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Blue Band Margarine

Logistics System Analysis Unilever Pakistan
Unilever Pakistan is one of the leading companies in fast moving consumer goods in Pakistan. It is known as one of the giants in the consumer goods industry as it is the market leaders in almost all of the products that they are involved in. It has a very huge setup all over Pakistan covering almost each and every retail outlet. Unilever has seven factories in Pakistan. Namely; 1. 2. 3. 4. 5. 6. 7. Karachi Factory (Dalda, Blue Band) Karachi Tea Factory (Shershah) Rahim yaar Khan (Surf Excel, Lifebuoy) Fateh Ali Chemicals (Surf Excel) Khanewal Tea Factory (Brooke Bond Supreme) Walls Ice Cream Rafhan Best Foods

The first five factories are controlled and managed by the hierarchy of management similar for all five factories that will be discussed further on but the other two factories (i.e. Walls and Rafhan) has a different hierarchy. We have selected one of the products from the Unilever brands to study on its supply chain management which is Blue Band Margarine. Its market is growing and there is a very high future potential of around 70,000 Tons annually in the Pakistani Market and as we have selected Blue Band so our focus in this report will be on the management of the five main factories of Unilever and then we will be looking at the various supply chain managements activities for Blue Band.

We start with the organizational chart, then the Blue Bands introduction, then purchasing, manufacturing, warehousing, distribution activities will be looked at but the topic that we have selected for this report will be the of logistics in the various supply chain activities. Unilevers Organizational Chart

CHAIRMAN Musharraf HAI

1. Director CNCD Ali-usSajjad Khan

2. Director HPC Tom Darlow

3. Director Beverages Rizwan Bashir

4. Director Ice Cream Noman Sherazi

5. Director Personel Pervaiz

Hasan Khan

6. Director
Commercial

Rob Zoon

1. Director Customer and Channel Development

1. Director Customer and Channel Development Ali-us-Sajjad Khan

General Sales Manager Bakhtiyar Toor

Trade Marketing Manager Out of Home Manager Asif Iqbal

Buying / Planner Manager

Merchandising Manager 4 Regional Manager Karachi, Lahore, Islamabad, Multan Channel Manager

Category Manager 2. Director Household Product Category

2. Director Household Product Category Tom Darlow

Commercial Manager

Marketing Manager

Brand Manager SUNSILK Brand Manager SURF Brand Manager Spreads Brand Manager LUX Brand Manager Wheel / Vim Brand Manager Lifebuoy Brand Manger Fair and Lovely Brand Manager Ponds

(Khurram Kureshi) (Amir Paracha) (Ozman Jaffery) (Saba Saleem) (Mohammad Ali) (Ali Mustansir) (Narmeen Khan)

Assistant Brand Manager SUNSILK Assistant Brand Manager SURF Assistant Brand Manager Spreads Assistant Brand Manager LUX Assistant Brand Manager Wheel / Vim Assistant Brand Manager Lifebuoy Assistant Brand Manager Fair & Lovely Assistant Brand Manager Ponds

3. Director Beverages

3. Director Beverages Rizwan Basheer

Commercial Manager

Marketing Manager Naveed Asghar

Brand Manager Lipton Brand Manager Supreme Brand Manager Kenya

(Haseeb-ur-Rehman) (Qashif Affendi) (Sameen)

Assistant Brand Manager Lipton (Kiran Pervaiz) Assistant Brand Manager Supreme (Rahat Junejo) Assistant Brand Manager Kenya (Aamir Ali)

4. Director Ice cream 4. Director Ice cream Noman Sherazi

Marketing Manager 5. Director Personnel

5. Director Personnel Pervaiz Hasan Khan

Margery Rehman

Sana Mehfooz

Shoaib Baig

Unilever has a very large organizational structure, it starts from the chairman Musharraf Hai and under her there are six main directors. One for customer and channel development, then Household product category, beverage, ice cream, commercial and personnel. Every director is responsible for the departments under him. The consumer and channel development department is responsible for the buying of raw materials, it manages the channel structure and the out

of home manager is responsible for the tea distribution at hotels, canteens etc. The household category is a very important department the famous products of Unilever comes under this department, it has different brand manager and assistant brand manager for all the different products. The beverages departments looks after the Lipton, brook bond supreme and Kenya Tea. Then there is an other director which is for ice cream and then the personnel director who is responsible for the human resource management and also for the supply chain activities, the supply chain department is discussed in more detail after the introduction of Blue Band and finally the director commercial, it will be discussed, this department also manages the supply chain of Blue Band and will be discussed after the overall supply chain department.

