‘Sulzer Pumps is a supplier of advanced merchandises and services who can fulfill client demands in motor pumping. Their fabrication installations are located on all continents with gross revenues offices, service Centres and representatives in more than 150 states around the Earth ‘ ( Sulzer, 2008 ) . Sulzer pumps ‘ merchandise portfolio caters chiefly oil & A ; gas and hydrocarbon industry. Sulzer had developed a new pump and is anticipated to establish the new merchandise in market within the following 18 months. Subsea[ 1 ]industry is one of the most exciting and fastest turning engineering sectors in the universe. Because it is an efficient and environmentally friendly manner of bring forthing oil and gas, increasing Numberss of subsea Wellss are being installed around the universe. The oil and gas development undertakings are now forecasted to be shifted to the universe ‘s most distant locations and in utmost environments, forcing out into 8,000 ft H2O deepnesss or beyond and traveling several hundred stat mis offshore. Inventions in subsea engineering will play a vitally of import function in enabling the executing of these undertakings and will organize the footing of future ambitious programs ( Parshall, 2008 ) . This study considers the tendency in the primary and secondary factors for subsea technology and related pump fabrication section. The possible impact of alterations in the selling environment both external and internal for Sulzer pumps Limited are taken into history for calculating the effectual market demand for the new Sulzer pump in the subsea section. The fiscal viability and competitory pricing determination for the new pump merchandise is analysed and recommendations for competitory selling scheme are elucidated.
Overview of Sulzer pumps:
Sulzer was founded in the twelvemonth 1843 in Winterthur, Switzerland. Sulzer offer broad portfolio to concern spouses in the Oil & A ; Gas and Hydrocarbon Processing Industries, to contractors and operators of Pulp & A ; Paper Millss and Power Generation Plants every bit good as for clients in the Water Treatment & A ; Distribution, Food, Metals and Fertilizer concerns. The cardinal market section for Sulzer pumps with comparatively higher growing potency is Subsea technology sector for oil extraction which this study considers specifically in item.
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Figure Market section for Sulzer pumps ( Sulzer pumps 2008 in figures, 2010 )
The geographical range for Sulzer pumps ( as indicated in the figure 2 ) is one of the cardinal factors for successfully providing to the demands of the clients. At the same clip by incorporating the usage of planetary supply spouses to guarantee both natural stuffs and factored points are supplied to the highest quality criterions and puting in state-of-the-art mills, machine tools, packaging and trial installations, Sulzer pumps is acute in distinguishing its merchandise packages ( i.e. Product + Service ) from its rivals. These uninterrupted betterments would profit to develop a competitively more advanced fabrication doctrine.
Figure Geographical client cleavage for Sulzer pumps ( Sulzer pumps 2008 in figures, 2010 )
Marketing analysis for Sulzer pumps:
External environment analysis:
The oil industry extremely influences the market demand for Sulzer pumps. The subsea technology engineering being the efficient and environmentally friendly manner for oil and gas extraction, the growing of the subsea market section depends on the factors impacting the demand and supply features of oil industry.
World Oil industry analysis:
Oil histories for between 34 % and 37 % of the universe ‘s primary energy. The population growing drives the increasing demand for nutrient, H2O and energy and besides topographic points increasing force per unit area on the environment. Supplies of oil, gas, coal and U are forecasted to top out as militias are acquiring depleted ( as reflected in the petroleum oil monetary value addition ) . At the same clip, fright of clime alteration is seting force per unit area on the energy sector to travel off from C firing to atomic, solar and other environmentally friendly energy beginnings. The increasing demand for oil in future thrusts the demand for geographic expedition of new oil Fieldss by upgrading and deploying advanced engineerings. The factors advancing the enlargement of the production capacity of oil are
GDP growing and population growing are cardinal drivers of energy demand. The population of the universe doubled from 3.2 billion in 1962 to 6.4 billion in 2005 and is forecast to turn to 9.2 billion in 2050 ( UN, 2004 ) .
