Milk Industry Pakistan

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IqraUniversity Olpers Milk -1 -

FINAL REPORT

DISTRIBUTION CHANNEL OF OLPERS

GROUP MEMBERS:M.ARSALAN SIDDIQUI (7276)HASSAN SAIF UDDIN (4677)

ADNAN SHEHZAD (4188)OMAIR KHAN

COURSE: CHANNEL MANAGEMENT

CLASS: MBA (SUNDAY/ 12:00-3:00)

SEMISTER: FALL/08

SUBMITTED TO: MR. ZAHEER AHMED

SUBMISSION DATE: 14-DEC-08


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ACKNOWLEDGMENT

We would like to thank our respected teacher Mr. Zaheer Ahmed who has

given us this opportunity to explore our skills and made a report on Olpers

distribution channel. He has given us thorough knowledge and provides deep

understanding about distribution network and because of that we are able to

complete this report. We would also like to thank Mr. S. Intkhab Ali (Key

Account manager) in Engro Foods who has given us all required information

and he is been very kind to us all the time when ever we knocked his door we

found it open to help us in completing this report.


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Contents

Chapters Page

Company Profile 5 Vision, Mission, Goals/ Objectives, 6Location of plant 7Organizational Chart 8Supply chain Structure 9Milk Industry Profile 10-11

How Industry Works 12Market Share 15Olpers Supply Chain 16Integrated Logistic17-18Ware Housing20-21Distribution Net Work22-23Reverse Logistic 25Packaging 26Gap Analysis 28Efficiency Template 29

Channel Flows 30Recommendation 31


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Company Profile

Engro Chemical Pakistan Limited is the second largest producer of Urea fertilizer in

Pakistan. The company was incorporated in 1965. Engro accomplished significant progress not

only in its base urea fertilizer business but also in diversification projects. Urea production was

increased from an annual capacity of 270,000 tons in 1991 to 850,000 tons in 2001. Further

expansion plans are being developed to de bottleneck plant capacity to 1.2 million tons in stages.

In addition, Engro has over thirty years of experience of fertilizer marketing in Pakistan with an

elaborate dealer network.

Engro Foods Limited is subsidiary of Engro Chemical Pvt. Ltd. which is one of the most reputed

enterprises in Pakistan with more than 40 years of diversified business operations in the areas of

fertilizer and chemicals. Engro Foods started its business operations in March 2006 and with the

successful launch of Olpers Milk, Tarang, Olwell, and Olpers cream, it has established itself as a

major player in the foods business. Engro Foods has already set up two processing plants at

Sukkur and Sahiwal. With the ever expanding milk collection network and processing facilities,

the Supply Chain has geared us for the growing sales of our products.

Engro has started milk processing facility to produce and market branded UHT milk, cream

and other milk products. The plant is located in Sukkur, it started there operations in March 2006.

Engro procure raw milk supplies from Sindh and lower Punjab. They introduced their milk product

with the name of Olpers in March 2006.


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Vision

Our vision is to be the premier Pakistani enterprise with a global reach, passionately

pursuing value creation for all stake holders.

Companys Mission Statement

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.


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Location of Plant

y The dairy processing plant is situated at Rohri & Sahiwaal

y The office of Engro foods is situated in Sukkur.

Location of Offices

y The head office of Engro Foods is located at 3rd floor of Carlton Hotel & Club.

y There regional head offices are in :

o Karachi located in Business Avenue Shahrah e - Faisal

o Lahore

o Multan

o Rawalpindi

o Peshawar


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o 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.

Organization Chart


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Supply Chain Department

Customer Service

Department PurchasingPlanning

Supply Chain

Development

Warehousing Logistics

Inbound

Logistics

Milk

Procurement

Outbound

Logistics

Dispatches

Supply Chain Structure


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Milk Industry Profile

Pakistan is the worlds fifth largest producer of milk but even then it has to import powder milk to

meet the domestic needs. About 30,000 tons of milk powder is imported from Poland and other

European countries to meet the country requirements. The Government is spending huge amount

of foreign exchange amounting to about Rs. 807 million every year on the import of milk and dairy

products. Some milk processing firms produce milk powder locally but most of that is used for

reconstitution in seasons of scarcity. About 80 percent of the milk, especially in and around big

cities is used for milk tea. In cities, milk is largely consumed for tea whitening (2.3 billion liters), drinking (2.3 billion

liters), and desserts etc (2.2 billion liters).