Introduction to Blue Band

Blue Band Margarine has been in use for a long time in every home in Europe and USA but in Pakistan it was launched by Unilever in year 1985. Even though Pakistan consumers response to it has been encouraging as more and more families have switched over from pure butter to Blue Band but the company is confronted with a few problem related to storage and logistics. Blue Band is one of the specialized products of Unilever Pakistan. It was launched on 1985. Blue band has been in the market for very long time but there had been many problems related to logistic and Storage. The blue band requires a control environment in the process of storage and transportations. In order to keep the product in the right shape and bacteria free, it requires controlled temperature of minimum four to

maximum twelve degree Centigrade otherwise product will melt, lose its shape and flavor / nourishing quality. The main competitors of Blue Band is Nestle (Nurpur). The target market for Blue Band is Middle and Lower class. It is priced lesser than its competitor. Until 2000, Blue Band was targeting mothers only with the tag line of For Mothers who Care. Blue Band is now targeting the Adult Male Consumers also as it is a very big market. The product testing was also done to see the consumers response towards Blue Band. For this purpose, it was tested at some canteen by asking the canteen to use Blue Band with the sandwiches and give it to the people who come for eating and get their response. Furthermore, it was also endorsed by some doctors.

Problems
Now before going into the details of the various activities, i.e. purchasing, manufacturing, warehousing and distribution, we will discuss the problems that Blue Band faced before the development of supply chain department at Unilever. Some of the main problems were: Chilling Facilities Storage Facilities Movement from Karachi Major Sales from Karachi Chilling Facilities

As mentioned earlier, Blue Band requires the temperature of 4 to 12 degrees else it may become soft and may cause Microbiological Contamination to the product. Before the development of Supply chain management, Unilever didnt have proper chilling facilities at the factory and at the distributors. After the development of supply chain management, Mr. Aamir Ishaque, who is the project manager of Blue Band Margarine, when he got the responsibility of Blue Band, he wanted to experiment the chilling unit before making the overall investment. So, a container was purchased from Gadani from the ship breaking unit, the chilling unit cost for 20,000 rupees and then it was tested at a storage. After a month, it cost for 3,000 for the electricity bill and was efficiently storing 10 tons capacity. Later on it was again purchased from the ship breaking unit and was placed at other depots. In Lahore, during summers, due to the very hot temperature the unit stopped working. As the experiment was proved to be successful so they decided to buy new chilling units. During the period of experiment, Utechtich bottles were also purchased from Portugal, usually it is used for ice cream storage to control the temperature. Utechtich keeps margarine cool at -17 to -18 degree centigrade for 7 to 8 hours in case of electric failure. So, 8 cartons of Blue Band was kept at fiber glass crude boxes at the temperature of 5 degree freezing point, which also worked. Storage Facilities Blue Band also faced difficulty due to the lack of storage facilities before the supply chain department. There were two depots one each at Karachi and Lahore. So there was problem to supply to Multan, Sukkar, Islamabad, Rawalpindi, Peshawar and other close cities. They decided to develop a depot at Turnol which is 20 km away from Islamabad, it also has a chilling

unit. Now from there, Blue Band could be supplied to Islamabad, Rawalpindi and Peshawar. One more depot will be developed at Multan from there it can be supplied within Multan and it can cover the Central Punjab can it can be supplied till Sukkar. Now these four depots cover all over Paksitan except Quetta. Movement from Karachi The chilling units were made available at the depots but still the major problem was to supply Blue Band from Karachi to the depots at Punjab with the proper chilling as it was not kept cold during the transportation. So, a third party, a logistics company was hired for this purpose. Saqib Bros. was given the responsibility to supply the product to the depots with the proper chilling transportation facility. Major Sales from Karachi In the year 2000, Blue Band had a sales of around 80% from Karachi only and the rest of the areas including Punjab was not contribution much to the sales. The supply chain department realized the potential of the market which was estimated to be 70,000 tons annually. So the efforts were made on the Punjab side like the depots were established and the product was supplied through proper facility and in the result last year total sales of Blue Band was 1800 Tons out of which 150 Tons were from the expansions. The growth rate of Blue Band was 9% in the year 2002 and 2003 and now Karachi contribute to 75% of the total sales. It shows the increase in sales from the other cities also .

