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Supply Chain Engro

Management (Iqra University)


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[Company name] SUPPLY CHAIN


MANAGEMENT
- LOGISTICS
CRITICAL SUCCESS FACTORS OF EFFECTIVE
LOGISTICS AT ENGRO FOODS LTD. (OLPERS)

BY: SAAD MALIK


ALI ASGHAR MARVI
NOOR MIAN
OMAIR KHALID
BILAL SOHAIL
501-A
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abbas

TABLE OF CONTENTS

S.NO. DESCRIPTION PG. NO.


1 LETTER OF ACKNOWLEDGEMENT 02
2 ABSTRACT 03
3 LITERATURE REVIEW 04
4 RESEARCH OBJECTIVE 05
5 ENGRO CORPORATION 05
6 ENGRO FOODS LIMTED 06
7 LOCATION OF THE OFFICES 07
8 ENGRO FOODS VISION 08
9 ENGRO FOODS MISSION 08
10 CORE VALUES 08
11 CORE COMPETENCY 09
12 MAJOR COMPETITORS 09
13 ENGRO FOODS BRANDS 10
14 SUPPLY CHAIN MANAGEMENT AT ENGRO FOODS 12
15 OBJECTIVES OF SUPPLY CHAIN MANAGEMENT 12
16 SUPPLY CHAIN STRATEGY AT ENGRO FOODS 13
17 SUPPLY CHAIN STRUCTURE AT ENGRO FOODS 13
18 ENGRO FOODS EFFECTIVE LOGISTICS 14
19 INTEGERATED LOGISTICS 14
20 INBOUND LOGISTICS 14
21 OUTBOUND LOGISTICS 15
22 DISTRIBUTION NETWORK 17
23 REVERSE LOGISTICS 17
24 FUTURE PLANS 18

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25 BENCHMARKING AT EFL 18
26 ISSUES & CHALLENGES 19
27 RECOMMENDATTIONS 20
28 REFERENCES 21

LETTER OF ACKNOWLEDGEMENT

Institute of Business Administration

KU Circular Rd, Karachi 75270


(021) 111 422 422, Fax: (+92-21) 924-3421

http://www.iba.edu.pk

10 December 2016

Subject line: Letter of Acknowledgment

Dear Sir,

We are pleased to present our final term report on Supply Chain Management.

We deeply acknowledge your support and help for this report. We will be looking forward to
discuss its contents with you and will welcome the feedback from your end. We are very
grateful to you as the concepts and theories learnt in this course up till now, helped us to
prepare this term report. The practical implication of these concepts and theories cannot also
be ignored.
This report covers all the reliable areas of concern and contains all the appropriate information,
as per our course outline. We immensely feel proud of the milestone accomplished; and would
like to acknowledge our gratitude of getting the maximum out of us and pushing us to our
boundaries to help us realize our true potential. Moreover we would also like to thank the

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people who directly or indirectly helped us with our report. We thank you for this great
learning opportunity.

Regards,

SAAD MALIK
ALI ASGHAR MARVI
NOOR MIAN
OMAIR KHALID
BILAL SOHAIL

ABSTRACT

The reason why we choose Engro Corporation is that it is one of the most popular and
developing industry of Pakistan and because of its massive size, the intensity of the role of
supply chain is critical in the overall success of this giant organization. The purpose of this
project is to critically examine, understand & analyze the practical implications of supply chain
management course in Engro Foods Limited. For this purpose the method which we used was
the analytical examination conducted through interview with representatives of Engro Foods
Limited and detailed study of internet articles on Olpers, Product of Engro Foods Limited. This
report is mainly centered on Olpers as it is the star product of EFL and has the strongest share
among all products of EFL. Engro Foods Limited continues to experience strong growth due to
many reasons in which above all is its Brand Equity. A critical problem which acts as a hurdle for
many organizations that prevents them from establishing a full-fledged supply chain
department is ‘high cost’ associated with it. So we also wanted to analyze the cost-benefit
analysis that would result with a supply chain department. One of the main findings of this
report is that Olpers, EFL’S Flagship Brand is at its growth stage & it made its place in the
current competitive market due to many factors, one of which is EFL’S effective supply chain
management. So given the highly competitive nature of the Dairy Products market, need of
having smooth & flawless supply chain have traditionally been on the high side & Engro Foods
Limited are on the right track which will be emphasized in this report.

