Act 333 Project Report

8/12/2019 Act 333 Project Report

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Nokshi

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NOKS I

INTRODUCTION

Nature of Business

We are a manufacturing company, named Nokshi. Our business product is Handicraft bags.

Handicrafts are mostly defined as "items made by hand, often with the use of simple tools,

and are generally artistic and for traditional in nature. We are using jute, bamboo and lether to

make good-looking bags for college girls and working women. We have chosen handicraft

business because right now in Bangladesh handicrafts are demanding and there are few shops

for handicraft. There are few big shops for handicrafts but they are too expensive for the

middle class people, thats why we thought about that if we can sell handicraft products to the

customer at a cheaper price it will be good for our business and also for the customers. In our

Handicraft business; we sell are only selling handicraft bags at cheaper price with good

quality to make lives easier and more pleasurable to young generation. Due to the uniqueness

factor, the designs and craft works really amaze many buyers which satisfy them. If any

consumer needs any repairing service which buys from our shop, we repair his/ her same

product at two or three times without any payment.

Product Details

Our product is handicraft bag. We usually use jute, lether and bamboo to make our handicraft

bags. We buy jute, lether and bamboo from our reliable suppliers. We use bamboo to make

the handle of the bags. Moreover, we use color to make our bags attractive. We use swing

machine to sew the jute and lether bags. We also use needle to sew the bags. We have

efficient labors to produce the bags. Our labors lives in villages. They produce the bags there


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on the basis of our orders. We have agents in the villages. When the labors finished

producing the bags our agent send it to us immediately. Our labors are the house wives of

villages. Their wages are very low. This is why we can sell the bags at cheaper price.

Additionally, we are not keeping a lot of profit like our competitor Aarong. As a result, our

bags are cheaper than theirs.

Company Background

The aim of our business is to ensure good quality handicrafts products to the consumers. For

this reason consumer can completely trust and buy them. The price of our handicrafts

products is cheaper than other handicrafts store. The people especially middle and upper

middle class can easily afford the price of our products. We provide home delivery service to

our consumer.

Objective

Nokshi handicraft is involved in manufacturing, retail, and wholesale of handicrafts. The

entity is a partnership business. We have several objectives, which are given below:

Manufacturing quality product with local materials

Maintain Bangladeshi heritage in our product

Capture a good market share of this industry

Achieving goodwill by providing unique design products to the customers

Mission

Our mission is to continuously provide innovative products which focuses on quality, cost

effectiveness, and unique designs. We see ourselves at the forefront of the handicraft

industry, to serve the needs of the growing domestic markets. It is our desire to make a

contribution to the development of our economy, and to provide benefits and work for the

local community.


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Vision Statement

Our long term commitment is to reach the higher class people of Bangladesh and to go

abroad.

ODY

Handicraft Industry in Bangladesh

The handicraft industry in Bangladesh is made up of small manufacturing units and mostly

located in rural areas, controlled either by the owner themselves or with the assistance of

small work force of 10-20 people. Most enterprises use traditional techniques with the

industry stands approximately over 3 millions of which over three quarters are employed

in textile, jute goods, wood, lather cane and bamboo. Key players in the sector involved in

domestic supplies as well as exporters are:-

Competitors

There are different competitors available in Bangladeshi market for the handicraft products.

Some are small and some are big. We are only focusing on our lead competitors. The lead

competitors for our products are- Aarong, Nogordola and Rong. For this business product

lines different competitors are using different strategy to be sustainable in the market.

Financial capabilities of Aarong has no limit, they reach the sky height in the industry.


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Today, few urban consumers will argue that Aarong is the local Mecca for deshi

handicraft.

Aarongs product designs has brought consumer attention back to the products and styles that

are indigenous to Bangladesh, its designers blending the traditional with the contemporary in

a manner that has won instant consumer appeal, starting a revolution in trends that has now

been taken up by countless other boutiques and stores. Aarongs product designs focus on the

diverse types and textures of crafts and patterns that have been passed along from generation

to generation among weavers and artisans in craft hubs around the country.

