In todays fast paced globalized era firms are facing rapid changings in business processes and customer needs. Firms which are having higher level of supply chain practices enjoy higher level of competitive edge with respect to other firms in the industry. With the development and transformation of business processes, supply chain management is becoming relatively more significance for each party of overall business community including, suppliers, suppliers' suppliers, manufacturers, retailers and even consumer and competitive pressures eventually forced companies to think in terms of supply chains for the production and delivery of goods.
This study aims to provide a comprehensive study on the concept of Supply Chain management best practices in the tobacco industry, and analysis of how these practices influence the competitive positioning of a Case study company within the industry. The analysis includes a comprehensive review of the current state and future directions of the tobacco industry by distinguishing the key success factors shaping its evolution and by classifying the major strategic forces that would have major impact on its future. Within the general tobacco industry context, this study analyzes British American Tobacco Company's position in the industry as a leading cigarette manufacturer and presents a focused study of its supply chain management practices.
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In particular, the study covers a deeper exploration of the manufacturing business units of British American Tobacco Company and analyse their comprehensive supply chain management practices, through exploring the role of major factors that have been consider critical for effective supply chain management within the company.
At the end, the supply chain design and management practices are studied from the perspective of their importance in the shaping company's business strategy. It is accomplished by using a number of business strategy frameworks and benchmarking tool to understand the key factors that determine the competitiveness of a case study company, and by examining how these factors proved to critical for British American Tobacco Company's to shape its supply chain management strategies and practices.
Through the entire process of completing my dissertation, I had incredible support and help from many people, and to whom I would like to express my deep gratitude
First, I would like to express my sincere gratitude to my supervisor, Dr. George Ho for his excellent supervision and valuable advice throughout this research.
I would also like to thank Mr. Manzar Ijaz Rana , (Company Quality Manager, Pakistan Tobacco Company), Mr. Rehan Baig , (Regional Marketing and distribution Head Asia pacific Region British American Tobacco Company) , Mr. Chen Lee (Supply Chain analyst, Asia pacific Region, British American Tobacco Company),Eric Jones (Global solution and Enterprise Manager , British American Tobacco Company) and my all colleagues who helped me providing their valuable knowledge and time for this research.
Lastly and equally importantly I am deeply obliged, grateful, and indebted to my Parents for their constant support, guidance, belief, and vision.
Thank You All
Table of Contents
List Of Figures
List of Tables
In this chapter, a brief background related to the subject of this study which is competitive advantage through supply chain management in tobacco industry is discussed. The problem definitions are given followed by the purpose of the study. The chapter provides a focus and limitation in order to define the scope and to outline the study. INTRODUCTION
Supply chain management (SCM) is known as a contemporary concept that leads in achieving benefits of both operational and strategic nature (Al-Mudimigh et al., 2004).
The world is in the era of supply chain competition, where organization can no longer perform in isolation as an independent entity, but as a supply chain to generate value delivery systems which are more receptive to fast-changing markets, and are more consistent and reliable (Christopher, 2005:29: Pandey and Gaug, 2009:99). In today's challenging competition in the FMCG manufacturing industry, the manufacturers strive for their products to reach final customers before they turn their heads to the rival's ones especially in the case of tobacco products which are sold under strict legal legislations. Organisations should concentrate not only with controlling their operations at lower cost but also with core competencies within the company to distinguish itself from other competitors in order to be successful in this competitive business environment. Supply chain management allows the organisation to reorganize their entire operations, so that they can focus more on core competencies within the company. This approach of adopting supply chain management will influence not only their market share but also a planned outcome on selecting resources, suppliers and technologies (Coyle et al, 1996). This study provides a comprehensive research on the tobacco industry which involves companies that sell and produce tobacco products all around the world. Tobacco products include cigarette, cigar, pipe, and chewing tobacco. With a society becoming more prosperous and educated which leads to a concern for quality of life, hence resulting in a strong anti-smoking sentiment on all levels of society. The forces in micro and macro plays vital role for the present and future marketing activities of the tobacco industry as they are heavily impacted by these forces. This challenge is also influenced by for example globalization, deregulation, new business policies and junction of the industries in under developed countries. The major goal of the tobacco industry is to adopt influential ways so that consumers can have easy access to their particular products as Tobacco advertising is becoming increasingly restricted around the world and the industry is surviving under strict legal policies.
Always on Time
Marked to Standard
Figure 0.1: Tobacco IndustryWith respect to leading players in the tobacco industry Philip Morris is the world's largest transnational tobacco company, whose Marlboro brand is the world leader. In 1999 the company had sales of over US$47 billion. However, excluding the US d market, British American Tobacco sells the most cigarettes worldwide and has the largest network in the most countries and hence it is the 2nd largest Tobacco Company. Since the tobacco industry is a mixture of some of the most powerful multinational commercial companies in the world. Tobacco companies, which frequently combine, own other huge industries and run a complex variety of joint ventures.
Figure : Tobacco Industry (Source : http://ww.who.int/tobacco/en/atlas18.pdf)
This study comprehensively highlight the supply chain management practices in tobacco Industry .The research focus on the systematization of relevant data and information from the literature review, knowledge and data provided by the experts from the tobacco industry.
