Value Chain Of Unilever Management Essay

Any profit motive concern would like to keep the costs to the minimum and maximize profits that can be sustainable as well. Lean production and waste elimination is the product of years of innovation to reduce costs. (Karlsson and Ahlstrom, 1996) This has worked to the favor of external entities such as suppliers and customers, and to some extent, the employees. Companies have realized the importance to involve the community as a whole in the process to foster a sustainable infrastructure that can ensure growth for the company and other associated with it.

Introduction

Unilever is a large multinational company, having its sourcing, production and sales throughout the world. There are a large number of fast moving consumer goods including foods, beverages, home and personal care products, and cleaning agents. A single category of products sell under various brands, having different attributes and varieties within a single brand. Some brands are limited to certain regions while some brands are under partnerships or have been acquired from local companies. Production of many products has been outsourced to other companies, under strategic alliances, in order to cut on cost of production, like Lux. The company has been continuously engaged in implementing such strategic moves. To improve the value chain, the secondary activities are highly evident as well as the primary activities.

Lean Production at Unilever

Unilever has a focus toward eliminating waste and bringing lean production into practice, right from the sources through internal processes to the consumers. With its complex procurement network and production scattered in different places, the possibilities for further enhancement in the value chain are endless. Unilever aims to be a multi-local company, which can understand local needs, and produce new products tailored to local needs.(Jones and Decker, 2007) This localization takes into account the different strategies that have to be put into practice for the same product in different locations, which can be put into reducing costs.

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There have been various success stories from around the world in this regard. In Peru, Unilever does not has a production facility so it uses the cost effective strategic option of outsourcing to local companies including Alicorp S.A.A., which reduced labor requirements and more focus was given to marketing the products. (SOMO, 2006) The companies involved in these strategic alliances have been strong companies. Unilever has a policy to find a partner with a high innovation potential, that can be used to ensure efficient synchronization with Unilever’s own supply chain. As Bonney, 2002 has said that the company practices have partners dedicating a team solely for joint development exercises, where knowledge is effectively shared and applied, and commercial agreements are reached on patents, which signified long term partnership approach. Garijo, 2002, adds that Unilever, before going for an alliance, analyzes its internal capability in a particular domain and asks a potential partner to do the same on its own end. Future agreements are based on such defined capabilities.

The gradual shift from house of brands to branded house has involved better internal processes. One example is their investment in information technology, which is been superseded by knowledge management practices over the last decade. Knowledge workshops have led to the creation of the Community of Practice (CoP), which pertain to a certain domain such as supply chain or production R&D, who are involved in Knowledge Management Groups (KMGs), which continually enrich the knowledge of the employees. Marketing is one domain where KMGs are becoming active, owing to the tacit nature of ‘localized’ knowledge in this area, while there are already dozens in supply chain and production technology. (Pos et al, 2005) Unilever has used CoP effectively to deal with Agronomy issues in areas with scarce water. In Australia, innovative irrigation systems were developed while in Brazil, an improved system curbed over-irrigation and associated problems. The resulting agricultural products are low-cost, better quality and have lower disease rates. Through this way of sourcing of raw materials, Unilever has established long term control over its sourcing needs.

Given the leverage of its size, Unilever can further and continuously leverage its size to strengthen the very entities that it interacts with; the customers, suppliers and strategic production partners.

Waste Management

Being a large and growing company, the company needs continuous innovation to manage its waste along the value chain. It has been observed that outsourcing looks convincing but it discounts the control factor. For example in Peru’s case, the outsourcing has caused considerable cost reduction however it has also made it difficult to impose the standards practiced by the company. The layoffs resulting from the outsourcing and further layoffs by the outsourced company, have spoken about the cost to the employees of such strategic moves. The company has reduced the waste of over-employment and has improved efficiency but created the waste in the form of tarnished labor relations, which shows the inability of the company to follow its own Business Partner Code. (SOMO, 2006)

As already discussed, Unilever is effectively improving its inbound logistics. The case of Palm Oil controversy, is one of the reasons to do so, and has in fact made the company respond quickly to such issues. In the case, Unilever could not fully adhere to its ‘Sustainable Development Report 2009’ where the company aims to grow while improving the environment and recognizes that each stage of the value chain can affect the environment. Prior to this and earlier declarations, the company had been working hard to restore its reputation, damaged by Greenpeace’s “Cooking the Climate” report, where the company was named as a largest buyer of palm oil made from non-sustainable sources. Further media revelation of the company’s continued purchase compelled the company to order its Indonesian supplier to stop buying from a local rainforest. Despite the company’s successful sourcing of 15% of its tea and palm oil from sustainable resources, the company has been inconsistent in fulfilling its pledges. The company has to practically prove its 2015 plan to source all its raw material from sustainable sources. (Drnach and Dowding, 2010)