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Supply Chain Management Department of Unilever

Supply Chain Director Pervaiz Hasan Khan

Manager Customer Service Department Mr. Rubbani

Factory Manager Ms. Faryana

Assistant Manager Mr. Mohabbat Ali

Customer Service Department

All Factories

The supply chain department at Unilever is headed by the one of the directors, who is, Pervaiz Hassan Khan, under him there is a Manager Customer Service Department and the Factory Manager Ms. Faryana, she is responsible for the supply chain of all the factories and there is an Assistant Customer Service Manager under Mr. Rubbani and there is a customer service department that makes sure about the customer satisfaction through the sales department through the various depots i.e. Karachi, Lahore, Multan and Islambad. Finally, the director commercial is shown below, Rob Zoon. Under him there is a Business Unit Head edibles and the Blue Band Brand and Project Manager. The supply chain management of Blue Band is been taken care of by the project manager Mr. Syed Aamir Ishaque who is also responsible for the improvements that has

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taken place in the facilities and distribution of Blue Band.

Supply Chain Management Department of Blue Band

6. Director Commercial Rob Zoon

Business Unit Head Edibles Ms. Uzma Aslam

Blue Band Brand Manager Mr. Ashar Shami

Project Manager Mr. Syed Aamir Ishaque

Sales Department

Karachi

Lahore

Islamabad

Multan

4 Assistant Depot Manager

4 Assistant Depot Manager

4 Assistant Depot Manager

4 Assistant Depot Manager

2 Junior Manager

2 Junior Manager

2 Junior Manager

2 Junior Manager

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Inbound Logistics System

In the Inbound Logistics, we will discuss the raw materials and packaging that is purchased and then received at the factory and then the quality inspection is done. The steps involved in purchasing and manufacturing are also shown. Incoming Vehicles and Receiving The main raw materials that is required for the production of Blue Band is R.B.D. oil that is purchased from Malaysia and also from the Local R.B.D. oil providers. The other material that is required is flavors and milk powder that is purchased locally. The wrappers and Tubs are purchased from Italy and Morocco respectively, the tubs are Microbiologically free. The Packaging could also be purchased from Packages Ltd. But the project manager (Syed Aamir Ishaque) told us that it costs 50% higher to get the packaging from Packages. As Unilever also do the manufacturing of Blue Band in Pakistan. All the materials and packaging are received at the Shershah Factory, the plant at the hub river road, where Dalda is also manufactured. Quality Control Unilever has a lab for quality assurance, where first the quality of raw materials are checked and also after the manufacturing all the batch is tested that goes to the depot. It is kept at the lab for 15 days to make sure there is no bacterial growth.

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Inventory Unilever has a First in First Out (FIFO) inventory system for Blue Band. First the raw material is received at Port, where it is kept in the storage tanks and from there the required quantity is brought to the factory, where it is stored and bleached, refined and deodorized at the tanks, the manufacturing is given in detail below, and after that it is kept for 15 days in the lab and finally the finished product is stored at the chilling unit at the factory from there it goes to the depots and it can rest to around a month at the depots. Procurement In Unilever Spreads business, the person responsible for the procurement is called Planner. His main area of responsibility includes, the quarterly planning for the Blue Band Margarine production. However, he is also holding the joint responsibility of procurement of the raw material with the buying department. The annual planning is also done but the decision to purchase is based on the quantity that was sold in the last quarter. Purchasing The procedure of purchasing chemicals, wrappers is the same as that of any other goods. The suppliers are asked to quote for raw materials, give shipping time etc. and based on competitive price the order is placed on the lowest bidders. The comparison of price is done by first converting the quoted foreign currency price into Pak Rupee at the current / six month conversion rate fixed by state Bank

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and printed newspapers 3 times a week. purchasing of oil is a little different in that: (1) (2) (3) (4)

The

Oils are commodities Their prices fluctuates many time during one single day owing to fears of war, disturbances, strikes, too much rain, too little rains Crops failure news or rumor of short size of crop Availability or non availability of ships.

Therefore, all above factors are kept in mind before deciding to select an opportune time to enter market and make purchase.