Over The past decades, there has been emphasis on the importance of supply chain management as a vehicle to gain competitive advantage in markets. Competitive advantages are the collection of superior competencies that create customer value (Morash, 2001). All members of the chain need to synchronize their strategies toward the end customers' direction in order for a firm to have competitive advantage and wins the order at bottom line . This leads to a supply chain strategy and competitive advantage concept which must be fit together and also there should be existence of consistency between customer priorities and supply chain capabilities (Chopra & Meindl, 2007). Companies should be more focused in understanding and wisely exercising their customer needs to match their service requirements In order to achieve the strategic fit. (Chopra and Meindl,2007) and that in order to be outperforming competitors the firms should be able to design supply chain in such a manner that the allocating tasks from other chains .The need arose for proper tracking of demand and supply , sales and distribution schemas as well as forecasting of materials, supplies with the expansion of sales from areas to cities and cities to countries.
As companies are now getting familiar regarding how they can integrate the decisions across supply chain functions, across time, and across geographical dispersed facilities, therefore the fact based supply chain management is a very crucial step for companies to have competitive advantage. And when it comes to tobacco industry the facts and figures are not much in favorable to many of the companies but they still striving in the market to gain share to some extent. These companies should learn from the best practices adopted by the market leaders to continue in a dominant role the industry.In this study the theoretically framework is used to evaluate the supply chain management concept on part of the case study company.
The basic research question being addressed in this study can be defined as follows:
"What are the emerging best practices in Tobacco Industry supply chain management and what business strategies, operating models, goals, and processes are required to implement and focus in the future to make the supply chain management practices of the particular case-study company "best-in class"?
While the study strives to identify such emerging best practices, it does not take the position that they are necessarily widely predominant within the industry. Further, the study does not necessarily endorse or intend to portray the supply chain management practices of a specific case-study company (e,g. British American Tobacco Company) as necessarily being "exemplary" or "best-in-class" but rather as an illustrative example of presently observed practices.
There has been an increasing emphasis on supply chain management as a vehicle through which firms can achieve competitive advantage in markets. (Collin, 2003, P.8) therefore in order to improve customer satisfaction and increase their internal productivity Companies have made large investments to streamline their supply chains. In this study, the research question will be systematically analyzed by studying leading companies within the industry, to ascertain what specific innovative approach in supply chain practices being followed by these companies that makes them a market leader. Another Innovative feature is the study of conceptual framework of Supply Chain practices used by the Case Study Company which provide a Systematic steps for analysis. Moreover, the most significant innovative feature in this study is the implementation of supply chain operations reference model and the main enablers of synchronized supply chain in the case study company. Today companies have competitive advantage through supply chain management practices therefore Information on supply chain management practices is often kept confidential. This is considered as one of the biggest challenge to find meaningful and concrete information on supply chain management practices.
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The study also face the challenge of not considering technical factors which have impact the supply chain management e.g. the use of Information Technology infrastructure. Besides only focusing on supply chain management practices, there are other strategies which include R& D and marketing strategies which contributes towards competitive advantage are considered to their limited scope only.
This study focus on supply chain management practices in Tobacco Manufacturing industry but its can be applied to different industries, and one can assess their benefits and application from one successful industry to another. Together with conceptual knowledge and understanding of patterns in Case study Company's supply chain management, a projection can be made that what best practices can be followed to become a leader, or maintain existing leadership position.
Table : Research Objectives and deliverables
Research Objectives & Deliverables
Comprehensive study on the theoretical concept of supply chain management in tobacco industry.
Identify the operational structure of supply chain best practices in tobacco industry across the globe.
Identify the impact of supply chain management to have a competitive edge in the industry.
Comprehensive literature review on the theoretical concept of supply chain management, competitive advantage, and benchmarking.
Identify the impact of SCM on the business performance in the tobacco industry.
Identify the development trends in the supply chain to have competitive advantage.
Conduct data collection and analysis of Analysis of SCM best practices of case study company.
Identify SCM best practices adopted by Case study company to have competitive edge in the industry.
Research framework is based on theoretical framework and includes two aspects
1) Looking at the industry and the cigarette manufacturing. The focus would be on the comprehensive study of industry-wide trends, patterns and emerging practices in supply chain management within the tobacco industry, specifically the secondary manufacturing. The purpose would be to identify emerging examples of supply chain excellence within the manufacturing, units and therefore study the factors shaping these developments. The factors affecting the industry are:
Â· Market demand shifts, customer preferences.
Â· Legislative policies.
Â· New technological developments.
Â· Affect of geo-politics on what products are needed/ demanded.
2) A case study of leading player in the industry, to focus on the supply chain management practices in its manufacturing units. The purpose would be to study what factors were changed in the transformation and the resulting impact on parameters such as:
- Inventory management.
- Positioning in the industry and affect on profitability.
This study aims to highlight all factors that matter most to maintain a distinctive position in the industry, and hence the 'excellence' of these parameters can be studied.
The research on the question is accomplished through the following steps:
Literature review and conceptual understanding: Review of the relevant literature and theoretical findings on supply chain management and supply chain management implementation as well as the most common barriers and bridges that companies are facing when implementing supply chain initiatives.
Study of company documents: Study of existing internal and publically available company's documents relevant to their supply chain systems and management processes but focus will be on asia pacific region.
Company visits and Interviews: Regional office visits to the Case Study Company and interviews with company personnel, in order to gain an organizational and a conceptual view of its existing supplier network and supply chain management practices and processes from the company's perspective.
Presentation of study results using the company as a case study: Finally, an analysis of the information developed would be integrated for an overall characterization and evaluation of British American Tobacco supplier network, supply chain management practices and processes.
Conclusion and Recommendations.
