The Analysis of Logistics System Group - Example

Student Name: Tutor: Title: Logistics System Group Report Course: Logistics System Group Report Table of Contents Table of Contents 2 Introduction 3 Lipton background information 4 The supply chain structure of the major customer of Lipton Tea 7 The quality management systems/quality improvement 10 Distribution system of Lipton major customer 12 Forecasting and inventory management system involved 14 Conclusion 16 References 17 Introduction The tea industry is competitive and ready supply sometimes means downward pressure on the prices of tea. Providing the right quality, flavour and type of tea to the target customer is important. Lipton was founded in 1890 by Sir Thomas Lipton in Scotland. The company has gone through transition and it was the first tea company to use printed tea bags. Unilever acquired Lipton as its partner in 1972 after a series of transactions that commenced in 1938. Since then the Lipton tea has grown to become a market leader and number one tea brand that is loved by many people. Sourcing tea from appropriate tea plantations and use of the right people in plucking enables the selection of the best tea of high quality (Jones, 2005). Lipton plays a leading role in environmental conservation and several awards have been won for its effort. The supply chain reveals the different processes and stages that types of tea go though before reaching the target market. Tea is popular among young female Australians and Lipton capitalises on this fact on its market segmentation effort. Market segmentation and position of the product is important in the tea industry. Lipton Pyramid tea, Lipton Iced Tea, and Lipton Yellow Label are the common brands of tea being sold by Lipton in the world market. Aggressive marketing and awareness has been used to penetrate new markets and remain on top of existing markets. The success of Lipton has been enhanced though continuous quality improvement and delivering the right product to the customer. The volatility of tea prices is a challenge that will continue to cause instability in the tea industry (Cohan, 2009). This report analyses the history and business of Lipton Company since inception. It explores the supply chain structure using a simple example; it discusses the management of quality and offers recommendations; distribution, forecasting and inventory systems have also been analysed. Lipton background information Tea is a beverage that is widely consumed in the world after water. Australians drink up to twenty-two million cups of tea per day. Taking twa daily is one of the easiest steps towards a healthy lifestyle. Lipton is named after its founder. Lipton has been trying to help tea drinkers to taste a brighter day from 1890. A young man named Sir Thomas Lipton born in Glasgow, Scotland, is credited with Lipton. Mr. Lipton entered the tea trade in 1890 through buying his tea estates in Ceylon. The initial tea to be picked in these estates was referred to as Lipton Yellow label. Lipton was the first company to make use of printed tea bags and offer instructions about brewing the perfect cup (Black, 2003). Lipton is number one supplier of tea in the world and offers herbal, black, green, and fruit teas for complete refreshment. Lipton is the leading tea brand in Australia. Lipton Company was acquired by Unilever in several but separate transactions, commencing with the purchase of the Canadian and United States Lipton business in 1938 and sealed in 1972 when Unilever went ahead to buy the remaining of the global Lipton business enterprise from Allied Suppliers. Unilever in 1991 created a first joint venture with PepsiCo for the marketing of ready to drink (RTD) teas in North America. Both Unilever and Lipton share a long history of their own. Lipton still has tea plantations in East Africa in Kericho, Kenya and Mufindi, Tanzania. Unilever in the first company to commit to sourcing all its tea in a manner that is sustainable. Lipton makes the main part of Unilever refreshment sector accounting for 19% of total revenue in 2011 (Atkinson, Dietz & Neumayer, 2007). Lipton tea estates were among the first ones to be certified. In 2009 Lipton was given the Corporate Green Award for its work with the Rainforest Alliance. The main pillar brands for Lipton are Lipton Iced and Lipton Yellow Label Tea. Brands of tea available at Lipton include Lipton Pyramid tea, Lipton Iced Tea, and Lipton Yellow Label. Lipton Yellow Label has been in the market since 1890 since Sir Thomas Lipton prepared the first version of Yellow pack that had a red Lipton shield. Lipton Yellow Label involves blending of several types of teas and it is sold in about one hundred and fifty countries in the world. It is available as tea bags and loose packaged tea. Lipton Iced Tea is an ice tea brand that is sold by Lipton (Cohan, 2009). Lipton Pyramid Tea is prepared using the tetrahedral bag format. Over two billion consumers worldwide utilise a product from