Company capacity from 26 million tons to 72

Company History

 

Kohinoor
Maple Leaf Group (KMLG) is one of Pakistan’s biggest groups with operations in
textile, cement, and financial sectors. Their operations started with textile
industry in 1953 and now they’ve grown into 2 public listed companies, Kohinoor
Textile Mills Limited (KTML) and Maple Leaf Cement Factory (MLCFL) and 1
unlisted company called Maple Leaf Capital Limited (MLCL)

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MLCFL
has a capacity of 12,000 tons per day. According to them, Maple Leaf Cement
Factory by far is the largest single unit manufacturer of cement in Pakistan.
And according to recent news, Maple Leaf cement got a favorable ruling on their
side regarding environmental issues for their Rs.23 billion clinker project.
This project will add Brownfield cement line’s production capacity of
2.2million tons/year. And with the coming China-Pakistan Economic corridor, our
local cement industry along with Maple Leaf is investing heavily in developing
this corridor. To meet the demands, they plan to increase their production
capacity from 26 million tons to 72 million tons over the course of next two to
three years.

Since
our focus is on the supply chain of Maple Leaf cement, we will move towards
products and services of Maple Leaf cement.

Products and
Services

To
cater the demands of current market, Maple Leaf is producing four types of
cement:

1.      Ordinary
Portland Cement

2.      Sulphate
Resistance Cement

3.      Low
Alkali Cement

4.      White
cement

5.      Wall
Coat

These
varied product portfolio allows Maple Leaf to meet the demands of customers
mainly Government, customers, and contractors etc.

 

Supply Chain Strategy

 

The
reason why companies become successful is because of their efficient or
responsive supply chains. KMLC has focused on their supply chain to be a
responsive one and hence the following strategies are adopted regarding few
organizational factors

·        
Instead of utilizing low quality
materials with less calorie content, Maple Leaf cement imports raw materials
from South Africa which are high quality.

·        
The imported materials are transported
through two different service providers, Pakistan Railways and Toochi Sarhad.
Pakistan Railways transports the raw materials from Karachi to Daudkhel
(warehouse to storage) which is then picked up by Toochi to deliver it directly
to the factory, where the final product is made. Their strategy is to outsource
the inbound transportation costs because their infrastructure isn’t developed
to the extent which will save them transportation costs. The outbound is
handled by Maple Leaf till warehouses, from where Pakistan Railways becomes
involved again. They deliver the product from warehouses to ports where the
product will be sent for exports

·        
Factors regarding product design which
Maple Leaf is implementing are high quality raw materials, branding their
product as top of the line, marketing it and optimizing it.

·        
As previously mentioned about installing
a new product line, Maple Leaf is manufacturing by implementing the latest
technology in their factory. This new line will require skilled workers and
raise the cost of producing this new product. But Maple Leaf has already
positioned them as a brand which charges higher price and keeping the upcoming
demand in sight, they are bound to benefit from this strategy.

·        
Factors regarding pricing are that they
have a high price margin because most of their product is exported which brings
them a profit as compared to selling it locally. But this will change soon
because of CPEC.

 

 

 

Supply Chain Drivers

 

Transportation:

Maple
leaf use two modes of transportation for delivering the cement to their
warehouses and for this purpose they used;

·        
Pakistan Railways

·        
Toochi Groups

Maple
Leaf has signed a contract with Pakistan railway according to which railway
will transport the cement on daily basis from Daud Khel to Karachi and they
have to deposit Rs.650 million as a security deposit. Pakistan Railway
transports their finished good (cement) from point of production to warehouse.

Toochi
group is responsible for all the road transportation for Maple Leaf. After the
arrival of cement at warehouse, it is then loaded on the trucks of Toochi
Group, in the shape of bags, which is then sent to distributors.

As
modes of transportation have a large impact on supply chain responsiveness and
efficiency so Maple leaf has made an agreement with Pakistan Railway and Toochi
to achieve the desired level of responsiveness and efficiency. As both of these
modes are reliable and economic so they have to bear less cost.