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LITERATURE REVIEW (A)

Research paper: The impact of logistics performance on organizational performance in a supply


chain context.

By: Kenneth W. Green Jr., Dwayne Whitten and R. Anthony Inman

Citations: 92

The paper’s aim is to assess a logistics performance model incorporating logistics performance
as the main determinant of supply chain management strategy on which the organizations
success depends. The method through which this study was conducted was by collecting data
from a national sample of 142 plant and operations managers. This data was analyzed using a
structural equation modeling methodology. The findings from this study indicate that logistics
performance is positively impacted by supply chain management strategy that eventually leads
to the success of the organization and in turn results in financial stability and that both logistics
performance and supply chain management strategy positively impact marketing performance,
which in turn positively impacts financial performance. Some limitations of this study were that
to compete at the supply chain level, manufacturers must adopt a supply chain management
strategy. Such a strategy requires integration and coordination of key external processes such
as purchasing, selling, and logistics with supply chain partners whereas in this study the focus is
limited to the impact of logistics performance on organizational performance within a supply
chain context. The importance of this study is that as manufacturers work to improve the
logistics processes, they support their organization’s supply chain strategy, resulting in
improved performance for the overall supply chain and ultimately their manufacturing
organizations. Organizational managers are being asked to focus directly on supply chain
functions such as logistics to bolster the competitiveness of the supply chains in which their
organizations are integral partners. This study provides evidence that a supply chain focus will
enhance logistics performance, which will ultimately result in improved organizational
performance.

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RESEARCH OBJECTIVE:

The research objective of this report was to highlight the important supply chain practices followed in
Engro Corporation. Specifically, we targeted the Logistics management segment. Our aim was to point out
the logistics process and structure followed in Engro Foods limited. Simultaneously, we also wanted to
analyze the different methods of logistics that Engro Foods limited is using to procure, forward and
distribute its product (Olpers).

ENGRO CORPORATION

Engro stands for “energy for growth”. From inception, Engro is a legacy of continuous growth,
new challenges and fulfilled promises. From fertilizers to dairy products, business solutions to
PVC resin, power generation to commodity trade, at Engro their ambition is to become the
premier Pakistani enterprise with a global reach. Engro Corporation is one of the leading

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Pakistani business conglomerates with stakes in the fertilizer, food, power generation,
petrochemicals, automation and terminal storage industries. As a holding company its
subsidiaries include:

Engro Engro Fertilizers Limited

Foods Limited

Avanceon Limited

Engro PowerGen Limited

Engro Polymers and Chemicals Limited

Engro Vopak Limited

ENGRO FOODS LTD:

Founded in March 2006, Engro Foods Limited is a producer and marketer of dairy products. The
company’s brands include Olpers Milk, Omore ice cream, and Tarang, Olwell, and Olpers cream.
To support these brands and their highest standards of quality, Engro Foods has invested heavily
in milk processing and milk collection infrastructure. Headquartered in Karachi, Pakistan, it has
offices in seven cities across the country, as well as processing plants at Sukkur and Sahiwal. Engro

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Foods is a subsidiary of Engro Corporation Limited, one of Pakistan’s most respected enterprises
with more than 40 years of business in the fertilizer and chemicals industry. In the five years since
its launch, Engro Foods has seen a rapid growth in sales and market share.

ENGRO FOODS LIMITED is the 100% owned subsidiary of ENGRO. The company's milk production
capacity is 700k litters per day. Moreover an investment plan of $ 3.4 billion in Engro Foods has
been approved by the board for: expanding capacity to 900k liter per day, expanding milk powder
capacity to 70 kilo per day, import of 1000 cows and an ice cream plant. The company is all set
for growth as the milk business profitability is increasing due to increasing consumption of milk
and increasing prices of dairy products. Besides selling milk, the company also sells related
products such as creams and unbranded products such as ghee, and recently introduced a milk
whitener; namely "Tarang".

LOCATION OF OFFICES:

The head office of Engro Foods is located near Sea View, Karachi.

There regional head offices are in :

Karachi located in Business Avenue Shahrah – e - Faisal


Lahore
Multan
Rawalpindi
Peshawar
Gujranwala

Why did Engro enter the food business?


Engro Corporation as part of their strategy to diversify itself, it entered the food industry. Engro
saw big opportunity due to population growth and indigenous sourcing. Two hundred million is
a very big market to cater for which Engro Foods Limited was targeting. There are only a few
countries with such a huge population in the world. Besides Pakistan’s economy is agro-based
and can get raw material at the local level which allowed Engro to step in this business.

