Pakistan Tobacco Coddmpany (1)

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FEBRUARY 2005

BAT Head Office British American Tobacco plc Globe House, 4 Temple Place London WC2R 2PG Tel: +44 20 7845 1000 Fax: +44 20 7240 0555

Asia Pacific Regional Office British American Tobacco, Asia Pacific Region Ltd 21/F, One Pacific Place, 88 Queensway, Admiralty, Hong Kong Tel: +852 2918 2888 Fax: +852 2918 1138

Asia Pacific Regional Project Office British American Tobacco GSD (Kuala Lumpur) Sdn Bhd Technology Park Malaysia L4-E-1B, Enterprise 4, (4th Floor) 57000 Bukit Jalil Kuala Lumpur, Malaysia Tel: +603 8996 6155 Fax: +603 8996 5255

End Market / Operating Company Pakistan Tobacco Company, Evacuee Trust Complex Agha Khan Road, Sector F-5/ 1 P.O. Box No. 2549 Islamabad 44000 Pakistan. Tel: +92 51 20832000 Fax: +92 51 2278376

Table of Contents

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Table of Contents

Contents Page No. Executive Summary 03 Section 1: General Information & Project Complexity 1.1: Name of the Organization 06 1.2: Organizational Unit 07 1.3: Mission & Product Lines 10 1.4: Award Category 11 1.5: Submission Span 11 1.6: External Supply Chain Partners 19 1.7: Internal Functional Organizations 21 1.8: Contact of Supply Chain Partners 22 Section 2: Processes 2.1: Reason for the Supply Chain Initiative 24 2.2: Duration of the Project 31 2.3: Completion Process 31 2.4: Challenges & Resolution 33 2.5: Metrics Used 38 2.6: Cost & Performance benefits 39 2.7: Supply Chain efforts & Org. Objectives 46 Section 3: Transference 3.1: Lessons sharing 48 3.2: Likely candidates 49

Executive Summary

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Executive Summary

Supply chain management is an integral part of the strategic intent. In order to respond more effectively to changes in the market place, a dedicated Supply Chain Function has been set up to gain competitive edge. The objective is to deliver the correct product, to the correct place, at the correct time, in the correct condition, packaging and documentation to the correct customer. It is all about optimizing the resources from Seed to Smoke. To help achieve these objectives more professionally, we embarked upon SCOR Model application to our Supply Chain Processes. After a detailed review of existing As-Is Processes, we selected seven ideas/ projects across our Supply Chain for our detailed To-Be phase. Action plans with deadlines and responsibilities were agreed, not only to look into Process Improvement but also to deliver financial benefits. The Projects selected for To-Be phase with their actual top line benefits are: Plan: Collaborative Planning, Forecasting and Replenishment (CPFR) Above Operating Company (Op Co) Opportunities Actual Benefits: In parallel with the period of the SCOR Pilot Project (Project verification phase), we also managed an increasing market demand. On some SKUs, the variance was more than 40 % in a month. With the help of above two initiatives, we were able to meet the market requirement every time. On cumulative basis, we managed around 12 % increase in the total market requirement. The better planning enabled us in more effective negotiation on prices & stocks with our Wrapping Material suppliers leading to a saving of Rs. 65 Million. Source: Farmer Clustering Supplier Collaboration (dealt with along with CPFR) Actual Benefits: We have one Tobacco Crop per year and there was acute shortage this year. With increased consumption of tobacco due to increase in the actual sales, we were in a

Executive Summary

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very tight situation. The enhanced in-the-field presence lead to higher farmer loyalty giving us the competitive advantage and ensured that we achieved our procurement requirements. We were also able to reduce our overall Raw material inventories releasing cash to the business and saving on Inventory Carrying cost to the tune of Rs. 6.4 Million. Make: Lower Manufacturing Cost Reliable Make Process Actual Benefits: We were able to reduce our Tobacco and Leaf Wastages much below our targets due to the initiatives highlighted in the above projects. The saving achieved is Rs. 10 Million. Further more, we rationalized 296 Machine Crew (Targeting Benchmarking Crew). This helped us in reducing the cost base in manufacturing from Rs. 51.03 per Mille (1000 cigarettes) to Rs. 47.98 per Mille, a reduction of 6% and a saving of Rs. 8 Million. Furthermore, the enhanced marketing requirement was met due improved reliability in the Make process and reducing the Overtime cost by Rs. 2.4 Million at the same time. Deliver: Forecasting & Demand Management Distribution Model Actual Benefits: After the price increase in Mid 2004 in the Federal Budget, we observed an abnormal trend in sales as compared to our past experience. Contrary to past experiences , this time around, the impact of price increase was not noticeable in sales (as the sales continued an upward trend). We adjusted our forecast to meet the growing trend with full support from our distribution partners. We also rationalized our distributors from 389 to 360 and optimized finished good stocks in the total supply chain pipeline. The objective being to focus the effort where it was needed the most. Return: Product Integrity & Traceability Actual Benefits: Specific focus tracking across the complete Supply Chain lead to improvement to Level 3 on the BAT overall internal Company Road Map (Scale from 1 to 4, 4 being

Executive Summary

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the highest). Market returns/ rejects and write-offs were maintained below the target by Rs. 13 Million. This is an area we will be continuing to focus on. Overall Financials: On annual basis, a saving of Rs. 71 Million ( 0.68 Million) was estimated due to these projects which is 5.4 % of the Company Underlying Operating Profit ( 12.7 Million). However, the actual benefits achieved are Rs. 104.8 Million (1 Million) which is 7.9 % of the Company Underlying Profit.

Section 1. General Information and Project Complexity

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Supply-Chain Council Awards for Excellence

Section 1. General Information and Project Complexity (20 points) (1) Provide the name of the submitting organization (corporation, service, etc.). British American Tobacco British American Tobacco (BAT) Group, Head Office located in London UK.

British American Tobacco is the worlds second largest quoted tobacco group. With more than 300 brands in our portfolio, we make the cigarette chosen by one in seven of the worlds one billion adult smokers. We hold robust market positions in each of our regions and have leadership in more than 50 of the 180 markets where we do business. The Group has 85 factories in 65 countries, processing some 650 million kilos of leaf and producing some 800 billion cigarettes in a year. Our companies, including associated companies, employ more than 85,000 people worldwide.

The figures provide some sense of the scale of our organization, but like any company, we are much more than a set of statistics. What characteristics and qualities do we feel help to define our company?

We have not sustained a significant global business presence for over 100 years by accident. By 1912, just a decade after our business was founded, we had become one of the worlds top dozen companies by market capitalization. We believe we retain many of the qualities that put us in that league table so soon after starting out.

We are committed to building value for our shareholders, and we believe there is real value embedded not only in how we run our business but in how a company is put together; in its ability to see the world as it really is; in it's ability to pick and retain talent; to build relationships of trust with consumers, suppliers, distributors and partners, and to manage high quality brands. Perhaps above all in todays economy, there is particular strength in the ability to root local businesses in a vast range of different cultures around the globe.

The flexibility, new thinking, financial strength and long term vision that have given us sticking power for a century will continue to drive us forward in search of continuing success.


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(2) Identify the organizational unit responding (site, function, etc.). Pakistan Tobacco Company Pakistan Tobacco Company was incorporated in 1947 immediately after partition, when it took over the business of the imperial Tobacco Company of India operational in the subcontinent since 1926. The company is part of the worldwide British American Tobacco (BAT) Group, which employees over 85,000 people with operations in around 180 countries. It is a market leader in more than 50 countries selling over 300 brands. In 2004 the group sold and produced over 15% share of the world market of cigarettes. Initially, a pilot production plant was set up in a warehouse in Karachi Port with a monthly production of 30 million cigarettes, which has now grown to two fully equipped factories manufacturing over 2.5 billion cigarettes per month at the two plants combined (one each at Akora Khattak and Jhelum). Karachi factory was closed in 1992. Pakistan Tobacco Company has come a long way from being just a single factory operation to a company which is involved in every aspect of cigarette production, from tobacco cultivation to packaging. But what is really significant about these fifty-six years is the tremendous impact that Pakistan Tobacco Company has made in the country. By spearheading the campaign for modern agricultural and Industrial practices, we have been instrumental in the development and progress of the agricultural & industrial sectors in the Country. Pakistan Tobacco Company has been a leader in innovative marketing/ advertising campaigns, which brought a whole new competitive edge to Pakistans business world. We are also firm believers in returning to the nation our debt, in the form of various altruistic activities. Over the last half-century we have been supporting & donating to various causes of national interest, educating growers in the latest techniques & technology in agriculture and afforestation. These are a few examples of our good corporate citizenship. These efforts have borne fruit in the form of transforming us into a company strong and flexible enough to go through thick and thin with the country. It makes us proud to claim that we are responsible for generating a lot of economic activity and introducing innovative ideas and breakthroughs within Pakistan. Today, Pakistan Tobacco Company is the largest revenue generator (outside the oil sector) in the country, paying more taxes than the entire textile sector, which is the largest industrial sector in the country.


