The Supply Chain Processes of CoolCargo compared with that of Unilever Nigeria Plc

By

Fakorede, Oluwasola Sunday

Module Report for Logistics and International Trade (LOGTRD)

July 2008

ABSTRACT: Logistics is defined as the science of organising the timely shipment of goods or information (for both the finished goods and all the components and materials required to create them) by the most efficient route (Cole, 2008). Logistics does not just stop at forward movement of goods, but there is what is referred to as reverse logistics which basically discuss situations where rejected or expired goods from the market are returned back to the manufacturers. According to Peter (2004), the market for cold chain logistics solutions is full of contradictions. Even though it is small, it is growing; low-tech but increasing requirements; cost-driven but sensitive to high values and risks. The value of the products transported is enormous, produ quality has ct to be maintained and the cost of maintaining such quality is not cheap. For a successful cold chain, proper packaging and transport should be provided and the shipper is at the heart of this by choosing these but they will be applied by all parties involved in the entire cold chain. There is no doubt that being competitive is as important as being profitable in any supply chain. Consumption of products is no longer limited to the location where it is produced. It is also very important to note that global businesses are dependent on the principle of liberalisation and fair trading by the World Trade Organisation. This was evident in the case study on CoolCargo that provides logistics solutions for products sourced in Asia and consumed in Europe, Americas or Australia a distance of about 8,000 air miles. The major challenge for CoolCargo is that the product is a vegetable Asparagus that have to be consumed within 24hours of harvest. Unilever Nigeria plc is in the business of manufacturing and distributing Food, Home Care and Personal Care products. Raw and Packaging materials are sourced both locally and from Europe and Asia. Manufacturing plants and warehousing facilities are located many kilometres apart and about 100 distributors are lo cated pan Nigeria with a land mass of about 97,000 sq km. Unilever Nigeria is also involved in the exportation/importation of some finished goods to and from sister companies within the ECOWAS Economic Community of West African Countries. The challenges faced by CoolCargo are totally different from that of Unilever and this reflects in the mode of transporting their goods. While Unilever deals in products with shelf life ranging from 9 months to 36 months, CoolCargo deals in goods with shelf life less than a week. This project work set out to compare and contrast these 2 types of logistics solutions i.e. cold chain logistics and the supply chain of a manufacturing outfit. At the end of the analyses, the underlisted questions would have been answered for the two supply chains considered. The questions are: 1. What are the special problems and challenges the businesses poses for logistics? 2. What logistics options are available and what determines the choice of transport? How do they manage inventory? 3. How could logistics performance be measured and improved? 4. What are the main issues affecting the logistics chains and how could they be dealt with? 5. What are the impacts of logistics to competitive business performances? INTRODUCTION: Logistics and International Trade: The aim of this module is to provide a thorough grounding in modern logistics operations and management in the nature and practice of International trade. Even though the module is in two parts of Logistics and International Trade, it became apparent how they depend on each other. While the logistics section examined the relationships between modes of transportation, distribution and warehouse management as well as intermodal operations; the international trade section discussed in detail the roles of the World Trade Organisation in global business environment, trade restriction, import and export practice, and trade models. This became relevant in the business of CoolCargo that source vegetables in Asia for retail stores in Europe, Americas and Australia. Logistics and Distribution management: According to Rushton et al (2006), the key components of distribution have been an important feature of industrial and economic life for countless years but it is only in the relatively recent past that distribution has been recognised as a major function of its own right. This can be attributed to many reasons but the major reason postulated by Rushton et al was that distribution is a function of many sub-functions and many subsystems each of which has been and are still been treated as a distinct management operation.