Unilever on any given day and Lipton tea is among the favourites. RTD coffee is popular among young males while young females conspicuously prefer RTD tea, and hence they are a target market for many manufacturers. Unilever is one of the biggest consumer products’ companies in the entire world. Its annual sales is above euro 48 billion. It markets and produces a broad range of foods and personal and home care products, with in international recognised brands that include Knorr, Lipton, Dove, Hellmanns, Surf and Axe. It has it operations in about 150 countries and it has employed about 247,000 people in the entire world (Madhavan et al, 2012). Unilever operates as a community from all aspects than just a mere organization. The community is led and shaped by its people who conduct themselves creatively within a framework of business goals and shared values. Use of repetitive processes in the manufacturing of tea requires employees to be motivated through good pay and other benefits that will make them to concentrate on their work. Unilever is the parent company of Lipton. At Uniliver they believe that their corporate structure offers them an appropriate balance between organizational flexibility and corporate governance. Every level in the hierarchy serves a different function permitting or giving chance to other levels to focus on their fundamental roles. There are two executive directors, the Chief Financial Officer and Chief Executive Officer, who serve as figureheads of the company (Black, 2003). The other ten non-executive directors operate as independent element in governance at Uniliver and they come from diverse backgrounds with vast expertise and experience in the area of specialization. Executive Directors (2) Non-executive directors (10) Corporate officers (3) Internal Human Resource Finance Operational Uniliver Australia Ltd was leading in tea sales in 2013 with a thirty percent off-trade value share. Uniliver Australia is the owner of a range of brand portfolio comprising of Bushells and Lipton entailing green, black, herbal and instant tea. The Lipton brand took the second position in tea in the year 2013 having a twelve percent off-trade value share. In the year 2013 Uniliver acquired speciality tea brand T2 for the purpose gaining entry into the premium team market. The supply chain structure of the major customer of Lipton Tea The tea industry is a major contributor to the economies of the tea producing countries. Tea is a cash crop that offers food, shelter, and schooling among other basic needs to poor communities in rural areas. The production of tea that is sustainable and the resultant social changes are greatly influenced by the practices and policies adopted by the companies at the retailing and buying end of the tea value chain. There are potential challenges such as volatility of tea prices and the long term decline in price of tea following increase in production costs that prompt lowing of wages of tea workers that precipitate social unrest among the workers. It is crucial that Tea being a product that deteriorates fast the need to clear stocks requires the slicing price down (Gurnani, Mehrotra & Saibal, 2011). Each flavour of tea has its own unique aroma and taste, this part of the supply chain is the most revenue generating. In the blending process several tea tasters are used to ensure consistency of taste and quality of each tea bag. Lipton Institute of tea is in place to ensure maintenance and improvement of the tea blends. The nature of tea requires a demand-driven supply chain where distribution depends on the amount of the commodity that is required in the marketplace. Supply management systems and Decision Support system assist in the identification of alternative suppliers as well as Enterprise Information Portal for alerting in case of political unrest news. If there is need, the plantation can be shut down for the safety of employees. Simulation of supply-demand with alternate suppliers on particular supplier channel disruption can help in planning of the situation hence eliminating or reducing the element of risk in a proactive manner (Madhavan et al, 2012). Tea leaves is picked from plantation tea estates from countries of origin. The top, youngest tea leaves are picked during this process. Within seven hours the tea leaves are taken to the factory for processing before they lose their flavour. From the first manufacturers who transport the tea into a more durable form, the tea is shipped to warehousing for storage as it awaits the next stage in research and development. Another form is taken directly to the suppliers who sell them to final consumers. The research and development provide information through the information system to quality assurance to ensure continuous improvement. From the warehouse another portion is further processed in other factories to add different blends and flavours before it is packaged and released to the distributors for distribution (Rushton, 2011). Promotion