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SUPPLY CHAIN MANAGEMENT REPORT

E N G R O F O O D S L T D . Page 1

Supply Chain Management Final Report on

Submitted to:Sir Rizwan MalikBy: Maria Masood (11994)

Tahir Hameedi (15995)Abdul Rehman (10371)Faiza Sibtain (11907)

Program: MBA morningSpring Semester2011IQRA UNIVERSITY

ENGRO FOODS LTD.

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ACKNOWLEDGEMENTWe would like to offer our humble gratitude to Allah Almighty, the most Gracious and the most

Merciful, who gave us strength and enabled us to achieve our goals.

The main purpose of the project is to know about the Practical implementation of all the concepts

we studied in the Supply Chain Management course.

All the material that has been included in this report is based on data/information gathered from

various sources and is based on certain assumptions. Although, due care and caution has been

taken to compile this report but the contained information may vary due to any change in any

of the concerned factors, and the actual results may differ substantially from the presented

information.

We are heartily thankful to our SCM knowledge Bank teacher; Mr. Rizwan Tanveer Malik

whose constant guidance and support enabled us to develop an understanding of the subject

which ultimately helped us in making of this project.

At Engro Foods Limited, we would like to mention the names of

1. Mr. Salman Goheer. (Head of Supply Chain)

2. Mr. Ammar Mursalin

Who gave us their precious time & gave us all the required information about Engro Foods

Supply Chain Management.

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TABLE OF CONTENTSABSTRACT .................................................................................................................................................. 6

Background ....................................................................................................................................... 6

Methods: ........................................................................................................................................... 6

Results: .............................................................................................................................................. 6

Conclusions: ...................................................................................................................................... 6

ENGRO CORPORATION ........................................................................................................................... 7

ENGRO FOODS LTD: ................................................................................................................................. 8

ENGRO FOODS HISTORY .................................................................................................................... 8

LOCATION OF PLANT .......................................................................................................................... 9

LOCATION OF OFFICES ....................................................................................................................... 9

ENGROS NEW PROCESSING PLANT .................................................................................................... 9ENGROS Departmental CHART: ............................................................................................................. 11

Milk Procurement Department.................................................................................................................... 11

Quality Assurance DPTT ............................................................................................................................ 11

Pakistans Milk Industry Overview ............................................................................................................ 12

Supply and Demand: ............................................................................................................................... 12

Current Milk Quantities Available in Pakistan: ...................................................................................... 13

Livestock Population: ............................................................................................................................. 13

Milk Production Per Animal Kg/Lactation: ............................................................................................ 13

Source: Pakistan Dairy Industry, White Revolution Paper. .................................................................... 13

Why did Engro enter the food business? ................................................................................................ 15

EFL Aim: .................................................................................................................................................... 15

EFL Vision: ................................................................................................................................................. 15

Mission of EFL: .......................................................................................................................................... 15

Core Values:............................................................................................................................................ 15

CORE COMPETENCY OF EFL:........................................................................................................... 15

EFL Brands: ................................................................................................................................................ 16

OLPERS ...................................................................................................................................................... 16

Tag LINE: ....................................................................................................................................... 16

STOCK KEEPING UNITS: ............................................................................................................ 16

MAJOR COMPETITORS: ............................................................................................................. 17

Direct Competitors .............................................................................................................................. 17

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Indirect Competitors ........................................................................................................................... 17

TOTAL SUPPLY CHAIN C OST OF Olpers: ............................................................................... 17

Engro FOODS INVENTORY TURNOVER: ................................................................................. 17

ORDER FULFILLMENT RATE: .............................................................................................. 17

LEAD TIME OF OLPERS: ............................................................................................................ 17

SAFETY STOCK ........................................................................................................................... 17

OLPERS LIFECYCLE ............................................................................................................................... 18

OLPERS MILKDEMAND VARIATIONS: ............................................................................................ 18

Variations in supply of milk: ...................................................................................................................... 18

TETRA PAKS MILK MARKET SHARE ................................................................................................. 18

EFL Supply Chain Structure ....................................................................................................................... 19

EFL SUPPLY CHAIN MANAGEMENT GIMMICKS: ............................................................................ 20

SIX SIGMA AT ENGRO : .......................................................................................................... 20PR WITH FARMERS ..................................................................................................................... 20

Third-Generation Plant: .................................................................................................................. 20

EFFICIENT MILK PROCUREMENT DEPARTMENT: .............................................................. 21

QUALITY CONTROL SYSYTEM: .............................................................................................. 21

BUSINESS QUALITY MANAGEMENT SYSTEM & KAIZEN Principle: .............................. 22

360 DEGREE FEEDBACKS: .................................................................................................... 22

PUSH-PULL POINT: ..................................................................................................................... 22

Planning: ......................................................................................................................................... 22

MIS: ................................................................................................................................................ 22

OLPERS SUPPLY CHAIN ....................................................................................................................... 23

OLPERS PRODUCTION PROCESS: ...................................................................................................... 24

1. MILK PROCESSING: .................................................................................................................... 24

2. Standardization and Toning ............................................................................................................ 24

3. Pasteurization: ................................................................................................................................. 24

4. Homogenization: ............................................................................................................................. 24

5. Ultra high Temperature (UHT) and Aseptic filling ........................................................................ 24

EFLS LOGISTICS & WAREHOUSING.................................................................................................. 25

Integrated Logistics: ........................................................................................................................ 25

Inbound Logistics: .......................................................................................................................... 25

