BOH Tea Evaluation – SWOT and PESTEL
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Published: Thu, 06 Jul 2017
According to BOH Plantations Sdn Bhd, 2006, “BOH Plantations was founded in 1929 by J.A. Russell, a British businessman during the British colonial era in Malaya. He was optimistic of the tea plantation business due to huge demands despite of the world-wide Great Depression at that time. As a result of the potential, he applied for and was granted a concession of land for his first tea garden in Habu, Cameron Highlands.
1. BOH Tea Company Background
BOH Plantations Sdn Bhd is the leading tea grower in Malaysia with four tea gardens – Boh, Sungei Palas and Fairlie situated in Cameron Highlands; and Bukit Cheeding in Selangor – constituting a total land area of 1200 hectares. With a production capacity approaching 3000kgs per hectare, the Company produces 4 million kgs of tea annually which translates to about 5.5 million cups per day. This represents about 70% of all tea produced in Malaysia. BOH dominates the domestic retail market. While maintaining its market position locally, the Company is also expanding into foreign niche markets. Today BOH exports its brand of prime grade teas to various countries including the USA, United Arab Emirates, Japan, Singapore and Brunei. The Company is one of the few vertically-integrated tea companies in the world. It has operations ranging the entire spectrum of tea manufacture – from cultivation and processing to the packaging and marketing of its wide range of locally grown robust black teas. BOH’s operations are mechanised while application of fertilisers is carried out aerially and harvesting is done by hand-held machines or raised tractor harvesters. Each of BOH’s tea gardens has its own processing facility and the Fairlie tea garden utilises some of the most modern machines in the world. BOH also packs all its tea at its packing facility in Bukit Cheeding.”
1.2 Company’s product and services
BOH Plantations Sdn Bhd is mainly concentrated on producing premium black tea from the tea plant known as Camellia Sinensis. Black tea is a variety of tea that is more oxidized than the oolong, green, and white varieties. Black tea is generally stronger in flavor and contains more caffeine than the less oxidized teas. BOH Plantation targets the general market for groups of people from a variety of ages which are generally concerned with beverages.
2.1 Production Process
This section will discuss about the processes used by BOH Factory to produce black tea from the tea plant. The production process in the BOH’s tea factory is divided into five main processes which are withering, rolling, fermenting, drying and sorting.
First, the raw green tea leaves which are collected from the tea plantation will be sent to the withering department of the factory. Withering is the process to remove excess water from the leaves. According to Holy Trading Mountain Company, 2011, “The leaves are thinly spread to wither either naturally (where the climate is suitable) or by means of heated air forced over the withering racks. The object is to evaporate as much of the tea leaf’s water content so that the leaf becomes pliable like soft leather gloves.” BOH Plantations tea factory uses the means of pumping heated air through the withering department. Refer appendix picture 2, 3 and 5.
After the withering process, the machine will automatically send the tea leaves to the ground floor, refer appendix picture 6; to the second department called the rolling department, refer appendix picture 4 and 4.1. The rolling process is used to crush the tea leaves cells into smaller particles. According to Holy Trading Mountain Company, 2011, “from the withering-racks the soft, green leaf passes to the rolling machinery where it is twisted and rolled to break up the leaf cells and release the juices which give the tea its flavor. The first important chemical change starts here when the juices which remain on the leaf are exposed to the air and development of the essential oil begins.”
The third department in the tea making process is the fermentation department. The fermentation department largely determines the final type of tea produced. According to Ten Ren Tea, n.d., “One of the key steps in the tea manufacturing process, that is a factor in determining the type of tea that is produced, is the degree of fermentation the tea leaves are allowed to undergo. The term fermentation when applied to tea is something of a misnomer, as the term actually refers to how much a tea is allowed to undergo enzymatic oxidation by allowing the freshly picked tea leaves to dry. This enzymatic oxidation process may be stopped by either pan frying or steaming the leaves before they are completely dried out. One method of classifying teas are is based on the degree of fermentation: a) Non-fermented and Very Light Fermentation, b) Semi-fermented, c) Fully-fermented.”
