Name – Anubhav SinghRoll No - 0910010

Supply-Demand Management study of a Sanitary Napkin Maker

1. Company Background2. Market analysis & Demand Behavior3. Production Details4. Analysis

a. Calculate optimal inventory for finished goods & inventory costs

i. Lead Time Demandii. Safety inventory

iii. Effect on Working Capital

b. Calculate optimal inventory of raw material & inventory costs

i. Lead Time Variability ii. Lead Time Demand

iii. Safety Inventoryiv. Cycle Inventoryv. Effect on Working Capital

c. Product Mix Analysis

d. Effect of Government businessi. Lead Time Demand

ii. Safety inventoryiii. Optimal product mix between Government &

privateiv. Effect on Working Capital

5. Conclusion

1- Company Background

Royal Hygiene is the maker of ‘She’ brand of sanitary napkins. ‘She Comfort’ brand was launched in the year 2003. The sanitary napkins were imported from North America and sold under ‘She comfort’ Brand in India. By Jan 2005, a manufacturing facility was created at Turbe near Mumbai, under the name Royal Hygiene Care Pvt. Ltd. Recently the company shifted its production to Kandla, Gujarat. The company saw a turnover of over Rs 25 crores for 2008-09. The company is growing at an impressive rate and is aiming a 50 crore turnover for 2009-10.

2.a-Market Structure

Feminine Hygiene ironically has not been the priority of Indian women so for. As of now, only 5% women use sanitary pads in India. In China, 55% women use sanitary pads with a market potential of 4 Billion USD. There are 1300 manufactures in China compared to only 5 major manufactures in our country. The penetration rate in developed countries is close to 100%.

Recently napkin usage has been promoted by Governments in various states by way of free distribution of the products to women in Tier II cities and towns. This has worked as an extra demand for manufacturers. The suppliers are selected under bidding system and are assured a minimum fixed quantity to be supplied. This demand stream does not require any marketing effort and has the potential to provide significant contribution margin to the business.

The company maintains higher MRP than the other premium products in the market. However, it provides volume offers to its customers to bring the average price lower than competitors. The market is largely segmented into modern trade (large retail houses) and retail (traditional general merchant and pharmacy shops).

2.b- Main competitors:

Indian feminine hygiene market is estimated at Rs.1000 crores per annum entirely dominated by large MNC’s like P&G, J&J & HUL. P&G, J&J manufacture in India, where in the others like HUL are importing from China and subsequently marketing in the country.

P&G is the market leader with its brand ‘Whisper’ holding more than 52% market share followed by J&J at 39% and Levers at 5%. She Comfort enjoys 2% market share. Balance 1% sales are shared by eleven smaller companies.

Modern trade (organized retailers) accounts for roughly 30% of its volumes. However, the company is forced to give higher discounts to large retail houses. Its contribution margin is lower for a market segment where it has lower volumes at the moment. However this has paid off. Its brands are ranked no 2 or 3 by shelf space in the large retail format in key cities. In Bangalore it ranks 1st by shelf space in key Pantaloon locations. Royal Hygiene Health Care has already taken 3rd position (ahead of HUL) in terms of sales in this format of business in an industry with roughly 11 players.

2.c- Demand Behavior

Sanitary napkin demand behavior is a boon for any manufacturer. It is used by any user once in a month for an average of 4 days. So for a sizable group of women, it can be safely assumed that the demand will be evenly distributed in a month and the quantity required would be fixed. Once customer is satisfied with the product, usage has almost no discretionary component and very high brand loyalty due to personal nature of the product. The only change in demand should really come from new customer additions. So if the company expects to double its sales, it can be safely assumed that 50% of sales would have near zero volatility and the rest 50% would have some volatility based on the firm’s speed of customer addition (and product switch by new customers in the initial trial stage).

3- Production Details

The company has source its production units from China. The ZYG type line that the company deploys runs at the maximum speed of 200 pads/minute with the normal steady operation speed of 150 pads/minute.