Because of the numerous components of distribution and logistics, the number of associated names and different definitions used to describe them is many. Realistically, there is no true name or true definition that can be insisted on due to the fact that different products, different companies and different system utilises logistics and they view them in different lights from different perspectives. Logistics is a diverse and dynamic function that has to be flexible and has to change according to the various constraints and demands imposed upon it and with respect to the environment in which it works (ibid, pp 4). It is often said that logistics is concerned with the flow of both physical goods and information in opposite directions and the warehousing i.e. the storage of raw materials and finished goods. Christopher (2005) define logistics to be the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organisation and its marketing channels in such a way that current and future profitability are maximised through the cost effective fulfilment of orders. I think this definition succinctly describe what logistics stands for. Logistics is so important to any economy and it is so important that it was concluded in a study carried out in the UK that about 30% of the working population in the UK are associated with works related to logistics. The situation is not totally different in the USA where a recent study indicated that logistics alone represented about 10 to 15 percent of the GDP of most major North American, European and Asia/Pacific economies (Rushton et al, 2006). The WTO and International trade Due to the enormity of the global trade (in goods and services) at the beginning of the new century which was valued at about US$7 trillion, it is becoming increasingly important to play particular attention to global trade. Global trade flows are dominated by exchanges within and between the three major regions of the global economy: Europe, North America and East Asia (Hoekman and Kostecki, 2001). The WTO evolved from the GATT on 1 January 2005 with the mandate to provide the common institutional framework for the conduct of trade relations among its members in matters for which agreements and associated legal obligations apply. th As at 16 may 2008, the WTO has a membership of 152 countries (drawn up from all the continents) and about 625 secretariat staff. UNILEVER NIGERIA PLC: Nigeria in Overview: Nigeria is situated in the western area of the Africa continent, bordering the Gulf of Guinea, between Cameroon and Benin Republic. It was colonized by Britain but became an independent state on 1st October, 1960. Nigeria returned to democratically elected governance in 1999 after about 30years of military rules. It has a total area of 923,768 sq km (land area of 910,768 sq km and water 13,000 sq km) (2008 Diary Unilever). According to an estimate made in 2004, Nigeria has a population of about 137million inhabitants. Nigeria is a multilingual country with about 256 languages and over 1000 local dialects. But the key tribes in Nigeria are the Hausas, Igbos, Yorubas and the Fulanis and they constitute about 60% of the total population. Nigeria is a member of many organisations including the WTO; ECOWAS Economic Community of West Africas States; Commonwealth of Nations; WtrO; OPEC; UNESCO; UNIDO; ILO; IMF; etc. Agriculture used to be the main stay of Nigerias economy before the oil boom. Today, Nigeria has just 33% arable land and 44% permanent pastures. Petroleum and petroleum products accounts for about 95% of exports which stood at about US$80 billion in 2007. Other sources of foreign income are in agriculture with the export of cocoa, rubber, and most recently some manufactured products. Nigeria currently have a total of 3,557km railway tracks which is made up of 3,505km narrow gauge (1,067m gauge) and 52km standard gauge (1,435m gauge). A total of 194,393km highway with about 31% paved (mostly with bituminous surface treatment 60,068km including 1,194km expressway) and the remaining 69% (134,326km) unpaved gravel, crushed stone, improved earth accounts for what is available for road freighting and transportation. There is about 8,575km waterways (inland) with about 2,000km pipeline for crude oil, 3,000km pipeline for petroleum products and 500km pipeline for natural gas. There are 6 ports and harbours with a total capacity for 41 merchant marines broken down as follows: 1 bulk ship, 10 cargo ships, 4 chemical tankers, 24 petroleum tankers (as about 64% of local fuel consumption is imported), 1 specialised tanker and 1 roll on/roll off ship. For air transportation, there are 70 airports with 34 paved and 36 unpaved runways and 1 heliport.

This is the reason why most freighting is done by road in Nigeria and transportation is pretty costly considering the nature of the roads as well as what you pay for fuel (mostly imported). Figure 1 below gives a graphical detail of the Nigeria people.

Figure 1: Nigeria and Her People

Source: Savoury Presentation Customer Development Thrust (2005)

Unilever Nigeria Plc: Unilever Nigeria was incorporated as Lever Brothers (West Africa) Ltd on 11th April, 1923 by Lord Leverhulme (www.unilevernigeria.com). Before coming to West Africa, the company has been involved in the th manufacturing and sales of soaps since the 19 century in Britain. Unilever Nigeria Plc started as a soap manufacturer but after series of mergers and acquisition, the company diversified into manufacturing and marketing of foods, non-soapy detergents and personal care products The company was listed on Nigerian . Stock Exchange in 1973 as Lever Brothers Nigeria Plc but later changed its name to Unilever Nigeria Plc in 2001 to be aligned with the Unilever business worldwide. Unilever B.V. has 51% equity while the balance 49% is owned by diverse Nigerians. (www.unilevernigeria.com).

Supply Chain Process in Nigeria : Supply Chain is one of the divisions at Unilever Nigeria. The organisation a manufacturing, sales and marketing concern is made up of 5 divisions with each division headed by a director. Each divisional director reports to the market head Managing Director. The supply chain division accounts for about 70% of transactions in the business because it oversees every aspect of sourcing, buying, warehousing, manufacturing and delivery of stocks to distributors. The last leg of the chain (i.e. ensuring that the brands get to the tables of retailers from where consumers pick up) is handled by the Customer Development division. While Marketing structured into 2 major categories of Foods and HPC (Home and Personal care) formulates strategies that ensure the competitiveness of the brands with consumers, Human Resour must ce see to the sourcing and placement of capable hands with requisite skills and competencies. The finance division ensures that profitability is measured at every point of operation while Customer development see to ensuring that out of stock situation is at the barest minimum through walking the market. The relationship between each function is as shown in Figure 2 below: This is as shown in Figure 2 below.