Milk Collection from Various Cities of Sindh & Punjab ................................................................ 25

Outbound Logistics: ........................................................................................................................ 25

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Capacity Of 50 feet Truck:.............................................................................................................. 26

Warehousing ............................................................................................................................................... 27

Order ProcessING ............................................................................................................................... 27

Material Handling ............................................................................................................................... 27

Distribution Networks ......................................................................................................................... 28Selection criteria of Olpers for Distributors Selection : .................................................................. 28

Distributors in Karachi .................................................................................................................... 28

Negotiation on Price : ..................................................................................................................... 29

Sales Target for Distributors: .......................................................................................................... 29

Value Addition by Distributors: ...................................................................................................... 29

Customers Feedback:..................................................................................................................... 29

Purchase Orders .............................................................................................................................. 29

Reverse Logistics ................................................................................................................................ 30Shelf Life of Olpers Milk: ............................................................................................................... 30

Return Policy of Olpers Milk: ......................................................................................................... 30

Packaging ............................................................................................................................................ 31

EFL ERP SYSTEM ............................................................................................................................ 32

EFLS Sale & Distribution SYSTEM:............................................................................................ 32

Reporting of the primary sales: ........................................................................................................... 33

Reporting of the secondary sales: ....................................................................................................... 33

Payment procedure: ............................................................................................................................ 33Distribution claim: .............................................................................................................................. 34

CRM AT EFL ..................................................................................................................................... 34

Rapid Growth Spurs Demand for CRM System: ................................................................................ 34

Information At Tips: ........................................................................................................................... 34

future plans of engro foods ltd. ........................................................................................................... 35

RECOMMENDATION ...................................................................................................................... 35

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ABSTRACT BACKGROUND:To critically examine, understand & analyze the practical implications of supply chain management

course.

METHODS:Analytical examination conducted through interview with EFL head of supply chain & detailed study

of internet articles on Olpers, Product of Engro Foods LTD.

RESULTS:Engro Foods LTD continues to experience strong growth due to many reasons in which above all is

its Brand Equity. Olpers, EFLS Flagship Brand is at its growth stage & it made its place in thecurrent competitive market due to many factors one of which is EFLS effective supply chain

management.

CONCLUSIONS:Given the highly competitive nature of the Dairy Products market, need of having smooth & flawless

supply chain have traditionally been on the high side & Engro Foods LTD are on the right track.

ENGRO FOODS LTD.

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ENGRO CORPORATION

Engro stands for energy for growth.From inception, Engro is a legacy ofcontinuous growth, new challenges and fulfilled promises. From fertilizers to dairy

products, business solutions to PVC resin, power generation to commodity trade, at

Engro their ambition is to become the premier Pakistani enterprise with a global

reach.

Engro Corporation is one of the leading Pakistani business conglomerates with

stakes in the fertilizer, food, power generation, petrochemicals, automation and

terminal storage industries. Having had undergone an employee led buy out in

1992 it has expanded phenomenal in the past two decades. As a holding company

its subsidiaries include:

Engro Fertilizers Limited

Engro Foods Limited

Avanceon Limited

Engro PowerGen Limited

Engro Polymers and Chemicals Limited

Engro Vopak Limited

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ENGRO FOODS LTD:

Founded in March 2006, Engro Foods Limited is a producer and marketer of dairy products. The

companys brands include Olpers Milk, Omore ice cream, and Tarang, Olwell, and Olpers

cream. To support these brands and their highest standards of quality, Engro Foods has invested

heavily in milk processing and milk collection infrastructure. Headquartered in Karachi,

Pakistan, it has offices in seven cities across the country, as well as processing plants at Sukkur

and Sahiwal. Engro Foods is a subsidiary of Engro Corporation Limited, one of Pakistans mostrespected enterprises with more than 40 years of business in the fertilizer and chemicals industry.

In the five years since its launch, Engro Foods has seen a rapid growth in sales and market share.

ENGRO FOODS LIMITED is the 100% owned subsidiary of ENGRO. The company's milk

production capacity is 700k litters per day. Moreover an investment plan of $ 3.4 billion in

Engro Foods has been approved by the board for: expanding UHT capacity to 900k liter per day,

expanding milk powder capacity to 70 kilo per day, import of 1000 cows and an ice cream plant.

The company is all set for growth as the milk business profitability is increasing due to

increasing consumption of milk and increasing prices of dairy products. Besides selling milk, the

company also sells the company also sells related products such as creams and unbrandedproducts such as ghee, and recently introduced a milk whitener; namely "Tarang". The value of

the ENGRO FOODS LIMITED is Rs.36 in total subsidiaries value of 63.4.

ENGROFOODSHISTORY The plant located at Sukkur on 23 acre land, has the raw milk reception capability of

300,000 liters per day and UHT milk capacity of 200,000 liters per day.

The plant has been established at a cost of Rs. 1 billion which provides direct

employment to 750 people. Engro Foods has entered the Food business through milk

processing and sale with the companys vision to pursue growth opportunities based on

country fundamentals and own strength. It also positions the company to leverage its

corporate social responsibility initiatives and work closely with rural communities to

promote integrated farming and livestock development. This effort is expected to play a

pivotal role in poverty alleviation and improving livelihoods of the poor in the milk

collection areas.

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LOCATIONOFPLANTThe dairy processing plant is situated at Rohri & Sahiwaal & now in Punjab aswell

The office of Engro foods is situated in Sukkur.

