PAKISTAN ELECTRON LTD (PEL)

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PAKISTAN ELECTRON LIMITED was established in 1956 with the technical

collaboration of Germany. It is the first composite electrical equipment
manufacturing unit of Pakistan.

In October 1978, the company was taken over by the SAIGOL GROUP, which
is one of the leading industrial groups in Pakistan, having diversified business
activities in the field of:

 Textiles

 Engineering

 Banking and Finance

 Fuel and Energy

 Trading

 Automobiles

On engineering side PEL Group is the flag carrier of the Saigol group.

Here we see in detail about Pakistan electron limited. And will see how they
have organized themselves in a most appropriate business unit in Pakistan.

The PEL Group consists of following companies

1. PEL (holding company)

 2. PEL Appliances ltd.

3. PEL Daewoo electronics ltd.

The products manufactured by PEL always been high standard and the name
PEL is synonymous with QUALITY all over Pakistan.

Since its Inception, the company has been acting as institution working for
advancement and development of engineering know how in Pakistan .The
Company hundreds has produced hundreds of engineer’s skilled workers and
technicians through its apprenticeship schemes & training programmers.

Keeping Saigol’s traditions since its takeover by the group, PEL has
continuously been adding new products to its range. As a result, the PEL
group has registered a significant increase in its sales volume, during the last
ten years.

THE CHRONOLOGY OF PRODUCT:

 Year Product Introduction Technical
Collaboration
1956 Distribution Transformers, Switch AEG-West Germany
Gears, Single & Three Phase
Induction Motors
1978 PEL was taken over by SAIGOL
GROUP
1981 PEL Window Type Air conditioners General Corporation-
Japan
1987 PEL Refrigerators SILTAL SPA-Italy
1987 PEL Deep Freezers NECCHI
COMPRESSORI Italy
1993 PEL NECCHI A.B.B., POWER T & D
 Company, USA
Fractional Horse Power
Compressors
1994 PEL Single Phase Watt Hour Meters Daewoo Electronics,
Korea
1995 PELDAEWOO Color Television Carrier Corporation,
USA
1997 Carrier Window and Split

Type Air conditioners

 POWER DIVISION

 APPLIANCE DIVISION

 POWER DIVISION:-

POWER DISTRIBUTION SYSTEM, ELECTRIC MOTORS, ENERGY

METERS:

PEL’s Power Division manufactures Transformers, Switch Gears, Electric

Motors, Energy Meters, Kiosks, Compact Stations, Shunt Capacitor Banks, etc.
of highest quality and of latest international standards. PEL is one of the
major electrical equipment suppliers to Water and Power Development
Authority (WAPDA) and Karachi Electrical Supply Corporation (KESC), which
are the largest Power companies in Pakistan.

PEL equipment has been used in numerous power projects of National

importance within in Pakistan over the years and PEL has had the privilege of
getting its equipment approved and certified from well-reputed international
consultants such as:
  Preece, Car dew and Rider, England.

 Harza Engineering Company, USA.

 Sam Progetti, Italy.

 Societe Dumezm France.

 Miner & Miner International Inc. USA.

 Ensa, France.

 APPLIANCES DIVISION:
The Appliances Division was established in 1980-81, when the company
introduced its first consumer product i.e. Window type air-conditioned in
Pakistan. This was followed by Refrigerators and Deep Freezers in the year
1986-87, Fractional Horse Power Compressors in 1993 and Carrier Window
and Split Air conditioners in 1997.

TYPE OF PRODUCT:

 Window-Type Air conditioners “PEL”

 Window-Type Air conditioners “Carrier”

 Split-Type Air conditioners “Carrier

 ”Refrigerators (Direct Cool)

 Deep freezers

 Color Televisions

 compressors (Fractional Horse Power)

CORPORATE STRATEGY:

Mission STATEMENT:

“TO produce quality product at a affordable prices for and to ensure the profitability
of the company.”

objectives:

 To increase sales

 To increase profitability

 Introduction of new designs and foreign collaboration(joint ventures)

 Environmental scanning

PEL has ensured the environmental scanning through researchers regarding attributes and
future needs of customer .they take assistance of Aftab Associates for this purpose. They
also take assistance from their sales force and the dealers of PEL the different areas of
Pakistan. They find out the latest opportunities which are prevailing in the market .The
executives of the company also keep a close look on the changes in the environment.

