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Supply chain Report on ENGRO FOODS LTD.

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Supply Chain Management Final Report On

Submitted to: Sir Aamir Malik

Submitted By:

Nadir Ali (Roll No MBED-10-17),

Rao Ateeq(Roll No MBED-10-08),

M.Akhtar (Roll No MBED-10-33)

Shahbaz Akhtar (Roll No MBED-10-44)

Department of Business Administration

BZU

Sub Campus Dera Ghazi Khan


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ACKNOWLEDGEMENT

We 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. Aamir Abbas 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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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, EFL’S Flagship Brand is at its growth stage & it made

its place in the current competitive market due to many factors one of which is EFL’S

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.


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My sought to choose this organization.

Engro food is one of the most popular and developing industry of Pakistan. Engro foods making

progress due to effective management system.so that’s why it is rapidly growing against their

competitors.

ENGRO CORPORATION

Engro stands for “energy for growth. From inception, Engro is a legacy of continuous 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.


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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

ENGRO FOODS LTD:

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

company’s 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 Pakistan’s most


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respected 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 unbranded

products 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.

ENGRO FOODS HISTORY:

The plant of Engro Food Limited is 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

company’s 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.

LOCATION OF PLANT:

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

The office of Engro foods is situated in Sukkur.


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LOCATION OF OFFICES:

The head office of Engro Foods is located near Sea View , karachi.

There regional head offices are in :

Karachi located in Business Avenue Shahrah – e - Faisal

Lahore

Multan

Rawalpindi

Peshawar

Gujranwala

They believe that there recent successes will take them to there goal which is “To be one of the

biggest players in the food business by dominating the food business, and to achieve this they

will settle for nothing less than the cream.

ENGRO’S NEW PROCESSING PLANT:

GEA TDS has recently completed a Euro 3 million milk processing plant for Engro Foods in

Pakistan. It is one of the biggest plants of its kind in Pakistan and the first ever in the Sahiwal

region. The commissioning of the plant was completed in just 2 months and operation started by

end December 2007.

The plant supplies the region around Sahiwal with 250,000 liters of low fat milk a day,

that’s 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 cows

and, especially in the smaller farms, buffalo.


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The Engro plant also contributes to the local economy by employing some 200 people

throughout the factory.

The GEA TDS project was to supply equipment and engineering services throughout the

process. This included milk reception; milk processing; UHT processing; powder mixing;

cream handling and processing; Clean in Place (CIP) equipment such as trucks, process

and filling machines; detailed engineering and project management; automation for both

the 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 region’s farmers cooling it from approximately 15˚C to

4˚C for storage in the two 125m3 storage tanks.

The process can pasteurize milk to 85˚C at the rate of 25,000 lit/hr and includes

milk clarification and skimming; standardization for milk, cream, SNF and butter oil;

butter oil dosing; 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 95˚C at a rate of up to 3,500 lit/hr. UHT equipment, with

indirect 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

filling machines. Acid and caustic concentrates are stored on site in two tanks each with

a capacity of 15m3.

The whole process is controlled using PLCs supplied by Allen Bradley. PLCs are

located in cooled cabinets installed on the base-frame unit of each module. All were

delivered wired and I/O tested.

Although Engro has only been in the food and dairy sector since 2006 the company has already

carved out a significant market share and is growing quickly. In such a short time it’s already

well on the way to achieving its goal to be one of the biggest players in Pakistan’s food industry


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Board of Directors

Asad Umar Chairman

Afnan Ahsan Chief Executive

Ruhail Mohammed Non-Executive Director

Isar Ahmed Non-Executive Director

Shahzada Dawood Non-Executive Director

Mujahid Hamid Non-Executive Director

Muhammed Amin Non-Executive Director

Ms. Spenta Kandawalla Non-Executive Director

Abdul Samad Khan Non-Executive Director


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Departments

Administration Finance & Account

Marketing Milk

Procurement

Manager Plant Manager procurement

Manager Q.C Manager Purchase

Quality Assurance Officer

Logistics Officer

Human Resource

Quality Assurance

Supply Chain

ENGRO’S Departmental CHART:


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Milk Procurement Department

As 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 DPTT

Quality 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.

Pakistan’s Milk Industry Overview

With an estimated 33 Billions Liters of annual milk production from 50 million animals managed

by approximately 8 million farming households, according to latest statistics

Pakistan is the 4th largest milk producing country in the world.

It has a livestock and agriculture sector contributing over 10% to the GDP, and a milk

economy that 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 a growth rate faster than most sectors. Undeniably, a sector with such credentials

can bring about not 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

71.1% share for the rural economy and

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

steady rate of 20% a year.


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“Over all consumption of milk per day is 400,000 liters in 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, 86 Kg 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.

Current Milk Quantities Available in

Pakistan:


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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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PAKISTAN’S 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 development

7. Enthusiastic pursuit of profit


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8. Ethics and integrity

9. Safety, Health and Environment

10. Team Work & Partnership.

1.Safety Health & Environment:

We will manage and utilize resources and operations in such a way that the safety and health of

our people, our neighbors, our customers and visitors in ensured. We believe our safety, health

and environmental responsibilities extend beyond protection and enhancement of our own

facilities, and we are concerned about the distribution, use and after-use disposal of our products.


