Ashwini Pharma Pvt. Ltd. – A Case of Logistical Packaging for Exports

This case of the pharmaceutical formulation manufacturer deals with the decision on logistical packaging. One of the often-neglected aspects in the movement of goods is the packaging of cargo. The packaging is important as it has a direct bearing on the freight cost. The computation charges are based on two parameters of the consignment, viz. the gross weight and the volume of the cargo. Hence, the dimensions or size of the packages affect freight costs. The optimization of sizes becomes vital when it comes to controlling the freight cost.

By a systematic study of the entire movement of goods, it is possible to identify the areas where cost could be cut or at least controlled. Shashank, logistics manager at Ashwini Pharma (AP), was assigned the job to rationalize the packaging size for export cargo in order to reduce the freight that, as per the industry standard, was on the higher side.

1. ORGANIZATION

The company was founded in 1980 and has grown into an internationally renowned and fully inte­grated pharmaceutical organization. AP has world-class expertise in the development and manu­facture of organic intermediates and bulk, active and finished, dosage formulations. This expertise enabled the company to provide high-quality and cost-effective pharmaceutical products to capture both domestic and export markets. The exports are mainly to CIS countries. They achieved sales of INR 9500 million with a net profit of INR 476 million in the year 2001. The export contributed to 15.48 per cent of total sales of the company. The average growth observed in export sales during the last five years is 10 percent.

Ashwini Pharma is an ISO 9000 and ISO 14000 accredited company with a strong focus on R&D in new drug formulations. It is a leading company in its product range, commanding almost 30-32 per cent market share. There are five other players in the competition and all of them have strong foreign affiliations, both financial and technical, with their principals. However, AP has over the years developed a strong local R & D base of an international standard. The drugs developed by Ashwini are patented and are popular in the international markets.

Ashwini Pharma today has three manufacturing plants covering 70 per cent of the sales requirements. The balance 30 per cent is outsourced from eight vendors located mostly in south­ern India. The manufacturing plants are mostly automated. The company has around 500 people on the roll. For local distribution, Ashwini Pharma has four regional offices located at major metros in India. The products are distributed through 26 C&F agents located in each of the Indian states. The stocks are distributed by the company’s distributors (350), who in turn supply the products to the retail drugstores. Currently, AP formulations are available at 80,000 outlets in India.

*This case has been prepared by Prof. V.V. Sople, based on a project report submitted by P N Ritesh of ITM, Navi Mumbai.

Looking at the market potential on the export front, AP has organized its export sales through an international division way back in 1995, with the general manager heading that divi­sion. Today, the international division is manned by 10 persons, including two managers and one GM, and is treated as a separate profit centre. The company has appointed “country distributors” in the countries of destination for distributing AP’s products in those countries. These country distributors have their sub-distributors for onward distribution of these products over a wider geographical area.

2. ORDER PROCESSING

The chain of activities for export cargo dispatches is an eight-step process consisting of various activities as described below:

  • Step 1 The international division receives the order from their overseas distributors.
  • Step 2 The purchase order is scrutinized, registered and loaded on to Systems Applications Programmes (SAP).
  • Step 3 The order is automatically taken on production schedule as per the delivery schedule.
  • Step 4 The manufacturing is done in batches as per the schedule.
  • Step 5 Finished products are inspected manually.
  • Step 6 The products cleared through inspection are dispatched for primary packaging in strips, blister or bottle packaging, which is an automated process.
  • Step 7 The secondary packaging is done manually. The primary packs are manually inserted into the paper boxes which are of predetermined stock keeping unit (SKU) sizes and have printed labels with product information as per the statutory requirements.
  • Step 8 The secondary packs are inserted in cardboard cartons for unitization. These are the consignments for final dispatch. They are called shippers.
  • Step 9 A packing list is made for each consignment, which includes product details, manufactur­ing and expiry dates, batch number, gross and net weight of the consignment, and so on.
  • Step 10 After the documentation is completed the shippers are transported to the airport for final dispatch to the customer abroad.

The packing is done on the basis of instructions issued by the packaging development depart­ment. These specifications are made on the basis of the following parameters:

  • The minimum quantity to be packed in the shipper
  • The distance and time needed to reach the fi nal destination
  • The climatic conditions of the destination country
  • The cost of procuring the packaging materials
  • Specifi cations issued by the authorities concerned/customer

The packing instructions are issued in the form of packing pattern such as 72 3 5 3 2 3 10.

This is to be read as:

  • 10 tablets/capsules in a strip
  • 2 strips in a box
  • 5 boxes in a carton
  • 72 cartons in a shipper

The minimum quantity that is packed in the shipper is determined by the sales and marketing department, keeping in mind the factors like business potential of the buyer and demand pattern of product at the end-user’s level. Hence, it is evident that for each country different shippers and different packing patterns have to be used.

At Aswini Pharma the role of the packaging development department is important in design­ing the cost-effective packaging for safe consignment movement during the transit through varying handling, storage and climatic conditions. After the final design is made, the packaging material is procured from two/three suppliers.

3. COMPUTATION OF AIR FREIGHT

The chargeable weight of the air consignment is the actual gross weight of the consignment for consignment size below 6,000 cubic centimetre. However, for the consignment above 6,000 cubic centimetre size, the weight is computed as follows:

Size of the consignment = 162.6 X 155.6 X 141.5 cm

= 163 X 156 X 142 cm

= 36,10,776 cubic centimetre

= 35,63,351/6,000 kg

= 601.796 kg

= 602 kg

The freight forwarder manually measures the dimensions of the consignment and calculates the weight to compute the total freight charges to prepare the Air Way Bill.

At Ashwini Pharma, on an average 67 shipments are exported every month. Each ship­ment is of 0.14 million kilogram valued at INR 163 million. The average freight cost per month is INR 12.90 million, which is 7.89 per cent of the value of the products exported. The above averages are based on the export shipments during the last nine months (see Table 24.12.1).

Ashwini Pharma sends most of its shipments to CIS countries in mainly four product catego­ries A, B, C & D. Due to difference in the cargo agent’s measurements of dimensions and the actual size of consignment, Ashwini Pharma was paying freight on the higher side. Shashank found that the excess freight paid was varying from 6 to 14 per cent on the different consignment sizes sent mainly to three CIS countries (Tables 24.12.2-24.12.4).

The results of the random audits of different consignment sizes dispatched to three countries during the last nine months showed the large deviations in weight calculated by the consignment agent and the actual gross weight of the shipper (Table 24.12.5).

Shashank identified the following reasons for the excess freight charges:

  • The dimensions used by the cargo agents are higher than the actual dimensions of the shipper
  • Mismatch of dimensions due to bulging in the consignments is to the tune of 50 per cent of the total shippers dispatched. The reason for the bulging is that the inner four lids of the shipper do not touch each other and so fail to put enough pressure on the goods inside. Hence the backward pressure causes the bulge in the shipper
  • The order for the products comes in multiples of 10, 100 or 1000, while the units contained in the shippers are in multiples of 12, 120 and 1200. Hence, the balance of the order is packed in another shipper. Thus, an additional shipper is required for the packing, resulting in additional freight charges
  • On average 800 export dispatches are made every year. Each dispatch consists of 100 ship­pers resulting in 80,000-85,000 shippers per year. The packing density of the shipper is low and hence freight calculated on the basis of shipper dimensions causes the increase in freight cost
  • The chartered cargo plane to Masco can carry 60 tonne of goods. But because of low density of the shipper only 27 tonne of material is loaded

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.

One thought on “Ashwini Pharma Pvt. Ltd. – A Case of Logistical Packaging for Exports

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