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Pakistan Tobacco Company cares for its consumers which are depicted in its mission To transform PTC to perform with the speed, flexibility and enterprising sprit of an innovative, consumer focus company. Pakistan Tobacco Company is a world class Company with world class people, processes and tools. We are the first Company in Pakistan which was awarded Class A status, as part of the international total business excellence Programme, MRP II version 5, audited by the internationally renowned consultants Oliver Wight - UK. Both the factories and the Leaf areas are ISO 9002 and 14001 certified proving once again the world class standards of the Company. We are continuously investing our resources in improving the quality of our products/ brands. We are proud of our reputation for manufacturing high quality cigarette brands, which are enjoyed by millions of adult smokers. Our portfolio of brands caters to diverse consumer preferences since the last fifty six years with such popular international brands like Benson & Hedges, John Players Gold Leaf, Wills, Gold Flake, Capstan and Embassy. Employee empowerment has been the key in this journey with the annual Company plan previously for the eyes of Senior Management only, now shared with all the employees, including our Unions and Valued Business Partners (VBPs). The objective being to give a clear understanding of where the Company is going, the goals we have set for ourselves, how would all of us contribute in achieving and working together as one team. As a testimony to open culture and exemplary industrial relationship, both factories house joint management worker canteens. Seminars, Symposia and Social get-togethers are a regular feature whereby Pakistan Tobacco Company builds a healthy working relationship not just amongst its employees but also with our Valued Business Partners. Special Training Sessions are conducted for employees, farmers, retailers and distributors imparting knowledge and skill, adding value to business. That is why over 12,000 farmers, over 2,000 employees and thousands directly or indirectly depend on Pakistan Tobacco Company for their livelihood. Pakistan Tobacco Company is always mindful of its wider role as a responsible corporate citizen. We are committed to building constructive partnerships for change, to listening to our stakeholders, to deepening our understanding of what is expected of us, and to defining and demonstrating responsible behavior.


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Pakistan Tobacco Company is a complex, multi-site organization with two manufacturing plants and a head office, an employer of more than 2,000 high qualities, talented and diversified (6 nationalities) team players. The suppliers base ranges from local to import and the customers spread through out the country. The country population (over 150 Million) is widely spread (over 800, 000 square Kilometers) ranging from deserts, mountains to plains geography. Communication infrastructure i.e. road, aerial, telecom, etc is still evolving. Also, we face the challenge of a local competition (who is market leader in terms of total sales) along with tax evaded segments. Being part of a Multinational Group, we follow strict business and ethical standards without any compromise. However, the rest have their own rules with lots of flexibility.

Guiding principles: Our Guiding Principles describe key characteristics of our organization, which we aim to nurture.

Strength from Diversity reflects the cultural mix within the Group and a working environment where employees individual differences are respected and enjoyed. It also reflects our aim of harnessing diversity - of people, cultures, viewpoints, brands, markets and ideas - to create opportunities and strengthen performance.

Open Minded reflects openness to change, opportunities and new ideas, including ways of addressing regulatory issues and the changing expectations in society. We seek to be active listeners, genuinely considering others viewpoints and not prejudging.

Freedom through Responsibility reflects the devolved nature of the Group and our belief that decisions should be taken throughout the organization at the appropriate level, as close to the consumer as possible, and that decision makers should accept responsibility for their decisions.

Enterprising Spirit has been a characteristic of our business through a century of operations. It is reflected in our ability to grow our business and its value within many challenging environments, through the confidence to seek out opportunities for success, to strive for innovation and to accept considered risk-taking as part of our way of working.

We are committed to building value for our shareholders, to pick and retain talent; to build relationships of trust with consumers, suppliers, distributors and partners, and to manage high quality brands.


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Today, Pakistan Tobacco Company is the largest revenue generator (outside the oil sector) in the country, paying more taxes than the entire textile sector, which is the largest industrial sector in country. In 2004 alone, Pakistan Tobacco Company paid the government over Rs. 14.5 Billion (GBP 138 Million) in taxes. This amounts to over Rs. 45 Million (GBP 429,000) per working day. (3) Provide a brief mission description of the overall business objectives, product lines, and mission of the organization. BATs goal is to gain and sustain leadership of the global tobacco industry. For us, that means leadership in two ways: quantitative leadership in terms of delivering the numbers and qualitative leadership in terms of meeting stakeholders expectations of how a responsible tobacco company should be run in the 21st century. In the last decade, we have delivered total shareholder return of 13.3 per cent per annum, compared to 6 per cent for the FTSE 100 as a whole. Its been a great decade for our shareholders, for our consumers in terms of enhanced choice of high quality brands, and for our employees in terms of growth and morale. Since British American Tobacco (Private Limited Company) listed as a stand-alone tobacco business on the London Stock Exchange in 1998, we have delivered a total increase in earnings per share of 51 per cent. In the five years to end 2003, we have delivered total shareholder return of 15 per cent per annum compared to minus 3 per cent for the FTSE 100. We have notably grown our margins - our profit per thousand cigarettes in those same five years and have grown the volume of our global drive brands by over 40 per cent. We have greatly narrowed the volume gap between ourselves and the current global market leader, both through organic growth of our brands and growth from value-adding mergers, acquisitions and deals. The No.1 position is within our grasp and we have the capability to take it. We have been very proactive in defining what corporate responsibility now means for a business like ours one where the products are legal, enjoyed by about a billion adults, yet pose risks to health. We are working actively to live by the high standards that we set for ourselves, and which we openly publish. Stakeholder dialogue is giving us new and better ways to engage and listen, and our stakeholders internationally tell us were on the right path. Likewise, Pakistan Tobacco Company cares for its stakeholders, which is depicted in its vision 1st Choice for Everyone. Total Company is aligned to achieve its mission To transform PTC to perform with the speed, flexibility and enterprising


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sprit of an innovative, consumer focused company. The mission is supported by four Must Achieve Objectives (MAOs):

Level playing field for all the players in the cigarette market Sustainable volume growth Improved trading margins Winning as One

Pakistan Tobacco Company is a world class Company with world class people, processes and tools, being the first Company in Pakistan to be awarded Class A status, as part of the international total business excellence Programme, MRP II version 5, audited by the internationally renowned consultants, Oliver Wight - UK. Both our factories (including Green Leaf Threshing Plant) and the Leaf areas are ISO 9002 and 14001 certified. We are continuously investing our resources in improving the quality of our products/ brands and are proud of our reputation for manufacturing high quality cigarette brands, which are enjoyed by millions of adult smokers. Our portfolio of brands caters to diverse consumer preferences since the last fifty six years with such popular international brands like Benson & Hedges, John Players Gold Leaf, Wills, Gold Flake, Capstan and Embassy. The total number of SKUs produced by PTC is 28. The annual Company plan is shared with all employees, including our Unions and Valued Business Partners (VBPs), so that all have a clear understanding of where the Company is going, what are the goals that we have set for ourselves, how all of us would contribute in achieving and work together as one team. (4) Indicate the award category of submission. (Operations, Academic, Technology winners in these categories will automatically advance to Global). Operations SCOR Application Excellence Award (5) Provide a brief description of the supply chain and the processes the submission spans (e.g. Plan, Source, Make, Deliver, Return). Our submission spans all the five processes, i.e. Plan, Source, Make, Deliver and Returns.


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Plan:

For long term, strategic business need we follow an Annual Process of 10-Years Plan and 2.5 Years Company Plan which focuses on Current Plus next two years trends, requirement and financials. Our Short to Medium term business is run through the Monthly Sales & Operations Planning Process which is explained as follows: Purpose and Scope: Sales & Operation Planning Process provides the management a means of control to manage the business effectively, set attainable objectives, see consequences, evaluate alternatives, communicate approved plans, measure performance and achieve predicted results. Inputs from business plans and conversion into detailed sales and production plan are the activities that surround the Sales & Operational Planning process. None of these work well individually unless a combined team effort is made to make it a success.

UnitS&OP

Process

RegionalStrategic Process

Global Strategic Process

Co. Plan Cycle

Yearly

Quarterly

Monthly

Planning Horizon Planning Cycle

M3 M12 M24 2.5 yrs 10 years

Strategic

Strategic

Tactical

Focus

Global

Regional

End Market

Scope

Setting Strategy & Shaping Future

Reviewing Performance & Implement

Strategy

Co. Plan Cycle


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S&OP Objectives: Support the Business Plan

To determine every month if our original financial expectation, current sales plan and production plan are in line with the business plan and plan corrective action to bridge the gap if necessary.

Ensure Plans are Realistic and Processes Integrated All key members/ process owners fully participate in arriving at a plan, which is realistic and integrated with each other.

Effectively Manage Change S&OP ensures that company becomes proactive to the changing market scenario.

Inventory Management / Control Cost Maintain right level of inventory to release money for the business.

Measure performance Measure sales and production performance versus the target and identify reasons for corrective actions.

Build team work Each department participates to the overall planning process by sharing their goals towards the spirit of a strong team work

The Prerequisites for a good S&OP process are as below: 1. Understanding of Sales & Operation Planning

How it works & what it is designed to achieve Sharing of information Work jointly towards achievement of the Co. Objectives.-Team work

2. Commitment of people Good homework/ pre-work, issues resolved to help make this process a

success. Religious participation in the process, timely feed back of information and

seriousness to ensure that plans are realistic. 3. Planning Horizon

How far ahead, we establish our plans. In our case it is 24 months rolling. Need to perform what ifs or risk analysis. Effectively manage change

4. Time Fences Guidelines, when changes to plan are feasible. Short term- Special sales promotion exercises Long Term- Changes with our capabilities Long term- Permanent enhancement of capabilities


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Main Sub-Processes which provide input to Pre-S&OP: 1. Demand Planning (Brand Cycle Plan) 2. Supply Chain Planning (Leaf, Wrapping Materials & Capacity Planning Meeting) 3. PDT ( Product Development Team/ New Product Introduction) Pre S&OP 1. Inputs from above processes 2. Financial Review of plan 3. Recommendations to S&OP 4. Implementation of plan 5. Improvements S&OP 1. Critically review the Business Assumptions/ Environment 2. What if scenarios & sensitivities of Sales forecast, Capacities and Capital

Expenditures 3. Strategic Direction to Pre-S&OP 4. Firm up of operational plan 5. Outstanding issues. Current Method Of Operation: z Brand Cycle Plan (Demand)- 6th Working Day z Supply Chain Planning Meeting (Supply)- 7th WD z PDT (9th working day of the month)

New Products / Current product changes z Pre S&OP - 11th WD z S&OP 12th WD z Demand / Production Review Meeting- As & when required (Informal)


