Once Upon A... Grrrowwll!

A dull rainy start to the day - with the rain washing away my tennis game - turned so cheerful as my 10-year old niece and I watched "Once Upon A... Tiger" at Prithvi this morning. Just what was needed to liven up two weary faces (her tennis semi-finals match at the academy had been washed away as well).

"Once Upon A... Tiger" is a free-flowing fun-filled play that attempts to educate kids and adults alike about the urgency of saving the tiger, saving the forests and restoring environmental balance. Three youngsters go on a jungle safari with their families accompanied by two forest guards. As the forest guards educate the kids about the dependence of human survival on the survival of forests and wildlife, the safari turns adventurous as the kids find themselves in heroic boots with a mission to save the tigers.

The simplicity of the script and the universal appeal of the theme ensured that everybody from the age of 5 to 50 was riveted to the action on stage. The show was full of singing and dancing and funny banter and the 100-plus kids in the audience had a ball of a time. Guard Chacha was the daaarling of the crowd and the children (Gauri, Mani and Baboushka - all played by grown-ups) lit up the jam-packed auditorium with their boundless energy. By the end of the show the entire audience - children and grown-ups had joined the chorus of "Will you? Won't you? Will you saaaave the tiger?"

More importantly, the show achieved its educational purpose. I know it worked coz my niece decided to forgo her usual cola (the burpy-cola factory takes away the water of the forest land) after the show and settled for a brownie (which, by the way, was left untouched as she scooped just the chocolate sauce off it).

Showtimes @ Prithvi
June 8, 28, 29 - 11.00 am
Go at 10 am - you WANT to be on the first row

A Funny Take On Runaway Oil Prices

CPOH - A Powerful Maxim Long Ignored

Traditional methods of maximizing profitability focus on maximizing margins through the levers of market price and product cost. These methods ignore the significant impact of difference in throughput between different products. A product with high margins but low throughput may fetch a lower gross profit than a product with low margins but high throughput. The impact on profits in such scenarios is illustrated in Figure 1.

Consider a capacity-constrained situation where market demand is greater than what we can service. For the sake of simplicity, let us assume that the market demand for both products are equal and each demand by itself is greater than capacity. How do we select the demand that we should service? Traditional decision making methods favour the demand that nets the highest margin. In our example, traditional decision making would choose to service demand for product B. Now our capacity to supply product B is 400 tons per day or 12000 tons per month. This translates to a profit of Rs.18 Cr in a month.

Fig.1a. Traditional decision based on margin maximization

Now consider what we would have made had we serviced product A. Our capacity to supply product A is 500 tons per day or 15000 tons per month, which will fetch us a total profit of Rs.20.5 Cr per month.

Fig.1b. Decision that accounts for throughput differences leads to higher profit

It is indeed very simple and intuitive to make a back of the envelope calculation and arrive at the profit-optimal choice when we are dealing with a limited number of products, simplistic market demand situations and a single source of supply. Suppose we are a medium-sized organization with 5000 different product variants and 800 customers in 15 countries. Our prices and costs would vary across different customer segments and geographies. How would we make the decisions to achieve the maximum profit?

To support decision making in such complex scenarios, there is a need for a simple measure that captures the impact of price, cost as well as throughput on profits. This new measure is Contribution per Operating Hour (CPOH). The simplistic definition of CPOH is

CPOH = Margin (Rs. per unit) x Throughput (units per hour)

The concept of CPOH can be understood better if we forget for a moment that we are selling products. We are not selling products. We are selling time. You have 24 hours every day. How would you encash these 24 hours to generate the maximum total profit? You would sell your first hour to the customer who pays the highest for that one hour. Then you would sell your second hour to the next highest payer. And so on until you run out of time.

CPOH allows you to compute exactly how much we would earn for each hour of our time by servicing a given demand. At a tactical level, CPOH should therefore be used to select which portion of the demand basket should be serviced from the limited supply. A simple way to do this is to plot a scatter of the demand as shown in figure 2. Against this scatter, plot isoclines (similar curves representing the tradeoff between margin and throughput* while maintaining the same CPOH) representing different CPOH levels. These isoclines are represented by the equation xy = c, where x is throughput, y is margin and c is CPOH. The gaps between isoclines give us CPOH bands that slice the demand basket into multiple segments.

* Computation of throughput in a real manufacturing environment can itself be a difficult exercise. A detailed discussion of how to compute throughput will be presented in later posts. A great concept-teacher on this subject is a bestseller named “The Goal: A Process of Ongoing Improvement” by Eliyahu M. Goldratt. For now, let us assume that we know the throughput of different products.

