Unilevers Supply Chain

Management Practices

Final Test
Supply Chain Design

By :
Corry Lamria D Hutahaean
29112071

Master of Business Administration

School of Business and Management
Bandung Institute of Technology
Bandung
2013

Unilevers Supply Chain Management Practices

Introduction
Unilever is one of the worlds most successful international consumer goods
companies, employing 206,000 people in approximately 150 countries worldwide. The
company has over 300 manufacturing sites, producing a diversified portfolio of brands that
are popular across the globe. In late 1933, PT Unilever Indonesia Tbk (the company) was
established as Levers Zeepfabrieken N.V. Nowadays, Unilever Indonesia has grown to be a
leading Fast Moving Customer Goods of Home and Personal Care as well as Foods and Ice
Cream products in Indonesia. The Company seeks to manage and grow the business in a
responsible and sustainable manner Touching the lives of Indonesian consumers &
customers everywhere.
Unilever Indonesias portfolio includes many of the worlds best known and well
loved brands, such as Pepsodent, Ponds, Lux, Lifebuoy, Dove, Sunsilk, Clear, Rexona,
Vaseline, Rinso, Molto, Sunlight, Walls, Blue Band, Royco, Bango and many more.
The Company owns six factories in Jababeka Industrial Estate, Cikarang, Bekasi and
two factories in Rungkut Industrial Estate, Surabaya, East Java, with its head office in
Jakarta. Its products consist of about 43 key brands and 1,000 SKUs which are sold through a
network of about 500 independent distributors covering hundreds of thousands of outlets
throughout Indonesia. Products are distributed through its own central distribution centersmodern trade and general distributor -, satellite warehouses, depots and other facilities.
Managing The Supply Chain
Company supply chain strategy as fast moving customer goods - especially for home and
personal care, can categorized as functional product - focusing on efficiency, cost reduction
and supply chain planning.
Unilever Indonesia has implemented SAP Advance Planning Optimizer to manage their
supply chain strategy. By using Accenture as IT consultant to build and start the program in
approximately before 2010 with consider several key notes for the system:

Ability to quantify, understand and manage the true variability of demand and supply
Dynamically determines optimal and visible inventory policies for every item across the

supply chain.
Directly accounts for all the uncertainty in the supply chain by the use of advanced
algorithms

Inventory and Demand Management

The company controls the inventory under Unilever Inventory Management (UIM) team
by using stock dynamic replenishment concept.
UIM team will calculate all the SKUs in order to get the optimal and visible inventory, as
the result translate it into week cover (ZTWC) as target and safety daily inventory dynamic
target stock. ZTWC needs to be created for all locations (T-lane) including Factory, Vendor,
Customer, Dummy DRP location, Depot and CDC (Central Distribution Center). Week cover
for each SKUs in all location will propose under IPM team based on historical data,
promotion and cost factors.
The ZTWC combines with the cost parameter becomes the input of the optimizer cost.
Under SAP APO SNP system responsible for maintaining the required safety stock levels
covering demand uncertainties, replenishment lead time, number of different SKUs were
being considered.
The planning process is quantity and period orientated; As a result of SNP processes
Unilever receive information about supply demands on external suppliers, transport
requirements, planned production output as well as stock levels at individual locations in the
logistics network.

customer

Cost factors in SAP APO:

1.

Late

delivery

and

non

delivery penalties cost set into

optimizer

to

deal

with

the

demand from customer.

2.

Safety stock and maximum

stock level cost

Supply Chain Collaboration

3.

Production cost

4.

Storage cost

5.

Procurement costs

6.

Transportation cost

In Unilever, supply chain integration as known as supply network collaboration

(SNC). SNC is a better system to collaborate end to end planning bottom up planning from
area and top down planning from company. SNC system fully integrated with SAP APO.
As a glimpse of collaborative planning in internal Unilever, forecast demand
generated by marketing (SOM MT) and demand planning (DP) as shown figure 3. Forecast
as input for supply planning (SU) , distribution plan (DPG) and stock norm for
replenishment. Stock replenishment separated into two categories is primary sales and
secondary sales. Primary sales based on sales from first tier customers and secondary sales
from baseline and area promo. Forecast by customer divided by demand from modern trade
(MT) and demand from general distributor (GT). MT consists of Carrefour, Hypermart,
Lotte,Giant, Hero, Supermarket and others. GT consists of distributor partner. MSO as central
coordinator in supply chain are have collaboration with SOM as representative of customer
development (sales division).