LOCATIONOFOFFICESThe head office of Engro Foods is located near Sea View , karachi.There regional head offices are in :

o Karachi located in Business Avenue Shahrahe - Faisalo Lahoreo Multano Rawalpindio Peshawaro Gujranwala

They believe that there recent successes will take them to there goal which is To be one of thebiggest players in the food business by dominating the food business, and to achieve this theywill settle for nothing less than the cream.

ENGROS NEW PROCESSING PLANT

GEA TDS has recently completed a Euro 3 million milk processing plant for Engro Foods inPakistan. It is one of the biggest plants of its kind in Pakistan and the first ever in the Sahiwalregion. The commissioning of the plant was completed in just 2 months and operation started byend December 2007.

The plant supplies the region around Sahiwal with 250,000 liters of low fat milk a day,thats 1 million servings, and 10 million servings of Tarang (tea whitener).

The plant provides a processing outlet for the local farmers who rear dairy herds of cowsand, especially in the smaller farms, buffalo.

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The Engro plant also contributes to the local economy by employing some 200 peoplethroughout the factory.

The GEA TDS project was to supply equipment and engineering services throughout theprocess. This included milk reception; milk processing; UHT processing; powder mixing;

cream handling and processing; Clean in Place (CIP) equipment such as trucks, processand filling machines; detailed engineering and project management; automation for boththe process and CIP equipment; and commissioning.

Raw milk reception handles up to 40,000 lit/hr of both cow (20%) and buffalo (80%)milk from the surrounding regions farmers cooling it from approximately 15C to 4Cfor storage in the two 125m3 storage tanks.

The process can pasteurize milk to 85C at the rate of 25,000 lit/hr and includes milkclarification and skimming; standardization for milk, cream, SNF and butter oil; butter oildosing; a refurbished homogenizer; and degassing.

Pasteurized milk is stored in 5 tanks each holding up to 75m3. Cream is pasteurized

separately at a temperature of 95C at a rate of up to 3,500 lit/hr. UHT equipment, withindirect heating and cooling via heat exchangers, can handle up to 21,000 lit/hr.

The CIP system covers the whole process from the delivery trucks through to the fillingmachines. Acid and caustic concentrates are stored on site in two tanks each witha capacity of 15m3.

The whole process is controlled using PLCs supplied by Allen Bradley. PLCs arelocated in cooled cabinets installed on the base-frame unit of each module. All weredelivered wired and I/O tested.

Although Engro has only been in the food and dairy sector since 2006 the company has alreadycarved out a significant market share and is growing quickly. In such a short time its alreadywell on the way to achieving its goal to be one of the biggest players in Pakistans food industry

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ENGROS DEPARTMENTAL CHART:

MILK PROCUREMENT DEPARTMENTAs all of our food products are milk based, the entire Milk Procurement department plays a critical role in

defining the quality of the end product that reaches our customers. Ensuring regular collection of fresh

and pure milk right from the farmer to the factory and ascertaining the freshness of milk all across the

milk procurement process, is the responsibility of Milk Procurement department, consisting of food

technologists working at the collection centers and veterinary doctors providing service to the farmers.

QUALITY ASSURANCE DPTTQuality Assurance is strictly followed in Engro Foods. Qualified food technologists at this department

ensure that highest quality parameters are adhered to through all steps of production and that the products

reach the consumers as per promise.

Departments

AdministrationFinance &Account

MarketingMilk

Procurement

Manager Plant Manager procurement

Manager Q.C Manager Purchase

Quality AssuranceOfficer

Logistics Officer

HumanResource

QualityAssurance

SupplyChain

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PAKISTANS MILK INDUSTRY OVERVIEWWith an estimated 33 Billions Liters of annual milk production from 50 million animals managedby approximately 8 million farming households, according to latest statistics

Pakistan is the 4th largest milkproducing country in the world.

It has a livestock and agriculture sector contributing over 10% to the GDP, and a milk economythat in value terms is 27.7% of the total agriculture sector.

It is an untapped market, expected to grow an additional 3 billion liters in the next few years at agrowth rate faster than most sectors. Undeniably, a sector with such credentials can bring aboutnot just a radical change but also a dairy revolution in the country.

The annual milk production of 33.6 billion liters in Pakistan is shared between a

o 71.1% share for the rural economy and

o

A much smaller urban share of 29%.

Only 3% of the total production of milk is processed and marketed through formal channels.For the other 97%, a multi-layered distribution system of middlemen has evolved to supply milk.

Despite only a small percentage (3%) of milk being processed, the (UHT) market is growing at a steadyrate of 20% a year.

Over all consumption of milk per day is 400,000 litersin Karachi only

SUPPLY AND DEMAND: As a food item, all milk (both milk and milk equivalents) is second only to cereals in

level of per capita consumption in Pakistan.

The annual per capita consumption level at the national level is 190 liters.

Province wise, per capita consumption stands at 246 Kg in Sindh, 132 Kg in Punjab, 86Kg in NWFP, and 108 Kg in Baluchistan.

Due to rising inflation and high poverty levels, the majority of Pakistani consumers are price conscious.Therefore, demand for open, raw milk is high compared to processed milk.Hence, raw milk is the primary dairy product marketed in the country.

The supply of milk to meet domestic demand has usually lagged.To meet this gap, powdered milk is imported every year.

