Supply Chain Management

at

by:

Arsalan Mushtaq
S.M Huzaifa
Waqas Waheed

A project report submitted in partial fulfillment of the requirements for the Course of
Supply Chain Management to Sir, Adeel Siddiqui. at the Karachi University
Business School , University of Karachi
Contents
Acknowledgements ......................................................................................................................... 1

Abstract ........................................................................................................................................... 2

Introduction ..................................................................................................................................... 3

Departments at Engro Foods ........................................................................................................... 3

Milk Supply in Pakistan .................................................................................................................. 4

Engro Foods’ Supply Chain Management - Identification and Evaluation of Current Model ....... 4

Supply Chain Management Objective at Engro Foods ................................................................... 5

Supply Chain Strategy of Engro Foods ........................................................................................... 5

Procurement of Raw Materials ....................................................................................................... 6

Raw Milk ..................................................................................................................................... 7

Other Ingredients ......................................................................................................................... 7

Packaging Material ...................................................................................................................... 8

Plants at Engro Foods ..................................................................................................................... 8

Milk Supply Sources ....................................................................................................................... 9

Direct Sourcing ............................................................................................................................... 9

Milk Collection Centers ................................................................................................................ 10

Contractor Based Collection ......................................................................................................... 11

Raw Milk Transportation .............................................................................................................. 11

Supply Chain Structure at Engro Foods ........................................................................................ 12

Engro Foods Efficient Department of Milk Procurement............................................................. 12

System of Quality Control ............................................................................................................ 14

Supply Chain of Olper’s Milk....................................................................................................... 14

Olper’s Milk .................................................................................................................................. 15

Production Process of Olper’s Milk .............................................................................................. 15

Inventory Turnover at Engro Foods .......................................................................................... 16

Warehousing and Logistics at Engro Foods ................................................................................. 16

Inbound Logistics.......................................................................................................................... 16

Outbound Logistics ....................................................................................................................... 17

Warehouses ................................................................................................................................... 17

Order Processing and Material Handling ...................................................................................... 18

Distribution Network at Engro Foods ........................................................................................... 19

Reverse Logistics and Olper’s Milk Return Policy ...................................................................... 20

Packaging ...................................................................................................................................... 21

Information Technology Applications at Engro Foods ................................................................ 22

Customer Relationship Management ............................................................................................ 23

Supply Chain Cost Reduction Opportunities for Engro Foods ..................................................... 24

Weaknesses ................................................................................................................................... 24

Recommendations ......................................................................................................................... 25

Conclusion .................................................................................................................................... 26

Appendices .................................................................................................................................... 27

References ..................................................................................................................................... 28
 Acknowledgements
We are grateful to Almighty Allah as without His blessings we would’ve been unable to complete
this report project on time. Moreover, we would also like to thank Mr. Nasar Ali, who not only
offered us his precious time for the interview but also guided us throughout our report project. We
would also like to thank our teacher Mr. Adeel Siddiqui for his constant support and motivation from
the inception till the completion of this report project.

Especial thanks to all our friends who also provided their support and encouraged us to complete this
project. Finally, we would like to express our gratitude to every individual who valued our work and
contributed their ideas during the development of this project report.

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 Abstract
The purpose of this report is to identify and evaluate the existing supply chain
model of Engro Foods and recommend if any opportunities for cost reductions are
available for their current structure. In this report, we have tried to analyze the
supply chain model of Engro Foods through conducting the interview with their
current supply chain manager Mr. Nasar Ali and by also examining the existing
detail studies available on the internet regarding their dairy, beverages and frozen
products, mostly on Olper’s milk, which is one of the most demanding product of
Engro Foods in Pakistan. During our analysis, we have also observed that the
company has established a strong position within the Pakistani markets of dairy
products mainly because of its brand equity. Moreover, the contribution to this
achievement is primarily because of the success of Olper’s Milk which is one of
the Flagship brand of Engro Foods and there are various factors for the success of
this brand, one of which is an effective supply chain management of Engro Foods.
As the competition in the Pakistani dairy product market is very tough, the need for
both efficient and responsive supply chain structure is very important for every
firm in this market and Engro Foods is currently dealing with all these challenges
very effectively.

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 Introduction
Engro Foods is one of the leading growing company that has a good-reputed name
in Pakistan with a vision to meet the needs of the locals by providing them with
products that are in compliance with global standards. Exceedingly dedicated to
provide millions of consumers across Pakistan with the best brand experience, the
product portfolio of Engro Foods includes some of the country's most demanding
and top selling products which include Olper's Milk, Tarang, Olper's Lite, Dairy
Omung, Omore, and Olper's Lassi.

