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EASTERN AND SOUTHERN AFRICAN MANAGEMENT

INSTITUTE (ESAMI)

MASTERS IN BUSINESS ADMINISTRATION

Course: Global Corporate Strategy


Lecturer: Doctor T. Wushe
Submission Date: 14 January 2019
Candidate Number: 39EHR 14947
Candidate Name: Simbarashe Hailey Mugoni

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TABLE OF CONTENTS

INTRODUCTION 3

DAIRIBORD ZIMBABWE VALUE CHAIN 4

ANALYSIS OF DAIRIBORD ZIMBABWE VALUE CHAIN 6

INPUTS 6

PROCESSES 7

OUTPUTS AND DISTRIBUTION 8

CONCLUSION 10

REFERRENCES 12

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Discuss the importance of Value Chain Analysis to Dairibord Zimbabwe?

Introduction

Dairibord Zimbabwe is one of the largest producers and marketers of dairy based products with over
50 brands in its holding. Dairibord Zimbabwe is listed on the ZSE and over the time of its operation it
has seen great success and it is a good example of successful privatisation of an originally government
run organisation. Dairibord Holdings has 100% ownership in Martindale Trading (Private) Limited t/a
Lyons, Lavenson Investments (Private) Limited, NFB Logistics (Private) Limited, Kutal Investments
(Private) Limited, 68.4% shareholding in Dairibord Malawi Limited and 40% in M E Charhon (Private)
Limited. Kutal Investments is a property holding company which leases its properties to Group
companies. Dairibord Malawi (Private) Limited has 100% ownership in Mulanje Peak Foods (Private)
Limited. Lavenson Investments (Private) Limited has a 100% ownership in Dairibord Zimbabwe
(Private) Limited. The Group produces an extensive range of products which include liquid milks (short
and long shelf life milk), foods (yoghurt, ice creams, cheese, ice cream cone shells, condiments and
spreads) and beverages (cordials, ready-to-drink dairy and non-dairy, teas, mineral water) which are
marketed in both the domestic and export markets.

Porter in his book "Competitive Advantage: Creating and Sustaining superior Performance" (1985),
he uses the term value chain. The value chain is an analysis of the activities the organisation is
involved in in order to have a position of competitive advantage. Porter argues that the ability of an
organisation to perform these activities better is the source of the organisations competitive
advantage. The activities were split between primary activities and secondary activities. The primary
activities were activities directly linked to the production and delivery of goods and services. These
primary activities were further broken down into five groups which were, inbound logistics,
operations, outbound logistics, marketing and sales, and service. The secondary activities were
support activities that improve effectiveness or efficiency and there were four main secondary
activities: procurement, technology development (including R&D), human resource management, and
infrastructure (systems for planning, finance, quality, information management etc.).
See the diagram below of Porters basic model of value chain.

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In summary Dairibord Zimbabwe already has vast infrastructure which includes but is not limited to 4
factories in Zimbabwe and one in Malawi. Dairibord has a staff complement of 1389 employees with
a large skillset to ensure a high level of product quality. Dairibord has vast technological resources
including an Ultra High Temperature (UHT) cartonised state of the art packaging plant in Chipinge.
Dairibord has contracts with independent farmers that regulate quality of milk, quantity and even
sometimes includes terms of credit and inputs to farmers for production. Dairibord has a nationwide
distribution network which includes its own logistics company called NFB logistics. Dairibord
Zimbabwe limited has sales being generated from retail, wholesale, franchises, vendors, sales shops,
hospitality institutions and exports. The Dairibord group has a whole host of value chain activities in
play that we can analyse.

Our analysis of Dairibord Zimbabwe should be an analysis of the efficiency and effectiveness of all
activities primary and secondary that make up the mix as shown above in the diagram. In this paper
we should analyse the importance of all these activities and suggest ways in which Dairibord can
improve the delivery of these activities or reduce their costs in order to make an increased margin or
improve competitive advantage.

Dairibord Zimbabwe Value Chain.