and marketing is conducted before the preferred tea flavour reaches the final consumer. The figure below represents the Lipton supplier chain before reaching final consumer like local day care school. R & D Inform. System Quality Assurance Packaging Suppliers Manufacturing Distribution Tea plantation Manufacturing Inventory Marketing Sales consumer The quality management systems/quality improvement In the international business environment, quality is no longer viewed as an extra value to have but it is recognised as a necessity for remaining competitive and surviving in the marketplace. Continuous quality improvement in organizations is encouraged. Uniliver used third party certification of plantations to ensure high standards are maintained. Lipton engaged certification from an independent NGO (RA) which meant that Lipton Quality black goes to making an impact to tea farmers, the environment, and their families. Rainforest Alliance certifications ensure meeting standards in welfare of workers, environmental protection, and farm management. The company is committed towards sustainability and ensure all of the Lipton tea bags come from Rainforest Alliance Certified farms by the year 2015 (Hensmans, Johnson & Yip, 2013). Lipton is rated among the top three tea brands and is acknowledged as the number one in terms of quality. Uniliver Australia was one of the last markets that launched Lipton Quality Black from Rainforest Alliance Certified farms. Unilever is committed to purchasing its tea from ethical and sustainable sources and uses the environmental NGO-Rainforest Alliance to certify its tea firms. Maintaining high quality has the purpose of ensuring that consumers have confidence in the company’s products. Lipton makes use of top tea leaves of the tea plant. The company ensures the tea leaves which are youngest and flavoured contribute to the high-quality of tea. Lipton grows its own tea. Extensive and extensive research programs are carried out at estates to ensure continuous quality improvement and improved growing, as well harvesting practices. More tea and raw materials are sourced from 35 other countries for the purpose of ensuring consistent and uninterrupted tea supply in the market. Lipton possesses a refreshing range of iced teas. The teas have no preservatives or artificial colours and contain tea goodness (Atkinson, Dietz & Neumayer, 2007). Lipton Ice Tea provides refreshing green and black iced teas in delicious values like lemon, peach, and green citrus. Consumers of RTD tea look for refreshing, exciting, and indulgent flavour during shopping for the product besides wellness and health attributes. Other tea producing companies have countered Rainforest Alliance certification through acquiring other certification using other companies. Lipton can counter their action by also seeking certification the very companies that have certified the competitors to ensure there is a levelled playing ground. The other competitors can also be certified by Rainforest Alliance. Customers will understand that the products in the market have been vetted and found to be of good quality since they are produced through ethical and sustainable practices. Both local and international quality assurance certification has to be sought to ensure that there is no doubt in the mind of the consumer when using Lipton products (Cohan, 2009). Research and development has to ensure that there is continuous improvement in the quality of tea to suit the needs of the customers. Lipton has to be aware of what the competitors are doing and also initiate competitive advantage initiatives that will make sure it stays on the top. The flavour and quality of tea has to be of importance despite the environmental conservation initiatives that the company has put in place. Picking tea from the right plantation is good but the right processing methods have to be used to avoid contamination and embarrassment. The research and development centres should be diversified globally instead of being based in specific countries requiring transportation of samples of tea over a long distance. Distribution system of Lipton major customer Tea is a labour intensive cash crop hence thousands of workers are employed to harvest and maintain the tea fields. The main activity of harvesting is plucking and the selection of workers for plucking is gender specific and women are prepared for this activity. The challenge is transferring the tea from the farms to factories and start processing in 5 to 7 hours after harvesting (Rushton, 2011). The processed tea is shipped to various distribution centres that are strategically located in various parts of the world. Lipton is a mainstream brand that possesses a huge market share hence making it sustainable would significantly affect tea markets in the world. The transportation system connects geographically separated partners and facilities in the supply of the company. Transportation provides room for creation of place and