Operations Management Business Plan: Manufacturing of Automotive and Industrial Lube Oil

Torque Lube Oil Corporation Submitted By: Amit Yadav Asma Khan Bharat Sharma Niraj Thakur Sadik Shaikh
1

01 02 03 17 27

ACKNOWLEDGEMENTS

A mammoth project of this nature calls for intellectual nourishment, professional help and encouragement of many quarters. Its a deep insight on the team work and company set up part of Indian lubricant oil industry. It had really enhanced our knowledge and managerial skills. We as a team would to like to pay are gratitude to Professor Suhas Rane (Faculty Operations Management) who allotted us with such a brilliant piece of project and head of Gold Oil Company Silvassa Mr. Manoj Pandey and Mr. Vinod Sinh who helped us in extracting details regarding the same.

Table of Contents
Sr No. Particulars 1 2 Company Information Product Details Indian Oil Industry Market Research Product Details Process Details Process Flow Cost of Machines Process Flow Diagram Project Plan Project Plan Manpower Details Financial Analysis and BEP Production and Sales P & L Raw Materials Cost Wages Working Capital Asstes BEP Location & Layout Selection of Location Layout
3

Page 4 6

16

24

36

Chapter 1 Company Information

Company Information
4

Name: Board of Director:

Amit Yadav (CEO) Asma Khan Bharat Sharma Niraj Thakur Sadik Shaikh Engine Oil Gear Oil Hydraulic Oil

Product Portfolio:

Factory Location:

Athal Naroli (D.N.H)

Chapter 2 Product Details

Indian Oil Industry

The automotive industry in world is ailing, and the situation is made worse by the recession. Cars are being held longer, and there is greater attention to maintenance. As a result, there is renewed interest by lubricant marketers in promoting various marketing claims, such as fuel economy improvements, engine protection and long life, and targeting unique requirements of specific customer groups. On the other hand, the drivers in Asia, where the automotive industry has recovered nicely, will be volume growth and quality improvements. Passenger car production and sales have shown strong growth in the last quarter. A key trend here has been the growth in compact/economy car segment epitomized by the TATA NANO car launched in 2009. Most car majors have their own version of economy car in planning or production stage. In large part due to growth in the economy car segment, vehicle ownership is likely to increase rapidly in most high growth markets in Asia and in other emerging markets. Europe also seems to be catching the compact car bug, but North America is likely to remain immune. This trend will help grow consumption of consumer lubricants. Similar to the rapidly growing sales of compact cars, there is also a notable growth in sales of luxury car brands. The key message from Asia is strong growth in consumer lubricants due to growing car ownership, as well as an improvement in quality levels due to the modernization of the passenger car fleet.

The Opportunity
7

India is the sixth largest lubricant market in the world with approximate revenues of over Rs. 70 billion in 2005 and growing at 4-5% annually. The automobile market accounts for a large share of lubricant sales, particularly the diesel engine-based vehicles. Key market drivers are the growing demand for four-stroke motorcycles, passenger cars, tie-ups with original equipment manufacturers, and the implementation of new pollution norms.

Until 1993, the Indian lubricant market was highly regulated, clearly dominated by the public sector, with Castrol the only notable private player. As with other sectors, liberalization of the Indian economy brought many changes in the lubricants industry including the entry of foreign players. The pricing of base oil was deregulated in a phased manner and it is market determined now. Reduction of custom duties, de-canalization and removal of quantitative restrictions under which base oil stock was allotted to the users on a quota basis, have also led to the growth in this sector. In the industrial lubricant segment, consumption is shifting to Asia as well, a trend that has been accelerated by the recession. Industrial production is shifting to Asia and Eastern Europe due to cost advantage. Due to the high prices prevalent before the recession, there has been a significant increase in the interest in re-refined base oils and lubricants.

Challenges
8

The new lubricants market in 2010 will show a mix of challenges and acceleration of some pre-recession trends. The key to success in the new lubricants market is to understand: What are the emerging customer needs in the post recession scenario? How do they carry out maintenance activities? What is the importance of brands?

What are the lubricant needs for the future car park in Asia? How will the dominance of compact cars affect the volume and quality of lubricant consumed?

