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MSc in Supply Chain Management
Assignment: Supply Chain Strategy
Module No: EBU 4008
Student Number : 1010203Marking Tutor : Dr Julian Coleman
1. Introduction
The purpose of the report is to;
a. Review the supply chain strategy of Total Malawi Limited and implement an
effective supply chain strategy to manage quality, value chain and distribution
strategies, and strategic alliances with stakeholders.
This review has been done using tools and techniques relevant to supply chain
strategy such as PESTELE, Porters Five Forces, Order Winning/Qualifying
Factors which have been detailed in the report.
b. Structure of the Report
a. Introduction
b. Total Malawi Overview
c. Total Malawi Business Strategy
d. PESTELE Analysis of Total Malawi
e. Evaluation of Total Malawi’s Competitive Forces Using Porters Five
Forces
f. Evaluations Of Customer Requirements Using Order Winner and Order
Qualifier
g. Review Of Total Malawi Current Supply Chain
h. Recommendation on Total Malawi Supply Chain
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i. References
2. Total Malawi Overview
2.1.Company Background
Total Malawi Limited (TML), is the second leading oil marketing company (OMC) in
Malawi with a market share of 34% as of the year 2010. Apart from selling
fuels/white products (Petrol, Diesel and Paraffin), high performance Lubricants and
Car Care Products distinct TML from its competitors
TML is a subsidiary of Total Group, an international oil company with its
headquarters in Paris, France. Total came into Malawi in 1976 and by end 2006 it
had gained a market share of 14%. In 2007 Total acquired Exxon Mobil assets in
Malawi which increased its market share to 27%. With the merger in 2007 the
business has grown tremendously having an average annual net income of 810
Million Kwacha ($6m), with an increase in market share of 7% by end of 2010. TML
is heading towards is vision to become the number one OMC in Malawi.
2.2.Supply Chain Background
2.2.1. Operations
TML has 71 permanent employees, 52 service stations, 84 Industrial customer
sites and 4 distribution depots. The core departments for the organisation are
Commercial, Finance and Operations headed by the Commercial manager,
Finance Manager and the Operations Manager respectively. The head of
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departments report to the Managing Director. The head office for TML is in
Blantyre the commercial city of Malawi.
TML gets its fuel products from Mozambique and Tanzania which are imported
in Malawi by Petroleum Importers Limited (PIL). PIL is a consortium that was
formed by TML in partnership with the other key OMC’s (BP, Chevron and
Petroda). Fuel products are transported by road and rail into Malawi by
International Haulage Brokers and Central East African Railways; these are
transport companies contracted by PIL. PIL distributes the product to the
OMC’s storage sites/depots as a percentage which is agreed by the four
OMC’s at the beginning of every year. Importation of fuel products in the
country is regulated by the Government of Malawi (GoM); PIL is the only legal
importer of fuels in Malawi.
TML distributes the fuels from its four storage depots to all its sites using third
party logistics.
TML imports Lubricants and Car Care products directly from its sister
companies in South Africa, Egypt and United Arab Emirates (UAE). These are
transported by sea or road depending on the supplier’s geographical position.
Collection from TML storage depots is done by the customer.
2.2.2. Customers
Malawi’s economy is heavily dependent on agriculture (Tobacco, sugar and
tea). TML biggest customer is Illovo Sugar, the sole manufacture of sugar in
Malawi, this business accounts for 15% of TML annual volume. TML’s peak
business period is between March and February with tobacco transporters as
big customers. This is the period when the tobacco auction floors are open.
70% of the fuels sales comes from the service stations and 30% from the
industrial customers (Illovo, Lafarge, Mota Engil, Raiply, ESCOM, General
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Farming, etc.). Automotive lubricants and Car Care products are sold in service
stations while the Industrial Lubricants are sold directly to specified industries.
2.2.3. Competitors
Malawi has got six OMC’s; TML being the second in market share and the
biggest in terms of infrastructure. The five competitors are BP, Chevron,
Petroda, Injena and Energem.
