Supply Chain Automation at Imperial

Supply Chain Automation at Imperial Tobacco Canada

Supply Chain Automation for Imperial Tobacco Canada

Imperial Tobacco Canada is in a highly competitive, turbulent and rapidly changing industry that requires their supply chain operations to be tightly synchronized with their packaging, fulfillment, and distribution channel operations. The catalyst for synchronization needs to be the distributed order management system that can enable Imperial Tobacco Canada to accomplish its supply chain operations, financial and long-term order accuracy and customer satisfaction objectives as well. Table 1, Tobacco Industry Supply Chain Measures of Performance explains the key performance indicators (KPIs) and measures of performance critical to Imperial Tobacco Canada attaining their strategic plans and objectives. All of the KPIs and measures of performance shown in Table 1 all combine to measure accuracy and profitability of orders delivered, what many supply chain experts call the Perfect Order. For Imperial Tobacco Canada their challenge is to better align their supply chain and its perishable goods to its packaging, fulfillment and distribution channel operations. The velocity of transactions that Imperial Tobacco Canada can attain is going to be directly related to the level of profitability they will reach. To be accurate, fast, and have a very high level of order accuracy from multiple layers deep in their supply chains while also being able to manage forecasts from distributors and dealers is going to be critical for the long-term financial success of Imperial Tobacco Canada. The intent of this research is to evaluate how automating their supply chain through the use of distributed order management systems and better integration with suppliers and distributors will increase transaction velocity and increase financial performance of the company. To be clear, this is not saying that merely adding in technologies for their own sake is going to make Imperial Tobacco Canada more efficient; it is saying that in redefining and revising their supply chain planning, management and fulfillment functions and coordinating them more precisely with distribution partners, that the company will be more competitive and effective over the long-run. The intent of this study is to evaluate the contribution of automating supply chain operations have on transaction velocities and overall supply chain performance as measured by the metrics in Figure 1 of the Appendix.

Introduction and Description of the Organization

Imperial Tobacco Canada competes in a relatively flat Canadian domestic market for tobacco, with compound annual growth rates in the 4% range for the years of 2003 through 2007 common (Inness, Barling, Rogers, Turner, 2008). Cigarettes are 96% of the market's value, which has been estimated as worth $12.3B in 2007. From 2007 through 2012, the market is expected to further slow in terms of growth to 2.1% over this five-year period, with just a slight increase in total market value to $13.6B by 2012 (Inness, Barling, Rogers, Turner, 2008). Figure 1, Canadian Tobacco Market Value, $B, 2003-2007 illustrates the challenging environment that Imperial Tobacco Canada finds itself in, and the criticality of having an automated supply chain that can streamline their existing processes and make them more cost- and time-efficient. The slowing market growth rate can be attributed to increase global competition in Canada, and the initiatives in place to restrict under-age consumption of tobacco. Of these, the second one is the most significant in terms of its impact on the long-term costs of operating in Canada as subsidies are required in the form of taxes on Imperials' products.

Figure 1: Canadian Tobacco Market Value, $B, 2003-2007

Source: Imperial Tobacco Canada financial reports

Imperial Tobacco Canada is comprised of several subsidiaries, including Channel 2 which specializes in merchandising activities, additional brands including Imperial Brands Lt., John Player & Sons and Allan Ramsey & Company Ltd. As well. On February 1, 2000 when Imperial Tobacco Limited became part of the British American Tobacco Group, it was able to gain significant financial support for product line and distribution investment. Table 2 in the Appendix presents a ratio analysis of British American Tobacco. These ratios indicate that British American Tobacco has been successful in integrating their acquisition of Imperial Tobacco Canada. This is specifically shown by the growth of Return on Assets (ROA), Return on Investment (ROI), and the increase of one inventory turn over the years analyzed. While these results indicate a supply chain that is gradually improving, it does not illustrate one that is high performing. Inventory turns above 7 are possible in this industry (Inness, Barling, Rogers, Turner, 2008), and needs to become an objective for the company to work to attain in conjunction with driving up ROA and ROI figures.

Integral to Imperial Tobacco Canada division are processes that initiate, execute, track and analyze the performance of tobacco products delivered globally. Imperial Tobacco Canada competes in the United States and Latin American countries, so tracking supply chain performance is critical in this regard. The Imperial Tobacco Canada relies on several distributed order management systems that initiate transactions; track them, measure order accuracy and velocity, fulfillment percentage of on-time, early vs. late deliveries, and method of shipment. These distributed order management systems however are not integrated with one another and rarely are synchronized from a supply chain management and demand planning standpoint. The company has yet to fully adopt Collaborative Planning, Forecasting and Replenishment (CPFR), which would give them a significant competitive advantage in managing inbound demand from their channels (Johnson, 2008).