Size of the equipment: length: 10.5m x width: 1.5m x height: 2.4mWeight of the equipment: about 4.5 MT

3.a- Plant Output Details

Sr. No

DescriptionDesigned Speed (PPM)

Operational Speed

Output

Per Shift

Providing for

breakdowns - 75% Efficiency

Monthly

Output Pcs

1 Panty Liner Machine 160 15694,00

0 70,5005,287,5

00

2 230 mm Regular Napkin Machine 150 14084,00

0 63,0004,725,0

00

3 284 mm Regular Napkin Machine 110 10463,00

0 47,2503,543,7

50

4 315 mm Regular Napkin Machine 100 8853,00

0 39,7502,981,2

50

5284 mm Ultra Large Napkin Machine 210 200

120,000 90,000

6,750,000

6315 mm Ultra Large Napkin Machine 210 200

120,000 90,000

6,750,000

*PPM – pieces per minute*10 hour shift, 3 shifts a day, 25 days a month

The company has 3 production lines in their Kandla plant. As per the latest estimates, the company has seen over 50% increases in its demands FOR 2009-10, owing to market penetration and also due to Government contracts to supply orders to low income and rural areas.

The production line is a single phase process. The machines are fully automated. All the raw material (resin, pad, lining etc) are fed in the

production line in different parts of the process. The machines generate an average of around 150 pieces in a minute.

3.b- Sales data for 2008 calendar year

2008315mm regular

284mm regular

315mm UL

284mm UL

230mm Regular

Panty liner SP

150

Jan 358,

100 329,

000 949,2

00 96

4,280 637,77

0 599

,000

Feb 457,

560 593,

100 1,182,

550 77

3,030 794,00

0 637

,000

Mar 437,

600 785,

550 847,

330 95

5,900 764,80

0 986

,650

Apr 481,

260 404,

500 979,

560 1,061

,800 755,80

0 1,132

,600

May 309,

200 816,

730 799,

860 1,117

,650 1,093,50

0 793

,340

Jun 811,

150 399,

700 1,469,

100 97

0,250 947,00

0 734

,090

Jul 563,

250 436,

700 1,046,

120 1,152

,300 672,90

0 1,023

,530

Aug 584,

320 665,

500 987,

330 1,421

,850 740,80

0 708

,350

Sep 786,

300 596,

640 981,

630 1,545

,100 533,84

0 1,068

,700

Oct 917,

830 810,

500 1,385,

100 1,405

,500 738,73

0 889

,100

Nov 312,

800 759,

500 958,

450 97

0,900 882,87

0 804

,240

Dec 18,

300 42

,200 1,505,

320 1,081

,700 859,75

0 1,223

,300

Total 6,037

,670 6,639

,620 13,091

,550 13,42

0,260 9,421,7

60 10,599

,900 Avg Selling Price

3.40

3.10

4.00

3.70

1.50

0.60

Total Sales (Rs crores)

2.05

2.06

5.24

4.97

1.41

0.64

3.c- Demand Behavior Analysis

The company follows the standard sales and marketing mechanism prevalent in the FMCG & FMHG (health goods) in the country. They sales are broadly clubbed in 2 categories

Modern Trade (large retail outfits like Pantaloon) Conventional Trade – Small General Merchant stores & Medical

Stores

The large formats like Pantaloon are supplied directly. The smaller retails outlets have the FMCG and the medical industry supply chain. As of now the FMCG segment shows faster movement of goods than the medical line. However, in the long run, based on experience of other manufacturers both lines are expected to deliver similar sales.

Summary Statistics – Sales

2008

315mm

regular

284mm

regular

315mm UL

284mm UL

230mm

Regular

Panty liner SP

150

Mean503,13

9553,30

21,090,96

21,118,35

5785,14

7 883,325

Min 18,300 42,200 799,860 773,030533,84

0 599,000

Royal Hygiene

Wholesaler(Medical industry supply chain)

Medical Stores

General Merchant Stores

Large Retail Outfit

Wholesaler(FMCG supply chain)

Max917,83

0816,73

01,505,32

01,545,10

01,093,5

001,223,30

0

Std Dev251,63

8231,96

1 241,580 228,717138,60

8 202,531Coefficient of variation 50% 42% 22% 20% 18% 23%

The demand data shows a high degree of variability. As had been mentioned earlier, the nature of the product usage does not warranty such variability.

