In todays fast paced globalized era firms are facing rapid changings in business processes and customer needs. Firms which are having higher level of supply chain practices enjoy higher level of competitive edge with respect to other firms in the industry. With the development and transformation of business processes, supply chain management is becoming relatively more significance for each party of overall business community including, suppliers, suppliers’ suppliers, manufacturers, retailers and even consumer and competitive pressures eventually forced companies to think in terms of supply chains for the production and delivery of goods.
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This study aims to provide a comprehensive study on the concept of Supply Chain management best practices in the tobacco industry, and analysis of how these practices influence the competitive positioning of a Case study company within the industry. The analysis includes a comprehensive review of the current state and future directions of the tobacco industry by distinguishing the key success factors shaping its evolution and by classifying the major strategic forces that would have major impact on its future. Within the general tobacco industry context, this study analyzes British American Tobacco Company’s position in the industry as a leading cigarette manufacturer and presents a focused study of its supply chain management practices.
In particular, the study covers a deeper exploration of the manufacturing business units of British American Tobacco Company and analyse their comprehensive supply chain management practices, through exploring the role of major factors that have been consider critical for effective supply chain management within the company.
At the end, the supply chain design and management practices are studied from the perspective of their importance in the shaping company’s business strategy. It is accomplished by using a number of business strategy frameworks and benchmarking tool to understand the key factors that determine the competitiveness of a case study company, and by examining how these factors proved to critical for British American Tobacco Company’s to shape its supply chain management strategies and practices.
ACKNOWLEDGEMENTS
Through the entire process of completing my dissertation, I had incredible support and help from many people, and to whom I would like to express my deep gratitude
First, I would like to express my sincere gratitude to my supervisor, Dr. George Ho for his excellent supervision and valuable advice throughout this research.
I would also like to thank Mr. Manzar Ijaz Rana , (Company Quality Manager, Pakistan Tobacco Company), Mr. Rehan Baig , (Regional Marketing and distribution Head Asia pacific Region British American Tobacco Company) , Mr. Chen Lee (Supply Chain analyst, Asia pacific Region, British American Tobacco Company),Eric Jones (Global solution and Enterprise Manager , British American Tobacco Company) and my all colleagues who helped me providing their valuable knowledge and time for this research.
Lastly and equally importantly I am deeply obliged, grateful, and indebted to my Parents for their constant support, guidance, belief, and vision.
Thank You All
Table of Contents
List Of Figures
List of Tables
CHAPTER I
In this chapter, a brief background related to the subject of this study which is competitive advantage through supply chain management in tobacco industry is discussed. The problem definitions are given followed by the purpose of the study. The chapter provides a focus and limitation in order to define the scope and to outline the study. INTRODUCTION
Background
Supply chain management (SCM) is known as a contemporary concept that leads in achieving benefits of both operational and strategic nature (Al-Mudimigh et al., 2004).
The world is in the era of supply chain competition, where organization can no longer perform in isolation as an independent entity, but as a supply chain to generate value delivery systems which are more receptive to fast-changing markets, and are more consistent and reliable (Christopher, 2005:29: Pandey and Gaug, 2009:99). In today’s challenging competition in the FMCG manufacturing industry, the manufacturers strive for their products to reach final customers before they turn their heads to the rival’s ones especially in the case of tobacco products which are sold under strict legal legislations. Organisations should concentrate not only with controlling their operations at lower cost but also with core competencies within the company to distinguish itself from other competitors in order to be successful in this competitive business environment. Supply chain management allows the organisation to reorganize their entire operations, so that they can focus more on core competencies within the company. This approach of adopting supply chain management will influence not only their market share but also a planned outcome on selecting resources, suppliers and technologies (Coyle et al, 1996). This study provides a comprehensive research on the tobacco industry which involves companies that sell and produce tobacco products all around the world. Tobacco products include cigarette, cigar, pipe, and chewing tobacco. With a society becoming more prosperous and educated which leads to a concern for quality of life, hence resulting in a strong anti-smoking sentiment on all levels of society. The forces in micro and macro plays vital role for the present and future marketing activities of the tobacco industry as they are heavily impacted by these forces. This challenge is also influenced by for example globalization, deregulation, new business policies and junction of the industries in under developed countries. The major goal of the tobacco industry is to adopt influential ways so that consumers can have easy access to their particular products as Tobacco advertising is becoming increasingly restricted around the world and the industry is surviving under strict legal policies.