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2.Ethics and Integrity:

We do care how results are achieved and will demonstrate honest and ethical behavior in all our

activities. Choosing the course of highest integrity is our intent and we will establish and

maintain the highest professional and personal standards. A well-founded reputation for

scrupulous dealing is itself a priceless asset.

3.Leadership:

We have leaders of high integrity, energy and enthusiasm who have the necessary managerial,

professional and people skills to inspire a group or organization to set high goals and achieve

them willingly. We believe that leadership skills need to be strengthened at all levels within our

organizations and that managerial and professionalism is a necessary foundation.

4.Quality and Continuous Improvement:

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 customer’s

expectations, agreeing on performance and value, and providing products and services that meet

expectations 100% of the time. Our motto is, “Quality in all we do”.

5,Enthusiastic Pursuit of Profit:

Successfully discharging our responsibilities to our shareholders to enhance the long-term

profitability and growth of our company provides the best basis of our career security and

meaningful personal growth. We can best accomplish this by consistently meeting the

expectations of our customers and providing them with value.

6.Candid & Open Communication:

We value communication that are courteous, candid and open and that enable each of us to do

our jobs more effectively by providing information that contributes to the quality of the judgment

and decision making.


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7.Innovation:

Success requires us to continually strive to produce break through ideas that result in improved

solutions and services to customers. We encourage challenges to the status and seek

organizational environment in which ideas are generated.

8.Individual Growth & Development:

We strongly believe in the dignity and value of people. We must consistently treat each other

with respect and strive to create an organizational environment.

9.Teamwork & Partnership:

We believe that high performing teams containing appropriate diversity can achieve what

individuals alone cannot. Consciously using the diversity of style, approach and skill afforded by

teams is strength we must continuous building into our organization.

10,Diversity & International Focus:

We value differences in gender, race, nationality, culture, personality and style because diverse

solutions, approaches and structures are more likely to meet the needs of the customers and

achieve our business goals.

CORE COMPETENCY OF EFL:

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

MAJOR COMPETITORS:

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 for necessary changes & constant over view). The major competitors in case of

offering the UHT milk are:


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Nestle

HFL

Millac

Halla

Prime

Nurpur

Nirala

Dairy Crest

Other than the brand mentioned above Olper’s also faces an indirect competition from the local

milkman the GAWALA.

EFL Brands:

1. OLPERS MILK.

2. OLPERS CREAM

3. TARANG

4. OMORE

5. OLFRUTE

6. Olwell Hi-Cal Lo-Fat (HCFL) Milk

7. OLPERS OWNSUM


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OLPERS MILK:

The flagship brand of Engro Foods is OLPER’s Milk. Launched on March 20, 2006, Olpers milk is EFL’s 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 EFL’s premier brand, and the choice of quality-conscious consumers who only go for the

best. It is available in easy-to-open, 6-layered Tetra Pak Brick Aseptic red packaging and comes

with approx 71days shelf life.

TAG LINE:

The unique selling proposition for Olper’s is: Subah Bakhair Zindagi, but recently the

company changed 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 emotional

positioning & relation with its customers.

STOCK KEEPING UNITS:

The company is maintaining three SKU’s (stock keeping units) for Olpers in tetra packs that are

· 1000ml

· 500ml

· 250ml


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Olper’s Cream : The premium cream processed hygienically from pure fresh milk, Olper’s Cream is

luxuriously rich in its thickness & nutritional value.

It promises the richest & scrumptious assortment of tempting toppings, delicious desserts

and creamiest coffee with its unique taste, also great for eating with bread etc.

It was launched on September, 2006.

and comes in 6-layered Tetra Pak Brick aseptic purple

color packaging with 6 months shelf life.

STOCK KEEPING UNITS: ¼ Litre (250 ml) : 27 packs per shrink-wrapped tray

Olwell Hi-Cal Lo-Fat (HCFL) Milk :

Launched on December 15, 2006, Olwell is a low-fat, high-calcium milk with the

richness of pure milk.

It is an ideal choice for weight-watchers and heart patients.

It is also high in calcium content, which prevents osteoporosis

Packed in 6-layered Tetra Pak Brick Aseptic red packaging with easy-to-open plastic cap,

it comes with a 3 months shelf life.

STOCK KEEPING UNITS:

1 Litre (1000 ml ) : 12 packs per carton

½ Litre (500 ml) : 12 packs per shrink-wrapped tray

TOTAL SUPPLY CHAIN C OST OF Olpers:

Product Cost: 75%

Others: 25%

Out of 25 %, 4 % is business waste

Engro FOODS INVENTORY TURNOVER: On every 26

th day of month inventory at EFL gets replenish.

ORDER FULFILLMENT RATE:

At EFL its 86-87 % for olpers.