Bullwhip effect – Inefficiencies in the Supply Chain

The promoters of the company agree about the stable usage behavior of the product by end customer. They observed that their demand was coming from the wholesalers and the manufacturers had made little progress in demand estimation from them. The large retail buying behavior was much more stable. A key reason is that for wholesalers in both the chains of medical and FMCG stock a variety of goods. Sanitary napkins are a very small component of their total turnover. Besides, they do not have systems and processes that can analyze flow rates behaviors of various products. Typically the onus of demand management lies with the manufacturer. Large MNCs like HUL and ITC have developed sophisticated mechanisms to manage the demand side supply chain. For smaller manufacturers the movement of goods follows ‘rules of thumb’.

Observations of Manufacturer

There were some observations made by manufacturers which led me to conclude the following on the demand management issues for the entities in the supply chain –

Medical Supply Chain –

Retailers – Chase Strategy Wholesalers – Level Strategy with seasonality in purchase. This behavior is affected by the seasonal nature of some pure medicines (for example some diseases are more common in summers). This mindset of medicine ordering spills over in the napkin stocks.

FMCG Supply Chain –

Retailers – Chase strategy

Wholesalers – Level Strategy led by forced behaviors of FMCG giants.

It is a common practice followed by large FMCG firms in India where sales managers push the products to the wholesalers in the last week of every month. This behavior gets magnified in quarter or year end. Typically the wholesalers’ demands dip for Royal Hygiene’s products in those periods.

Large Retail Format –

The manufacturers are very satisfied by the efficiency and stability of demand behavior of the large retails (though the pricings involve a lot of negotiations). The company’s products enjoy the highest shelf space in some of Pantaloon’s stores in Bengaluru and Delhi. This has earned the manufacturer credibility from Pantaloon. The purchase strategy has seen focus from senior managers of Pantaloon for Royal Hygiene’s products.

4.a- Inventory Analysis – Finished Goods

Product

Mean monthly demand

Stdev of

monthly

demand

Lead Time

Demand

stdev of

LTD

Service

level

Safety Invento

ry (units)

Safety Inventory (Rs lacs)

Inventory

Carry Cost (Rs

lacs)

Capital blocked

- Finished Goods

(Rs lacs)

315mm regular

503,139

251,638

251,570

177,935 90%

228,033 7.0 1.0 8.0

284mm regular

584,952

174,736

292,476

123,557 90%

158,345 4.4 0.0 4.4

315mm UL 1,090

,963 241,

579 545,

482 170,8

22 90% 218,91

7 7.9 0.0 7.9

284mm UL 1,118

,356 228,

707 559,

178 161,7

20 90% 207,25

2 6.9 0.0 6.9230mm Regular

785,141

138,596

392,570

98,002 90%

125,594 1.7 0.0 1.7

Panty liner SP 150

883,318

202,556

441,659

143,229 90%

183,555 1.0 0.0 1.0

            Total 28.9 1.0 29.8

Assumptions – Lead Time– 0.5 month (same as lead time for local suppliers of raw material)Cost of funds for inventory carry cost = 14% (interest on working capital loan)Service Level for estimating safety inventory – 90%

*Cycle Inventory estimates

As per discussions with the promoter, it did not seem that the firm consciously categorizes its finished goods inventory as cycle and/or safety inventory. Given that their lead time to supply is around half month, cycle inventory has been estimated below.

Product

Mean monthly demand (units)

Mftg Costs (Rs per unit)

Cost of Icycle (Rs lacs)

315mm regular

503,139 3.06

7.70

284mm regular

584,952 2.79

8.16

315mm UL 1,090,

963 3.6 1

9.64

284mm UL 1,118,

356 3.33 1

8.62 230mm Regular

785,141 1.35

5.30

Panty liner 883,

318 0.54

2.38

    Total 61.80

The total Finished Goods Inventory related costs estimates comes to –Safety + Cycle [including their holding costs] = Rs 1crore (approx)

Working Capital & Inventory – actual data:

Inventory

Average Holding (months)

Rs lacs

Raw material (imported ) 3234.

00

Raw Material (local) 110.7

2

Finished goods 1194.

90

As per the company’s figures it has finished goods inventory of almost double the size of the estimates of the optimal inventory.

Reasons for Deviation –

Holding Costs for Cycle inventory @14% = Rs 8.7 lacs

1. The study assumes 1 kind of buyer. However, there are 3 distinct lines of buyers – FMCG line, FMHG & Large retails. Ideally the demand variability should be estimated separately for each line. Analysis should also be done by product lines (315 mm or 214 mm etc). However the detailed data break up was not available.