Figure World population growing vs. Energy ingestion ( Westwood, Oil and Gas Business Prospects, 21, 2009 )
Figure World energy ingestion tendency ( Westwood, 2006 )
Subsea market analysis:
Subsea engineering comprises wellhead and related production substructure placed on the seafloor, instead than on a conventional surface platform, a spar, or a semisubmersible or other drifting production installation. Subsea Wellss and substructure are tied back by flow lines, risers, and umbilical to come up bring forthing installations that may be straight overhead or many stat mis off, perchance even onshore. While deploying subsea engineering can be really expensive, as H2O depths addition, conditions grow harsher, and locations become more distant, the option of constructing a larger, heavier surface installation to keep the wellsprings, pumps, separation equipment, and other substructure is frequently more expensive, sometimes prohibitively ( Parshall, 2008 ) . In order to run into the lifting demand, the future enlargement for oil supply capacity could be classified based on the extraction manner as indicated in the figure 3.
Figure Global trends in oil extraction section ( Westwood, 2009 )
From the above graph the following cardinal points could be elucidated
Offshore sector is soon 35 % of universe production of oil.
Deepwater sector which was 3 % of production in 2002 is on an increasing tendency and is expected to be 10 % by 2012.
After 2012, deepwater is the lone sector of the three which would go on to turn.
The future oil geographic expedition tendency as predicted by Westwood ( 2009 ) indicates the importance of the turning deepwater sector. The hereafter of the companies involved in the subsea technology is rested upon breakthrough invention and its rapid commercialisation that caters to the altering tendencies in the oil and gas enlargement.
Figure Global oil geographic expedition tendency prognosis ( Westwood )
Subsea market PEST analysis:
To foretell the industry tendency it is necessary to understand the implicit in factors that influence the subsea market. The PESTEL analysis would be a really utile model for analyzing the primary and secondary factors act uponing subsea market outgo[ 2 ]( CAPEX & A ; OPEX ) .
Table PEST analysis for Subsea market
POLITICAL
Tax and subsidies for oil corporations and related market providers ( specifically National oil companies are emerging stronger )
Political disparities and instability affects new investings in the sector
ECONOMIC
The oil monetary value rising prices ( volatility in particular ) besides influences
Credit crunch:
The economic system has been affected significantly in 2008 by a terrible deficiency of liquidness. Many concerns and persons are confronting serious fiscal adversity as a consequence.
Globalised position:
The universe ‘s markets are going progressively more united up due to betterments in e-commerce, planetary houses, and the remotion of trade barriers supplying both chances and menaces for planetary position of houses.
The demand for alternate beginnings of energy ( replacements for oil specifically not renewable ) affects oil geographic expedition
With the nature of oil and gas partnerships altering, companies who nurture relationships with national operating companies ( NOCs ) will go on to turn
SOCIAL & A ; ENVIRONMENTAL
Demand for oil merchandises ingestion is influenced by the increasing population growing
Skilled work force issue:
“ 13 % of the current work force will hold retired by 2007 and 33 % by 2012 ” ( Society of Petroleum Engineers )
Environmental issues related to oil spill over impacts raise concern over restricting offshore oil extraction and exchange to alternate beginnings of energy
TECHNOLOGICAL
The challenges to subsea development posed by deep H2O and long distance, referred to as long-distance bringing direction ( LDDM ) , are to put in a system that will non neglect and that can be maintained
Shift to deepwater oil extraction in future paves manner for subsea technology which is less expensive and more effectual than the option of constructing a larger, heavier surface installation to keep the wellsprings, pumps, separation equipment, and other substructure
Subsea market future investing tendency:
The planetary tendency in the increasing demand along with increasing depletion rate of bing oil Fieldss imposes supply challenges for future oil bring forthing companies. The National oil companies ( NOC ) are fast deriving market portion and besides puting in increasing oil production. An indicant of the tendency in capital and operating outgos of planetary oil bring forthing companies is shown in the figure 5. The tendency portrays increasing capital investing in future which implies the addition in demand for subsea equipments.
