Fauji Fertilizer Company Ffc Background Management Essay

Fauji fertiliser Comp both Ffc Background Management EssayIn 2002, FFC acquired ex Pak Saudi plant foods Limited carbamide Plant, situated at Mirpur Mathelo. This acquisition, worth(predicate) PKR 8,151 million, is star of the largest industrial sector transactions in Pakistan to date. Today, FFC has three plants with a combined depicted object of 5,770 MTPD of prilled urea. It is one of the thirty biggest companies of Pakistan, represented via the KSE-30.2 A extensive with being one of the largest urea green goodsrs in the country, FFC is involved in training manpower and providing turn approximately services within Pakistan and in the Middle East.A timeline of the evolution of FFC ensues.31978 Incorporation of the Company.1982 Commissioning of Plant I, Goth Machhi with annual dexterity of 570 thousand tonnes.1991 Listed with Karachi and Lahore Stock Exchanges.1992 Through the De-Bottle Necking (DBN) programme, the production capacity of Plant I was change magnitude to 695 thousand tonnes per course.1992 Listed with Islamabad Stock Exchange.1993 Commissioning of Plant II, Goth Machhi with annual capacity of 635 thousand tonnes of Urea.1993 Initial investment in Fauji Fertilizer Bin Qasim Limited, a DAP and Urea manufacturing concern currently bags at Rs 4.75 billion representing 50.88% right share.1997 With achievement of Quality Management System certification in Goth Machhi, FFC became the first fertiliser plant in Pakistan to achieve this distinction.2002 FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea Plant situated in Mirpur Mathelo (Plant III) with annual capacity of 574 thousand tonnes of urea, which was the largest industrial sector transaction in Pakistan at that time.2003 FFC obtained certification of Occupational Health Safety Assessment Series, OHSAS-180011999.2004 With investment in Pakistan Maroc Phosphore, Morocco S.A. of Rs 706 million, FFC has equity participation of 12.5% in PMP.2008 Investment of Rs 1.5 billion in Fauj i Cement Company Limited, currently representing 6.79% equity participation.2008 DBN of Plant III was executed and commissioned success fully for sweetening of capacity to 718 thousand tonnes annually.2010 Investment in FFC Energy Limited, Pakistans first wind power electricity generation project.2011 wear ERP utilize in the Company, improving course processes by reducing time lags and duplication of work.VisionPakistan is a burgeoning market, non just in terms of head count, but withal in rise in the way agri- product line is now carried place. Gone are the days of antiquated fertilizers, instead, only the best is now sought. FFC foresees this market to be extremely lucrative. It wants customers to benefit from its pallette of product offerings, both domestic and removed the home country. It seeks to be thought of as not just the best there is, but also as a conscientious and caring attach to.FFC physical objects to be positioned as a very well-rounded organization in the minds of all its stakeholders, whether external or internal. Its value chemical chain has quality at its core. It strives to be successful via total integration of streamlined processes, incompar commensurate products, driven and motivated workforce, and extraordinary service, all the while staying ahead of the rival and ceaselessly scanning the market.Corporate StrategyOur flexible and dynamic corporate strategy strives for enhancing customer satisfaction by adding value over the long run. We aim at creating value for the stakeholders by chief(prenominal)taining and improving our competitive position in the market. This is achieved by focusing on our sustain fit competitive advantage that is derived by continuously assembling and exploiting an appropriate combination of resources and capabilities in response to the changing market conditions. Our organizational culture is one of our just about fundamental competitive advantages. We postulate strengthened and preserved an innovation-adept culture, a culture that promotes transparency and accountability through honesty, honor and diligence in our dealing with employees, customers, financial market, government, regulatory authorities, and all the early(a) stakeholders. diversification in business line is also being considered. Our unique corporate strategy gets aligned with the resource allocation system and flows down to the operational levels, olibanum ensuring its implementation at all levels along with the achievement of the int stamp outed results.6FFC focuses on value addition. This means that everyone at the company tries to make each subsequent year better than the previous one. This enhances the value creation process. For this, the corporate strategy is characterised by flexibility and innovation, which are also the core components of the culture of the organization. FFC prides itself on having been able to trail a culture which is innovative, transparent, and honest.Innovation