Structure of the Research Study:
Following the introduction of the problem, purpose and goals and methodology, the chapters are structured in the following order:
The second chapter summarises the most common definitions in the field of supply chain, management in general and further on supply chain management .Then, a strong reason is presented that why more and more companies are focussing on supply chain management are explained. Main drivers and models used for supply chain best practices are explained in detail. Furthermore, the Model developed by cohen for the grouping of companies on the basis on supply chain management is discussed in detail. Wrapping up the chapter links the level of supply chain maturity to the overall results of the companies. The third Chapter describe the methodology used to address research question The fourth chapter describes tobacco industry global outlook and its analysis followed by case study company operations and its supply chain management. This concludes the most common benefits of the supply chain management and the most common barriers and bridges of its implementation in Case Study Company. The fifth chapter describe best practices adopted by the case study company and their analysis by using the framework of references and the method cited in the third chapter. Finally the sixth chapter present conclusion of the research study and suggestion for future work.
This chapter provides frame of references related to the subject of the study. The
Theories derived from literature reviews frame the analysis of a realistic stud presented in the choice of theories. Each theoretical framework is concerned with each dimension presented in the study.Frame of Reference
Choice of Theories
This study is focused on supply chain management practices in tobacco industry, specifically how companies can have competitive advantage by adopting best supply chain Practices. Firstly, the focus is on gaining competitive advantage and having strategic fit within supply chain by demonstrating the linkage between market and firm strategic management within supply chain and consequently how it will lead to competitiveness. Second, the importance is given to logistics and distribution and how these elements link marketing in tobacco industry. Thirdly, theories referring to process improvement and distribution are presented and lastly, theoretical frameworks are explained through the help of different models that connects chain members.
Definition of Supply Chain:
Supply chain management can be defined as the management of continuous and seamless processes across organizational boundaries to address the real needs of the end customer" (Fawcett et al., 2007:p8). As noted by Gansler, Luby and Kornberg (2004: 8), SCM is the management and control of all materials, funds and connected information in the logistics process from the acquisition of raw materials to the delivery of finished products to the end user.
Hugo et.al (2004:5) defines "SCM as the management philosophy aimed at integrating a network of upstream linkages (sources of supply), internal connections inside the organization and downstream links (distribution and ultimate customer) in performing specific processes and activities that will eventually create and optimize value for the customer in the form of products and services which are explicitly aimed at sustaining customer demands".Although the definitions of SCM differ across authors, it exists in all organizational types and can be categorized into three categories:"implementation of a management philosophy, defining management philosophy and as a set of management processes "(Klemencic, 2006:13; Lambert, 2006:13). Generally, SCM involves relationships and dealing the inflow and outflow of goods, services and information (network) between and within consumers, manufacturers and the producers (Samaranayake, 2005:48).Successful SCM requires a change from managing individual functions to adding activities into SCM processes. These processes are identified by members of The Global Supply Chain Forum are (Lambert, 2006:13):" customer relation management; customer service management; demand management; order fulfilment; manufacturing flow management; supplier relationship management; product development and customicialisation; and returns management."
A supply chain includes entirely activities, functions and facilities (directly or indirectly) in the flow and transformation of goods and services from the material phase to the end user (Sherer, 2005:79). It is theorized as a network of companies with the intention of integrating supply from suppliers to end-users, and demand through coordinated company efforts. A supply chain associates organizations in the upstream as well as the downstream flows of materials and information (Monczka Trent and Handfield, 2005:9). It includes physical element and an information element. Therefore it is viewed as the formation of a value chain network containing individual functional entities committed to the controlled sharing of business data and processes. It comprises of an upstream supplier network and downstream channel (Klemencic, 2006:7).Today; several organisations have convert part of at least one supply chain. They have to perform similarly well in order to achieve better performance. The objective of SCM is to take full advantage of value in the supply chain and this value is generated by creating differences between the final product values to the customer and the cost of the supply chain in-cure to fulfill the customers' request (Chopra and Meindl, 2010:22). SCM is about competing on value, working together with customers and suppliers to create a position of strength in the marketplace based on value derived from end consumer (Chopra and Meindl, 2007:23). Within an organisation, customer value is formed through collaboration and cooperation to improve efficiency (lower cost) or market effectiveness (added benefits) in ways that are most valuable to key customers. Value is not characterize in products or services, but rather is perceived or experienced by the customer (Handfield, Monczka, Giunipero and Petterson, 2009:11). The ultimate goal of a SCM process is to build customer and shareholder value, thus often called a value delivery system. SCM includes planning, manufacturing and operations management necessary to bring a product to the market place, from the sourcing of materials to the delivery of the completed product. Some of the issues to consider when developing or dealing with supply chain which includes integration, information technology, collaboration, customer and supplier relationships, partnerships, outsourcing and global issues as well as social and environmental issues (Borade and Nansod, 2007:112).
Competitive advantage exists when a firm has a product or service that is perceived by its target market customers as superior than that of its competitors. It is a benefit for a organisation over its competitors, gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. SCM is about competing on value, cooperating with customers and suppliers to create a position of strength in the marketplace based on value derived from end consumer. The overall objectives of SCM is to create value for customers, competitive advantage and enhanced profitability for supply chain firms, the mechanisms whereby competitive advantage, the dimensions of value that may be important to customers and better profitability that can be achieved. Customer value is formed within in an organisation through collaboration and cooperation to improve efficiency (lower cost) or market effectiveness (added benefits) in ways that are most valuable to key customers. Value is not essential in services or products, but rather it is experienced or perceived by the customer. Therefore, a firm needs to understand, and deliver the value perceived as important by its customers in order to compete through creating customer value. By satisfying customers and achieving competitive advantage, firms in a supply chain effect customers to make choices and behave in ways that improve the financial performance of the supply chain and the firms within it.
