PTC Operations

|PAKISTAN TOBACCO COMPANY OPERATIONS & PRODUCTION MANAGEMENT

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|PAKISTAN TOBACCO COMPANY OPERATIONS & PRODUCTION MANAGEMENT

PHASE – I & II

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Contents

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CONTENTS........................ ................................................... ...................................................... ............................................................... ......................................... ..... 3 INTRODUCTION ........................ ................................................... ...................................................... ................................................................ ..................................... 4 FACTORIES................................... .............................................................. ....................................................... ........................................ .................... ........ 4 JHELUM....... ............... ............... ............... ................ ................ ............... ............... ................ ............... ............... ................ ................ ............. ......... ........ .... 4 AKORA KHATTAK........ ............... ............... ................ ............... ............... ................ ................ ............... ............. .......... ........ ........ ........ ........ ....... ... 5 CORPORATE STRATEGY........ ................ ............... ............... ................ ................ ............... ............... ............... ........... ........ ........ ........ ........ ........ ......5 KEY OBJECTIVES ........ ............... ............... ................ ................ ............... ............... ................ ............... .............. ........... ........ ........ ........ ........ ....... ... 5 OPERATION S TRATEGY........................ ................................................... ...................................................... .................................................... .........................6 PROCESS MANAGEMENT........ ................ ............... ............... ................ ............... ............... ................ ................ ............... .............. ........... ........ ......7 PHASE (I)........................ ................................................... ...................................................... ........................................... ............................ ................... ....... 7 LEAF THRESHING DEPARTMENT.......................... ..................................................... ................................................ ................................ ............... .... 7 PHASE (II)......................... .................................................... ........................................................................... ................................................ ............ 8 PRIMARY MANUFACTURING MANUFACTURI NG DEPARTMENT....... ............... ................ ............... ............... ................ ............... ............. ........8 SECONDARY MANUFACTURING MANUFACTURIN G DEPARTMENT........ ............... ............... ................ ............... ............ ......... ........ ....... ... 8 PROCESS CHOICES........ ................ ............... ............... ................ ............... ............... ................ ................ ............ ........ ........ ........ ........ ........ ........ .... 9 MANAGEMENT OF TECHNOLOGY....... ............... ................ ............... ............... ................ ............. ......... ........ ........ ........ ........ ........ ....... ... 10 INFORMATION TECHNOLOGY........ ................ ............... ............... ................ ............... ............... ................ ................ ............ ........ .... 10 MECHANICAL TECHNOLOGY....... ............... ................ ............... ............... ................ ............... ........... ........ ........ ........ ........ ........ ......10 TOTAL QUALITY MANAGEMENT....... ............... ............... ............... ................ ................ ............... ............... ................ ............ ........ ........ .... 11 PHASE - II....................... II.................................................. ...................................................... ................................................................ ..................................... 14 CAPACITY ......................... .................................................... ...................................................... ................................................. .................................. ................. ..... 14 CAPACITY PLANNING: ......................... .................................................... ...................................................... .................................................. .......................15 CAPACITY S TRATEGIES....................... .................................................. ...................................................... ................................................... ........................ 16 EXPANSION ........................... ...................................................... ........................................................................... ................................................ ........... 16 LOCATION......................... .................................................... ...................................................... .................................................................. ....................................... 17 JHELUM FACTORY........................ ................................................... ...................................................... ........................................................ .............................17 HATAK FACTORY ....................... AKORA K HATAK .................................................. ...................................................... ............................................... .................... 18 TEAM WORK .................................................... ............................................................................... ................................................ ................................ ............... .... 19 .................................................... ......................... ...................................................... ....................................................................... ............................................ ..... 19 LAYOUT....................... .................................................. ...................................................... ....................................................... ........................................ ............... ... 20 CONCLUSION........................ ................................................... ...................................................... ...................................................... ..................................... .......... 21 RECOMMENDATIONS ......................... .................................................... ...................................................... ....................................................... ............................ 22 ACTION PLANS....................... .................................................. ...................................................... .................................................. ................................... ............ 23 BIBLIOGRAPHY 24











Introduction Pakistan Tobacco Company (PTC) is one of the leading multinational companies of Pakistan. It has the privilege being the first multinational company of Pakistan. PTC is the part of trans-national British American Tobacco (BAT) Group which has been in this business over 100 years now. BAT has its operations in about 180 countries with more than 300 different brands. Tobacco industry is one of the most important sectors of the economy of Pakistan. PTC has become the major player in the industry by keeping thousands of people employed and by contri contribut buting ing to annual annual GDP of Pakist Pakistan an throug through h large large amount amount of taxes taxes paid paid on cigare cigarette tte manufacturing and sales. PTC started its operations 1947 right after the partition of sub-continent, by taking over the business of the Imperial Tobacco Company that was incorporated in subcontinent since 1926. In the beginning a channel production was setup in a warehouse in Karachi which has capacity of producing 360 millions sticks per annum. Then after a certain period PTC started its fully equipped factories in Jhelum and Akora Khattak. Currently PTC has the capacity of producing about 35 billion sticks per annum. During 2006 PTC showed 12.8% growth in sales volume by selling 34.54 billion sticks. PTC is the largest excise tax generator in the private sector in the country. In 2004 alone, PTC paid the government close to Rs.16 Billion in excise and sales taxes.