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CURRENT MILK QUANTITIES AVAILABLE IN PAKISTAN:

LIVESTOCK POPULATION:

MILK PRODUCTION PER ANIMAL KG/LACTATION:Country Cattle Buffalo

Bangladesh 207 407

Bhutan 257 400

India 987 1,450

Nepal 415 850

Pakistan 1,195 1,909

Sri Lanka 627 496

Source: Pakistan Dairy Industry, White Revolution Paper.

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PAKISTANS MILK SUPPLY CHAIN:

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WHY DID ENGRO ENTER THE FOOD BUSINESS?Big opportunity due to population growth and indigenous sourcing. There is a huge population.

One seventy million is a very big market. There are only a few countries with such a huge

population in the world. Besides, our people spend a lot on food. Our economy is agro-based. We

get raw material at the local level. Engro Foods CEO Sarfaraz A. Rehman

EFL AIM:Dominate the food business and to achieve this we will settle for nothing less than

the cream

EFL VISION:To become fast growing mega Food Company & also to elevate Consumer Delight

Worldwide.

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

MISSION OF EFL:Our mission is to provide satisfaction at a competitive cost, growth in diversity, and continue to

contribute to the growth of industrialization in Pakistan by being the market leader".

We believe our success depends on our customers. Thus, our primary value is fulfillment of our

customer's needs. Our manner of achieving this success is to include value for money

CORE VALUES:1. Leadership

2. Innovation

3. Diversity and International focus

4. Quality and continuous Improvement

5. Candid and open communications

6. Individual growth and development7. Enthusiastic pursuit of profit

8. Ethics and integrity

9. Safety, Health and Environment.

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

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EFL BRANDS:

OLPERS The flagship brandof Engro Foods is OLPERs Milk. Launched on March 20, 2006, Olpers milk is EFLs standardized and homogenized pure UHT

(Ultra heat treated) milk with 3.5 % fat and 8.9 % solid non-fats.

It is collected from 3000 plus villages & 10000 plus farmers

It is EFLs premier brand, and the choice of quality-conscious consumers who only go for the best. It isavailable in easy-to-open, 6-layered Tetra Pak Brick Aseptic red packaging and comes with approx71days shelf life.

TAG LINE:The unique selling proposition for Olpers is: Subah Bakhair Zindagi, but recently the companychanged the USP to: Jo dil khol kay jeetay hain unheen kay liyay hai Olpers.

Both the tag lines have a very positive impact on Olpers image because of their drect emotionalpositioning & relation with its customers.

STOCKKEEPINGUNITS:The company is maintaining three SKUs (stock keeping units) forOlpers in tetra packs that are 1000ml 500ml 250ml

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MAJORCOMPETITORS:Engro Foods Limited is fully aware of its competitors. The company had to consider the areas including(product design, segmentation, target market, advertising, time to launch a new product, time fornecessary changes& constant over view).

Direct Competitors: Nestle, Millac, Haleeb, nurpur, nirala.

Indirect Competitors: local milkman the GAWALA.

TOTALSUPPLYCHAINCOSTOFOLPERS:Product Cost: 75%Others: 25%

Out of 25 %, 4 % is business waste

ENGRO FOODSINVENTORYTURNOVER:On every 26th day of month inventory at EFL gets replenish.

ORDER FULFILLMENT RATE:At EFL its 86-87 % for olpers.

LEADTIMEOFOLPERS:Lead time with regards to:

Procurement of milk varies in between 5days & 4 months

Order placement to order fulfillment : 12-18 hrs

SAFETYSTOCKFor olpers hardly 6-7 days safety stock is kept because of its low shelf life. Time to timeforecasting is done in short intervals to meet the level of demand.

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OLPERS LIFECYCLE

Source: Mr Salman Goheer, Head of Supply Chain Dept, Engro Foods LTD.

OLPERS MILK DEMAND VARIATIONS:The demand of olpers milk usually increases in the festivity season or any event such as.

Eid Ramazan and Moharram

VARIATIONS IN SUPPLY OF MILK:In Pakistan there are mostly three season of milk which are as under:

Flush Season: (1st Jan to 15th April): During this season there is maximum production of milkin the country.

Lean Season (16th April to 30th July): Minimum production of milk in the country due to highenvironmental temperature, less green fodder availability and natural reproduction cycle ofanimals.

Semi-flush season (1st Aug to 31st Dec): In this season about 70-80 % milk production in thecountry.

TETRA PAKS MILK MARKET SHARE

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Supply Chain Department

Customer ServiceDepartment

PurchasingPlanning

Supply ChainDevelopment

Warehousing Logistics

Inbound

Logistics: Milk

Procurement

Outbound

Logistics

EFL SUPPLY CHAIN STRUCTURE

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EFL SUPPLY CHAIN MANAGEMENTGIMMICKS:SIX SIGMA AT ENGRO:

Engro is among the first Pakistani companies implementing six sigma across all areas and utilizing it as amanagement system to execute our strategic objectives. Six sigma was launched in February 2006.

Among the focus areas, employee development is the most critical and six sigma will be leveraged to help

bring out the best in our people. Employees drive improvements in other areas: speed, innovation,

perfection and becoming world class.

Six sigmas robust problem-solving methodology and statistical tool allows the company to benchmark

processes against global standards in a language that is comparable across any industry or function.

It helps ensure that we sustain our promise of delivering high quality products and services to our

customerson time, every

time.

Communication is critical and Engro conducted six sigma launch events country wide as well as two

internal conferences and electronic and print updates throughout the year management and non

management employees were trained extensively during 2006 & 2007 on six sigma principles.

Source: Mr. Hassan, HR Assistant Manger, EFL.