Fig.2a. Scatter of Demand Plotted Against CPOH Levels

We plan to service the demands in the highest CPOH band first (Ref. figure 2b). We then plan to service demands in the next highest CPOH band, and so on until we run out of supply capacity (in terms of hours of resource availability). This method will lead us to select the most profitable sales mix.

Fig.2b. Operational and Tactical Demand Selection using CPOH BandsAt a strategic level, you should use CPOH in conjunction with a cost-benefit analysis model to shape your customer-product portfolio for higher profitability. You can do this by plotting a bubble chart of your demand against CPOH isoclines. The size of each bubble represents the sales volume and market potential in each segment. This chart provides visual cues to suggest shifting of the customer-product portfolio towards a segment. The example in figure 3 shows options for shift in portfolio that can be considered for a cost-benefit analysis.

Fig.3. Strategic Decision Making using CPOH Bands

This decision making tool can be applied to a variety of business problems across different industries. Examples of application of this tool to some common problems are cited below:

• A steel company may use CPOH to decide the minimum additional charge for supplying a non-standard grade or a difficult-to-make sheet size when entering into a contract with a customer.
  
• A chemicals company may distribute capital expenditure to increase sales volume of those products for which the marginal increase in CPOH per dollar of cap-ex is highest.


• A consumer goods company may use CPOH to rationalize product segments, by discontinuing those low-volume products that net low CPOH.

The problem definitions presented in this discussion are still simplistic compared with the real business challenges that most companies face. Practical considerations such as multiple sources of supply, cyclicity of demand, multiple bottlenecks, shifting bottlenecks, customer relationships etc. present greater complexity. These complex scenarios will be discussed in the next few posts. Watch this space.

Insomnia

The euphoria was short-lived. It has given way to insomnia. My celebrations have been dampened by the realization that I have not even completed the first draft of my essays yet. I did outline some of the essays last month, but am at completele loss in figuring out what my strengths and weaknesses are. Maybe I can tell the adcom that lack of self-awareness is my weakness, so I don't know my weakness, but I don't think they will be humoured by my circular logic. Unless they're die hard Joseph Heller fans, of course. I will still have to write about my strengths, which is a bit embarrassing - Ah! that's my mental block I'm sure!

The Smartphone Gets New Friends

"Ask an american kid if you were to take his cellphone or his PC away, which one would he kill you for." - Scott McNealy, responding to a question on the future of personal computing.

So you review your powerpoint slides on your PDA while the taxi winds its way through traffic, but wish you could simply walk into the conference room and display them? Or wish you didn't have to rush out the room at the end of the meeting to get prints of the minutes?

If computing is getting condensed into mobile phones, other ubiquitous applications of the PC and the notebook cannot afford stay far behind. A combination of computing power, wireless broadband and advanced mobile OS's have allowed us to replicate e-mail, browsing, gaming, music and photo sharing in our phones. Yet, two powerful functions of PC / notebooks seem to be missing all the action - printing and projection. (The smartphone-toting exec in the Microsoft ad would probably have e-mailed the presentation to his colleague who carried his laptop to the meeting, and then used bluetooth to switch his slides back and forth.)

But innovations by three startup firms, and surprisingly not from Silicon Valley, are looking to put the monolithic office printer and projecter in your pocket as early as next year.

First up: ImagineOptix - a startup by professors and alumni of North Carolina State Univ - is working on handheld micro-projectors using a technology similar to Liquid Crystal on Silicon (LCoS) but is brighter. A cellphone-attachment is also in the works.

The second innovation is also in the cellphone projector space and uses the same LCoS technology. The creator - Light Blue Optics (LBO) - is a Cambridge based startup by a mix of Cambridge and Oxford alumni. As opposed to ImagineOptix's device, which uses mirrors to focus images, LBO's device uses an array of lenses that allows it a throw angle greater than 90 degrees. This means that the image size of LBO's device is is larger than that of ImagineOptix at the same distance from the projection wall. While nobody is disclosing the prices yet, press coverages of ImagineOptix expect a "low cost" proposition.

The third innovation is a very refreshing idea in the dull inkjet printing space - one that could create a whole new range of applications for printing devices. A Swedish firm called PrintDreams is developing handheld printers that can give you full A4 size prints - and without any paper jams. How does it do it? It's like a mouse that you can sweep over the printing surface with your hand and it prints underneath using a technology called RMPT, which stands for Random Movement Printing Technology. So you need not print only on A4 paper; you can print inside a notebook, on a birthday card and even on a t-shirt. Indeed, the company is working on a fun toy for kids called Whoosh that can print their favourite cartoon characters on drawing books as well as the walls of drawing rooms :)

Imagine the possibilities if it could also scan!