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LEAD TIME OF OLPERS:

Lead time with regards to:

Procurement of milk varies in between 5days & 4 months

Order placement to order fulfillment : 12-18 hrs

SAFETY STOCK

For olpers hardly 6-7 days safety stock is kept because of its low shelf life. Time to time

forecasting is done in short intervals to meet the level of demand.

OLPERS LIFECYCLE

Source: Mr Salman Goheer, Head of Supply Chain Dep’t, Engro Foods LTD.

OLPER’S 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 milk in the country.


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Lean Season (16th April to 30th July): Minimum production of milk in the country due

to high environmental temperature, less green fodder availability and natural

reproduction cycle of animals.

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

in the country.

TETRA PAKS MILK MARKET SHARE

SUPPLY CHAIN MANAGEMENT AT ENGRO

FOODS

The above chart depicts the overall supply chain management process at Engro Foods (Pvt) Ltd.

These activities can be divided into three all encompassing categories as well:

Inbound Logistics: the receiving and warehousing of raw materials, and their distribution

to manufacturing as they are required.

Operations: the processes of transforming inputs into finished products and services.

Outbound Logistics: the warehousing and distribution of finished goods..


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OBJECTIVE OF SUPPLY CHAIN MANAGEMENT

AT ENGRO FOODS

As per the Supply Chain Development manager at Engro Foods Mr. Umair Nagi, the primary

objective of supply chain management at Engro Foods is

“ Fulfilling our customer’s demands in the optimum way”

And as he himself pointed this out, it can be stated that optimization is the key word. Thus cost

reduction is definitely on top of the priority list for Engro but fulfilling customer’s demands is

just as important. Thus the goal of these activities is to offer the customer a level of value that

exceeds the cost of the activities, thereby resulting in a profit margin.

SUPPLY CHAIN STRATEGY AT ENGRO FOODS

The supply chain strategy is obviously in line with the objective for supply chain management

which in turn is in line with the overall mission and values of the organization, all of which have

been stated above. So when narrowing down to the strategy, Mr. Nagi said that it is

“A give-away between “the service factor” and low cost”

So if we link it to the theoretical concepts that have been taught to us in this Operations

Management course, the basic approach towards a competitive advantage over the competitors,

some established other newer entrants is a combination of low cost and rapid and flexible

response. As this report shall unravel most of the details regarding this claim, right now it would

suffice to state that an example of low cost strategy would be the location of the plants near the

abundant sources of supply, farms and farmers so as to reduce the transportation cost and cost of

milk deterioration and subsequent losses. An example of response would be the use of third party

logistics to ensure that

These primary activities at Engro are supported by:

The infrastructure of Engro: organizational structure, control systems, company culture,

etc.

Human resource management: employee recruiting, hiring, training, development, and

compensation.

Technology development: technologies to support value-creating activities.


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RAW MATERIAL PROCUREMENT

Raw material procurement plays the most integral part in the success of any supply chain. The

reason being, that it is the elementary level activity and if there are flaws in it, the effectiveness

emphasis on the quality of the raw materials obtained and at the same time establishing and

maintaining long term relationship with their suppliers. This way Engro Foods is playing an

important role to produce and market a range of high quality dairy in a country where a huge

quantity of this commodity is wasted each year due to an inefficient farm-to-market

infrastructure.

RAW MATERIAL:

The various kinds of raw materials required for the milk and cream production at Engro foods

include:

Raw Milk

Other ingredients like SNF and fats

Packaging material

RAW MILK

The raw milk which is further processed in the manufacturing plants at Sahiwal and Sukkur is

the core raw material at Engro Foods because their product portfolio encompasses all dairy based

products. The raw milk which is mainly the buffalo milk is obtained from the various dairy farms

across the country with most of these dairy farms being located in Sindh and Punjab region.

OTHER INGREDIENTS

There are several other ingredients that are added at the various stages of the production process

at Engro Foods and their respective quantities depend on the recipes of the products being

manufactured. These include SNF that are solids not fats and fats which are adjusted to achieve

the desired levels. For instance, the Olpers milk consists of 3.5% fat whereas, Tarang milk which

is the tea whitener and more creamy in nature has 7% fat, therefore, during the production

process, more fat is added to the milk to produce Tarang.

Furthermore, SNF in milk is to be maintained at 8.9% which is also adjusted during the process

depending on the quality of milk. Another product of Engro Foods, Olwell milk which is high

calcium and low fat milk targeting the health conscious segment, requires high calcium level that

is modified during the process.


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PACKAGING MATERIAL

The packaging material used by Engro Foods is supplied from Tetra Pak Ltd. It is in the form of

rolled sheets of aseptic packaging arriving at the manufacturing plant directly from the supplier.

The aseptic packages are sterilised prior to filling of UHT (Ultra Heat Treated) milk, resulting in

a 6-layered Tetra Pak Brick Aseptic packaging, with a 3 months shelf life.

Sources of milk supply

At Engro Foods the supply of raw milk, that is the way milk collection is done can be divided

into:

Direct Sources

Contactor based collection

Direct Sources:

The method of milk collection through direct sources can be defined as milk collection done

through various dairy farmers residing in different villages. A villager called “Dhoti” is

responsible for collecting milk from his respective area and delivers milk every morning and

evening to the Milk Collection Centre. The volume of milk supplied by the dairy farmers varies

immensely depending on both the size of the are covered by the dairy farmer and the availability

of milk and at times could be as low as two litres a day.

