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Postgraduate Diploma in Supply

Chain
Assignment Cover Sheet
Student Details
Name: Nadie Wijesekera
Student ID:
Batch / Year: Batch ll- 2013
Subject Details
Subject Title:
Lecturer:
Assignment Details
Assignment Category: Individual
Assignment Title: Supply Chain Strategies to reduce demand and supply
uncertainties in a local food manufacturing company.
Word Count:
Due Date:
Extension granted? Yes/No Extension Date:
Resubmission? Yes/No Resubmission Date:
Declaration
I certify that the attached material is my original work. I have not used another
persons work or ideas without acknowledgment. I have not submitted the contents of
this assignment for examination / assessment in any other course or unit at this or any
other institution unless specifically stated.
Signature of
Student:
Date:
Please submit to NEXT Institute of Supply Chain Management.
320A, T.B. Jayah Mawatha, Colombo 10
For Office Use Only
Received by: Received Date:
To be Filled by the lecturer
Marks: Lecturers
Signature:


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Contents
Assignment Cover Sheet ......................................................................................................................... 1
This is Fonterra ............................................................................................................................... 7
How do we Define Marketing Dynamic' .......................................................................................... 10
Aligning Fonterras Competitive Strategy and Supply Chain Strategy ........................................ 14
Bibliography ......................................................................................................................................... 17




















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Executive Summary
Successful companies understand that the right Supply Chain strategy is dependent on a
number of factors.
The strategy needs to be tailored to meet specific needs of customers.(Understanding
the common Market)
A product with a stable demand and a reliable source of Supply should not managed
in the same way as one with a highly unpredictable and an unreliable source of
Supply.(Should be closely monitored)
The internet can be a powerful tool for supporting or enabling Supply chain strategies
for products with different demand and Supply uncertainties.

This report analyses supply chain in one of the top player in the Dairy industry in Sri Lanka, Fonterra
Brands Lanka (Pvt) ltd and what are the uncertainties they are facing and their main role in the market
to overcome supply and demand uncertainties.
As a result ,modern Supply chain leaders are more uncertain now than they were a year or
two ago and have to make strenuous efforts in managing uncertainties in Supply and
Demand ,both unpredictable despite advanced in built techniques.
This report is focused on how demand and supply uncertainties are reduced in selected local
industry.











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Introduction
Fonterra Brands Lanka (Pvt) Ltd is a leading FMCG industry in Sri Lanka. They manufacture and
distribute dairy product to the Sri Lankan market and handle 60% of market share.
The business totally engaged with packaging &distribution of Milk Powder and production of
liquid and cultured Milk. Their flagship brand is Anchor and it is supported by Ratthi,Anlene,
Pedeapro and Newdale

When looking at the history of Fonterra Brands Lanka, following milestones can be
identified.
1987 - As a joint venture with The Maharaja Organization Ltd and NZDB owning 60% and
40% shares respectively.
1992 - 49% shareholding in the distribution and manufacturing operation to NZML & 51%
to The Maharaja Organization Ltd
1996 - 75% shareholding in NZML and Dairy Lanka Limited (Now NEWDALE DAIRIES)
& 25% to the Maharaja Organization Ltd
2000 - 100% shareholding in NZML and Newdale Dairies
2005 - Re-named Fonterra Brands Lanka (Private) Limited
























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Supply Chain in Fonterra Brands Lanka Pvt Ltd.

FBL consists of 2 Major Plants.

1. Powder Plant
2. Liquid Plant

For the rest of the report concern is on Powder Plant
Fonterra dominates in Milk powder market mainly due to its commitment and passion to provide
quality and nutritional products to its consumers.
All manufacturing and distribution of dairy products take place in one place and distribution
is done island wide with its agents through which general trade is serviced. The requirement
of the general trade is identified by field staff of Fonterra who work close with the outlets and
customers. There are 120 Sale representatives island wide.
The other network to reach Fonterra products to its customers is the Modern Trade which
consists of all super market ranges in Sri Lanka.
Hence, supply chain of Fonterra powder products started in New Zealand farm and it goes to
local customers with the concept of Grass to Glass
In New Zealand FBL have a Business Unit of which called Capac where milk processing is
happen after collecting Milk from the farm. Based on our Sales Demand we order Milk
Powder direct from New Zealand.
Milk Powder repacking is done in Srilanka and Grass to Glass journey involves following











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Supply Chain in Fonterra Brands.




Figure 1




Grass(Newz
ealand)
Cow(milk)
(New
Zealand)
Manufacturi
ng Plant -
New
Zealand
Ware House
(Raw
Material)-Sri
Lanka
Blending
and
Repacking
Distributor
Retailor
Consumer
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Strategy of Fonterra Brands as follows.



Volume grow milk production volumes to protect our place in a growing market.
Value Drive more value from every drop of milk by providing dairy nutrition to the young,
the ageing and in foodservice.
Velocity execute our strategy at speed.