Rang has good loyal relationship with their target customers. Going beyond the typical point

of commerce and being urged by the values of heritage and a clear sense of commitment

Rang arranges special programs to observe festivals and rituals. At the centre of Rangs

concept of fashion is the spirit of variety and variation in application of colours. The same

urge has been essentially reflected in most of their products. Through the simultaneous

motivation of flourishing handloom and handicraft industry and introducing ever new

products Rang has come to be esteemed as one of the leading fashion entrepreneurs of

Bangladesh. All these shops sell their products at a high price because they focus on how to

earn more money. Additionally, Nogordola is also doing very well in handicraft bag business.

Our business is able to distinguish itself and exhibit real innovation and creativity, a

delightful culmination of color, dream and design. We want to play a vital role in promoting

local brand and to intersperse the new generation in our country.

Company Analysis

SWOT analysis

As discussed earlier one of our social businesses is related with providing handicraft to the

customers by using jute, lether and bamboo fiber. Our targeted customers are middle class

and upper class people. To operate our business in a more efficient way we have analyzed

SWOT.


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Strength

Cheap price:

Our handicraft products will be sold at a very affordable cost so that middle and upper

middle class consumers can afford it easily. Cheap priced handicraft products will be our

strength as our targeted customer is middle and upper middle class of people.

Skilled labor: All of our labors are well skilledfor making bags.

Unique features:Our handicrafts are preferred by many due to its softness that offers enhanced comfort. It

contains bamboo, mud, jute, glass which is a natural material. It has the ability to use our

natural materials. It also repels bugs, mold, and allergens. This makes all materials healthy

and comfortable option. It would definitely give us a competitive advantage.

STRENGTH

Cheap Price

Skilled LaborUnique Features

Attractive Colors

WEAKNESS

Lack of Resources

Lack of ExperienceLess Interest of Young People in Craft

Industry

OPPORTUNITY

Creation of Employment

Emerging Demand

Cheap Manpower Available

THREATS

Political Instability

Financially Sustainable Competitors

Increasing Inflation Rate


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Attractive colors and sizes:

Handicraft products come in attractive colors and in different sizes. Consumer can choose

from a range of vibrant colors and designs. Small size handicraft products are available in

our shop. Adult size handicraft products are attractive color and size.

Weaknesses

Lack of resources:

It would not be impertinent to state that the resources that are needed to do the business

our business somehow lacks. This can be emerged as a weakness for our social business.

Lack of experience:

We are doing this type of business which we did not try before. High experience is needed

to do handicraft business especially when bamboo element is present.

Less interest of young people in craft industry:

Now-a-days young people dont interest in handicraft products. They are eager to buy

foreign products and branded products. They dont want to buy actual attractiveness and

softy handicrafts. Because most of the shops have to sell handicraft product at a high price

for this they support to buy foreign products.

Opportunities

Creation of Employment :

A large number of people can be employed because of our social business. Most of these

people live under the poverty level. They can get an opportunity to improve the standard

of living. Eventually the GDP of our country will rise.

Emerging Demand:

It is true that potential for growth of the sector is immense. Studies/surveys conducted by

the EPB and BANGLACRAFT (An association of Handicraft producers and exporters)

and ECOTA (Fair trade Forum) provide strong evidence in support of this.


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Cheap manpower available:

Abundance of easily available workers can be seen as an encouraging factor.

Threats:

Political instability:

The existing political instability and turbulence can be seen as a major threat for our

business. Due to excess strike it will be difficult for us to bring the bags from village on

due time.

Competition from existing handicraft:

Competing against the already established handicraft producers can be a threat for our

business as doing handicraft business with bamboo is comparatively a new business idea.

Increasing Inflation Rate:

Inflation rate refers to a general rise in prices measured against a standard level of

purchasing power. Increasing inflation rate may increase our production cost and

eventually increase our product price.