Figure 0.1: Tobacco IndustryWith respect to leading players in the tobacco industry Philip Morris is the world’s largest transnational tobacco company, whose Marlboro brand is the world leader. In 1999 the company had sales of over US$47 billion. However, excluding the US d market, British American Tobacco sells the most cigarettes worldwide and has the largest network in the most countries and hence it is the 2nd largest Tobacco Company. Since the tobacco industry is a mixture of some of the most powerful multinational commercial companies in the world. Tobacco companies, which frequently combine, own other huge industries and run a complex variety of joint ventures.
Figure : Tobacco Industry (Source : http://ww.who.int/tobacco/en/atlas18.pdf)
This study comprehensively highlight the supply chain management practices in tobacco Industry .The research focus on the systematization of relevant data and information from the literature review, knowledge and data provided by the experts from the tobacco industry.
Problem Discussion
Over The past decades, there has been emphasis on the importance of supply chain management as a vehicle to gain competitive advantage in markets. Competitive advantages are the collection of superior competencies that create customer value (Morash, 2001). All members of the chain need to synchronize their strategies toward the end customers’ direction in order for a firm to have competitive advantage and wins the order at bottom line . This leads to a supply chain strategy and competitive advantage concept which must be fit together and also there should be existence of consistency between customer priorities and supply chain capabilities (Chopra & Meindl, 2007). Companies should be more focused in understanding and wisely exercising their customer needs to match their service requirements In order to achieve the strategic fit. (Chopra and Meindl,2007) and that in order to be outperforming competitors the firms should be able to design supply chain in such a manner that the allocating tasks from other chains .The need arose for proper tracking of demand and supply , sales and distribution schemas as well as forecasting of materials, supplies with the expansion of sales from areas to cities and cities to countries.
As companies are now getting familiar regarding how they can integrate the decisions across supply chain functions, across time, and across geographical dispersed facilities, therefore the fact based supply chain management is a very crucial step for companies to have competitive advantage. And when it comes to tobacco industry the facts and figures are not much in favorable to many of the companies but they still striving in the market to gain share to some extent. These companies should learn from the best practices adopted by the market leaders to continue in a dominant role the industry.In this study the theoretically framework is used to evaluate the supply chain management concept on part of the case study company.
Research Question:
The basic research question being addressed in this study can be defined as follows:
“What are the emerging best practices in Tobacco Industry supply chain management and what business strategies, operating models, goals, and processes are required to implement and focus in the future to make the supply chain management practices of the particular case-study company “best-in class”?
While the study strives to identify such emerging best practices, it does not take the position that they are necessarily widely predominant within the industry. Further, the study does not necessarily endorse or intend to portray the supply chain management practices of a specific case-study company (e,g. British American Tobacco Company) as necessarily being “exemplary” or “best-in-class” but rather as an illustrative example of presently observed practices.
Research Objective:
There has been an increasing emphasis on supply chain management as a vehicle through which firms can achieve competitive advantage in markets. (Collin, 2003, P.8) therefore in order to improve customer satisfaction and increase their internal productivity Companies have made large investments to streamline their supply chains. In this study, the research question will be systematically analyzed by studying leading companies within the industry, to ascertain what specific innovative approach in supply chain practices being followed by these companies that makes them a market leader. Another Innovative feature is the study of conceptual framework of Supply Chain practices used by the Case Study Company which provide a Systematic steps for analysis. Moreover, the most significant innovative feature in this study is the implementation of supply chain operations reference model and the main enablers of synchronized supply chain in the case study company. Today companies have competitive advantage through supply chain management practices therefore Information on supply chain management practices is often kept confidential. This is considered as one of the biggest challenge to find meaningful and concrete information on supply chain management practices.
The study also face the challenge of not considering technical factors which have impact the supply chain management e.g. the use of Information Technology infrastructure. Besides only focusing on supply chain management practices, there are other strategies which include R& D and marketing strategies which contributes towards competitive advantage are considered to their limited scope only.
This study focus on supply chain management practices in Tobacco Manufacturing industry but its can be applied to different industries, and one can assess their benefits and application from one successful industry to another. Together with conceptual knowledge and understanding of patterns in Case study Company’s supply chain management, a projection can be made that what best practices can be followed to become a leader, or maintain existing leadership position.
Table : Research Objectives and deliverables
Research Objectives & Deliverables
Objective 1:
Comprehensive study on the theoretical concept of supply chain management in tobacco industry.
Deliverable 1a:
Identify the operational structure of supply chain best practices in tobacco industry across the globe.
Deliverable 1b:
Identify the impact of supply chain management to have a competitive edge in the industry.
