tea industry in pakistan - a supply chain review by saud zafar usmani

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TEA INDUSTRY IN PAKISTANA SUPPLY CHAIN REVIEWSaudZafarUsmaniMS(ManufacturingEngineering&Management) PakistanNavyEngineeringCollege, NationalUniversityofSciences&TechnologyPakistan Email:saudzafar@hotmail.com

This review details on tea industry supply chain in Pakistan. A thorough review has been carried out fromrawmaterialimport,suppliernetworkdesign,enhancingvaluedeliverystrategyetc.Comparisons have been discussed on tea sales and distribution strategies adopted by major players in the market. Majorsupplychainissuesarediscussedandfewrecommendationsaremade.

Tea Industry in Pakistan - A Supply Chain Review

Saud Zafar Usmani

Table of ContentsIntroduction...................................................................................................................................................3 Supply Chain Diagram..................................................................................................................................4 Tea Plant Growers ........................................................................................................................................4 . Suppliers.......................................................................................................................................................5 Tea Importers................................................................................................................................................5 Tea Manufacturing / Processing...................................................................................................................6 Issues.............................................................................................................................................................7 Global tea market trends...............................................................................................................................7 Encircling vs. Gorilla Strategy - Tea Competitors Strategy Analysis ..........................................................8 . Distribution Strategy and Distribution Network Design...............................................................................9 Distribution & Sales - Tapal.....................................................................................................................9 Distribution & Sales - Lipton Yellow Label.............................................................................................9 Tapal Tea..................................................................................................................................................9 Distributors.........................................................................................................................................11 Value Delivery Network.........................................................................................................................12 Wholesalers............................................................................................................................................12 Retailers..................................................................................................................................................12 Consumers..............................................................................................................................................12 Recommendation - Enhancing Value Delivery Network of Tea................................................................13 References...................................................................................................................................................14

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NationalUniversityofSciences&TechnologyPakistan

Tea Indu ustry in Pak kistan - A Su upply Chain Review n

Sau Zafar Usm ud mani

TeaIn T ndustryin Paki istanASu upplyChainReview wIntrodu uctionTea is on of the hig ne ghly consumed beverage in the wor It is obta es rld. ained from C Camellia Sin nensis plant, wh hich is an ev vergreen pla that grow mainly in tropical an sub-tropic climates. Tea ant ws n nd cal plants are propagated from seed or by cutting it takes ap e d g; pproximately 4 to 12 yea for a tea plant y ars to bear seed, and abo 3 years b out before a new plant is re w eady for harv vesting. Tea plants requ at uire least 127 cm of rain 7 nfall a year a prefer acidic soils. T and Traditional C Chinese Tea Cultivation and a n Studies b believe that high-quality tea plants a cultivated at elevatio of up to 1,500 meter At h y are d ons rs. these heights, the pla grow mo slowly an acquire a better flavo ants ore nd or. ply f dustry starts The supp chain of the tea ind from the consumer to the green f o fields of tea plantation Many cou n. untries have their own e tea planta ation due to the conduci climatic ive condition of those areas for cultivation. ns However in Pakistan most o the tea r, of consumed is import ted from te growing ea countries like Sri Lanka, China, Kenya and s Malaysia etc. a Today, t the total tea market o Pakistan of comprise of 100 million kil es lograms of legally im mported tea plus 45 mil llion kilogra of illega smuggle tea, thus g ams ally ed giving an ov verall market o 145 millio kilogram The per capita consu of on ms. umption of tea in Pakis stan is about one kilogram At present there are tw kinds of tea availabl in the mar m. t wo le rket: brande and unbra ed anded (loose) te Therefore the impor ea. e, rters are also of two type though bo import te from the same o es, oth ea countries Bulk impo s. orters sell te to retailer in loose f ea rs form, while the second category of bulk f importers sell packag tea unde brand nam s ged er mes. Presently Pakistan is meeting its entire tea requirement through im y s ts mports. Pak kistan is the third largest te importer after Russia and Britai The importers buy b ea a in. black tea fro 17 coun om ntries, including Bangladesh, Burundi, China, Con g ngo, India, In ndonesia, K Kenya, Malaw Mozamb wi, bique, Madagas scar, Rwanda Sri Lanka, Uganda, Za and Zim a, aire mbabwe. Till recen ntly, Pakista has been importing e an enormous qu uantities of t each yea footing a huge tea ar bill in ha ard-earned fo oreign excha ange. Pakista imports a an around 80 pe cent of its tea requirem er ments at a cost of about US S$250 millio a year. Be on esides the ab bove legal im mports, sizea able quantiti of ies

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NationalUn niversityofSc ciences&Tec chnologyPakistan

Tea Industry in Pakistan - A Supply Chain Review

Saud Zafar Usmani

tea are also being smuggled to supplement the supplies to satisfy the ever-growing demand. According to a moderate estimate about 50,000 to 65,000 tonnes of tea are making inroads into Pakistan each year.

Supply Chain DiagramThe supply chain of the tea industry has two major sources, one is the tea growers and the other is the tea importers. In Pakistan the tea supply chain relies on the tea importers, because Pakistan does not have sufficient tea plantation. The Supply Chain diagram is as follows.

Fig: 2 Supply Chain Diagram of Tea

Tea Plant GrowersAfter picking fresh tea leaves, tea growers have two options: selling the leaves directly or selling selfprocessed tea. As processed tea is more expensive than fresh leaves, to get more profit, skilled tea growers tend to process tea themselves and sell the remaining fresh leaves to primary processing factory and brand tea factory. There are mainly three distribution channels that turn fresh leaves picked by tea growers into finished tea. 1. Tea growers sell fine tea leaves they handpicked to brand tea factories which process the leaves into tea and then sell it to dealers. Through wholesale and retail the tea is sold to tea store, teahouse, supermarket and other stores, and finally to consumers. 2. Tea growers sell both leaves and buds to processing factories for massproducing tea. After the processing factories have turned them into crude tea, the refineries will buy it and reprocess it into finished tea after sorting and selection. Refineries mainly engage in tea mass production, and tea mass produced, after entering the distribution channel, is

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NationalUniversityofSciences&TechnologyPakistan

Tea Industry in Pakistan - A Supply Chain Review

Saud Zafar Usmani

sold in the market mainly through wholesale. Such tea is mainly supplied to places such as hotels and restaurants that provide free tea. 3. Tea growers process fresh leaves into tea and sell it themselves. On the one hand, tea growers sell their roughly processed tea to refineries, brand tea factories and businessmen that come to their place to buy tea. On the other hand, tea growers further process crude tea into highend tea and sell it in the township or countylevel retail market. In the genuine tea areas, as the tea available is limited but expensive, dealers and consumers will also go to the tea growing households to buy tea directly. There is another different distribution channel, which consists of tea growers, brand owners and consumers. The brand owners here refer to comprehensive tea companies that engage in production, supply and marketing. Such companies usually have their own production bases and processing factories, and place orders to tea growers for fresh leaves and have their own tea chain stores directly selling tea products to consumers.

SuppliersTea industry is very much dependant on suppliers. Suppliers are considered to be the heart of the Tea Industry. All the companies like Tapal, Unilever and Tetley keep good terms with their supplier since the shortages might be harmful for the company. These companies have various suppliers and are not dependant on any single supplier but still the supply chain needs to be very strong in order to be in this competitive business.

Tea ImportersVarious