Core Competencies:-
Core competencies are the organizational unique resources and strengths
that management considers while formulating strategy.

In pel they have different core competencies which the have identified
after a long business activities and due to comparison with the
competitors. In air conditioner they have an advantage over its competitors
due to its performance and the quality. They consider it as their major
advantage over their competitors. Pel is the first local manufacturer of air
conditioner in pakistan. It has joint venture with carrier in manufacturing
air conditioners.

Workforce:-
In Pel they have skilled labor force for their top and middle level
management while in the lower level they employ trained as well as fresh
employees. The employees are given mostly on the job training. They have
maintained at present skilled labors which is their core competency.

Facilities:-
PEL has well located facilities for offices, stores and plants. In
their offices air conditioners are provided to all staffs for their working. They
have well groomed warehouses and proper network of distribution in the
whole Pakistan.

They have also given the facility of mess to the employees

during the working time for lunch.

Systems and Technology:

PEL has the state of the art technology. They have made joint
ventures with the foreign companies like:

NECCHI COPRESSORI of Italy to assemble compressors for refrigerator and

deep freezers,

HITACHI CORPORATION of Japan for the production of vacuum circuit

breaker for its switchgear,

DAEWOO ELECTRONICS COMPANY KOREA for the

manufacture of color television sets.
 In this way they are trying to provide the best possible technology to the
customers towards the implementations of TQM.

Market Analysis:-
It divides firm’s customers into market segments and then
identifies need of each market segment.

In PEL they conduct market analysis through different research agencies e.g.
Aftab Associates. In addition to research agencies they also conduct research
through sales force and through their dealers which are in direct contact with
the customers. Through after sale service they come to know about the
customer’s latest trends and the customer’s existing choices which are
passed to planning department and while planning they keep in view their
customers’ choices and attitudes in designing the plans for the next year.

Market Segmentation:-
In PEL for different products they have different market
segments. E.g. for refrigerator they have segment from lower class to upper
upper-class and for air conditioner they have segmented from middle upper
class to upper class while for split air conditioner they have made segment for
only upper class. While in their target market they target only to the
household wives because the family has to make the decision of these
products and they influence their choice while making purchases of these
products.

Competitive Priorities
 A firm gains an advantage with its operating system by
outperforming competitors in one or more of these capabilities. These are
eight possible competitive priorities for operations which fall into four groups.

 Cost

 Quality

 Time

 Flexibility

A firm may organize itself into one or more operating

systems each designed to support a particular set of competitive priorities for
a particular set of products.

Cost:
Lowering prices can increase demand for products but it also
reduces profit margin if the product cannot be produced at lower cost. To
compete on cost, operations manager must address labor, material, scrap,
overheads and other costs to design a system that lowers the cost per unit of
the product. Often lowering costs requires additional investment in automated
facilities and equipment.

In off season PEL lowers the cost of refrigerator to improve

the profit margin for the year and to consume the quantity produced which in
the stores before the onset of next season.

Quality:-
PEL has maintained the consistent quality as per ensured in
ISO90002.in addition to the consistent quality for the standardized products
PEL also produces the customized products for individual customers but they
are of the view that the ordered quantity must ensure their profitability. It
means that the ordered quantity must be large enough to recover their cost
and their profit margin. Currently they are producing deep freezers for WALLS.

Time:-
In PEL the products are made available to the dealers on
time normally throughout the Pakistan. The orders are fulfilled at the required
time. The new products features are added each year as a result of direct
contact with the customers and new changes in the design and color are
made in their annual production plan.