3. Total Malawi Business Strategy
3.1.TML Mission
To offer our customers within a vast, varied and risky perimeter, the high
quality oil services and products that are tailored to their needs.
To put ethics, respect for the environment and safety at the core of our
concerns.
To create value by ensuring high profitability tailored to the context of our
facilities.
To make our actions long term by promoting local development
3.2.TML Strategy
Build one new station in Blantyre.
Depots and stations invariants programme implementation (meet minimum
safety and environmental standards in all facilities)
Construct LPG Plant in Lilongwe.
SAP\TL Implementation. Go live date: 1 May 2010
Kanengo Depot upgrade- ( Storage capacity & Fire fighting)
Pass International small storage Safety Rating System (IssSRS) with level
2.
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Implement simple , efficient and reactive organization which enable
everyone to excel
Enhance staff member professionalism by rigor in hiring, quality
training, acknowledgement of performance and promoting the best while
avoiding poor performance, frustration and Low Productivity through
involuntary exists.
Promote and support unity in diversity of profiles and draw from its
strength.
Promote equal career opportunities and fast track top performers
4. PESTELE Analysis of Total Malawi
PESTLE analysis stands for "Political, Economic, Social, Technological, Legal and
Environmental analysis" and describes a framework of macro-environmental factors
used in the environmental scanning component of strategic management. It is a part of
the external analysis when conducting a strategic analysis or doing market research,
and gives an overview of the different macro environmental factors that the company
has to take into consideration. It is a useful strategic tool for understanding market
growth or decline, business position, potential and direction for operations. This tool
assists organisations to enhance the opportunities as well as minimise the threats.
4.1.Political Factors
Political factors are how and to what degree a government intervenes in the
economy. Specifically, political factors include areas such as tax policy, labour law,
environmental law, trade restrictions, tariffs, and political stability. Furthermore
governments have great influence on the health, education, and infrastructure of a
nation.
Political Factors Affecting TML
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Opportunities Threats
The Malawi Energy Regulatory Authority (MERA) was just formed two years ago and it’s still developing its policies
The sales margins for fuels are controlled by the government
Funding for investments not concerned with the government
100 percent owned by Total
4.2.Economic Factors
Economic factors include economic growth, interest rates, exchange rates and the inflation
rate. These factors have major impacts on how businesses operate and make decisions. For
example, interest rates affect a firm's cost of capital and therefore to what extent a business
grows and expands. Exchange rates affect the costs of exporting goods and the supply and
price of imported goods in an economy
Economic Factors Affecting TML
Opportunities Threats
High bank lending interest rates in Malawi
Shortage of foreign currency in Malawi resulting on fuel shortage because PIL can not import product.
Economic growth in Malawi (increased Infrastructure development , growth in automotive industry)
Unstable exchange rates in Malawi
Seasonal market (High sales during the tobacco season)
New OMC entering the market through business takeover
BP and Chevron pulling out of Malawi
4.3.Social Cultural Factors
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Social factors include the cultural aspects and include health consciousness,
population growth rate, age distribution, career attitudes and emphasis on
safety. Trends in social factors affect the demand for a company's products and
how that company operates. For example, an ageing population may imply a
smaller and less-willing workforce (thus increasing the cost of labor). Furthermore,
companies may change various management strategies to adapt to these social
trends (such as recruiting older workers).
Social Factors Affecting TML
Opportunities Threats
Customer attitude and opinion on product brand
BP is good at advertising and has good publicity
Life style trends (high improved living standards in Malawi)
4.4.Technological Factors
Technological factors include ecological and environmental aspects, such as R&D activity,
automation, technology incentives and the rate of technological change. They can
determine barriers to entry, minimum efficient production level and influence outsourcing
decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation
Technological Factors Affecting TML
Opportunities Threats
TML has very good Competing technology development (fuel card system)
TML need to replace some of its technological equipment i.e. fuel pumps
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Maturity of technology (TML has a very mature IT system all sites are on network)
Loss of business due to network failure
ICT changes, TML is not resistant to change, in may 2010 it changed from SUN system to SAP
4.5.Legal Factors
Legal factors include discrimination law, consumer law, antitrust law, employment law, and
health, safety and environmental law. These factors can affect how a company operates, its
costs, and the demand for its products.