An organization's competitive advantage is built upon a well-organized and executed supply chain management strategy that is sustainable. Mainly because of it relevance to the philosophy of management since Supply chain management is hardly to achieved by any company or group of companies in its full meaning , nor can the elements of success that can be enjoyed by one supply network be transferred to another with the expectation of equal levels of performance. Therefore, according to Ross competitive advantage belong to those supply chains that can stimulate synchronized business processes and core competences that combine infrastructures, share risks and costs, leverage the shortness of today's product lifecycle, reduction time to market, and gain and anticipate new vistas for competitive leadership (Ross 1998.) In the competitive context, successful companies either have a productivity benefit (or cost advantage) or value benefit, or ideally, a blend of these two (Christopher 1998, McKinnon 2001). A supply chain is a part of an organisation's competitive advantage. Competitive advantage can be accomplished by aligning the supply chain strategy to the competitive strategy.
Figure : Competitive framework in the Supply Chain
Competitive Advantage and Strategic Fit within Supply Chain
Competitive advantages are the collection of superior competencies that generate customer value (Morash, 2001). Firms deliver products and/or services which exceed the customer expectation, have more options to sell. According to Holcomb (1994), supply chain management now has importance on shaping competitiveness and profitability (cited in Tracy, Lim & Vonderembse, 2005). While some strategies create competitive advantages may be easy to imitate to have the competitive advantages that is transmitted from the chain efforts are harder to copy by the competitiors. Effective supply chain, thus, offer the opportunities to produce sustainable competitive advantages (Cooper et al., 1997; Higginson & Alam, 1997 - cited in Tracy et al., 2005).At the bottom line to win orders a firms play along together in the supply chain to attain competitive advantage, and all members of the chain need to coordinate their strategies toward the end customers' direction. This means supply chain strategy and competitive advantage must fit together and the reliability between customer priorities and supply chain capabilities must exist (Chopra & Meindl, 2007). In order to achieve the strategic fit, firms should be able to comprehend and wisely exercise their customer needs to match their service requirements. Chopra and Meindl (2007) highlighted that firms are able to design supply chain in assigning tasks as to beating competitors from other chains by matching the competitive advantages the supply chain have with what of the desires of the customers.
The Council of Supply Chain Management Professionals (CSCMP) defines Supply Chain
Management (SCM) as "the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities." It also includes coordination and association with channel partners which help to integrate supply and demand management within and across companies. (See http://cscmp.org) The activities from each point to point of the chain may be calculated as the flow of value-added activities. Morash (2001) pinpoints that not only the agreeing value consistency between supply chain strategies and capabilities should be prevailed, but also the harmonized performance that stand-in member firms' success.
Figure : Model of Supply Chain Strategy, Capabilities and Performances.
Source: Morash (2001).
Supply chain strategy is divided roughly into two categories which are 'Operational Excellence' and 'Customer Closeness'. The former focuses on supply side efficiency, dependability, and reliability as they reproduce the total supply chain efficient and effective in operation, the total cost reduction. The concluding highlights on the agile supply chain to cope with demand on customer side and best meet the requirements (Morash, 2001). The flexibility, proactive quality, value-adding service, and dependability are the foremost areas to focus, which needed the intensive communication.
A firm's comparative position within an industry is given by its choice of competitive advantage and its choice of competitive scope. Therefore the competitive scope differentiates between firms targeting broad industry segments and firms focusing on a narrow segment. In Generic strategies (Porter, 1995:12) are beneficial because they clearly portrays strategic positions at the simplest and broadest level. Porter (1995) maintains that achieving competitive advantage always involves a firm that make a choice about the type and scope of its competitive advantage. There are different risks integrating in each generic strategy, but being "all things to all people" is a sure recipe for mediocrity -getting "stuck in the middle".
Therefore an organization can have competitive advantage through:
-Cost Leadership: Cost advantage occurs when an organization delivers the same services as its competitors at a lower cost.
- Differentiation: Differentiation advantage occurs when an organization delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they signify the firm's position in its industry as a leader in either superior services or cost.
-Focus: A focused approach requires a fir, to concentrate on a narrow rather than industry wide competitive advantage.
There is always connection between supply chain and the competitive strategies. Supply chain responds efficiently to changes in the business environment; align with the firm's competitive strategy to improve competitive performance, hence to gain competitive advantage. The bottom line is always the cost minimization, improved quality product/services, gain competency and speed enhancement. This is illustrated in figure 2.3 below.
Figure : The Link between Supply Chain and Competitive Strategies
Benchmarking is defined as follows (APQC, 1992):
"Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to match them and even surpass them at it".
This definition captures the essence of benchmarking, namely learning from others. The core of the current interpretation of benchmarking is:
Measurement, of own and therefore the benchmarking partners' performance level, each for comparison and for registering enhancements.
â€¢ Comparison, of performance levels, processes, practices, etc.
â€¢ Coordination with Benchmarking partners to introduce enhancements in your own organization.
Benchmarking emphasizes attaining so-called breakthrough improvements, as shown below (Andersen and Pettersen, 1995)
Figure : Benchmarking Breakthrough
There are a number of models which explains the different steps that constitute a benchmarking study. One such model is the so-called benchmarking wheel, as portrayed in the figure below
Figure : benchmarking Wheel
(Source: Andersen, 1995).