Figure 2: Management Committee, Unilever Nigeria Plc

Source: Nigeria Briefing Regional Directors (2006)

Supply Chain Process at Unilever Nigeria: Unilever Nigeria predicated its supply chain policy thrust on 3 key words; Flexibility, Affordability and Quality. To achieve these, there are 4 major thrusts that are considered and these are: a. Cost effectiveness b. Efficient Supplies Management c. Agile Production d. Quality Excellence The manufacturing process at Unilever Nigeria is very complex as it operates from four factories located miles apart. The division is headed by a Director supported by 8 senior Managers in charge of Logistics, Supply Management, Operations Excellence, Engineering, and one each managing the manufacturing sites. The Logistics department is in charge of both inbound and outbound logistics; warehousing; import and export businesses; S+OP process; factory planning; and customer service. Supply Management oversees all supply, whether chemical, raw & packing or NPI Non Production Items and Engineering supplies. Operation Excellence ensures quality as well as safety end environment (SHE); Engineering is in charge of sourcing, installation and maintenance of all engineering materials. The Factory Managers own the manufacturing processes for all products manufactured in their factories. They are ably supported by factory engineers and manufacturing managers. Figure 3 below shows the graphical representation of the relationship between Sales, Marketing and Supply Chain i.e. The Supply Chain Process.

Figure 3: Supply Chain Process

Source: Supply Chain Presentation to Harish Manwani (August 2006)

Buying Process at Unilever Nigeria: The buying process of Unilever Nigeria is patterned in line with all Unilever markets worldwide in terms of structure i.e. NPI (Non Productive Items) and PI (Productive Items). The buying department is headed by the Supply Management Manager and has reporting to him the NPI & Engineering Buyer Chemical Buyer, , Packaging Buyer and Raw Materials Buyer. About 70% of materials are currently being imported while the balance 30% are locally sourced (Diego SC0806).This is so to take advantage of leveraging Unilever scale using regionally negotiated prices (for chemicals). Bulk items (40%) are dealt with overseas suppliers directly. Small/consolidated items (40%) are purchased via service providers (outsourcing). The 30% locally sourced materials are basically packaging materials and this is because, there is a ban on importation of paper products into Nigeria. In 2006, Lead time optimization was as high as 17weeks against the target of 10weeks. In a bid to reduce lead time, Unilever attempted to buy form local stockiest. This was at a cut throat price. For packaging materials, in 2006, cartons, polybags, shrink films and display boxes were purchased locally while we still continued with the importation of flexible wrappers and web for toothpaste tubes. Government hiked the import duties on flexible from 10% to 60% within the year and this was realigned to 50%. Some other challenges been faced on buying are;  Tariffs and unstable policies  Destination inspection  Unpredictable port environment and hyper congestion at the ports o Long Lead time o 3 weeks for a ship to berth (even after arriving at the port) o High stock cover (leading to leasing of more warehouses or paying demurrage on stocks kept with clearing agents)  Poor credit terms especially with overseas suppliers. Logistics and distribution at Unilever Nigeria: Unilever Nigeria is manufacturing from 3 locations located miles apart. Each of these manufacturing sites operates a warehouse and there is also a central warehouse at Abule Egba in Lagos where finished goods are kept from where customers are serviced nationwide. The location of the factories and the central warehouse is shown in Figure 4 below:

Figure 4: Manufacturing & Warehouse Locations

Source: DiegoSC0806 (August 2006)