Non-fermented and Very Light Fermentation: These teas retain quite a bit of their original flavor. Green teas fall in this category. Semi-fermented: Tea which are allowed to undergo 10% to 80% fermentation fall into the broad category of semi-fermented teas. Tea brewed from semi-fermented tea leaves have a slight yellow to brown hue and possess a subtle fragrant aroma. Fully-fermented: Black teas are fully fermented. Tea from Black tea leaves have a dark red hue and a sweet aroma of malt sugar. Refer appendix picture 1.1. (Ten Ren Tea, n.d.) BOH Plantations mainly concentrates on producing black tea. Therefore, they would conduct a full fermentation on their tea leaves.
Next will be the drying department, drying process is used to stop the fermentation process and also to reduce and moisture the leaf. According to Holy Mountain Trading Company, 2011, “The purpose of this is to arrest further oxidation, and to dry the leaf evenly and thoroughly without scorching it. The automatic tea drier consists of a large iron box inside which the leaves, spread on trays, travel slowly from top to bottom while a continuous blast of hot dry air is forced into the box. Careful regulation of the temperature and of the speed at which the trays move is the main factor in successful firing.” Refer to appendix picture 8 for BOH’s drying machine.
The last process will be the sorting department. At this point, the product is sorted according to the leaf size and also the grade of the leaf. The leaves are packed into bags and placed into the tea store. Refer appendix picture 9, 10 and 11.
2.2 Facility layout
The successful operations are depending on the facility’s physical layout. A poor layout decision will affect the work flow, productivity and also the utilization of equipment and space. Therefore, when planning for the plant layout, the machinery must be carefully arranged. Besides, it need to ensure that there is a smooth work flow, fully utilize all the resources provided regardless space, equipments and human resources, and also taking into account, the costs of implementing it. The objective for the layout design is to develop a cost effective layout that meet a company’s competitive requirement.
There are several alternatives to layout. For our company, BOH Plantations Sdn Bhd is using the product-oriented layout which is also known as flow shop layout. This type of layout is mainly used for producing a single or family product in large volume; like our company, the factory mainly focuses on producing Black Tea. The machines in the factory and its work process are also arranged according in the progressive step. Refer to appendix picture 1.
2.3 Location Strategy
Location is one of the factors that determine successfulness of a particular company or cooperation. It is very important for getting a right place to run the operations. Location decisions are long term decisions, so the companies are seldom or infrequently make location decisions. Once the decisions have been made, a lot of things such as resources and costs are unchangeable. Therefore, companies should take all relevant factors that might influenced by location into account in order to find out the most suitable location which is benefit to them.
Primarily, companies tend to look for the environmental factors such as economy and political environment. Besides, they will also consider other important variables. For example, labor productivity, accessibility to natural resources and wages are those important variables. The type of business often decide the direction of the location decision whether they would be based on “location and cost” or “location and innovation”. Costs focus companies basically would like to minimize the cost and maximize the profit. On the other hand, costs are not the main factor that concern by the innovation focus companies. BOH can be considered as a costs focus company. It is because BOH is a manufacturing company which seeks for lowest cost but produce great quality of products. It is the reason BOH can sustain in such a competitive industry and become one of the best tea brands in Malaysia.
BOH decided to choose Malaysia as their base because Malaysia has a stable and healthy political environment. It is more secure and good for their company. Besides, labors in Malaysia are hard working and wages are relatively lower compared with those developed countries such as United Kingdom, Japan and South Korea. BOH chose Cameron Highland as their factories location. It is because the locations are near to main raw material which is tea plantations. Cameron highland is a right place to plant tea because of the environmental conditions there. Tea is quite similar to wine; the environment conditions which it grown have great impact on its final character. Thus, to produce fine quality tea has to get a best place with best conditions. Lastly, BOH chose to build their factories near by the tea plantation which is located at Fairlie and Sungei Palas in Cameron Highland. It is because the company want to get lower inbound transportation cost. Besides, tea-leaves can direct go into production after pluck it from the trees. Therefore, it can ensure that the tea-leaves are fresh and the final products are high quality.