allows FFC to be able to anticipate and prepare for change, by aligning its internal strengths with the external opportunities. Transparency enables FFC to satisfy every stakeholders requisites, since zippo is swept under(a) the rug. This promotes diligent behaviour and accountability at all levels. Honesty is a trait which is valued from the very top to the very git of the hierarchy at FFC.It is this particular combination of all the above that the culture is both employee centric and customer centric. The adult male element, be it in the form of a worker/manager or a customer, is highly valued at FFC. Therefore, while the former is kept abreast of everything that goes on in the organization, the latter is insure of premium quality product and premium quality service every single time.Organization is all about teamwork. FFC is aware of this, which is why it demands uncompromising integrity and hard work from all individuals, so that the sum is greater than the parts. There is mutual understanding, trust, and interdependence. In return, FFC has a very worker friendly environment. Commitments within the company as well as with business partners, suppliers and customers are valued and kept.FFC is founded upon the principles7 of Honesty in communication Excellence in products and services Consistency and synchronisation in words and actions Compassion in kinships within the micro and mega environments of the organization Fairness to all stakeholders through adherence to laws, regulations and policies.FFCs Financial HealthFauji Fertilizer Company (FFC) enjoys shelter flatulence supply from Mari gas fields because they come under Fauji Foundations ownership. This translates into a huge competitive advantage over other fertilizer manufacturers, which are conjugate with the Sui- base net profits.Financial highlights of FFC for the current year appear in the table below. These are for the period ended September 30, 2012.82012 (Rs 000)2011 (Rs 000)Turnover29,208,413 36,321,157Cost of swinish sales-22,778,306-22,565,347Gross bring in6,430,10713,755,810Administrative Expenses-677,700-550,247Other Income695,1851,092,089Taxation-991,876-3,721,386Profit after Tax2,130,4817,169,794Earnings per share (Rs.)2.287.68 extension FFCs Annual Report for the Third Quarter, 2012Revenue increased by 49% during the first half of 2012, repayable to high urea prices and sales of imported DAP. FFC urea sales exceeded 500,000 tons in June, which made up for declining sales in the first five months of 2012. In total, urea sales were up by 6% to 1.2 million tons in the period under review.9Urea prices remained volatile from April to June 2012, as the GoP decided on a price slash for May, along with an announcement of reversal of Rs 50 per alkali in June. This was much requisite so as to be able to compete with cheaper imported fertilizer, due to government subsidy on it. FFCs urea plant underwent 30% gas stifling last year, which was ten percent more than that decided for the plants operating on the Sui gas ne 2rk. This resulted in an extended shutdown of 27 days of the urea plant, and a decline of 17% in urea production, on a YoY basis.The scenario on the DAP front was opposite to the one on the urea front. In spite of the gas downsizing, FFC managed to operate the DAP plant at a level which exceeded 2010s production level of 0.66 million tons.Due to the imposition of Gas Infrastructure and Development Surcharge (GIDS), gross profit margin was 47% during April to June 2012, a decline of 12.52 percentage points on a yearly basis. This was also exacerbated by the net reduction of Rs 100 per bag of urea during the same period.Other income was unable to support the bottom line as it declined by 15%, mainly due to lack of dividend earning from subsidiary Fauji Fertilizer Bin Qasim Limited. Financial charges increased by 36% which can be explained by the increase in short-term borrowings. However, long-term borrowings have declined, and the Co mpany was able to have a very healthy debt to equity ratio (19% in 2011 as compared to 49% in 2006). Debt increased due to the Companys decision to revamp its urea and DAP plants several(prenominal)(prenominal) years back. FFC has been able to repay its long-term obligations because of its sustainable revenue stream. 