Flexibility:-
In PEL there is volume flexibility up to their maximum
capacity. Customization is there in PEL and they are currently producing only
deep freezer for WALLS.

CAPACITY

In PEL appliances division there is capacity of 150,000

refrigerators per year. This year they are planning to increase their capacity
from 150,000 to 200,000 refrigerators for the next year at same location.
They are increasing the capacity of the existing plant.

Utilization:
Currently PEL appliance division is working at 75% utilization rate. Its average
out put rate is 350refrigerators per day and its maximum daily capacity is
450 refrigerators per day. So,

Utilization = avg. output rate / maximum capacity

=350 / 450 x 100 = 75%

In PEL when the production department issues his requirement for the
production of the next period then the planning department has to see the
within the constraints that what amount of quantity can be purchased. The
major emphasis is given on the bottleneck material to be procured first so
that operations are not ceased due to their deficiency. E.g. compressor is the
one the bottleneck for the appliance division in Lahore factory.

LOCATION

PEL was established in 1956 on its

present location. At the time of its location here were no proper methods were
followed before installation how ever following factors were given importance
while locating the facility:
 At that time this area was very favorable for cheap and productive labor

 At that time this area was tax-free because the govt. wanted to
encourage industries in this area

 Also at that time there were cheaper construction costs


SUPPLY CHAIN MANAGEMENT
Being outside from the city.

Supply chain management has strategic implications because the supply

system can be used to achieve important competitive priorities .It also
involves the coordination of key functions in the logistics.

Material Management:-
Material management is concerned with decisions about
purchasing materials and services, inventories, production levels staffing
patterns, schedules and distribution. Decisions in these areas affect the entire
organization either directly or indirectly.

Organizational Structure:-
PEL has segmented structure in which there are different departments
for purchasing, production control and distribution in which all the heads
report to a third person namely the general manager of company and the GM
reports to the managing director of the company.

Importance of material management:-

Material management is important because whole
organization depends on the material and secondly it is short range so it
desires more of the attention of the management of PEL

1. central role of PEL:-

As the PEL is a manufacturing organization so they need the
raw material for the purpose of the production from the country as well as
foreign countries. This material takes round about 70%of the resources of the
organization.

2. Import of inventory on profitability:-

The other reason is the impact of it on the profitability of the
organization. As you keep more inventories you will be leading much more
cost of holding.

Functions of material management:-

Planning and procurement
The planning department get date and plans from sales and
production department make plan for each item and they give it to vendor.

They coordinate planning with sales and production plan is made annually
which is further divided into quarterly and monthly.

This department also keep up dating cost material and makes budget for the
department. At this plan purchase order is made. This PO is supplied to each
vendor with term and conditions.

The following charts are made maintained and made,

1- When material arrives it is taken to material store.

2- A local purchase Chelan is made.

3- GRN i.e. good receipt note is issued when the material is transferred to
the store.

4- 3:1 rejection level is beard.

Purchasing:-
Purchasing is the acquisition process which includes the
activities such as which supplier to be selected, how the negotiations are
made and whether to buy locally or from the foreign.

1. Recognizing a need:-
By need we mean the order for the purchase of the items for
the production is given by the production department in the PEL.

2. SELECTION OF SUPPLIER:-
The supplier is selected by the PEL on the following things or
points.

 Financial background.

 Machine capacity.

 Lead-time.

 Cost.

The supplier is meting these conditions then they will selected only two
suppliers are selected for each item.

3. PLACING OF AN ORDER:-
The order after selecting the vendor is made. The order is given by
providing the desired specifications of the organization.

4. TRACKING OF AN ORDER:-
They to see that whether it is time to reorder or not that whether the
order is coming or meat use daily meeting. If not coming they change the
vendor.
 SUPPLIER SELECTION
The supplier selection is very important for the company, because if
they face any difficulty, they face difficulties. Senior processing officer and
senior buying officer. They are responsible for the quality, lead-time and price.
Than they also test the material that whether it is of same quality which they
company desires then these information collected by them are given to the
assessment team they assess the capabilities that whether it suit to them or
not.

