Management Science

Report on Transportation Model of

Engro Foods, Olper’s Milk

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Management Sciences
Transportation Model
“Olpers Milk”

This Report is a collective work of

M. Sufiyan Shabbir
Amal Hammadi (14616)
Asma Salam
M. Tariq Raheem
Syed Tanveer Hussain

Submitted to:
Mr. Tufail Ahmed Sheikh

Dated: May 07, 2011

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Mr. Tufail Ahmed Sheikh

Professor, Management Sciences,

Iqra University, Main Campus,

Karachi

Sir,

As part of our Management Science course, me and my group members

M. Sufiyan Shabbir, Amal Hammadi, Asma Salam, Tariq Raheem have made this report
complying with all instructions given to us with hard work and extreme dedication. As

instructed, we have studied the Transportation model of Olper’s Milk to identify the

suitable transportation model, which sets the benchmark for all milk producers, and this

report focuses on all aspects of it completely and very thoroughly, as you will find out as

you progress further.

Hoping our dedicated work is appreciated.

Thanking you,

Syed Tanveer Hussain - 16074

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 Acknowledgements

Firstly we would thank Allah for giving us the opportunity and the resources to be able to
do something productive with our lives. Without His blessings we would not have been
able to come as far as we have.

Then our sincere thanks to Mr. Tufail Shiekh for helping us throughout this report. His
guidelines have been very useful for us in preparing this report. He helped us find new
ways of being innovative and creative.

This report would not have been possible without this cooperation and continuous
direction. We would also like to thank Mr. Shoaib Qureshi, Supply chain Training
Manager at ENGRO Foods who spare sometime for us so that we could conduct the
interviews with him. It is true that his responses in the interview have been very helpful.

Last but not the least we would like to thank our families for their incessant support and
approval.

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Engro Foods History

Engro Foods (Pvt.) Limited (EFL) has been established in 2005 as part of a
diversification process at the Engro Group. The plant located at Sukkur on 23 acre land,
has the raw milk reception capability of 300,000 liters per day and UHT milk capacity of
200,000 liters per day. The plant has been established at a cost of Rs. 1 billion, which
provides direct employment to 750 people.

Engro Foods has entered the Food business through milk processing and sale with the
company’s vision to pursue growth opportunities based on country fundamentals and
own strength. It also positions the company to leverage its corporate social
responsibility initiatives and work closely with rural communities to promote integrated
farming and livestock development. This effort is expected to play a pivotal role in
poverty alleviation and improving livelihoods of the poor in the milk collection areas.

Vision

"Our vision is to become a fast expanding mega Foods Company. To achieve our vision,
the company will initially focus on dairy by investing a substantial amount in plant, milk
collection capability and marketing. We are making concrete efforts to expand in and
beyond Pakistan; through strategic international alliances, to eventually become global."

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Core Values

1. Leadership
2. Innovation
3. Diversity and International focus
4. Quality and continuous Improvement
5. Individual growth and development
6.Enthusiastic pursuit of profit
7. Ethics and integrity
8. Safeties, Health and Environment

Milking the Market:

In the recent few months, it seemed that everywhere one looked, there was either a
billboard, a TVC or a radio jingle promoting a brand of milk– whether it was Haleeb,
Nurpur, Pakola, Nirala, or, recently, Olper’s. But perhaps this isn’t surprising after all.
Pakistan, according to recent statistics, is the third largest milk producing country in the
world (32 billion liters per year from 50
million animals, with urban consumption at nearly seven billion liters). However, despite
this high ranking, packaged milk, even according to the most optimistic estimates, has a
mere four percent penetration. No wonder then that processed milk companies (PLMCs)
have been rather aggressive in their advertising and marketing endeavors in an
attempt to increase the penetration.

Industry experts believe that the current economic turnaround has contributed to the
growth in the PLM sector, resulting in increased consumer purchasing power. Another
reason for growth is a growing awareness pertaining to health and hygiene; this factor,
coupled with increasing dissatisfaction with loose milk, has also contributed to growth in
this sector.