The method of milk collection from direct sources is the most preferred one by Engro Foods

mainly because of the low probability of adulteration of the milk by dairy farmers. The reason

accounting for this is that it is easier to identify adulteration in low volumes of milk as opposed

to high volume provided by the other method. However, the overall quantity of milk collected

through this method is very limited.

Milk Collection Centre:

Engro Foods maintains a full fledged Milk Collection Department to manage milk collection

through direct sources. It started off with hundred Milk Collection Centres in March 2006 and

now in 2008 has over five hundred and fifty Milk Collection Centres operating across the

country. Today, Engro Foods can be regarded as having one of the largest milk collection

networks in the country which is unmatched in size, productivity and efficiency to meet the self-

imposed commitment to quality. The vast network comprises of village milk centres which are

equipped with chillers to preserve the quality prior to long hauls to the factories served by

specially designed tankers.


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The main objective of Milk Collection Centre is to deal with small quantities of milk provided

by the village dairy farmers. On one hand, it has proved a regular source of income for farmers

through an assured and growing income resulting from the sale of their milk, and on the other, it

has enabled Engro Foods to collect better quality milk in the quantities it needs. At the Milk

Collection Centre a trained milk collection agent who tests and records every supply for quality

and fat content collects the milk and rejects the milk that does not conform to their quality

standards or is adulterated.

Contractor Based Collection:

The contractor based milk collection involves collecting milk from approved suppliers who are

aware of the quality standards adopted by the firm. The contractors are responsible for milk

collection from a large area and can bring about ten thousand litres of milk a day from dairy

farmers. This method of contractor based collection contributes the most to the overall quantity

of milk collection. However, the company fears adulteration on part of contractors because it is

harder to investigate when the volume is high.

Once this milk is tested for the protein, lactose and butterfat content it is sent to the chiller

containers which protect milk from air, light and heat. This milk is then transported to the plant.

These chiller containers are aseptically cleaned before milk is stored in them.

Transportation of raw milk:

The raw milk is transported from the milk collection centre to the manufacturing plants via

insulated tankers. The insulated tankers maintain the temperature of milk around four degrees

Celsius. The reason why the tankers are insulated is to prevent the milk from getting hot in the

summer or freeze in the winter. The reflecting surface of the trucks also provides protection

against infrared rays and reduces the degree of heat on the tank. Also the cool temperature stops

the production of bacteria while the milk is transported over long hauls to the manufacturing site.

Normally the capacity of the regular tankers used for the transportation of milk from the milk

collection centre to the plant varies between 10,000 and 35,000 litres.

The transportation fleet at Engro Foods is partly owned and partly contracted that is they make

use of third party logistics. Moreover, the transportation routes from milk collection centres to

the manufacturing sites at Sahiwal and Sukkur are designed in a way to avoid overlapping of

routes which otherwise would add up to the increased cost of transportation. The raw milk is

normally transported between four to six hours to avoid loss of quality.


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Supply Chain Department

Customer Service

Department

Purchasing

Planning

Supply Chain

Development

Warehousing Logistics

Inbound

Logistics: Milk

Procurement

Outbound

Logistics

Dispatches

EFL SUPPLY CHAIN STRUCTURE


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EFL SUPPLY CHAIN MANAGEMENT

GIMMICKS:

SIX SIGMA AT ENGRO :

Engro is among the first Pakistani companies implementing six sigma across all areas and

utilizing it as a management 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 sigma’s 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 customers – on 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.

PR WITH FARMERS :

According to Mr. Ali Akbar, Director Marketing EFL,

“In order to succeed, you should ALWAYS capitalize on your STRENGHTS and

NEVER on your COMPETITOR’S WEAKNESS!”

ENGRO’s 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


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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 won’t 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

Pakistan that uses Bactofuge technology to virtually eliminate bacteria and ensure premium

quality and hygiene.

EFFICIENT MILK PROCUREMENT

DEPARTMENT:

EFL MPD is provided with highly paid Procurement managers supported with a team of

qualified and experienced staff of zonal managers, area executives or milk collection controller,

milk collection supervisors, 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. Quantity

2. Quality

3. Cost

4. Competition

5. 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 to satisfy company’s 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.


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6. Hygiene practices improvement at all levels of milk production and procurement

7. 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.

QUALITY CONTROL SYSYTEM:

Following types of quality assurance system exist in EFL to assure the procurement of the best

quality raw milk.

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

quality raw milk.

2. Second System: Quality assurance department support the procurement department for

procurement of good quality of raw milk.

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

BUSINESS QUALITY MANAGEMENT SYSTEM &

KAIZEN PRINCIPLE:

Mr. Salman Goheer, Head Of Supply Chain, EFL:

“We imply our strategies at large scale as well as at small scale on continuous basis

according 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 customer’s

expectations, agreeing on performance and 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

the practical application of it at EFL;

360 DEGREE FEEDBACKS:

“Our commitment to continuous improvement in the performance management systems for

employees at all levels was reflected in adoption of the 360 Degree Feedback System. This

system ensures better employees accountability, at the same time providing the employees with

chances to make use of their competencies. The 360 Degree mechanism became fully operational

for senior management in 2006”.