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Process Flow

s

Sales Estimate Trade Marketing

Demand Review BCP

Recommend to S&OP

Pre - SOP Meeting

Recm t Sales & Ope ration Plan

Realistic N

N

Y

Y

Approved Sales & Operations

Plan

Master Production Scheduling

Company .Plan

Y

N

Materials Requirement

Planning

PDT

Execution

Shipments as per Demand

END

Sales Plan for 24 months

Start

Current Product Plan

New Product Plan Innovation

Supply Chain Planning Meeting

Rough Cut Capacity Plan

Capacity Review by Factories

Recommendation to P re - S&OP

S&OP

Recommendation to Pre-S&OP

CUSTOMER

DRP (Region-wise and Customer-wise)


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Source: PTC sources Green (raw) Leaf from 12,650 farmers through 14 Leaf Buying points and Wrapping Materials through 13 local and 14 international suppliers. Some percentage of the processed leaf is also sourced from outside the country. All imported raw materials come to the country through our Southern most city / port of Karachi, which is at a distance of around 1800 KMs from the manufacturing units. The scope of our Source activities is huge which is evident from the following Geo map: Source Geo map: Through SCOR, we highlighted areas under Source and have been working with both our farmers and Wrapping Materials suppliers. Make: There are two manufacturing units, 200 KMs apart from each other. Head Office is located, roughly in the centre of both units. The factories are specialized, to a greater extent, for product range (SKUs). The Leaf Processing Unit (Green Leaf

Akora -GLTPAkora -GLTP

KARACHI POE

FARMERSD1

FARMERSD1

Field DepotsS1, D1

FARMERSD1

FARMERSD1

Field DepotsS1, D1

PLWH AKF(LM)S1,M1,D1S2, M2, D2

PLWH JF

PLWH AKF PLWH AKF(LM)S1,M1,D1S2, M2, D2

PLWH AKF(LM)S1,M1,D1S2, M2, D2

PLWH JF

PLWH AKF

PLWH JFPLWH JF

PLWH AKFPLWH AKF

KARACHI POE

AKF- PMD & SMD

S1, M1, D1SR1, DR1

AKF- PMD & SMDAKF- PMD & SMD

S1, M1, D1SR1, DR1

JF-PMD & SMD

S1, M1, D1S2, M2, D2SR1, DR1

JF-PMD & SMDJF-PMD & SMD

S1, M1, D1S2, M2, D2SR1, DR1

FGWH AKFS1, D1SR1, DR1

FGWH AKFFGWH AKFS1, D1SR1, DR1

FGWH JF

S1, D1S2, D2SR1, DR1

FGWH JFFGWH JF

S1, D1S2, D2SR1, DR1

LOCAL WRAPPING MATERIALSD2, D3, DR1

LAHORE


LAHORE


KARACHI


KARACHI

IMPORTED - WRAPPING MATERIALS SUPPLY (WMS), D2




S1, M1, D1S2, M2, D2SR1, DR1


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Threshing GLT) is associated with one of the Manufacturing Units (AKF: Akora Khattak Factory) and processed leaf is then provided to the other unit (JF: Jhelum Factory) based on the requirement, storage capacity and local regulation. Deliver: Total area of the country is approximately 800,000 square Kilometers, with population density varying from region to region. The Main Highways are the only feasible means for transportation of Finished Goods. The 450,000 retail customers are serviced through 4 regions, 19 area offices, 13 warehouses, 360 major distributors and 7,000 Wholesalers. The average monthly consumption of our brands is 2.3 Billion sticks. Deliver Geographical map:

PLWH AKF(LM)

FGWH JF

PLWH AKF(LM)PLWH AKF(LM)

FGWH JFFGWH JF

EXPORT FGNIGERIA

S2, D2

EXPORT FGNIGERIA

S2, D2

Customer

Customer

HYDERABADDISTRIBUTORS(45)KARACHI

DISTRIBUTORS(2)

ROHRIDISTRIBUTORS(46) BAHAWALPURDISTRIBUTORS(24)

MULTANDISTRIBUTORS(41)

Customer

Customer

Customer

PESHAWARDISTRIBUTORS(19)

Customer

Customer

Customer

Customer

Customer

JHELUMDISTRIBUTORS(46)

Customer

SAHIWALDISTRIBUTORS(40)

GUJRANWALADISTRIBUTORS(31)

Customer

QUETTADISTRIBUTORS(21)

ISLAMABADDISTRIBUTORS(46)

FAISALABADDISTRIBUTORS(32)

Customer

Customer

HYDERABADDISTRIBUTORS(45)KARACHI

DISTRIBUTORS(2)

ROHRIDISTRIBUTORS(46) BAHAWALPURDISTRIBUTORS(24)

MULTANDISTRIBUTORS(41)

Customer

Customer

Customer

PESHAWARDISTRIBUTORS(19)

Customer

Customer

Customer

Customer

Customer

JHELUMDISTRIBUTORS(46)

Customer

SAHIWALDISTRIBUTORS(40)

GUJRANWALADISTRIBUTORS(31)

Customer

QUETTADISTRIBUTORS(21)

ISLAMABADDISTRIBUTORS(46)

FAISALABADDISTRIBUTORS(32)

Customer

DUTY PAID FGs WAREHOUSE (14)

S1, D1SR1, DR1,DR3

Customer

DUTY PAID FGs WAREHOUSE (14)

S1, D1SR1, DR1,DR3

FGWH AKFFGWH AKF

EXPORT FGAFGHANISTAN

EXPORT FGAFGHANISTAN

Customer

S1, D1SR1, DR1, SR3, DR3

DISTRIBUTORS (394)Customer

S1, D1SR1, DR1, SR3, DR3

DISTRIBUTORS (394)S1, D1SR1, DR1, SR3, DR3

DISTRIBUTORS (394)

KARACHI POE

* Rationalized

* DP W/Hs rationalized to 13 and Distributors to 360


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In the Deliver area we are working on involving distributors in our Forecasting process to reduce fluctuation in the process and critically review our Distribution model for effective utilization of the Duty Paid ware houses Vs distributors. In urban Pakistan, PTC is the market leaders. Our brands are skewed towards urban as major portion of our business is from High and Medium priced brands (where we do not have any local competition). Penetration in the rural areas requires greater resources which are in focus to gain market share there as well. The total distribution model is being reviewed under Distribution Excellence (DX) Programme. Return: We pay excise on finished goods at exit from the manufacturing sites. Therefore Product once left is legally not allowed return to the factories. Any damage to the product due to any reason is handled at the Duty Paid Warehouse level. Consumer/ Trade returns due to quality reason are replaced and entered into the Company Database, available to all concerned. Similarly, processes are in place for Leaf and WMs returns due to quality/ other reasons. Traceability of the product is available in the supply chain. Further efforts and investment are in the plan to make it more effective.

PTC Supply Chain Network (Lower level 9 triangles)

PTC CustomerSupplier

Leaf

WM

Distributor

PLAN

SOURCE MAKE DELIVER SOURCE DELIVER

PLAN

RETURNRETURN

DELIVER

RETURN RETURN RETURN

S M D S M D S D S DD

DRDR SR SRDR SR DR SR DR

S DD

Leaf Production Marketing

WM

KarachiPOE

S D

FG Export

PLAN


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SCOR projects were selected across the complete Supply chain. The specific ones are listed in the boxes below: (6) Provide the names of the supply chain partner organizations (external) involved in the project. Indicate the number of people involved from each partner organization and the functional category of each. Mr. Humayun Kabir Key Accounts Manager, Packages Private Limited Regional Office GD Arcade, 2nd Floor, 73-E Fazal-ul-Haq Road Blue Area, Islamabad Ph. +92 51 226768, 226765 Fax.+92 51 2829411 E-mail: [email protected] Note: Packages - Pakistan is supplying us all printed materials, e.g. Hinge Lid Blanks, Outer Reels, and Cartons.

Mr. Kobayashi Takeshi, Marketing Manager, Daicel Chemical Asia Pte Limited 15A Senoko Way, Singapore 758037 Ph.+65 67562811 Fax +65 67523780 E-mail: [email protected]

Note: Daicel - Japan is supplying us Acetate Tow and Till Box for our entire Filter Rods requirement.

Make Deliver Source

Plan

Farmer clustering Supplier Collaboration

(CPFR)

Lower manufacturing cost

Reliable make process

Forecasting and Demand Management

Distribution model

CPFRAbove OpCos opportunities

One set of numbersEffective S&OP

Return

Product Integrity and Traceability


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Mr. Francois Gandilhon, Marketing Manager, Papeteries De Malaucene BP 34/29393 Quimperle Cedex, France. Ph.+33 0298 062000, 062247 Fax +33 0298 062010, 062040 E-mail: [email protected]

Note: PDM - France is supplying us Cigarette Paper and Tipping Paper

Mr. Christopher Low General Manager, New Toyo Aluminium Paper Product (Pte) Ltd. 16 Soon Lee Road, Singapore 628079 Ph.+ 65 6265 6882 Fax + 65 6265 8939 E-mail: [email protected]

Mr. Chua Boo Han Marketing/ LAN Manager, New Toyo Aluminium Paper Product (Pte) Ltd. 16 Soon Lee Road, Singapore 628079 Ph.+ 65 6265 6882 Fax + 65 6265 8939 E-mail: [email protected]

Mr. Toh Ai Tee Production Manager, New Toyo Aluminium Paper Product (Pte) Ltd. 16 Soon Lee Road, Singapore 628079 Ph.+ 65 6265 6882 Fax + 65 6265 8939 E-mail: [email protected]

Note: New Toyo Singapore is providing us Foil for our Cigarette Packs.

Mr. Husnain Allied Marketing (Pvt) Ltd. 21-A Main Market Gulberg II, Lahore - Pakistan Ph: +92 42 5754724, 5753336 E-mail: [email protected]

Note: Allied Marketing is our Major distributor in Lahore Metropolitan.