Figure Trends in CAPEX vs. OPEX ( Westwood, Oil and Gas Business Prospects, 21, 2009 )
The split up of the overall outgo in subsea technology is given in the figure below which indicates that the bulk of the outgo spent is in subsea Wellss portion.
Figure Split up of outgo in subsea technology ( Westwood, Global Offshore Prospects, 2006 )
Customer analysis:
In the present scenario the subsea ( off shoring ) market spread is concentrated in Africa, American and Asiatic continents. The enlargement in the subsea market for the hereafter is forecasted to be in African, Asian and Australasian part which forms the focal point for new investings ( Figure 7 ) .
Figure Trend for geographical subsea cleavage ( Westwood, Oil and Gas Business Prospects, 21, 2009 )
A elaborate state wise market cleavage of the subsea industry potency on the footing of oil militias is given below
Figure World oil militias by part
Segment Targeting:
The cardinal subsea market parts where the pump makers would be viing for in future is portrayed in the figure below which indicates the comparative degree of capital outgo forecasted to be spent by companies across the universe.
Figure Future offshore capital outgo from 2009 to 2012 ( Westwood, Oil and Gas Business Prospects, 21, 2009 )
The hereafter market precedences are altering from the focal point on Multinational oil companies to National oil companies ( NOC ) . The oil industry client cleavage based on the above discussed consideration is in the Table
Table Changing Prioritisation in the oil industry
Multinational oil companies
National oil companies
Changing
PrioritisationExxonMobil
BP
Entire
Chevron
ConocoPhilips
Erythema nodosum leprosum
Petrobas
Sonangal
Gazprom
Saudi Aramco
ONGC
ADNOC
Qatar crude oil
Petronas
CNOOC Limited
Pemex
The Gulf of Mexico with its enormous potency for future oil geographic expedition poses a enormous chance for deepwater oil extraction. Sulzer pumps could concentrate in this part with the long term position to pin down the hereafter market demand from the uncommitted militias.
Table Gulf of Mexico oil production scenario ( Karl, 2007 )
The aiming tactics for Sulzer pumps could be classified into three sections based on the tendency in the subsea market Capex tendency and future growing potency ( as in Table 4 )
Table Targeting tactics for Sulzer pumps
Main markets ( present )
Extra Precedence markets ( proposed )
Markets to be observed
( hereafter )
Angola
Brazil
China
Mexico
US ( GOM )
UK ( for atleast following 3 year )
Australia
Canada
India
Dutch east indies
Kazakhstan
Malaya
Nigeria
Algeries
Libya
Sinagpore
South Korea
Venezuela
Rival analysis:
The cardinal rivals for Sulzer pumps in the subsea market had been selected by sing the cardinal parametric quantities such as geographical presence, new merchandise development, market portion and tendency in the new order contracts. The cardinal strategic group[ 3 ]that Sulzer has to vie with is ( indicated in the figure ) below,
Framo subsea multiphase pumps
Flowserve
G.E ( General Electrical )
Bornemann
CAN-K
Table Multiphase pumps of cardinal rivals ( Scott, p. 4 )
Internal analysis:
The analysis of the present scenario linking the internal capablenesss and short falls with regard to the alterations in the external is really critical for achieving successful distinction ( merchandise & A ; service ) and sustainability. The SWOT analysis for Sulzer pumps could give a image of the how the company is positioned/possessing capableness to provide to external environment.