PRWITHFARMERSAccording to Mr. Ali Akbar, Director Marketing EFL,

In order to succeed, you should ALWAYS capitalize on your STRENGHTS and NEVER

on your COMPETITORS WEAKNESS!

ENGROs Strength was their fellowship with farmers for a long time. Engro has been interacting with the

farmers for fertilizers and has gained quite a good reputation over the years. It has led to a strong bond

and long term relationship with the farmers who are willing to supply milk to the company.

This is an added advantage and strength for the company because it will never be short of milk

production. The farmers also wont have to look elsewhere to sell their milk.

THIRD-GENERATION PLANT:EFL only, has the third-generation UHT milk plant in the country. EFL plant is the only plant in Pakistanthat uses Bactofuge technology to virtually eliminate bacteria and ensure premium quality and hygiene.

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EFFICIENTMILKPROCUREMENTDEPARTMENT:EFL MPD is provided with highly paid Procurement managers supported with a team of qualified andexperienced staff of zonal managers, area executives or milk collection controller, milk collectionsupervisors, mobile testers, drivers, peons and etc. In order to support the procurement staff a separate

wing of accounts is also established. This is the department with highest number of employees.Procurement of milk is not an easy job.

It stands on the following five pillars:

1. Quantity2. Quality3. Cost4. Competition5. Man Power

Milk procurement department of EFL provides a value-added service to all their milk producers,

ensuring that milk of the correct quality is produced and that sufficient raw milk is always available tosatisfy companys needs, through the use of strategies, processes, projects, systems and policy.

Procurement teams of EFL manage a number of Milk Procurement responsibilities including:

1. Ensuring that the producers are paid promptly and accurately.2. Purchasing raw milk from producers and transporting it to factories effectively and efficiently.3. Successful clean milk route development in various new identified areas.4. Installation of bulk coolers in the area.5. Milk yield improved.6. Hygiene practices improvement at all levels of milk production and procurement7. Reduction of Bacterial Count of milk.

8.

Advanced training to drivers in the handling of mass milk in case of emergencies.9. Trainings to field staff for handling of sample and client.

QUALITYCONTROLSYSYTEM:Following types of quality assurance system exist in EFL to assure the procurement of the best qualityraw milk.

1. First System: Procurement department is responsible for the procurement of good quality rawmilk.

2.

Second System: Quality assurance department support the procurement department forprocurement of good quality of raw milk.

Source: Shahid Hafeez Khan, Quality Control Manager-Field, Engro Foods Limited.

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BUSINESSQUALITYMANAGEMENTSYSTEM&KAIZENPRINCIPLE:Mr. Salman Goheer, Head Of Supply Chain, EFL:

We imply our strategies at large scale as well as at small scale on continuous basisaccording to the type of business & its requirements. We believe that quality and relentless

commitment to continuous improvement are essential to our ongoing success. To this end,

we define quality as understanding the customers expectations, agreeing on performanceand value, and providing products and services that meet expectations 100% of the time.

Our motto is, Quality in all we do.

So at EFL, Business quality management & total quality management goes side by side. Here is thepractical application of it at EFL;

360 DEGREE FEEDBACKS:

Our commitment to continuous improvement in the performance management systems foremployees at all levels was reflected in adoption of the 360 Degree Feedback System. Thissystem ensures better employees accountability, at the same time providing the employees withchances to make use of their competencies. The 360 Degree mechanism became fully operationalfor senior management in 2006.Said by Mr. Hassan, HR Assistant Manger, EFL.

PUSH-PULLPOINT: Every supply chain is almost always a combination of both push and pull, where the interface

between the push-based stages and the pull-based stages is sometimes known as the pushpull

boundary & so is ours. Upstream is push based while downstream relies on pull based systems.

Said by Mr. Salman Goheer, Head of supply chain, Engro Foods LTD.

PLANNING: Engro do planning on short term and long term basis simultaneously. Engro is mostly having

long term plans and for achieving these long term plans it gains support of short term plans.

Words of Mr Salman Goheer, Head Of Supply Chain, EFL.

MIS:The MIS department at Engro Foods ensures that all automation is running error-free at all times.

Regularly modifying and updating the Company's accounting software is also the MIS team's

responsibility.

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OLPERS SUPPLY CHAIN

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OLPERS PRODUCTION PROCESS:1. MILKPROCESSING:

The milk from buffalos and cows is collected into metal cans, which are then emptied into tanks, form

these tanks milk after chilling to 4-5 C is transported to dairy plant in isolated tanks for furtherprocessing.

At the dairy plant milk is tested for quality and milk that meets the quality parameters is again chilled andpumped into chilled holding tanks, then cleaned (either by being filtered or centrifuged) beforePasteurization followed by standardization/toning and homogenization and then transferred to anotherholding tank to await further processing. The further processing might include Ultra High temperature(UHT) and aseptic filling or drying to make dried milk.

2. STANDARDIZATION AND TONINGStandardization of milk involves the adjustment of the fat content of milk, or a milk product, by additionor removing of cream, or skim milk as appropriate, to obtain a given fat contents, while toning refers toadjustment of SNF contents of milk by reconstitution of milk powder in it. In EFL both these processes

are used simultaneously

3. PASTEURIZATION:Pasteurization can be defined as "The heating of every particle of milk or milk product to a specifictemperature for a specified period of time without allowing recontamination of that milk or milk productduring the heat treatment process."

