the consumers. Hoor Ghee
Mills has a good image in the Multan, and they try to develop the same good image in all over
the country, so thats why they are improving their products through TQM.

26

5
CHAPTER FIVE

27

Recommended strategies

Recommended Strategies
A
t this time when industry is fully mature, and the competition in terms of access to final
consumer is very high the companies usually face the problems of slow demand growth,
emphasize on cost and services, topping out and loss of profitability. The Hoor Ghee Mills is also
facing the same problems. Although it has tackled the major problems very well but still there is
some room of improvement in its existing strategy.
Forward Integration
Gaining ownership or increased control over distributors or retailers.
The firm should use their own distribution network because the motive behind that when they
have their own distribution system the additional cost will be avoided which had been kept by
dealers as their own margin. In this dynamic and competitive environment the firm has to
maintain its current position of cost leadership to be competitive.
Concentric Diversification
Hoor Ghee Mills is involving in the concentric diversification because of having two by
products. One is laundry soap and the other is CO 2 gas. The firm is using laundry soap as the
new product and is selling under their own brand name. But they are disposing off the CO 2 gas in
the air. They can generate good cash flows if they use CO2 gas as the new product of the factory
and sold to soda water or you may receive the application from different contractors.
Market Development
Introducing present products or services into new geographic areas.
As it is already mentioned that the firm is only distributing in Multan and Multan division. The
firm should go for market development, means that the firm should introduce their products in
new markets or new geographical areas. This can increase the demand of the firms products.
Then increase in demand will lead the company to utilize the full capacity of the production.
When the company utilizes the full capacity its sales will increase along with the profitability of
the owners.
Advertisement

28

Hoor Ghee Mills is not using any mode of advertisement, because of low demand and
unavailability of the products. They believe that advertisement without availability of the product
is useless and creates a bad image. In order to create awareness Hoor Ghee Mills must go for
advertisement.
ISO Certificate
Although the firm is working more better than required ISO certificate but the firm should take
the ISO certificate. Because ISO certificate create a good image among the consumers.
Dispensary
Hoor Ghee Mills has no dispensary in the factory for the employees injuries during the
production. Hoor Ghee Mills must take some action to establish a full fledge dispensary for
dealing the employees injuries. This will provide the safety to the employees and they will be
more satisfied, productive and having high morale.

29

6
CHAPTER SIX

30

Implementation
Hoor Ghee Mills can implement on our proposed strategies in following ways:
Forward Integration & Market Development
Hoor Ghee Mills has following options available for distribution of its products.
1. Through private dealers
2. Through their own networks.
As we already suggested Hoor Ghee Mills should distribute its products through its own
networks. So for this it should take following steps.
1. Purchase its own vehicles.
2. Appoint more sales officers.
3. Establish its own distribution networks in major cities of Pakistan i.e. Multan, Multan,
Khanewal, Mianchannoo, Sahiwal, Lahore, Faisalabad. The sales officers are required to
sold the product of the company directly to the retailers. When they got success in these
cities then the company should approach to other cities of the country to explore new
markets.
Concentric Diversification
For establishment of CO2 Gas plant, Hoor Ghee Mills should take following measures:
1. Construction of CO2 gas cracking plant and:
2. Sold to Soda Water producers or any other contractor.
Gas cracking plant requires approximately 6.5 lac of investment. This plant has the capability to
eject the CO2 gas from the disposable gases. The disposable gases have transferred to sulpher
tower where these gases are required to be refined at 800c, which separate all the gases (H 2, O2,
CO2, CO). Then these gases has to transferred to first converter then second converter where the
converter absorb the CO2 gas, then after absorbing this CO2 gas again has to reboil at 100c which
purify the CO2 gas and then CO2 gas has to transferred from low pressure tank to high pressure
tank. Then the CO2 gas is ready to fill the cylinders.
Advertisement
Hoor Ghee Mills has following options for advertisement:
1. Electronic Medias
a. TV
b. Radio
c. Internet
2. Print Medias
31

a.Newspapers
b.
Magazines
Hoor Ghee Mills should advertise on electronic media especially on TV, Because TV is more
capable to create awareness about the companys product among the people and can facilitate its
sales officers during sales to retailers. The timing of advertisement should be during Khawatin
programs.

32