Will re-refining be a big trend or will it remain a niche market? Are consumers favorably inclined towards re-refined oils?

How will increased usage of ethanol and biodiesel and the prevalence of flex fuel vehicles affect the lubricant market?

Market Research
9

Data Collection
We as a team personally visited Gold Oil Corporation (Silvassa) and gathered information regarding lubricant oil industry. Secondly the major source of data collection was internet. Most of the information regarding production and plant set up was collected from the owner of the gold oil corporation and Information regarding the additives was collected from the internet as it was not disclosed by the owner.

Application of Product
The product we have selected for manufacturing is lube oil, and it is mainly for Industrial and commercial use. The major part of our customer base will be industrial user for first phase of the manufacturing. And we will be targeting automotive segment in further phases.

Market Demand Estimation

10

As per the Kline Report of 2008, the size of the Indian lubricants market is 1.7 billion litres a year and contributes 3-4% of the global demand for 38.5 million tonnes per annum growing at around 6%. By volume terms it is the fifth largest market in the world. India is one of the highest potential markets in the world and the launch of the Zandu enhanced products portfolio reiterates our strong commitment towards India.

Competitors
Castrol India Limited Gulf Oil Corporation Silvassa Oil Corporation Gold Oil Corporation

Environmental Implications
We take good care to protect the environment and we dont go against the rule laid down by the CPCB (central pollution control board). We sell our all the waste to CPCB authorised buyer and we also have the ISO 14001:2004 certificate which deals with the environment management system.

Chapter 2 Product Details

11

ENGINE OIL Size : 500 ml 200 Litres TORQUE MOTOR OIL15W40

Torque Diesel Max 15W40 is a Super High Performance Turbo Diesel lubricant. It is formulated with top quality base oils and additives from international suppliers, to reduce emissions, improve fuel economy and engine cleanliness, prolong engine life, reduce the formation of sludge and protect the modern engine. APPLICATION Torque Diesel Max 15W40 the product is a new generation, performance lubricant, suitable for diesel and petrol engines, with or without turbocharger. Equipment Manufacturers recommendations should be followed. PERFORMANCE STANDARDS API (American Petroleum Standards) CH-4/SJ BENEFITS Reduces emissions & improves fuel economy Improves engine cleanliness & reduces oil consumption Prolongs engine life Reduces sludge formation protects the engine

TORQUE SUPER MOTOR OIL 20W50

Best quality base oils are used in the formulation of Torque Super Motor Oil 20W50and the additive package, from international suppliers, has been carefully selected. The product gives engine protection in moderate operating conditions, with resistance to formulation of engine varnish and sludge. It also offer protection against wear, corrosion, rust and foaming, and is useful where oil consumption is a
12

problem. It meets API Service Classification SF/CC and is recommended for use in older higher mileage cars. It is not suitable for modern turbo charged vehicles. APPLICATION Torque Super Motor Oil 20W50 is formulated for use in general lubricating situations and recommended for older cars, to give reasonable protection in moderate conditions. PERFORMANCE STANDARDS Meets API- SF/CC BENEFITS Reduces wear & inhibits varnish and sludge Good protection against rust & corrosion Minimizes foaming Good general engine protection Assists in reducing oil consumption

Torque 4T Plus Gulf Pride 4T Plus series are premium quality 4-stroke gasoline engine oils developed specifically to meet the special requirements of the latest high performance air cooled 4-stroke motorcycles. These oils are blended from superior quality high viscosity index base oils and specially selected performance additives to provide excellent protection for engine, gearbox and wet clutch used in 4-stroke motorcycles. They provide high degree of reliability even under severe operating conditions. Torque 4T plus exceeds the requirements of API SL and JASO MA2 for 4-stroke motorcycle oils as well as those of leading global 4-stroke motorcycle manufacturers.