Legal Factors Affecting TML
Opportunities Threats
Regulatory bodies and processes are just new in Malawi
Environmental regulations (TML has very high safety standards as compared to the industry norms)
Industry specific regulations, industrial regulations are lower than the set standards for TML, TML is being involved in structuring the industrial standards
4.6.Environmental Factors
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Environmental factors include weather, climate, and climate change, which may
especially affect industries such as tourism, farming, and insurance. Furthermore,
growing awareness to climate change is affecting how companies operate and the
products they offer. Climate change is both creating new markets and diminishing
or destroying existing ones. This also looks at the work environment in terms of
staff attitude, management style, staff engagement, organizational culture and staff
morale.
Environmental Factors Affecting TML
Opportunities Threats
Environmental issues / policies (International ,National and local) TML follows international environmental standards
Very old infrastructure (Buildings), some do not have shops.
Ecological (Climate change), TML is taking part in fighting climate change through several sustainable development climate change projects i.e. solar projects
Organisation culture, Staff attitude and Engagement.
Staff morale, is low in some staff members due to unaligned salary and job grades
5. Evaluation of Total Malawi’s Competitive Forces Using Porters Five Forces
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Porter’s Five Forces of Competition provides a convenient framework for exploring
the economic factors that affect the profitability of an organization as determined by
five sources of competitive pressure. These five forces of competition include three
sources of “horizontal” competition: competition from substitutes, competition from
entrants, and competition from established rivals; and two sources of “vertical”
competition: the bargaining power of suppliers and buyers. See the figure below
5.1.Barrier to Entry
Although fuel is not unique, it is not easy for new entrants since TML has the
following advantages;
It has an international brand, and customers are loyal to the brand.
Access to inputs (fuels) by new entrants is not easy. Fuel in Malawi is
imported by PIL; new entrants have to pick product from any of the four
OMC at a service charge.
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The cost of getting established in the oil marketing industry in Malawi is very
high. Constructing an average fuel storage facility costs $10 million and a
standard service station cost $1.7 million.
5.2.Rivalry Among the Existing Players
Rivalry among players in the oil marketing industry is very high although it is an
oligopoly market. There are six OMC with a common strategy of rapid growth.
One of TML competitors has got very good infrastructure and it is an
international brand as well, this competitor puts a lot of pressure on TML. Both
TML and this competitor has got 34% market share in retail business while the
competitor has got 58% market share in industrial business, this 58% is as a
result of steep discounts and generous credit. This is not possible in the retail
business because pump price is regulated by GoM. TML manages the
competition by providing very good pre and post sales services.
5.3.Threat to Substitutes
All OMC in Malawi sell the same fuel, threat to substitutes comes in when it
comes to lubricants. TML has got an upper had because it has a wide range of
products that fits different segments of the market.
5.4.Supplier Power
Although PIL is the sole supplier of fuels for all OMC, it has no power over
pricing since it is a consortium formed by the four merger OMC and the board
consist of managers from the OMCs.
5.5.Buyer Power
The buying power in retail market is very weak than the industrial market
because the pump price is regulated by GoM. TML has also reduced the
buying power of some of its industrial customers by signing long term contracts
and making partnerships with them in some sustainable development projects.
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In fuels market, customers can not easily switch competitors because we sell
the same product at the same price, switching can just be costly on their part.
6. Evaluations Of Customer Requirements Using Order Winner/Qualifier
6.1.Order Winner/Qualifying Factors
Order Winning Criteria or Market Criteria are the factors that customers use to
decide among competing sellers.
