MEDSTAR POLYMERS

CONSIDERING PRODUCTION-FUNCTION- BASED INPUT

OPTIMIZATION
BACKGROUND: MEDSTAR POLYMERS

• Company Name: M.S. Polymers and Packers

• Year of Foundation: 2015
• Founders: Sohan Aggarwal (late) and Mahesh Sharma
• Location: Khushkhera industrial region, Delhi NCR
• Initial Focus: Manufacturing of medical-grade gloves

MEDSTAR POLYMERS 2
 PRODUCTION PROCESS AND QUALITY CONTROL

• Inputs: Raw materials, machinery, infrastructure, workers, space,

layout
• Production Function: Modeled using Cobb-Douglas function
• Aggarwal's Experience: Ensuring high-quality production
• Latex Glove Manufacturing: Customized machinery, automation
• Machine Layout: Impact on output and waste reduction
• Process Controls: Real-time monitoring, adjustments for quality
• Linear Speed: Balancing speed for quality and efficiency

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 EARLY CHALLENGES AND GROWTH STRATEGIES

• Initial Challenges: Limited finances, network reliance

• Non-Standard Processes: Procurement, orders, labor recruitment

• Cash Flow Issues: Supplier demands vs. credit purchases

• Customer and Supplier Agreements: Poorly drafted, loyalty impact

• Building a Network: Establishing reliable suppliers, loyal customers

• Growth over Time: Successful network establishment

MEDSTAR POLYMERS 4
SITUATION OVERVIEW OF MEDSTAR POLYMERS
• Vineet Sharma, sole owner of MedStar Polymers

• Medical-grade latex glove manufacturing company in India

• Significant order received from Vinayaka Mission Hospital: 80,000 gloves

• Running at full production capacity, struggling to meet orders

• Dilemma: unable to fulfill huge order, potential financial relief and profit

• Pandemic impact: Development of vaccines, decrease in COVID-19 cases

• Likelihood of decreasing glove demand in H2 2021, possibly last bulk order

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STRATEGIC DECISION AND CHALLENGES

• Assistant manager suggests new production line, but Vineet hesitates

• Vineet's belief in optimizing existing production line

• Challenges of increased capacity: resource requirements, labor, materials

• Resource constraints exacerbated by the pandemic

• Decision impact: coping with input shortages, rising prices

• Urgent need for efficient action to benefit from demand surge

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 AN OPPORTUNITY RIFE WITH NEW CHALLENGES
1.SEIZING THE OPPORTUNITY
• January 2020: first covid-19 case reported in India.
• Identified potential in increased demand due to crisis.
• Modified machinery using local connections for enhanced production.

2.PRODUCTION EXPANSION & LOCKDOWN IMPACT

• Accepted orders, expanded production using unused capacity.
• Government lockdown in march 2020 paused production.
• Manufacturing resumed for essential industries from April 17, 2020.

3.MANAGING DEMAND SURGE & LEAD TIME

• Hospital demand surged by over 70% during peak crisis.
• Lead time increased to 120 days due to high demand.
• Factory utilization at 95–100% revealed supply chain issues.

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MEDSTAR POLYMERS
 AN OPPORTUNITY RIFE WITH NEW CHALLENGES
4.Challenges in Production & Distribution

• Initial benefits: Favorable prices, weak input costs, capacity.

• Deepening pandemic led to disruptions:

• Extended lockdowns, import-export restrictions.

• Transport and travel limitations.

5.Coping with Growing Demand

• Coping with increased demand as economy reopened.

• Industrial consumer orders further added to challenges

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 SUPPLY CHAIN MANAGEMENT ISSUES

1.pull Demand Strategy & Lean Manufacturing:

1. Glove industry: Customer-driven production.

2. Lean manufacturing: Reduced costs via minimal inventory.

3. MedStar: Lack of competitive procurement setup.

2.Supplier Dependency & Adaptation:

4. MedStar: Few suppliers, limited flexibility.

5. Competitors: Diverse suppliers for cost efficiency.

6. Vineet: Reliable contacts for responsive sourcing.

3.Pandemic-induced Disruptions:
7. Import restrictions: Disrupted regular supplies.