Objective 2:
Comprehensive literature review on the theoretical concept of supply chain management, competitive advantage, and benchmarking.
Deliverable 2a:
Identify the impact of SCM on the business performance in the tobacco industry.
Deliverable 2b:
Identify the development trends in the supply chain to have competitive advantage.
Objective 3
Conduct data collection and analysis of Analysis of SCM best practices of case study company.
Deliverable 3a:
Identify SCM best practices adopted by Case study company to have competitive edge in the industry.
Research Roadmap
Research framework is based on theoretical framework and includes two aspects
1) Looking at the industry and the cigarette manufacturing. The focus would be on the comprehensive study of industry-wide trends, patterns and emerging practices in supply chain management within the tobacco industry, specifically the secondary manufacturing. The purpose would be to identify emerging examples of supply chain excellence within the manufacturing, units and therefore study the factors shaping these developments. The factors affecting the industry are:
· Market demand shifts, customer preferences.
· Legislative policies.
· New technological developments.
· Affect of geo-politics on what products are needed/ demanded.
2) A case study of leading player in the industry, to focus on the supply chain management practices in its manufacturing units. The purpose would be to study what factors were changed in the transformation and the resulting impact on parameters such as:
-Product costs.
-Product quality.
– Inventory management.
– Positioning in the industry and affect on profitability.
This study aims to highlight all factors that matter most to maintain a distinctive position in the industry, and hence the ‘excellence’ of these parameters can be studied.
Methodology:
The research on the question is accomplished through the following steps:
Literature review and conceptual understanding: Review of the relevant literature and theoretical findings on supply chain management and supply chain management implementation as well as the most common barriers and bridges that companies are facing when implementing supply chain initiatives.
Study of company documents: Study of existing internal and publically available company’s documents relevant to their supply chain systems and management processes but focus will be on asia pacific region.
Company visits and Interviews: Regional office visits to the Case Study Company and interviews with company personnel, in order to gain an organizational and a conceptual view of its existing supplier network and supply chain management practices and processes from the company’s perspective.
Presentation of study results using the company as a case study: Finally, an analysis of the information developed would be integrated for an overall characterization and evaluation of British American Tobacco supplier network, supply chain management practices and processes.
Conclusion and Recommendations.
Structure of the Research Study:
Following the introduction of the problem, purpose and goals and methodology, the chapters are structured in the following order:
The second chapter summarises the most common definitions in the field of supply chain, management in general and further on supply chain management .Then, a strong reason is presented that why more and more companies are focussing on supply chain management are explained. Main drivers and models used for supply chain best practices are explained in detail. Furthermore, the Model developed by cohen for the grouping of companies on the basis on supply chain management is discussed in detail. Wrapping up the chapter links the level of supply chain maturity to the overall results of the companies. The third Chapter describe the methodology used to address research question The fourth chapter describes tobacco industry global outlook and its analysis followed by case study company operations and its supply chain management. This concludes the most common benefits of the supply chain management and the most common barriers and bridges of its implementation in Case Study Company. The fifth chapter describe best practices adopted by the case study company and their analysis by using the framework of references and the method cited in the third chapter. Finally the sixth chapter present conclusion of the research study and suggestion for future work.
Chapter 2
This chapter provides frame of references related to the subject of the study. The
Theories derived from literature reviews frame the analysis of a realistic stud presented in the choice of theories. Each theoretical framework is concerned with each dimension presented in the study.Frame of Reference
Choice of Theories
This study is focused on supply chain management practices in tobacco industry, specifically how companies can have competitive advantage by adopting best supply chain Practices. Firstly, the focus is on gaining competitive advantage and having strategic fit within supply chain by demonstrating the linkage between market and firm strategic management within supply chain and consequently how it will lead to competitiveness. Second, the importance is given to logistics and distribution and how these elements link marketing in tobacco industry. Thirdly, theories referring to process improvement and distribution are presented and lastly, theoretical frameworks are explained through the help of different models that connects chain members.
Definition of Supply Chain:
Supply chain management can be defined as the management of continuous and seamless processes across organizational boundaries to address the real needs of the end customer” (Fawcett et al., 2007:p8). As noted by Gansler, Luby and Kornberg (2004: 8), SCM is the management and control of all materials, funds and connected information in the logistics process from the acquisition of raw materials to the delivery of finished products to the end user.