4. HOMOGENIZATION:It is a mechanical treatment of the fat globules in milk brought about by passing milk under high pressurethrough a tiny orifice, which results in a decrease in the average diameter and an increase in number andsurface area, of the fat globules. The net result, from a practical view, is a much-reduced tendency for

creaming of fat globules. Other advantages of homogenization include a richer flavor and possiblyincreased digestibility.

5. ULTRA HIGH TEMPERATURE (UHT) AND ASEPTIC FILLINGThe term sterilization refers to the complete elimination of all microorganisms. The food industry uses

the more realistic term "commercial sterilization"; a product is not necessarily free of all microorganisms,

but those that survive the sterilization process are unlikely to grow during storage and cause product

spoilage. Milk can be made commercially sterile by Ultra high temperature (UHT) where milk is heated

to 136 to 140 C for 3-4 seconds. This milk is then packaged aseptically in specially designed multilayer

containers. The heat treatment and packaging allow this milk to be stored at room temperature for

extended periods of time. Ultra high temperature processing may cause some loss of foliate, vitamin C

(which is already low in milk), vitamin B12, and thiamin.

Source: Shahid Hafeez Khan

M.Sc.(Hons) Food Technology, MS Total Quality Management

Manager Quality Control-MPD, Engro Foods Limited

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EFLS LOGISTICS & WAREHOUSINGINTEGRATED LOGISTICS:

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

in Pakistan.

We integrate processes from the farm to markets, and ensure products are delivered to you at the righttime, at the right place and in the right quantity. Logistics network is thus completely outsourced i.e. theyare relying on 3PLS as according to

Mr Salman Goheer, EFL head of supply chain: We have outsourced all non core processes of ourbusiness like transportation to minimize system wide cost.

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

INBOUND LOGISTICS:For inbound logistics dedicated long vehicles are used. Inbound logistics concerns raw milktransportation to the plant.Raw milk comes from the dairy farms to the milk collections centers which are 40 in total & arelocated in different villages where some quality checks are conducted to ensure the milk quality, ifits up to the mark than it is stored, till it reaches the 9,000 liter capacity which is than collected bydedicated specialized vehicles to transport it to the plant for production.Once the vehicle reaches the plant premises, once again a quality check is repeated before emptyingthe container.

MILK COLLECTION FROM VARIOUS CITIES OF SINDH &PUNJAB Lakhi.

Ahmed pur east. Rani pur.

Nawab shah.

Dharki.

Dhokri

Rohri and Sahiwaal.

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

For outbound logistics trucks are used. They have 80% dedicated fleets & 20% open trucking

especially for the northern areas of Pakistan.

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

Sukkur (Mother ware house) Sahiwaal (Mother ware house) Rawalpindi (Central ware house)

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Sukkur:

Adjacent to the manufacturing plant which covers whole of the south i.e. Sindh & Baluchistan, thelogistics usually take 1 day to arrive at olpers warehouses in Karachi from their manufacturing factory atSukkur.

Sahiwaal:

Adjacent to the manufacturing plant which covers whole of the of the central.

Rawalpindi:

It is a satellite warehouse with a covered area of 30,000 sq ft which is on rental basis & it costs600,000/month. Its responsibility includes fulfilling the orders of the northern region

In addition to Karachi:

The transportation of finished goods from Sukkur to Karachi is done through a dedicated truckwhich can easily carry a 50 feet container, which is done by Naulakha Transport agency.

There responsibility is to pick the goods from Sukkur and deliver it to Karachi warehouse and onaverage there are 15 round trips in a month.

From Karachi warehouse it is delivered to the respective distributors according to there requiredorders in terms of quantities and size of packets, it is done through dedicated fleets which is on amonthly rental basis.

CAPACITY OF 50 FEET TRUCK:Size of item No. Of cartons

1 liter 934

250 ml 1552

1.5 liter 890

500 ml 1497

The cost of downward logistics (Sukkur) for the company is cheaper in comparison to theupward logistics (Karachi). Since open trucks return empty once the product reaches the Karachiwarehouse.

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WAREHOUSING The company has three warehouses out of which two are located within the production plant i.e.

in Sukkur & Sahiwaal and the other being the central warehouse located in Rawalpindi.

Sukkur warehouse having a capacity of 1.6 million liters with a daily average dispatch of 350,000liters & a pallet capacity of 2000.

Sahiwaal warehouse having a capacity of 4 million liters with a daily average dispatch of 400,000liters & having a pallet capacity of 5000.

They are having a cross dock warehousing system atMaripur and it is being operated by transporter him self.

Using pallets to stock the cartons.

Each pallet has a capacity of 800 liters.

Fork lifters are used to stock the pallets to the desired dock

The temperature of the warehouse should be maintained at25-28 degrees in order to keep milk in its fresh condition.

Because of its perishable nature they are using the FIFO inventory system.

There is a climate control system in there warehouses as the temperature of Sukkur & Sahiwaalshoots up to 45 degrees in summers.

They are maintaining 6-7 days safety stock.

Once the packaging is done the milk is stored in equibator for three more days in a warehouse

before loading it on the truck to make sure that the quality of the milk is up to the standard.

ORDER PROCESSINGThe ordering process at the warehouse starts with generation of suggested order list (SOL) triggeredthrough the system, SOL is done to determine the future demand forecast, determination of items to beordered and how much to reorder

MATERIAL HANDLINGMaterial handling is a process of handling the material in a proper way so that the rate of losses &damages can be minimized for good.Olpers manage their materials very efficiently by using latest equipment for raw materials & finishedgoods.