Mr. Asif Asif & Co. Shop No. 3 Civic Centre Melody Market Islamabad - Pakistan Ph: +92 51 2820440, 2828966 E-mail: [email protected]

Note: Asif & Co is our Major distributor in Islamabad Capital.

Mr. Ayaz A. Abbasi, Managing Director, Abbasi Traders Plot No. 110, Street No. 10, Sector I 9, Industrial Area, Islamabad Pakistan.

Ph: +92 51 4435423 Fax: +92 51 4433008 E-mail: [email protected]

Note: Abbasi Traders are our 3rd party Logistics partners who distribute our Finished Goods from Factory Shipping Warehouses to all 14 Duty Paid Marketing warehouses, throughout the country. They have dedicated transport with on-line tracking system.

Mr. Norbert Pfleger Marketing Manager [email protected] Ms. Jasmeen Peer Marketing Assistant [email protected] Gesellschaft m.b.h Ludwig-Lassl-Strasse 15 A-6112 Wattens Austria Phone +43 5224 595510 Fax +43 5224 52474, +43 5224 595250 Note: Wattens - Austria is supplying us Cigarette Paper and Tipping Paper


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(7) Provide the names of the functional organizations (internal) involved in the project and indicate the number of people involved from each functional organization and the functional category of each.

Function People Involved

Overall Managing Director/ CEO (Sponsor) Leaf Leaf Director (Project Board)

Head Of Leaf Operations GLT (Green Leaf Threshing) Manager Leaf Operations Planning Manager Leaf Technology Manager

Production/ Supply Chain Production Director (Project Board) Head Of Supply Chain Factory Manager Akora Khattak Plant Factory Manager Jhelum Plant Logistics Manager Planning Manager Demand Manager Wrapping Materials Planning Manager Wrapping Materials Procurement Manager Factory Supply Chain Manager AKF Factory Supply Chain Manager JF Secondary Manufacturing Manager AKF Secondary Manufacturing Manager JF Primary Manufacturing Manager JF

Marketing Marketing Director (Project Board) Head Of Trade Marketing Trade Marketing & Development Manager Brand Manager Area Managers (2)

Finance Finance Director (Project Board) Operations Finance Manager Factory Financial Services Manager AKF Factory Financial Services Manager JF Marketing Finance Manager

IT Head Of IT Business Support Manager Supply Chain Business Support Manager Marketing

Asia Pacific Regional Supply Chain Project Office

Supply Chain Program Manager Supply Chain Project Manager Supply Chain Project Office Support

iCognitive (External Consultant) Managing Director Core Facilitator Business Support Facilitator


22

(8) Provide a point of contact for each supply chain partner (name, mailing address, commercial telephone number, DSN, and e-mail address).

Supplier : Mr. Humayun Kabir Key Accounts Manager, Packages Private Limited Regional Office GD Arcade, 2nd Floor, 73-E Fazal-ul-Haq Road Blue Area, Islamabad Ph. +92 51 226768, 226765 Fax.+92 51 2829411 E-mail: [email protected]

Mr. Francois Gandilhon Marketing Manager, Papeteries De Malaucene BP 34/29393 Quimperle Cedex, France. Ph.+33 0298 062000, 062247 Fax +33 0298 062010, 062040 E-mail: [email protected]

Mr. Christopher Low General Manager, New Toyo Aluminium Paper Product (Pte) Ltd. 16 Soon Lee Road, Singapore 628079 Ph.+ 65 6265 6882 Fax + 65 6265 8939 E-mail: [email protected]

Mr. Norbert Pfleger Marketing Manager [email protected] Ms. Jasmeen Peer Marketing Assistant [email protected] Gesellschaft m.b.h Ludwig-Lassl-Strasse 15 A-6112 Wattens Austria Phone +43 5224 595510 Fax +43 5224 52474, +43 5224 595250

Internal (Pakistan Tobacco Company) :

Mr. Jeremy Pike Managing Director and CEO Pakistan Tobacco Company Evacuee Trust Complex Agha Khan Road, Sector F-5/ 1 P.O. Box 2549 Islamabad 44000 Pakistan. Ph. +92 51 20832000 Fax: +92 51 2278376 E-mail: [email protected]

Mr. Ahmed Zeb Production Director Pakistan Tobacco Company Evacuee Trust Complex Agha Khan Road, Sector F-5/ 1 P.O. Box 2549 Islamabad 44000 Pakistan. Ph. +92 51 20832000 Fax: +92 51 2278376 E-mail: [email protected]

Mr. Zahidul Islam Head Of Supply Chain Pakistan Tobacco Company Evacuee Trust Complex Agha Khan Road, Sector F-5/ 1 P.O. Box 2549 Islamabad 44000 Pakistan. Ph. +92 51 20832000 Fax: +92 51 2278376 E-mail: [email protected]

Mr. Amjad Ali Logistics & Planning Manager Pakistan Tobacco Company Evacuee Trust Complex Agha Khan Road, Sector F-5/ 1 P.O. Box 2549 Islamabad 44000 Pakistan. Ph. +92 51 20832000 Fax: +92 51 2278376 E-mail: [email protected]


23

Customer :

Mr. Husnain Allied Marketing (Pvt) Ltd. 21-A Main Market Gulberg II, Lahore - Pakistan Ph: +92 42 5754724, 5753336 E-mail: [email protected]

Mr. Asif & Co. Shop No. 3 Civic Centre Melody Market Islamabad - Pakistan Ph: +92 51 2820440, 2828966 E-mail: [email protected]

Mr. Ayaz A. Abbasi Managing Director, Abbasi Traders Plot No. 110, Street No. 10, Sector I 9, Industrial Area, Islamabad Pakistan. Ph: +92 51 4435423 Fax: +92 51 4433008 E-mail: [email protected]

Section 2. Process

24

Section 2. Process (70 points)

(1) Describe the reason that the supply chain initiative was undertaken and how it was selected. Key reasons for undertaking the Supply Chain Initiative: o Over the years, the Tobacco industry has been operating at comparatively high

margins making it a cash rich business. This has in itself been hiding inefficiencies that are becoming evident as the pressure on these margins is increasing.

o Customer requirements in terms of more customized / specific demand as well as enhanced legislation from the Government to fulfil, and have considerably increased the complexity in terms of greater SKUs. This is bound to increase further.

o With the advancement in the Global e-business coming the opportunity for enhanced and faster Internal & External collaboration. However it is key to synchronize processes first and only then e-enable them.

Building on these fundamental points, our Asia Pacific Supply Chain project (Project Cadena) aims to unlock the trapped value throughout the entire Supply Chain by managing it as a single process to:

Improve availability and customer service to drive revenue growth. Reduce inventories to release cash which funds market share and

volume growth. Reduce supply chain costs to improve earnings

This project is based on SCOR (Supply Chain Operations Reference model) which provided us a comprehensive methodology to improve our overall supply chain operations. The basic foundation of the model is the five major processes: Plan, Source, Make, Deliver and Return. Plan: Pakistan Tobacco Company is not the only Cigarette Manufacturer in the Country. We have a very strong local competition, whose sales, in terms of stick quantity, is greater than us. They are 40 % of the total Market where as PTC Market share is 38 %. The remaining 22 % market is mainly unorganized/ tax evaded segment. However, we have dominance in the Premium, High and Medium Priced brands. This has a very positive impact on our Value share. Today our value share is 52 % as against the competition of 35 % and the rest with small manufacturers & illicit trade. Hence, this S&OP forum needs to be very proactive in taking decisions. Also, with the implementation of International Marketing Standards (imposing more restriction on our industry) our brands remain the critical source of communication with our customers. Under all these circumstances there is a dire need to have

Section 2. Process

25

collaborative planning with our Suppliers as well customers to deliver faster than the competition. CPFR (Collaborative Planning, Forecasting and Replenishment) is one of the Projects identified under SCOR. The way forward for CPFR is as under, focusing on integration with our suppliers & customers: Due to the effective planning both internally and externally, we responded to the growing market requirement, from an initial annual plan of 25.4 Billion to 26.8 Billion (actual). Source: Tobacco Leaf is a strategic ingredient in our product and we need to constantly improve its quality for customer satisfaction. We have one crop per year so we have to procure, process and store our full year requirements once a year. Farmers Clustering: Farmers in the country are mostly illiterate and widely spread in the far flung, less developed areas. Communication and implementation of best practices requires huge investment in terms of manning and time. Clustering a group of farmers into one team will facilitate effective cascade of best practices and there will be a healthy competition amongst different groups, enabling good quality crop. With the

Collaboration

Collaboration

PTCPTC CustomerCustomer

CommunicationCommunicationSupplierSupplier

Communication

Planning

Forecasting

Replenishment

Farmer ClusteringSLAs with Suppliers

S& OP Forecasting ProcessSLAs with Distributors

Collaboration

Collaboration



Communication

Planning

Forecasting

Replenishment

Collaboration

Collaboration



Communication

Planning

Forecasting

Replenishment

Farmer ClusteringSLAs with Suppliers

S& OP Forecasting ProcessSLAs with Distributors

Section 2. Process

26

improvement in leaf quality, we would be in a position to replace costlier imported tobacco with the locally produced tobacco grades. In 2004, one critical type of tobacco crop, FCV (Flue Cured Virginia which is the major ingredient of a cigarette) was short by 7 Million Kilos than the total Industry requirement. Since we were already there in the field with the farmers, we were able to purchase our requirement, leaving other cigarette manufacturers with purchases less than their requirement. This enabled us to deliver to the enhanced marketing requirement (11.6 % more than our initial forecast). Following is the analysis:

Depot Location No. of FarmersKhawaza Khela 2000Tindo Dag 800Chakdara 300Daggar 700Chamla 650Shergarh 850Takhat Bhai 650Azimabad 650Firdousabad 650Yar Hussain-1 850Yar Hussain-2 650Mansehra/Bherkund 1900Gujrat Kunjah 2000

Total 12650

Depot

AKF & GLT

Storage

Domestic leaf supply

Mardan StorageMardan Storage

GLT AKFGLT AKF

Firdousabad

Khwaza Khela(2000)

Tindodag(800)Chamla(650)

Daggar(700)

Chakdara(300)

Shergarh(850)

Azimabad(650)

MandaniUmerzai Roshanpura

Yar Hussain-1(850)Yar Hussain-2 (650)

SharifabadFoujun

Khanpur Point

Mansehra/ Bherkund(1900)

Okara

Gujrat Kunjah(2000)

Phalia

Takhat Bhai(650) Firdousabadi(650)Firdousabad

Khwaza Khela(2000)


Daggar(700)

Chakdara(300)

Shergarh(850)

Azimabad(650)



SharifabadFoujun

Khanpur Point


Okara

Gujrat Kunjah(2000)

Phalia

Takhat Bhai(650) Firdousabadi(650)Firdousabad

Khwaza Khela(2000)


Daggar(700)

Chakdara(300)

Shergarh(850)

Azimabad(650)



SharifabadFoujun

Khanpur Point


Okara

Gujrat Kunjah(2000)

Phalia

Takhat Bhai(650) Firdousabadi(650)

Based on Capacity Vs purchases and consumption in GLT, the leaf may go directly to GLT from the depots or to Mardan Storage.

DEPOT

Customer

Customer

MARDAN STORAGE

GLT

FARMER

Customer

DEPOT

Customer

DEPOT

Customer

Customer

MARDAN STORAGE

GLT

FARMER

Customer

FARMER

Customer

NWFP Plains

Dev. Areas

Total

PTC 19.1 10.55 8.1 18.65 98%LTC & Walton 28.5 21.8 3.15 24.95 87.5%Mardanwalas/ Others 8.8 5.33 0.37 5.70 65%Total 56.4 37.68 11.615 49.30

% achieved of

Anticipated Purchases

Company

Actual PurchasesCrop 2004

Anticipated Purchases (Figures in

Million Kgs)

Section 2. Process

27

PTC: Pakistan Tobacco Company, LTC: Lakson Tobacco Company We also anticipate a shortfall of almost 11 Million Kilos of this variety in 2005. We estimate that with our concentrated efforts with the farmers we will be able to increase the crop size by 20% which by any means is a huge task. Again, we are confident that we will achieve our requirement because of our proactive involvement in the field.

Variety/ Area 2004

Actual Purchases

2005 Crop

EstimatesVar %

Anticipated Industry Demand

(Million Kgs) FCV Plains 37.7 46.0 22% 55.5 FCV DEV. AREA

MANSEHRA 5.8 6.4 10% 7.0 BUNER 5.8 6.8 17% 7.7

TOTAL DEV. AREA 11.6 13.2 14% 14.7 TOTAL FCV 49.3 59.2 20% 70.2

Also, due to Best Practices and technologies dissemination, the farmers improved their asset utilization (improved output per hectare) and in return improved their living standard. The total revenue paid to the farmers is 1million. Suppliers Collaboration: Similarly, imported Wrapping Materials consumption is 50 % by value and we are carrying almost 2 months (one month on hand and one month in transit) stock of imported WMs. The agreed SLAs (Service Level Agreements) with imported WMs Suppliers and VMI (Vendor Managed Inventory) with our major local WMs Suppliers provides us flexibility by shifting some of our on-hand inventories to the Supplier premises. We released Rs. 368 Million ( 3.50 Million) from inventories and a profit of Rs. 70 Million ( 0.7 Million), and invested it into our brands. Make: We are in the process of replacing old vintage machinery with comparatively new generation equipment and at the same time have to manage the volatile market demands, keeping focus on enhanced technical training and improved maintenance systems. As compared to our local competition, our operating cost is comparatively high. We have highlighted projects in the SCOR and are working on improving machine utilization (thereby reducing over time cost to meet any upsurge in demand), effective shop floor control on wastages and employees rationalization (utilizing

Section 2. Process

28

Time & Motion Study, deployment of best employees on High Speed newly inducted machines: the target is to have benchmark crew on our floor). We reduced our cost base by 6% giving a saving of 0.1 Million. Deliver: Due to deteriorating law and order situation, there were 20 incidents of theft and hijacking worth Rs 65 million (GBP 620,000) during 2000-02. This forced us to deploy armed guards with the Lorries carrying high value stocks. Cost impact of deploying guards in 2002 was Rs 0.23 per Mille (1000 Cigarettes) while for 2003 and 2004 it was estimated to be Rs 0.29 per M and Rs 0.31 per M respectively. During 2002-03, we switched primary transportation (Factories to Warehouses) from multiple small sub- contractors to a single dedicated transport Company with a tracking system for quick and safe transportation of stocks. We have also extended this dedicated fleet arrangement further down the line into the secondary transportation i.e. Warehouse to Distributors. Since then, we have avoided any risk of hijacking our Finished Good containers and on two occasions, recovered our stolen product within few hours. This arrangement has also added to our Product Integrity as these containers are purposely built for our product and hence our product is not contaminated with any thing else during transportation.

FIELD PLACEMENTS

19 Area Managers

80 Trade Marketing Officers

930 Distribution Reps

Geographic Map PTC Distributors

Factory (2)DP Warehouse (14)Distributor (394)

Factory (2)DP Warehouse (14)Distributor (394)

AKF

Peshawar (19)

Quetta (21)

Islamabad (46)JFJhelum (46)

Gujranwala (31)

Faisalabad (32)

Sahiwal (40)

Multan (41)

Bahawalpur (24)

Sukkar (46)

Hyderabad (45)Karachi (2)

* Rationalized

* DP W/Hs rationalized to 13 and Distributors to 360

Section 2. Process

29

We managed to make available enhanced requirements with an OTIF of 99.8%, and also giving a saving of 0.1 Million in the logistics cost. Furthermore, we converted our secondary logistics to dedicated transportation and no-hijacking incidence. Return: We believe that our survival is in delivering the highest product quality with optimum cost. We are investing in our materials, men, machines and methods to be able to have better product for our customers. The material we receive must be defect free as we are maintaining optimum inventories at our factories and can afford any stoppage due to material out of specification. Similarly, the product that leaves our premises is of added value (as we pay huge excise at the exit of our factories) and we continue to reduce our market complaints/ returns. And, if a complaint is received it must be traceable to the starting point so as a corrective/ preventive measure could be taken. All these efforts will bring confidence in our customers about our product besides reducing wastages of efforts/ money in returns and write-offs. With concentrated efforts in this area, we saved 0.1 Million. Information Technology : During the last two years banks have invested in IT infra-structure to improve their e-commerce capabilities. These technological advancements provide us an opportunity to reduce VBP ordering cost and improve customer service with positive impact on our companys cash flows. During the plan period, we will review the sales collection process to reduce distributors ordering cost with improvements in cash flows. The basic IT infrastructure in PTC (on-line links connecting 14 sales points to the two factories and the head office) has been put in place in the beginning of 2002 This has enabled us to implement Sales Order Processing in our central ERP system (CS-3 , Accounting House UK) and now real time information can flow across the supply chain. As a further improvement, Distribution Requirement Planning in CS-3 was implemented during Q-3 of 2002. This has improved the visibility across the supply chain resulting in improved responsiveness to demand and reduction in end to end order cycle time. We have now shifted to SAP to have more Regional/ Global synergies within our processes and information.

Section 2. Process

30

PTC Supply Chain at a Glance

GLT

Direct Materials (Imported)

Indirect Material s

In-Country Docking Warehouse

Factory

In-Country Docking Warehouse

Ex - Country Docking WarehouseManufacturing

In-bound Materials

Trade Marketing & Distribution

Leaf > 12,000 Farmers, 14 Depots,19 W/ Hs (GL & PL)(> Rs 2 Bln/ Annum)



Wrapping MaterialsLocal Suppliers: 13

Imported Suppliers: 14(Rs 2.5 Bln/ Annum)

Wrapping MaterialsLocal Suppliers: 13

Imported Suppliers: 14(Rs 2.5 Bln/ Annum)

FactoryWarehouse - 2



GLT Factory - 1Cig. Factory - 2GLT Factory - 1Cig. Factory - 2GLT Factory - 1Cig. Factory - 2

ShippingWarehouse - 2

ShippingWarehouse - 2

End marketWarehouse - 13

(> Rs 25 Bln/ Annum)

End marketWarehouse - 13

(> Rs 25 Bln/ Annum)

Distributors - 360

Retailers450,000

Wholesalers -7,000

Distributors - 360

Retailers450,000

Wholesalers -7,000

Retailers450,000

Wholesalers -7,000

Information Flow

In-factory FGWarehouse

Spares

Direct Materials (Local)

FG Warehouse(External)

FG Warehouse(Imported)

CONSUMERS

SalesBranches

Distributors

Wholesalers Retailers

Secondary Supply Chain

7 Different Transfer points from Factory to Consumer

Green Leaf Warehouse

GLT Outbound Prized Leaf Warehouse

Factory Prized Leaf Warehouse

Ex- Country Docking Warehouse e

In - Country Docking Warehouse

In - factory Bonded Warehouse

In - factory Warehouse

Primary Supply Chain 5 Different Transfer points for Leaf upto the Factory5 Different Transfer points for Materials upto the Factory

Section 2. Process

31

PTC was part of the first group (Pilot) in the Region to undertake the Project. Based on our success the methodology is now being extended to the other BAT Operating Companies in the region, as per plan. (2) Indicate the duration of the project. Note if the project was a pilot that is being rolled out. Note if the project is ongoing / still in process. The project started in Oct. 03 and went through its first evaluation checkpoint in End Oct. 04. PTC and BAT Sri Lanka were pilot projects for the Asia Pacific region of the BAT Group. Based on the success the Project has subsequently been implemented in BAT Malaysia in the 2nd half of 2004. Plans for implementation in the main remaining Operating Companies (Australia, Singapore, New Zealand & Indonesia) are being firmed up for 2005. BAT Bangladesh is confirmed to commence in the 2nd half of March 05 while South Korea is to start in the 2nd half of April 05. (3) Describe, in detail, the process used to complete the initiative. The project is following the recommended SCOR Road Map for implementation, i.e.