Unilever operates a central warehousing system and employed the services of a third party to manage distribution. Exel Logistics a subsidiary of DHL manages the distribution for Unilever. Before 2004, Unilever was managing its distribution systems. But because Unilever does not see itself doing a good job and to

focus on its competencies of manufacturing, sales and marketing, this was outsourced to a 3PL provider . Exel does not have trucks, so they also depend on third party to supply trucks making the truck providers , 4PL. This is one of the major challenges in the system. Exel Logistics are also charged with the responsibilities of evacuating stocks from the factories to the central warehouse. As discussed above, outbound logistics is primarily dependent on road freighting. The situation of the roads are quite terrible more so during the raining seasons. So, transporting goods to distributors can take weeks instead of days. COOLCARGO OPERATIONS: CoolCargo Logistics: CoolCargo Logistics is a group of companies providing a range of cold chain and operational logistics solutions. They specialise in thermo protection, improved storage handling and transportation of perishable and temperature sensitive goods in all environment. One of their specialities is handling perishable air cargoes yer and Raw Materials Buyer. About 70% of materials are currently being imported while the balance 30% are locally sourced (Diego SC0806).This is so to take advantage of leveraging Unilever scale using regionally negotiated prices (for chemicals). Bulk items (40%) are dealt with overseas suppliers directly. Small/consolidated items (40%) are purchased via service providers (outsourcing). The 30% locally sourced materials are basically packa ging materials and this is because, there is a ban on importation of paper products into Nigeria. In 2006, Lead time optimization was as high as 17weeks against the target of 10weeks. In a bid to reduce lead time, Unilever attempted to buy form local stockiest. This was at a cut throat price. For packaging materials, in 2006, cartons, polybags, shrink films and display boxes were purchased locally while we still continued with the importation of flexible wrappers and web for toothpaste tubes. Government hiked the import duties on flexible from 10% to 60% within the year and this was realigned to 50%. Some other challenges been faced on buying are;  Tariffs and unstable policies  Destination inspection  Unpredictable port environment and hyper congestion at the ports o Long Lead time o 3 weeks for a ship to berth (even after arriving at the port) o High stock cover (leading to leasing of more warehouses or paying demurrage on stocks kept with clearing agents)  Poor credit terms especially with overseas suppliers. A complete review of CoolCargo logistics solution provider will be reviewed under the following headings: 1. CoolCargo Logistics 2. CoolCargo in Thailand and its relationship with the stakeholders COMPARISON OF COOLCARGO LOGISTICS SOLUTIONS AND UNILEVER NIGERIA PLC: Looking through the case study, the similarities and the differences between CoolCargo logistics and that of Unilever Nigeria Plc will be identified and discussed. The methods and procedures of handling each supply chain will be discussed. CHALLENGES FACED BY EACH SUPPLY CHAIN: Definitely, there are challenges that are faced by each of the supply chains. For example, the level of infrastructure in Nigeria does not support the level of efficiency Unilever desired for its supply chain. These challenges will be identified, discussed and possible suggestions for improvements will be proffered. LOGISTICS CONTRIBUTION TO THE PERFORMANCE OF COOLCARGO AND UNILEVER NIGERIA PLC: There is no doubt that the success of any manufacturer is dependent on the ava ilability of its products at the point of purchase at the right time i.e. the time when consumers want to pick it. This can only be possible with an effective logistics solution. The contribution of logistics to the success of Unilever Nigeria and that of CoolCargo will be enumerated.

CONCLUSION: Concluding this project, we would have reviewed and analysed all operations of both CoolCargo and Unilever Nigeria Plc and how logistics solutions has helped global sourcing in ensuring that fresh produce from As ia (for example) can be enjoyed in Europe a few hours after it was harvested just as Unilever brands can be on the shelf 1,500km from the source of manufacturing few days after manufacturing. REFERENCES: 1. Christopher Martin (2005) Logistics and Supply Chain Management Creating Value-Added Networks (3 Ed), Financial Times and Prentice Hall, Harlow 2. Cole L (2008) Logistics and Supply Chain [Internet Reading] Available on http://www.roadtransport.com/Articles/2008/02/19/129652/logistics-and-the-supply-chain.html (Accessed 06 June 2008) 3. CoolCargo DVD 4. DiegoSC0806 A presentation made to Diego Bevilaqua (June 2006) [Unpublished] 5. Hoekman B. M. and Kostecki M. M. (2001) The Political Economy of the World Trading System (2 Ed.) Oxford University Press 6. Lectures Notes 7. Nigerian Briefing Regional Directors (2006) [Unpublished] 8. Peter M. (2004) Cold Chain Logistics Challenges and Trends in a Complex Market [Internet Reading] Available on http://www.touchbriefings.com/pdf/955/Martin.pdf (Accessed 06 June 2008) 9. Rushton A., Croucher P. and Baker P. (2006) The Handbook of Logistics and Distribution Management (3 Ed), Kogan Page, London and Philadelphia. 10. Unilever Presentations 11. Our History [Online]. Available on http://www.unilevernigeria.com/ourcompany/aboutunilever/history.asp (Accessed on 14 March 2008)
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