Unilever has been able to nearly eliminate waste in its production facilities and in the outsourced production. This has been due to the implementation of latest technology in its mass production models. At the outbound logistics domain and marketing & sales domain, more and more services are being outsourced. There are a large number of companies like advertising agencies, brand activation, event management, media planning, business process outsourcing, distributor networks and more which are specialists in their respective domains (McGovern, 2005). It has been beneficial for the company to outsource to these companies due to the nature of these tasks. However, a collaborative and strategic partnership is made with these companies which can ensure better quality of results. The waste that occurs in this stage is that of the work rejected or delayed, for example, an advertising agency comes up with an advertising idea which is rejected or the distributor mishandles distribution, resulting in inventory losses. Another waste that occurs in this area is in the form of delays that result in stockpiles of inventory. The distributor can misunderstand the change in the product brand image and fails to distribute to the markets intended for in the new branding. Failing to distribute the product properly can cause the product to lose its repeat or prospective customer. (Spence, 1977)

The dual company structure does not create any impediments in the value chain as an equalization agreement eliminated dual board and management. (Jones, 2002) Under an agreed structure, where beneath the two parent companies are many local subsidiaries, the degree of involvement with the subsidiaries is gradually increasing, like its strategic plans, and moving from house of brands to a branded house. (Daye and VanAuken, 2007)

It is highly recommended that Unilever should be more proactive by enlisting support and collaboration with their distributors and outsourced companies for marketing & sales. The company should avoid being heavily dependent on the outsourced companies by having a system to create its own plans while approaching these companies.(Lei and Hitt, 1995) As for the inbound logistics, I adhere to Drnach, 2010 recommendations that the sources of supply should be tracked and audited regularly. The company should take a step in the improving its value chain without waiting for competitors to do the same, where there might be short term losses.

It is also recommended that the knowledge management groups and related programs should be taken to other domains in the value chain by making its use compulsory for maintaining employment. Instead of using community of practice as a tool, the company should consider community of interest in order to create an acceptance of the knowledge management among the employees. It is important, also, to assign enriched roles or provide them alternate roles along the value chain, once the outsourcing has been done, rather than to lay them off. Any addition to the value chain, despite the cost, will add value to the organization as long term.

The waste generated from the production itself should be utilized as a raw material for other production processes. Idle time can be utilized in training especially for factory workers, if it cannot be reduced immediately or not at all. This time can also be used in recreation activities for the employees. Employees should be given the chance to take part in decision making exercises that can help the top managers understand the complexity of problems inside the organization.

Before the recommendations can be implemented, there should be a comprehensive audit of the value chain of the entire organization that can refine the recommendations.

Impact of Change

The recommendations will increase the efficiency of the organization and fewer resources would be used in production process. If implemented in letter and spirit, and with greater efforts, the recommendations can provide benefits beyond the intended ones.

For example, by enlisting the support of distributors, the company can gather more information about the customers, through the retailers. Such information can be more meaningful than a consumer research conducted by a research company. With technological collaboration (like RFID Tags) with the distributors, the company can track the movement of the products from the production to the consumer in real-time, thus identifying where and when the products reach first and where the product demand varies owing to different factors, like seasonal and occasional. Distributors can also provide the company with information about changing consumer needs in various parts of the same location, leading to a different variety to be researched and launched for that area only, with a limited marketing budget.

Maintaining linkages with the outsourced companies can be beneficial while having its own plans before approaching the outsourced companies can be even more beneficial owing to reduced dependencies on those companies. For example, it the company wishes to reposition the brand of an ice-cream, it should do complete planning of the work that is to be outsourced to different companies. With a plan in hand, the company will have a benchmark to compare the results with, so that they will not have to approach the companies again and again for improvements. The company can send a dedicated team to work along with these companies to report back the updates regularly so that the concurrent adjustment and enhancements can be made, rather than making a second approach to adjust the changes.

For the inbound logistics the recommendations of tracking and auditing of the sources of raw material will improve the raw material quality and ensure long term availability. This will be possible as the audits will provide information whether the source of the raw material is sustainable. Furthermore the audit will provide information about the supply chain origins. For instance, in a South Asian country, the company can sell packaged milk like Nestle has. The company can reach the dairy farmers, who can be provided vital information as to the time they should deposit the milk. Technology at the village can be enhanced by installing lactometers that can measure how pure the milk is and the farmers are then paid according to the freshness of the milk rather than large quantities of low quality milk. Farmers would be encouraged to take care of their livestock to improve milk quality. Meanwhile the company can educate the farmers on taking care of the livestock through modern techniques such as medication and veterinarian care facilities. The village itself would find incentive to acquire such facilities. Thus by improving the technology of the village i.e. by going on a focused corporate social responsibility initiative, the company has a considerably better raw material that saves processing time and cost.

Short term losses for implementing a value chain initiative can be high where the industry structure is not compatible with the initiative. A large company such as Unilever can bear such losses, but the impact it will have on the existing environment and the industry structure will be large enough to influence other players in the industry to follow suit. In my recommendation, that the company should not be reluctant at implementing a value chain initiative even if the losses seem to be high. The enhancement in the value chain will thus be beneficial to the industry not just the organization. The first company to implement the change will be the first one to benefit from the change, while other companies will be forced to follow the new industrial standards to survive. The long term sustainability will be created in term of continuous supply of better quality raw material from a sustainable source.