Below is an extract from the Dairibord Zimbabwe 2016 annual report showing its value chain marked
as Table 1:

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Stage of the Comments
value chain
Inputs Raw milk
Raw milk is sourced from independent farmers who sign contracts of supply with
the company. The pricing of the milk is market determined with quality and
volume premiums incorporated to promote better quality and volumes. Milk
collection is the responsibility of the company.
Materials [Skimmed Milk Powder, Full Cream Milk Powder, Sugar, Orange
Juices and Fruit Sets, HDPE, PET]
Due to depressed industrial activity in Zimbabwe and Malawi, most raw materials
are sourced globally exposing the business to global commodity price volatilities.
Major imports are milk powders, sugar, HDPE and Fruit sets.
Utilities [electricity, water, coal and other fuels]
Utilities availability is erratic and at high cost particularly water and electricity.
The business relies on standby facilities to support operations during power and
water outages.
Labour [contract and permanent]
Labour is partly contracted and partly permanent. Unionized employees bargain
for wage increases annually and these negotiations are not based on productivity
but much driven by the market determined poverty datum line.
Processes The Group undertakes value addition by converting the inputs into value added
products. The Group operates 5 factories [4 in Zimbabwe and 1 in Malawi].
The logistics business provides transport services to both Group companies and
third party customers.
Outputs and Product portfolio
distribution The Group’s outputs are divided into the following portfolio;
Channels i. Liquid Milks
ii. Foods
iii. Beverages
iv. Logistics
Distribution Channels
ŸŸ Retail: This channel is composed of large retail outlets and wholesalers.
ŸŸ Vending: This is a cash channel with independent vendors buying stocks for
resale on a daily basis. The Group’s fast moving lines are sold through this
channel mainly Yoghurt, Cascade, Fun’n Fresh, Nutriplus and Ice creams.
ŸŸ Franchises: Most franchises operate from the Group’s premises formerly
operated as distribution depots.

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ŸŸ Sales shops: These enable the Group to sell as close to the market as
possible. The Group has sales shops at factories, in cities and major towns.
ŸŸ Hospitality and institutions: The channel focuses on hotels, schools and
similar institutions
ŸŸ Exports: trade is done mainly with customers in Zambia, Mozambique and
Botswana.
Table 1
As shown in the table Dairibord simplified the value chain and showed it as a summary. Using this
summarised value chain we can dig deeper using information from other sources to see where
improvements can be made.

Analysis of Dairibord Zimbabwe Value Chain

Inputs
 Raw Milk
The strategy of using 3rd party independent farmers with contracts may be wise if the company
seeks to promote local farmers but I think that the company should also look into long term
acquisition of facilities to be able to produce their own raw milk. Dairibord should consider
mergers or acquisitions of existing farms and facilities as a method of reducing the cost of the raw
milk and also to be able to control the overall quality of the milk to their standards. The contracts
with farmers may already be sufficient in controlling the price and quality of raw milk and the
cost of mergers and acquisition may also be too high to consider but looking into the future it may
be good to consider it as a long-term strategy.

 Materials
The low industrial activity mentioned here forces Dairibord to import materials such as milk
powder, sugar, HDPE and Fruit sets. However, I believe that with the current existing sugar and
citrus producers currently existing contracts can be made like they have with their independent
farmers for raw milk and eventually Dairibord could possibly expand their product line to include
these products. Also Dairibord could look into the process of making the required milk powder in-
house as well. In the current environment it may be beneficial for Dairibord to save whatever
foreign currency reserves they currently have by either sourcing materials locally or producing
these materials internally as one of their product lines.

 Utilities
The 4 factories in Zimbabwe strongly rely on ZESA electricity and ZINWA council water of
which it has been mentioned in the Dairibord annual report for 2016 that water and electricity

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supply has been getting worse especially in regards to water in the Chitungwiza and Simon
Mazorodze factories. They do have backup facilities but the often have to pay for 3rd party water
supplies which are stated to be 15 times more expensive than council water. All companies in
Zimbabwe experience such problems but there is an opportunity here if Dairibord can find a way
of finding their own water source. The third party water suppliers were said to be providing
Dairibord with borehole water which was around 210,000 cubic litres in 2016. If Dairibord could
make their own boreholes that could meet their water demands this would significantly reduce the
cost of water by 15 times and improve competitive advantage. Also looking at alternative energy
sources like solar power and using wind farms in some of their locations may be a good long-term
solution to electricity problems.