APPLICATIONS Recommended for new generation 4-stroke gasoline engines in high performance motorcycles of all leading global manufacturers

13

GEAR OIL

TORQUE GEAR OIL90

Torque Gear oil is mineral gear oil formulated from premium quality solvent refined base oils, with additives for oxidation, corrosion and foam inhibition. The product is for manually operated transmissions and spiral-bevel axles operating under mild conditions. APPLICATION Torque Gear oil is suited for all applications where straight mineral gear oil is required. It can be used in gear sets with low tooth pressure and rubbing velocities. It is suitable for rear axles with spiral bevel gears, which do not require an extreme pressure product, manual transmissions and tractor transmissions and final drives calling for a GL-1 fluid. It can also be used in various industrial applications, which include helical gear sets and journal bearings, where GL-1 is required. Always refer to manufacturer's recommendations. PERFORMANCE STANDARD API GL-1 BENEFITS Controls Wear Superior performance in various applications Anti-foaming High chemical and thermal stability Good oil service life HYDRAULIC OIL

TORQUE HYDRAULIC 68,100,150& 220

AW32,

46,

14

Top quality virgin base oils are used to formulate Torque quality hydraulic products. Additives from international suppliers are used to inhibit oxidation and prevent rust, foaming and wear. Oxidation inhibitors used in Torque Hydraulic AW Oils prevent formation of varnish and gum deposits in hydraulic systems that can affect valves and cause operational problems. Anti-wear additive protects equipment, while corrosion inhibitor prevents rust and de-foment the problem of foaming none adversely affect synthetic rubber seals and O rings. APPLICATION Torque Hydraulic AW Oils are ideal for use in hydraulic systems which incorporate piston type, gear type and/or high pressure vane pumps, and can also be used as general lubricating oils. High viscosity indices make Toque Hydraulic AW Oils suitable for use over a wide temperature range. These oils meet ISO specifications PERFORMANCE STANDARDS Denison Hydraulic HF Vickers M-2952 Mannesmann Rexroth requirements DIN 51524 US Steel 126 & 127

BENEFITS Protect against rust, corrosion and wear Prevents varnish & sludge & foaming Resists oxidation Reduced downtime Trouble-free operations

15

Chapter 3 Process Details

Process Details
RAW MATERIAL:

16

Base oil and Additives are used as raw materials for making lubricant oil. We have products as Engine oil, Gear oil & Hydraulic oil. Raw material will be stored before hand for 6 days.

Base oil details:

Typically lubricants contain 90% base oil (most often petroleum fractions, called mineral oils) and less than 10% additives. Vegetable oils or synthetic liquids such as hydrogenated polyolefins, esters, silicones, fluorocarbons and many others are sometimes used as base oils.Base oil, also called base stock, is the name given to the main liquid component (or components) of a lubricant. Base oils may be mineral oil based (mineral refers to the fact it was extracted from rocks in the form of crude oil), vegetable, or synthetic in origin. Synthetics may be petroleum-based or chemical-based. The base stock provides the basic lubricating requirements of a lubricant i.e. the "oiliness". In most modern lubricants, a base oil mixture alone is insufficient to deliver the technical performance characteristics required. Therefore, the base oils are mixed with a variety of different additives, each chosen to impart additional performance benefits to the finished oil.

Additives details:
A large number of additives are used to impart performance characteristics to the lubricants. Additives deliver reduced friction and wear, increased viscosity, improved viscosity index, resistance to corrosion and oxidation, aging or contamination, etc. The main families of additives are: Antioxidants Detergents Anti-wear Metal deactivators Corrosion inhibitors, Rust inhibitors Friction modifiers Extreme Pressure Anti-foaming agents Viscosity index improvers Demulsifying/Emulsifying Stickiness improver, provide adhesive property towards tool surface (in metalworking) Complexion agent (in case of greases) Note that many of the basic chemical compounds used as detergents (example: calcium sulfonate) serve the purpose of the first seven items in the list as well. Usually it is not economically or technically feasible to use a single do-it-all additive compound. Oils for hypoid gear lubrication will contain high content of EP
17

additives. Grease lubricants may contain large amount of solid particle friction modifiers, such as graphite, molybdenum sulfide, etc.