2.4 Design of goods and services strategy
The goals of design goods and services strategy are to find new products to design, develop and market. The product strategy is mainly developed and implemented based on the demand on the marketplace. The BOH Tea Company produces tea products and also provides a unique tea sensation service to the customers that visit their factory in Cameron Highlands.
The design of goods and services is a very important part to a production company. All of the designs are responsible by product design manager. The goal of design of goods and services of BOH Tea Company is to develop new designs and packages of BOH premium black tea. They hope to bring into market attract the customers and have the good image of their product into the customer minds. For the product strategy, it is provides the competitive advantages such as differentiation, low cost and rapid response. The product decision is the organization provides the goods and service to the society. For the top organization, there are focuses on the core products. When the customer make a purchase, there are not just see the physical goods or services, it also depends on their satisfaction. BOH Tea Company is focus on their core product such as their brand, design, packages and others. If they want increase the sales, it is important because nowadays the customers not just see the physical of the products, it also depends to the customer and see how they are satisfying to the product.
Besides that, the effective design can provide a competitive edge, it mean good design can make the competitive become more interest. The design goods and services might typically affect goods and services quality, goods and services cost and customer satisfaction. BOH Tea Company should design goods and services are match the product or service characteristics with customer requirements. It is required to design new packages in short term. They can design the goods and services depend on the customer satisfaction, which packages are more prefer by the customer. The product life cycle is a new product progresses through a sequence of stages from introduction to growth o maturity and to decline. There is a change in the marketing situation, thus impacting the marketing strategy and the marketing mix. The graph of product life cycle as below:
The introduction of the product life cycle is the product is promoted to create awareness. Sales generally are low and the Customers are characterized as innovators. Marketing costs required for creating customer awareness, interest, and trial and for introducing the product into distribution channels are high. After the introduction, comes the growth stage. First of all, BOH Tea Company is a drinking industries, their tea is healthy and fresh to the people. Nowadays, all the people are concerning to their healthy life, BOH tea company can have some idea such as advertise some advertisement about the BOH tea product in TV channel or use others media to share out the idea healthy in drinking.
For the growth in the product life cycle, competitors are attracted into the market with the similar offerings. Because sales are increasing and, at the same time, unit cost is declining, profits rise significantly and rapidly during this stage. If consumer clearly feels that this product will be benefit them in some ways and they accept it, the organization will see a period of rapid sales growth. Use the advertising might help the BOH Tea Company increase their sales in the market and it can attract the other competitor come into the market. When the customers realize that tea is healthy to them, they will be satisfied to the product, the sales will be growth.
For the maturity stage is when the product has reached its peak which means that the product has achieved considerable advantage over its competitors. It can be called sales peak. In fact, the maturity phase of the life cycle is the longest phase for most products. When the customer feel satisfy to this product, the sales of the BOH Tea Company will reached to the peak, it mean they are already achieved considerable advantage over its competitors. For the last stage is decline, not all products go through each stage, some go from introduction to decline. The decisions of the marketers can change the stage, for example from maturity to decline by price-cutting.
On the other hand, there are new product opportunities such as understanding the customer, economic change, sociological and demographic change, technological change, political change and market practice, professional standards, suppliers and distributors. BOH Tea Company can generate more and more new taste of the tea leaf. The packages of BOH tea also can become more nice and greats. BOH tea factory can design the goods and services depend on the customer satisfaction, which packages are more prefer by the customer. Factory can use the modern machines to generate the new product. In the product family, there are many tastes of tea leaf for example blackcurrant, green tea and others. BOH Tea Company can generate more different taste in product family and factory is improving by use the modern machines to make more tea leaf. Technology change can bring to cost efficiency which has a well plan in operations and less worker needed. It is help to save the labor cost, save time to produce and increase the production of tea leaf. Modern machines will still maintain the quality of the tea.