SCOR Implementation Approach

Educate

AS-IS modeling

Build Scorecard

and basis for competition

Design TO-BE model

Develop prototype

VerifyImplement

SCOR Project Roadmap

ReRe--configurationconfiguration

Oct. 03 Oct. 03 -------------- Jan. 04 Jan. 04 ----------- May 04 Oct. 04 Oct. 04 On..

Section 2. Process

32

The deliverables of each stage of the Project Roadmap are as follows:

Education: o Senior Managers, including key functional directors were given full

briefing on the SCOR Methodology. o 35 cross functional managers were trained on SCOR Terminology

and process through a 3 days workshop. o Another 30 business support officers / executives (Process owners)

were briefed on SCOR. o 4 Key Project core team members under went 2 days SCOR Impact

on Finance workshop. After the education session, a Cross functional Core Team was formed. A project board was established comprising of Company Top team i.e. Production Director, Leaf Director, Marketing Director and Finance Director. The project was sponsored by the Managing Director. A detailed Project Plan was made to carry out the activities on time, with quality.

As-Is Modeling: o Geographic mapping done for domestic, imports & exports of Leaf,

Wrapping Materials & Finished Goods. o Level 1 - 3 process mapping documented. o All the associated Enable processes were also recorded. o Detailed data collection done for the

Financial flow analysis Resource allocation analysis Cycle time study

o Blueprint of all As-Is processes (Level 1, 2 & 3) loaded into our corporate e-Blue-Print tool MEGA.

Build Score Card & Bases for Competition:

o Benchmarking (Regional & Within Country) done o SCOR card developed o Competitive performance requirements analysis for different product

segments done with Marketing o Supplier profile analysis done with Leaf & Materials functions o Top line Disconnects identified o Specific Level 1 to 3 Disconnects identified

Design and Develop TO-BE Prototype:

o All disconnects reviewed in focused groups along with Brain Storming ideas for the TO-BE, assuming Green Field for the business. Based on the identified disconnects , 98 different ideas across the Supply

Section 2. Process

33

Chain recorded, out of which 7 major ones were agreed as the Final TO-BE Projects to build the Prototypes for .

o Additionally All Level 1 - 3 processes and Transactional Analysis were reviewed identifying Metrics and ERP expectations. Supporting Organizational structure was proposed and agreed with the Board.

Verify TO-BE Prototype:

o The proposed prototypes were implemented and tracked to verify their validity.

o The Key deliverables of the project were reviewed on monthly basis through the SCOR Dashboard.

o The results were shared with the Project Team and the Project Board.

Implementation: o Most of the Prototypes have been successful and are now being

rolled out fully with the benefits being tracked on a monthly basis. SCOR Dashboard for monthly tracking of projects:

(4) Identify significant challenges encountered, the process for resolution, and the solutions. Identify best practices employed / developed. During the Pilot Project a Cross functional Team was formed to assess the current position, develop and agree the required modification and implement the new / modified processes.

Section 2. Process

34

Best Practice: o Essential to establish a Project Board with Company Top team

members o Cross Functional team buy-in & involvement is key

Along the way a number of challenges were encountered. They are: Geographical location: PTC is a multi-site organization with two manufacturing units, oppositely situated from the Head Office. Leaf crop is available in only one part of the country, at 180 degrees from the Port of Entry. All these variables add to the complexity of the Supply Chain. Best Practice:

o Analysis of cost base for the two Manufacturing sites. The Local (In-country) Benchmarking was done based on the SCOR metrics. Data for competition was acquired through annual reports as well as Market intelligence.

Legislation: Local legislation and revenue targets for the Government authorities pose another challenge to the Supply Chain simplification. Any consolidation may lead to double taxation and hence extra cost to the organization. Best Practice:

o CORA (Corporate & Regulatory Affairs) Department involvement in the team helped emphasizing the impacts of taxation on Company performance. Serious and concentrated efforts are in place with the Government to minimize the instances of double taxation.

Skill Base: Due to three Voluntary Separation (Golden handshake) Schemes in the recent past, skill base has depleted and rigorous efforts are required to educate/ upgrade the skill level where Supply Chain can deliver effectively. Best Practice:

o The technical & training staffs were part of the process to structure the process of filling the skill gap.

New Machinery Induction: We are in the process of replacing old generation, slow speed machinery with comparatively high speed, advanced machinery. Floor lay out is changing and proactive training for the operatives is required to handle these machinery. At the same time, machine crew is becoming surplus and is affecting moral of the employees. Yet, we have to deliver to the volatile market. In the process, we separated another 296 employees from one of our manufacturing plants to have bench mark crew on our newly inducted machinery.

Section 2. Process

35

Best Practice: o Skill based analysis of the employees with their training needs is always

available. Proper training is imparted before the machine is inducted on floor.

o Proper evaluation of all employees based on Will Skill Grid carried out and identified employees were counseled for separation, purely on merit.

Illicit Trade: Higher tax rate on Cigarette Industry and ineffective control across the borders are the major reasons for increase in the illicit trade from 13 % in 2001 to 22 % as at now. Counterfeit is another outcome of such loose Government controls. Best Practice:

o Serious and concentrated efforts are in place with the Government to lay down rules and effectively implement them to discourage counterfeit manufacturing.

o CORA (Corporate and Regulatory Affairs) function re-organized within the Company with more focus on the Illicit Trade/ activities.

Distribution Infrastructure: Approach to rural population is still way behind and requires a lot of effort for distributing any consumer goods. IT infrastructure is also in the preliminary stages. Low margins on Cigarettes make it difficult to invest for distribution penetration into the Rural Market. Our main competition, being strong in the low price segment, has achieved substantially stronger penetration in the rural market purely on account of shear numbers of personnel and vehicles. Best Practice:

o One to One contact with rural as well as urban consumers initiated which will not only improve the distribution of our focused brands but at the same time will further enhance our relationship with them. Under the increased restriction on Cigarette advertisement, these contacts are becoming more critical and necessary.

o We are involved in globally accepted best practice of Distribution Excellence (DX) Programme which will further facilitate SCOR Project recommendations.

ERP Migration: During the period of SCOR Project, we were utilizing CS/3 as ERP System and were in the process of migrating to SAP. It was, therefore, key to ensure complete linkage of our physical processes & SAP. Best Practice:

o It is key to Blue-Print the To-be processes first and then e-enable it o A direct link was developed between the SAP implementation Team

and the SCOR Project Team. The ERP expectation as outlined in the SCOR Blue-Print have been agreed/ incorporated in the SAP Project.

Section 2. Process

36

We streamlined the processes first and now the ERP system will be providing the facilitation to deliver.

o A total of 300 To-be processes were reviewed for current Vs what is available thru SAP. An example of such analysis is:

o And, a detailed process by process example is:

Supplier Buying Depot

GLT PL WH PMD WM WH

P2 P4P3 P2 P4 P3 P2

P1

P2 P4

Karachi POE

P2 P4 P3

GL WH

P2 P4P4

P4.1P4.2P4.3P4.4

P2.1P2.2P2.3P2.4

P4.1P4.2P4.3P4.4

P2.1P2.2P2.3P2.4

P2.1P2.2P2.3P2.4

P4.1P4.2P4.3P4.4

P3.1P3.2P3.3P3.4

P2.1P2.2P2.3P2.4

P4.1P4.2P4.3P4.4

P3.1P3.2P3.3P3.4

P3.1P3.2P3.3P3.4

P2.1P2.2P2.3P2.4

P1.1P1.2P1.3P1.4

P5 P5

Leaf Imported Planning

Leaf buying & production

P1GLT planning

L&OPGreen Leaf Logistic Plan

P5

P5.1P5.2P5.3P5.4

PL planning

To SMD, PTC Shipping WH

Capacity Planning

P1 Pre S&OP, S&OP To Demand/ Brand Cycle Planning

P1.1P1.2P1.3P1.4

P1.1P1.2P1.3P1.4

ERP Needed

ERP Needed

ERP Needed

ERP Needed

ERP Must

ERP Needed

ERP MustERP Must

ERP Must

ERP Needed

Section 2. Process

37

Similarly a Gap Analysis was done comparing our requirements (for all the 584 Level 3 processes) versus the SAP offer. A summary example is as follows: S. No. Process CS/3 SAP Gap SAP Add. to SAP 01 Overall

Structure 9 9 In SAP there will be only two companies

in the system. i.e. PK01 for Pakistan Tobacco Company All the companies in CS3 other than Phoenix (an inactive manufacturing unit) will be dealt as a single company in SAP under the Company Code of PK01 and PK02 for Phoenix (pvt) Ltd. In CS3 there are 87 ware houses in total whereas in SAP the ware houses are being replaced by the plants and storage locations, there will be 19 plants in total that would cover the two factories, head office, 14 marketing ware houses and 2 bonded plants. The other storage locations would sit at a level below the plant ,e.g. the wm store in AKF would sit as a storage location in PK02 (AKF) plant

9 Customized

02 Purchasing

9 9 The Indirects procurement will not be dealt in SAP until SRM (Supplier Relationship Management) is implemented except for BSS, which will be covered in SAP to the point up till where it is covered in CS3 presently. The approval process for WMs & Leaf will remain the same in SAP as it is in the present system i.e. will be authorized by the planning managers manually on the hard copy. For Machinery Spares the Purchase Orders for AKF & JF will be authorized by the respective Factory Engineers and for SPM (Spare Parts Manager) office will be authorized by the Chief Engineer in the system.