The intent of this research is to evaluate how communication and information technologies can contribute to higher levels of order accuracy and velocity throughout Imperial Tobacco Canada and its supply chains and distribution network. Distributed order management systems specifically created for services companies share process commonalities with manufacturing-based Enterprise Resource Planning (ERP) and distributed order management processes and system attributes (Stecke & Zhao, 2007, et.al). Imperial Tobacco Canada relies on a comparable make-to-stock process workflow that seeks to optimize the freshness of each product being produced (Stecke & Zhao, 2007, et.al). The theory of constraints as it relates to the defining and evaluating of processes within manufacturing-based ERP systems has even greater significance in the context of Imperial Tobacco Canada as its four operating divisions, where accuracy and velocity are the catalysts of their unique value proposition and foundation of trust with its consumer and commercial customers (Williford & Chang, 1999, pp. 204, 205, 206).

Constraint modeling is used within Imperial Tobacco Canada to optimize logistics and global supply chain coordination with corporate accounts including the streamlining third-party logistics functions (Alghalith 2007, pp. 297-303) and (Babcock, 2006, et.al). Combining distributed order management systems is the means by which Imperial Tobacco Canada can synchronize their time-based product deliveries while also relying on an optimization engine that can determine the optimal routing, pricing, and potential for delivery delays gives the company a unique competitive advantage (Nichols, 2003, et.al).

A second major aim of this research is to evaluate the effectiveness in terms of increased accuracy and velocity global distributed order management systems have within the Imperial Tobacco Canada operating divisions and the resulting impact on key performance indicators (KPIs) and metrics of performance as shown in Figure 1 of this paper. The ability of Imperial Tobacco Canada to attain a high level of logistics and supply chain performance quantified by the perfect order metric (Novack & Thomas, 2004, et.al.) is also an objective of this study. Imperial Tobacco Canada is a culture that relies heavily on analytics and business intelligence including the use of dashboards and scorecards as well. The adoption of the KPIs introduced in Table 1 of this document will experience a relatively high rate of user adoption as a result.

Assumptions and Scope

The following are the key assumptions of this research effort to understand how distributed order management (DOM) systems when integrated with each other are going to deliver higher levels of performance at Imperial Tobacco Canada:

The greater the level of process and system integration the higher level of ROI and ROA achieved over time.

The development of an integration strategy between distributed order management systems at Imperial Tobacco Canada will have a direct effect on the ability of the company to keep its distribution channels adequately stocked with products.

The more real-time the integration between systems the greater the inventory turns over time.

The development of ERP integration points for the distributed order management systems will lead to a greater level of order accuracy over time.

The use of metrics within Imperial Tobacco Canada will eventually transform the internal culture to concentrate more on the ability of the company to develop strategies for optimizing perfect order performance.

The scope of this report is global, as Imperial Tobacco Canada's operations. The concentration is on how tight integration of distributed order management systems specifically and supply chain management systems in general can increase transaction velocities across broad geographic regions.

Major Issues

The two most critical issues that are facing Imperial Tobacco Canada is the adoption of the change in day-to-day processes that will be required when the systems are integrated together and go live. Undoubtedly there will be significant change required at both the process and interpersonal level throughout the company, as these systems working to provide greater insights and more accurate control of the supply chain will force change into nearly every operations-based job. This issue of resistance to change is a critical one that will require significant effort to overcome. As a first step, the development of needs analysis is critical for understanding how the systems can be designed to be of more value to those using them. This is essential to increase the likelihood of acceptance of the supply chain system, both within Imperial Tobacco Canada and with its suppliers. The second major issue is the development of a platform that can be quickly deployed. The use of a Service-Oriented Architecture (SOA) for better unifying of the distributed order management systems is also critical for the long-term. This is a major issue for Imperial Tobacco Canada to address today as they integrate the disparate and for the most part disconnected order management systems in their company today. The concept of the SOA is one where all systems are synchronized with one another to the process level to allow for all of them to be focused on a strategic objective vs. numerous smaller and often tactical ones.

Objectives

To measure the effects of supply chain distributed order management expansion within Imperial Tobacco Canada and its correlation to increased accuracy and velocity rates globally.

To gain insights into how distributed order management systems within tobacco industry supply chains increase overall transaction accuracy and velocity.

To understand how the global adoption of distributed order management systems is influencing the competitive dynamics of the tobacco industry.

To ascertain how distributed order management systems will most likely change as Service oriented Architectures (SOA) become more commonplace and with it, the change in Web Services.