Manufacturing
Blue Band is the manufactured and Unilever. brand name of (table) margarine sold throughout the world by

Unilever Pakistan manufactures about 20 variants of margarine to cater for the industrial requirements of Bakeries, Hotels etc and the Blue Band is especially for the table grade of margarine for domestic consumption. In fact, this variant has been the pioneer and leader of Unilever margarines business in Pakistan. About its conducted: composition, the following steps are

Margarine is manufactured from raw edible / Vegetable oil.

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In order to keep the cost low, Unilever use blend of raw soft and hard vegetable oils, that is, (a) Cotton Seed Oil (b) Soybean Oil (c) Corn Oil (d) Sunflower Oil (e) Palm Oil etc The proportion of the oils in the blend depend on their cost effectiveness which mean the less expensive oil has greater incorporation than the more expensive oil. Vegetable Oil are more than 80% cost of Blue Band. The rest 20% cost is for: Process chemicals Ghee or butter flavors and aroma Alum Foil Wrappers Distribution Cost The technical process of manufacturing Blue Band is as under:

Tank 1
STEP 1: Raw Vegetable Oil is treated by steam coils built in the tank and agitated or stirred to mix it thoroughly. STEP 2: 1% Caustic Soda solution is added, Oil is stirred due to chemical reaction, the FFA (Free Fatty Acid) contents harmful for human consumption, are turned in soap stock. STEP 3: Stirring is stopped and Oil is allowed to settle in the tank. STEP 4: Soap Stock mixed with hot water is drained out through the tap of tank and collected - trays. Water evaporates in 10 15 days leaving Soap Stock in trays.

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STEP 5: Bleaching Earth is added in tank and again oil is stirred. Bleaching Earth reduces the dark color of oil to pale yellow / transparent. STEP 6: Spent earth is received passing the through filter cloth. and taken out by

Oil is now technically called as Hydrogenate Vegetable Oil which then becomes base of Margarine.

Tank 2
STEP 7: Oil is then transferred to (empty) tank No.2 here the oil is DEODORIZED which means the odor / bad smell of oil is sucked / taken out by Vacuum. Here, hydrogen Gas is passed into tank. As a result of chemical action, the soft / liquid refined oil develops the solidification. The resultant Oil is now Refined, Bleached and Deodorized; that is RBD for short. STEP 8: The RBD (Cotton Oil / Soybean Oil / Corn Oil / Sunflower Oil / Palm Oil etc) is enriched by adding: (a) (b) (c) Vitamin A & D Aroma + Flavor Milk Powder

STEP 9: RBD oil base is transferred to cooling room to transform it into Margarine STEP 10: The RBD oil base is then packed on to jointed aluminum foil Margarine Wrappers (either locally manufactured by Packages or imported from Germany / Sweden / France.

Outbound Logistic System

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Finished Product and Logistics The Karachi Factory has a production capacity of 2400 Tons annually for Blue Band. After the manufacturing the Finished product can rest at the factory for around 15 days and then its being transported to its required location. In Karachi, it is supplied to various distributors location. Logistic business is being given to third parties e.g. Saqib Bros. for logistics of General Trade. As the transportation was mentioned earlier as one of the major problems regarding the risk of Microbiological Contamination and the proper chilling facilities were required. Now the other cities where it is required to be distributed like Multan, Lahore and Islamabad. It is sent through Saqib Bros. in a temperature controlled vans. The distributors get the stock from them and store it in a chilling facility and from there it rests for around 15 days and they supply it to the retailers, the vans with which they supply doesnt have a chilling facility but as it supply within the city, the product can remain safe for certain period of time but the supply chain management at Unilever is also looking to avoid even this nominal difference in chilling of Blue Band. At the trade level (retailers) it is kept at the freezers and there it can rest for 3 months. Order Processing It is a very important function for any organization but at Unilever it is planned, managed and operated very efficiently. There are total of 9 distributors in Karachi and for every distributor it has a different plan, it is generated through the (DBR) Data Based Replenishment, it will be discussed in detail in the Distribution Resource Planning. The normal procedure is that the company sends a plan on a weekly basis to the distributor of the dispatch that will be received by the

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distributor in different quantities of all the different categories of product and if the distributor doesnt want any of the quantity or any of the product then he cancels the order of that product and it is sent to the factory which dispatches the demanded product on the right quantity to the mentioned distributors. Warehousing At Unilevers, there are a number of warehouses. Person responsible for the warehousing is called Assistant Depot Manager (ADMs). They are responsible for ensuring the supplies according to sales requirement. For its all products Unilever manages the safety stock of 9 days and the normal stock of 6 days that makes it the total of 15 days but for Blue Band the total days for keeping the stock is 9 days. Distribution The division which is handling the affairs of distributors is called CNCD which is acronym for Customer & Channel Development. However, the operational issues are begin handled by CSD which stands for Customer Services Department. The director for CNCD or sales is Ali-us-Sajjad Khan and the person heading the Customer Service Department is Mr. Burhanuddin. Chilling Facility at Distributor The chilling facility problem was also at the distributors, the normal air conditioner has a minimum temperature of 18 degrees and Blue Band is required to be kept at 4 to 12 degrees.