Cost Strategy

We are following the Cost Leadership strategy. Cost leadership is a concept developed by

Michael Porter, used in business strategy. It describes a way to establish the competitive

advantage. Cost leadership, in basic words, means the lowest cost of operation in the

industry. The cost leadership is often driven by company efficiency, size, scale, scope and

cumulative experience (learning curve). A cost leadership strategy aims to exploit scale of

production, well defined scope and other economies (e.g. a good purchasing approach),

producing highly standardized products, using high technology. In the last years more and

more companies choose a strategic mix to achievemarket leadership.This patterns consist in

simultaneous cost leadership, superiorcustomer service andproduct leadership.
http://en.wikipedia.org/wiki/Business_efficiencyhttp://en.wikipedia.org/wiki/Learning_curvehttp://en.wikipedia.org/wiki/Purchasinghttp://en.wikipedia.org/wiki/Dominance_%28economics%29http://en.wikipedia.org/wiki/Customer_servicehttp://en.wikipedia.org/w/index.php?title=Product_leadership&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Product_leadership&action=edit&redlink=1http://en.wikipedia.org/wiki/Customer_servicehttp://en.wikipedia.org/wiki/Dominance_%28economics%29http://en.wikipedia.org/wiki/Purchasinghttp://en.wikipedia.org/wiki/Learning_curvehttp://en.wikipedia.org/wiki/Business_efficiency


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Cost leadership is different from price leadership. A company could be the lowest cost

producer, yet not offer the lowest-priced products or services. If so, that company would have

a higher than averageprofitability.

We are using this strategy because we are producing and selling in Bangladesh and we know

most of the people living in Bangladesh are middle class people. So, we have targeted the

middle class market segment because we know we have a huge market for our low price and

good quality bags in this country.

Full cost for five years are shown below. We have shown the details of this cost on our value

chain analysis part.

Full Cost

2014 2015 2016 2017 2018

1587000 1636800 1733000 1853080 2035250

Price

Our business product is handicraft bag which is made of jute bamboo and leather. We have

targeted middle class people as our customer. Our strategy is to sell handicraft bag to

customers at cheaper price. The price of the product is $380 per bag. We will sell handicraft

at a cheaper price in order to win the competition. In Bangladesh there is a very few

companies who produce handicraft bag. Their product price is very high and middle classpeople cannot afford to buy their product. Since, this industry has few firms we can say we

are in a less competitive market. In this less competitive situation ,we want to gain our

desirable profit by providing our customer quality product at a price which is below the

competitors.
http://en.wikipedia.org/wiki/Price_leadershiphttp://en.wikipedia.org/wiki/Profit_%28accounting%29http://en.wikipedia.org/wiki/Profit_%28accounting%29http://en.wikipedia.org/wiki/Price_leadership


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Pricing strategy

We have mainly followed cost-based approach for our pricing strategy. Cost-based approach

mainly focused on cost then customers and competitors. We have chosen cost-based

approach because we want to decrease our product costs . By decreasing product cost we can

sell our handicraft bag to the customers at a cheaper price. Our main competitors like Rong ,

Aarong and Nogordola are also selling handicraft bag but their price is too expensive. We

want to use this advantage by following cost-based approach and decrease cost in order to

sell our product at $380per bag, which is below the competitors product price.

Yes , we think our pricing is appropriate. Our main goal is to maximize sales, earn minimum

profit. We want to sell our products to the customers at a lower price and by this we can

increase our sales. If we can increase our sales we can also increase our profit. Our

competitors like Aarong , Nogordola , Rong, they are selling the handicraft craft bag around

$450 and $550 . There material cost and direct labor cost are the same as ours. But they are

charging higher price because they want to earn huge profit. We know that rural people or

village people are the key human resource for these companies. At a very few wage rate,

rural people make handicraft bags for these companies. But these companies are charging

higher prices, while their labor cost is very low. And another reason for their charging high

price are fixed cost and advertising or promotion cost. Competitors spend a lot money in

their products display, stores including air condition system, rent for huge stores, TV

advertising , salaries of attractive sales person etc. In that case we are minimizing cost by

opening simple store (not include air condition), small stores, simple product display , instead

of TV advertising ,we will use newspaper, magazine etc, we will hire few sales person as we

require small store. In that case we are minimizing our cost while maintaining product

quality. Because these fixed cost are not related to product quality. By doing these things we

can charge $380 per bag below competitors price and gain competitive edge.