10IT VisionThe IT Strategy at FFC shall complement our Corporate Vision by business transformation through technology innovation, introducing best practices and connecting our processes for timely information and optimized performance to succeed in our endeavours.11Information Systems muggins project the implementation of outwear ERP is finally complete, with the transformation from Legacy to mark system gone smoothly at all locations.BMS a Building Management System (BMS) is a concentrate computer based control system, linking equipment for ventilation, fire, security, power, etc. onto one platform, which enables timely and coordinated response to different facilit ies at the same time. Also, the integrated end-to-end system optimizes null consumption.Electronic recruitment FFC launched an online career portal in accordance with its HR department, and development of the portal by its IT division. All this has been through with(p) to make the recruiting process high-octane, and to receive individuals to jobs.SAP implementation support IT at all locations provided support to SAP users in learning to use and adapt to SAP. This support comprised of trainings, onsite and offsite support, and troubleshooting. Technical support was also provided to help resolve outstanding issues, in alliance with functional teams at SAP Project Office.Information SecurityPenetration testing at sort out sites the information security department contributed hugely in that it secured its information network post SAP implementation. It assessed the potential threats which could pose a security risk towards the FFC network and/or the SAP system.Security awareness se ssions at branch sites and the Head Office the importance of information security was imparted to employees everywhere via awareness sessions. Some of the divulge points covered in these sessions were security risks, threat vectors, hacking trends, etc. More than 200 employees of FFC attended these sessions at their respective sites.Business ModelFauji Fertilizer Company has several important factors at the heart of its business. These have been summed up in a business model, with three components, at FFC.Growth DriversFFCs growth is primarily driven by exponential expansion in sales revenue, powered by strong demand for our product and effective distribution network all over the country. expertness enhancement is our long term goal. We continuously seek opportunities to improve efficiency of our business processes to optimise costs, utilising less to produce more.Our sales are largely bills based, which gives us the margin to effectively utilise available cash resources to fulfil the Companys working capital requirements, and hence minimise external funding requirements resulting in lessen finance costs. 12What fuels growth at FFC? The retained earnings, which are the result of ever change magnitude demand for fertilizer. The Company is cost effective, which allows it to reduce dependency on external funding.Our Key AssetsHuman capital is by far our most treasured asset, directly affecting performance of the Companys business processes, ensuring success every year.Among our most valuable assets is our brand name Sona, which is the soul behind our subsistence, growth and prosperity.We are continuously investing in our production facilities to enhance operational efficiency and fuel the key growth drivers.Our extensive distribution network extends to all provinces of the Country, ensuring maximum market presence.13What makes FFC click?Its workforce.Its brand name, Sona, which helped in putting FFC on the map.Investment in production facilities to have lea n operations.Strong distribution.How We Leverage Our AssetsOur assets in turn are leveraged by our forethought excellence and our consumer centric approach.Our strategies are focused around consumer satisfaction and quality perfection.The pursuit of excellence in every sphere of operation is our aim which ensures continued success.Our farsighted prudence strategies are focused on development of our key assets which form the foundation for future growth.14Success at FFC results from managerial excellence, focus on the customer, no compromise on quality, and a long term orientation.REVIEW OF TECHNOLOGY USEDSAP ERPSAP AG (Systems, Applications, and Products in Data Processing) is a German multinational parcel corporation, which makes enterprise software system to manage business operations, customer relations, operations, and record keeping. SAP ERP15 (Enterprise Resource Planning) is an integrated software solution that utilizes and consolidates information from all business func tions and departments in an organization. It provides solutions for the following aspects of any business, with the modules in bullet pointsSAP ERP FinancialsAccounts payable/Accounts receivableFinancial reportingRisk management/Regulatory complianceCash flow monitoring trigger off managementSAP ERP Human Capital ManagementHR and payrollLabour force analysisPlacement/Recruitment and training/Talent managementSAP ERP OperationsProcurement and logisticsProduct development and manufacturingSales and serviceOperations analyticsImplementationOn January 10th, 2011, one of the biggest feathers in FFCs cap was the implementation of the SAP, under its transition to an Enterprise Resource Planning (ERP) system. Abacus Consulting was its technical partner and consultant. Initially, SAP was used in tandem with FFCs old system, Legacy, but eventually, the latter was completely done away with. FFC holds the distinction of pioneering the introduction of an ERP system in Pakistan.16FFCs management went ahead with the idea of SAP