OIL MAKING PROCESS: Its a process focus layout.we will manufacture engine oil, gear oil &hydraulic oil by supplying base oil and additives to the blending vessel were both the materials will get mixed and sludge will be removed and final product is send for filling, packaging and weighing according to the capacity demanded. FACILITES REQUIRED AND THEIR APPROXIMATE COST: Major facilities required for lubricant oil industry is raw material, machineries & electricity. Electricity is the biggest contributor in cost after raw material. MACHINERIES REQUIRED AS PER THE PROCESS EXPLAINED ABOVE: Storage tank Blending vessels Filling machine Weighing machine

Their Approximate Cost

Sr Particulars
18

Amount

No. 1 2 3 4 5 6 7 8

Blending Vessels Storage Tanks Semi Automatic Filling Machines Weighing Machine Lab Instruments Computer Furniture & Fixtures Land and Building

2400000 1200000 525000 125000 450000 60000 500000 3800000

19

Process Flow

20

21

Simultaneous Metering Blender.

22

Weighing Machine.

23

Semi-Automatic Filling Machine.

24

Chapter 4 Project Plan

25

Project Plan
Here we are targeting major on industrial customer and slowly will enter into consumer market. Our project plan is as follows: PHASE 1: In first year we will manufacture Engine Oil which will require following machinery: Blending Vessel of 6kl. Semi automated filling machine Weighing machine Initially we are targeting to achieve operational efficiency. As we are new in market we will gradually try to attain 100% operational efficiency. Engine oil will continue for 2 years. PHASE 2: In Third year we will manufacture Gear Oil which will require following machinery: Blending Vessel of 3kl Semi automated filling machine Weighing machine As we are two year old in business we have better knowledge and customer base so we can expand our network through them and experiment with our product. In third and fourth year we will try to stick to earlier mentioned products.

26

PHASE 3: In fifth year we will be established in the industry and will have good customer base and great potential customer to expose. So hear we will go for hydraulic oil. Its requirement is as follows: Blending Vessel of 3kl Semi automated filling machine Weighing machine In the entire phases only blending machine set up cost will be their other two cost of semi automated machine and weighing machine is a fixed cost which will be held at the commencement of business.

PHASE 4: Our future plans consist of launching two different products i.e. Grease and Compressor oil. And in fifth year we will try to grab the untapped market in Gujarat, Maharashtra&goa. Production and sales: In phase 1 we will commence with our engine oil product and will continue for 2 years. Year 1 Engine oil machine calculation: Machine speed: 750 Litre /hr Operational efficiency: 50 % Production of machine/hr in Litre: 750X0.5 = 375 Litre / hr Production in first phase: 375X8X13X12 = 468000 Sales price/ Litre: 75 Total sales of the year 1: 468000X75 = 35100000 Year 2 Engine oil machine calculation: Machine speed: 750 Litre /hr Operational efficiency: 60 % Production of machine/hr in Litre: 750X0.6 = 450 Litre / hr Production in first phase: 450X8X13X12 = 561600 Sales price/ Litre: 75 Total sales of the year 2: 561600X75 = 42120000
27

In phase 2 as mentioned earlier we have introduced new machine for Gear oil: Year 3 Engine oil machine calculation: Machine speed: 750 Litre /hr Operational efficiency: 65 % Production of machine/hr in Litre: 750X0.65 = 487.5 Litre / hr Production in first phase: 487.5X8X13X12 = 608400 Sales price/ Litre: 75 Sales for second phase: 608400X75 = 45630000 Gear oil machine calculation: Machine speed: 375 Litre /hr Operational efficiency: 50 % Production of machine/hr in Litre: 375X.50 = 187.5 Litre /hr Production in second phase: 187.50X8X13X12 = 234000 Sales price/kl: 90 Sales for second phase: 234000X90 = 21060000 Total sales of the Year: 66690000 Year 4 Engine oil machine calculation: Machine speed: 750 Litre /hr Operational efficiency: 65 % Production of machine/hr in Litre: 750X0.65 = 487.5 Litre / hr Production in first phase: 487.5X8X13X12 = 608400 Sales price/ Litre: 75 Sales for second phase: 608400X75 = 45630000 Gear oil machine calculation: Machine speed: 375 Litre /hr Operational efficiency: 60 % Production of machine/hr in Litre: 375X.60 = 225 Litre /hr Production in second phase: 225X8X13X12 = 280800 Sales price/kl: 90 Sales for second phase: 280800X90 = 25272000 Total sales of the Year: 70902000