2. Holding Period – while the lead time to ship the products is about half month, the firm maintains 1 month of cycle inventory. This is a function of their sales & marketing strategy. The company has set a target to double its turnover this year and has been growing at over 50% rates for the past 2 years. They have also gone for aggressive advertising campaigns. In this scenario the concept of mean monthly demand doesn’t hold for the firm. It would like to see a significant increment in its sales every month. At this stage the firm believes that it has to push its products aggressively to the retailers. They have achieved success in key areas with Pantaloon stores.

4.b-Inventory Analysis – Raw Material

Raw Material Details

The raw materials for the napkins are all imported. Over 90% of the material comes from Europe and the rest from China. The packaging material is procured locally. The table below shows the supply behavior of the imports and locally procured raw material. Given that the company is young and growing and also short of funds (the company invited investments from investors last year and is looking for fresh investments), the lag time on its raw materials supply is a hindrance that ties up its crucial capital.

Sr. No Raw Materials Source

Lead Time

1 Fluff PulpImported 74 days

2Super Absorbent Polymer Powder

Imported 90 days

3 Perforated FilmImported 42 days

4 Air Laid Material Importe 42 days

d

5 Non WovenImported 42 days

6 PE Back SheetImported 74 days

7 Release PaperImported 74 days

8 Hot Melt AdhesiveImported 42 days

9 Pouch FilmImported 74 days

10 Adhesive Release StickerImported 30 days

  Packaging Material

1 Poly Bags Local 30 days

2 Carton Boxes Local 15 days

3 BOPP tape Local 15 days

The tables below show the consumption details and selling price at the unit level. The company makes 6 types of products and currently has widest bouquet of products made in India. Whisper, the market leader gets some of its product lines from China.

Raw Materials Consumption Rs

Product - 1 (SAP 315MM-REGULAR) 1.62

Product - 2 (SAP 284MM-REGULAR) 1.50 Product - 3 (SAP 315MM-ULTRA LRGE) 1.73 Product - 4 (SAP 284MM-ULTRA LRGE) 1.47

Product - 5 (SAP 230MM-REGULAR) 0.61 Product - 6 (SAP 150MM-PTE LINER) 0.27

Type of Napkin

Net Selling Price

Direct material

Direct Labor

Packing material

315mm regular 3.40 1.62 0.20 0.15

284mm regular 3.10 1.50 0.18 0.15

315mm UL 4.00 1.73 0.20 0.13

284mm UL 3.70 1.47 0.18 0.10230mm Regular 1.50 0.61 0.10 0.17Panty liner SP 150 0.60 0.27 0.06 0.05

Raw Materials Breakup for 315mm regular & ultra large

The 315mm product categories are the object of the analysis. Focus has been to study the raw material consumption details of the 2 categories and the impact on the supply side inventory behavior and the recommended optimal inventory position given the lead times and the demand for the product. The inventory analysis has been finally carried over the entire product range.

Raw Materials 315 regular 315 ultra large

Fluff Pulp 17.5% 0.31 24% 0.45Super Absorbent Polymer Powder 1.2% 0.02 1.6% 0.03

Perforated Film 5.1% 0.09 1.1% 0.02

Air Laid Material 5.6% 0.10 1.1% 0.02

Non Woven 41.9% 0.74 43.5% 0.81

PE Back Sheet 6.8% 0.12 7.5% 0.14

Release Paper 2.8% 0.05 3.2% 0.06

Hot Melt Adhesive 3.4% 0.06 3.8% 0.07

Pouch Film 3.9% 0.07 3.8% 0.07

Adhesive Release Sticker 3.4% 0.06 3.2% 0.06

Total 92%1.6

2 93% 1.73

Packaging Material  

Poly Bags 4.0% 0.07 3.2% 0.06

Carton Boxes 3.0% 0.05 2.7% 0.05

BOPP tape 1.7% 0.03 1.1% 0.02

Total 8.7%0.1

5 7.0% 0.13

Overall Total 100%1.7

7 100% 1.86

For simplification, raw materials are broadly classified into three categories –

R1 - Lead Time > 70 days, average = 75 days R2 - Lead Time between 30-70 days, average = 40 days R3 - Lead Time <30 days, average = 15 days

Raw materials are clubbed on the basis of their lead time. The approximate breakup composition of their usage across products is 55%, 45%, 10%.