Hugo et.al (2004:5) defines “SCM as the management philosophy aimed at integrating a network of upstream linkages (sources of supply), internal connections inside the organization and downstream links (distribution and ultimate customer) in performing specific processes and activities that will eventually create and optimize value for the customer in the form of products and services which are explicitly aimed at sustaining customer demands”.Although the definitions of SCM differ across authors, it exists in all organizational types and can be categorized into three categories:”implementation of a management philosophy, defining management philosophy and as a set of management processes “(Klemencic, 2006:13; Lambert, 2006:13). Generally, SCM involves relationships and dealing the inflow and outflow of goods, services and information (network) between and within consumers, manufacturers and the producers (Samaranayake, 2005:48).Successful SCM requires a change from managing individual functions to adding activities into SCM processes. These processes are identified by members of The Global Supply Chain Forum are (Lambert, 2006:13):” customer relation management; customer service management; demand management; order fulfilment; manufacturing flow management; supplier relationship management; product development and customicialisation; and returns management.”
A supply chain includes entirely activities, functions and facilities (directly or indirectly) in the flow and transformation of goods and services from the material phase to the end user (Sherer, 2005:79). It is theorized as a network of companies with the intention of integrating supply from suppliers to end-users, and demand through coordinated company efforts. A supply chain associates organizations in the upstream as well as the downstream flows of materials and information (Monczka Trent and Handfield, 2005:9). It includes physical element and an information element. Therefore it is viewed as the formation of a value chain network containing individual functional entities committed to the controlled sharing of business data and processes. It comprises of an upstream supplier network and downstream channel (Klemencic, 2006:7).Today; several organisations have convert part of at least one supply chain. They have to perform similarly well in order to achieve better performance. The objective of SCM is to take full advantage of value in the supply chain and this value is generated by creating differences between the final product values to the customer and the cost of the supply chain in-cure to fulfill the customers’ request (Chopra and Meindl, 2010:22). SCM is about competing on value, working together with customers and suppliers to create a position of strength in the marketplace based on value derived from end consumer (Chopra and Meindl, 2007:23). Within an organisation, customer value is formed through collaboration and cooperation to improve efficiency (lower cost) or market effectiveness (added benefits) in ways that are most valuable to key customers. Value is not characterize in products or services, but rather is perceived or experienced by the customer (Handfield, Monczka, Giunipero and Petterson, 2009:11). The ultimate goal of a SCM process is to build customer and shareholder value, thus often called a value delivery system. SCM includes planning, manufacturing and operations management necessary to bring a product to the market place, from the sourcing of materials to the delivery of the completed product. Some of the issues to consider when developing or dealing with supply chain which includes integration, information technology, collaboration, customer and supplier relationships, partnerships, outsourcing and global issues as well as social and environmental issues (Borade and Nansod, 2007:112).
COMPETITIVE ADVANTAGE
Competitive advantage exists when a firm has a product or service that is perceived by its target market customers as superior than that of its competitors. It is a benefit for a organisation over its competitors, gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. SCM is about competing on value, cooperating with customers and suppliers to create a position of strength in the marketplace based on value derived from end consumer. The overall objectives of SCM is to create value for customers, competitive advantage and enhanced profitability for supply chain firms, the mechanisms whereby competitive advantage, the dimensions of value that may be important to customers and better profitability that can be achieved. Customer value is formed within in an organisation through collaboration and cooperation to improve efficiency (lower cost) or market effectiveness (added benefits) in ways that are most valuable to key customers. Value is not essential in services or products, but rather it is experienced or perceived by the customer. Therefore, a firm needs to understand, and deliver the value perceived as important by its customers in order to compete through creating customer value. By satisfying customers and achieving competitive advantage, firms in a supply chain effect customers to make choices and behave in ways that improve the financial performance of the supply chain and the firms within it.
An organization’s competitive advantage is built upon a well-organized and executed supply chain management strategy that is sustainable. Mainly because of it relevance to the philosophy of management since Supply chain management is hardly to achieved by any company or group of companies in its full meaning , nor can the elements of success that can be enjoyed by one supply network be transferred to another with the expectation of equal levels of performance. Therefore, according to Ross competitive advantage belong to those supply chains that can stimulate synchronized business processes and core competences that combine infrastructures, share risks and costs, leverage the shortness of today’s product lifecycle, reduction time to market, and gain and anticipate new vistas for competitive leadership (Ross 1998.) In the competitive context, successful companies either have a productivity benefit (or cost advantage) or value benefit, or ideally, a blend of these two (Christopher 1998, McKinnon 2001). A supply chain is a part of an organisation’s competitive advantage. Competitive advantage can be accomplished by aligning the supply chain strategy to the competitive strategy.