Source: Unilever Supply Chain Division, 2013

Unilever using hybrid of push and pull strategies. The production stage are done in
push manner based on aggregate customer demand forecast so the uncertainty is reduced so
safety stock inventory is lower, cost minimization and effective resource utilization (see stock
strategy figure 3) . The next stage for distribution are done in a pull manner for replenishment
needed by distributor, by using sophisticated IT and customer relationship management under
CD area that they already have.

Medium

Retail - Supplier Relationship

In this paper, author is going to elaborate the external relationship between Unilever
(as supplier of retailer) with their distributor (retailer), GT and MT. Under collaborative
planning company control the hand stock of distributor by using system known as Scylla. The
Scylla as part of SNC has purpose synchronized data exchange with SAP APO. Since SAP
APO get the data from Scylla, system will trigger supply that needed to replenish the stock
and order split SAP also consider in transit stock. Currently, CD teams split the order and
upload manually.
To accommodate lean production, Unilever implement continuous replenishment
logic/ strategy that capping the sales order for 1st replenishment run at 80% from baseline of
forecast by customer. Unilever prepare shipments at previously agreed-upon intervals to
maintain specific levels of inventory. As the result, company may gradually decrease
inventory levels at the retail store or distribution center as long as service levels are met.
Moreover, due to the nature of the business in Indonesia (related with festive season), the
cover days in Distributor will dynamically changes according to a pre-defined festive season
plan
# Channel
# Profile

Hyper
National Chain

RTM
National Chain

Minis & Specialty

National Chain

Supermarket
Local Chain

# Order placing

-Electronic
-Manual
-VMI
Daily
36% (60bio)
Carrefour
Hypermart
Giant
Hero

Electronic

-Electronic
-Manual

Nat Chain
-Manual
-Electronic

Daily
13% (21 bio)
Lottemart-wholesale
Indogrosir

Daily
37% (62 bio)
Alfamart
Indomaret
Watson
Lionsuperindo

1-3 x/week
14% (22 bio)
Ramayana
Tip Top
Naga
Yogya

# Order frequency
# Contribution
# Customer

Alfamidi

Diamond

Vendor Managed Inventory

VMI model has implemented for Hypermart as MT ditributors Unilever. Unilever
manages inventory in Hypermart stores everywhere in Indonesia. Unilever recently sent
analysts to Hypermart office and stores. Hence, company will implement the same standard
to other MT Customers in future. Files are sent to Hypermart for their information and
confirmation. Files consist of forecast demand that already translate it into plan order in cases
per SKUs. Unilever decides on the appropriate inventory levels and the appropriate inventory
policies to maintain these levels.
In order to make it more efficient the collaboration is connected through EDII as third
party. Files converted to Hypermart data format and send to local folder using EDII. On the
other hand, Unilever receives inventory report from Hypermart to the basis for replenishment
calculation. After calculation, VMI planners will manually adjusted the order when big
variance detected
Criteria
Type

Decision maker

Inventory
Ownership

New skills employed

by Unilever

Continuous
replenishment

Contractually agreed-to
levels

Either party

Forecasting and
inventory control

VMI

Unilever

Hypermart

Retail management

Procurement Strategies
Unilever Indonesia has developed sophisticated methods for managing supplier
relationships. This includes the Suppliers Quality Management and Assessment Programme
(SQMP), launched in 2000 as part of our international drive to build a world-class supply
chain. It measures suppliers' ability to achieve consistent quality in meeting company
specifications: on time and in-full delivery; cost competitiveness; reliability and flexibility.
These suppliers basically supply Unilever with all that company need to make
products from chemicals to food ingredients and from commodities to packaging