Said by Mr. Hassan, HR Assistant Manger, EFL.


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PUSH-PULL POINT:

“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 push–pull 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.

OLPER’S SUPPLY CHAIN


34


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OLPER’S PRODUCTION PROCESS:

1. MILK PROCESSING: 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 ºC is transported to dairy plant in isolated tanks for

further processing.

At the dairy plant milk is tested for quality and milk that meets the quality parameters is again

chilled and pumped into chilled holding tanks, then cleaned (either by being filtered or

centrifuged) before Pasteurization followed by standardization/toning and homogenization and

then transferred to another holding 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 TONING Standardization of milk involves the adjustment of the fat content of milk, or a milk product, by

addition or removing of cream, or skim milk as appropriate, to obtain a given fat contents, while

toning refers to adjustment 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

specific temperature for a specified period of time without allowing recontamination of that milk

or milk product during the heat treatment process."

4. HOMOGENIZATION: It is a mechanical treatment of the fat globules in milk brought about by passing milk under high

pressure through a tiny orifice, which results in a decrease in the average diameter and an

increase in number and surface 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 possibly increased digestibility.

5. ULTRA HIGH TEMPERATURE (UHT) AND ASEPTIC FILLING The 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 ºC 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


36

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

Manager Quality Control-MPD, Engro Foods Limited

EFL’S LOGISTICS & WAREHOUSING

INTEGRATED 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

right time, at the right place and in the right quantity. Logistics network is thus completely

outsourced i.e. they are relying on 3PLS as according to

Mr Salman Goheer, EFL head of supply chain: “We have outsourced all non core processes

of our business 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 milk

transportation to the plant.

Raw milk comes from the dairy farms to the milk collections centers which are 40 in total

& are located in different villages where some quality checks are conducted to ensure the

milk quality, if its up to the mark than it is stored, till it reaches the 9,000 liter capacity

which is than collected by dedicated 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

emptying the 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

Sahiwaal factories, and is distributed in the same amount to the distributors all over the Pakistan.


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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

& to distributors. There are 3 warehouses of olpers:

Sukkur (Mother ware house)

Sahiwaal (Mother ware house)

Rawalpindi (Central ware house)

Sukkur:

Adjacent to the manufacturing plant which covers whole of the south i.e. Sindh & Baluchistan,

the logistics usually take 1 day to arrive at olpers warehouses in Karachi from their

manufacturing factory at Sukkur.

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 costs

600,000/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 truck

which 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 on

average there are 15 round trips in a month.

From Karachi warehouse it is delivered to the respective distributors according to there required

orders in terms of quantities and size of packets, it is done through dedicated fleets which is on a

monthly 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


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The cost of downward logistics (Sukkur) for the company is cheaper in comparison to the

upward logistics (Karachi). Since open trucks return empty once the product reaches the Karachi

warehouse.

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

350,000 liters & a pallet capacity of 2000.

Sahiwaal warehouse having a capacity of 4 million liters with a daily average dispatch of

400,000 liters & having a pallet capacity of 5000.

They are having a cross dock warehousing system at

Maripur 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 at 25-28 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 &

Sahiwaal shoots 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.


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ORDER PROCESSING

The ordering process at the warehouse starts with generation of suggested order list (SOL)

triggered through the system, SOL is done to determine the future demand forecast,

determination of items to be ordered and how much to reorder

MATERIAL HANDLING

Material 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 &

finished goods.

They use specialized milk tanks as mentioned above for the inbound of raw milk & for

finished goods they use proper palletization, then fork lifters are used to put the pallets in the

right place in the warehouse which is then cross docked.

DISTRIBUTION NETWORKS

Olpers 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

further Regional Sales Offices.

North Zone

o Rawalpindi.

o Peshawar.

Central Zone

o Lahore

o Gujranwala

o Multan

South Zone

o Karachi

o Hub

o Punjgur

o Nawab shah

SELECTION CRITERIA OF OLPERS FOR DISTRIBUTORS SELECTION :

Financial Strength of Distributor

Efficient Infrastructure

Logistic Fleet

Efficient and Trained Sales Force


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Past Experience of Distributor

Market Knowledge

The use of new Technology (IT)

NEGOTIATION ON PRICE : Olpers doesn’t 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: Distributor’s 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.

CUSTOMER’S FEEDBACK:

Customer feedback is required for further planning which is the responsibility of the distributor

to provide to Olpers’ team.

PURCHASE ORDERS

Purchase 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 LOGISTICS

SHELF 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 and disposes 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 the company, 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.

PACKAGING

Engro Foods is committed of reducing the environmental impact of packaging, without jeopardizing the

safety, 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 option available to Olpers for packaging


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because it is having monopoly in the packaging sector in Pakistan

As far as milk is concerned packaging is very important.