The company believes that no matter what product they provide, their methods
remain largely the same as they continuously endeavor to keep their revolutionary
products ahead of their guiding philosophy and customer contentment at the heart
of all their functioning strategies. And this is the reason that helped them to
become as the Pakistan’s leading Food Company providing high quality products
filled with local flavors but with a global vision.

Departments at Engro Foods

Departments

Finance and Administration Milk Marketing Supply Human Quality

Accounts Procurement Chain Resource Assurance

Plant Manager Procurement

Manager
Quality Control
Manager Purchase Manager

Quality Assurance Logistic Officer

Officer

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 Milk Supply in Pakistan
Three milk supply seasons are mostly observed in Pakistan, which are as follows:

 Flush Season: This season mostly occurs between 1st January to 25th April. The
supply of milk during this season is the highest and milk is produced in
maximum quantities throughout the country.

 Lean Season: This season usually occurs between mid of April to end of June.
There is a shortage of milk during this period because of the natural
reproduction cycle of animals, high temperature in the environment, and less
availability of green fodder which reduces the production of milk all over the
country.

 Semi-Flush Season: The occurrence of this season is usually observed between

1st August to 31st December and the production of milk is around 70% to 80%
in Pakistan during this season.

Engro Foods’ Supply Chain Management -

Identification and Evaluation of Current Model

Procurement of Transportation Storage

Defining the Raw Materials
Requirements

Warehousing Processing
Distribution

The diagram shown above describes the supply chain structure of Engro Foods and
the activities depicted can be described into following three categories:

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 Inbound Logistics: This process involves the receiving of raw materials and
storing them at warehouse where they are distributed to the manufacturing
plants when they are required.

 Operations: This process involves the transformation of inputs into finished

products.

 Outbound Logistics: In this process the finished products are distributed from
the manufacturing plants and warehouses to the distributors and retailers to
reach the final customers.

Supply Chain Management Objective at Engro Foods

According to Mr. Nasar Ali, who is the current supply chain
manager at Engro Foods Karachi, the objective of supply
chain management at Engro Foods is to “provide the customer
with the products they need as quickly as possible while
keeping the costs of the overall supply chain at minimum.” He
emphasizes cost reduction as their most important priority but
he also argued that satisfying customer’s needs are just as
important. According to him, their aim is to provide customer
with value that surpass their costs, leading into high profit
margins.

Supply Chain Strategy of Engro Foods

Engro Foods supply chain strategy is consistent with their supply chain objective,
which in turn is conforming to their mission statement which is “to satisfy
customers’ needs at a competitive cost, making their contributions to the

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development and growth of industrialization by becoming the market leader, and
achieving growth in diversity by dominating the food business in Pakistan.”

So therefore their supply chain strategy is “to offer the best service at the lowest
possible cost.” Maintaining low cost with a high level of responsiveness is also the
key factor at Engro Foods that give them the competitive advantage over their
rivals. To maintain low costs, their strategies include location of plants near the
supply sources that are not only abundant, but also close to their farmers that
further reduce their transportation cost and risk of deterioration of milk that results
in subsequent losses. Their responsive strategies include the use of third party
logistics to make sure that all activities that are important at Engro Foods are
supported by their:

 Infrastructure; which includes the structure of their organization, systems of

control, culture of the company, etc.

 Human Resource Management; which include recruitment, hiring, training,

developing and compensating employees.

 Development in Technology; which includes all those technologies that help

them to support their activities that creates value for the customers.

Procurement of Raw Materials

For any success in the supply chain, raw materials play a crucial role because it is
one of the most basic and initial activities for which careful consideration is
needed. If any flaw occurs in this activity relating to procurement and quality of
raw materials, the whole supply chain surplus is compromised. Building and
maintaining long-term relationship with suppliers is needed and Engro Foods is
effectively doing this job that enables the company to efficiently produce and

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market a range of good quality dairy in Pakistan, where each year a large amount
of this commodity is wasted because of poor infrastructure of farm-to-market.
Engro Foods require various types of raw materials for milk and cream production,
which includes raw milk, ingredients such as fats and SNF, as well as packaging
materials.

Raw Milk
One of the core raw materials of Engro Foods, which is further processed in the
manufacturing plants of Sukkur and Sahiwal is raw milk because most of their
products are dairy based. Different dairy farms all over the country provide this
raw milk, which is mostly obtained from buffalo milk. Moreover, Sindh and
Punjab are the main regions where these dairy farms are located to supply this raw
milk.