EFL Vision:
“To become fast growing mega Food Company & also to elevate Consumer Delight Worldwide”.

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The Company aims to generate a significant portion of its revenue from foreign operations.

Mission of EFL:
Our mission is to provide satisfaction at a competitive cost, growth in diversity, and continue to
contribute to the growth of industrialization in Pakistan by being the market leader".

We believe our success depends on our customers. Thus, our primary value is fulfillment of our
customer's needs. Our manner of achieving this success is to include value for money.

Core Values:

1. Leadership
2. Innovation
3. Diversity and International focus
4. Quality and continuous Improvement
5. Candid and open communications
6. Individual growth and development
7. Enthusiastic pursuit of profit
8. Ethics and integrity
9. Safety, Health and Environment
10. Team work and Partnership

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CORE COMPETENCY OF EFL:


Aggressive style of business: launching more products in short time.

MAJOR COMPETITORS:
Engro Foods Limited is fully aware of its competitors. The company had to consider the areas
including (product design, segmentation, target market, advertising, time to launch a new
product, time for necessary changes & constant over view). The major competitors in case of
offering the milk (main product of EFL) are:

• Nestle
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• Haleeb Foods Limited (HFL)


• Millac
• Halla
• Prime
• Nurpur
• Nirala
• Dairy Crest
Other than the brands mentioned above Olper’s also face an indirect competition from the local
milkman

EFL Brands:

1. OLPERS MILK.
2. OLPERS CREAM
3. TARANG
4. OMORE
5. OLFRUTE
6. Olwell Hi-Cal Lo-Fat (HCFL) Milk
7. OLPERS OWNSUM

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SUPPLY CHAIN MANAGEMENT AT


ENGRO FOODS

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The above chart depicts the overall supply chain management process at Engro Foods (Pvt) Ltd.
These activities can be divided into three categories as follows:

• Inbound Logistics: the receiving and warehousing of raw materials, and their
distribution to manufacturing as they are required.
• Operations: the processes of transforming inputs into finished products and services.
Outbound Logistics: the warehousing and distribution of finished goods.

Objective of Supply Chain Management at Engro Foods:

The primary objective of supply chain management at Engro Foods is to:

“Fulfill customer’s demands in the most optimum way possible by efficient management
of processes”

Basically, at Engro one of the main objective is to efficiently manage the processes that assist
them to decrease the cost and help them to become a cost leader and simultaneously also help
them to deliver customer satisfaction by their strong distribution network making their
products available at each store majority of the times. This strength of Engro comes from its
strong Supply Chain process. Thus the goal of these activities is to offer the customer a level of
value that exceeds the cost of the activities, thereby resulting in a profit margin.

Supply Chain Strategy at Engro Foods

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The supply chain strategy is obviously in line with the objective for supply chain management
which in turn is in line with the overall mission and values of the organization, all of which have
been stated above. One of the main strategy is:

“Strong distribution through effective logistics management”

EFL Supply Chain Structure

EFL’S EFFECTIVE LOGISTICS:

INTEGRATED LOGISTICS:

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Engro Foods Pakistan makes sure that their product namely Olpers is available, no matter where
you are in Pakistan.

It integrates its processes from the farm to markets, and ensures products are delivered to you
at the right time, at the right place and in the right quantity. Logistics network is thus completely
outsourced. According to one of its representatives, they have outsourced (third party logistics)
all non-core processes of their business like transportation to minimize system wide cost.

Third Party Logistics (3PL)—A growing number of companies are turning to 3PL organizations to
handle the customer fulfillment portion of their supply chain. Companies that are accustomed
to true partnering with customers and suppliers have less trouble migrating to the 3PL world
and achieving the potential cost savings. The key steps are to conduct a comprehensive search
for the right 3PL vendor, thoroughly review cost proposals and contracts to ensure there is
financial benefit, and work with the 3PL to make their operation is a seamless extension of your
company. This is one of the key success factors that has reduced company-wide costs for EFL to
deliver its product Olpers. The mechanism of how this logistics is done is described below.

EFL do have their own distribution network but transportation services are all outsourced.

INBOUND LOGISTICS:

For inbound logistics dedicated long vehicles are used. Inbound logistics concerns raw milk
transportation to the plant. Raw milk comes from dairy farms to the milk collections centers
which are forty in total & are located in different villages where quality checks are conducted
to ensure the milk quality and if it’s up to the mark than it is stored, till it reaches the 9,000 liter
capacity which is than collected by dedicated specialized vehicles to transport it to the plant
for production.