It is perishable item which requires special packaging to preserve it for few months. To meet

this objective Olpers delivers fresh milk to its customer via using tetra 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 pack

integrity.

Take into account new packaging materials

and processes that reduce the impact on the

environment of unnecessary transportation.

Avoid the use of substances that can adversely

impact the environment during packaging

production 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 and

compatibility of packages with existing waste management schemes.

Packaging materials are Stored in a dry place away from manufacturing areas and it is

used in a clean and sanitary manner which is non toxic

Packaging is carried out in away that avoid contamination of processed products. And

also protects the product against contamination until the product reaches the consumer.

EFL ERP SYSTEM

ECPL 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 with each other like;

Production

Logistic

Accounts & finance


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Marketing

Sales

This Widespread intranet is also offering a platform for developing and deploying critical

business applications to support business operations and management decision making across the

Internet worked enterprise. Many customers application has been developed at ECPL, which

helps in

Order Processing

Inventory Control

Sale management & reporting

executive information system

These applications are designed to interface with, and access, existing company database and

legacy system. 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

browsers from anywhere on the network whenever needed.

EFL’S SALE & DISTRIBUTION SYSTEM:

This application helps in the accomplishment of daily sales operations & management. The

application has 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 &

distribution system i.e.

Transactions; This module helps to process, distributors Payment information,

Secondary Sales, Order processing and their Claims.

Reports; The Report modules convert distributor’s transactional information into

different types of reports like:

1. Regional Order Summary Report

2. Primary Sales Report both Invoice Based & order Based

3. Secondary Sales LPD Report

4. Primary & Secondary Day wise Report

5. Distributors detail Ledger

6. Distributors Payment Receipt Report

7. Stock Pending & Cancellation Report

8. Distributors Claim Summary Report

9. Logistics Reports

10. Distributor Account Statement Report

All above-mentioned reports can generate from different angles like

o Regional report

o Area Wise Report

o Territory Wise Report

o Distributor wise

o 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 that are value and volume. It shows us that how much target has been achieved up till

now in the year considering 250ml, 500ml and 1000ml and total UHT milk.

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


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For example Year to date

6444 / 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.

These records are first updated manually. This gives us the record for the opening stock, stock

received by the distributor yesterday, month to date sales and secondary sales. Then all the

information given by the TSO’s 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.

As a result payment receipt report is generated which shows us the name of all the distributors

who made the payments and weather the payment was sent via remittance plus our demand draft

etc and name of the branches through which the remittance was sent.

After conducting the payment procedures another document is generated which is known as the

Distributors Account statement summary. When distributor sends us the amount it is credited in

our account 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.

These claims are verified by the TSO’s and are sent to the regional office for verification after

the verification at the regional office the claims are logged on to the system and are sent to the

head office after verification from the head office the acknowledgement is sent to the distributor.

CRM AT EFL

Engro 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


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Rapid Growth Spurs Demand for CRM System: Prior to the start of 2009, Engro Foods was relying on Microsoft Excel spreadsheets to record

and manage customer 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 of consumer relationship & manager innovations, Engro Foods.

Information At Tips:

The Oracle CRM system has enabled Engro Foods to dispense with spreadsheets to record

and track information. Customer data is now entered and stored in a central database,

eliminating the need for repetitive manual entry and ensuring the accuracy and currency of

information. The system also provides a single, complete customer history, where

previously transaction and personal details were dispersed 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 to build 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.”

SWOT ANALYSIS OF ENGRO FOODS

STRENGTHS

1. Engro’s back:

Olper’s is a brand of ENGRO foods. This means that consumers can relate their former image of

ENGRO foods to Olper’s. ENGRO is a well established brand name in Fertilizer, IT and

infrastructure business. The brand is well known so customers will automatically have a brand

association with Olper’s and see it as a premium quality product. ENGRO is world renowned so

it can easily attract foreign investors in backing it against other competitors such as Nestle.

ENGRO foods can easily afford research and development costs for Olper’s have in order to

introduce new products. It can also distribute the brand through better channels because of its

long term relationship with distributors in the agriculture sector.


47

2. PR with farmers:

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 won’t have to look

elsewhere to sell their milk.

3. Positive response from customers:

In first year, EFL crossed 1.4 billion sales figure which shows customers’ satisfaction upon

EFL’s products.

4. Its taste: quality proposition and world-class quality proposition system.

5. Strong consumer & product research:

Olper’s done a strong consumer & product research before and after launching the product. This

has provided them the perfect launching pad to eventually emerge as a global player in the food

industry. To develop its future portfolios, EFL has hired various global research partners like AC

Nielsen, Mindshare, JWT Asiatic and MARS marketing and advertising agencies.

6.Third-Generation Plant:

EFL only, has the third-generation UHT milk plant in the country. EFL plant is the only plant in

Pakistan that uses Bactofuge technology to virtually eliminate bacteria and ensure premium

quality and hygiene. Moreover, it is also setting up another milk processing plant in Central

Punjab (Sahiwal) with an investment of Rs. 2 billion (US $ 33million).