Other Ingredients
At Engro Foods, there are different ingredients which are added at various stages
in the production process and the quantities of these ingredients are depended on
the products’ recipes being manufactured. These ingredients mostly includes SNF
(solids-not-fats) and fats that are adjusted in order to achieve the desired levels. For
example, Olper’s Milk needed 3.5% of fat. On the other hand, tea whitener like
Tarang Milk which has more cream need 7% of fat, so therefore, more quantity of
fat is required in the milk during the production process to make Tarang.
Moreover, depending on the milk quality, SNF is also maintained which is usually
at 8.9% for Olper’s milk and this is also adjusted during the production process.
Olper’s Lite, which is another product of Engro Foods, is a low fat and high
calcium milk, which is made for the people who are very health conscious, requires
a high level of calcium that is modified in the production process.

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Packaging Material
Tetra Pak Ltd provides the packaging material to Engro Foods for their products.
This aseptic packaging usually arrives directly from the suppliers in the form of
rolled sheets in manufacturing plants. Before filling the milk, which is ultra-high
heated, this aseptic packaging is sterilized, resulting in a brick of 6-layered aseptic
Tetra Pack packaging, having a shelf life of 3 months.

Plants at Engro Foods

Plants of Engro Foods are located at Sukkur and Sahiwal. Plant located in Sukkur
is situated on a 23 acre land, which has the capability to store 300,000 liters of raw
milk per day and 200,000 liters per day of processed milk capacity of Ultra-high
temperature. Moreover, it is an efficient production plant, which is capable of
producing only 3 products and this plant was built at a cost of Rs. 1 billion,
employing around 750 people. The Sahiwal plant which is more flexible with the
capability of producing 10 products at a time was built by GEA TDS (one of the
world’s prominent suppliers of process technology for pumpable foods) at an
investment of over 3 million euros for Engro Foods and it is one of the biggest
milk processing plant established in Pakistan in the Sahiwal region. This plant has
the capability to supply around 250,000 liters of low fat milk per day to Sahiwal
region, which can approximately fill the demand of around 1 million, and around
10 million demands of Tarang which is a tea whitener. For the local farmers, this
plant also serves as an outlet of processing, who are involved in rearing dairy herds
of cows as well as buffalos, particularly in the small sized farms. This plant
employs more than 200 people and has the raw milk storage capacity of up to
40,000 liter per hour of both buffalo (80%) and cow (20%) which is provided by
local farmers, and the milk is refrigerated for storage at a temperature of around
15˚C to 4˚C in the two 125m3 storing tanks. The process at the plant is able to
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pasteurize milk to 85˚C at the rate of 25,000 liter per hour and includes an
adjustment of SNF; milk skimming and clarification; butter oil, cream and milk
standardization; dosing of butter oil; a revamped homogenizer; as well as
degassing. The milk which is pasteurized is stored in 5 different tanks, each having
a storage capacity of around 75m3. Pasteurization of cream is done at a temperature
of 95˚C separately with a rate of around 3,500 liter per hour. Ultra-high
temperature equipment at the plant, with refrigerating capability and the ability to
provide heating indirectly through heat exchangers, can manage around 21,000
liter per hour. The system of CIP installed in the plant manages the entire process
from the delivery trucks to the filling machines. Moreover, two tanks located on
the site, each with a storage capacity of 15m3 are dedicated to store the caustic and
acidic concentrates. Programmable Logic Controllers (PLCs) provided by Allen
Bradley are responsible for controlling this whole process.

Milk Supply Sources

Raw milk supply at Engro Foods (i.e. the way in which the milk is collected) can
be categorized into:

 Direct Sourcing

 Contract Based Collection

Direct Sourcing
The milk collection method using direct sourcing can be defined as collecting milk
from various farmers of dairy who are situated in different villages. These villagers
usually known as “Dhodies” are responsible for milk collection from their
respective areas and delivers milk to the milk collection centers every morning and
evening. The quantity of milk provided by these dairy farmers varies substantially

9
depending on both the milk availability which could be as minimum as 2 liters per
day at times and the size of the areas that are covered by these dairy farmers. Engro
Foods usually prefer direct sourcing because it mitigates the risk of milk
adulteration by dairy farmers. One reason of this can be the ease with which this
method makes it easy for Engro Foods to detect adulteration in a low volume of
milk as compared to the high volume that the other method provide. However, the
overall milk quantity collected using this method is very limited.