Analysis

In completing this analysis, it became apparent of how intertwined distributed order management and the broader aspects of time-based supply chain management have become. Inherent in this analysis is the role of processes oriented towards ensuring high levels of accuracy and velocity in supply chain performance, in turn influencing the synchronization of orders throughout multiple Imperial Tobacco Canada distribution centers, fulfillment locations, warehouses, and secondary channel partners and third-party logistics providers. Imperial Tobacco Canada and their third party logistics partners as a result have increasingly relied on information and communications technologies to provide for greater process agility and the ability to stay demand-driven over dominated by internal constraints. The creation, continual improvement and optimization of the Distributed Order Management (DOM) model is the catalyst of Imperial Tobacco Canada's competitive advantage is apparent in how tightly integrated the elements of this model are and how order accuracy and velocity are the key performance indicators as measured in this model. Figure 2: Distributed Order Management (DOM) Hierarchical Model illustrates conceptually how the model is constructed including its integration points (Johnson, 2003, et.al.)

Figure 2: Distributed Order Management (DOM)

Hierarchical Model

Source: (Johnson, 2003, et.al.)

The Data Services of Imperial Tobacco Canada, as defined by its customer- and shipment history databases, anchor the model, followed by Application Services, Presentation Services, and a separate Presentation Services specifically for Internal and External Constituents of the logistics provider. Each of the components of the Distributed Order Management (DOM) Hierarchical Model are briefly discussed here in the context of the findings of the study pertaining specifically to Imperial Tobacco Canada's global operations.

The Master Data Services component is where Imperial Tobacco Canada normalizes and synchronizes data on customers, products, accounts, and suppliers is the primary building block. There are several techniques Imperial Tobacco Canada relies on building a system of record from database consolidation to the development of virtual objects that are a composite of various systems. Regardless of the overall data management strategy, the DOM architecture within Imperial Tobacco Canada message centric and have a metadata-driven data model. These capabilities allow the Imperial Tobacco Canada DOM system to understand where key data resides, how to get it, and how to transform or normalize the data to ensure that there is a high level of order accuracy and sufficient velocity of transactions to ensure profitability is maintained. In addition to transaction or operational data, Imperial Tobacco Canada uses information system-based strategies and investments to support the creation of its own series logical analytical data models which feed customer-specific data to a centralized warehouse in order to measure and manage the performance of the entire logistics process and create analytical reporting for all internal teams relying on this data.

In addition to the DOM architecture defined above, Imperial Tobacco Canada also has defined three critical application services that are critical for the systems' future growth. The adoption of an SOA platform is critical for these components to become available. These components include event and state logistics management, order brokering and integration framework and Business Process Management (BPM) support. The first of these three, the event and state logistics management, actually is a Web Service that that would monitor the state of any Imperial Tobacco Canada order throughout its lifecycle as it travels between disparate systems, both internal and external. Coupled with the state management engine is event management, which would monitor the Imperial Tobacco Canada transport request or order cycle to identify issues related to time and quantity in order to identify and manage exceptions proactively. The order broker or integration framework is designed by Imperial Tobacco Canada to capitalize on technological advancements in messaging found in leading Enterprise Application Integration (EAI) systems (Johnson, 2003, et.al.). Imperial Tobacco Canada would use these systems for breaking down all orders into smaller processes that ensure each shipment is managed as optimally as possible. The use of constraint-based technology is pervasive needs to become pervasive in this area of the Imperial Tobacco Canada Distributed Order Management platform. The order definition is then connected to the Imperial Tobacco Canada order broker with can also be its 3rd party logistics business, which can be based on a standard EAI system or Imperial Tobacco Canada's own messaging layer that prepares the instructions for the various parties and defines the format of the business documents and communication methods. Finally the BPM component would be used by internal Imperial Tobacco Canada business and system analysts to graphically design and depict processes and workflows inside many of the Imperial Tobacco Canada applications and across multiple applications to enable and manage an end-to-end process.

Imperial Tobacco Canada would also need to define a series of twelve different key modules that align with the Distributed Order Management (DOM) Hierarchical Model as suggested by Johnson (2003, et.al.) Included in these would be support for business logic to assemble and configure customized process workflows for any existing or new Imperial Tobacco Canada subsidiary or business offering. The launch of Imperial Tobacco Canada as part of the broader British American Tobacco conglomerate for example was partially completed using the components in this area of existing Distributed Order Management processes and workflows.

Recommendations and Plan of Action

The following are the three key recommendations that Imperial Tobacco Canada needs to aggressively pursue in order to turn their existing supply chain operations and the existing state of their order management systems into a competitive advantage.

The first recommendation is to get a strategy together to address the issue of how to gain the support of those most impacted by the change. Dealing with how to make the process changes permanent is critical. Developing this change is essential for all other recommendation to be effective. The existing processes that rely on distributed order management systems needs to be evaluated to see how they can be made more efficient in Imperial Tobacco Canada. Once these process areas that require the greatest improvement are evaluated, the modifications to the existing workflows in the present distributed order management systems need to be augmented, redesigned to be more responsive. Only after this specific step is taken can the next phase be successful.