implementation believing that it would create value addition in departments of marketing, supply chain, finance, accounting, human resource, and procurement, amongst others. The SAP implementation at FFC was carried out in several phases. Despite the management being satisfied with the entire revamping program, the system is not without its drawbacks. The most crucial of these is that SAP cannot be operated optimally until the user has complete command over its functions. Therefore, consultants and/or specialists are required if SAP has to be fully utilized for its benefits at such an early stage of its installation.SAP ERP consists of several modules and sub-modules, an outline of which appears above. The software takes the information, data, statistics, etc. from all the modules, and combines them to facilitate the organizations decision making, process streamlining, human effort expended, through product design and development, production and inve ntory control, human resources, finance and accounting. This overall procedure is known as enterprise resource proviso, and it is carried out on a companywide scale. If this procedure is carried out correctly, any organization can transcend from its old system to this fully integrated software. The magnitude of benefits to be reaped is huge, e.g. efficient business processes, inventory reduction, and lead time reduction, to name a few. Updates in SAP only need to be done once, and they automatically get implemented company-wide. It provides real time information, reducing the possibility of redundancy errors, shortages, and higher TATs. Areas like supply chain, procurement, finance and accounting stand to benefit greatly. On the other end of the spectrum, there are the negative aspects. Firstly, the software is anything but cheap. Secondly, it is not just expensive it is very technical, sophisticated, and intricate. Companies face problems while implementing SAP ERP software, for e xample, failing to be particular proposition about operational objectives, no orientation towards change, flexibility, and futuristic perspective, and lack of a learning organization.The following sections detail some of the major advantages and disadvantages of using SAP.17, 18Advantages of SAPIntegration SAP does not focus on or improve individual performance, so the goal of using SAP should be getting benefits from integration. This reduces foolish data entry and overlapping entries.Flexibility SAP allows organizations to create their own framework of operations within the SAP structure. This framework dictates issues like access levels of employees, signoffs required at which level, flagged and correct transactions, etc. For example, FFC has the authority to determine which employee can access what expanse in the SAP structure.Analytical software apart from being able to keep track of various activities going on simultaneously, both short- and long-term, SAP has in-built analy tical features. For example, it can monitor the value chain, and then evaluate when the next loading or order is due, and time it accordingly. Monitoring, evaluation, decision making, and execution, are all enabled via the usage of SAP, all at once.Disadvantages of SAPExpensive being able to utilize SAP optimally entails software, hardware, implementation, consulting, training, hiring specialists, programmers, repair and maintenance staff, etc. Employees have to be trained in those aspects of the software that they have access to. The story does not end here, because trainers power leave after training personnel, but the repair and maintenance experts need to be kept on retainer. Other ongoing costs include those incurred for software up gradation. If IT experts or consultants are outsourced, even that increases the labour costs of the organization overall.Hidden costs arise along the way of SAP systems integration projects. SAP projects are expensive enough to begin with. Add to t hat the burden of additional unanticipated costs, and the corporation can say goodbye to a high ROI. A common example of such a cost is those work items that were not part of the original project plan. These include custom modifications, applying more resources to areas of the implementation that were outside the project plan, etc.Detrimental to user accuracy software does not have the ability to detect errors, and SAP is no exception. It also falls work to the carried-forward error. The employees know that once a wrong entry has been made, it pull up stakes be a part of the entire database of information. This makes employees/users more susceptible to make mistakes.Complexity due to this feature of SAP, organizations spread out the implementation over a period of time, rather than all at once. The complete implementation might take several years, which also enhances employees skill set in pieces. The time taken for complete integration might become so exhaustive that the manageme nts focus on post-integration planning be pushed