Milk Collection Centers

To manage milk collection using direct sourcing, full-fledged department of milk
collection is maintained by Engro Foods. Engro Foods had 100 milk collection
centers in 2006, but today it has more than 550 milk collection centers operating in
different areas of the country. Engro Foods have one of the largest network of milk
collection centers in Pakistan that cannot be matched in size, efficiency and
productivity to meet their self-imposed commitment to the quality. This huge
network comprises of milk centers in villages that are installed with chillers to
preserve the quality of the milk before they are transported to the factories through
specialized tankers. The main goal of these milk collection centers is to manage the
small volumes of milk delivered by the dairy farmers from the village. It has not
only benefitted these small farmers by providing them with a regular source of
income through the sales of their milk, but it has also helped Engro Foods to obtain
good quality milk in the needed quantities. Milk collection agents are used in these
centers who are responsible for recording and testing the quality and fat content of
every supplied milk and rejects the milk that is either not up to their standards of
quality or adulterated.

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Contractor Based Collection
Milk collection from contractors involves obtaining milk supplies from approved
suppliers who are aware of the standards of quality used by Engro Foods. These
contractors are responsible for obtaining milk from large areas and they are able to
provide around 10,000 liters per day from dairy farmers. Contractor based
collection method provides the most milk volumes in the overall milk collection
quantity. However, the risk of adulteration is high in this method because it is more
difficult to detect adulteration when the volume of milk is large. After testing for
lactose, butterfat and protein content, the milk in this method is stored in chiller
containers in order to protect it from heat, light and air. The milk is then delivered
to the production plants and before storing the milk in the chiller containers, these
containers are also aseptically cleaned.

Raw Milk Transportation

Insulated tankers are used to transport raw milk from collection centers to
production plants. These tankers usually maintain milk temperature of around 4 °C.
Insulation of these tankers is usually done to prevent milk from freezing in the
winter or getting hot in the summer. These trucks have reflecting surface that also
protects the raw milk from infrared rays and minimize the degree of heat on these
tanks. During the transportation of the milk in these tanks over long distances to
the manufacturing sites, the cool temperature of these tanks also helps to prevent
the production of bacteria in the milk. The capacities of these tankers for storing
milk during transportation from milk collection centers to production plants, varies
from 10,000 to 35,000 liters. Engro Foods transportation fleet is partly owned and
partly rented from third party logistics. Furthermore, the routes to transport the
milk from collection centers to plants at Sukkur and Sahiwal are carefully designed

11
in order to prevent overlapping of routes that otherwise would cause the
transportation cost to increase. In order to avoid the loss of quality in the milk, it is
usually transported between 4 to 6 hours.

Supply Chain Structure at Engro Foods

Department of
Supply Chain

Customer Supply
Service Chain
Department Development Purchasing Planning

Warehousing

Inbound
Logistics Logistics:
Outbound
Procurement
Logistics
of Milk

Engro Foods Efficient Department of Milk Procurement

Engro Foods milk procurement department contains procurement managers who
are highly paid and supported by a qualified and experienced team of zonal
managers, controller of milk collection or area executive, mobile testers,
supervisors of milk collection, peons, drivers, etc. Moreover, a separate wing of
accounts is also made to provide support to the procurement staff. This department
contains the highest number of staff because procurement of milk is not an easy
job which can be done solely. Quality, Quantity, Man Power, Competition and

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Cost are the five pillars of this department. Department of milk procurement at
Engro Foods continuously strives to provide value-added service to all the
producers of milk, making sure that good quality milk is produced and also ensures
that sufficient quantity of raw milk is always provided to the company to fulfill its
needs, by using effective strategies, project systems, policies and processes. Engro
Foods milk procurement staff is responsible for managing a number of
responsibilities associated with milk procurement. Some of them are:

 Making sure that milk suppliers are given their payments accurately and
promptly.

 Procuring raw milk from the suppliers or producers and delivering them to the
plants efficiently and effectively.

 Identifying new areas in different locations to develop clean milk routes

successfully.

 Establishing bulk coolers in different areas.

 Improving milk yield.

 Improving hygiene practices during milk procurement and production at all

levels.

 Providing advance trainings to truck drivers so that they are able to handle large
quantity of milk in situations of emergency.