Supply Chain Management as a Set of Management Processes
Supply chain management is increasingly being known as the integration of key business processes across the supply chain. For example, Hammer claims that now that companies have implemented processes within the firm, they need to integrate them between firms: Streamlining cross-company processes is the next great frontier for reducing costs, enhancing quality, and speeding operations. It is where this decade's productivity wars will be British American Tobacco. The victors will be those companies that are capable to take a new approach to business, working closely with partners to design and manage processes that extend across traditional corporate boundaries. They will be the ones that mark the leap from efficiency to super efficiency. (Monczka and Morgan,2003 p.12) also focus on the significance of process integration in supply chain management . The piece that seems to be missing from the literature is a complete definition of the processes that constitute supply chain management. How can companies achieve supply chain integration if there is not a common considerate of the key business processes? It seems that in order to build links between supply chain members it is necessary for companies to implement a regular set of supply chain processes.
The Global Supply Chain Forum acknowledged eight key processes that make up the core of supply chain management:
Customer Relationship Management
Customer Service Management
Manufacturing Flow Management
Product Development and Commercialization
The eight main business processes run the length of the supply chain and cut across firms and functional silos within each firm. Functional silos comprise of Marketing, Research and Development, Finance, Production, Purchasing and Logistics.
Figure : Supply Chain Management: Integrating and Managing Business Processes across the Supply Chain
The Supply Chain Council has developed another framework called Supply Chain operational reference model (SCOR). "The SCOR model offers a framework for measuring and understanding current supply chain conditions and performance and generates a foundation for improvement. It can help supply chain managers to assess cost/ performance tradeoffs, develop strategies for meeting new customer expectations, and respond to domestic and global market growth". The SCOR model helps to define structure (including human capital), manage processes, and quantify performances. An organization's annual strategic priorities are evident in SCOR's vertical process integration (management-led programs for doing the right things, as defined by the customer) and its horizontal process integration (leadership-led programs for doing the right things well, as defined by capabilities).
Organizations that have adopt SCOR to help with supply chain problem solving, process improvement, process redesign, or business process engineering, have demonstrated that SCOR is an effective enabler for aligning an organization's portfolio of improvement projects with strategic goals and objectives.
Figure : SCOR Model
(Source: Supply Chain Council SCOR Model )
Components of SCOR Model
Supply Chain Council SCOR Model
As mentioned above, SCOR Model emphasized on five main components which are Plan, Source, Make, Deliver and Return.
(Supply Chain Council, Supply Chain Operations Reference (SCOR) Model, [On-line] Available http://supply-chain.org/resources/scor) " The plan component of the SCOR model emphasize on those processes that are involved in long-term or short-term planning in order to balance the demand and supply. During this step of the SCOR model, the business must generate a plan to meet their production, sourcing, and delivery requirements and expectations. The next step of the SCOR model, source, involves defining those processes needed to obtain the goods and services in order to successfully support the plan portion of the model or to meet the current demand. The make step of the SCOR model involves determining the processes essential to create the final product which mainly involves production, sub assembly or final assembly of a product.
The deliver step of the SCOR model contains the processes necessary to transport final product to customer. This portion of the model not only involves management of transportation but also includes monitoring of order and management of timely and cost effective distribution. The final step of the SCOR model, return, deals with those processes involved with both returning (in case of purchased material) and receiving products that are essential to be returned (in case of sale of products to customer). In order to properly plan for this step, the business must establish satisfactory customer support".
Scope of SCOR Processes
Defined as a standard by Supply Chain Council in 2008, revised 2009, the scope of SCOR Processes is as follows:
Demand/Supply Planning and Management
Resource Balancing with the requirements and creation/communication of plans for the whole supply chain, including Return, and the implementation procedures of Source, Make, and Deliver.
Management of business rules, supply chain performance, capital assets, transportation, planning configuration ,data collection, inventory and regulatory necessities and compliance.
Align the supply chain unit plan with the financial plan.
Sourcing Stocked, Make-to-Order, and Engineer-to-Order Product
Classify and select supply sources when they are not determined, as for engineer-to-order product.
Manage business rules, gauge supplier performance, and retain data.
Accomplish inventory, capital assets, import/export requirements, incoming product, supplier network, and supplier agreements.
Make-to-Stock, Make-to-Order, and Engineer-to-Order Production Execution
Schedule production activities, package, stage product, issue product, produce and test, product to deliver.
Complete engineering for engineer-to-order items.
Manage rules, performance, data, , production network, in-process products (WIP), equipment and facilities, transportation and regulatory compliance for production.
Transportation, and Installation Management ,Order, Warehouse, for Stocked, Make-to-Order, and Engineer-to-Order Product
All order management steps from quotes to routing shipments , processing customer inquiries and selecting carriers.
Warehouse administration from reception to product collection to load and ship product.
Reception and authenticate of product at customer site and repair, if necessary.
Manage performance, information , Provide business rules, finished product inventories, import/export requirements and capital assets, transportation, product life cycle.
Return of Raw Materials and Receipt of Returns of Finished Goods
Return of all Faulty Product from source - disposition product, request product return authorization, schedule product shipment classify product condition, , and return defective product - and deliver - authorized product return, schedule return receipt, receive product, and transfer defective product.
Return of all Repair, and Overhaul product steps from source and Maintenance, - by identify product condition, disposition product, request product return authorization, schedule product shipment, and return MRO product - and deliver - authorize product return, schedule return receipt, receive product, and transfer MRO product.
Return of all Excess Product steps from source - disposition of product, request product return authorization, schedule product shipment, identifying product condition, and return excess product - and deliver - authorize product return, schedule return receipt, receive product, and transfer excess product.
Manage data collection, return inventory, capital assets, transportation, return business rules, performance, , network configuration, and regulatory requirements and compliance.