They use specialized milk tanks as mentioned above for the inbound of raw milk & for finishedgoods they use proper palletization, then fork lifters are used to put the pallets in the right place in thewarehouse which is then cross docked.

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DISTRIBUTION NETWORKSOlpers focus on every major city of Pakistan.All the transportation is outsourced.Olpers have 350 distributors across Pakistan.

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

North Zoneo Rawalpindi.o Peshawar.

Central Zoneo Lahoreo Gujranwalao Multan

South Zone

o

Karachio Hubo Punjguro Nawab shah

SELECTION CRITERIA OF OLPERS FOR DISTRIBUTORS SELECTION : Financial Strength of Distributor

Efficient Infrastructure

Logistic Fleet

Efficient and Trained Sales Force

Past Experience of Distributor

Market Knowledge

The use of new Technology (IT)

DISTRIBUTORS IN KARACHIOlpers have seven distributors in Karachi which are as follows.

Aftab traders covers Defense & Clifton

SAS distributors covers Johar, Malir, Landhi & Korangi

Pacific distributors covers Ghulshan & Bhadurabad, Tariq road

S.I traders covers covers Garden & Old Karachi

Tawakal Distributors P.E.C.H.S & SadarS.Care traders covers New Karachi & North Karachi

M & Sons covers Nazimabad & Orangi Town

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NEGOTIATION ON PRICE : Olpers doesnt negotiate on price with distributors there is a fix Mark-up/Commission which is

4% for all distributors

SALES TARGET FOR DISTRIBUTORS:Monthly sales targets are established after discussing the market requirement with the distributors.

VALUE ADDITION BY DISTRIBUTORS:Distributors credibility and goodwill is not used as a tool to pressurize the retailer to buy the bulk but

they are taken into confidence by product features, quality and brand. Afterwards distributor repute plays

a value addition role to whole transaction.

CUSTOMERS FEEDBACK:Customer feedback is required for further planning which is the responsibility of the distributor to provide

to Olpers team.

PURCHASE ORDERSPurchase order is an instrument given by the buyer to the seller mentioning the specification of goods,

quantity & price in order to get the timely delivery of the goods from the customer.

In the case of Olpers the distributor is the buyer who first submits the payment in advance and then gives

the purchase order to the sales department via e-mail whenever he is low on inventory. These e-mails are

then processed in the form of a proper purchase order, which is then send to the finance department for

invoicing purpose. Whereas sales department is also responsible for the dispatch of the desired goods by

the customer.

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REVERSE LOGISTICSSHELF LIFE OF OLPERS MILK:

71 days

RETURN POLICY OF OLPERS MILK:Olpers Milk has an efficient return policy for inventory in case of any defect.

Every carton and item has

assigned a certain batch number.

If any defect has found in item

or carton (in small quantity)

then the batch number of that

item or carton is noted anddisposes the defected item right

on there and if it is large number

than it will taken back by the

same delivery truck who

dispatches the orders to the

distributors.

Once the large number of

defected milk is back to thecompany, than it is drained.

They have a normal losses rate of 0.40 % due to defected Milk.

Source : Mr Salman Goheer, Head Of Supply Chain, Engro Foods ltd.

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PACKAGINGEngro Foods is committed of reducing the environmental impact of packaging, without jeopardizing thesafety, quality or consumer acceptance of its products.EFL is dependent upon Tetra Pak for the packaging of its

entire dairy products. Tetra Pak is the only optionavailable to Olpers for packaging because it is havingmonopoly in the packaging sector in Pakistan

As far as milk is concerned packaging is very important.

It is perishable item which requires special packagingto preserve it for few months. To meet this objective Olpers delivers fresh milk to its customer via usingtetra Pak, without sacrificing in health measures.

Engro Foods have following objectives in mind regarding packaging of Olpers:

Result in the lowest possible weight and volume of packages whilst still maintaining packintegrity.

Take into account new packaging materials andprocesses that reduce the impact on theenvironment of unnecessary transportation.

Avoid the use of substances that can adverselyimpact the environment during packagingproduction and disposal.

Decrease packaging waste at all stages in the

supply chain, including package manufacturing, utilization and disposal.

Increase the use of recycled materials wherever possible, and increase the recyclables andcompatibility of packages with existing waste management schemes.

Packaging materials are Stored in a dry place away from manufacturing areas and it is used in aclean and sanitary manner which is non toxic

Packaging is carried out in away that avoid contamination of processed products. And alsoprotects the product against contamination until the product reaches the consumer.

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EFL ERP SYSTEMECPL has its own dedicated Network of Intranet with a backbone of Internet & PTCL Fiber lines.Through this sophisticated & widespread intranet, All Business functions of E.F.L are integrated witheach other like;

Production

Logistic

Accounts & finance

Marketing

SalesThis Widespread intranet is also offering a platform for developing and deploying critical businessapplications to support business operations and management decision making across the Internet workedenterprise. Many customers application has been developed at ECPL, which helps in

Order Processing

Inventory Control

Sale management & reporting

executive information systemThese applications are designed to interface with, and access, existing company database and legacysystem. This software for such uses has been then installed on intranet web Servers.Employees at regional offices including Head office can access and run applications using web browsersfrom anywhere on the network whenever needed.

EFLSSALE &DISTRIBUTION SYSTEM:This application helps in the accomplishment of daily sales operations & management. The applicationhas five different modules i.e.