Then in the last step for the supplier selection they give order of the 1000 to
1200 units as a trial beat. After this assessment they will select the supplier.

SUPPLIER RELATIONS:-
The type of relation maintained with supplier can effect the
quality, timeliness and price of the product. PEL have the cooperative
relations with the supplier. Because they have to get huge amount of the
material from them. The suppliers also assist them to how to use the
material.

CONTRACTING:-
Purchasing must decide how to contract for each of the
thousand of the items that most firms buy. The PEL is following the strategy
of buying the material as is the lot and with the prices whatever the option
giving the fewer prices they set it. In the low price they see that whether it
meets the standard for the production or not.

In PEL raw material is purchased from three main sources, i.e.,

 Imported material

 Local material
Imported material:-
PEL import their raw material from Japan ,Italy ,Brazil,
Taiwan, America etc. from the abroad shipment reach the Karachi airport in
22 to 25 days and it takes about a week to transport the goods from Karachi
to Lahore through air. The goods are bonded when they arrive from abroad.

Only material which is required for the next month that is ex-bonded from the
govt. warehouse? The govt. charges 1% as service charges for bonding the
goods. For the foreign purchases the company has to the LC for the purpose
of payment. They have to open LC one month before the supplier delivers the
goods to the shipment and the shipments take about one month to reach to
Karachi.

Local material:-
1. They purchase the local material on net cash. It includes the patrol, surf
and the things like that.

2. Vendor zed parts

These are the raw materials, which are used for the
supporting material. These include raw materials like hinge, lock. Freezer
ceiling box, thermostat box, packing material etc.

3. Local PEL

In the present factory of PEL the raw material is produced for

the PAL i.e. Pak Electron appliance limited. This material is used only for the
PAL.
 Before issuing the purchase order the material is checked in the line,
store and the material lying in the bond. After estimating that quantity PO is
issued. After inspecting the material in these three places before issuing the
order short material list is prepared and accordingly the mix of purchasing
quantity is prepared by the planning department for the purpose of
procurement of material.

Distribution:-
Distribution is the management of the flow of the materials
from the management to the customer and from warehouse to materials,
invoicing the storage and placement of the products.

PLACEMENT OF THE INVENTORY:-

PEL is following the linkage for the purpose of the placement
of their inventory. Because it is not the customer product. They kept it in the
company. Because this company is not maintaining an inventory for finished
products. In it management of the PEL provides the daily report what amount
is needed audit.

TRANSPORTATION MODE:-
PEL is mostly using the road as the transportation mode.
They if are supplying their products inter city then the trucks are used. But if
they are sending it to outstation then they use large trucks to send them at
the price. The reason for their selection of this mode is that they have to send
it to the place where rail not goes or they have to supply to the destination of
the user or customer.

FORECASTING
In PEL forecasting is done annually and the plans are made for the whole year
while there is flexibility in the annual plan and due to existing trends changes
are made monthly and quarterly in the annual plan.

Pattern of demand:-
In PEL the pattern of demand is continuous generally and the
production is carried out during the whole year. From March to August their
production is on the peak while after august there is off season. However in
that season the production gets slow a bit than the season. For the Air-
conditioner there is change in demand during the off season. So for the air
conditioner the demand is seasonal while for refrigerator the demand is
almost continuous.

FORCASTING METHODS

Judgement Methods:-
In PEL the forecast is done through the demand prescribed by
the sales force and the dealers.

While the meeting of the executives is held quarterly for

purpose of discussing the changing demands and forecasting for the next
period.
Marketing research is also conducted for the purpose of forecasting demands.
This task of market research is given to the specialized and professional
company like Aftab Associates.

