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, 6
Location of plant 7
Organizational Chart 8
Supply chain Structure 9
Milk Industry Profile 10-11
How Industry Works 12
Market Share 15
Olpers Supply Chain 16
Integrated Logistic 17-18
Ware Housing 20-21
Distribution Net Work 22-23
Reverse Logistic 25
Packaging 26
Gap Analysis 28
Efficiency Template 29
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 Channel Flows 30
Recommendation 31

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
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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.

Vision

Our vision is to be the premier Pakistani enterprise with a global reach, passionately
pursuing value creation for all stake holders.

Company’s 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

 The dairy processing plant is situated at Rohri & Sahiwaal

 The office of Engro foods is situated in Sukkur.

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 Location of Offices

 The head office of Engro Foods is located at 3rd floor of Carlton Hotel & Club.
 There regional head offices are in :
o Karachi located in Business Avenue Shahrah – e - Faisal
o Lahore
o Multan
o Rawalpindi
o Peshawar
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 Structure

Supply Chain Department

Supply Chain Customer Service

Development Department Planning Purchasing

Warehousin Logistics
g Inbound Outbound
Logistics Logistics
Milk
Procurement Dispatches

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 Milk Industry Profile

Pakistan is the world’s 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, and
its 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 level
of per capita consumption in Pakistan. The annual per capita consumption level at the national
level is 190 liters. Province wise, per capita consumption stands at 246 Kg in Sindh, 132 Kg in
Punjab, 86 Kg in NWFP, and 108 Kg in Baluchistan.

Due to rising inflation and high poverty levels, the majority of Pakistani consumers are
price conscious. Therefore, demand for open, raw milk is high compared to processed milk as
indicated 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 worth
Rs.2320.42 million ($38.6 million) 15 were imported. The Statistics Division lists the product
only 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 marketing
chains. An overview of these is given below:

Rural Marketing Chain

A significant proportion of the milk produced in rural areas is consumed at source within
the hamlet or village, either through farmstead consumption or in some cases, direct sales by the
farmer to the neighborhood. The remaining 30-40% is marketed through an intricate marketing
chain 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 urban
consumers 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 is
met 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 owned
by market oriented farmers and, owing to the scale of their operations, can be classified into two
general groups. Most of the farmers operate on relatively small scales by keeping 10 to 50 dairy
animals. On the other hand, larger farmers usually keep up to 500 livestock heads. This later
category of farm can be either owned or operated by a progressive farmer individually or it can be
a 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 the
supply chain as the consumer is easily accessible and is also willing to pay a high price for milk.
Hence, in many instances, farmers in the Urban Milk Marketing Chain integrate production and
marketing functions in their operations, and instead of relying on a middleman, the milk is
directly sold by the farmer. Figure below depicts the pre-urban marketing chain.

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 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 dairy
processing plants operating in the country. The major product produced by these processing plants
is 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

Consumer
Rs. 55

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 Tetra Pak Milks (Market Share)

Others
Haleeb 5%
13%

MilkPak
43%
Good Milk
16%

Olper's
23%

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 Olper’s Supply Chain

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 Integrated Logistics

Engro Foods Pakistan makes sure that their product namely Olpers is available, no matter where
you are in Pakistan.

We integrate processes from the farm to markets, and ensure products are delivered to you at the
right time, at the right place and in the right quantity.

Inbound Logistics

 For inbound logistics dedicated long

vehicles are used. Inbound logistics
concerns raw milk transportation to the
plant. Raw milk comes from the dairy
farms to the milk collections centers
which are 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.

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

 emptying the container.

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 Milk Collection from Various Cities of Sindh & Punjab
 Lakhi.
 Ahmed pur east.
 Rani pur.
 Nawab shah.
 Dharki.
 Dhokri
 Rohri and Sahiwaal.

OUTBOUND LOGISTICS

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

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Rawalpindi:
It is a satellite warehouse with a covered area of 30,000 sq ft which is on rental basis & it costs
600,000/month. Its responsibility includes 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.

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 Warehousing

 The company has three warehouses out of which two are located within the production
plant i.e. in Sukkur & Sahiwaal and the other being the central warehouse located in
Rawalpindi.

 Sukkur warehouse having a capacity of 1.6 million liters with a daily average dispatch of
350,000 liters & a pallet capacity of 2000.

 Sahiwaal warehouse having a capacity of 4 million liters with a daily average dispatch of
400,000 liters & having a pallet capacity of 5000.

 They are having a cross dock warehousing system. At Mari pur and it is being operated by
transporter him self.

 Using pallets to stock the cartons.

 Each pallet has a capacity of 800 liters.

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

 The temperature of the warehouse should be maintained at 25-28 degrees in order to keep
milk in its fresh condition.

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

 There is a climate control system in there warehouses as the temperature of Sukkur &
Sahiwaal shoots up to 45 degrees in summers.

 They are maintaining 6-7 days safety stock.

 Once the packaging is done the milk is stored in 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

 Olpers focusing on every major cities of Pakistan.

 The distribution is outsourced.

 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.

 Aftab traders covers Defense & Clifton
 SAS distributors covers Johar, Malir, Landhi & Korangi
 Pacific distributors covers Ghulshan & Bhadurabad, Tariq road
 S.I traders covers covers Garden & Old Karachi
 Tawakal Distributors P.E.C.H.S & Sadar
 S.Care traders covers New Karachi & North Karachi
 M & Sons covers Nazimabad & Orangi Town

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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.
 Eid
 Ramazan and
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  Moharram

Following are two Seasons when demand fluctuate

 Lean (March-Sep) Demand Decreases

 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.

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 Packaging
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 materials

and processes that reduce the impact on the
environment of unnecessary transportation.

 Avoid the use of substances that can adversely

impact the environment during packaging production and disposal.

 Decrease packaging waste at all stages in the supply chain, including package
manufacturing, utilization and disposal.

 Increase the use of recycled materials wherever possible, and increase the recyclables and
compatibility of packages with existing waste management schemes.

 Packaging materials are Stored in a dry place away from manufacturing areas and it is used
in a clean and sanitary manner which is non toxic
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  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.

GAP ANALYSIS

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 TYPES CLOSING
SOURCES
OF GAPS GAPS
OF GAPS

Environmental Demand-Side Demand-S

Availability
Bounds: Gaps: Anticipation
Milk Ordinance 1963 SOS < SOD seasons.
Infrastructure , as SOS > SOD
transportation between Which SO(s) ?
different units is highly Less spatial
costly (in terms of time, convenience for
and cost of movement) customers

Managerial Bounds: Supply-Side Supply-Sid

Constraint of capacity being Gaps: Short proces
not matched with required Logistics cost Home delive
demand. Warehousing Cost
Less experience of engro in
terms of FMCG.

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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 as
their market share is growing by 12% annually.

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