Once the vehicle reaches the plant premises, once again a quality check is repeated before the
container is emptied.

MILK COLLECTION FROM VARIOUS CITIES OF SINDH & PUNJAB

• Lakhi.
• Ahmed pur east.
• Rani pur.
• Nawab shah. Dharki.
• Dhokri
• Rohri and Sahiwaal.
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OUTBOUND LOGISTICS:

On average, every alternate day Olpers Milk truck arrives at each ware house from Sukkur and
Sahiwaal factories, and is distributed in the same amount to the distributors all over the Pakistan.

For outbound logistics trucks are used. They have 80% dedicated fleets & 20% open trucking
especially for the northern areas of Pakistan.

Outbound logistics concerns finished milk movement from manufacturing plant to the warehouse
& to distributors. There are 3 warehouses of olpers:

Sukkur (Main ware house)


Sahiwaal (Main ware house)
Rawalpindi (Central ware house)

Sukkur:
The warehouse in Sukkur is located adjacent to the manufacturing plant which covers whole of
the south i.e. Sindh & Baluchistan, the logistics usually take 1 day to arrive at olpers warehouses
in Karachi from their manufacturing factory at Sukkur. Sahiwaal:
The warehouse in Sahiwaal is located adjacent to the manufacturing plant which covers whole of
the central Punjab.

Rawalpindi:
It is a satellite warehouse with a covered area of 30,000 sq ft which is on rental basis & it costs
600,000/month. Its responsibility includes fulfilling the orders of the northern region.

Karachi:
The transportation of finished goods from Sukkur to Karachi is done through a dedicated truck
which can easily carry a 50 feet container, which is done by Naulakha Transport agency
(outsourced). Their responsibility is to pick the goods from Sukkur and deliver it to Karachi
warehouse and on average there are 15 round trips in a month.

From Karachi warehouse it is delivered to the respective distributors according to their required
orders in terms of quantities and size of packets and this is done through dedicated fleets which
are on a monthly rental basis.

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Capacity Of 50 feet Truck:


Measurements given by one of the Engro Representatives.

Size of item No. Of cartons

1 liter 934

250 ml 1552

1.5 liter 890

500 ml 1497

Distribution Networks

Olpers focus on every major city of Pakistan.


All the transportation is outsourced.
Olpers have 350 distributors across Pakistan.

According to the distribution, Pakistan is divided into three geographical zones and then in further
Regional Sales Offices.

North Zone o
Rawalpindi.
o Peshawar.
Central Zone o
Lahore o

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Gujranwala o
Multan
South Zone o
Karachi o Hub o
Punjgur o Nawab
shah

Reverse Logistics

SHELF LIFE OF OLPERS MILK: 71 DAYS

Return Policy of Olpers Milk:


Olpers Milk has an efficient return policy for inventory in case of any defect. Every carton and
item has assigned a certain batch number. If any defect is found in item or carton (in small
quantity) then the batch number of that item or carton is noted and the defected item is disposed
and if it is large number than it will taken back by the same delivery truck who dispatches the
orders to the distributors. Once the large number of defected milk is back to the company, than
it is drained. They have a normal loss rate of 0.40 % due to defected Milk.

FUTURE PLANS of Engro foods ltd.

• Company is also working on dry milk (KhushkDoodh) like cereals in coming years.

• They have planned to offer other dairy products as they are being offered by its
competitors like Nestle such as yogurt, flavored yogurt (raita), cereals etc.

• They are also considering to have their own farmhouses. This will ensure quality check
and assurance and will further help to strengthen the brand image due to backward
vertical integration.

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• Engro Foods is working with different NGOs to meet the Corporate Social Responsibility
in country. They are working with UNDP to initiate women workers program.

• They are also signing a micro financing model for dairy farming with Pakistan Poverty
Alleviation Fund (PPAF)

BENCHMARKING AT ENGRO FOODS

Engro Foods certainly believes in benchmarking in order to achieve a better standard of


performance. When the organization was being established back in March 2006, the company
and in particular its dynamic supply chain team had two options regarding the benchmark for
the company operations. It had a choice between Nestle’s extensive and well reputed Milk
Collection Centre system, or Haleeb Foods’ contractor based milk collection mechanism. It
chose Nestle as a benchmark and therefore set up its own milk collection centres based on the
layout and approach adopted by the well-entrenched Nestle. However, today Engro Foods
considers itself in no need of a benchmark anymore since it has actually surpassed the
performance of its competitors and therefore now it is viewing its own previous performance as
the standard to work against.