Casual Methods:-
Obviously the economic conditions and the competitors
actions are also considered while forecasting is done by the executives in
their monthly and quarterly meetings. While reacting to the change in the
demand pattern they need three months before forecasting to react to that
change due to the constraints of the availability of the raw materials.

Time Series Method :-

Simple moving average method
In PEL simple moving average is used to forecast for the next
period. Usually the data of the past five years is used to estimate the next
year demand and also the trend is incorporated in the forecast.

INVENTORY MANAGEMENT

Inventory is a stock of anything held to meet the future demand.

 The PEL is being influenced by the fast production so the
inventory will be kept more by them, but if the production of the company is
slow then it will have a little inventory.

ECONOMIC ORDERING QUANTITY:-

They are utilizing the E.O.Q. for the purpose of the ordering
the material. Because it set off the effect of the futures that influence them
for the high and low inventories. The order is make after keeping into mind
the maximum and minimum required with is in days for this organization.
They keep maximum 15 days and they take minimum 10 days.

For the purpose of making he order they have selected the

two vendors. If one is not meeting the needs then they can order to the other.
Making the inventories coming under the PEL are the raw material and
components used for the purpose of operating.

They are using the computerized methods for the purpose of

measurement of the inventory. They utilize the monitoring charts as
all for the purpose of looking that material has arrived and whose
maintaining. This activity is performed at every month.

REORDER CALCULATION:-
As the organization is preparing the quarterly charts for
monitoring. So they have a clear eye on it. Then if it is showing that the order
level is going below the required level than they will make the order to the
supplier so this is the way to reorder.
INVENTORY CONTROL SYSTEM:-
The EOQ formula can give us amount to b ordered to the
supplier. Then next step is that when to reorder for the purpose of the
production if the inventory goes below the limit.

METHOD FOLLOWED BY PEL:-

PEL is using the periodic review system. They have make the
review charts for the quarters and they basically take into this and after three
months they see that whether the inventory is with in the limits or not.

TYPE OF INVENTORY

Cycle INVENTORY:-
The cycle inventory is ordered for the 30 days.

Safety stock:-
The safety stock is maintained for the seven days on the monthly
production plan.

Anticipation stock:-
In the season the anticipated stock is maintained and more stock is
maintained for the manufacturing in case of air conditioner

Aggregate plan is a statement of a company’s production rates, workforce

levels and inventory holdings based on estimates of customer’s requirements
and capacity limitations. This statement is time-phased meaning that
the plan is projected for several time periods (such as months) into future.
Production Plan:-

In PEL the production is made for one year. Sales department

estimates the forecast for the next period .These forecasts are handed over to
the planning department who makes the production plan accordingly keeping
in view the estimates of sales department. Then the production department
makes the production schedules and then this demand goes to the
purchasing department who is held responsible for making the annual
purchases on the schedules suggested by the planning department.

In PEL specified inspectors are held responsible for the quality during the
production process. They inspect the work in process products and every
inspector prepares individual report and signs at the end of report.

In case of raw materials the inspectors check the materials

on the basis of sampling and if the samples are considered not satisfactory
up to standard then the vendor has to ask replace the items which are
defective. When material is sent to the store then the storekeeper checks its
quality and then the good receipt note is issued which ensures that the
material is according to the standard and according to the prescribed quality.

When the goods are produced then they are sent to the
quality department where the inspectors check the items individually and
after checking their performance every inspector signs on the back of the
refrigerator. When the sales man goes to the customer if the products gets
out of order (within the specified period of the after sales service),then sign of
individual is seen on the back and in this way it is easy to find who has made
mistake during quality inspection. Due to these measures taken by the
management there is very little chance that the items would be defective .

QUALITY POLICY:-
Pak Electron Limited is dedicated to the continuous
improvement of all products and services through total involvement of all
employees. We are committed to the development and strengthening of
partnerships with our external and internal customers and suppliers. We will
continuously strive to provide innovative and higher quality products and
services to achieve total customer satisfaction by understanding their
requirement and anticipating their future expectations or needs.