WEAKNESSES:

1. Olwell TVC:

Olwell ad which is based on Western life style, ENGRO foods brand management showed a man

who put off his clothes & remain just in his undergarments, or half nude lady in a cat walk or

men admiring the figures of a lady in mix gender health club. In this ad they are creating

associations with the brand through the stripes, which is a highlight of Olwell packaging. Half


48

naked people have been shown with tattoos of the same stripes in order to show that they are

loyal consumers of Olwell. Also, the talent, situations and locations connects well with the ad to

give Olwell a premium positioning. The brilliant marketing people at ENGRO Foods failed to

analyze is that the market they are targeted the ad on, is Pakistan, where practicing Muslims

reside, who have strong religious beliefs. When making the ad, the brand managers were focused

on, making an ad that should give the brand the most premium look and feel amongst the target

consumers but on the other hand they were least bothered about the ethics, religious beliefs and

cultural values.

2. Owning Red Color:

The company has not owned the color red like Nestle has a green Milkpak; Haleeb has a blue

carton etc. This may create problems because when a consumer enters a grocery shop, then

he/she might have problems in recalling the brand because there is no color association attached

to Olper’s. The company may need to find a suitable color in which to focus its upcoming

marketing strategies.

3. Low Quality Milk: EFL is not having its own dairy farms; it largely collects loose milk from farmers & gawa las

through its 40 milk collection centers, which sometimes is of low quality and impure because

they add vegetable oil to milk to get higher prices.

4. Packaging:

EFL is dependent upon Tetra Pak for the packaging of its entire dairy products. Tetra Pak is the

only option available to Olper’s for packaging because it is having monopoly in the packaging

sector in Pakistan. Due to this reason, Tetra Pak can charge them higher and it could increase the

production costs.

5. Milk collection & distribution costs: EFL’s 34 out of 40 milk-collection centers are located in Punjab, whereas its only milk

processing facility is situated near Sukkur (Sindh). It increases the milk collection & distribution

costs; and also increases the chances of milk getting spoiled because of increased travelling time.

6. Narrow brand portfolio:

It has been more than a year now, when EFL launched its first dairy product, Olper’s Milk on

March20, 2006. But EFL’s brand portfolio still consists of just 3 products i.e. Olper’s Milk,

Olwell Milk and Olper’s Cream. Whereas its competitors like Nestle and Haleeb Foods have a

much diversified line of dairy products.


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OPPORTUNITIES

1. Increased funding by Government:

Government has decided to increase farmers’ funding. This is an opportunity for ENGRO foods

because previously due to weather conditions and other reasons there was lots of wastage of milk

but now that can be reduced as farmers will be better able to store milk for longer time periods.

2. Increased consumption of PLM:

Competition may create opportunities for the company because each competitor in the milk

industry wants to increase penetration of processed liquid milk and so they will create awareness

for consumers through different advertising media. This will ensure the increase in the

consumption of processed milk instead of lose milk and so will in turn lead to increase in sales

for the company. Therefore there will be an opportunity for accelerated growth.

3. Awareness:

Growing dissatisfaction with loose milk and increasing awareness about health and Hygiene

issues have led to increased processed milk consumption.

4. Third largest producer of milk:

Pakistan is the Third largest producer of milk in the world with a total production of 32 billion

liter of milk a year, whose value is more than that of the combined value of wheat and cotton,

from a total herd size of 50 million milch animals (buffaloes andcows). Livestock accounts for

46.8 percent of agricultural value added and about 10.8 percent of the GDP. Milk is the largest

commodity from the livestock sector accounting for 51 percent of the total value of the sector.

Due to the steps taken by the government and private sector, country’s annual milk production is

expected to grow at an additional 3 billion litres in the next few years. This is quite an

opportunity for ENGRO foods as there is lot of growth in this part of the sector.


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THREATS

1. Competition:

Competition may pose a threat because the company will have to maintain its leadership in an

expanding market so that it doesn’t lose its market share to its competitors. For Olper’s it might

be difficult to penetrate in a market where the loyalties exist for such brands as Nestle and

Haleeb. These brands have been in the milk industry far too long and have left a mark in the

minds of consumers in terms of quality. Competition seems to be getting tougher as a result of

new players entering the dairy market.

2. Perceptions and Price Differentials:

Consumers’ perceptions and price differentials can cause a threat for the company. It is

important that Olper’s comes up to the expectations of the customers and fulfills its conformance

quality that is the company meets its promised specifications. Consumer’s preferences change

with time and prices might create certain barriers in terms of the profit margins for Olper’s. For

example, lose milk is still cheaper than packaged milk and that is also one factor that people still

prefer to buy lose milk.

FUTURE PLANS OF ENGRO FOODS LTD.

Company has planned to make Omore world class premier quality brand like existing

brands of Engro Foods.