Information:

Maple
leaf has very affective information system and they are continuously acquiring
new and latest technology to monitor the Inventory, transportation activities,
dealing with customers, oversee the cost and fluctuation in price and also because
information has direct impact on efficiency, profits and their future
decisions. Their IT department collects raw data then converts that data into
useful information, after that they analyze the data to achieve the strategic
fit.

 

 

After
compiling data their IT department converts it into useful information to
analysis which helps them to highlight uncertainties and threats in future, two
categories of risk related to supply chain are as follow.

Ø  Commercial risk:

These
are the risks arising from the KMLC trading partners or in which the KMLC
operates its supply chain functions.

Ø  Operational risk:

It
referred to as the breakdown in internal procedures like labor strikes, assembly
lines, people and system.

Facilities:

It’s
a place in supply chain network where the company manufactures and stores the
product. The two types of facilities first is production site and second is
storage site. In which the production site company are manufacture the product
and in storage Site Company are store the product in warehouse. When a company
doing well and if they want to improve their responsiveness likely to increase
facility. Maple leaf starts the business than in which the market they face
only one competitor of maple leaf that is Foji cement.

Maple
leaf want to expand our business so it’s very important for company that where
he build new production center. When making a decision regarding what will be
the role of facilities a company may have to make a decision where the facility
for production flexible, dedicated and a combination two so when a facility is
flexible than several type of products. When the production facility is
flexible it increases the cost but improve the responsiveness on other hand
when production facility are dedicated bring down the cost but than they are
less responsiveness. Business also decides that they will focus on product or
focus on functions.

Focus
on product facility can be carry all function that is important for the product
and functional focus are those facilities which carry out given type of
function.  Because facility take too much
investment for build new production center so company analysis the location
that where the labor cost is low and also low value of land and how much
company produce the product. Company can improve or increase responsiveness by
increasing the number of facility or they can make the facilities more flexible
or more they increase the capacity.

Company
also analyze of transportation cost and transportation way as well. But these
action increases the cost so if we increase the number of facility it mean the
inventory cost will increase but transportation cost will decrease and improve
the responsiveness and reduce the respond time. Maple leaf got the order from
UAE to supply the large amount of cement than company decide to build the
manufacture plant at Mianwali because the labor cost is very cheap and also the
land cost is cheap and land was mountainous so the raw material is easily
available from that area. Mianwali is the industrial area that’s why there is
no problem to build the production plant.

The
main production center of maple leaf is Mianwali and the entire raw material
store on warehouse center and new production center build near to raw material
warehouse and finished goods warehouse is Karachi. When deciding about the role
relation being to warehouse or distribution center decision may involve  it will cross dock facility or storage
facility so which the cross dock facility the load truck come from production
center so those truck were unloaded than product it break to into smaller truck
than outbound to port and local country. All finished goods are stored in
Karachi warehouse because the port facility available in Karachi so it’s easy
for company to export the maple leaf cement to foreign country.

Inventory:

Any
type of raw material that company uses or it may work in progress and in which
manufacturing raw material may undergo various type of processing so each
machine inventory they could be inventory which in basically in progress. Maple
leaf business use inventory policies to have impact on their supply chain
performance. They are able to do that because Maple leaf product in inventory
can hold their value over the longer period of time and if we have products to
decrease value over the time than it is difficult to have large inventory.

Maple
leaf manufacturing plant is in Mianwali DaudKhel Pakistan. The contract out
material are store in near to production plant and they move the cement
products in the form of finished goods from production plant that is almost 205
kanal 10 marla to Karachi warehouse through Pakistan railway. Because Pakistan
railway have cheapest transportation so that’s why company choice this mode of
transportation. Demand and supply is never equal so maple leaf carrying
inventory increase the cost but also increase the responsiveness and also
increase the availability of product. When inventory level is high than company
takes high risk because may be percentage of product sale is not increase. This
will have the impact on business profit margin. Having extra inventory help in
keeping production cost down and also transportation cost down however it will
increase the keeping of inventory cost. On the other hand if the inventory
level is low than inventory cost also decrease and it will create loss on sale.