ISSUES AND CHALLENGES

Supply chain management in a country grappling with numerous uncertainties and that too in
the dairy milk industry is replete with difficulties, challenges and bottlenecks. Engro foods is no
exception and the supply chain team has to deal with various issues and challenges day in day
out.

Demand Supply Imbalances

The first challenge that Engro Foods has to deal with is the reconciliation between demand and
supply, where the two are following different patterns throughout the year. While demand
reduces during the winters and increases during the summer, the supply chain team in its quest
for establishing trust and harmony with the local farmers has to accept milk throughout the
year. Thus in order to ensure that the all year round supply is utilized well, Engro Foods actually
converts the excess supply into powdered milk, which is much easier to store and much more

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resistant to deterioration over time as compared to liquefied milk. Hence, this is a challenge
that Engro is attempting to meet to the best of its resources and capabilities.

Lack of Control over Distribution Channels

The distribution of goods to the retailer who then sells it to the final consumer is a responsibility
that is not directly under Engro Foods but rather being handled by the approximately 200
distributors Engro Foods supplies to. This leads to a difficulty in exercising control and
supervision of the overall distribution activities. Accurate information with regard to sales,
proper storage, timely delivery, and appropriate marketing procedures cannot be obtained
easily.

Lack of Knowledge amongst Farmers

A major issue that is faced on the raw materials procurement side is the lack of awareness and
insufficient knowledge that is common amongst various small farmers in the villages from
where the milk is collected. These farmers not only lack knowledge about ways to optimize the
milk extracted from their animals but also are unaware about the ways to take care of the
animals. This leads to lower productivity and smaller quantities of milk being produced.
However, Engro Foods is trying to make a difference by spreading awareness amongst these
farmers through education, training while also organizing vaccination programs that can make
the livestock resistant to various diseases.

Infrastructure Issues

The two plants are located in the interior areas of Punjab and Sindh and the villages from where
the milk is procured, whether in adjacent or far-flung areas, mostly lack proper roads and
highways that would enable milk to be transported easily and in lesser time. As a result, delays
may occur which might disrupt the overall production process. But these problems are
addressed by the maintenance of adequate supply at the premises at all times in the form of
powdered milk in order to deal with any sort of contingency situation.

RECOMMENDATION

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These are the following recommendations that our group could come up with.

1. To build a regional ware house in Karachi that fulfills there supply side gap & to reduce
upward logistics cost.

2. EFL is not having its own dairy farms; it largely collects loose milk from farmers through its
40 milk collection centers, which sometimes is of low quality and impure because they add
vegetable oil to milk to get higher prices. EFL needs to have their own Dairy Farm so that
they can meet the increasing demand as their market share is growing by 12% annually.
Furthermore, they can also have quality assurance.

3. EFL is dependent upon Tetra Pak for the packaging of its entire dairy products. Tetra Pak is
the only option available to Olpers for packaging because it is having monopoly in the
packaging sector in Pakistan. Due to this reason, Tetra Pak can charge them higher and it
could increase the production costs so they need to invest their funds for having their own
packaging system.

4. They should expand their brand portfolio by investing in yogurt market as their
competitors are enjoying it because of low competition prevailing currently. So it’s an
opportunity for them to grab & enjoy the flavor.

References

https://www.researchgate.net/publication/241228836_The_Impact_of_L
ogistics_Performance_on_Organizational_Performance_in_a_Supply_Chai
n_Context
file:///C:/Users/abbas/Downloads/10.1.1.258.6734%20(1).pdf
http://www.pakissan.com/english/allabout/livestock/dairy/dairy.industr
ies.in.pakistan.shtml
http://www.foodjournal.pk/2016/May-June-2016/PDF-May-June-
2016/Dr-Noor-Exclusive-Milk.pdf
http://www.engrofoods.com/

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http://www.engrofoods.com/dairy_olpers_milk.html
http://www.bestpakistaniwebs.com/Business/olpers-milk.htm
https://www.scribd.com/doc/26145582/Marketing-of-OLPER-s
https://www.scribd.com/doc/29987448/Marketing-Strategies-of-Olpersand-
Milkpak

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