There is a great need to enhance yield per animal and this should be through the

improvement in the genetic potential of local breeds and production of high quality fodder and

feed. Milk output should not be sought through increase in animal numbers. Scarcity of feed, andits high cost is a major limiting factor in urban dairying. At present there is insufficient quantity as

well as quality of fodder, so animals are underfed, weak, thin, and consequently produce less milk

and meat.

With large numbers of farmers getting into commercial dairying and forage production,

middlemen have emerged who have contracted hundreds of small farmers in remote villages and

towns of difficult accessibility. The middlemen visit households on motorcycles and purchase milk

early in the morning at much lower prices than in city markets. They have contracts with urban

hotels and households to deliver milk to them. Due to high prices in the big towns, milk is

transported on the roof of buses from hundreds of kilometers. Payment is usually monthly. Poor

farmers with 2-3 buffaloes and cows usually find their animal feed and meet some of the important

domestic needs from milk money. These small dairymen are happy to earn sufficient profit to meet

their family needs of milk and animal feed from the sale of the milk and still save reasonable

amounts.


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Packed milk and milk products are sold throughout the country in big, medium and even

small towns. Hence there is a tremendous need for high quality and cheap fodder to get maximum

value from stock kept in villages, towns and stall fed in the peri-urban and urban areas.

The major milk companies purchase milk from association members at suitably sited milk

collection centers for different villages. Milk is purchased according to its fat content. Improved

forage seed, livestock health care and breed improvement facilities through artificial insemination

are provided to members at subsidized rates.

Over all consumption of milk per day is 4 Lakh liters in Karachi only

Supply and Demand

As a food item, all milk (both milk and milk equivalents) is second only to cereals in levelof per capita consumption in Pakistan. The annual per capita consumption level at the nationallevel 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 asindicated in the chart above. 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. During July 2007- June 2008, dairy products14 worthRs.2320.42 million ($38.6 million) 15 were imported. The Statistics Division lists the productonly as Milk and Milk Food for Infants.


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How Industry Works (Marketing Channels)

The three marketing channels in Pakistan are rural, urban, and processed marketingchains. An overview of these is given below:

Rural Marketing Chain

A significant proportion of the milk produced in rural areas is consumed at source withinthe hamlet or village, either through farmstead consumption or in some cases, direct sales by thefarmer to the neighborhood. The remaining 30-40% is marketed through an intricate marketingchain consisting of multiple layers of intermediaries .Figure below elaborates the rural milk

marketing chain and the price of milk at each node in the chain.

Rural Consumer

Rs.28-35

(Open)


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Urban Marketing Chain

An estimated 9 to 12 million liters of milk every year are consumed by the urbanconsumers in Pakistan. To satisfy some of this urban demand, milk is produced in urban and peri-urban areas of the country, accounting for 5% and 15% of the total milk production,

respectively. Since this milk is not sufficient to meet the entire urban demand, the deficit ismet by rural producers, as explained in the analysis of the Rural Milk Marketing Chain above.

Peri urban dairy farms are located on the outskirts of major cities. These are usually ownedby market oriented farmers and, owing to the scale of their operations, can be classified into twogeneral groups. Most of the farmers operate on relatively small scales by keeping 10 to 50 dairyanimals. On the other hand, larger farmers usually keep up to 500 livestock heads. This latercategory of farm can be either owned or operated by a progressive farmer individually or it can bea part of the peri-urban cattle colonies that have been established on the outskirts of major cities.

In the Urban Milk Marketing Chain, the producer has relatively more control over thesupply chain as the consumer is easily accessible and is also willing to pay a high price for milk.


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Hence, in many instances, farmers in the Urban Milk Marketing Chain integrate production andmarketing functions in their operations, and instead of relying on a middleman, the milk isdirectly sold by the farmer. Figure below depicts the pre-urban marketing chain.

Processed Marketing Chain

Most of the milk in the country is marketed in raw, liquid form. According to industry estimates,only 3-5% of the milk is marketed as processed milk. Currently, there are more than 20 dairyprocessing plants operating in the country. The major product produced by these processing plantsis UHT or Pasteurized milk. Other products include powdered milk, butter, cream, and lassi, etc.

However, UHT milk is the most predominant form of product produced by these plants


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Tetra Pak Milks (Market Share)

Consumer

Rs. 55


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Olpers Supply Chain

MilkPak

43%

Olper's

23%

Good Milk

16%

Haleeb

13%

Others

5%


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Integrated Logistics


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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.