into oblivion. The management might just settle for the system integration, and unconsciously avoid what is coming after the integration.Management project managers, in some instances, have to deal with problems and provide solutions, instead of the users who logged in the original complaints into SAP. The software calls for scope management, which not every employee is capable of.ORACLE E-BUSINESS SUITEOracle Corporation is an American multinational specializing in developing software for enterprises, with a focus on database management systems. It also has software for enterprise resource planning (ERP), customer relationship management (CRM) and supply chain management (SCM), to name a few.19The company offered software for the financial aspect of businesses in late 1980s. Now however, its product pallet is not just limited to ERP, CRM, or SCM, instead it reaches into areas like warehouse management, human resource, procurement, p roduct lifecycle management, etc. Expansion and growth of Oracles application software business has come about through acquisitions and in-house developments.Oracle resorted to product bundling when it came up with its Oracle E-Business Suite Release 12 (Oracle EBS R12). This version keeps Oracles core database management system technology intact, and the E-Business Suite branches out into several product lines.20Oracle CRMOracle FinancialsOracle HRMSOracle Mobile Supply Chain ApplicationsOracle set out ManagementOracle ProcurementOracle Project Portfolio ManagementOracle QuotesOracle Transportation ManagementOracle Warehouse Management SystemsOracle recordOracle Enterprise Asset ManagementFERTILIZER INDUSTRY REVIEWFor many developing countries, the focus is on economic recovery after the financial crisis of 2007-08. However, issues of increasing population and rising food prices have made food security a big concern for policy makers as well. The latter two issues are equally, if not more, important for the underdeveloped countries, and Pakistan is no exception.Pakistan is an agro-based economy. The agriculture sector has provided the impetus for economic growth. This can be observed by the fact that it provides recitation to almost 45% of the total labour force, in one way or the other. It is a seasonal sector, so there are jobs all-year round. On the get up side of this picture, income generated from this sector fuels demand for products made by other sectors (industrial and tertiary). This interdependence, so to speak, is indicative of the importance of this sector for Pakistan. Almost 21% of GDP is contributed by the bucolic sector.21 Some major reduces and their contribution appear belowCropsProduction (kt) 2009/10Production CAGR 2000/01 2009/10Yield (Kt/Acre) 2009/10Gross Value Addition of major(ip) CropsWheat23,8642.60%1.0739%Cotton2,1591.90%0.2822%Rice6,8834.20%0.9718%Sugarcane49,3731.30%21.210%Source Economic Survey of Pakistan 2009/10The agr iculture sector of Pakistan was adversely affected due to the floods approximately two and a half years ago. They had damaged around 30% of the agricultural area, and resulted in crop losses worth USD 2.5 billion. This flood damage also affected the fertilizer sector. This is due to the evident strong inter linkages between the agriculture sector and the fertilizer industry.22Crop-wise damage and the area affected are shown in the table below.CropsAffected Area (mn acres)Area AffectedCotton1.317%Rice1.423%Sugarcane0.416%Source Fertilizers in Pakistan. Demand, Production and Imports. By Eqan Ali Khan, Business Head, Fert and Agri Commodities Mar 30, 2011The fertilizer industry in Pakistan is basically an oligopoly. This oligopoly is characterised by 4 major players in the market Fauji Fertilizer Company, Fauji Fertilizer Bin Qasim Limited, Engro Fertilizer, and Dawood Hercules Fertilizer. A new and fast growing addition is Fatima Fertilizer, of the Fatima Group. If we look at the pro duction of urea by the four companies respective contribution, FFC and FFBL persist by producing 48% of the total, Engro produces 15%, and Dawood Hercules produces 6%. Almost 20% is imported and distributed through NFML. When we look at the production of phosphorus, a similar pattern emerges. FFC and FFBL stand at 47%, Engro at 28%, Agritech at 2%, RG at 1% and around 22% is imported.CDocuments and SettingsAdministratorDesktopUntitled.pngSource Fertilizers in Pakistan. Demand, Production and Imports. By Eqan Ali Khan, Business Head, Fert and Agri Commodities Mar 30, 2011Fertilizer production is concentrated in nitrogenous fertilizers, which comprises 85% of all fertilizers produced in the country. Although other types of fertilizers are also produced in Pakistan, the main reason for this concentration on nitrogenous fertilizers is that its main raw material, i.e. inhering gas, is cheaply available in the country. The raw material for other fertilizers such as potassium and phospha te has to be imported.23Fertilizer is Pakistans most important