Unilever found it essential to have suppliers close to its eight factories in Indonesia
because the insufficiency of raw materials would bind Unilever from sprinting to meet the
future spurt in market demand.
Based on the Kraljics supply matrix, the raw material as a supply in Unilevers
products commonly have low profit impact and supply risk as as at bottom left quadran - the
non critical items. Unilever need to simplify and automate the procurement process as much
as possible.
Take one example to give explanation about procurement as raw material of Unilever
product such as Dove. About 65 percent of palm oil bought by Unilever worldwide comes
from Indonesia. In 2009, Unilever announced it was suspending purchases of palm oil from a
major Indonesian supplier - SMART, following allegations by environmentalists the company
was engaged in widespread illegal deforestation. This case had shown the low dependency
with their supplier and commit with their commitment to sustainability environment. At that
time, Unilever only suspended the SMART but continuous the palm oil supplies from local
company in Indonesia.
Outsourcing Strategy
Since Unilever has independency with knowledge and capacity and their product as integral
product, thus company keeps production internal. The opportunity to reduce cost through
packaging has done outsource with other company since its not their competitive advantage.
Third Party Logistics
Unilever use DHL as 3PL provider to take over a companys logistic function. With
this alliances company can focus on its core competencies and have the capability to fulfill
demand customer across Indonesia by using flexibility in geographic locations.
Unilever encourage their international suppliers by using Cikarang Dry Port services
for their import and export product. Unilever Indonesia views this approach as necessary to
strengthen its supply chain activities to increase companys productivity. Unilever Indonesia
has several manufacturing plants within Jababeka industrial estate and has been using
Cikarang Dry Port for their shipment since CDP early operation dates.
Network Management
Network management based on SAP help the company to (1) find the right balance
between inventory, transportation and manufacturing costs, (2) match supply and demand

under uncertainty by positioning and managing inventory effectively and (3) uutilize
resources effectively by sourcing products from the most appropriate manufacturing facility
Based on figure below, we can see the circumstances of Unilever network. Company
provide the distribution plan by using the T-lane as line transportation, forecast split, ZTWC,
lead time and priority. All the variable as input into SAP Advance Planning Optimizer with
the result deploy stock to all point and ensure the availability stock at the right quantity, at the
right place and ther right time.

SULAWESI

Source: Unilever Supply Chain Division, 2013

The SAP calculate the optimization by using mathematical model lead to structured
poblems such as linear programming, mixed interger linear programming problems and
solved with considering variable as follows :

Network design

Number, locations and size of manufacturing plants and warehouses

Assignment of retail outlets to warehouses

Major sourcing decisions

Planning horizon 26 weeks

Inventory positioning:

Identifying target and safety stocks

Selecting facilities that will produce to stock and thus keep inventory

Facilities that will produce to order and hence keep no inventory

Related to the inventory management strategies

Resource allocation:

Global Logistics - International Supply Chain

International distribution systems
Manufacturing still occurs domestically, but distribution and typically some marketing take
place overseas. Unilever export their product 32 customer from South East Asia, North Asia,
South Asia, Africa and Europe. One example of export product is ice cream to Africa. The
product already customized base on market conditions and usually the name of product will
be different across the countries although the composition might be same.
International suppliers
Example for raw materials are produce by foreign suppliers is magnum, Unilever supplies
their chocolate from belgias supplier.
Fully integrated global supply chain
In Univeler products are supplied, manufactured, and distributed from various facilities
located throughout the world. The sourcing unit for import product comes from America,
Europe, South East Asia area, and south Asia. One example for import product is Rexona
lotus which is manufactured in Unilevers Australia.
Global Products
The heart logo of ice cream product is common worldwide, each country retained the local
brand name so as to keep the familiarity built over the years. Unilever generally manufactures

the same ice-cream with the same names, with rare occasions of regional availability, under
different brands. Some of these ice-creams include Cornetto, Magnum, Twister and Viennetta.

Managing Global Risks

Unilever supply chain network is exposed to potentially adverse events such as
physical disruptions, environmental and industrial accidents, or bankruptcy of a key supplier
which could impact company ability to deliver orders to customers. The quality and safety of
products are importance for brands and reputation. The cost of products can be significantly
affected by the cost of the underlying commodities and materials from which they are made.
Fluctuations in these costs cannot always be passed on to the consumer through pricing.
Contingency plans designed to enable company to secure alternative key material
supplies at short notice, to transfer or share production between manufacturing sites and to
use substitute materials in product formulations and recipes. These contingency plans also
extend to an ability to intervene directly to support a key supplier should it for any reason
find itself in difficulty or be at risk of negatively affecting a Unilever product.
Commodity price risk is actively managed through forward-buying of traded
commodities and other hedging mechanisms. Trends are monitored and modelled regularly
and integrated into forecasting process.