Inbound Logistics

y 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 located in different villages

where some quality checks are

conducted to ensure the milk quality, if its

upto 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.

y

Once the vehicle reaches the plant premises, once again a quality check is repeated before

y emptying the container.

Milk Collection from Various Cities of Sindh & Punjab


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y Lakhi.

y Ahmed pur east.

y Rani pur.

y Nawab shah.

y Dharki.

y Dhokri

y Rohri and Sahiwaal.

OUTBOUND LOGISTICS

On average, every alternate day Olpers Milk truck arrives at each ware house from the Sukkur and

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

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

especially for the northern areas of Pakistan. Outbound logistics concerns finished milk movement

from manufacturing plant to the warehouse & to distributors. There are 3 warehouses of olpers:

1 Sukkur (Mother ware house)

2 Sahiwaal (Mother ware house)3 Rawalpindi(Central ware house)

Sukkur:

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

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:


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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 to fulfill 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

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


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y 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.

y Sukkur warehouse having a capacity of 1.6 million liters with a daily average dispatch of

350,000 liters & a pallet capacity of 2000.

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

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

y They are having a cross dock warehousing system. At Mari pur and it is being operated by

transporter him self.

y Using pallets to stock the cartons.

y Each pallet has a capacity of 800 liters.

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

y The temperature of the warehouse should be maintained at 25-28 degrees in order to keep

milk in its fresh condition.

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


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y There is a climate control system in there warehouses as the temperature of Sukkur &

Sahiwaal shoots up to 45 degrees in summers.

y They are maintaining 6-7 days safety stock.

y Once the packaging is done the milk is stored in equbitor 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.

ORDERING PROCESS

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 material handling very efficiently with the help of latest equipment for raw

material as well as for finished goods. They use specialized milk tanks as mentioned above for the

inbound of raw milk & for finished goods they use proper palletization and then to place these

pallets they use fork lifters to put the pallets in the right place in the warehouse which is cross

docked.


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Distribution Networks

y Olpers focusing on every major cities of Pakistan.

y The distribution is outsourced.

y Olpers have 160 distributors all over 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


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Distributors in Karachi

Olpers have seven distributors in Karachi which are as follows.

y Aftab traders covers Defense & Clifton

y SAS distributors covers Johar, Malir, Landhi & Korangi

y Pacific distributors covers Ghulshan & Bhadurabad, Tariq road

y S.I traders covers covers Garden & Old Karachi

y Tawakal Distributors P.E.C.H.S & Sadar

y S.Care traders covers New Karachi & North Karachi

y M & Sons covers Nazimabad & OrangiTown


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Receiving of Material

The following documents are used when Olpers is received by the distributors. The transportation

of material is affected under the delivery challan.

Copies Colors Purpose Distribution

Original White Transportation Materials section

Advice

Duplicate Yellow Payment Carrier

Advice

Triplicate Green Advance copy Shipping

Quadruplicate Blue Work Order Transporter

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.

Demand Fluctuation of Olpers Milk

The demand of olpers milk usually increases in the festivity season or any event such as.

y Eid

y Ramazan and

y Moharram


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Following are two Seasons when demand fluctuate

y Lean (March-Sep) Demand Decreasesy Flush (Oct-Feb) Demand increases

Reverse Logistics

Shelf Life of Olpers Milk

Olpers Milk has 71 days of shelf life.

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 losses rate of 0.85% due to defected Milk.

Packaging


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

jeopardizing the safety, quality or consumer acceptance of its products.

As far as milk is concern 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 materialsand 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.


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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 avoids contamination of processed products. And also

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


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GAP ANALYSIS

SOURCESOF GAPS

EnvironmentalBounds:

Milk Ordinance1963

Infrastructure , astransportationbetween differentunits is highlycostly (in terms oftime, and cost of

movement)

Managerial Bounds: Constraint of

capacity being notmatched withrequired demand.

Less experience ofengro in terms of

FMCG.

TYPESOF GAPS

Demand-SideGaps:SOS < SODSOS > SODWhich SO(s) ?Less spatialconvenience forcustomers

Supply-SideGaps:

Logisticscost

Warehousing Cost

CLOSINGGAPS

Demand- Ava Anti

upc

Supply-Si Shor

run. Hom


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Efficiency Template


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Channel Flows


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Recommendation:

We are recommending following two 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.

2. They need to have their own Dairy Farm so that they can meet the increasing demand astheir market share is growing by 12% annually.

Documents

Milk Industry Pakistan