Bangalore Theatre Update

Chekhov's Mistress - Anecdotes and Hilarious Sketches from The Good Doctor by Neil Simon - @ Alliance Francaise, Aug 30 and 31, 7:15pm


Spotlight - a family driven by power, money and fear - @ ING Vysya House Auditorium, MG Road, Sep 2, 8:00pm

Bangalore Theatre Update

Bikhre Bimb - Written and Directed by Girish Karnad, Played by Arundhati Nag - @ Rangashankara, Aug 25, 26 and 27, 7:30pm


Final Touches - a pallette of four plays - @ Guru Nanak Bhavan, Vasanth Nagar, Aug 27, 7:00pm

An Interactive Theatre experience where you make your Final Touches to all four plays by becoming the director of these plays and get a chance to "Complete the story" as you wish.

For directions, call 98458-53093 or 9845243051 or mail yourstrulytheatre@gmail.com

Bangalore Theatre Update

Othello - @ Rangashankara, Aug 12 and 13, 3:30pm and 7:30pm


Make Sense Who May (A Tribute to Samuel Beckett) - @ Rangashankara, Aug 17 and 18, 7:30pm And @Alliance Francaise, Aug 25 and 26, 8.00pm

Narratives on Beckett's life and scenes from some of his lesser known but aesthetically brilliant sketches

Words and Deedah - @ Rangashankara, Aug 19 and 20, 7:30pm And @Alliance Francaise, Aug 23 and 24, 8.00pm

Comic sketches on the lesser known occupations in the city

Bangalore Theatre Update

The premiere of the musical theatre “Kaifi Aur Main” featuring Shabana Azmi, Javed Akhtar, and Jaswinder Singh, in support of India Foundation for the arts (IFA) on July 29th at 7 pm at the St.Johns Auditorium, Koramangala.

Find booking details here

Medical Camp For The Poor By i2 Share

 

 

 

'Art' - Go Watch This Play!

Brilliant! 'Art' was amongst the wittiest dramas I ever came across. Written by Yasmina Reza and performed by Evam, a Chennai based group, 'Art' was about three friends Serge, Marc and Ivan whose relationship comes to a turmoil over Serge's purchase of a painting.

The script took the characters through a range of moods through the play - from pride to anger to frustration to envy to amusement to insanity. And enchanted the audience with brilliantly witty dialogue. The acting was a bit scratchy at times, and the set changes in the beginning were a mess, but the performance was still very delightful.

Shows are scheduled at Ranga Shankara at 7.30 pm on Thursday, July 20 and at 3.30 pm on Saturday, July 22. Go watch it!

I'm gonna watch another show by the same group - Double Comedy this Saturday at 7.30 pm. Also showing at 7.30 pm on Friday, 21 July and at 3.30 pm on Sunday, 22 July.

"The Indian at the Center Of the Global Economy"

TIME lists Nandan Nilekani among "100 People Who Shape Our World"... profiled by Thomas Friedman as "The Indian at the Center Of the Global Economy"

Fuel Woes - Part I

More facts from the IMF report:

- Petrol price in India is double that in China.
- Kerosene is cheaper in India than in any other country.


* fob (free on board) is the price standard for international trade

I found another report by TERI, which tries to analyze the issues involved in petroleum pricing in India and comes up with some interesting observations. I am trying to build upon the analysis in this three-part series of posts.

We have a build up of prices in which more than 50% of the price is taxes. Effective tax rate on petrol in Mumbai is 146% of the basic price [TERI]. These rates are likely to be among the highest in the world.

To its credit, the government has cushioned the impact of the recent surge in oil prices through a price ceiling on oil prices and some duty relaxation (although absolute taxes collected on petroleum still increased). However, high crude oil prices are here to stay and the current price protection is only a postponement of the inevitable. Maintaining current high taxation, petroleum prices will have to be adjusted by an additional 40–45 percent. Petrol prices can reach Rs.75 per litre.

Such prices will lead to high inflation and slowing down of economic growth. We don’t want that. The TERI report presents data that suggests that oil prices can be reduced while maintaining revenue levels for the government. Two policy changes and an administrative change can help a great deal:

I. Price ceilings for petroleum products are based on the international free on board (fob) prices rather than import parity prices.
II. No subsidies are provided to reduce prices of LPG and kerosene in the market.
III. Fuel subsidies for poor households are distributed through cash transfers to special accounts created for all PDS consumers in state banks.

The three parts of this series will explain the rationale behind one each of these propositions.

I. FOB v/s IPP

The present pricing of petroleum products in the country is based on the import parity principle, that is, retail prices are to be comparable with the price of the product if it were to be imported. The parity provided to domestic refiners equals the fully loaded cost of the imported product [TERI].