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However, in order to make a noticeable increase in penetration, many challenges and
Perceptions still have to be overcome by the PLMCs. The least important one, perhaps, is
tradition. Milk, even amongst the most urbanized consumers, is synonymous with the
early arrival of the doodhwala (milkman) at their home on his trusty bicycle (now
replaced by a motorbike), reinforcing the impression that the milk is fresh, natural and
straight from the cow. And it is this perception that only loose milk is fresh, and therefore
healthy and preservative-free, that has to be over come, if increased penetration is to
occur at a substantial rate.

Another hurdle in converting loose milk users to processed liquid milk is price. In
Punjab, because most dairy farms are based there, loose milk is cheap at approximately
Rs 24 per liter, while processed milk is priced at approximately Rs 38 per liter. In Sindh,
however, the price differential between loose (Rs 28) and processed milk (Rs 38) is only
Rs 10. Though hurdles such as consumer perceptions and price differentials have still to
be overcome, the processed liquid milk market looks set to grow. There is a whole world
out there to be converted, and it is a huge opportunity for PLMCs. If the economy
remains stable for the next five years, penetration will increase at an amazing rate.

Olper’s Milk

Launched on March 20, 2006, Olper’s milk is EFL’s standardized and homogenized pure
UHT (Ultra heat treated) milk with 3.5 % fat and 8.9 % solid non-fats. It is EFL’s
premier brand, and the choice of quality-conscious consumers who only go for the best. It
is available in easy-to-open, 6-layered Tetra Pak Brick Aseptic red packaging and comes
with a 3 months shelf life.

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Shipping Units:

1Litre (1000ml): 12 packs per carton

½Litre (500 ml): 12 packs per shrink-wrapped tray
¼Litre (250 ml): 27 packs per shrink-wrapped tray

PRICE (milk)

Haleeb
Nestle
Size Olper’ Dairy
Milkpak Haleeb
(ml) s Queen

1000 38 38 38 32
500 22 22 22 18
250 12 12 12 10

SUPPLY CHAIN MANAGEMENT AT ENGRO FOODS

The above chart depicts the overall supply chain management process at Engro Foods
(Pvt) Ltd.

These activities can be divided into three all encompassing categories as well:

• Inbound Logistics: the receiving and warehousing of raw materials, and their
distribution to manufacturing, as they are required.

• Operations: the processes of transforming inputs into finished products and services.

• Outbound Logistics: the warehousing and distribution of finished goods..

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Objective of Supply Chain Management at Engro Foods

As per the Supply Chain Development manager at Engro Foods Mr. Umair Nagi, the
primary objective of supply chain management at Engro Foods is

“ Fulfilling our customer’s demands in the optimum way”

And as he himself pointed this out, it can be stated that optimization is the key word.
Thus costreduction is definitely on top of the priority list for Engro but fulfilling
customer’s demands isjust as important. Thus the goal of these activities is to offer the
customer a level of value thatexceeds the cost of the activities, thereby resulting in a
profit margin.

Supply Chain Strategy at Engro Foods

The supply chain strategy is obviously in line with the objective for supply chain
management which in turn is in line with the overall mission and values of the
organization, all of which have been stated above. So when narrowing down to the
strategy, Mr. Shoaib said that it is:

“A give-away between “the service factor” and low cost”

Olper’s Milk Placement & Distribution

According to Mr. Abdullah, Planning and Distribution Manager EFL, “In order to
succeed, you should ALWAYS capitalize on your STRENGHTS and NEVER on your
COMPETITOR’S WEAKNESS!”

Engro Foods did exactly that. They used their decades of PR with farmers and used it to
provide world-class supply-chain management for delivering the ultimate quality milk in
Pakistan. Having kicked off simultaneously in 20 cities across Pakistan, the launch has
been ambitious and currently Olper’s is available in 80 cities across Pakistan. It reflects
the company’s intention to become a big player in the industry, both on a national and
international level.

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Engro Foods Limited has its own dales and distribution network. EFL has divided
Pakistan into five regions for milk distribution namely: Karachi, Lahore, Islamabad,
Peshawar and Multan. Due to an appealing color scheme, which stands out in the clutter
and thanks to the EFL’s strong relationship building and special discounts to retail
outlets, Olper’s has gained a proper shelf placement in the presence of competitors like
Nestle and Haleeb.