FACTORIES |

Currently there are two factories that are performing there operations under PTC. These factories are named as Jhelum and Akora Factory.

JHELUM PTC established Jhelum Factory in 1956 which started its operations in 1957. Jhelum is located

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are 426 employees working in Jhelum Factory. Jhelum Factory has capacity to produce 20 billion sticks per annum.

AKORA KHATTAK Akor Akoraa Fact Factor ory y star starte ted d its its oper operat atio ions ns in 1976. 1976. Akor Akoraa Fact Factor ory y is situ situat ated ed 100 Kilometers in North from Islamabad. A special thing about Akora Factory is that tobacco leaf is also processed there. Akora Factory fulfills the requirement of local tobacco. It is also working in three shifts same as in Jhelum Factory. Akora Factory has capacity to produce about 20 billion sticks per annum.

CORPORATE STRATEGY PTC’s corporate strategy is to gain market leadership in terms of the following three aspects:

1. Growth: The focus on competing in terms of their volume share that is the amoun t of cigarettes being manufactured.

2. Productivity : In terms of productivity they believe and focus o n effective utilization of the given resources and reducing their waste.

3. Responsibility : PTC believes that it is their prime duty to carry out their business activities ethically and morally keeping in mind the interests of all. They give high priority to community services and health and safety issues.

KEY OBJECTIVES To regain volume and value leadership by positioning variable brands in all consumer related |

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segments of the market. The focus is on the light segment, ASU 30(adult smokers under 30 years), and premier brands. •

The established leading positions in markets where it is not already strong.

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To drive drive world world class class standar standards ds in produc products ts proces processs and servic services es through through passio passionat natee











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To meet these objectives, PTC is taking the following initiatives

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Establish a focused segments and differentiated brand po rtfolio

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Create a winning cooperate culture with focus on vision, mission and values.

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Restructure PTC,s cost base to become competitive locally and globally

VISION “First choice for everyone” “Transform PTC to perform with the speed, flexibility and enterprising sprite of an innovation, consumer-focused company” The vision of PTC is to become number one company in terms of quality and quantity and to become the first preference for all its stakeholders.

Operation Strategy The operation strategy of PTC is linked with their corporate strategy which is to maintain their company with speed and flexibility to become the number one cigarette manufacturer therefore in terms of operations they believe in producing with the least possible cost and are continuously working on findings ways to further reduce it without compromising on their quality in order to gain a competitive edge over its competitors. The strategies of PTC are driven from Central Headquarters. PTC is fully integrated. Following are the departments in operations which are inter-linked with corporate strategy: Security Department, Material Management Department, Engi Enginee neeri ring ng Depar Departm tmen ent, t, IT depa depart rtme ment nt,, Gree Green n Leaf Leaf Thre Thresh shin ing g Depar Departm tmen ent, t, Prim Primar ary y Manufacturing Department, Secondary Manufacturing Department, Filter Rod Department, and |

Quality Control Department. Order of ranking for the competitive dimension:

1. Quality(d Quality(due ue to tax issues, issues, smuggled smuggled item item available available the cost cost cannot be reduced theref therefore ore the compete with their competitors on the basis of quality)

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4. Flexi lexibi billity ity Operations Strategy which result in competitive edge: •

It’s a global company with 180 markets and have a huge area to share ideas and experiences

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They have the opportunity to learn from the success and failures of other markets

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The company BATC is very well integrated

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Diversity and Global integration is the biggest advantage.

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Their strategies are driven from the center.

PROCESS MANAGEMENT PHASE (I) Leaf Threshing Department “Process and deliver quality tobacco satisfying customer demands at minimum supply chain cost.” Although tobacco is grown throughout the country, the primary source of this integral raw material is the NWFP where soil and climatic conditions suit tobacco cultivation the most. The province has been the focal point tobacco-related activities and produces around three-fourths of the tobacco leaf grown in the country. The province grows the three most widely used types of tobacco namely, Flue Cured Virginia (FCV), Burley and Nicotiana Rustica (White Patta).











Flue Cured Virginia tobacco is now the most widely grown and widely used type of cigarette tobacco in Pakistan and the total production of this high value commodity has increased from 23.8 million kgs in 1967-68 to 66 million kgs in 2007. Pakistan is now the 7th largest producer of FCV in the world. The current tobacco production in the country exceeds 100 million kilograms per year, although what is perhaps more important is the types of tobacco grown in the country. Once tobacco is planted, it undergoes a myriad of processes as it moves through the supply chain which converts it into a consumable product worthy of pride.

PHASE (II) There are two departments lie under process department. •

Primary Manufacturing Department

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Secondary Manufacturing Department

Following is the process performed by each department.