 Providing trainings to field staff for managing clients and handling of sample

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 System of Quality Control
In order to purchase the best quality of raw milk, Engro Foods quality assurance
system is divided into two parts. The first part consists of procurement department
who is responsible for purchasing raw milk of good quality. The second part of this
system contains quality assurance department who is responsible to provide all the
necessary support to procurement department so that they are able to purchase high
quality raw milk. Within the quality assurance department, experienced food
technologists make sure that high quality parameters are followed during all
production processes and that the final product reach the customer as per promise.

Supply Chain of Olper’s Milk

Milk Reception Testing in Labs Milk approved by

QA

Rejection
Chilling at 4 °C

Homogenization Standardization Cream Separator Cream

Balance Tank Packing/Filling in Warehousing

Pouch Packs

Distributor Regional Transportation

Warehousing

Key Accounts Wholesaler /

Retailer

Final Customer

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Olper’s Milk
Olper’s milk was introduced in the markets on
20th march, 2006 which is Engro Foods’ flagship
brand, having the fat content of 3.5%, 8.9% of
SNF and is Engro Foods’ homogenized,
standardized and pure ultra-heat treated milk. It is
obtained from more than 3000 villages and
collected by more than 10,000 farmers. Olper’s
milk is mostly preferred by those consumers who
are very quality conscious. This premier brand of Engro Foods is available in easy
to open red packaging, made from the brick of 6 layered aseptic Tetra Pack, having
a shelf life of around 71 days. There are 3 stock keeping units of Olper’s milk,
which are maintained by the company in the Tetra Packs and these are 250ml,
500ml, and 1000ml. Olper’s milk order fulfillment rate is around 86% to 87%.
Lead time of Olper’s with regard to procurement of milk varies between 5 to 8
days. Whereas, the lead time between order placement and order fulfillment varies
between 12 to 18 hours. Moreover, as Olper’s milk has low shelf life, safety stock
of Olper’s milk is only kept for 6 to 7 days. To meet the demand levels of Olper’s
milk, forecasting is usually done in short intervals. Furthermore, variations in
demand for Olper’s milk are commonly observed in the months of Ramzan,
Moharram and during Eid days.

Production Process of Olper’s Milk

Cow and buffalo milk is collected and transported from farms to dairy plants
through tankers that maintain a chilling temperature of around 4 to 5 ºC. When this
milk reaches the dairy plants, it is stored in isolated tanks where it is further

15
processed. This milk is then tested in the dairy plants to check the quality and the
milk that meets the quality standards is chilled again, and pumped into the chilled
holding tanks. The milk is then cleaned either through centrifuged or filtration
before getting pasteurized followed by toning/standardization and homogenization.
Then this milk is again transferred into another holding tank where it is again
further processed. This further processing might involve UHT (ultra-high
temperature) and aseptic drying or filling in order to make dried milk.

Inventory Turnover at Engro Foods

Engro Foods inventory is replenished on every 26th day of the month.

Warehousing and Logistics at Engro Foods

No matter where the customer is within Pakistan, Engro Foods make sure that their
product Olper’s milk is available at every store. To make this happen, Engro Foods
integrate all its processes, from the farm to the markets and the company make sure
that its product is available in the right quantity, at the right time, and on the right
place. Engro Foods has outsourced all its logistic network and commonly relies on
3PLS. They have outsourced all their non-core activities, such as transportation,
which is mostly rented depending on the quantity of milk which they want to
transport, in order to minimize their costs. Even though all transportation of their
product is outsourced but they have their own distribution network.

Inbound Logistics
Long dedicated vehicles are used for inbound logistics to transport raw milk from
farms to plants. Raw milk is collected and transported from farms to 40 milk
collection centers of Olper’s milk, located in various areas of the villages where
the quality of the milk is also checked. If the raw milk passes the quality test, it is
stored until it reaches 9,000 liter capacity at each collection center, from then it is
16
transported to the plants through specialized dedicated vehicles for production.
When these vehicles reach the plants, again, the quality is checked before
processing the raw milk in the plants for production. This raw milk is mostly
collected from various cities of Punjab and Sindh, which include Lakhi, Rani Pur,
Ahmed Pur East, Dharki, Nawab Shah, Dhokri, Rohri and Sahiwal.