9 Customized Reports

03 Inventory Management (WMs, Prized Leaf, R&RS, Semi-Finished and FGs)

9/ 8 9 Stock counting will be practiced for R&RS

9 Customized Reports

Section 2. Process

38

o Our SAP went live, successfully, on the 3rd of January 2005. Total Company is now fully utilizing SAP.

o We are the 1st multi-site operating company in the BAT world with SAP as the ERP module.

(5) Indicate the metrics used to measure (a) progress and (b) success. A number of key metrics were selected for the project following a number of sessions with all the key process owners. Benchmarking Analysis was also done to gauge our current performance and incorporate the areas of improvement in our SCOR Action Plan. Following is an illustration of our performance viz-a-viz the benchmarking exercise (based on 2003 Actuals). We identified certain metrics as areas for improvement (highlighted by Red Arrow marks): One point is worth mentioning that we are maintaining high Leaf Inventory (a strategic component of our Product). The major reasons for this inventory are: 4-5 months aging (maturity) period and one crop per year (we have to procure our requirements once every year). Furthermore, due to local legislation, we have to buy surplus crop as well. This component is reflected in a number of metrics. We are working on a number of ways and means to maintain a balanced crop and keep optimum inventory levels.

P erform ance VersusB enchm ark Population

Perform anceAttribute

SC O R Level 1 M etrics

D elivery Perform ance

Cus

tom

er-fa

cing D eliveryR eliab ility

D ays of SalesO utstanding

Inte

rnal

-faci

ng

C ost

Inventory D a ys o f Supp ly

Assets

C ash-to-C ashC ycle T im e

Asset Turns

To ta l Supply C hain C ost

C ost o f goods so ld (w ithout taxes)

Actua l M edian B est-inc lass

99 % 60 % 90 %

67 % 77 % 56 %

8 % 12 % 6 %

3.5 days 48 days 19 days



2.6 turns 2.1 turns 5 turns

G aps

D ays of Pa yablesO utstanding


25 %

96%

92%

B ICB IC

O rder fu lfillm entlead tim e

R espons-iveness 13 days 7 days 1 day

Supply chainresponse tim eF lexib ility 73 days 69 days 45 days 38%

B ICB IC

16%

92%

C ost of goods so ld(w ith taxes)

88 %

90%

86%

Section 2. Process

39

Referring to our External Mid 2003 Supply Chain Review that was conducted, the following Top-line opportunities had been highlighted. These were confirmed and addressed through a more focused approach as part of our SCOR Project. Note: WMs: Wrapping Materials, FG NDP: Finished Goods Non Duty Paid, FG DP: Finished Goods Duty Paid. Note that the savings are on Annual basis. (6) Document and quantify cost and performance benefits, which should include the Return on Investment of the Project and changes in the value of one or more of the SCOR Level 1 Metrics (not all metrics are required to be captured / reported). The initiatives taken under SCOR have a direct positive impact on the highlighted metrics which is evident from the following example taking into account one of the Metrics: Note that Order Fulfillment Lead Time in our case is 13 Days, out of which 10 days are Product Maturity Requirement. From Stock (MTS), our Order Fulfillment Lead Time is 1 Day.

Performance VersusBenchmark Population

PerformanceAttribute

SCOR Level 1 Metrics

Delivery Performance

Custo

mer

-facin

g DeliveryReliability

Actual Median Best-inclass

99 % 60 % 90 %

Gaps

Order fulfillmentlead time

Respons-iveness 13 days 7 days 1 day

Supply chainresponse timeFlexibility 73 days 69 days 45 days 38%

BICBIC

92%

Collaboration with suppliers (SLAs) Source cycle time reductionNew targets 2004, 13 + 50 = 63days (Rs 40Mn) 2005, 13 + 45 = 58days (+Rs 20 Mn) 2006, 13 + 40 = 53days (+Rs 20 Mn

74.4 million 743.5 millionTotal

48.2 million

135.2 million

19.70 million

97.6 million

442.8 million

Release of Capital Rs.

4.8 million

13.5 million

2.0 million

9.8 million

44.3 million

Ongoing Saving Rs.

8

3.5

10.5

11

365

Reduce to -Days

8.8 FGs Distributors

6.81 FG DP

12.32 FG NDP

29.75 WMs

460.9 Prize Leaf

12 month average -

Days

74.4 million 743.5 millionTotal

48.2 million

135.2 million

19.70 million

97.6 million

442.8 million


4.8 million

13.5 million

2.0 million

9.8 million

44.3 million

Ongoing Saving Rs.

8

3.5

10.5

11

365

Reduce to -Days

8.8

6.81 FG DP

12.32 FG NDP

29.75

460.9 Prize Leaf

12 month average -

Days

Section 2. Process

40

Furthermore alignment with the benefits mentioned earlier:

Performance VersusBenchmark Population

PerformanceAttribute

SCOR Level 1 Metrics

Delivery Performance

Cus

tom

er-fa

cing

DeliveryReliability

Days of SalesOutstanding

Inte

rnal

-faci

ng

Cost

Inventory Days of Supply

Assets

Cash-to-CashCycle Time

Asset Turns

Total Supply Chain Cost

Cost of goods sold (without taxes)

Actual Median Best-inclass

99 % 60 % 90 %

67 % 77 % 56 %

8 % 12 % 6 %




2.6 turns 2.1 turns 5 turns

Gaps

Days of PayablesOutstanding


25 %

96%

92%

BICBIC

Order fulfillmentlead time

Respons-iveness 13 days 7 days 1 day

Supply chainresponse timeFlexibility 73 days 69 days 45 days 38%

BICBIC

16%

92%

Cost of goods sold(with taxes)

88 %

90%

86%

Global benefits Reduction in Production expenses of Rs 62 Mn (Cash Release)

FG reduction of Rs 50 Mn RM reduction of Rs106.5Mn

Inventory carrying cost of Rs 7.65Mn

Cash to cash cycle time = [inventory days of supply + days of sales outstanding - days of payables]

From FY 2002 figuresInventory days of supply reduced by 10 days (233.5 to 223.6)

Cash to cash reduced by 10 days (172.1 to 162.2)

74.4 million743.5 millionTotal 48.2 million

135.2 million

19.70 million

97.6 million

442.8 million


4.8 million

13.5 million

2.0 million

9.8 million

44.3 million

Ongoing Saving Rs.

8 3.5 10.5 11 365

Reduce to -Days

8.8 Distributors 6.81 FG DP 12.32 FG NDP 29.75 WMS 460.9 Prize Leaf

12 month average -

Days

74.4 million743.5 millionTotal 48.2 million

135.2 million

19.70 million

97.6 million

442.8 million


4.8 million

13.5 million

2.0 million

9.8 million

44.3 million

Ongoing Saving Rs.

8 3.5 10.5 11 365

Reduce to -Days

8.8 Distributors 6.81 FG DP 12.32 FG NDP 29.75 WMS 460.9 Prize Leaf

12 month average -

Days

Proposal reduce imported leaf inventories by 1 month (5 months to 4 months)Cash release = Rs 43 Mn (estimate based on Co. Plan 2004), savings = Rs 2.15 Mn/ annum inventory carrying cost

Reduce imported leaf inventories by 1 month (5 months to 4 months)Cash release = Rs 43 Mn (estimate based on Co. Plan 2004), savings = Rs 2.15 Mn/ annum inventory carrying cost

Proposal reduce inventory to 6 days. Reduce distributors working capital = Rs 160 Mn

Proposal reduce inventory to 6 days. Reduce distributors working capital = Rs 160 Mn

Current lead-time (max) local is 15 days, imported is 60 days Proposal reduce imported by 10 days, local by 1 day Cash release = Rs 40 Mn , savings = Rs 2 Mn

Current lead-time (max) local is 15 days, imported is 60 days Proposal reduce imported by 10 days, local by 1 day Cash release = Rs 40 Mn , savings = Rs 2 Mn

Proposal reduce duty paid inventory by 1.8 days (5.8 to 4 days) Cash release = Rs 50 Mn , savings = Rs 2.5 Mn, inventory carrying cost

Proposal reduce duty paid inventory by 1.8 days (5.8 to 4 days) Cash release = Rs 50 Mn , savings = Rs 2.5 Mn, inventory carrying cost

2004 plan is to reduce to 7 days. Savings = Rs 40 Mn 2004 plan is to reduce to 7 days. Savings = Rs 40 Mn

Section 2. Process

41

Projected Financials (Cash Release and Saving) of the Projects initially targeted were: Summary of the Financial Impact / targets identified at the start were: With the Total Underlying Operating Profit of the Company at 12.7 Million, the target savings on account of the SCOR initiatives were to be about 5.4% of the UOP.