 Human Capital
In terms of their labour Dairibord Zimbabwe has been reducing their staff complement with an
emphasis on reducing permanent staff as compared to contract staff. The idea behind this is that
contract staffing is more flexible and Dairibord can easily respond to demand shifts by increasing
or decreasing contract staff. Permanent staff is largely unionised thus most of the permanent staff
reduction was attributed to retirement. Dairibord has also increased employment of women to go
with current trends and policies to empower women and has also increased intake of students on
attachment as a way to improve exposure of students to industrial training. In my opinion
Dairibord Zimbabwe’s staffing policy is very good and there is very little that should be changed
as their policy reduces overall long-term employment costs, reduces the number of idle workers,
promotes involvement of women and provides experience to university students. Attachment
students are also a form of cheap employment, as the students learn their work they actually get
things done at the lowest possible cost which is a benefit to Dairibord and the students overall
skillset. This part of the value chain is a good example of what most large organisations should be
doing in the current environment.

Processes
The value chain in the Dairibord annual report for 2016 just mentions that there are 5 factories in
total, 4 of which are in Zimbabwe and 1 is in Malawi. They are not specific about what exactly goes
on in these factories and it makes it hard to comment on any improvements that can be made in this
stage of the value chain. In my opinion the processing part of the value chain would be the coming
together of all the previously mentioned inputs in the most efficient and economical way taking into
consideration theories like Just In Time (JIT) & Economic Order Quantity (EOQ) in order to gain
competitive advantage. There are many operations management issues involved in this part of the
value chain and from all my research on Dairibord Zimbabwe there is no clearly outlined organogram
showing an operations department or departments within its business units but there are operational

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roles mentioned on their management page such as, chief operating officer, technical operations
executive and logistics manager. It may be in the strategy of Dairibord not to divulge any operational
information on the processes of Dairibord as a method of protecting their competitive edge.

Outputs & Distribution


 Product Portfolio
Dairibord’s products are split into liquid milks, foods and beverages. Below is Table 2
showing all the brands that Dairibord currently has in its portfolio.

Product Product Type Brands


Category
Dairibord Zimbabwe Dairibord Malawi Limited
(Private) Limited
Liquid Milks Long Shelf Life Dairibord Steri Milk Dairibord Ching’ombe
Dairibord Chimombe

Cultured Dairibord Lacto Dairibord Chambiko

Short Shelf Life Dairibord Fresh Milk

Cream Dairibord Fresh Cream


Foods Yoghurts Dairibord Yummy Dairibord Yoghurt
Dairibord Froot Scoop Dairibord Yogie
Yuphoria

Ice cream Sticks Nutty Squirrel Dairibord Ice Lollies


Skippy Choc
Bigga Bear
Super Split
Plus 20
Monsta Mouse
Green Giant
Mello Ice Lyons Maid
Sundae Cups

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Ice cream cones Devine Ice cream

Bulk Ice Creams Dairibord Real dairy Dairibord Bulk Ice Creams
Lyons Maid
Dairibord Novelty

Sauces & Rabroy Tomato Sauce


Condiments Rabroy Salad Cream
Rabroy Mayonnaise
Magic Whip
Lyons Peanut Butter
Beverages Ready To Drink Cascade Family Choice Juices
Pfuko-Udiwo Maheu Juice Up
Nutriplus
Fun ‘n Fresh
Natural Joy

Crushes & Cordials Quench Family Choice

Bottled Water Dairibord Aqualite Dairibord Aquamadzi

Tea Quick Brew Tea Bags

Drinking Chocolate Lyons Drinking Chocolate


Table 2

The focus of Dairibord maybe mostly dairy products but as you can see they have extended their
brands to include foods and beverages such as tomato sauce, water and even teas. With such a diverse
range of products under its flag Dairibord has been able to capture a large portion of the Zimbabwean
market and its competitors can only compete at a brand level but cannot take on Dairibord Holdings
as a whole. Dairibord’s diversified portfolio of products insures continuity, growth and eventual
market dominance. Future improvements to this part of their value chain are welcome and suggesting
more brands under Dairibord has to be a strategic undertaking guiding future diversification and not
just an addition to a very large brand line.