The Quality function development (QFD) is determined what will satisfy customer, it is translate the desires of customer into the target design. There are seven steps of developing house of quality. In the Quality Function Deployment (QFD), BOH Tea Company can promote better understanding of customer demands and design interactions of the tea leaf. The company might to know how will satisfy the customer needs and wants. There are few steps to develop the quality of tea leaf. The important is the BOH tea company need to identify the customer needs and wants. Then, they need to know about the characteristics, features or others of the tea leaf how will satisfy their customer. The company needs to build the matrix show relationship with the customer, develop important ratings about the tea and others.
Besides that, the issues for the product development are robust design, modular design, computer-aided design (CAD), virtual reality technology, value analysis and environmentally friendly design. There are some issues for BOH Tea Company. The robust design is one of the issues, it is the product have small variations in production, all design is in lower cost and higher quality. These can say that BOH Tea Company used the modern machine to produce the tea leaf, this is great to have the modern technology. For the Computer-Aided Manufacturing, it is the program to control manufacturing equipment. In the factory of BOH tea can install the Computer Aided Design system or Computer-Aided Manufacturing system to control the manufacturing equipment, these can shorter the time, reduce production cost and others.
Defining the product is the terms of the functions. For the group technology, it is parts of grouped into families with similar characteristics and coding system describes processing and physical characteristics. Defining the product is the terms of the functions. It is include the engineering drawing and bills of material (BOM). BOH Tea Company can improve their design for goods and services by the group of technology. It can reduce raw material and purchases. In the group of technology, they can simplify the production of planning and the control. BOH Tea Company might improve the factory layout, routing and the machine loading. It also reduces tooling setup time and the production time
Besides that, The documents for production are include assembly drawing, assembly chart, route sheet, work order and engineering change notices (ECNs). Service design is a service that includes direct interaction with the customer and the cost and quality are still determined at the design stage. To design the goods and services, BOH Tea Company has to have the documents for production. For assembly drawing, the company will show the view of tea leaf and the details of location show how to assemble it. Assembly chart is used to identify the components flow to the final. BOH Tea Company used the route sheet to list the operations and time to produce the component. Then, there is the work order is in the schedule, it is for company to give instructions to produce a quality of the item. For the engineering change notice (ECN) is for company to correct product definition or documentation such as engineering drawings and bill of material.
For the service design, BOH Tea Company has services to the customer. It is the opportunity to have interaction with customer and they can reduce the productivity of factory. BOH Tea Company has four tea gardens such as Boh, Sungei Palas and Fairlie situated in Cameron Highlands and Bukit Cheeding in Selangor. It is dominates the domestic retail market. But today BOH Tea Company exports its brand of prime grade teas to various countries including the USA, United Arab Emirates, Japan, Singapore and Brunei. Furthermore, the customer has given good comment to the BOH Tea Company. For example, there are design many kinds of taste for the tea leaf and the packages. It is a healthy drink for the people so it can attract more people try it and make customer will come back visit again.
3.1 Analysis of strength and weaknesses of production process.
When we analyze BOH tea production process, throughout the five processes to create their black tea, we found out that:
In the first process, BOH Plantation tea factory withering process uses an exhaust fan to pump heated air throughout the department. Comparing to other tea manufacturers like Holy Mountain Trading Company, this company spreads their tea leaves on racks and allow the tea leaves to wither by themselves. BOH’s method of using an exhaust fan is a strength as the process is not easily affected by environmental conditions. Heated moving air can wither tea leaves faster than leaving them to wither by themselves on racks. But the weakness of this process is, there might be additional costs in creating heated air and the maintenance of the exhaust fan. If the exhaust fan breaks down, the entire process or operation have to be temporary halted until the fan is fixed.