2008 (Rs) R1 R2 R3

Jan 3,268

,490 2,674

,219 594

,271

Feb 3,622

,031 2,963

,480 658

,551

Mar 3,397

,381 2,779

,675 617

,706

Apr 3,289

,244 2,691

,200 598

,044

May 3,456

,735 2,828

,238 628

,497

Jun 4,039

,537 3,305

,076 734

,461

Jul 3,393

,296 2,776

,333 616

,963

Aug 3,676

,657 3,008

,174 668

,483

Sep 3,692

,181 3,020

,876 671

,306

Oct 4,755

,328 3,890

,723 864

,605

Nov 3,310

,907 2,708

,924 601

,983

Dec 3,072

,496 2,513

,860 558

,636  Rs lacs R1 R2 R3

Total 429.74 351.61 78.14

Mean 35.81 29.30 6.51

Min 30.72 25.14 5.59

Max 47.55 38.91 8.65Std Dev 4.5 3.7 0.8

Rs lacs

Product

Mean month

ly deman

d

Stdev of monthly demand

Lead Time

Demand

Stdev of LTD

Cycle Servi

ce level

Safety Inventor

y

Inventory

Holding Cost

Capital for carry cost & safety

inventory

R1 35.81 4.5 89.53 7.1 90% 9.

1 1.2

7 10.36

R2 29.30 3.7 39.07 4.5 90% 5.

8 0.8

1 6.56

R3 6.51 0.8 3.26 0.6 90% 0.

7 0.1

0 0.84

*EOQ estimates

The company could not provide data on the costs it incurs for ordering. As a thumb rule, we assume that the firm should purchase 1 month of supplies in a single order. The estimates of cycle inventory are as follows –

Cycle Inventory = mean monthly demand/2 = (35.81+29.30+6.51)/2 = 35.81

Total Capital required for Raw Material Inventory related costs –

Cycle + Safety + Holding = Rs 53.57 lacs

Working Capital & Inventory – actual data:

Inventory

Average Holding (months)

Rs lacs

Raw material (imported ) 3234.

00

Raw Material (local) 110.7

2

Finished goods 1194.

90*monthly inventory data was not available

As can be inferred from the calculations above, the company maintains almost 4 times inventory than what seems to be the optimal inventory level. Given the lead times it has observed from its suppliers, a raw materials inventory over Rs 2 crores is not warranted. Given its cash flows, the company cannot afford to block its capital in inventory.

Reasons for deviation –1. Holding Period: The analysis assumes that the company should

order 1 month of supplies. However, the firm’s data suggests a holding period of 3 months. Given the lead times in supplies the optimal figure should lie somewhere in between. Even then the firm would be storing about Rs 1 crore more of inventory than would be required.

2. Currency Risk: The firm imports most of its raw materials from Europe and some from China. Re volatility has been a real risk, especially in the last 18 months. As of now the company does

not intend to drain resources in currency risk management and prefers to buffer its safety inventory. Given the production volumes, it might be a prudent step.

4.c – Product Mix Analysis

The product contribution details based on the variable manufacturing costs and production quantity per minute are given below –

Product Type

Net Selling Price

Variable cost per unit

Production Contribution

Average Production per minute

Contribution per minute

315mm regular 3.94 1.97 1.97 117 230.5284mm regular 3.85 1.83 2.02 105 212.1

315mm UL 3.00 2.06 0.94 78 73.3

284mm UL 3.61 1.75 1.86 66 122.8230mm Regular 1.83 0.88 0.95 150 142.5

Panty liner 1.15 0.38 0.77 150 115.5*Sales & marketing cost are assumed to be fixed, since marketing campaigns are focused uniformly on the ‘She’ brand rather than individual product lines.

The 315mm and 284mm regular lines show the highest contribution rate. However the sales data show them to be ranking 4th and 5th by sales. The net selling price for the 284mm UL seems to be disproportionately high compared to other products based on the size and material consumed. The company probably has not focused on the contribution rate generated by the products. With its rapid growth plans it would be prudent for the firm to push the products with the highest contribution rate to improve its bottom line. While the preferences of consumers should be the primary driver, for new customers, right product positioning based on bottom line contribution should be adopted. This would also require co-ordination with the sales and marketing team. As of now the firm has been advertising the ‘She’ brand as a single entity. The large MNCs have much more sophisticated campaigns, promoting individual product lines. Royal Hygiene has to develop its product differentiation strategies to maximize its profitability.