Figure : Competitive framework in the Supply Chain
Competitive Advantage and Strategic Fit within Supply Chain
Competitive advantages are the collection of superior competencies that generate customer value (Morash, 2001). Firms deliver products and/or services which exceed the customer expectation, have more options to sell. According to Holcomb (1994), supply chain management now has importance on shaping competitiveness and profitability (cited in Tracy, Lim & Vonderembse, 2005). While some strategies create competitive advantages may be easy to imitate to have the competitive advantages that is transmitted from the chain efforts are harder to copy by the competitiors. Effective supply chain, thus, offer the opportunities to produce sustainable competitive advantages (Cooper et al., 1997; Higginson & Alam, 1997 – cited in Tracy et al., 2005).At the bottom line to win orders a firms play along together in the supply chain to attain competitive advantage, and all members of the chain need to coordinate their strategies toward the end customers’ direction. This means supply chain strategy and competitive advantage must fit together and the reliability between customer priorities and supply chain capabilities must exist (Chopra & Meindl, 2007). In order to achieve the strategic fit, firms should be able to comprehend and wisely exercise their customer needs to match their service requirements. Chopra and Meindl (2007) highlighted that firms are able to design supply chain in assigning tasks as to beating competitors from other chains by matching the competitive advantages the supply chain have with what of the desires of the customers.
The Council of Supply Chain Management Professionals (CSCMP) defines Supply Chain
Management (SCM) as “the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities.” It also includes coordination and association with channel partners which help to integrate supply and demand management within and across companies. (See http://cscmp.org) The activities from each point to point of the chain may be calculated as the flow of value-added activities. Morash (2001) pinpoints that not only the agreeing value consistency between supply chain strategies and capabilities should be prevailed, but also the harmonized performance that stand-in member firms’ success.
Figure : Model of Supply Chain Strategy, Capabilities and Performances.
Source: Morash (2001).
Supply chain strategy is divided roughly into two categories which are ‘Operational Excellence’ and ‘Customer Closeness’. The former focuses on supply side efficiency, dependability, and reliability as they reproduce the total supply chain efficient and effective in operation, the total cost reduction. The concluding highlights on the agile supply chain to cope with demand on customer side and best meet the requirements (Morash, 2001). The flexibility, proactive quality, value-adding service, and dependability are the foremost areas to focus, which needed the intensive communication.
Competitive Strategies
A firm’s comparative position within an industry is given by its choice of competitive advantage and its choice of competitive scope. Therefore the competitive scope differentiates between firms targeting broad industry segments and firms focusing on a narrow segment. In Generic strategies (Porter, 1995:12) are beneficial because they clearly portrays strategic positions at the simplest and broadest level. Porter (1995) maintains that achieving competitive advantage always involves a firm that make a choice about the type and scope of its competitive advantage. There are different risks integrating in each generic strategy, but being “all things to all people” is a sure recipe for mediocrity -getting “stuck in the middle”.
Therefore an organization can have competitive advantage through:
-Cost Leadership: Cost advantage occurs when an organization delivers the same services as its competitors at a lower cost.
– Differentiation: Differentiation advantage occurs when an organization delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they signify the firm’s position in its industry as a leader in either superior services or cost.
-Focus: A focused approach requires a fir, to concentrate on a narrow rather than industry wide competitive advantage.
There is always connection between supply chain and the competitive strategies. Supply chain responds efficiently to changes in the business environment; align with the firm’s competitive strategy to improve competitive performance, hence to gain competitive advantage. The bottom line is always the cost minimization, improved quality product/services, gain competency and speed enhancement. This is illustrated in figure 2.3 below.
Supply Chain
Customer Sensitivity
Virtual Integration
Process Integration
Network based
Competitive Strategies
Cost Leadership
Differentiation
Focus
Cost
Quality
Competency
Speed
Figure : The Link between Supply Chain and Competitive Strategies
Benchmarking:
Benchmarking is defined as follows (APQC, 1992):
“Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to match them and even surpass them at it”.
This definition captures the essence of benchmarking, namely learning from others. The core of the current interpretation of benchmarking is:
Measurement, of own and therefore the benchmarking partners’ performance level, each for comparison and for registering enhancements.
• Comparison, of performance levels, processes, practices, etc.
• Coordination with Benchmarking partners to introduce enhancements in your own organization.
• Improvement.
Benchmarking emphasizes attaining so-called breakthrough improvements, as shown below (Andersen and Pettersen, 1995)
Figure : Benchmarking Breakthrough
There are a number of models which explains the different steps that constitute a benchmarking study. One such model is the so-called benchmarking wheel, as portrayed in the figure below
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