Taiho Plastics Industries Private Limited

Background
Taiho Plastics Industries Private Limited In 1976, Mr. Wong Ling Kah one of the co-owners of the family-
owned Taiho Plastics Industries took over the management and has been an impetus of growth of the company
and later became the managing director. Between 1978 and 1982, as the industry was trying to counter the
effects of recession, Mr. Wong moved to invest for an approximate amount of $5. 2 Million to replace their
outdated Hong Kong extruder, sealer, and cutter with more efficient Japanese machinery.
Such a decision was considered unwise by people within the business community. Mr. Wong however,
personally believed that the investment was justifiable taking into consideration the lower unit cost and the
company’s plan to be competitive in the international market.
(by the year of 1974-1984 requires an amount half million to start a business.)

SWOT Analysis
Strengths
 The company expanded its supply to Australia.
 Taiho has 12 extruders for extruding plastic resins.
 Taiho uses a rotogravure printing process which is reputed to produce prints that are sharper and better toned.
 There is a purchasing manager in charge of all materials to be fed into the manufacturing process.
 Depreciation has also increased from $300,000 in 1979 to $750,000 in 1983 (150%)
 Mr. Wong makes occasional visits to clients to gauge the demand and keep in touch with changes in the
international market.
 Taiho products have gained a reputation for quality and the company won an international award for it.

Weaknesses
 Dealers in machinery for the manufacture of plastic bag would be hard-pressed to make sales.
 Purchased 3 Japanese extruders and 12 cutters through loans from financial institutions.
 The company does not practice any formal system of stock control.
 For finished goods, the stocks are also low as the company can work up a stock equivalent to the volume of a
shipping container within 15 days.
 The company allows the client in Singapore 90 days credit but average pay-up time is 103 days.
 Prices of Taiho are competitive in the export market but in local market, its prices are among the highest.
 Workers have been with the company for a long time and cannot keep up with the changes in the industry.

Opportunity
Printing cost decreases with the increase in the number of bags being printed.
 Plastic bags used in Singapore include vest bags, carrier bags, garbage bags, food wrapping bags, industrial
packaging bags and market bags.
 There has been sudden increase in demand for plastic bags in the US

Threats
 The amount of stock varies; at a certain period, the stocks may be valued at $1.5 million and three months
later it may be only $200,000.
 Price undercutting is common to local market
 Sales in Singapore which previously accounted for 25% of total sales has now dropped to 10%.
 Competitor Lamipak, the largest manufacturer of polyethylene plastics bags,
expects exports to the US will increase from 5 to 50% in three to five years.
 Performance Data
1979 - 1983
1979 Δ 1980 Δ 1981 Δ
Sales- $ 5,068,000 1 -12% 4,437,000 1 2% 4,504,000 1 25%
Cogs 4,978,004 0.982 -21% 3,940,056 0.8880 -4% 3,783,360 0.84 29%
Gross Profit 89,996 0.01776 452% 496,944 0.1120 45% 720,640 0.16 1%
Operating 996 0.00020 43569% 434,944 0.09803 52% 660,640 0.14668 10%
Expenses
Net Income 89,000 0.01756 -30% 62,000 0.01397 -3% 60,000 0.0133215 -97%

1982 Δ 1983
Sales - $ 5,617,000 1 28% 7,200,000 1
Cogs 4,887,000 0.87 27% 6,210,000 0.8625
Gross Profit 730,000 0.1299626 36% 990,000 0.1375
Operating Expenses 728,379 0.129674 30% 946,473 0.1315
Net Income 1621 0.0002886 2585% 43,527 0.006

Ratio Analysis 1979 1980 1981 1982 1983

Current Ratio 0.55 0.53 0.90 0.88 0.74
Working Capital (0.22) (0.23) (0.03) (0.04) (10.14)
Asset Turn over 1.84 1.97 2.04 2.13 1.89

Viewpoint: Managing Director

Timeframe: 1983
Statement of the problem: what action of Taiho company should make to maximize its profit for at least 2% -
5%
Objectives:
Higher Current Ration (100%-200%)
Formal system stock control
Profitable
Alternative courses of action:
Cost Control/ Cost Reduction
 Use inventory system management

Evaluation of alternatives:
Cost Control/Cost Reduction
Pros Cons
It helps the firm to improve its profitability and Reduces the flexibility and process improvement
competitiveness. in a company.
It helps the firm in reducing its costs Restriction on innovation.
It is helps for achieving greater productivity. Requirement of skillful personnel to set
 it can maintain higher sales. standards.
 It reduces product prices.
 Employment of work force.
Use inventory system management (Manufacturing inventory management)

Pros Cons
 Automated Reordering and In-Stock System Crash
Information. Malicious Hacks
 Integration with Accounting. Reduced Physical Audits
 Forecasting and Planning. Maintenance
 it can help to lessen Obsolescence/wastage Additional expense
 Keeping track of inventory.
 It helps to increase Gross Profit.
 Reduces cost.
 Less error.

Courses of action:

Activity Timeframe
Establishing Annual Stocking Policies
Preparation of Inventory Budgets
Establishment of Optimized Purchasing Procedures
Reduce supplier lead-time
Decrease inventory

Recommendation:
We highly recommend to Taiho company to use inventory system management, because this may help the
company to prevent cash flow problems, reduces costs like wastages in inventory, carrying cost, ordering cost
and that may tend to increase profit. This may also help the company to have a formal system of stock control
because it has an automated reordering and in-stock information to avoid overstock and outage of materials.
Inventory system management are also use for forecasting and inventory optimization system to attain key
inventory optimization metrics such as Reorder point; Order quantity; Lead demand; Stock cover; and
Accuracy.