In the table below profit margin are shown:-

Profit Margin(Profit per unit)

Year Selling Price(BDT) COGS(BDT) Profit(BDT)

2014 380 227 153

2015 380 224.5 155.5


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2016 380 225 155

2017 380 224.2 155.8

2018 380 223.5 156.5

Value Chain

Manufacturing companies create value by acquiring raw materials and using them to produce

something useful. The value that's created and captured by a company is the profit margin:

Value Created and CapturedCost of Creating that Value = Margin

The more value an organization creates, the more profitable it is likely to be. And when we

provide more value to our customers, we build competitive advantage.

Understanding how our company creates value, and looking for ways to add more value, are

critical elements in developing a competitive strategy. Michael Porter discussed this in his

influential 1985 book "Competitive Advantage," in which he first introduced the concept of

the value chain.

A value chain is a set of activities that an organization carries out to create value for its

customers. Porter proposed a general-purpose value chain that companies can use to examine

all of their activities, and see how they're connected. The way in which value chain activities

are performed determines costs and affects profits, so this tool can help us understand the

sources of value for our organization.

In the diagram below we have shown the value chain diagram that we are doing for our

company. We are mainly adding value to our raw materials. We are buying high quality rawmaterials( jute, bamboo and lether) to produce our bag. As a result, we incur more cost for

raw materials. Moreover, we are doing R&D and design which are not that much necessary

for our product but still we are doing it just to add some more value to our bags. This makes

our bags unique and attractive. We do not show the customer service cost because we have

not yet incurred that cost so we could not predict it beforehand. Additionally, we have shown

the full cost below that we will incur for five years.
http://www.amazon.com/Competitive-Advantage-Creating-Sustaining-Performance/dp/0684841460/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1226480657&sr=8-1http://www.amazon.com/Competitive-Advantage-Creating-Sustaining-Performance/dp/0684841460/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1226480657&sr=8-1


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Total Fixed Cost

Year FMOH

(BDT)

Fixed

Marketing &Distribution

(BDT)

Total Fixed

Cost(BDT)

2014 120000 225000 345000

2015 124800 234000 358800

2016 132000 247500 379500

2017 141600 265500 407100

2018 156000 292500 448500

Total Variable Cost

Year Direct

Materials

(BDT)

Direct

Labor

(BDT)

Variable MOH

(BDT)

Variable

Marketing &

Distribution

(BDT)

Total Variable

Cost

(BDT)

2014 475000 315000 225000 210000 1225000

2015 488800 327600 226200 218400 1261000

2016 517000 349250 239250 231000 1336500

2017 551650 375830 253700 247800 1428980

2018 604500 412750 279500 273000 1569750

R&D Design ProductionMarketing &

Distribution

Customer

Service


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Production Cost

Year Direct

Material(BDT)

Direct

Labor(BDT)

Variable MOH

(BDT)

Fixed

MOH(BDT)

Total

ProductionCost

(BDT)

2014 475000 315000 225000 120000 1135000

2015 488800 327600 226200 124800 1167400

2016 517000 349250 239250 132000 1237500

2017 551650 375830 253700 141600 1322780

2018 604500 412750 279500 156000 1452750

Full Cost(Fixed + Variable)

Year R&D (BDT) Design

(BDT)

Production

(BDT)

Marketing

&

Distribution

(BDT)

Full Cost

(BDT)

2014 12000 5000 1135000 435000 1587000

2015 12000 5000 1167400 452400 16368002016 12000 5000 1237500 478500 1733000

2017 12000 5000 1322780 513300 1853080

2018 12000 5000 1452750 565500 2035250

Company Riskiness

Year 2014 2015 2016 2017 2018

Targeted

Contribution

Margin per Unit

BDT135.00

BDT 137.50 BDT 137.00 BDT137.80 BDT 138.50


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Year 2014 2015 2016 2017 2018

Breakeven point( Unit) (BEP)

2,556 2,610 2,771 2,955 3,239

Year 2014 2015 2016 2017 2018

Breakeven Revenue(BER)