IN PURSUING THIS POLICY WE WILL :-

 Have annual targets for quality improvements in all areas

 Create a culture of customer focus striving to become the lowest cost

producer through agreed annual cost reduction programmed.

 Value people by understanding and drawing upon their strengths i.e.

abilities and knowledge and make efforts for their training and
development.

Management.
ISO stands for international organizations for standardizations.

ISO 9000 is a set of standards governing of a quality

program. Companies become certified by proving to a qualified external
examiner that they have compiled with all the requirements .Once certified,
companies have been certified and to what level. Compliance with ISO 9000
standards says nothing about the actual quality of a product. Rather, it
indicates to customers that companies can provide documentation to support
whatever claims they make about quality.

 ISO 9000

 ISO9001

 ISO 9002

 ISO9003

 ISO 9003

 ISO 9004

Actually ISO 9000 is an overview document.

PEL is ISO 9002 certified and they have made a team which
not only trains their employs but also their vendors’employs.In this way the
chances of rejecting the suppliers are reduced and the supplier’s cost does
not go up due to the rejection of material.

Reasons For acquiring ISO 9000:-

 To achieve customer’s satisfaction

 Competing against foreign competitor in the local market.

 Adds a positive image to the company and improve its goodwill.

 It is perceived commitment to quality

 Because the slogan of the PEL is to “the quality conscious people” so

it ensures their commitment towards improved quality for the
customers.
In case of raw materials the inspectors check the materials on the basis of
sampling and if the samples are considered not satisfactory up to standard
then the vendor has to ask replace the items which are defective. When
material is sent to the store then the storekeeper checks its quality and then
the good receipt note is issued which ensures that the material is according to
the standard and according to the prescribed quality.

When the goods are produced then they are sent to the
quality department where the inspectors check the items individually and
after checking their performance every inspector signs on the back of the
refrigerator. When the sales man goes to the customer if the products gets
out of order (within the specified period of the after sales service),then sign of
individual is seen on the back and in this way it is easy to find who has made
mistake during quality inspection. Due to these measures taken by the
management there is very little chance that the items would be defective.

CONCLUSION:-
If we conclude this report of operations management, we come to know
the following relevant points which need the attention of the management of
the company while performing the functions of the operation.

NO PROPER INVENTORY:-
The organization does not have proper inventory planning by
the management due to which heavy amount of the money is being put by
the company in the inventory.
 PEL has the strength also that it has a good repute for the
company as being the quality conscious company. It has own experts for the
purpose of the control of the quality or products. Due to the good sight
selection the company has more access to the whole of the markets of the
country. The company also has well established system of the distribution of
the company although it is not the integrated one but it is working smoothly.

JUDGMENTAL METHODS:-
The management of this company does not use the sophisticated
technique while making or performing the function of the demand forecasting
by the company. They rely more on the judgmental methods for the purpose
of the projection by the company about their sales.

SUGGESTIONS:-
The following are the suggestions by me after visiting the
company.

PROPER INVENTORY LEVEL:-

The company should also make some of the methods for the
purpose of the keeping the inventory at the optimal level. Proper planning of
the material can decrease the amount of the investment in the inventories by
the company.

USE SOPHISTICATED TECHNIQUES OF FORECASTING:-

The company is an excellent company and it has good image in the mind of
the consumers. But they are not applying the statistical tools for the purpose
of the forecast of sales which eventually results into having the excessive
amounts of inventory by the company. Causal and the time series methods
are the good estimate provider about the forecasting and if the management
adopted these forecasting techniques no doubt they will be benefiting the
company a lot.

In making of this report I have consult the following sources,

STATISTICS FOR MANAGEMENT BY LEVIN.

For forecasting.

OPERATIONAL MANAGEMENT BY LEE.J.KRAJEWSKI & RITZMAN

QUALITY MANAGEMENT BY DAVIT .L.GEOTECH

And some other person from whom I get information are,

Some my senior colleagues.

In Pel I have consult with the following persons