CASE 4 PRICISION STEEL TUBES LTD

ABOUT COMPANY
y A medium sized engineering company y Manufacturing precision steel tubes y In 1986, CMD of the company realized the need to

manufacture a new product called cold rolled cold annealed steel coils which was a backward integration

Need for new product development

y Initially they were getting CRCA steel coils from plant

of SAIL
y Quality of raw material was not good and delivery was

not also consistent

y Other major competitors like Tube Investment Ltd and

TATA steel were having their own cold rolled plants.

Factors supporting new product development

y y y y y

Raw material for CRCA coils were available easily Also chance for marketing product to present customer The project cost was within companys financial capability The project was possible with in-house team with the help of Indian technical consultant But the cost of manufacturing in house was higher then purchasing price from SAIL

y The CMD along with some senior executives decided

to carry out business analysis, considering 50% to be used for in-house consumption and 50% to be marketed at higher prices as CRCA coils.

Business analysis
y The business analysis was done by task force with in-

house market survey 1. Collecting and analysing information on market demand 2. Technical and application needs of the potential customers 3. Competitors information on prices, commercial terms, market share and production 4. Information on imports and exports of CRCA coils

Decision on the new product

y They decided to go with initial capacity production of

24000 MT per annum in first phase y And increase 12000 MT per annum in second phase y And company also went for IPO

Implementation and problem after product launch

y After trial production company supplied samples

against trial orders from automobiles and bicycle customers y Product was partially accepted and some suggestions were also given by customers. y After launch the rejection level were found to be 910% which was very high y So CMD of the company was concerned about whether they have made the right decision or not.

Discussion on questions
y Company have almost followed all the steps of the new

product development. y But instead of going for in-house research company should have gone for the outside research agency for business analysis. y And after supplying samples and getting suggestions from customers companys technical department should have worked to improve the quality and should have taken the help of expertise from outside the company

y I think company have taken the right decision in going for the y y y y

backward integration. Because by doing backward integration company can get raw material of high quality and at right time. And it will also improve the quality of your main product so the company can get high value for its main product. Company can take help of outside consultant to improve product quality and reduce rejection rate. And company should also give technical training to workers to improve product quality.