BDT971,280

BDT991,800

BDT1,052,980

BDT1,122,900

BDT1,230,820

Year 2014 2015 2016 2017 2018

Margin of Safety( Unit)

2,444 2,590 2,729 2,945 3,261

Year 2014 2015 2016 2017 2018

Margin of Safety BDT

928,720

BDT

984,200

BDT

1,037,020

BDT

1,119,100

BDT

1,239,180

We can state whether a company is risky or not by measuring the companys break-even

point. Our company will be increasing its production every year. In first year, we will sale

5000 units, then, in second year, we will sale 5500, then 5900 in third year. So, our break-

even point (BEP) in units will be increasing every year; like in 2014, we will have 2,556 units

then, 2,610 in 2015 and so on. We know that if break-even point increases from time to time,

it is not good for business when company producing same output every year. But we will

increase our production every year, so, higher break-even point will not associate so much

risk for our company. Then consider break-even revenue (BER), since our BEP will be

increasing every year, BER will be also increasing. This does not constitute to company

riskiness. Our targeted contribution margin per unit in 2014, 2015, 2016, 2017, and 2018 will

be BDT 135, BDT 137.50, BDT 137.00, BDT 137.8 and BDT 138.5. Increase in targeted

contribution margin per unit constitutes to increase in net operating income every year. So


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there is less risk associated with our company. Margin of safety represents the strength of the

business.Higher the margin of safety, the more the company can defend against change in

sale. Every year our margin of safety in unit will be increasing like 2,444 units, 2,590 units,

2,729 units, 2,945 units, and 3,225 units in 2014, 2015, 2016, 2017, and in 2018. This

constitutes lower risk. Operating leverage is another criterion in measuring whether a

company is risky or not. Higher the operating leverage, riskier the company. Our companys

operating leverage in 2014, 2015, 2016, 2017, and 2018 will be 2.05, 2.01, 2.01, 2.00, and

1.99. Operating leverage will be gradually decreasing over the five years which indicates that

our company is less risky.

Key Performance System(KPI)

Key performance indicators are measurement to reflect the heath of organizations. It is a

measurement tool of business accuracy. As we have a handicraft bag business where our first

target is to satisfy the customers and make them loyal. We are also following some KPIs to

measure our performance growth.

The KPIs that are followed in our company is given below-

Cost Leadership: As, we are going to a less competitive market. So, cost leadership is our

main key performance indicator. We are trying to produce a very qualitative product with a

low price as well as to reduce the cost at least 5%.

Increase market share by 10%: We want to capture the market as soon as possible.

Thats why we target that every year our market share should be increased by 10%.By

following this we can easily fulfill our goals.

Profit increase minimum 20%: One of our key performance indicators is to increase

profit minimum 20%.In every year our sales volume is being increased as well as profit is

also increased in a high level. We want to increase profit to cover all costs of the business

Sales person performance:Sales person performance is used to measure the company

performance. We measure the employee performance into five categories-(Excellent, better,


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good, medium bad) and give them points according to their performance. We use this KPI

because companys customer relationship totally depends on employee performance.

Product Quality: We believe that customer will buy our product if we offer a very

qualitative product. Thats why we follow a quality rank process to identify the product

quality of all types of products.

So, these are the main KPIs that we are following in our company. There are also many KPIs

used, as we are starting now we are using these to improve our performance.

Yes we need some performance reward systems.

Though we are starting a very small scale, there are some incentives (rewards) are used to

increase the sales. Sales persons get a percentage on the price of product. The reward systems

we are following are given below.

There are two types of reward systems to motivate the employees.

Financial

Non-financial

Financial-Most of the time we prefer to give financial rewards. Our employees will be

motivated through these types of rewards systems and give their full attention in company

progress.

Sales commission-When our sales persons sales the products individually we give

them a certain percentage which is out of their regular salary. It is way to encourage the

employees to work hard as well as to increase the sales volume.