Outbound Logistics
Olper’s Milk truck usually arrives at every alternate day on average, at each
warehouse from Sahiwal and Sukkur plants and then it is distributed in the same
quantity to the distributors all across Pakistan. Trucks are mostly used for
outbound logistics. Engro Foods have 80 percent dedicated fleets and 20 percent
open trucking which covers most of the Pakistan’s northern areas. In outbound
logistics, finished milk is transported from plants to the warehouses and
distributors. Engro Foods have 3 warehouses for Olper’s milk, which are located at
Sukkur, Rawalpindi and Sahiwal. Warehouse in Sukkur is located close to the
manufacturing plant, and covers whole southern areas i.e. Sindh and Balochistan.
Moreover, Olper’s milk takes one day to reach Karachi from Sukkur. Warehouse
in Sahiwal is also located near to its manufacturing plant and it covers the whole
central areas of Pakistan. Engro Foods has rented Rawalpindi warehouse which is
also a satellite warehouse, having a covered area of 30 thousand square feet.
600,000 rent is given per month by Engro Foods for this warehouse. Moreover,
this warehouse is responsible for fulfilling the orders coming from northern areas.

Warehouses
As already mentioned above, Engro Foods has 3 warehouses from which 2 of them
(i.e. Sahiwal and Sukkur) are located near to their plants and 1 of them, which is
located in Rawalpindi, is the central warehouse which is used on rent by the

17
company. Capacity of Sukkur warehouse is 1.6 million liters, having an average
dispatch of 350,000 liters on daily basis, with 2,000 pallet capacity. Capacity of
Sahiwal warehouse is 4 million liters and on average, it daily dispatches 400,000
liters, with 5000 pallet capacity. Both of these warehouses have a cross docking
system at Maripur and all transporters handles and operates this system
themselves. In these warehouses, stacks of cartons are palletized and capacity of
each pallet is 800 liters. Then forklifts are used to deliver these pallets on the
assigned docks. To keep milk in good and fresh condition, each warehouse’s
temperature is maintained at 25 to 28 degrees. Moreover, the company is using the
FIFO inventory system because of the product’s perishable nature. There is also a
system of climate control in the warehouses because during summer, Sahiwal and
Sukkur temperature shoots up to 45 degrees. These warehouses also maintains 6 to
7 days safety stock. After the milk is packaged, it is stored in an incubator in the
warehouse for 3 more days before transporting it through the trucks, in order to
ensure that the milk’s quality is conforming to the required standards.

Order Processing and Material Handling

Suggested order list (SOL) initiates the ordering process at the warehouses which
is triggered through the system and it is done to determine what items to order,
how much quantity to reorder, as well as future forecast of demand. Whereas, in
order to minimize the rate of losses and damages, material handling is also done
properly at Engro Foods. Through using the latest equipment for both finished
goods and raw materials, Engro Foods manages materials related to Olper’s milk
very efficiently. As mentioned above, Engro Foods uses specialized milk tankers
for inbound transportation of raw milk, and they properly palletize their finished
goods, then use fork lifters to deliver the pallets in the right place in the
warehouses which are then cross docked.
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Distribution Network at Engro Foods
Engro Foods have around 400 distributors for Olper’s milk that are situated in
every major city in the country. Moreover, all transportation for Olper’s milk is
outsourced. In Pakistan, the distribution network for Olper’s milk is divided into 3
geographical zones, which are further divided into regional offices for sales.

North Zone Central Zone South Zone

Peshawar Multan Nawab Shah

Rawalpindi Lahore Karachi

Gujranwala Punjgur

Hub

At Engro Foods, distributors for Olper’s milk has been selected based on their
financial strength, infrastructure efficiency, logistic fleet, trained and efficient sales
force, past experience, knowledge about the market and their use of technology.
Moreover, there is a fixed percentage of markup for all distributors which is
around 4% as Engro Foods does not negotiate on prices for Olper’s milk with
distributors. After discussing the requirements of the market, monthly targets for
sales are made for each distributor. Furthermore, in order to convince the retailer to
buy in bulk quantities from distributors, retailers are usually taken into confidence
by product’s quality, features and brand name rather than using the distributor’s
goodwill and credibility to convince the retailer to buy. Then after this, the
reputation of the distributor plays the role of value addition in the whole
transaction. Another responsibility of distributors is to provide customers’
feedback to the Olper’s team for further planning. Regarding the purchase order
19
process for Olper’s milk, distributors are the buyers who initiate this process by
submitting their payments in advance to Engro Foods and then they provide the
purchase order to the department of sales of Engro Foods through email whenever
they are low on stock. After properly processing these emails in the form of
purchase orders, they are sent to the department of finance for invoicing purposes.
Moreover, dispatching of the desired goods from plants/warehouses to the
customers (i.e. distributors) is also a responsibility of the sales department. As the
distribution of the goods to the retailers who are then responsible for selling the
products to final customers is not directly managed by Engro Foods but rather
being controlled/handled by their 400 distributors to whom they supply their
inventory, difficulty in exercising supervision and control on the overall
distribution activities might occur. And this can make it more difficult to obtain
accurate information regarding sales, timely delivery, proper storage and
appropriate procedures for marketing. However, Mr. Nasar Ali insisted that even
though this responsibility is not directly under Engro Foods, but feedback is still
collected and proper contact and coordination with all distributors is also
maintained as much as possible.

