Value Models
Figure 1 provides an overview of the Porter Five Forces Model (Porter, et.al.).
The most powerful forces in the tobacco industry are supplier power and threat of substitution. Using the Porter Five Forces Model to analyze Imperial Tobacco, the critical role of their supply chain becomes apparent as does the many threats to substitution of lower-priced tobacco products and their many substitutes. Rivalries that Imperial Tobacco has started have been accentuated and drawn quick response from competitors due to Buyer Power in the tobacco industry being concentrated in just a few segments. This has been one of the key catalysts in the price wars going on in the global tobacco industry. For Imperial Tobacco to continually gain new customers it must centralize pricing and make this critical aspect of their strategy more coordinated across all distribution channels and customer segments. The package-to-order process that Imperial Tobacco is relying on to gain incremental sales through existing channels requires that pricing be optimized across all channels first. This will give Imperial the competitive advantage of being able to better compete on price/quality-based differentiation in an effort to win new customers and keep loyal the ones they already have.
Cross-Functional Process Analysis
For Imperial Tobacco, the collaboration between their customers, Marketing and Sales, Package-to-Order Process and Tobacco Processing and Products Manufacturing is shown in horizontal swim lanes in Figure 1: Overview of the Package-to-Order Process in Imperial Tobacco. The package-to-order process often takes several iterations of purchase orders to get these highly customized orders correct. Once verified that the customized orders are compatible with existing constraints within the Imperial Tobacco production process, proposals are created and used to create the Order Item Worksheet that begins the Package-to-Order process. Once this has also been verified with the customer, the Tobacco Processing and Products Manufacturing process begins. Note that this...
The time required to complete an entire package-to-order process takes up to 21 days, or nearly a month of time to get correct. Translating this into the needs of the customers, they must plan their seasonal products with Imperial Tobacco at least six months in advance given their own internal constraints of taking five months to get a new product introduction process in place.
This is a highly collaborative process internal to Imperial Tobacco specifically in the area of coordinating what types of tobacco will be available at specific seasons, taking into account demand from customers who have already placed package-to-order-based orders earlier in any given year. Clearly this entire process requires an inordinately high level of collaboration and coordination both inside a company and with customers to ensure it successes. The point of how critical pricing management is throughout this entire process is clear, given how intricate and involved the cross-functional requirements are across the entire package-to-order process.
In summary, the future of Imperial Tobacco to gain greater loyalty with its distributors, dealers, retailers and channel partners is highly dependent of how effective they are in managing the cross-functional coordination in the package-to-order process. Pricing is also a critical factor that must be managed at the enterprise level for this collaborative process to be profitable over the long-term as well. Using its present approach to managing P&Ls at the product line level does not provide enough visibility into the true costs and expenses of the cross-functional strategy of package-to-order process.
Figure 1: Overview of the Package-to-Order Process in Imperial Tobacco
References
Michael E. Porter. "THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY. " Harvard Business Review: Special HBS Centennial Issue 86.1 (2008): 78-93. ABI/INFORM Global. ProQuest. 4 November 2008
Figure 1:
Porters' Five Forces Model