28

Year 5 In phase 3 as we are old in business now will introduce new machine for hydraulic oil: Engine oil machine calculation: Machine speed: 750 Litre /hr Operational efficiency: 65 % Production of machine/hr in Litre: 750X.65= 487.5 Litre / hr Production in first phase: 487.5X8X13X12 = 608400 Sales price/ Litre: 75 Total sales of the year 5: 608400X75 = 45630000 Gear oil machine calculation: Machine speed: 375 Litre /hr Operational efficiency: 60 % Production of machine/hr in Litre: 375X.60 = 225 Litre /hr Production in second phase: 225X8X13X12 = 280800 Sales price/kl: 90 Sales for second phase: 280800X90 = 25272000 Hydraulic oil machine calculation: Machine speed: 375 Litre /hr Operational efficiency: 30 % Production of machine/hr in Litre: 375X.30 =112.5 Litre /hr Production in second phase: 112.5X8X13X12 = 140400 Sales price/kl: 110 Sales for second phase: 140400X110 =15444000 Total sales of the Year: 86346000

29

Manpower Details
Particulars Administration Accounts Marketing Factory Production QCM Stores Workers Security Total Grand Total Year 1 S US 1 3 1 1 1 4 1 12 17 Year 2 S US 1 4 1 1 1 4 1 13 18 Year 3 S US 1 4 1 1 1 5 1 14 21 Year 4 S US 1 5 1 1 1 5 1 15 22 Year 5 S US 1 5 1 1 1 6 1 16 23

2 3 5

2 3 5

4 3 7

4 3 7

4 3 7

S = Skilled Employee US = Unskilled Employee

30

Financial Analysis and BEP Production and Sales:

Product Type Year 1 Year 2 Year 3 Year 4 Year 5

Engine Oil (ltr) Efficiency Price Sales Opening Debtor Closing Debtor

468000 50 75 35100000 0 1755000

561600 60 75 42120000 1755000 2106000

608400 65 75 45630000 2106000 3334500

608400 65 75 45630000 3334500 3545100

608400 65 75 45630000 3545100 4317300

Gear Oil (ltr) Efficiency Price Sales Opening Debtor Closing Debtor Hydraulic Oil (ltr)

234000 50 90 21060000

280800 60 90 25272000

280800 60 90 25272000

140400

Efficiency Price Sales Opening Debtor Closing Debtor Total Sales Total Avg. Debtor 35100000 877500 42120000 1930500 66690000 2720250 70902000 3439800

30 110 15444000

86346000 3931200

31

Budget P & L Account

Particular Year 1 Year 2 Year 3 Year 4 Year 5

INCOME Sales TOTAL EXPENDITURE A Variable cost Raw material Wages Electricity consumed Maintenance spares Stationary Telephone 35100000 42120000 66690000 70902000 86346000

31590000 37908000 60021000 63811800 77711400 372000 372000 528000 528000 600000 91500 & 80000 6000 84000 90000 8000 96000 150000 10000 96000 160000 12000 108000 180000 14000 108000 114375 411750 494100 1216950

Total VC CONTRIBUTION B Fixed cost Salary Depreciation Mis.expence License fees Insurance Incorporation expense Total FC

32223500 38588375 61216750 65113900 79830350 2876500 3531625 5473250 5788100 6515650

1248000 471000 10000 290000 94200 4000 2117200

1392000 423900 12000 10000 84780 4000 1926680

1392000 541400 15000 10000 108280 4000 2070680

1536000 487260 18000 30000 97452 4000 2172712

1536000 587260 20000 10000 117452 4000 2274712

PROFIT

759300 32

1604945

3402570

3615388

4240938

Raw Material Cost Product Type

Year 1

Year 2

Year 3

Year 4

Year 5

Engine Oil (ltr) Base Oil, Addtives Inventory Holding period RM Cost Opening Inventory Closing Inventory Purchase Gear Oil (ltr) Base Oil, Addtives Inventory Holding period RM Cost Opening Inventory Closing Inventory Purchase Gear Oil (ltr) Base Oil, Addtives Inventory Holding period RM Cost Opening Inventory Closing Inventory Purchase Total Cost Total Purchase Total RM Inventory

468000 67.5 6 31590000 1215000 32805000

561600 67.5 6 37908000 1215000 1458000 38151000

608400 67.5 6 41067000 1458000 1579500 41188500 234000 81 6 18954000 0 729000 19683000