Table : Scope of Scor Processes
The Performance Measurements Pillar
The details provided at QAP Advice and Audit about the performance measurements include that the SCOR model contains more than 150 key indicators to measure the performance of supply chain. These performance metrics are a derivation by SCC members from their experience and contribution. SCOR metrics are organized in a hierarchical organization. As standardized by SCC,
( QAP Advice & Audit - Supply Chain Operations Reference Model [On-line] Available http://www.qualified-audit-partners.be/index.php?cont=484&lgn=2)
" Level 1 metrics are at the most aggregated level, and are typically used by top decision makers to measure the performance of the company's overall supply chain". They are used in measuring cross multiple SCOR processes.
Morison R. et al. (2010) indicate that supply chain management flows can be divided into three main flows:
The Product Flow
The Information Flow
The Finances Flow
Janssen, M. (2005 ,p. 315-328) explores in his study states that :
"The goal of SCM is to provide high product availability through efficient and timely fulfillment of customer demand. And this goal can be accomplished through effective flows of products from the point of origin to the point of consumption. A two-way flow of information and data between the supply chain participants creates visibility of demand and fast detection of problems. Both are needed by supply chain managers to make good decisions regarding what to buy, make, and move".
Other flows are also important. In their roles as suppliers, companies have a great interest in financial flows. Suppliers want to get paid for their products and services as soon as possible and with slightly low disruption. Sometimes, it is also necessary to move products back through the supply chain for repairs, recycling, returns, or disposal.
The Bullwhip Effect
The bullwhip effect can be best understood with the example explained by Johnson & Pyke (1999), in the Italian pasta industry, consumer demand is quite steady throughout the year. However, volume discounts, long lead times, and because of trade promotions, fully-truck load discounts, and end-of-quarter sales inducements of the orders observed by the manufacturers are highly variable. In fact, the variability increases in moving up the supply chain from consumer to grocery store to distribution center to central warehouse to factory, a phenomenon that is often called bullwhip effect.
Figure : Bullwhip Effect in Supply Chain
The Importance of Supply Chain Decisions
Chopra and Meindl (2006, p 10) established that
"A close connection between the design and management of supply chain flows (product, information, and funds) and the success of a supply chain. Wal-Mart, Dell Computer, and Seven-Eleven Japan are examples of companies that have built their success on superior design, planning, and operation of their supply chain. In contrast, the failure of many e-businesses such as Webvan can be attributed in weaknesses in their supply chain design and planning ".
Chopra and Meindl (2006) explains the importance of decision-making in a supply chain by providing with an example on Wal-Mart. Wal-Mart has been a leader at using supply chain design, planning and operation to achieve success. The company invested heavily in transportation and information infrastructure to aid effective flow of goods and information. Wal-Mart designed its supply chain with a number of stores around all distribution centers to facilitate frequent replenishment at its retail stores in a cost-effective manner. Frequent replenishment allows stores to match supply and demand more effectively than the competition. If we consider the example of Wal-Mart which has been a leader in sharing information and cooperating with suppliers to have cost reduction initiatives and improvement in product availability is considered as the best cited example. This cutting down of cost and improved product availability has resulted in tremendous increase in profits for the company.
Decision Phases in a Supply Chain
In their article, Vahidov & Kersten (2004, p 283-303) propose that successful supply chain management requires many decisions relating to the flow of information, product, and funds. The effectiveness and importance of decision making has already been explained in the above article. Considering the importance of these decisions, each decision should be made to raise the supply chain effectiveness.
Supply Chain Strategy or Design
This phase is well explained by Lodish (1982, p 31-56) who stated that strategic decision making involves development of those strategies and plans in which a company decides how to structure the supply chain over the next several years. In order to decide what the chain's structure will be, how resources will be distributed, and what practices each stage will execute.
Strategic decisions made by companies include whether To outsource or perform a supply chain function in-house, the location and capacities of production and warehousing facilities, the products to be manufactured or stored at various locations, and the modes of transportation to be made available along different shipping legs, and the type of information system to be utilized.
According to Amott & Pervan (2008) view , "a firm must ensure that the supply chain configuration supports its strategic objectives and increases supply chain profitability during this phase. A company's decisions regarding its choice of supply sources for components, the location and capacity of its warehouses contract manufacturers for manufacturing and, are all strategic decisions or supply chain design . Supply chain design decisions are typically made for long-term and are very expensive to alter on short notice. Consequently, when companies made these decisions, they must take into account the uncertainty in anticipated market conditions over the next few years" .
Meindl and Chopra (2006) suggest that decisions made during this phase include:
-Strategic network optimization through location, and other number of factors including size of warehouses, distribution facilities and centers.
Strategic partnership with distributors, suppliers and customers, creating operational improvements such as direct shipping , cross docking, , and third-party logistics and communication channels for critical information.
Proper load management through product design coordination, of new and existing products integration into the supply chain
For supporting supply chain operations requirement of information Technology Infrastructure.
Decisions like Where-to-make and what-to-make-or-buy
Supply strategy supported by overall organizational strategy
Figure : Hierarchy of Supply Chain Decisions
This chapter includes the research strategy and a different approach used to carry out this study. This chapter concludes the quality of study and its limitations.
The main area of the study is to identify and describe how supply chain strategies operate in Tobacco Industry and how the case study company has advantages over others through practicing these strategies. There are various methodologies that can be used for research purpose. Qualitative approach is used in the study to address the research question. Since the purpose of qualitative research is to allow flexibility between data gathering and interpreting data within the perspective of framed theories.