Terry hill defines an order qualifier as a characteristic of a product or service
that is required. (Slack et al, 2007)
Raising performance in an order winning and qualifying factor will either result
in more business or improve the chances of gaining more business.
These factors have been evaluated using hill methodology, see the table below.
1 2 3 4 5 6 7 8 9
Price Х
Quality Х
Delivery Speed Х
Delivery Dependability Х
Availability Х
Product/Service Range Х
Product/Service Design Х
Brand Image Х
After Sales Service Х
From the analysis above, it shows that the priority for TML should be
availability of product followed by good services range, good after sales
services and maintaining its brand image.
7. Evaluation Of Performance Of Competitor Supply Chain
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The performance of the competitor for TML will be evaluated using Hill methodology.
See table below. In this case, I have chosen BP Malawi which is the greatest
competitor for TML.
1 2 3 4 5 6 7 8 9
Price Х
Quality Х
Delivery Speed Х
Delivery Dependability Х
Availability Х
Product/Service Range Х
Product/Service Design Х
Brand Image Х
After Sales Service Х
From the analysis above, it shows that BP Malawi’s supply chain performance
is better that TML because of its good brand image.
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8. Review Of Total Malawi Current Supply Chain
8.1.Locations
TML operates in Malawi with its head office in Blantyre, three customer service
centres (Blantyre, Lilongwe and Mzuzu), Four distribution depots one in each
region of the country. TML has the best geographical presentation than any other
OMC in Malawi, with 52 service stations and 84 industrial customers and present in
21 out of 27 districts of Malawi. See the figures below;
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Page 15 of 26
8.2.Capacity of Operation
TML has a storage capacity of 6 million litres which is fully utilised. Mostly is hand
to mouth type of operation in the depots. See the graph below.
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-
2,000
4,000
6,000
8,000
10,000
DEPOT
STORAGE Vs THRUPUT
CAPACITY(m³) 2,230 1,390 1,810 610 6,040
THRUPUT(m³) 3,750 297 3,056 1,470 8,523
UTILISATION 168% 21% 169% 240% 142%
LMB MAKATA KNG MZ TOTAL
VOLU
ME
(M3)
8.3.Transportation
TML takes ownership of Transportation once the products have been delivered in
its storage depots. TML uses third party transporters which are on a 5 years
contract to deliver its products from the depots to its respective customers. TML
has a total of 10 trucks with on board computers to monitor the driver behaviour.
The age of these trucks range from 3 to 15 years and all the truck drivers undergo
a defensive truck driving training. Average transport for 2010 was 1.2cents/litre.
8.4.Key skills, Knowledge and Experience of Supply Chain Personnel
Supply chain team consist of two sections; logistics which is under operations and
customer service which is under commercial. Logistics handles the product from
receipt to delivery. This involves product receipt from PIL trucks, Inventory control
in our depots, 3PL trucks management and delivery to the customer. Customer
service gets and processes orders from customers and prepares delivery plans.
The logistics section is headed by a 12 years experienced logistics manager (Bsc
Mechanical) who has five qualified mechanical engineers (4 plus years experience)
under him working as depot managers and one as a logistics engineer. Customer
service section is headed by a 15 years experience customer service manager with
five (four with O level certificates and one Bcom Business Administartion) customer
service representatives under him.
8.5.Supply Chain Information Systems
TML has got a very good supply chain information system. TML uses SAP as its
accounting package. Product receipt, stock management (reconciliations on daily
basis), customer orders, delivery plans, customer accounts are all managed from
the system.
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8.6.Supply Chain Performance Measures
The key supply chain performance measures are; Safety in Operations, Product
(throughput) availability, Inventory control, Transport management, Equipment
availability, Timely Delivery Plans.