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The investment was made with the distributors of around 250,000 to place a chilling unit where the Blue Band could be kept and it costs around 3,000 per month for the electricity bill and it can store up to 3 5 tons of stock. A third party is involved through which the chilling unit setup is being made, it is KOLDKRAFT, who is given the contract to setup a chilling unit at a storage. Distribution Network Unilever has total of 550 distributors all over Pakistan and in Karachi it has 9 distributors. These 9 distributors cover all over Karachi as the Unilever Products can also be seen at almost every outlet. These 9 distributors are:
1. 2. 3. 4. 5. 6. 7. 8. 9.

Saaya Gizri MPD APCO APEX Channel Irfan Traders Traders Inn Mehtab

(Jodia Bazar) (P.E.C.H.S & Defence) (Shahrah-e-Faisal) (Gushan & Gulistan-e-Jauhar) (Golimar & Site) (North Nazimabad & North Karachi) (North Nazimabad & North Karachi) (F. B. Area) (Korangi)

Saaya, Gizri and Traders Inn are the old distributors of Unilever and serving them from a long time and APEX and Mehtab are the new ones. All of the distributors hold the stocks for all the products of Unilever so Blue Band is also kept at all 9 distributors in Karachi. The distribution process is managed so well that the damage or returns is only 0.17% on Blue Band, which may be sent back if it was kept for more than 3 months at retailer.

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Distribution Advise The distribution advise is the dispatch advise, it is a printed format advise that has the details (product category, size, quantity, price, total price, freight) of the product that is sent to the distributor. The distributor receives this advise and signs it, his agent also signs it and then it is signed by the Assistant depot Manager (ADP) at the distributor in the context that the distributor has received the products and then three copies of this advise are made. One is kept at the distributor, one is sent to the CSD (Customer Services Department) and one at the factory. Distributors Sales The distributor sells the Blue Band through his vans to the retailers. Unilever works on a cash basis with distributor, the company has a cheque book of the distributors signed by them after the order the company fill the amount in the cheque and send it to the bank and the amount is transferred to the companys account and then the products are send to the distributors. The company works on a cash basis and also ask its distributors not to give credit in the market. The distributors sells the product on the cash to the retailers but they give credit to certain extent only to them whom they are sure about the recovery of the money. Distributors web site Unilever is also managing an e-commerce website for its distributors, the distributors are given the login and password, only the distributors can log on into this web site and can place their order through it. The web site address of Unilever for all of its products to the distributors is www.leverlink.com

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Distribution Resources Planning A very important aspect in the efficiency of the distribution system of Unilever is DBR (Demand Based Replenishment). The order is automatically placed through this software and the distributor gets the copy of this which if accepted Blue Band will be send to the distributor and if they cancel the order or some quantity of it the rest of the products will be send. This is managed by a software known as Ultra. The overall process is that when the order is placed the TSO (training sales officer) feeds the information in his / her PDA system which goes to the branch and from the branch it is sent automatically to the head office through their IT system. The order placed is recorded at the software and anyone from the branch, Head Quarter at Avari Towers, Factory and all the managers can see it from anywhere by just logging into the site of Unilever. The chairman and all other senior managers have access to it and they can track the performance of any distributor out of their 550 distributors of any city and any area. Ultra Ultra is the software used by Unilever to generate their sales report and place the order which once sent can be seen from anywhere by just logging into the site. This holds the information about their every distributor, the distributors location, sales, coverage, investment, vans, products dealing in etc. Furthermore, the distributors personal information can also be recorded in this, the family, other sources of income etc. Before this facility when the sales report was needed the latest that could be seen was two weeks old and now the sales report can be generated at any point of

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time which will show the current sales that has been made and this can be seen as overall sales or Karachi total sales, or one of the distributors sales. This gives a lot of opportunity to review the performance quickly and set targets on the daily basis.