In this study, a customized Qualitative research strategy is purposed. A case study of British American Tobacco Company Asia pacific region is chosen as a representative of an observation in best supply chain practices and benchmarking in this research. The multi-data collection methods are employed from various sources of data to ensure the validity and reliability of the research. The sources of data include the chosen company's representatives of British American Tobacco, including the representatives in regional offices. The interview with regional market head is conducted to gain more market environment and trend of the industry. To collect data from other region questionnaire approach was adopted. This study also includes both primary and secondary data throughout the data collection and analysis part. Afterward, a description of the data analysis followed by the validity and reliability of this thesis are provided.
Qualitative research pursues with the 'why' and the 'how' of the research topic through the analysis of unstructured information (Yin, 1994) - it includes stages like interview transcripts, emails, notes, feedback forms, photos , questionnaires, recordings and videos. The qualitative research does not only rely on numbers or statistics, which are consider as the domain of quantitative researchers. Yin (1994) in his studies also portrays that the qualitative method is adopted to get the insight into attitudes, behavior, motivation ,culture or lifestyles. In a broader perspective the formal approaches can be used which includes Focus groups, in-depth interviews, content analysis and semiotic.
According to Silverman (2007),
â€¦ there is the most useful attempt to depict the different approaches within qualitative research.
A case study approach is an generic analysis of a single instance of a phenomenon of interest. It
involves gathering detailed information with a view of obtaining indepth knowledge about the unit of analysis (Collis & Hussey, 2003).
According to Yin (1994), a case study research is used to explore a certain phenomena and offer the understandings in a particular context. There are multiple methods which can be used for the collection of data which helps to gain more opportunities in searching up the data to provide a sound analysis in the study.
The methods and tools employed include both quantitative and qualitative approaches: financial data, interviews, memoranda, charts, etc. (Meredith, 1998). In this research project, case study methodology is qualitative oriented and provides the type of knowledge that cannot be gleaned purely from the statistical analysis of preformatted questionnaires (Gimenez, 2004).
The objectives of this exploratory phase are (1) to obtain an in-depth knowledge of the concept of the supply chain management practices in the tobacco industry, (2) to explore the integration of the concept in accordance with the supply chain strategy and (3) to identify the main benefits and barriers of the implementation of best practices adopted by case study company. With the results of this exploratory stage of the research, a theoretical model can be
built. According to Gimenez (2004), research design for case study methodology is illustrated in Figure 3-1.
Design of case study Methodology
Units of analysis
Selection of sample
Link data to research questions
Criteria for interpreting findings
Case study database and other sources of evidence
Case study analysis
Figure : Case Study Methodology
The first step in the case study methodology is to define the research questions that are derived from the research objectives of this exploratory phase stated before. The following steps refer to the process of determining the units of analysis. As the concept of competitive advantage involves integration along the supply chain, the most appropriate approach in this study would be to consider all elements in this chain such as retailers, logistics providers, manufacturers, wholesalers, etc. But, due to the need of limiting the scope of the study, the units of analysis chosen are manufacturing units region. For the qualitative research, 6 interviews with company's representatives were conducted .Based on the data collected, the systematization and evaluation of these secondary data provided for expert opinions in terms of improvement potentials, problems and challenges, best practices, and Competitive impacts. In order to increase the reliability of the case study analysis, data collected was introduced in the interview protocol and case study database, which will be analyzed to obtain the conclusions. Other sources of evidence such as literature and research articles are used to corroborate and augment evidence.
Validity and reliability
Validity mainly addresses the problem of whether a measure measures what it is supposed to
measure (Zimund, 2000). According to Thietart (2001), the measured data should be relevant and precise in context of its validity, and the second is the extent to which we can generalize from those results. In this research, the question arises whether the interview has measured in the right way and also all the interviewed questions were appropriate enough to answer the research objective and purpose.
Reliability concerns the accuracy and consistency of the results gathered and it is attained if
research results can be repeated (Collis & Hussey, 2003). Reliability basically means dependability or consistency in the results. Neuman (2006) suggests that we can achieve same result under the identical or very similar conditions. This research uses diverse sources of data and all are double checked before including them in the study. The interviews are made with many representatives of the company for gathering insightful data. The interview data and data from secondary sources are compared to confirm that collected data is reliable to include in the study. For the purpose of higher reliability, furthermore the data gathered from different regions were sent to other regions to confirm the reliability. Therefore, this research is valid and is reliable.
The forth chapter presents empirical study. It includes industry profile and issues related to it, then followed by case study company's business overview, its trends and operation in many perspectives. The main objective of this chapter is to capture and present the case study as a whole.
The Global Tobacco Industry
The tobacco industry remains relatively resilient to global economic pressures, but recession inevitably impacts disposable incomes and consumer confidence. The overall value of the industry continues to grow, besides the fact that volume decline is observed due to economic pressures. But still the tobacco industry is in steady incline and the revenue numbers are astronomically high. The growth rate is estimated to increase by 3% over next five year if the yearly revenue business remains at 465.6 billion dollar (IBIS World). Profit margins in this industry are extremely low; but due to the particularly high volume of products sold within this industry the total profits are exceptionally large. There are many promotional programs that the tobacco manufactures provide for the wholesalers to promote the products. A reason manufactures provide such a helpful service to the wholesalers is because the margins are much lower for wholesalers. Over the past five years prices are rising and generate 80 percent of the revenue because of this strategy for the manufacturers. (IBIS World).