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 Distribution Channels
As detailed in Table 1 Dairibord has a diverse array of distribution methods to its disposal.
Dairibord already boasts one of the largest distribution networks in Zimbabwe with sales in
almost every major retail outlet, wholesalers, city street corners and bike vendors. There is
currently no competitor in its industry that can rival Dairibord in terms of distribution even at
brand level. Once again Dairibord is exemplary in this part of the value chain but there is
always space for improvement. If Dairibord is to try and increase its coverage it would have
to be a strategic decision as most of the Zimbabwean domestic market is already captured.
Dairibord Malawi is a market leader in the dairy, foods and beverages industry in Malawi and
Dairibord Zimbabwe also exports to Botswana, Zambia and Mozambique. Some sources say
some teas are also being exported to South Africa and even the Dairibord website mentions
that Dairibord has a presence in South Africa but is just not yet clearly underlined. In my
opinion after weighing out all the opportunities and threats, and also considering strategic
issues the next largest and most important market to consider breaking into would be the
South African market. There are various barriers to consider and South Africa already has its
own dairy producing and manufacturing companies that may make it difficult for Dairibord
success in South Africa but in order for Dairibord to make it globally it would be a big step in
the right direction if it had a foothold in South Africa since it is arguably the strongest
economy in southern Africa. Their success in Malawi was as a result of resuscitating an
already failing milk industry in Malawi with the cooperation of the Malawi government and
managed to turn it from a loss making board into a profit making venture in under a year.
Success in other countries with already thriving milk industries would take a different strategy
to be successful. Maybe identifying other economies with bad milk industries to revive may
also be a good idea in increasing their export market.

Conclusion
Dairibord Zimbabwe’s Value Chain is a well thought, applied and analysed strategy however
in this environment it has high operational costs and even though it is trying to cut costs like
human resources it still needs to maintain good human resources in order to succeed. An
organisation of its magnitude should not have to focus on a policy of cutting the number of
employees it has when it only has a total of 1389 employees. For example Dairibord Malawi
is mentioned as having just over 160 people in its employ which seems like a relatively low
staffing for a market leader. The issue with Dairibord is not with reducing staff or increasing
sales as the company cannot supply enough to meet demand but instead the company should
try to increase intake of raw milk and materials for manufacturing and reduce other
operational costs to be able to increase its margin. If the independent farmers market for raw

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milk is not enough to fulfil its own requirements then it is very necessary for Dairibord to go
into raw milk production or consider other sources of raw milk.
The most alarming finding in the value chain for Dairibord Zimbabwe is the use of water
from third party suppliers which is 15 times the cost of municipal water. Even though an
investment was made by Dairibord to increase water storage capacity in Chitungwiza to
1.5million litres this may not eliminate the high cost involved in filling this capacity. The
problem of erratic water supplies was reported in Chitungwiza as well as Simon Mazorodze
factory because of the high need of water to produce the Pfuko-Udiwo Maheu, but the remedy
of increased water storage was only applied to the Chitungwiza operation. This assumption
that the increased water storage capacity will end the water availability problem is false and a
lot of logistics are still required to remedy the problem. Another thing that is hard to ascertain
is that even though the financial statements were included in the annual reports it is hard to
find the costs associated with acquiring water from third party suppliers. The water problem is
repeated over a dozen times in the same report and thus this problem should take priority over
all other issues in order to guarantee success.

It is also important that Dairibord consider entering new countries especially in southern
Africa so as to increase market coverage. The approach used by Dairibord of reviving a
collapsing milk industry by working with government and privatising the milk board there
was a good approach but in countries that already have a thriving milk market it is necessary
to consider alternative approaches to enter these markets. As a global strategy Dairibord
should find ways of meeting domestic demand and then have something left over to market
and sell internationally.

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References

https://www.dairibord.com/
https://en.wikipedia.org/wiki/Dairibord
https://www.strategicmanagementinsight.com/tools/value-chain-analysis.html
https://www.businessnewsdaily.com/5678-value-chain-analysis.html
https://www.smartsheet.com/everything-you-need-to-know-about-value-chain-analysis
https://www.reuters.com/finance/stocks/companyProfile/DZL.ZI

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