8.6.1. Safety in Operations
Zero Fatalities
Zero Accidents & Incidents,
Zero Lost Time Injuries(LTI),
Zero Product Spills,
Zero Product Crossovers
8.6.2. Product Throughput (Availability)
Depot target per year
Limbe and Makata 50 million litres
Kanengo (Lilongwe) 46 million litres
Mzuzu 24 million litres
8.6.3. Inventory Control
Product losses to be within Oil Loss Tolerances (Petrol 0.15%, Diesel
0.08% and Paraffin 0.10%)
Daily SAP Vs Physical Stock Variations Reconciliations explanations
and clearing
8.6.4. Transport Management
Zero Fatalities
Zero Accidents
Zero Crossovers
Zero Spills
Zero product theft
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Well maintained trucks – image enhancement
Driver training
Truck and transporter quarterly assessments
Average transport cost of 1.3 cents per litre
24 hour truck availability
8.6.5. Equipment Availability
24 hours equipment availability
Attend to equipment break down within 24hours from time reported
Preventive maintenance for all equipment
8.6.6. Timely Delivery Plans
Delivery plans ready 24 hours before delivery time
Route utilisation
9. Recommendation on Total Malawi Supply Chain
Using the analysis that has been done; PESTELE, Porters Five Forces, Order
Winning/Qualifier and Competitors Positioning, TML needs to align its supply chain
strategy as follows;
9.1.Locations
Order winning/qualifier analysis has shown that brand image is very key for getting
and qualifying for an order while PESTELE has shown that BP is a threat due to its
enhanced brand image. As much as TML has the best geographical presentation,
it has a task to improve its brand image in its service stations in order to compete
effectively on the market. This will also assist TML in threatening new entrants as
per evaluation of porters’ five forces.
PESTELE analysis has shown that one of the opportunities for TML is Economic
growth in Malawi (increased Infrastructure development, growth in automotive
industry). The GoM is constructing an inland port in Nsanje, TML through PIL
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should propose to the GoM to construct a pipeline from this port to its depots. This
can increase its margins since transportation cost will be minimised.
9.2.Capacity of Operation
Order winning/qualifier analysis has shown that product availability is very key for
getting and qualifying for an order; looking at the statistics for Mzuzu depot, it
shows that the depot is over utilised (240%) meaning it is hardly meeting its
customer demand. PESTELE analysis has shown that one of the opportunities for
TML is Economic growth in Malawi (increased Infrastructure development, growth
in automotive industry) and if we leave Mzuzu depot capacity as it is, soon it will
not manage to supply the demand. This calls for increase in Mzuzu depot storage
capacity.
9.3.Transportation
Order winning/qualifier analysis has shown that speed to delivery has to be within
industry standards to get and qualify for an order and PESTELE has shown that old
equipment is one of the threats for TML. TML having a fleet aging up to 15 years
results in frequent break downs which results in delayed deliveries. TML should
revise its transport contracts to have trucks not more than 8 years old.
9.4.Key skills, Knowledge and Experience of Supply Chain Personnel
PESTELE analysis and Porter’s Five Forces have indicated that brand image and
advertising are very useful for competition and threatening new entrants. TML
needs to have a Customer Service Executive in its customer service section whose
main purpose will be to give TML customers the global picture of the organisation.
The executive will also be conducting market research to assist in strategy
formulation of TML.
There is also a need to employ Depot Supervisors who will be assisting depot
managers in their day to day work.
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9.5.Supply Chain Information Systems
PESTELE analysis has revealed that network failure is one of the threats of TML
since it results in loss of business for a period. TML should have a standby internet
service provider to be TML cushion when the network for the main provider is
down. Another way is for TML to revive its VSat system that is just idol for standby
purposes.
9.6.Supply Chain Performance Measures
TML has to include green supply chain as one of its key performance indicators
when developing its supply chain strategy. “From virtually nowhere a year ago,
organisations are now bombarded about their “green” performance. Investors want
to know that your organisation and supply chain is green. Shareholders,
employees, and customers are eager to be associated with or purchase from a
green company.” Stokes, S., and Tohamy, N. (2009). This will help TML have a
good brand image and get customers who are climate change sensitive.