The recommendations on forming knowledge management groups for more employees to share knowledge in their area of practice and interest, will considerably improve the quality of human resources at the organization. Community of interest should be promoted over practice, as it can diversify the views of the employees so that they can become more occupationally mobile rather than restricted strictly to their area of specialization.(Curtis, 1959) Furthermore the strategic moves by the company are expected to result in shifting existing employees to different areas on the value chain. The more occupationally mobile the employees are, the more quicker they will be able to learn their new roles, reducing hiring and training costs as well as retaining the employees along with the company specific knowledge. New employees would have to be taught about the organization from scratch, and would require more training.

Lastly the idle time and waste generated by the production process itself can be managed to provide training time to the employees. This will avoid wastage of time in activities unrelated to work. If it is possible, the idle time can be used as a reason to employ part time wage workers who can work between the idle time intervals, while being trained during the intervals. Technology can be used to allow workers to work from home, if they are well trained in their area of work, and use the free time to maintain a reasonable work/home life balance.

Waste from the production process itself can be used in other production processes in another factory of the company. For example, certain waste material from the production of soaps can be utilized in producing more soaps.

Improved value chain will provide benefits to the community and the company. If both of them grow well, the benefit is passed on to all other players in the market.

Framework to Respond to ‘Danger Signals’

Keeping the Porter’s value chain model as a tool, a new first-line manager at Unilever can use the framework to identify the waste that occurs at each stage of the value chain, find the ‘danger signals’ of each waste and respond to it.

Inbound Logistics

The waste can be the lost production time owing to delay in arrival of raw material, or the low quality raw material. The danger signals can be the number of hours a production process has to be stopped or slowed down, and the number of hours factory workers may have to wait. For each progressive number of hours, the manager has take a certain action. For instance, initially the incoming logistics has to be contacted for verifications of delayed time schedule. Later the production manager has to be informed, while workers are to be informed of the expected time and compensation. If the logistics is too much delayed, the managers can send the workers back to reduce wage cost and inform the higher management through production manager.

Production and Operation

The waste can include the idle time inherent in various machines in factory due to cool-downs and maintenance. This can cause wasted labor hours, which are paid for the idle times as well. The number of hours elapsed since the shut down is the danger signals. Initially the manager has to inform the workers to wait while the maintenance is in progress. On further delay, the workers are paid and sent back, while the manager liaisons with the maintenance team to know the status and inform the same to production manager.

Outbound Logistics

The waste includes inventory losses on mishandling, the lost consumer due to delay, misdistribution or low stock at the retailers end and losses owing to miscommunication with the distributors. The danger signals can be the loss percentage. As the percentage increases, the danger signals increases, and so a more high level decision has to be taken. For instance, for a small loss, the distributor is sent the first warning, while both company and distributer assume loss and the manager process the proceeding and informs the production manager and accounts department. On a greater loss, the distributor assumes the loss, failing which the manager has to inform the same to the production manager, accounts manager as well as the Marketing department.

Marketing and Sales

The waste is the time involved in rejected work from an outsourced company, and lost customers owing to failed brand repositioning based on unreliable research. The line manager has little to do with this domain, however the danger signals is the accumulated inventory if the full or partial production has started concurrent to change in, for instance, product attribute takes place, but is not marketed as yet. The manager can stop the production and inform the concerned positions.

Service

The waste is the loss of consumer due to inability to attend to consumer complaint or suggestion. The danger signals can be the increase in unattended consumer complaints on which the production has not taken any action, as well as an increase in the inventory levels. The manager has to inform the production to check the complaints and improve the product quality, while coordinate the production with procurement in case a machine update in needed.

Procurement

The waste that can occur at this stage of the value chain is the negative publicity as well the long term depletion of a raw material from a non-sustainable source. The danger signals can be the increase in inventory as fewer orders are being taken. The manager has to inform the procurement and marketing department after a certain inventory level is reached.

Technology Development

The waste is the lost production time due to an outsourced production facility not being fully compliant with the technology standards set by Unilever. The danger sign can be the total number of accumulated idle time in a week. Considering that the line manager is employed by Unilever at the outsourced facility, the manager can first inform the outsourced company production department, then to his company’s outsourcing manager and production manager. Later the technical team of Unilever can be informed to perform necessary adjustments.

Human Resource Management

The waste can be the lost production time caused by delays caused by training new personnel. The number of hours elapsed since shutdown are the danger signals. Line manager can inform the human resource and production department to quicken the training period

Firm Infrastructure

The waste can be the lost production time caused by delays due to unrealistic plans and lack of finance. The number of hours elapsed since shutdown are the danger signals. Line manager can only inform the management of the happenings and try in his capacity to facilitate solutions.

Conclusion

Operations management is now the key to achieve faster production rates and improve both the top line and the bottom line. (Mukherjee, 2009) This area of study is increasingly being merged with the domain of marketing based on indirect responsibility because of the realization of need to be agile in competition.(Pycraft, 2000) To make sure that consumers are reached in time, sourcing, production and distribution has to be achieved quickly and efficiently.