BOH’s factory still uses very old machinery which might be slower compared to other competitors which uses newer and more efficient machinery. In terms of volume output, BOH might not be able to ramp up production significantly if there is a sudden fluctuation of demand of tea.
3.2 Analysis of strength and weaknesses of facility layout
The BOH Tea factory that we interviewed is located in Sungei Palas, Cameron Highlands. In this factory, it consists of two floors which are used for different process. There are a total of five process or departments in the tea making process. The first floor is entirely used for the withering process, which is also the first step in the tea making process. While the rest of the departments are arrange in the ground floor.
Now let analysis about the strength and weaknesses of the facility layout that plant by the company. One of the strength of this layout is low material handling cost. The purpose that BOH choose to plant their factory next to their tea field is just because to save the material handling cost. The material handing cost that measure is consist of the transportation cost, where the cost that need to transfer the tea leaf to their factory, including the transport or vehicle cost, fuel cost, and also the travel cost. Since the factory is plant next to the field, it was totally helps BOH to save up the cost of transportation. Another material handling cost is to transfer the material from one department to another department. With the assembly lines layout, it can save the time and also reduce the cost of material handling. The cost of moving between various work areas are reduced as layout type is efficient when moving the tea leaves from one department to another.
Another strength of this layout decision, is to helps BOH in reduced the cost of work-in-process inventories. Work-in-process inventory means that those inventories like tea leaf which still in the production process and not yet complete and transferred to the finished goods inventory. By reduce the work-in-process inventory; it helps BOH to save the costs such as the cost of direct material, direct labor, and also the factory overhead cost that placed the unfinished product in the factory floor.
Furthermore, planning this layout is easier for supervision purpose neither toward the workers performance nor the operation of the process in order to ensure that the operations are running well smooth. Besides that, it also easier for the superiors to provides the real time training to their workers.
Rapid throughput is also one of the strength of the company. Rapid throughput means that process of creating high volume of quantity with the high accuracy rate. By using this assembly lines layout, it allows BOH to produce a large quantity of produces’ leaf with no error or mistakes occur during the whole process; and also best accurate in match the grading requirement for different type of tea. This is very important in the tea making process, in the same time of produce a huge volume of tea, it also require a high accuracy rate in order to produce the large quantity and right quality of tea. Because the low accuracy rate will lead to wrongly produce the type of tea and also wrongly grading toward the tea. Hence, the company will be facing big losses and they also needed to reproduce the tea which may costly to the company.
However, none of each decision is completely perfect; there still have some weaknesses in BOH’s facility layout decision. Firstly, this layout decision that used by BOH is require a high volume of the production in order to get the profit or return in investment. This is due to the company was use a large amount of investment cost to purchase the machines. Moreover, the number of year that to get the return on investment is hard to estimate. Therefore, they need to produce in a large amount of quantity.
Besides, due to this is an assembly line process where the work in the factory is arrange in a progressive step. If one of the department having error or mistake, it will affect the whole operation and work stoppage will exist. So, with directly, it will definitely affect the overall performance and the productivity will be decrease as well, some more the cost of the maintenance for the machines as high as well. Moreover, it will also lead to the raw material like tea leafs become spoil and wasted if not process immediately. Thus, the company might facing a huge losses at anytime due to the work stoppage. To prevent this issue to be occur, BOH are always maintain the monthly check for all their machines.
Moreover, lack of flexibility in product and the production are also the weakness for this layout decision. All the process stage in the factory was already ties up and plant in the fixed method which needed to work according to process by process. With this type of the design, it is not encourage the flexible on the production rate. BOH was enquiring their workers to produce the product according to the schedule plan. Everyday doing the same job, same task, rotate the same thing, their workers might be feel boredom toward the job, hence, it will lead to de-motivate of the workers itself, and then the loyalty toward the company might also be effect, and end up with the decrease in the productivity.