During the past 10-20 years a declining trend is observed in consumption volumes of the tobacco which is mainly because of the rising prices, negative publicity, regulations on smoking and the greater awareness within the population on the negative side effects of the tobacco .Many countries restrict certain advertisements and mandate a health warning on each pack of tobacco products. Even though this industry is in a heap of trouble with regulations, especially the last five years of the depression in the trends have proved it. Due mainly to stress levels about our economic future this is the first increase in tobacco sales since 1992 (IBIS World). Besides that during the past five years excise taxes have also been increased drastically which gives the industry players low profit margins .(IBIS World).
Cigarettes are the major product of tobacco industry, creating up to 90 percent of the total amount of sales (IBIS World).Whereas in comparison to cigarettes, Cigars are a smaller niche in terms of their sales volume, but over the past 5 years the overall increase in cigar smoking has increased much more dramatically than that of cigarettes. The smallest segment of the tobacco industry is chewing and smoking tobacco products. The reason for this smaller demand is mainly because it is only sold to male customers. For the research-development and marketing for a new product called Snus companies are also investing large amount of money. (Reynolds American).
Tobacco products are sold through a number of different channels. The market concentration has been increasing As the tobacco market shifted its buying and selling procedures in 2001, (Altria). For example, British American Tobacco, Brown and Williamson merged with Reynolds Tobacco in 2004 and Altria Group bought John Middleton, Gallaher Group and Philip Morris. The geographic region that currently accounts for the largest revenue in the tobacco market is Europe (IBIS World).
Value of the industry
All the 'big four' tobacco companies face an increasingly competitive market place but the overall value of the industry is still growing. Companies still believe that consumers are considering and expecting real value, therefore innovation and product quality both play a key role in delivering market share. There are number of opportunities to improve the price mix and product, primarily in developing markets.
Among other goods, cigarettes are the most commonly traded products on the black market due to high profit margins, the relative ease of production and movement, and low detection rates and penalties.
Estimates suggest that up to 660 billion illegal cigarettes are smoked every year. This has a harmful impact on consumers, retailers, governments and tobacco companies. For end consumer, Illegal cigarettes can mean genuine products smuggled, where health warnings that do not meet local government regulations ,fake products with no quality controls and no health warnings .
The principal drivers of illicit trade are economic - where cheaper cigarettes for consumer's ripe profits for the smugglers and counterfeiters. Besides that other Contributory factors include sudden weak border controls, ineffective sanctions and increases in excise.
It is estimated that governments worldwide are losing up to £24 billion a year in excise and other taxes, while the loss to legitimate tobacco companies could be as much as £6 billion a year in revenue.
Companies are trying their best to address illegal trade effectively by maintaining cooperation regulators and enforcement authorities and between industry .
The global tobacco industry produced around 5.5 trillion cigarettes in year 2011.
The biggest single market is China, where the industry is state-owned, with some 350 million smokers who account for more than 40 per cent of the global total.
There are four international main players in the tobacco industry
-British American Tobacco
- Imperial Tobacco
- Phillip Morris International
These four players account for some 45 per cent of the global market . The leader among them is British American Tobacco Company who's global tobacco market share is estimated to be around 13 per cent.
The illicit trade in tobacco industry is a serious problem in many countries creating that upto 12 per cent of global volume is traded on the black market.
Tobacco companies' global Market Share
British American Tobacco
Japan Tobacco International
Philip Morris International
Others (including Philip Morris USA and
BRITISH AMERICAN TOBACCO associate companies in the USA and India)
Table : Tobacco Companies Global Market share
(Source: Credit Suisse 2011)
Industry in future
Regulation of the industry continues to increase including tougher restrictions on smoking in enclosed public places, graphic health warnings on packs, and some bans on shops displaying tobacco products at the point of sale.Â Sudden rise in taxes in markets where tobacco prices are already high are leading some consumers to switch to cheaper brands or contraband and this trend is likely to continue.
Generally it is expected that individual smokers will consume fewer cigarettes each and only smaller percentages of populations will smoke. However, in emerging markets, driven by population growth and increasing disposable income a sustained volume growth is widely predicted.
Although tobacco companies face an increasingly competitive marketplace, whereas the overall value of the global market continues to grow. This value is expected to exceed £500 billion by 2015, despite tighter regulation, global economic uncertainty and high unemployment levels in developed markets. Consumers worldwide are expecting real value, in terms of quality and innovation will both play a growing role in delivering market share .Only the companies who have adopted world class strategies will be able to survive in current and upcoming challenging era.
Tobacco Manufacturing Industry Analysis
In order to implement the most effective business strategy to obtain a sustainable competitive advantage, it is imperative to analyze the industry to have a better understanding of the industry environment in which the firm operates. Porters Five Forces Model is used in the study for industry analysis to affectively gauge the intensity of competitive forces against the threats which an average company firm in the industry. The main five competitive forces used to analyze the industry are the power of suppliers, threat of New entrants, the threat of power of buyers, threat of rivalry and the threat of substitution.
Figure : Porters model of Competitive forces
The threat of new entry into the tobacco manufacturing industry is estimated to be a low power threat. Since the tobacco industry is highly regulated internationally and has advertising restrictions too (IBIS World).So its very hard for new entrant to survive in such crucial condition. Besides that the increased industry costs in combination with advertisement restrictions make it very difficult for new entrants to establish its own brand. In the event a new competitor enters the industry, economies of scale enable the recognized firms to exercise price flexibility and lower their prices to maintain their market share. In even more severe conditions, some countries are even considering banning all logos, brand imagery and colors, (Kwon 2010). In addition, a small number of large firms that have achieved economies of scale decide industry's future due to industry maturity. Substantial features in an industry like tobacco the price competition and start-up costs would ine