time utility in the supply chain. It has a great impact on the economic effect on the financial performance of businesses. Lipton introduced slip-sheets to take the place of the wooden pallets that have been traditionally used by Unilever’s Global Tea Supply Network to transport tea worldwide. The project was started by the Lipton tea factory located in Jebel Ali, which is Unilever’s second largest tea factory in the entire world. The initiative is aimed at saving wood while minimizing shipping costs through increasing capacity of each container. The slip-sheet seem to be thinner that the traditional wooden pallets hence this will help in cutting down fuel and transportation costs as well as mitigating the impact on the environment. This initiative is projected to save ocean freight costs up to twenty percent. The slip-sheets also eliminate the risks as a result of wood infestation on the tea in the course of the shipping process (Bragdon, 2011). This innovative project will enable Lipton to transport more tea in its supply chain network using minimal resources. This is just part of a wider global commitment to sustainability that Unilever has initiated of which its partner Lipton has taken the leading role over the years. This initiative will be extended to other tea origin countries like Indonesia, Sri Lanka and Kenya. Unilever’s Lipton slip-sheets initiative is supported by its supply chain partners that include McLeod Russel Ltd and HUL Kolkata. After tea is plucked it is shipped from the plantation to factories to be processed while it is still fresh. Green tea is prepared from freshly picked leaves. The leaves have to be transported to the processing plants within seven hours. From the manufacturing plant part of the tea is ready for consumption is send to suppliers to sell it into the market. Transportation can be though ships, aeroplane, or by road through trucks. Another portion of the processed tea is taken to warehouses where some part of it is given to suppliers for the final market while part of it is send to Lipton Institute of tea for further research in terms of flavour, colour, and quality (Hensmans, Johnson & Yip, 2013). The information from the institute is passed to the quality and assurance department for implementation through the information system. It is only sample that are used for research and development. The tea from the warehouse is also transported to the Lipton factory for further processing to add flavours, blends among other things. The transport is through road, rail or air. Some of it is can also be shipped across continents. From manufacturing the tea passes though the quality assurance for value addition and utilization of information from the research and development. Finally the tea is packaged and labelled ready for distribution. Trucks carry processed tea to wholesalers, supermarkets and stockist so that they can distribute the product either to retailers or the final consumer. Marketing and promotion happens before the commodity reaches the final consumer. Distribution and transportation of tea involves many partners who make up the supply chain for Lipton tea. There are at least 1.8 supermarkets per every 1000 inhabitants. Coles/Bi-Lo and Woolworths dominate the market with 75% being from supermarkets (Lynch, 2009). There is a trend towards larger outlets, wider product range, and lower prices. Delivery of tea to some points can be done though drones as some products have utilised the technology and turned out successful. The green leaf ready to drink tea can be delivered through such many in order to avoid it losing its flavour along the way due to a bloated supplier chain. Most of the distribution and transportation is quite good but there is need to introduce some stages in the supply chain just to increase flexibility and the number of customers being reached by the existing supply chain of Lipton tea. Forecasting and inventory management system involved Forecasts are very important to organizations. The target of business forecast is not to obtain a perfect forecast but to have a reasonable forecast that can help in planning. Forecasts are applied in planning production schedules, plan facilities, and capacity planning. Tea in Australia is anticipated to decline by 2% in CAGR volume during the forecast period following the decline in popularity of black tea continuously impacting negatively on the entire category (Harte, 2014). Consumers are expected to continue to have preference for tea with associations of wellness and strong health. Healthy products with additional value like special flavour, indulgence, convenience or special attributes have to attract consumers’ attention. Unlike other consumer products, the ratio of stocks to demand does not play a significant role in the determination of price level of tea hence the tea stocks are at all times maintained at their lowest quantities. The stocks of tea act like a pipeline stage in the supply chain framework (Cohan, 