Reverse Logistics and Olper’s Milk Return Policy

In case of any defect, Engro Foods have an efficient return policy for Olper’s milk.
A certain batch number is given to every item or carton and if any defect is
detected in these items or cartons (which is usually in very small quantity) then the
batch of that particular carton or item is noted before disposing it off. However, if
there is a large defect, then the same delivery truck who delivers the order to the
distributor is responsible to take back the whole batch back to the plants. Once this
large defected milk quantity is returned to the plants or warehouses, it is then

20
drained. However, the rate of normal losses at Engro Foods due to defected milk is
very small which is around 0.04% per year.

Packaging
Engro Foods always try to minimize the negative externalities or effect of their
activities on environment without endangering the safety, quality and acceptance
of their products by customers. Engro Foods’ entire dairy product packaging is
dependent on Tetra Pack. Engro Foods have only Tetra Pack available for the
packaging of its products, including Olper’s milk as Tetra Pack is having a
monopoly in Pakistan in the packaging sector. Proper packaging of milk is very
important as it is a perishable item that needs to be preserved for few months. In
order to meet this goal, Engro Foods deliver fresh Olper’s milk to its customers
through using Tetra Pack without compromising in health measures.

The following are some objectives Engro Foods have in mind regarding Olper’s
milk packaging:

 Maintaining Pack integrity while attaining the lowest possible volume and
weight of packages.

 Identifying and taking into account new processes and packaging materials that
helps the company to minimize the impact of unnecessary transportation on the
environment.

 Avoiding the use of those substances during production, packaging and disposal
that might have the potential to adversely affect the environment.

 Minimizing wastage of packaging at every stage of the supply chain which

includes, manufacturing of package, utilization as well as disposal.

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 Increasing the use of materials that can be recycled easily, wherever possible,
and increasing the compatibility of packages and recyclables with their existing
schemes of waste management.

 Storing packaging materials in a dry place which are located far away from the
areas of manufacturing and using them in a clean and sanitary way which is
nontoxic.

 Processed products’ packaging is done in a way to avoid risk of contamination

and also protecting them from contamination until they reaches to the final
customers safely.

Information Technology Applications at Engro Foods

Engro uses its own dedicated intranet network provided with a backbone of PTCL
fiber lines and internet. By using this widespread and sophisticated network, Engro
Foods has well integrated all its business functions like production, accounts and
finance, logistics, sales and marketing. This has also helped the company by
providing them the opportunity to develop and utilize critical business applications
to support operations of the business and aid in decision making in the
management all across the internet worked enterprise. Engro Foods is using both
new and existing modules and applications to manage their various activities such
as:

 Order processing

 Manufacturing and Inventory Control for which they are using ERP provided
by SAP

 Sales reporting and management (Orange IT solutions)

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 Executive Information System.

These applications and modules are designed to access and interface with Engro
Foods’ existing legacy system and database. Moreover, these software applications
are installed on the company’s intranet web servers where employees, both at
regional and head offices can access and run them through using web browsers
whenever they need from anywhere on the network.

Customer Relationship Management

Engro Foods provide on demand CRM solutions to its more than 60,000 strong
customer base and also keeps the record of its every customer. It is important for
Engro Foods to keep on their toes as they’re running a commodity business. And to
do that, Engro Foods run its reports in Oracle CRM system to track both their loyal
customers and those customers that are also buying products from their rivals.
Through this system, they try to find out the reasons why their customers are
switching their demands to their rivals’ products and then they work to win these
customers back. And this is something which they cannot do using simple
spreadsheets. They believe that by identifying and acting on this type of
information beforehand provides them with a competitive advantage. Before 2009,
Engro Foods was using Microsoft Excel spreadsheets to manage and record the
information of their customers. This was helpful for the company when it was
launched, however, when the company began to expand its operations, this system
proved untenable. Today, through using their current Oracle CRM system, Engro
Foods has grown substantially which is more than 10 times in the past 3 years. The
company is able to dispense with spreadsheets to track and record information by
using this Oracle CRM system. Through this system, all the customer data are now
entered and stored more easily in the database, without the need of repetitive

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manual entry and this system also helps to ensure the accuracy of information.
With old system all the personal details and previous transaction record of each
customer were stored over multiple spreadsheets, making the handling of
information very tedious and difficult. But today, the new system provides single
record and complete history of each customer, making handling of information
easier. This system has also allowed the company to record and track every single
piece of information regarding their customers, such as, their anniversaries and
birthdays which has further helped the company to interact with their customers at
those important times which are meaningful to them. Through using this system,
the company has been able to build strong relationships with those customers that
are most important to them. By using Oracle to manage their systems, the risks of
errors has been much reduced. But if any problem still occurs, the company knows
that it can be resolved quickly.