Setup

Transaction

Query Report

Administration

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Remember, Sales operation officer has mainly concerned with two modules of the Sales & distributionsystem i.e.

Transactions; This module helps to process, distributors Payment information, Secondary Sales,Order processing and their Claims.

Reports; The Report modules convert distributors transactional information into differenttypesof reports like:

1. Regional Order Summary Report2. Primary Sales Report both Invoice Based & order Based3. Secondary Sales LPD Report4. Primary & Secondary Day wise Report5. Distributors detail Ledger6. Distributors Payment Receipt Report7. Stock Pending & Cancellation Report8. Distributors Claim Summary Report9. Logistics Reports10. Distributor Account Statement ReportAll above-mentioned reports can generate from different angles like

o

Regional reporto Area Wise Reporto Territory Wise Reporto Distributor wiseo Day wise etc

Reporting of the primary sales:Primary sales are updated as a result of ORDER PROCESSING.

The regional office receives the allocation for next one day. The primary report shows us two factors thatare value and volume. It shows us that how much target has been achieved up till now in the yearconsidering 250ml, 500ml and 1000ml and total UHT milk.

We divide the target achieved by the team up till now with target set.

For example Year to date6444 / 5161 = 1.2485(its mean that they are 25% ahead of their target)Similarly we can find the Month to date volume wise and also value wise

Reporting of the secondary sales:

First of all T.S.Os report all the secondary sales from the last day via fax as per company policy. Theserecords are first updated manually. This gives us the record for the opening stock, stock received by thedistributor yesterday, month to date sales and secondary sales. Then all the information given by theTSOs is fed into (EFL Sales & Distribution Systems).

Payment procedure:Three instruments are considered for payment procedures:1. Remittance plus.2. Demand draft.3. Pay orders.

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As a result payment receipt report is generated which shows us the name of all the distributors who madethe payments and weather the payment was sent via remittance plus our demand draft etc and name of thebranches through which the remittance was sent.Afterconducting the payment procedures another document is generated which is known as theDistributors Account statement summary. When distributor sends us the amount it is credited in ouraccount as it becomes or liability that is because we have not delivered the stock yet.

Distribution claim:

The distribution has to process all the claims before 6th of every month on the given formats. Theseclaims are verified by the TSOs and are sent to the regional office forverification after the verification atthe regional office the claims are logged on to the system and are sent to the head office after verificationfrom the head office the acknowledgement is sent to the distributor.

CRM AT EFLEngro Foods Keeps Track of 60,000-Strong Consumer Base with On Demand CRM Solution.

We are a commodity business, and it is vital for us to be on our toes. We run reports on the Oracle

CRM system to find out which customers are loyal to our brands and which ones are also buying other

brands. We can then look more closely at the reasons for the switch and work on winning these

customers back. This is something we simply cannot do using spreadsheets. The ability to see and act

on this type of information is a competitive advantage. Danish R. Syed, Head of Consumer

Relationship & Manager Innovations, Engro Foods Limited

Rapid Growth Spurs Demand for CRM System:

Prior to the start of 2009, Engro Foods was relying on Microsoft Excel spreadsheets to record and managecustomer information. While this was acceptable when the company was first launched, it proved

untenable when the business began expanding.Our business has grown more than 10 times in the past three years, said Danish R. Syed, head ofconsumer relationship & manager innovations, Engro Foods.

Information At Tips:

The Oracle CRM system has enabled Engro Foods to dispense with spreadsheets to record and trackinformation. Customer data is now entered and stored in a central database, eliminating the need forrepetitive manual entry and ensuring the accuracy and currency of information. The system alsoprovides a single, complete customer history, where previously transaction and personal details weredispersed over multiple spreadsheets.

The system tracks details such as birthdays and anniversaries, which allows us to interact

with customers at those times that are meaningful to them, said Danish. It is a way for us tobuild strong relationships with our most important customers.

With Oracle looking after the system for us, the chances of errors are less and if any issues do

come up, we know they can be resolved quickly, said Atif Muhammed Ali, manager, applications,

Engro Foods. As we expand the use of the solution, we know we can count on Oracle to guide us

through the process.

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SUPPLY CHAIN MANAGEMENT REPORTFUTURE PLANS OF ENGRO FOODS LTD.

o Company has planned to make Omore world class premier quality brand like existing brands ofEngro Foods.

o

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

o They have planned to move other dairy products as are being offered by its competitors likeyogurt, flavored yogurt (raita), cereal for babies etc

o They future plans of own farms are also on board. Its a way to improve quality by removing alldoubts in consumer minds about old milk collection ways form govala

o Engro Foods is working with different NGOs to meet the Corporate Social Responsibility incountry. They are working with UNDP to initiate womens veterinary workers program

o They also signing a micro financing model for dairy farming with Pakistan Poverty Alleviation

Fund (PPAF)

RECOMMENDATIONWe are recommending following important factors which we felt missing in their supply chain:

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

logistics cost.

2. EFL is not having its own dairy farms; it largely collects loose milk from farmers & gawalasthrough its 40 milk collection centers, which sometimes is of low quality and impure because theyadd vegetable oil to milk to get higher prices. EFL needs to have their own Dairy Farm so thatthey can meet the increasing demand as their market share is growing by 12% annually & to havequality milk procurement as well.

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

4.

They should expand their brand portfolio by investing in yogurt market as their competitors areenjoying it just because of low competition their otherwise Milk pack has its brand name indrinking milk market only. So its an opportunity for them to grab & enjoy the flavor.

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