Table SWOT analysis for Sulzer pumps
Strength
Failing
Feats
Defend
Leading planetary provider in bring forthing high efficient units
Highly dedicated R & A ; D wing
Development of new engineerings ( Poseidon – Helico axial multi stage engineering )
Strong client relationship
Develop
Gross saless missing in mush and paper sector
Frequent alteration of Torahs in oil and gas industry
Weak record of working with little industries
Fluctuating Trading currencies
Opportunities
Menaces
Strong oil market in approaching hereafter
More Extremist deep good undertakings in future ( as indicated in external environment analysis )
Huge investing & A ; subsidies by the authorities ( specifically NOCs ) for deep H2O undertakings
Culture alteration to exchange to replacements ( Use of renewable energies )
Environmental effects and related protests might act upon legislative steps
Government ordinance and political forces driving trade disparities
Fiscal analysis for Sulzer pump:
The fiscal justification of the new pump merchandise is critical for sing the concern viability of the merchandise. The study takes into history of a few basic premises to cut down the complexnesss of sing existent clip informations ( which would be beyond the range of the assigned work ) .
The costs considered are direct stuffs, direct labor and operating expense costs in general
The operating expense is to the full absorbed ( @ 100 % ) on the footing of direct labor cost
The sale of pumps per client is assumed to be 3. Each client would buy three pumps per order
Pricing policy:
Monetary value is the charge paid/realised by the client for owning/using the product/service for the full life of the product/service used ( i.e. Sum of all costs including chance costs till disposal/resale of the merchandise ) . Price is one of the four cardinal elements of a selling mix and so it is really critical for Sulzer pumps to follow the right pricing policy harmonizing to the alterations in the external environment. The pricing could be done in two positions
Market based pricing
Cost based pricing
In the instance of Sulzer pumps, by sing the competitory environment and impact of cardinal elements like merchandise quality & A ; service, proficient expertness for future merchandise development and other elements would besides play a major function in
Figure Pricing picks based on merchandise life rhythm ( Best, 2005 )
Table Pump pricing utilizing Full cost pricing method ( cost plus pricing )
Year
2011
2012
2013
2014
2015
2016
DM/unit
580000.00
597400.00
615322.00
633781.66
652795.11
672378.96
DL/unit
850000.00
875500.00
901765.00
928817.95
956682.49
985382.96
Operating expense
850000.00
875500.00
901765.00
928817.95
956682.49
985382.96
A
A
A
A
A
A
A
cost/unit
2280000.00
2348400.00
2418852.00
2491417.56
2566160.09
2643144.89
Mark up %
10.00
10.00
10.00
10.00
10.00
10.00
Mark up price/unit
2508000.00
2583240.00
2660737.20
2740559.32
2822776.10
2907459.38
Break even analysis:
Break even gross revenues ( BEP ) indicates the gross revenues required to hold no loss ( no net income ) for a fiscal project.
By utilizing the equation method,
BEP = Total Fixed cost
Contribution/unit
Where Contribution/unit = Selling price/unit – Variable cost/unit
In the fiscal consideration for Sulzer pumps the fixed cost that occurs every twelvemonth is assumed merely as the operating expense cost and the entire variable cost includes direct stuffs DM/unit and direct labor DL/unit.
MOS = Actual gross revenues – BEP
Margin of safety ( MOS ) is an index of the safety degree of projected operations above the breakeven point. The higher the MOS % the lower is the fiscal hazard of incurring losingss.
Table Break even analysis for Sulzer pump
Year
2011
2012
2013
2014
2015
2016
Contribution/unit
1078000.00
1110340.00
1143650.20
1177959.71
1213298.50
1249697.45
Fixed costs ( operating expense )
5100000.00
7879500.00
10821180.00
13932269.25
17220284.79
20693042.23
BEP ( Qty )
4.73
7.10
9.46
11.83
14.19
16.56
Projected gross revenues
6.00
9.00
12.00
15.00
18.00
21.00
Margin of safety
1.27
1.90
2.54
3.17
3.81
4.44
MOS as % of gross revenues
21.15
21.15
21.15
21.15
21.15
21.15
Figure BEP for the jutting gross revenues of Sulzer pumps
Fiscal viability of the new pump undertaking:
The net nowadays value ( NPV ) for the new pump undertaking is calculated to measure the fiscal viability of the undertaking in the clip skyline considered. The premises taken into history for ciphering NPV is as below,
The clip skyline considered is for a period of 5 old ages
The residuary value of the undertaking at the terminal of 5 old ages is hard to be estimated. From the position of prudence, the residuary value at the terminal of five old ages is neglected in NPV computation.