and expensive input in agricultural production. The contribution that the use of balanced fertilizer makes towards increasing yield varies from around 30 to 60 percent in different crops production. Almost all of Pakistans soil is deficient in nitrogen (N), 80 to 90 percent is deficient in phosphorus (P), and 30 percent is lacking in potassium (K).24 Land used for just one type of crop is facing declining fertility, for the obvious reason that only certain nutrients are being used. When these land holdings are not used in crop rotation, the soil does not get replenished, and productivity for future crops declines.NutrientActual (Kg/Acre)Recommended (Kg/Acre)Nitrogen4141Phosphorous920.5Potassium0.410.3Source Fertilizers in Pakistan. Demand, Production and Imports. By Eqan Ali Khan, Business Head, Fert and Agri Commodities Mar 30, 2011From July 2011 to March 2012, domestic production of fertilizer decreased by 1.4%. This w as the result of the industry experiencing a curtailment in the supply of natural gas, which is the main raw material for producing urea, therefore some urea plants produced less than their production capacity. However, import of urea made up for this slack, increasing the supply of fertilizer by 16.3%. On the consumption side however, this increase in supply was met by a reduction of 4.9%.Screen Shot 2012-11-19 at 11.55.38.pngSource Fertilizers in Pakistan. Demand, Production and Imports. By Eqan Ali Khan, Business Head, Fert and Agri Commodities Mar 30, 2011Two major reasons for this reduced fertilizer consumption was the heavy and destructive rains in Sindh province, and the price hike set about by all fertilizers. The price of urea went up by 81.4% in July-March, 2011-12 (as compared to the same period of the last fiscal year). The prices of DAP, CAN and NP also increased by 38.8%, 75.5%, and 45.7%, respectively, over the same period last year.25FertilizerPre-GST Co. to Dealer Transfer Prices (Rs/Ton)Taxation ImpactPost GST Co. to Dealer Transfer Prices (Rs/Ton)Urea20,40013.20%23,100DAP66,02519.14%78,660 pout48,20017.05%56,420Source Engro AnalyticsThe actual price which the dealer faces is truly seen after the tax burden has been accounted for. The differential is huge, as the figures in the table above show.Pakistan is able to produce approximately 7 million tons of urea annually currently. Out of this total, capacity of 4 million tons is dependent upon gas from Mari gas fields, and the other 3 million tons on Sui Northern Gas Pipeline (SNGPL) and Sui Southern Gas Company (SSGC). During 2011, all these plants produced a little less than 5 million tons of urea.26In the past, gas supply to fertilizer units linked to SNGPL was curtailed in winter. However, last year, units receiving gas from Mari face 20% curtailment, and the ones getting gas from SGGPL and SSGC faced mandatory closure up to 60 days. In 2012, this mandatory closure is expected to exceed 90 days. The sorry state of affairs can be assessed by the fact that from January 1 till October 31, 2011, fertilizer plants on the SNGPL network certain the equivalent of just 3.5 days of gas per week, relative to other sectors, which received 4 to 5 days of gas a week. For the fertilizer industry, gas is an input without which it cannot manufacture urea, whereas for other sectors, it is not an absolute necessity.27If current levels of gas curtailment are adhered to, industry experts expect urea production to be around 4.8 million tons during 2012. However, this is an optimistic number. Realistically, units will probably have difficulty in achieving even this production level, mainly due to the widening gap between demand and supply of gas as projected by the government.It is pertinent to conduct in mind that even if subsidy on gas were to be completely abolished by the Government, Fauji Foundation has under its ownership and control Mari gas fields. In a manner of speaking, backwa rd vertical integration exists, so any adverse change in regulations regarding gas subsidy will not be detrimental to FFCs operations.With the demand for urea forecasted to be 6.3 million tons in 2012, the shortfall is expected to be around 1.5 million tons. This is a very lancinate scenario for the economy, since internal capacity is well able to meet this demand. Externally, when imports will be resorted to, they will erode the countrys foreign exchange by USD 600 million, at the very least, based on current prices, and may be even more costly if international prices rise. It is expected that any hike in crude oil prices will automatically escalate urea prices in the international markets. Growing tension between the United States and Iran has already initiated a spiraling increase in worldwide crude oil prices.28Under consideration is the possibility that urea manufacturers should exercise the LNG import option to meet the shortfall in gas supply. There exist two schools of tho ught regarding this debate. One says that running plants on LNG is not feas