3.3 Analysis of strength and weakness of location strategy
BOH made the location decision to choose the place which is near to their raw materials. There are many strengths and weaknesses for this decision. First of all, low inbound transportation cost is one of the strengths for the company. As stated above, the company built their factories near to the tea plantation. It means that the company do not need to spend big amount of money to transfer the tea-leaves which is the main raw material to the factories. Transportation cost often the main cost absorption and it can affect the total cost adversely. With this location decision, the company can reduce inbound transportation cost which is benefit to the company. Therefore, the company profit may increases.
Besides, availability of natural resources such as land and climate is the strength for the company after made this location decision. Cameron Highland is a place with great natural resources. It has fertile land and nice climate which is suitable for tea plantation. As stated above, quality of tea is very depending on the plantation environment. Therefore, the company built their factories there has the opportunity to get the fresh and good tea-leaves to produce the best quality tea. It is a good competitive advantage against their competitors. It is the reason BOH is the best brand in Malaysia and even exports their products to other countries.
On the other hand, there are few weaknesses in BOH’s location decision; one of them is difficulty for employ workers. It is because most of the young people are more likely to move out from Cameron Highland to big city for working. Thus, it is quite hard to the company to employ workers. So that, the company has to pay more salary or benefits to the workers in order to attract and retain their workers. As a result, it adds some extra costs to the company and it may affect the profit.
Besides, fierce and direct competition is another weakness. In Cameron Highland, BOH is not the only tea manufacturer. It means that there still has other competitor such as Cameron Valley Tea. It could face fierce and direct competition between each other in term of products, land, as well as employ workers. It brings a lot of problems and difficulties to the company. Therefore, ability of the management team to handle competition is key factor to sustain and success in the market.
3.4 Analysis of strength and weakness of design of goods and services
Tea products has a relatively slow product life cycle. This is a positive strength for BOH as the products does not need to be replaced or reinvented quickly to replace obsolete market products. BOH can save cost from creating new products and spend this additional revenue to maintain the premium grade of their black tea.
The market is saturated by tea products from multiple manufacturers. Other competitors are pushing products into the market, increasing competition and eating BOH’s market share. Since tea products have been around for a long time, there is not much diversification that can be done onto the product for improvement and might lead to product stagnation.
4.0 Discussion and Conclusion
PESTEL Analysis of BOH
Political stability in the country is strength for the company. Political is very important for a company because it might affect the company directly or indirectly. For the example, taxes can directly affect the company in term of profit. Malaysia can consider as country with stable politic, so that it can help BOH to prevent some legal conflict. It is also easier for the BOH’s management team to plan their future strategy. Therefore, political stability is a very important factor which concern by the company when making location decision. BOH made a good decision to choose Malaysia, a political stable country as their base to start their business and it is good for their company.
The economical stability provided by malaysia helps BOH tea maintain their operations without being subjected to sudden fluctuations in terms of worker shortage or product shortage or embargoes caused by economic stability. Malaysia is a peaceful country without wars and BOH can be rest assured, will not need to be subjected to any factory pillages or hostile takeovers by the government.
The social stability of tea consumption helps BOH tea to operate at normal efficiency. There is no need to suddenly ramp up productions or lay off workers due to fluctuations in social stability. Demands for tea does not change as tea is a form of food or beverage and consumption of tea products will remain relatively stable. The social health of workforce working in BOH’s factory; from a stable social aspect, the workers are less reluctant to go on strikes.
The global technological factors does not affect BOH much since there is not much technology required to produce tea products. The machinery does not need to be constantly replaced to help keep with changing technological events and structures. BOH still uses human workers to collect tea due to the nature of terrain of the tea plants planted on hills, there is no affordable technology available yet that can replace workers to scale the mountains of tea plantations anytime soon. The technology might be available but the cost to install and use the new technology to assist in tea harvesting might not prove to be beneficial in the long run.
The global environmental factors should not pose as a serious threat to the operations of BOH Plantations. The processing of tea products is considered relatively non harmful to
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