Reconfiguring the Supply Chain at Xtra Power Energy Systems

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Excerpts...

In 2005, Xtra Power Group began its operations in eastern India from Kolkata, West Bengal, with an initial investment of Rs. 60,000. By 2013, it was considered one of the leading suppliers of automotive components in the domestic market. Xtra Power Group had two separate business divisions: Xtra Power Auto Industries and Xtra Power Energy Systems. The Auto Industries division offered an exclusive range of automotive components for two wheelers like clutch plates, brake shoes, brake lining, pads, and other spare parts. Xtra Power Energy Systems (Xtra Power) was headquartered in Ghaziabad, Uttar Pradesh (a state in northern India). Its product portfolio included new and reconditioned bank batteries, sine-wave and digital inverters, solar lanterns, and Uninterruptible Power Supply (UPS) systems. Xtra Power assembled two types of batteries: open shielded, and heat shielded. While open shielded batteries could be repaired or reconditioned, heat shielded batteries were disposed of as scrap. During the assembly process, the company attached colored stickers on the open shielded batteries for easy identification......

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The average retail price of heat shielded batteries ranged between Rs. 8,000 and Rs. 20,000 whereas that of open shielded batteries ranged between Rs. 9,200 and Rs. 25,000 depending on the capacity of the batteries. In both the cases, the retailers commanded a margin of 9 to 10%. The margin for Xtra Power was 30%. Reconditioned batteries were sold at a much lower retail price, and ranged from Rs. 4,700 to Rs. 10,500. However, the retailers enjoyed a higher margin of 30 to 35% on the sale of reconditioned batteries. For Xtra Power, the margins were an overwhelming 250 to 350%......

The production of open shielded bank batteries involved the assembly of four major components: the internal plates (made of lead), the electrolyte (popularly known as battery acid), the lead terminals, and the resilient plastic container (See Exhibit IV for a diagram). A typical battery contains six internal lead plates called cells. Once all the components had been procured, Xtra Power had a production lead time of 2 days. Since its inception in 2005, Xtra Power Energy Systems had maintained a continuous relationship with the same suppliers.....

The retailers collected the used batteries from customers and contacted Cretto for pick up transport back to the manufacturing plant in Ghaziabad when they reached a lot size of at least 25 batteries. According to Sheikh, Xtra Power’s Operations Head.Once the retail shop gathered the minimum return stock of 25 units, Cretto transported these back to the Ghaziabad plant where they underwent reconditioning. These reconditioned batteries, when ready, were redistributed to the retailers for sale at prices far lower than that of new batteries.......

From the quarterly feedback sessions with the retailers, Dutta became aware of the retailers’ growing frustrations with Cretto. The retailers were unhappy with the increased warehousing costs, a result of their stocks waited for reconditioning. Till late 2012, Dutta chose not to take up this issue with Cretto seriously keeping in mind the longstanding relationship with this leading logistics provider. He just passed on the feedback from the retailers to Cretto and requested it to handle the issues raised by the retailers better. ......

As Dutta waited for Nanda, Sheikh, and the DLSP representative, his thoughts went to the meeting he had had with Nanda and Sheikh earlier in the week. At that meeting, Nanda and Sheikh had reviewed the possible complications associated with reconfiguring the supply chain entirely and had presented Dutta with four possible options.......

Exhibit I: Structure of Indian Battery Industry
Exhibit II: Key Financials of Xtra Power Energy Systems
Exhibit III: Xtra Power Battery Specifications
Exhibit IV: Assembly of an Xtra Power Bank Battery
Exhibit V: A Map of Delhi NCR Region