Total cash release = Rs. 133 Mn ( 1.27 Mn) Total savings = Rs. 71 Mn ( 0.68 Mn)

(Rs. 105 = 1)Rs 133 Million Cash Release (Full Year Impact)

High Probability: Rs. 90 MillionMedium Probability: Rs. 43 Million

Rs 71 Million Saving (Full Year Impact)High Probability: Rs. 18 MillionMedium Probability: Rs. 8 MillionLow Probability: Rs. 45 Million

Farmer clustering Supplier collaboration

Leaf WM

Collaborative Planning Forecasting and Replenishment

Suppliers One set of figures

S&OP

PTC Customer relationship

development Distribution model Forecasting accuracy

Customers

Supply Chain

Financial Leaf Rs 24Mn (savings) by

substitution of imported leaf with domestic

Leaf Rs 43Mn (cash release), Rs 2.15Mn (savings) by reducing imported leaf inventory by 1 month

WM Rs 40Mn (cash release), Rs 2Mn (savings) through reduction of inventory by 10 days

Above OpCo opportunities Rs 2.5 Mn (savings) by rationalization of Cig. Paper, Poly prop

Responsiveness Flexibility Cost Asset utilization

Lower manufacturing cost and waste reduction Rs 62Mn (savings)

Financial FG inventory Rs 50Mn (Cash

release) Inventory carrying cost Rs 2.5

Mn (savings) Reduce distributors working

capital = Rs 160 Mn

Section 2. Process

42

Summary of the Financial Benefits Actual Results: Initial Target Actual Profit ( Million) 0.68 1.00 Cash Release ( Million) 1.27 3.50 Detail split of the Financial Benefits, (First checkpoint) Oct.' 04 & Year-End

2004 are as follows : Cash Release: Jun Oct Jun - Dec Target: Rs. 133 Million Rs. 133 Million ( 1.27 Million) Actual: Rs. 322 Million Rs. 368 Million ( 3.50 Million) Overall actual performance exceeded the target by Rs. 235 Million (Year-end). 1. Leaf Inventory: Jun Oct Jun - Dec Target: Rs. 43 Million Rs. 43 Million Actual: Rs. 269 Million Rs. 295 Million Leaf Inventories remained below the Target due to various initiatives by the Leaf Team, with no stock issues for manufacturing. Also, consumption of leaf increased due to enhanced Sales in 2nd Half' 04 as compared to the original Forecast/ Co Plan. 2. Finished Goods Inventory: Jun Oct Jun - Dec Target: Rs. 50 Million Rs. 50 Million Actual: Rs. - 27 Million Rs. -10 Million Overall Finished Goods Inventories remained higher than the target. As per the latest Approved S&OP Forecast 2004/ 2005, there is an increase in Gold Flake Family and shift towards 10 HL variants. 3. Wrapping Materials Inventory: Jun Oct Jun - Dec Target: Rs. 40 Million Rs. 40 Million

Section 2. Process

43

Actual: Rs. 80 Million Rs. 83 Million Overall WMs inventories remained lower than Target due to effective stock/ supplier management. Saving: Jun Oct Jun - Dec Target: Rs. 8.29 Million Rs. 11.6 Million ( 0.11 Million) Actual Rs. 13.12 Million Rs. 18.9 Million ( 0.18 Million) Saving is higher by Rs. 7.3 Million from the target (Year-end). Effective Shop Floor controls resulted in the following: Jun Oct Performance: 1. Overtime Cost: Target = Rs. 0.67 Million, Actual = Rs. 1.56 Million 2. Leaf Wastages: Target = Rs. 2.04 Million, Actual = Rs. 3.36 Million 3. WMs Wastages: Target = Rs. 3.08 Million, Actual = Rs. 4.17 Million 4. Impact of Reduced Inventories: Target = Rs. 1.66 Million, Actual = 4.03 Million (estimated @ 3%) Jun Dec Performance: 1. Overtime Cost: Target = Rs. 0.93 Million, Actual = Rs. 2.4 Million 2. Leaf Wastages: Target = Rs. 2.86 Million, Actual = Rs. 5.3 Million 3. WMs Wastages: Target = Rs. 4.32 Million, Actual = Rs. 4.7 Million 4. Impact of Reduced Inventories: Target = Rs. 2.33 Million, Actual = Rs. 6.4 Million (estimated @ 3%) Additionally, we also achieved the following savings: Rs. 65 Million due to effective collaboration & negotiations with the Wrapping Materials Suppliers Rs. 8 Million due to lowering our Manufacturing cost Rs. 12.9 Million in managing our returns and write-offs. Thus, total saving achieved is Rs. 104.8 Million (1 Million) which is 7.9 % of the Company Underlying Profit of 12.7 Million. The total amount invested in the project from training till validation is around 80,000 only. It means that the Return On Investment of this project is more than 10 times.

Section 2. Process

44

We also delivered to abnormal sales trend during the period through integration within the Supply Chain Function (Re-organization and another right sizing separation of 296 employees) and improved collaboration with our Suppliers and Customers (CPFR). Here is an example of integrated Planning Function, which is now in place in the organization as a result of the SCOR initiative: And, attached below is the SKU-wise performance, showing how effectively an integrated Supply Chain Function delivered to fast growing sales trend: Jun To Dec' 04 Brands Co-Plan Actual Variance %

Million Cigarettes

Million Cigarettes

Million Cigarettes

B&H 20HL Lights 6.9 2.2 -4.6 -68% B&H 20HL 82.0 19.6 -62.4 -76% B&H 10HL Lights 3.7 0.0 -3.7 -100% B&H 10HL 27.1 9.3 -17.8 -66% B&H Family 119.6 31.1 -88.5 -74.0% Gold Leaf 20HL 2172.1 2103.8 -68.4 -3% Gold Leaf 10HL 712.0 889.5 177.5 25% Gold Leaf 20HL Lights 35.0 0.0 -35.0 -100% Gold Leaf Family 2919.1 2993.2 74.1 2.5% Capstan Int. 20HL 1317.2 1200.3 -116.9 -9% Capstan Filter 266.8 246.6 -20.2 -8% Capstan 10's HL 453.9 758.7 304.8 67% Capstan Family 2038.0 2205.7 167.6 8.2% Wills Kings 20HL 120.8 76.5 -44.3 -37%

Head Of Supply Chain

Procurement Manager Planning and Logistics Manager

Procurement Manager - Indirects

Procurement Manager - Directs

Production Planning Manager WMs Planning Manager

Demand/ Secondary Logistics Mngr. Leaf Logistics Manager

Primary Logistics Custom Clearance & Imports

Leaf Operations Planning Mngr.

Factory Supply Chain Managers

Head Of Supply Chain

Procurement Manager Planning and Logistics Manager

Procurement Manager - Indirects

Procurement Manager - Directs

Production Planning Manager WMs Planning Manager

Demand/ Secondary Logistics Mngr. Leaf Logistics Manager

Primary Logistics Custom Clearance & Imports

Leaf Operations Planning Mngr.

Factory Supply Chain Managers

Section 2. Process

45

Wills N/C 0.0 40.8 40.8 100% Wills Kings 10HL 0.0 0.0 0.0 Wills Int. 10HL 103.0 122.1 19.1 19% Wills Int. 20HL 173.9 134.2 -39.7 -23% Wills Family 397.7 373.7 -24.0 -6.0% Gold Flake 20SC 1122.4 919.0 -203.3 -18% Gold Flake 20HL 2585.8 3455.4 869.6 34% Gold Flake 10 HL 768.7 1692.5 923.8 120% Gold Flake Sup. 20HL 231.7 29.0 -202.7 -87% Gold Flake Sup. 10HL 49.8 6.2 -43.5 -87% Gold Flake Family 4758.3 6102.2 1343.9 28.2% Embassy Filter 10SS 1993.3 1884.9 -108.4 -5% Embassy Kings 20HL 802.5 940.5 138.0 17% Embassy Kings 10HL 0.0 13.8 13.8 100% Embassy Family 2795.9 2839.2 43.4 1.6%

Sub-Total 13028.6 14545.1 1516.5 11.6% Gold Leaf (PNS) 3.9 3.7 -0.2 -5% Capstan (PNS) 5.4 6.2 0.8 14% Spl. Crested Vir. 0.8 0.7 0.0 -5%

Sub-Total 10.1 10.6 0.5 5% Total 13038.6 14555.7 1517.1 11.6% 20HL 7538.1 7972.2 434.2 6% 10HL 2118.1 3492.1 1374.0 65% 20SC 1122.4 919.0 -203.3 -18% 10SS 2260.2 2172.4 -87.8 -4%

Summary of the Intangible Benefits

1) Supply chain maturity improvement The overall knowledge across the supply chain improved in terms of SCOR methodology and supply chain concept. 2) Supply chain collaboration and team work Different functions and processes both internally and externally are now fully shared with the issues and expertise. 3) Common platform SCOR provides us a common platform where we can effectively communicate and compare with other BAT Operating Companies.

Section 2. Process

46

4) Benchmarking techniques Since the supply chain is now fully configured on SCOR framework, efforts and metrics can be shared within BAT Operating Companies and other FMCGs. The entire company is now confident to share the results with the communities and the Best Practices. 5) ERP migration Since we mapped the processes on SCOR methodology and eliminated the non-value added activities, we are able to smoothly migrate from the previous ERP (CS3) to the new SAP.

(7) Outline how the success of this effort supports the organizational objectives described in Section 1, Item 3. The success of these efforts, taken under the SCOR Project, directly supports the Company mission To transform PTC to perform with the speed, flexibility and enterprising spirit of an innovative, consumer focused company. And, also the four Must Achieve Objectives of the Company:

Level playing field for all the players in the cigarette market o Through the initiative of CPFR we are communicating effectively with our

valued business partners which is in turn limiting the access of illicit trade to the market resulting in growth in the legitimate sector.

o In 2004, there were significant improvements noticed which contributed in capturing a good portion of volume by PTC. We were able to procure our entire tobacco leaf requirement due to our efforts under Farmer Clustering. Since there was acute crop shortage (and we anticipate a crop short situation even this year) and none of the small manufacturers (most of them in the tax-evaded segments) were able to procure their tobacco. This has provided us an opportunity to further boost our reach in the market through our quality products.

o With better planning , weve been able to give better visibility to our local Wrapping Materials Suppliers giving them the confidence to plan better and at the same time reducing their surplus capacity available to offer to our competition.

Sustainable volume growth

o With enhanced visibility and flexibility with our Suppliers and Customers, we will be in a better position to respond quickly to the market requirement and gain any opportunity which appears.

o In 2004, we not only achieved the enhanced sales requirement (Company plan estimate was 25.3 Billion, whereas our actu

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