608400 67.5 6 41067000 1579500 1579500 41067000 280800 81 6 22744800 729000 874800 22890600

608400 67.5 6 41067000 1579500 1579500 41067000 280800 81 6 22744800 874800 874800 22744800 140400 99 6 534600 0 26730 561330

31590000 31590000 1215000

37908000 37908000 2673000

56862000 60021000 3037500

60021000 63811800 3159000

69498000 64346400 3159000

33

Wages and Salary

Particulars Administration Accounts Marketing Factory Production QCM Stores Workers Security Total Grand Total Year Year 1 S 8000 36000 0 15000 12000 10000 24000 8000 11300 0 135000 12 US 0 0 0 0 0 0 7000 15000 22000 Year 2 S 8000 48000 0 15000 12000 10000 24000 8000 125000 147000 12 US 0 0 0 0 0 0 7000 15000 22000 176400 0 Year 3 S 8000 48000 0 15000 12000 10000 30000 8000 13100 0 160000 12 US 0 0 0 0 0 0 14000 15000 29000 192000 0 Year 4 S 8000 60000 0 15000 12000 10000 30000 8000 14300 0 172000 12 US 0 0 0 0 0 0 14000 15000 29000 206400 0 Year 5 S 8000 60000 0 15000 12000 10000 36000 8000 14900 0 178000 12 US 0 0 0 0 0 0 14000 15000 29000

1620000

2136000

WORKING CAPITAL CALCULATION

Woking Capital Particulars Current Assets A B

Year 1

Year 2

Year 3

Year 4

Year 5

Debtors Stock Raw Material Finished Goods (MTO) Cash & Bank Balance Total CA

877500

1930500 2720250 3439800 3931200

1215000 2673000 3037500 3159000 3159000

150000 160000 185000 185000 190000 2242500 4763500 5942750 6783800 7280200

Current Liability A

Creditors Total CL Net Capital Working

0 0

0 0

0 0

0 0

0 0

2242500 4763500 5942750 6783800 7280200

34

Investment In Assets
Sr No 1 2 3 4 5 6 7 8 Particulars Blending Vessels Storage Tanks Semi Automatic Filling Machines Weighing Machine Lab Instruments Computer Furniture & Fixtures Land and Building Total Investment Year 1 1200000 600000 175000 125000 250000 60000 500000 3800000 6710000 Year 2 Year 3 600000 300000 175000 100000 1175000 Year 4 Year 5 600000 300000 100000 1000000

35

Financial Break Even Analysis

Present Value of Investment Break Even Sales = -------------------------------------------------P/V Ratio 14131122.12 = ------------------------------------------------0.080992667 = 174474094

Present Value Of Investment Year of Investment Investment 1 8827200.08 2 1926680.08 3 3239680.08 4 2167312.08 5 3284312.08

P.V Factor 0.869 0.756 0.658 0.572 0.497 Total

P.V Investment 7670836.871 1456570.143 2131709.494 1239702.511 1632303.102 14131122.12

of

So we can conclude that we can attain Break Even in approximately 4th year.

36

Chapter 5 Location & Layout

37

Location and Layout

As Factory Location is one time strategic decision and so one of the most important decisions in business plan. In manufacturing industries profit maximization can be done by only cost minimization. So location depends on various factors like 1- Tangible cost Availability of raw material Availability of labour Availability of power Availability of water and other amenities Infrastructure facilities 2-Intangible and future costs Attitude toward union Quality of life Education expenditures by state Quality of state and local government For the Location of our factory we have chosen Silvassa, U.T of D&NH The reason for considering Silvassa is that being Union Territories it is tax free and offers various excise and sales tax exemption. It is also near to Vapi and Daman which are known for their industries and we can taped the areas of it. As the base oil can be purchased by the local dealer Ghandhar oil & Refinery on affordable prices. It has large industrial areas and is connected with border of Gujarat and Maharashtra. Easy availability of skilled and unskilled labour Nearer to N.H no. 8 Tax Benefit ( 1. 15 % Exemption in Sales Tax and Income 2. No Income Tax for 5 years. Subsidy on electricity

38

Plant Layout

39