4.d- Government Contract

The State Governments have recently put a lot of emphasis on feminine hygiene. The Government has laid put promotional programs to distribute sanitary napkins free of cost in low income and rural areas.

The Government follows a bidding system for a pre-determined supply quantity. Under the Government purchase agreement, suppliers get a fixed fee per month and the production costs. The company supplies the regular line of its napkins products.

At this stage the Company has capacity to cater to its private and public sector demands. However, in near future the company will be forced to rationalize its production mix. While the Government contracts are expected to reach as high as 20% in the near future, the promoters are hesitant to increase their production capabilities on the back of Government contracts. In the short term till the private sector demand mandates a ramp up in production capabilities, the company will have to streamline its production process to optimize its returns.

Product Mix Problem

Government Demand

Costs for Government production-o Direct Material +o Direct Labor +o Production Overheads

= Production costs.

There is a provision for a fixed fee over the production costs. There is a slight reduction in direct material costs, as the company does not provide the premium packaging that it provides for the private sector products. The company also does not incur sales and marketing costs for the Government supply.

As per the contracts, the company won’t earn any contribution over its variable costs to Government supplies. However, it is able to contribute towards recovering its fixed costs based on the fixed fee received. Therefore it is recommended that the firm bids for the contracts based on variable costs of its cheapest products 230mm & 284mm regular lines (panty liners are not procured by Government). This would maximize its chances of winning the bids.

5. Conclusion

Royal Hygiene is in a lucrative market where there are tremendous opportunities of growth. The firm’s growth has been impressive. Their sales strategies seem to have shown impressive results. With a little revaluation of their operations they can improve their performance and meet their growth targets. The following areas need some re-calibration of their efforts –

Aggregate Sales & Operations Planning – the firm is facing the classic case of uncertain demand from its wholesalers for products whose consumption pattern would probably show the least variability in the market. The inefficiencies in the supply chain lead to sub-optimal inventory levels & probably also misallocation of sales force in promoting the wrong products.

o Coordination of efforts for sales estimation – The firm needs to expend efforts in collecting point of sales data and collaborate with demand side supply chain to coordinate its sales and operations. With the large retail chains, the demand flow is much smoother. The efforts need to be focused on retail trade in both the FMCG and medical supply chain.

o Inventory Management – The firm can reduce its raw materials inventory by approximately Rs 1 crore. The working capital funding cost is 14% which is not insignificant. While the finished goods inventory is also on the higher side, given the growth strategy, it is not recommended that they reduce it. The firm still needs to grow its footprint in some regions of the country, and this might actually lead to increase in finished goods inventory. The cost savings on the supply side could be channelized towards market expansion and products push in the market.

o Lead Times of Suppliers – As all the raw material is imported, there would be little chance of improvement on the lead times. The firm has already begun to make one of its raw materials in house, leveraging its promoters engineering background (beyond the scope of this study). The firm should continue to expend its energy on this front

and focus on product and process innovation as this would be the key to its survival.

o Waste reduction – Precise data was not available on rejection rates of the products. But given the nature of the product (the product has foldable wings and flaps and a napkin has three layers of covers which are stuck together with a special glue, the rejection rate of the production process is high. Since this is a single phase production process, improvement in this area would require innovative ‘tweaking’ to the ZYG machines. The team had done such changes in the pulp slice width that would suit the Indian customer requirements. Similar customization with focus on waste reduction can be a significant driver of profitability.

Overall Manufacturing Capabilities – Based on conversations with the promoter, I would place the manufacturing set up in Stage II. The production facility was shifted from suburbs of Mumbai (with rampant power outages) to Kandla where the firm has seen significant savings in electricity and transport. Kandla is an exporters’ hub. Railways have heavy traffic from hinterlands to Kandla for exporters. Railways give significant discounts on its return freights towards hinterland. Overall the manufacturing set up is placed competitively to other manufacturers. However, there are opportunities in process design and sales and inventory rationalization to enable manufacturing to provide a strategic advantage. The Cap Ex related barriers to entry in this business are low. The growth opportunities are likely to invite other players. In such a scenario it becomes all the more important that the firm develops strategic advantage through improving its production and sales process.