Incentives- There is five branches of Nokshi in whole Bangladesh. These are

situated in much repudiated areas (Dhanmondi, Gulshan, Bonani, Moghbazar, and

Mirpur). When branches individually perform very well, we give them a special

incentive. Most of the time we give them a percentage of profit which is distributed

among the employees.

Special Bonus-According to the company rules, we give bonus in the festivals. But if

someones performance is better than the others we give her an extra amount as a reward.


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Transportation-We provides a transportation benefit for our employees to motivate

them. We give them a bus service for their better communication.

Non-Financial- There are some non-financial rewards used to encourage the

employees. In many cases employees need some non-financial things. It is not necessary

that everyones demand is same. Sometimes people expect something more than money.

Thats why we prefer to give some non-financial rewards as well as financial.

Promotion- Based on performance level we give promotion to the employees.

Suppose- if a salesperson performs well then according to his performance we promote

him as a head of sales executive.

Delegation- Delegation is a very honorable thing for the employees. When an

employee performs a very excellent job as well as ability to handle a heavy job, we give

them an extra responsibility as a reward. It is also an opportunity for them to prove own

self.

Rewarding for business performance- To motive a employee we give her a

reward for her good job. It is a way to encourage her also makes her different from

others. It will encourage his confidence level.

Flexible benefit- We believe that if employees work very hard for the company,

authority should consider them in some cases for giving them some benefits. Like- our

company has rule that employees get 15 days as a sick leave. If someone becomes sick

for three weeks then we look his performance and based on this we try to consider the

situation.

Nokshi is a new handicraft company in the competitive market. So though we want to

give many rewards both financial and non-financial, it is our limitation that we cannot use

huge reward programs at now.


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Recommended Strategy

Noksi isnew handicraft company in a less competitive market. To achieve our target we

follow some strategies to attract the customers. The strategies we are following given

below-

Increase customer equity-As our business is in a very competitive position, we

focus on the customers. Based on the customers the future revenue we earn is called

customer equity. We consider the customers and give preference as much as possible.

Promotion- Most of our competitors follows mass media but we prefer local

promotion. Like- advertising on local papers, billboards, wall poster etc to inform the

customers about our products. Since we are producing handy bags, so most of our

customers are girls. Thats why we promote our products in college bus, public

transports, girls hostels, universities where our target customers.

Latest Design-Nokshicompany always conscious about the style, pattern, design,

color combination as people are very aware of dressing. Though we are providing only

the handicraft bags, we try to our best to maintain the new and exclusive collections.

Discount-If we compare our products with our competitors then at the question comes

to mind that Why customers buy our products. Customers get a high quantities

product with a high discount from us. We are now offering 20%-25% discount to our all

products.

Customer service-We are very conscious about the customer relationship and want

to make loyal customers. Thats why we provide high customer service as well as

warranty program. Besides we have a very protective websites where people can easily

give orders through the sides. We also have home delivery service where customers get

their desire products in their home within a very short time. It will save their valuable

time.

Customaries Product- Our Company always tries to fulfill customers demand.

Thats why we follow customaries where customer choice is the main matter. In most of

the time we provide products if they specially order.


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Others-Our Company has some links with some repudiated banks. If people buy with

the credit cards of that banks can purchase on credit. Sometimes we try to give them a

special discount if they have membership card.

Conclusion

Overall we think that our business have less risk and also it will be proved to be very

profitable in future. Our first goal is to gain minimum profit with lower cost. We are mainly

focusing on cost-base system and cost leadership for our cost strategy in order to capture the

market share. Additionally ,we will do something good for our society which is beyond the

profit. We will hire maximum amount of labor from village and it will make village

economic condition more strong. Our labor force also include huge amount of female ,which

will increase women self-employment. Our estimated BEP, BER, targeted CM, all constitute

to positive situation of our company. Nokshiis a very innovative handicraft bag company in a

competitive market. Though we have lots of big competitors, we are trying our best to

capture the market with a qualitative product on a reasonable price. Because of some

political, financial, economic crisis we have to suffer a lot, but we try to use our strength to

overcome the situation. All of we work together to satisfy the customers and make a good

customer-relationship.


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Act 333 Project Report

Documents

Transcript of Act 333 Project Report