PESTELE has shown that old equipment is one of the threats for TML, the old
meters that TML has in its depots, frequently break down (release a lot of product
than what is registered on the meter), this brings a lot of losses to the company.
TML need to put a program in place for meter replacement in depots and pump
replacement in service stations.
Analysing the value chain (series of processes, each of which adds value to the
product or service for each customer) for TML, see figure below; versus PESTELE
and Porters Five Forces.
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TML need to do business process re-engineering in the following processes as
follows;
1. As it has been indicated by PESTELE, that TML has very old buildings. TML
needs to upgrade its infrastructure; build shops and car service bays. This
will enhance brand image and improve turn-in-ratio. This will assist TML to
have Non fuel revenue which will not be depended on fuel availability which
is also a threat to TML. This will also improve its brand image beyond its
competitors.
2. TML need to come up with a proper salary and job grades to motivate the
employees that have lost their morale due to this misalignment.
3. TML needs to propose to PIL that their product supply contract with PIL be
flexible enough to revise its nominations (amount of product to pick) during
product shortage periods i.e. to have a clause saying that the product
nomination for TML will increase by 10% during crisis periods.
4. When reconciling physical stock versus SAP stock, physical stocks are
measured manually; this results in a lot of variations due to dipping errors
and tank configuration. It would be very good for TML to introduce automatic
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tank gauging which will indicate the exact amount of product in the tank.
This system can also be directly linked with SAP to avoid manipulation of
figures by human and quick update of physical stock in the system.
5. TML has very good services in its service station, but the service varies from
station to station. There is need to standardise these services so as to make
the customer home and loyal to the brand
6. TML needs to improve on its advertising and publicity image which is one of
its threats. TML has got a very good fuel card system but it is a few
individuals that know this technology. The same with its lubricants, a small
segment know the goodness of TML lubricants. It could have been much
better if TML could have these in billboards; most people are visual
sensitive.
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10.References
Barratt, M., Rabinovich, E., Sodero, A. (2010), “Inventory Accurancy: Essential, but
Often Overlooked”, Supply Chain Management Review, Vol.14 No.2, pp. 36.
Blackwell(2010), “Industrial Analysis: The Foundamentals”, Sample Chapters,
Wiley Blackwell Publications. Retrieved from web on 5th December 2010:
http://www.blackwellpublishing.com/grant/pdfs/CSA5eC03.pdf
Cohen, S., Roussel, J., (2005), “Strategic Supply Chain Management: The 5
Disciplines for Top Performance”, McGraw Hill, NY.
Faulkner, M. (2010), “Business Review: Total Malawi Limited”, Presentation to
Total Group CEO, Paris, France.
Fawcett, S., Andraski, J., Fawcett, A., Magnan, G. (2009), ”The Art of Supply Chain
Managemnet”, Supply Chain Management Review, Vol.13 No.8, pp. 8.
Frazelle, E., (2002), “Supply Chain Strategy : The Logistics of Supply Chain
Management”, McGraw-Hill, NY.
Harvard(2000), “Harvard Business Review On Managing the Value Chain”,
Harvard Business School Press, Boston, MA.
Porter, M. (1985), “Competitive Advantage: Creating and Sustaining Superior
Performance”, Free Press, NY.
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Purdue(2010), “Industrial Analysis: The Five Forces”, Educational Materials,
Purdue University. Retrieved from web on 5th December 2010:
http://www.extension.purdue.edu/extmedia/EC/EC-722.pdf
Slack, N., Chambers, S., and Johnston, R. (2001), “Operations Strategy”, Financial
Times, Prentice Hall, NY.
Stokes, S., Tohany, N. (2009), “7 Treats of a Green Supply Chain”, Supply Chain
Management Review, Vol.13 No.7, pp. 8.
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