8. New suppliers: Higher prices, advance payments.

9. Lockdown & travel: Unexpected delays. MEDSTAR POLYMERS

 COPING STRATEGIES & ENVIRONMENTAL
CONSIDERATIONS

4.Diversification & Lessons from Single Sourcing:

• Single sourcing vulnerability in volatile times.

• Embracing diversification for resilience.

5.Rising Input Costs & Material Constraints:

• Natural rubber costs rise due to limited supply.

• Shift to nitrile to mitigate uncertainties.

6.Environmental vs. Economic Considerations:

• Nitrile adoption for cost-effectiveness.

• Vineet's ecological concerns with non-biodegradable gloves.

 COPING STRATEGIES & ENVIRONMENTAL
CONSIDERATIONS

7.Packaging Ambiguity & Cost Impact:

• Confusion around packaging as essential/non-essential.

• Operating costs rise due to delayed production.

8.Price-Taking Dynamics & Consumer Impact:

• MedStar's challenge to transfer cost increases.

• Balancing economic pressures with consumer expectations.

 HUMAN RESOURCE MANAGEMENT: FLOATING
WORKFORCE AND LABOUR
VINEET’S STRUGGLE ON LABOUR POWER

 Medtstar did not have a formal structure

 Vineet managed many activities with the help of medstar manager so while the
management and supervisory staff work fixed Semi skilled and unskil00led
workers were hired on contract basis the Semi skilled and unskilled workers were
important yet uncertain input in Vineet production process
 most of these workers were migrant from Eastern you Uttar Pradesh and Bihar
for higher through labour contractor
 HUMAN RESOURCE MANAGEMENT: FLOATING
WORKFORCE AND LABOUR

• These contractors brought in labour for construction companies in

Industrial Area and provided left over labour to small scale enterprises
such as medstar.
• Because of the pandemic most of the labourer returned to their home
states.
• Vineet managed to retain the labors for the initial months by providing
advanced payments, dispensary facility, emergency medical assistance
and housing facility near factory area
 COVID 19 AND DEPENDENCY ON LABOUR

 On the other hand many workers returned to their home

around November for Diwali festival and did not returned
due to second wave of covid 19
 The decreased level of accessible labour started posing a
direct risk to output as production dependency dependency
on labour that is the output elasticity of labour was nearly
0.3. this implied 10 percentage of decrease in the labour
would result in 3%of decrease in output
 CUSTOMER RELATED
ISSUES
PROMOTIONAL ACTIVITIES
 Met star did not have dedicated sales force
 It's marketing approach war subtle word of more promotion among manufacturers in the
industrial area
 On the average of 85 percentage of company sales came locally from nearby customers in
the automotive and manufacturing industries food services and food processing industries

GLOVES QUALITY
 Medstar customers preferred its gloves for their superior quality and unique fingertip
texture design which effectively preventive slippage by offering and enhanced grip
 With covid 19, the demand from hospitals Rose 20 to 50%
 As industrial customer, the demand was low, Vineet could cater the increased demand.
 THE PULL DEMAND STRATEGY & DISAPPOINTMENT
OF CUSTOMER

 The economy was released and demand

from industrial customer also started rising.,
Production failed to catch up
 The pull demand strategy resulted in a four
month order backlog
 Vineet could not accept more orders and
made excuses for long standing customer
 He tried to seek attention and co-operation
and understanding from customers and fulfil
the front line orders on priority
 But his medical customers resulted in delayed for other loyal
customers
 Orders were high and price of the gloves very rapid and
customer demand surged
 Competitors of vineet aggressively expanded their capacity to
meet orders and also production line became inevitable
 Vineet could not miss this phase of revenue growth
CURRENT ISSUE
•Vineet remembered his managers wary remark: “We may have the issue of
financial resources as of now and investment in production line might seem
risky and expensive, but nothing is more expensive than a missed opportunity”