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

They have planned to move other dairy products as are being offered by its competitors

like yogurt, flavored yogurt (raita), cereal for babies etc

They future plans of own farms are also on board. It’s a way to improve quality by

removing all doubts in consumer minds about old milk collection ways form govala


51

Engro Foods is working with different NGOs to meet the Corporate Social Responsibility

in country. They are working with UNDP to initiate women’s veterinary workers

program

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

Alleviation Fund (PPAF)

BENCHMARKING AT ENGRO FOODS

Engro Foods certainly believes in benchmarking in order to achieve a better standard of

performance. When the organization was being established back in March 2006, the company

and in particular its dynamic supply chain team had two options regarding the benchmark for the

company operations. It had a choice between Nestle’s extensive and well reputed Milk

Collection Centre system, or Haleeb Foods’ contractor based milk collection mechanism. It

chose Nestle as a benchmark and therefore set up its own milk collection centres based on the

layout and approach adopted by the well entrenched Nestle. However, today Engro Foods

considers itself in no need of a benchmark anymore since it has actually surpassed the

performance of its competitors and therefore now it is viewing its own previous performance as

the standard to work against.

ISSUES AND CHALLENGES

Supply chain management in a country grappling with numerous uncertainties and that too in the

dairy milk industry is replete with difficulties, challenges and bottlenecks. Engro foods is no

exception and the supply chain team has to deal with various issues and challenges day in day

out.

Demand Supply Imbalances

The first challenge that Engro Foods has to deal with is the reconciliation between demand and

supply, where the two are following different patterns throughout the year. While demand

reduces during the winters and increases during the summer, the supply chain team in its quest

for establishing trust and harmony with the dhodhis, has to accept milk throughout the year. Thus

in order to ensure that the all year round supply is utilized well, Engro Foods actually converts

the excess supply into powdered milk, which is much easier to store and much more resistant to

deterioration over time as compared to liquefied milk. Hence, this is a challenge that Engro is

attempting to meet to the best of its resources and capabilities.


52

Lack of Control over Distribution Channels

The distribution of goods to the retailer who then sells it to the final consumer is a responsibility

that is not directly under Engro Foods but rather being handled by the approximately 200

distributors Engro Foods supplies to. This leads to a difficulty in exercising control and

supervision of the overall distribution activities. Accurate information with regard to sales,

proper storage, timely delivery, and appropriate marketing procedures cannot be obtained easily.

However, Mr. Nagi insists that even though third party logistics and secondary sales are being

employed, feedback is being collected nevertheless and contact is maintained with the

distributors as much as possible.

Lack of Knowledge amongst Farmers

A major issue that is faced on the raw materials procurement side is the lack of awareness and

insufficient knowledge that is common amongst various small farmers in the villages milk is

collected from. These farmers not only lack knowledge about ways to optimize the milk

extracted from their animals but also are unaware about the ways to take care of the animals.

This leads to lower productivity and smaller quantities of milk being produced. However, Engro

Foods is trying to make a difference by spreading awareness amongst these farmers through

education, training while also organizing vaccination programs that can make the livestock

resistant to various diseases.

Infrastructure Issues

The two plants are located in the interior areas of Punjab and Sindh and the villages from where

the milk is procured, whether in adjacent or far-flung areas, mostly lack proper roads and

highways that would enable milk to be transported easily and in lesser time. As a result, delays

may occur which might disrupt the overall production process. But these problems are addressed

by the maintenance of adequate supply at the premises at all times in the form of powdered milk

in order to deal with any sort of contingency situation.

Limitations of the Research

This report has been compiled entirely on the basis of the interview we conducted of Mr.

Salman Goheer. (Head of Supply Chain). Engro Foods and some secondary research which was

largely internet based. No documents were shared with us by the company. A major constraint

for the research was the inability of the team to visit the actual plant which is situated far away

from home in Sahiwal and Sukkur, while the Milk Collection Centres that form a significant part

of supply chain management at Engro Foods also could not be observed because of their hard to

access locations. Thus, the report has been prepared with these constraints in tow at every

juncture.


53

RECOMMENDATION

We 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 &

gawalas through its 40 milk collection centers, which sometimes is of low quality and

impure because they add vegetable oil to milk to get higher prices. EFL needs to have

their own Dairy Farm so that they can meet the increasing demand as their market share

is growing by 12% annually & to have quality milk procurement as well.

3. EFL is dependent upon Tetra Pak for the packaging of its entire dairy products. Tetra Pak

is the only option available to Olpers for packaging because it is having monopoly in the

packaging sector in Pakistan. Due to this reason, Tetra Pak can charge them higher and it

could increase the production 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 are enjoying it just because of low competition their otherwise Milk pack has

its brand name in drinking milk market only. So it’s an opportunity for them to grab &

enjoy the flavor.


54

REFERENCES

Mr. Salman Goheer. (Head of Supply Chain at EFL)

Mr. Ammar Mursalin.(Assistant of Mr. Salman)

Mr. Umair Nagi (Supply Chain Development Manager at EFL)

Mr.Dilshad Ahmad(Quality Controll Officer EFL)

Mr. Ali Akbar, Director Marketing EFL

Mr. Hassan, HR Assistant Manger, EFL.

Pakistan Dairy Industry, white Revolution paper

www.engrofoods.com

www.google.com

http://www.engrofoods.com/

http://www.google.com/

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