2009). Forecasting of demand is used to estimate the required level of production. Speculative forecasting is commonly used in the tea industry. Inventory is the physical stock of any items or resources being used in an organization. The Wal-Mart effect of inventory maintenance seems to be applied at Lipton considering the kind of nature of the tea product and the cost s of holding extra stock. Wal-Mart embarked on a major challenge to reduce its inventory stock by $6 billion from 2006. Inventory reduction by Wal-Mart reflected its strategy of reducing costs while improving margins. Tea does not have a long shelf life hence there is need for Lipton to keep inventory at its lowest and ensure quick shipment of the product into the market (Jones, 2005). Proper management of inventory is required so that the cost of holding stock is low while ensuring that the company does not also run out of stock. There should be a balance between ensuring consistent supply while ensuring costs of keeping stock is low. Oversupply can lead to decline of prices that can harm the industry. The prices have to be sustainable for the tea industry. Inventory accuracy is required to ensure that holding costs do not affect the total costs of production and distribution of tea. Conclusion The tea market has demonstrated a continuous state of oversupply that seen to the downward pressure on their prices. Falling prices can sound good to consumers but they result in a downward spiral that is a threat to the long run economic health of the industry. Uniliver through Lipton teas has remained at the top though innovation and strategic marketing. The history of Lipton speaks volumes about the vision of the founder, Sir Thomas Lipton. He wanted the best and for Lipton to grow to become a world market leader and indeed his dream was realised when Lipton was bought by Unilever in acquisition that was completed in 1971. The other transactions have been started in 1938. Tea is a popular beverage with a huge market but with intense competition from other suppliers. The product supply chain provides room for research and development to ensure continuous quality improvement that is important in a competitive market. Certification by Rainforest Alliance has boosted the credibility of Lipton tea and a delivery of high quality through consideration of ethical and sustainable initiatives. Conservation of the environment is one objective that the company has maintained through its practiced in the production and processing of the tea in the world. Lipton is committed to continuous quality improvement in innovation of quality tea and management if environmental impact. The company gets its tea from plantations that are certified and through means that are ethical and sustainable. Ready to Drink tea is popular in Australia and with the right quality being present; Lipton is assured of a ready market so long as it stays in touch with trends in the market. Lipton has to be aware of competitors’ strategies in order to counter their activities in the market. Quality management is very crucial in the tea industry. It commences from the tea being picked in certified tea estates, using the right processing and packaging and preparing it in the right manner. Research and development being part of the supply chain ensure that high quality of tea is maintained. Transportation using slip-sheet was an improvement from the use of wooden pallets that would be cause of infestation that posed a risk to the tea being processed. Multiple means of transportation are used for transporting tea in different stages of its processing. Efficiency can be enhanced by ensuring there are no loose ends in the transportation cycle and that everyone play his part. References Atkinson, G., Dietz, S. & Neumayer, E 2007, Handbook of Sustainable Development, Edward Elgar, Cheltenham. Bragdon, C 2011, Transportation Security, Butterworth-Heinemann, Melbourne. Cohan, W D 2009, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, [a novel], Doubleday, New York. Black, R J 2003, Organizational Culture: Creating the Influence Needed for Strategic Success, London UK, . Gurnani, H., Mehrotra, A., & Saibal, R 2011, Supply Chain Disruptions: Theory and Practice of Managing Risk, Springer Science & Business Media, Sydney. Harte, J 2014, Management Crisis and Business Revolution, Transaction Publishers, New Jersey. Hensmans, M., Johnson, G., & Yip, G 8 January 2013, Strategic Transformation: Changing While Winning, Melbourne, Palgrave Macmillan. p. 139 Jones, G 2005, Renewing Unilever: Transformation and Tradition, Oxford University Press, Oxford. Lynch, G S 2009, Single Point of Failure: The 10 Essential Laws of Supply Chain Risk Management, John Wiley and Sons, New York. Madhavan, G., Oakley, B., Green, D., Koon, D., & Low, P 2012, Practicing Sustainability, Springer Science & Business Media, Sydney. Rushton, K 13 December 2011, Unilever to shake up £5.1bn global advertising spend, The Telegraph, London.  Read More