IPP = FOB + logistics & overheads (~10%) + customs duty (~10%)

In reality India is importing only LPG/LNG while exporting most other products. So refiners are not actually paying out any logistics & overheads. Moreover, customs duty incurred on the imported crude oil (70% of total consumption) is much less than the duty added up in IPP.

As such, refineries are obviously making significantly higher margins than are apparent. Their margins include a “notional” component which is a direct result of a petroleum policy that favors the producer over the consumer.

When these high ex-refinery prices are subject to the high sales and excise taxes, the impact of the notional margin on retail prices is even higher. More data is needed for computation of the notional component of prices, but 15% should be a reasonable estimate.

A Carrot For Privatising India's SEBs

IMF's 2006 country report on India brings some interesting macro economic statistics to the fore. I will draw upon these numbers in this post and the next few.

This one is relates to the electric power infrastructure of the country and its effect on the manufacturing industry.

Apparantly, electricity prices in India are amongst the highest in the world. This is hurting our export competitiveness against other countries. The cost of electricity in China is half that of India.

Well, prices apart, we know that electricity is just not available for industrial use in many areas. The demand/supply gap is enormous.

Moreover, the power distribution is not reliable. The IMF report estimates that electricity outages cost Indian firms 8 percent of annual sales.

We all know the reasons –
- rampant electricity theft,
- free electricity to agriculture in many states,
- grossly inept state electricity boards (SEBs) and their bankrupt books,
- monopoly of SEBs in electricity distribution, and
- high taxes on power generation fuel.

The blame lies squarely on the SEBs. We must break up these clumsy behemoths, privatise electricity distribution and set up an independent body as a regulator. The expectation that private operators will run the distribution networks more efficiently is based on the premise that they will try to maximise profit.

Privatisation of Delhi Vidyut Board (DVB) is a case in point. Though still grappling with the legacy of mismanaged finances and infrastructure, the private operators have considerably reduced leakage losses of DVB, which stood at over 50% before privatization [India Infrastructure Report 2004, 3i Network]. BSES Bombay has a leakage loss of 11%. Private players are also expected to maintain their equipment better, so there'll be less power failures. An independent regulator a la TRAI will make sure that these players keep a decent service level.

Benefits? Besides peace of mind to millions, that is.

I. Let's say the statistic of 8% sales loss has been arrived for only the manufacturing sector. Manufacturing accounts for roughly 25% of India’s GDP. If we can reduce outages by half, it translates to a GDP growth bonus of 1% (Assuming a linear relationship between outages and losses). That’s 7 billion dollars. 33,000 Crore rupees.

Revenue increase for the Government: minimum 10% of 33,000 = Rs.3,300 Cr - Enough to fund reasonable electricity subsidies for rural areas.

II. Reduced leakage means lower electricity costs for consumers. Translates to higher productivity for the industry, meaning export competitiveness, more cash, more investments, more jobs and again more revenue for the Government.

III. A boost to private electricity producers, whose business models have so far remained highly risky due to shaky finances of the SEBs. There is a huge demand/supply gap in electricity, which private producers will fulfill. Yet more manufacturing output, and more enterprises coming up all over the country.

IV. Free up enterprise capital used for captive power generation. Captive power generation of say 50MW is much less efficient than 1000MW power plants. Again major increases in productivity and the virtuous circle that follows.

V. Government cuts its losses in funding the losses of SEBs. I gather from miscellaneous newspaper articles on the subject that DVB's losses, running over Rs.1000 crore mounted huge fiscal burdens on the Government.

Reminiscing Placements

Eileen Gunn @ WSJ writes about some basic interviewing tips. Some of these reminded me of things I did right and things I messed up during my campus interviews two years ago :)

- Recruiters note that business-school students seeking jobs regularly slip from grounded confidence into arrogance and an inflated sense of entitlement. As a result, they often knock themselves out of contention for attractive jobs.

- Avoid overstating your role in team projects. Recruiters prefer to see an interviewee "be clear about what the team accomplished and about what their role was"

- Asking detailed, pointed questions about the company is a good way to show that you've done your homework. Asking questions about the company's culture indicates that you're looking for the job that will fit you best, rather than one that will provide the most prestige or biggest paycheck. Whirlpool's top campus recruiter recalls that one of the best questions he's been asked was: "What would a person see when standing in your parking lot at the end of the workday?"

- Recruiters keep an eye on candidates' social interaction through the interview process. For example, the candidate's chit-chat when the Whirlpool guy is escorting them from an interview tells him about their social skills and whether they're enthusiastic about his company.

Midfield Menace! 

The Magnificent Harbour Bridge 

Man On Fire. Change the hat to a 12mm. :-)