Milk Processing Plant: (Sources)

 Sukkhar S1
 Sahiwal S2

Destinations
Engro Foods Ltd has divided Pakistan into five regions for milk distribution namely:

 Karachi D1
 Lahore D2
 Islamabad D3
 Peshawar D4
 Multan. D5

Warehouses:
The two main Warehouses:

 Karachi- Pot Qasim

 Lahore- Gulberg

Other Warehouses includes: Which are use to collect expired milk and to transport the
Milk for UHT treatment. Which includes third party logistics.

o Landhi
o Muridkay
o Joher Town
o MCHS
o Faisal Town
o Khayaban-e-Amin
o Muslim Town
o Khiyaban-e-Rahat
o Wihari
o Nazimabad

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 o Rawalpindi

Warehouses
Warehouse is under the supply chain department. All the products after packing are
transferred to the warehouse from they are loaded on the vehicles and transported to the
market. It purposes is to generate.

1.Daily stock report

2. Release report
3. Order sheet
4. Loading slip.
5. Dispatch report

Supply and Distribution

This department ensures timely and effective distribution of the products to different
shops and stores spread all across Pakistan. From transportation management to obtaining
route permits and approvals, is done by this department.

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 Graphical Method

300,000-liters/day Karachi
capability 1.8 (5) 0.2

0.3 M
Liters
0.2
Port 0.0
(S)
Qasim Lahore
Sukkar 1.8
-Khi
5 3
(6) 0.17
(1) (3)

0.0
1.5

3
3
3.2 0.1 Islamabad
0.1 1.9
2 (7)
(S) Gulberg- 0.12
Sahiwal 1.5 0.
5 06
(2) 0.35 M Lhr (4)
2.3
Liters 0.
5 06
Peshawar
350,000-liters/day (8) 0.065
capability
1.5

3.1
Multan.
(9)
0.095
(S) Source 1: (Sukkar) 300,000-liters/day capabilities
(S) Source 2: (Sahiwal) 350,000-liters/day capabilities

QUANTITY Are in Million/Liters

COST Are in Rs. Million/Liters

DEMAND Are in Million/Liters

Breakup (Example)

Sukkar to Port Qasim: 60 feet container- Rs 0.1 million liter, transportation cost 18 per
liter 0.1*18=1.8 million

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Sukkar to Gulberg: 60 feet container- Rs 0.1 million liter transportation cost 30 per
liter 0.1*25=3 million

Shipping Units:

1Litre (1000ml): 12 packs per carton

½Litre (500 ml): 12 packs per shrink-wrapped tray
¼Litre (250 ml): 27 packs per shrink-wrapped tray

DATA:
2 sources
2 warehouses
5 destinations

Over all 2 sources 7 destinations so

7x2 =14 variables

7+2 = 9 constraints

Objective function:

1.8x13 +3x14+3.2x23+1.5x24+1.8x35+3x36+3.1x39+1.5x46+1.9x47+2.3x48+1.5x49

Supply (Sources)

x13+x14=0.3

x23+x24= 0.35

Constraints of Destination

Warehouse

x13+x23 = x35+x36+x39

x14+x24 = x46+x47+x48+x49

Demand

x35 = 0.2
x36 + x46 = 0.17

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x47 = 0.12
x48 = 0.065
x39 + x49 = 0.095

Interpretations of the solution

Optimized cost is 2.32 million and the units transferred from Sukkar to Karachi is 0.2
millions and units transferred from Sahiwal to Lahore is 0.1 million which equals the
actual demand.

The function will be

1.8*0.2+3*0.1+3.2*0+1.5*0.35+1.8*0.2+3*0+3.1*0+1.5*0.17+1.9*0.12+2.3*0.065+1.5
*0.095=2.32

• Sukkar plant to Port Qasim Karachi 0.2 million liters

• Sukkar plant to Gulberg Lahore 0.1 million liters
• Sahiwal to Gulberg Lahore is 0.35 million liters
• Karachi Port Qasim Warehouse to various retailers of Karachi is 0.2 million liters
• Gulberg Lahore Warehouse to various retailers of Lahore is 0.17 million liters
• Gulberg Lahore Warehouse to Islamabad is 0.12 million liters
• Gulberg Lahore Warehouse to Peshawar is 0.065 million liters
• Gulberg Lahore Warehouse to Multan is 0.095 liters

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APPENDIX
(QM SOLUTION)

Linear Programming Result

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Solution List

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Ranging

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Dual

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