It
depends to manager or company that how much they will take order and how much
they keep in inventory. Safety inventory is very important for company because
how much company keep inventory at back hand. Manager may have decided that how
much inventory to buildup.  Level of
product availability is proportion of demand that can be fulfilled from the
inventory if this is high that mean high responsiveness because large percentage
of demand are fulfill from the inventory but it will increase the inventory
carrying cost. When the inventory availability is low than percentage of demand
will not fulfill from the inventory. Maple leaf carries high level of inventory
because they deal with international market as well as local markets.

Company
carries high inventory because of fulfill the need of customer demand and
company export 607790 ton finished goods to foreign customer in a year so
meeting of this type of demand in a year company build huge warehouses. Raw
material i.e. clay, limestone, gypsum, and coal is imported from South Africa
and shifted to main production plant warehouse that is located in Mianwali.

Company
improves the in-house efficiency because production plant produces the cement
330 days out of 365 days in a year. Company stored the finished good at Karachi
warehouse because company easy exports the cement to foreign countries customer
and in Karachi warehouse near to port so that’s why company easily handle the
product and they transfer the product through the ship because it’s cheapest
mode  of transportation and company save
the handling cost.

 

 

 

 

Sourcing:

If
we think in terms of sourcing in a supply chain, it refers to the activities
that must be performed to acquire materials, goods, and services. Sourcing
involves making certain business decisions that influence whether our supply
chain will be efficient or responsive. In our case Maple leaf has decided that
to stay competitive in the industry, their supply chain should be responsive;
attending to the demands and growing needs of their customers. Maple Leaf’s
managers have decided that in order to produce high quality cement, they’ll
outsource raw materials like limestone, clay, gypsum from South Africa. The
reason for choosing South Africa is because of the high caloric content their
raw materials have. Since the demand of high quality cement is high, Maple Leaf
has decided that they will provide high quality, for that is their competitive
advantage. The procurement part of sourcing is handled by Pakistan Railways and
Toochi Sarhad Waziristan. After importing cement from South Africa, Pakistan
Railways delivers it to the storage houses of Toochi which then provides the
transportation services to cement factory of Maple Leaf.

Pricing:

The
process by which a firm decides on how much to charge their products and
services is called pricing. Ideally the price of a product must be higher than
the total cost incurred in getting that product/service to the customer.
Depending on the quality level, a firm can charge more for a higher
satisfactory experience. And so here Maple Leaf charges a higher price than its
competitors. A highly responsive supply chain will add extra costs and hence
higher price. Factors like outsourcing, inventory costs, and transportation costs
add to the high price.

 

 

 

 

 

Supply
Chain Drivers and Supply Chain Strategy

The
strategy of Maple Leaf is to provide high quality level of cement. The supply
chain strategy as mentioned above leads to factors which result in increased
cost of making the final product with a responsive supply chain. The factory of
Maple Leaf is situated in a place where there is skilled labor and unskilled
cheap labor. The inbound transportation cost is outsourced which reduces their
overall costs. Information regarding upcoming demands, health of export
markets, increasing competition in export market, and technologies which help
management of Maple Leaf make more informed decisions. The company is in a
strategic fit because every driver from the beginning phase of outsourcing raw
materials to delivering the end product to customers conforms to their business
strategy. Facilities are located near the production facility, finished goods
are easily transportable (reducing inventory costs), transportation is
reliable, and a high responsiveness to market needs.

 

Identification
of Gaps

At
the moment, Maple Leaf is highly responsiveness which means they’re incurring
high inventory costs (just one side of it). If the customers decide to settle
on lower quality, cheap cement and the market shifts towards that trend then
Maple Leaf will have serious trouble. Most of their cash comes from exports and
if sanctions are placed on Pakistan, keeping the current situation in mind,
Maple Leaf will find itself dwindling sales revenues. Technology is also an
important factor in this scenario. Adding the latest technology doesn’t mean
that it’ll offer the most advantages too.