Kate Radishevska

Tobacco Industry

The Cigarette/Tobacco Industry Potential Suppliers Evaluation

Kateryna Radishevska

MAN 4570 International Procurement and Outsourcing

St. Petersburg College: College of Technology and Management

7 April 2009
 Kate Radishevska
Tobacco Industry

Contents

Potential Suppliers...........................................................................................................................3

Supplier # A: India Tobacco Works.............................................................................................3

Product Details:........................................................................................................................3

Payment & Shipping Terms:....................................................................................................3

Supplier # B: Tobacco Indonesia.................................................................................................3

Product Details:........................................................................................................................3

Payment & Shipping Terms:....................................................................................................3

Supplier # C: Oriental Tobacco....................................................................................................4

Product Details:........................................................................................................................4

Payment & Shipping Terms:....................................................................................................4

Supplier Decision Matrix.................................................................................................................5

Contract Negotiation........................................................................................................................6

Supplier Relationship Management.................................................................................................8

Trade-offs/Best Practices.................................................................................................................9

Closing Statement..........................................................................................................................10

Potential Suppliers1

Supplier # A: India Tobacco Works

1
All Supplier Information was taking from Alibabe.com Global Trade Website.
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Tobacco Industry

Product Details:
Tobacco Type Leaf
Type Raw
Place of Origin Uttar Pradesh India
Brand Name India Tobacco Works
Payment & Shipping Terms:
Minimum Order Quantity: 500 Ton
Price: FOB yet to be decided USD 2~500
poly packs,gunny bags,pouch sachet of various
Packaging Details:
denominations,tin packs of various denominatins.
Delivery Time: 21 days
Payment Terms: L/C,D/P,T/T,Western Union
Supply Ability: 50000 Ton per Week

Supplier # B: Tobacco Indonesia

Product Details:
Type leaf
Brand Name Lombok Tobacco
Payment & Shipping Terms:
Minimum Order Quantity: 100 Ton
Price: FOB lembar AUD 5~7
Tobacco at plastic package, Per weighing plastic
Packaging Details: approximately 10 kilogram, Afterwards at package uses sack,
Perkarung wt around 50-60 kilogram
Delivery Time: 1 week
Payment Terms: Western Union
Supply Ability: 500 Ton per Month

Supplier # C: Oriental Tobacco

Product Details:
Type Raw/Leaf
Place of Origin Turkey
Payment & Shipping Terms:
Minimum Order Quantity: 100 Kilogram
Packaging Details: 32/36 kilogram bales
Delivery Time: 5 - 10 days
Payment Terms: By negotiation with buyer
Supply Ability: 3000 Metric Ton per Month
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Tobacco Industry

In our choice for suppliers we were driven by the price and the more beneficially and

agriculturally advanced parts of the world where the best quality tobacco could be grown. We

carefully selected three best tobacco suppliers that are all in different parts of the world and have

a potential of getting a contract with our company base on the table below.

Supplier Decision Matrix

Factors Weight Supplier A Supplier B Supplier C

1. Delivery 8 3*8=24 1/8 2/16
2. Quality 7 1*7=7 2/14 3/21
3. Price 4 1*4=4 2/8 3/12
4. Flexibility 6 1*6=6 2/12 3/18
5. Technology 5 2*5=10 1/5 3/15
6. Leadership 4 1*4=4 2/8 3/12
Total 55 55 94

Base on the Supplier Decision Matrix table Supplier A and B would be a better choices for

our company new tobacco supplier chain. Since both suppliers are rated equally on all the factors

that our company is looking for in a supplier relationship, South Eastern Tobacco Co. will

however, choose the supplier A, Indian Tobacco Works Co., as its main supplier, yet our

company will outsource some of the smaller projects to the second choice supplier B, Tobacco

Indonesia Co., for additional or rush orders, since the Indonesian company has the fastest

shipping/delivery time, then the Indian Tobacco. Our choice mainly based on quality and

flexibility options that we as a buyer have by dealing with Indian Tobacco Works Co. our

company will try to establish the best shipping option available to decrease shipping/delivery

time for the Indian Tobacco company. The partnership that we will establish with this supplier
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Tobacco Industry

will benefit us with the better quality of tobacco, better leadership, better flexibility, and the best

price, where it will leave them some space for improvement in their technology and their

delivering abilities. We will recommend various best practices to our suppliers in order to

improve the outsourcing operations and will applied them in a critical and creative way toward

the business relationship.

Contract Negotiation
In the contract negotiation strategy between South Eastern Tobacco Inc and Indian Tobacco

Works Co we will establish the following terms:

1. Outsourcing Contract Type is Cost Plus, where supplier profit guaranteed over the actual cost.

2. Supplier Relationship Type focuses on Collaboration and Strategic Alliance, which means we

will establish a long term business relationship with Indian Tobacco Works where we will merge

our cultures and help each other develop better business strategies and accomplish our goals in a

full sharing and reflect partner’s plans manner.

3. While as a Strategic Alliances both parties will keep the confidentiality and acknowledge that

the information provided by South Eastern Tobacco Inc in this business venture is confidential;

therefore, Indian Tobacco Works agree not to disclose it without the express written permission

of the management of SET Inc.

4. Indian Tobacco Works agrees to follow the quality instruction in packaging as negotiated: poly

packs, gunny bags, pouch sachet of various denominations, tin packs of various denominations

as instructed by the buyer should be used for shipping and storage.