The undertaking is assumed to be financed by bank loan and hence the cost of capital ( which is taken as the price reduction rate ) for the new undertaking is taken as the typical bank loaning rate for loans.
The hazard Beta ( ? ) for the Sulzer Company is assumed to be unchanged after taking up the new investing.
The monetary value rising prices for the factor inputs of fabrication is taken as 3 % ( as given in the assignment )
The existent options i.e. future option to put, to increase wealth or to procure competitory advantage is non considered as they could non be valued to the needed truth.
In the NPV based appraisal, a positive NPV[ 4 ]indicates that the undertaking adds value to the company ‘s overall hard currency flow and hence would increase the company ‘s wealth.
Table NPV appraisal for measuring fiscal viability of the undertaking
Investing Appraisal
Figures in GBP
Year
2010.0
2011.0
2012.0
2013.0
2014.0
2015.0
Gross saless volume
6.0
9.0
12.0
15.0
18.0
Gross saless gross
15048000.0
23249160.0
31928846.4
41108389.7
50809969.7
Direct stuffs
3480000.0
5376600.0
7383864.0
9506724.9
11750312.0
Direct labor
5100000.0
7879500.0
10821180.0
13932269.3
17220284.8
Overhead rate
100.0
100.0
100.0
100.0
100.0
Operating expense absorbed
5100000.0
7879500.0
10821180.0
13932269.3
17220284.8
Entire cost
A
13680000.0
21135600.0
29026224.0
37371263.4
46190881.6
Investing
-7300000.0
Net hard currency flow
-7300000.0
1368000.0
2113560.0
2902622.4
3737126.3
4619088.2
Discount rate @ 12 %
1.0
0.9
0.8
0.7
0.6
0.6
Present value
-7300000.0
1221624.0
1684507.3
2066667.1
2376812.4
2619023.0
A
A
NPV for 6 old ages
5482790.2
NPV for 5 old ages
2668633.8
NPV for 3 old ages
-2327201.5A
Recommendations:
Pricing policy: ( Best, 2005 )
The rival analysis indicates the possible rivals who are good established in the market. To vie with the possible planetary participants the monetary value distinction scheme should be proactive by type. During the initial phase of merchandise life rhythm, the cost plus pricing attack could be used ( This could change from a period of 1 to 3 old ages depending on the rival ‘s reaction ) . Subsequently Sulzer pump could derive ( first mover advantage specific to the new pump ) sustainable market portion by preemptive monetary value film editing and value based pricing. Since the competition for market portion in the concern environment is non merely based on monetary value ( comparative to consumable merchandises ) other factors like merchandise quality, client familiarity and integrating with other subsea contractors are critical to sustainable concern excellence.
Increased coaction and merchandise simplification together with specializer provider and globalising the procurance processes & A ; operating processs would beef up the supply concatenation ( supply concatenation scheme ) .
Reducing the graduated table of subsea systems is indispensable for greater flexibleness and cost nest eggs in field development, particularly when boring smaller marks over the life of a field.
Focus on specialised fabrication by understanding and providing to the demands of the operators while effectual incorporating the other subsea contractors would increase the overall value of the value concatenation for Sulzer pumps.
By using thin fabrication methods and/ following methods for high quality integrated into ain fabrication and at providers ( zero defect doctrine – Six Sigma ) could turn out to be utile for increasing the value delivered to the client.
Decision:
The subsea market section is one of the fast growth sectors and could do to keep its importance for pump makers. With the positive mentality of the market it could be elucidated that competition from pump makers for market portion would be high. Sulzer would necessitate to specifically aim the client sections with highest growing potencies with distinguishing scheme. Continuous merchandise sweetening and merchandise development, improved supply concatenation, planetary presence but local distinction, endeavoring for universe category proficient expertness and client relationship direction are recommended to be some of the edifice blocks for Sulzer to work future chances.