This is Fonterra
Our Purpose, Our Values and Our Story are at the heart of this is Fonterra
Our Purpose
To be the worlds most trusted source of dairy nutrition
Our Values
We're a company that spans many countries and cultures, so having shared values are hugely
important to us. These values enable us to combine our personal strengths and experiences
with those of others to make Fonterra stronger, better, more innovative and more successful.
These four simple values guide the way we conduct ourselves and interact with others. It
doesn't matter who or where we are within Fonterra, these are the values we share.

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Identify the Companys competitive landscape and the market Dynamic
What is Competitive Landscape?
A form of analysis that helps a business identify its primary online and offline rivals.
For example, a competitive landscape analysis might start with an attempt to identify and
understand competitors, followed by an analysis of their strengths and weaknesses and how
the target business can improve upon what its competition is doing.

http://www.businessdictionary.com/definition/competitive-landscape.html#ixzz34Ny0CnK9

Having conquered 60% of market share in milk powder products, Fonterra keeps eye on its
competitors who are currently in the market and entering to the market.


Figure 2
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Based on past experiences, and a lot of assumptions are used to analyze competitive
landscape, a research methodology from marketing experts is widely used in Fonterra to
identify its competitors behavior in the market.
Marketing team of FBL Generally obtain the feedback form the GT through brainstorming
sessions, surveys (AC Neilsen, TNS, LMRB)
Apart from market research following methods are also adopted in identifying customer
behavior which is a deciding factor in market demand for company products.
1. Modern looking website featuring fresh content tells that the competitor is active and
serious about marketing its business. Outdated or poorly designed marketing materials signals
a competitor that lacks the marketing resources to keep up.
2. A competitors social media channels offer valuable insight on how that brand engages
with the target audience, who are probably company customers too.
3. Online surveys are also effective research tools. They are affordable and easy to set-up and
manage.
4. Sales team and consignment agent are at the forefront of companys relationship with
customers, and a great source of competitive information. So asking them about the latest hot
topics in the industry, new competitive products, and the latest rumors is found to be very
effective.
The fact that Fonterra has been leading dairy products manufacturer with majority of market
share, would not prevent analyzing the its competitors as it believes that market forces can
be changed at any movement in an open market conditions.
How do we Define Marketing Dynamic'
The pricing signals that are created as a result of changing supply and demand levels in a
given market. Market dynamics describes the dynamic, or changing, price signals that result
from the continual changes in both supply and demand of any particular product or group of
products. Market dynamics is a fundamental concept in supply, demand and pricing
economic models.
(Investopedia.com)


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Supply Chain in Fonterra Sri Lanka with its Partners.
It has Internal Partners as well as External Partners
Internal Partners
Marketing/Manufacturing/Sales
External Partners
RM/PM suppliers/Clearing Agents/Out Sourced Ware Housing/Research Institution








Figure 3

Supply
Chain
Marketing
Manufacturing
Sales
RM/PM
Suppliers
Clearing Agents
Out sourced
Ware Housing
Research
Institutions

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Push & Pull Approach
Supply chain process has two categories depending on the timing of their execution relative
to the customer demand.
PULL- Execution is initiated in response to the customer order this is call reactive approach/
demand driven process..(Make to order.)
PUSH- Execution is initiated in anticipating customer order hence this strategy call
speculative / forecast driven approach.(Make to Stock)
Push/ Pull boundary separated PUSH process from the PULL. Relatively this process can
have an impact on supply chain.

Figure 4
Decupling point is the production process where the product supply is independently to the
actual demand. Looking at the Fonterra Powder products supply chain push and pull is show
as Figure- 5. The decupling point is changing throughout the supply chain.

Push Pull
Procuring
Milk Powder
From New
Zealand
Repacking
Process (Sri
Lanka)
Ware
Housing
Distributor Retailer Customer
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Differentiating of Push and Pull strategy
Portion Push Pull
Objective Minimize cost Maximize service level
Complexity High Low
Focus Resource allocation Responsiveness
Lead time Long Short
Processes Supply chain planning Order fulfilment
A company's supply chain stretches from the factory where its products are made to the point
the products are in customer hands. Supply chain strategy determines when product should be
fabricated, delivered to distribution centres and made available in the retail channel. Under a
pull supply chain, actual customer demand drives the process, while push strategies are
driven by long-term projections of customer demand (by Steve Lander, Demand Media)
Fonterra always try to maintain lean supply chain model throughout the supply chain, hence
their inventory levels are very low in the FBL where houses as well as Supplier ware houses.
However they have five push/ pull boundaries in the supply chain. As a result theres a
possibility Bullwhip effect if the uncertainty situations come from the customer end.
Small Changes in Consumer Demand can result in large variations in Orders Place upstream.
The network can oscillate in very large swings .This Phenomenon known as Bull Whip
Effect.
.In FBL, Powder business has several causes for Bullwhip effect, it can be demand
variability, quality problem, plant emergency situation ect. Variability couple with time delay
in the information transmission up the supply chain and manufacturing and delivering goods
to the down the supply chain create bullwhip effect. The following all can be contribute to
this effect.
Over reaction to backlog.
Neglecting to order in an attempt to reduce inventory.
No proper communication up and down supply chain.
No coordination up and down supply chain.
Delay time for material and information flow.
Order batching larger orders resulting is more variance. Order batching occurs in an
effort to reduce ordering costs, take advantage of transportation economics such as
full truck loads economies and to benefit from sales incentives. Promotions often
results forward buying to benefits more from the lower prices.
Shortage gaming Customer order more than they need during a period short supply,
hoping that the partial distribution they receive will be sufficient.
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Demand forecast inaccuracies everybody in the chain add a certain percentage to
demand estimates. The result is no visibility of true customer demand.
Company Free return policies.