Supply Chain Cost Reduction Opportunities for Engro Foods

Up till now the first part of our report, which was to identify and evaluate the
current supply chain model of Engro Foods, has been covered. Now the second
part of this report, which is to recommend any cost reduction opportunities for
Engro Foods has been provided in this section. Even though Engro Foods’ current
supply chain structure is very effective, but as per our observation, there are three
main weaknesses in this model that can increase costs for Engro Foods and these
weaknesses are discussed below.

Weaknesses
 The most important weakness that Engro Foods is currently facing and that
usually increases costs for them is their reliance on Tetra Pack for the
packaging of their entire dairy product. Because Tetra Pak is having a

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 monopoly in Pakistan in the packaging sector, it is the only option available for
Engro Foods for the packaging of their Olper’s milk. This increases the cost for
Engro Foods if Tetra Pack charges high prices for them, which also increases
Engro Foods’ production costs.

 Another problem which the company might face is related to their farmers who
usually have insufficient knowledge and lack of awareness about the ways to
increase/optimize the milk which is extracted from their animals. These small
farmers also lack the knowledge on how to take care of their animals properly.
This might lead to poor quality of milk, decreasing the productivity and also
leading to smaller quantities of milk production, which can eventually increase
the costs for the company.

 Lastly, poor infrastructure is another issue which can increase costs for Engro
Foods. The company owns 2 plants that are situated in the interior areas of
Sindh and Punjab and the raw milk, which is purchased from the villages,
whether located in adjacent or far flung areas, mostly lack proper highways and
roads which can cause difficulty for the company to transport milk easily and in
shorter time. This can also increase chances of delays that can disturb the whole
production process.

Recommendations
 As the high cost of packaging is the main problem for Engro Foods because of
their reliance on Tetra Pack, so we recommend that Engro Foods should build
their own packaging system. They can use their Research and Development
(R&D) department to make their own packaging system by investing some
funds in its development or they can even outsource its development, if the cost
of outsourcing is cheaper than building the packaging system in-house.
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 To deal with the second problem related to lack of knowledge among farmers,
we recommend that Engro Foods should increase awareness among its farmers
by providing them proper training and education so that these farmers are able
to optimize the milk extraction from their animals. Moreover, Engro Foods
should also organize different vaccination programs to make the livestock of
these farmers resistant from various diseases.

 As a sort of contingency plan, Engro Foods usually overcome the problem of

delays caused by poor road infrastructure by storing powdered milk in the
premises at all times. However, to deal with the third problem, we recommend
that Engro Foods should negotiate and discuss this problem with the
government so that the government helps them by building proper roads and
highways to facilitate the transportation of the milk. Although the government
has made many highways and roads in various areas of Punjab and Sindh, but
many interior areas of Pakistan are still lacking proper roads, highways and
energy system which might increase the problems for the company. So the
government should invest more in these neglected areas.

Conclusion
Even though Engro has made its place in the dairy and food segment since 2006,
but today their business holds a significant market share and is still experiencing
substantial growth. In this small amount of time, Engro Foods is already on the
right path to capture its goal of becoming one of the largest companies in the
Pakistani food industry.

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Appendices

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References
Ali, N. (2017, July). Supply Chain Structure at Engro Foods. (H. Elahi, A. Amad,
& I. Pechuho, Interviewers)

Ali, N., Ateeq, R., Akhtar, M., & Akhtar, S. (2008). Supply Chain Management
Final Report on Engro Foods. Bahauddin Zakariya University, Business
Administration, Dera Ghazi Khan.

Engro Foods. (n.d.). Retrieved July 2017, from Engro Foods:

http://www.engrofoods.com

Fakhar, H., & Walker, G. (2006, June). The White Revolution - Doodh Dariya.
White Paper on Pakistan’s Dairy Sector. Lahore, Punjab, Pakistan: Pakistan Dairy
Development Company.

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