•By accepting this order meant a surge of 160% and it felt not reasonable to
produce such an amount at the current level of capacity.
Capital Investment and Regulatory Approvals:
• Significant capital investment (minimum ₹2 million) required.
• Regulatory approvals from the Environmental Protection Agency necessary.
Production Line and Resource Constraints:
• Adding a new production line took 4 to 6 months.
• Limited access to skilled/unskilled workers and raw materials due to
COVID-19 restrictions.
Production Delays and Demand Concerns:
• Many factories experienced about two months of production delay.
• Installation completion might coincide with the end of the COVID-19
crisis, potentially reducing demand.
Production Delays and Demand Concerns:

• Many factories experienced about two months of production delay.

• Installation completion might coincide with the end of the COVID-

19 crisis, potentially reducing demand.
Risk to Demand Sustainability:
• Ramping up production carried the risk of unsustainable demand.
• Difficulty forecasting demand due to uncertainty about the pandemic's
extent and duration.
Pre-Pandemic Demand and Anticipated Sales Growth:
• Pre-pandemic, global glove demand grew at 10% annually.
• Expected eventual return to 10% growth after the pandemic.
Sales Growth Projection and Excess Supply:

• Anticipated sales growth slowing down due to excess inventory.

• Possibility of a market oversupply post-pandemic, leading to

decreased demand.

Oversupply Impact on Market:

• Consumers might clear surplus stock before placing new orders.

• Expected decrease in glove demand for the coming years.

Decision-Making Factors for Courses of Action:

• Choice between actions influenced by factors like input

productivity, costs, marginal and incremental revenue/cost, etc
NEW COMPETITORS AND INDUSTRY DYNAMICS:

Diversification into Glove Manufacturing:

• Companies from various sectors entering rubber-glove manufacturing.
• Attracted by increased usage due to hygiene standards, aging population, and
clean manufacturing, leading to higher profit margins.
Limited Immediate Threat:
• New entrants not expected to generate substantial profits due to high start-up
costs and plant gestation periods.
• Immediate threat to MedStar considered low.
Long-Term Impact on Price and Competition:
• New competitors could eventually lower average glove
prices by increasing supply.

• As demand tapered off over time, industry competition

would shift to volume-driven and low-cost production.
LABOR SHORTAGE AND WORKFORCE CHALLENGES:
Labor Shortage Impact:
• Region experiencing labor shortage affecting small enterprises like MedStar.
• Difficulty in procuring labor due to shortage.
Recruitment Challenges:
• Vineet struggled to hire enough workers even after offering a 15% wage increase.
• Competitive wage rate needed to attract a skilled workforce.
Competitive Wage Rate:
Consideration of a 25% increase in basic pay to attract and hire local workers
without relying on contractors.
Cost and Profit Margin Impact:
1.Higher wage rates might lead to better-qualified workforce but squeeze profit
margins.
2.Balancing competitive workforce with cost-effectiveness.

Sticky Wage Rates:

1.Wage rates anticipated to remain resistant to downward adjustment after the
health crisis subsided.

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 NITRILE OR NATURAL RUBBER?
Innovative Solution for Glove Manufacturing:
• Vineet discovered an alternative formulation of natural latex and a process to eliminate protein
allergies.
• This innovation could make glove production faster, energy-efficient, and reduce allergy
concerns.
• The new formulation allowed for thinner gloves with maintained strength, sustainability, and
lower allergen levels.
• These innovations were experimental and untested on a large scale.

Challenges and Considerations:

• Innovation during a critical time was risky; failure not an option due to current circumstances.
• Lack of technical expertise and competence posed a challenge for successful implementation.
• Nitrile latex prices increased, narrowing the price gap with natural rubber.
• Customer preference and profitability were crucial for the company's survival.
Decision Points:
• Vineet faced the dilemma of adopting the new formulation or sticking with nitrile
like others.
• Balancing customer preference, profitability, and innovation risk was a critical
decision.
• Addressing the disruption of inputs like semi-skilled and unskilled labor was
essential.
• Deciding whether to scale up by adding a new production line or optimizing the
existing one was a key consideration.

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