Aligning Fonterras Competitive Strategy and Supply Chain Strategy

Supply Chain Strategy
Develop innovation initiatives with Strategic Partners, looking for new formats and shapes
which can give Fonterras products a competitive advantage at the Point of Purchase, whilst
delivering the expected quality to consumers. Leveraging Fonterras volumes with key global
vendors, reducing the current number of different vendors across the regions to a small
number of strategic partners.

1. Total Customer and Consumer Satisfaction
2. Total Quality Compliance as per Fonterra Standards
3. the most competitive price and other direct cost savings
4. Reliable and continuous supply avoiding disruption in our supply chain
5. Financial risks and exposure mitigation, developing Contingency Plans via
sourcing options and price risk management
6. Reduction of supply chain complexity for its different facilities
7. Partner with vendors and explore opportunities to innovate packaging materials
and services
With an eye to achieve companys strategy which is V3, Volume (grow milk production
volumes to protect our place in a growing market), Value (Drive more value from every drop
of milk by providing dairy nutrition to the young, the ageing and in foodservice), Velocity
(execute our strategy at speed), Supply chain has to redesign its strategy. Hence, companys
competitive strategy clearly spells out the set of customer needs that it seeks to satisfy
through its products and services having a defined set of attributes.
As mentioned above The supply chain strategy of Fonterra includes supplier strategy,
operations strategy, and logistics strategy. Design decisions regarding inventory,
transportation, operating facilities, and information flows in the supply chain of a company
are all part of supply chain strategy.
Supply chain aims to achieve company objectives in a Lean way, minimizing inventory at
each locations RM warehouse, WIP, production process , FG warehouse and distribution
centres.
On the other hand, it needs to ensure demand fulfilment which is captured as major KPI (Key
Performance Indicators) in Supply Chain division. DIFOT (Delivered in Full on Time) and
DOI (Days of Inventory) are then captured to reassure the Supply Chain Strategy.
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Demand Uncertainty is linked to the predictability of the demand for the product.

In FBL we can categorize existing SKU in to 2 Catogeris.

1. Functional Products - Products that have long product life Cycles and
therefore stable demand.(Eg- Anchor/Ratthi Milk Powder)
2. Innovative Product - Products that have short life cycles and have highly
unpredictable demand(Eg Anchor Pedeapro/Anlene/Anchor Shapeu Up)

Demand Characteristic in between Functional and Innovative Products
Functional Innovative
1. Low demand uncertainity High demand uncertainity
2. More predictable demand Difficult to forecast
3. Stable demand Variable Demand
4. Long Product life Short selling season
5. Low inventory cost High Inventory cost
6. Low Profit Margins High Profit Margins

Prevailing demand/Supply Uncertainties in Fonterra Brands.
1. As world aware that FBL had to face for DCD matter and , All SBU had to face for a
demand uncertainty during the said period.
2. Fluctuating of SKU prices in the government(Until the approval obtain from the
government
3. FBL has single source for Milk Powder. All subsidiaries of FBL which located in
worldwide procure Milk Powder from Newzealand Milk Products. This is very risky
if supplier failure to produce due to a natural disaster or bankrupt demand
uncertainties will be evolved.
4. Seasonal products face for demand uncertainities again Eg : Yoghurt

How Supply Chain Cater Demand Uncertainities

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Demand uncertainty
Lee tries to find demand patterns for different product categories, he therefore splits the
products of a company into two categories: functional products and innovative products.
Functional products first of all have a stable demand, usually due to a long product life cycle.
Usually the product variety is low and the volume per SKU high. The author correctly
concludes: Clearly, different supply chain strategies are required for functional versus
innovative products.
Supply uncertainty
As well as the demand side, the supply side risks are classified as well. Supply processes can
be stable and evolving. Stable supply means: reliable suppliers, less process change and less
quality problems. Evolving supply processes are those with still unreliable suppliers, eg. also
limited supply sources.
Uncertainty framework
Building on these risks Lee derives the following risk matrix.

Uncertainty Framework (Lee, 2002)
After defining the risks of different product categories Lee explains what mitigation strategies
should be used in each situation.
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Matched Strategies (Lee, 2002)
Conclusion
This article can be perfect for consultants. The Uncertainty framework and the resulting
strategies are described with easy to understand categories and graphics. But also for research
it provides a basic framework for supply chain risks and the management. Possible extensions
should include more risks. It would be interesting to see how this kind of framework scales
with more risks and especially if it is possible to maintain the ease of use.





Bibliography
Richard B.Chase,Ravi Shanker,F. Robert Jacobs,Nicolas J.Aquilano. (2013). Operations &
Supply Management 12th Edition.
William CHUNG (Corresponding author) International Journal of Business and
Management