5. Indian Tobacco Works agrees to pprepare the yearly Outsourcing Tobacco Results Report.

This report shall include, but not be limited to the all the required documentation and research

information to be included and attached to the report with all the proper and current research and

contact information.
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Tobacco Industry

6. Indian Tobacco Works agrees to the annual inspections of the facility for the quality and labor

control by the SET Inc. inspection team to comply with all the sanitary and environmental

conditions.

7. Indian Tobacco Works agrees to follow the Corporate Social Responsibilities international act

and Child Labor act.

8. Indian Tobacco Works requires complying with WTO requirements and informing EST Inc of

any changes in Indian Law that are concerning the tobacco industry and its operations.

9. Indian Tobacco Works should maintain a same level of nicotine in a tobacco by 1% by

following proper agriculture procedures and using high quality tobacco seeds on their

plantations. Use of toxic pesticides is highly prohibited and will be tested on every delivery of

the tobacco to the EST Inc.

10. Both parties, in the performance of this contract, shall be acting in their individual capacity and not as

agents, employees, partners, joint ventures or associates of one another. The employees or agents of one

party shall not be construed to be the employees or agents of the other party for any purpose whatsoever

(Kansas DA, 2008).

11. Indian Tobacco Works accepts full responsibility for payment of unemployment insurance, workers

compensation and social security as well as all income tax deductions and any other taxes or payroll

deductions required by law of India for its employees engaged in work authorized by this contract

(Kansas DA, 2008).

11. Indian Tobacco Works Co commits to constant the quality improvement, improved delivery

performance, and intelligent and advance communication.

Supplier Relationship Management

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Tobacco Industry

In managing supplier relationships between SET Inc and Indian Tobacco Works both parties

will commit to monitor and improve performance and management relationships. SRM tools that

are required to be used by both parties in order to maintain performance are included but not

limited to Internet base technology used for communication, processing, ordering, and payments

methods that will be electronically transferred to the supplier upon receiving the shipment.

Even though, Tobacco Industry has faced the downfall, the certain key decisions and

characteristics in this supply chain that shape and impact the overall performance of the cigarette

market should be included as a potential strategic and operational resolution that must be made

in the tobacco supply chain in order for it to compete in this marketplace.

1) As cigarettes knowing for being hazardous to the health, the choice of more healthier and

more toxin free production is essential. Producing “Green” brands such as American Spirit: We

are the only brand that manufactures both cigarettes made with 100% certified organic tobacco

as well as cigarettes made with 100% additive-free natural tobacco. (Natural American

Spirit.com, 2009)

2) Work on environmental awareness during agricultural process to minimize the impact on

environment. Make sure that supplier uses the best available nonchemical technology for tobacco

growing.

3) Use information technology to utilize Just in Time inventory, by forecasting demand and

better manage the inventory and fair production of supplier to minimize the cost of warehousing

and other overhead cost.

Trade-offs/Best Practices
Cigarettes popularity drop and health concerns began in 1964 when Surgeon General

made the first report on tobacco saying that "cigarette smoking may be hazardous to your
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Tobacco Industry

health." In 1966, a law was passed requiring that all cigarette packaging contain the message. In

1971, the surgeon general revised the statement to "cigarette smoking is dangerous to your

health"(Sociology at Duke, 2009). Following the 1998 event the Government published

"Smoking Kills", the first UK White Paper on tobacco control. Beyond Smoking Kills reviews

progress made since then and sets out an agenda for a comprehensive tobacco control strategy.

(ASH.com, 2008) Since then customer needs for tobacco products has been redefined,

contemporary cigarette consumers want more healthier choices, more environmentally harmless,

and more practical solutions to cigarette smoking. The key customer needs and trade offs for

cigarettes in 21th century are as followed:

✔ Non Addictive

✔ Less Toxic ( to the human body and to the environment)

✔ Recyclable ( easily and not harmfully to the surroundings)

✔ Affordability ( less tax)

✔ Variety (different flavors)

✔ Fire safe

Both SET Inc and Indian Tobacco Works will commit to continuous improvement and

advancement of the tobacco quality and variety in order to minimize the risks of tobacco and

pursue more competitive strategies in the marketplace.

Closing Statement
Here we have developed a strategic and innovative outsourcing strategy that will help

to improve and excel tobacco industry to a different level and help to control environmental and

health concerns along with developing internal capabilities and changing direction of tobacco

growing and tobacco production strategy to the more healthier, more user friendly cycle of life

even with the tobacco product being in a last life stage of product cycle.
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Tobacco Industry

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Xindeco Business Information Company, (1997). CHINA NATIONAL TOBACCO
IMPORT & EXPORT CORP. Retrieved April 26, 2009, from China's Top 500 Import and Export
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Alibaba Global Trade Network, Retrieved April 20, 2009, from their website:
http://www.alibaba.com
Sebelius, K. (Ed.). Kansas DA. (2008). INVITATION FOR BID (IFB). In 1140 RFQ
product example Topeka: Kansas DA.
Ethical Shopping, Retrieved April 2, 2009, from
http://www.ethicalshopping.com/food/packaged-products/american-spirit-cigarettes.html

Corporate, (2009). Retrieved April 4, 2009, from Natural American Spirit Web site:

http://www.nascigs.com/?ticket_guid=b14de13f-28c1-45b6-88b8-890e7d63c303
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Tobacco Industry

(2009). GLOBAL VALUE CHAIN. Retrieved April 4, 2009, from Cigarettes Web site:

http://www.duke.edu/web/soc142/team11/globalvaluechain.htm#majorplayers

(2007). Tobacco. Retrieved April 4, 2009, from Census of Agriculture Web site:

http://www.agcensus.usda.gov/#top