PRIMARY MANUFACTURING DEPARTMENT This department is generally known as PMD. The main function of this department is to produce the blend of tobacco that is required for the manufacturing of a cigarette stick. Different blends are created for each brand, the tobacco is processed and at the end of this stage the dust from the tobacco is separated. Different blends (recipe (recipe of brand) for each different different brand like Gold Leaf, Leaf, Gold Flake, and Capstan etc. are mixed with their flavors. Blend of Tobacco is processed in











1. Cigar Cigaret ette te Makin Making g Depar Departm tment ent

CMD receives blend of Tobacco from Cut Tobacco Store and processed it to form a cigarette stick. The process of cigarette making is done through fully automated machines. “Protos” is the highest capacity machine that is installed in PTC Jhelum Factory. It has capacity of producing 10000 sticks per minute. It has ability of checking the filter, leakage, tobacco, length, level of humidity etc. The machine rejects if it finds any error in length, width, etc. When a cigarette stick is produced it is transferred to Cigarette Packing Department for further processing. 2. Cigar Cigaret ette te Pack Packing ing Depa Depart rtme ment nt

CPD receives cigarette sticks from CMD and packs them in flats. This process of cigare cigarette tte packin packing g is also also done throug through h fully fully automa automated ted machin machines. es. GDX-3 GDX-3 is the highest capacity machine that is installed in Jhelum Factory which has the capacity of packing 500 packets per minute. Firstly cigarettes are packed in packets (flats) then ten flats are transformed into an outer. outer. These outers are further packed into a CBC, each CBC contains 10000 sticks. Then Then thes thesee CBCs CBCs are are tran transf sfer erre red d to ship shippi ping ng godo godowns wns from from wher wheree they they are are transferred to Marketing warehouses on demand. 3. Filter Rod

Filter rod department works as a subsidiary department to the SMD. The filter rod











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Phase 2 and 3 are done through a continuous process

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The manufacturing is not ‘made to order’ its ‘made to stock’ based on volumes

MANAGEMENT OF TECHNOLOGY INFORMATION TECHNOLOGY Informati Information on Technology Technology (IT) is to provide provide business business consultancy consultancy with a technical technical infrastru infrastructure cture that enables PTC to perform with speed and flexibility of an integrated virtual team” IT is the backbone of every business; with out it concept of successful business is becoming

impossible in modern business environment. The information technology does a great work in today’s modern industrial world. To be competent and successful every business needs to have a computerized system. Every moderate and large size business need s; o

Accurate and timely information











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Dire Direct ct condi conditi tion onin ing g and casi casing ng Cyli Cylind nder er-20 -2005 05

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Lami amina-C na-Cut uttting ing PMD PMD 2005 2005

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ITM Dr Dryer PMD 20 2005

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3CC Cylinder

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GLT Plant Plant is is used used for for segr segrega egatio tion n of lami lamina na from from the the stem stem

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PROTOS ma machine

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G.D G.D X3 X3 is is use used d for for mult multii brand brand packa packagi ging ng

In1956 they were producing 1000 cigarettes per minute but due to constant innovation of machinery they are now producing10, 000 cigarettes per minute and are packing 500 packs per minute. To bring precision machines are managed for productivity and packaging of each brand) make and package balance Research and Development

Their training center comprises of the following: -

Creating

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Implementing

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Mana Managi ging ng effe effect ctiv ivee R& R&D

Currently their T&D department is working on reducing the nick and tar level so that their cigarettes cause less harm to their consumers and is their first preference.













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ISO 9000 certified

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Six sigma- they have achieved a green belt

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MRP (Managing, (Managing, Resourcing, Resourcing, and Planning) Planning) are main functions functions that the organizatio organization n is focusing for quality assurance to International standards. i.e. MR II classic certification.

RELATION WITH P.M.D:

In P.M.D they find and check three types of parameters; •

Fill value

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Moisture

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Particle size

RELATION WITH S.M.D:

In S.M.D finished product inspection (F.P.I) system is followed. It is further sub d ivided into two branches: •

M.Q.I (Manufacturing quality index)

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P.Q.I (Product quality index)











In P.Q.I there are fourteen parameters. Mostly are same as that of M.Q.I but only two are different which are; •

NFDPM ( Nicotine free dry particulate matter)

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Puff Numbers

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Standard average puff numbers for P.G =8.5 for others brands =9

Machines used for checking Quality •

Q.T.M (quality test module)

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Infra Red Lab

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Rotap machine

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End Stability Tester

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Densimeter height (d.m.h)

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Ovens

CONTINUOUS CONTINUOUS IMPROVEMENT

To focus on continuous improvement PTC is emphasizing on following:











PHASE - II

Capacity Capacity is the maximum rate of output of a process or a system. Capacity often refers to an upper limit on the rate of output. Different companies have different measures of capacity. Capacity on the basis of output has been divided into two categories as effective capacity and peak or design capacity. Production capacity in Pakistan Tobacco Company is measured in terms of number of sticks produced per annum. Pakistan Tobacco Company has two plants which meets the demand requirements of the country. Total production capacity of both plants is 45 billion sticks per annum this year and is continuously on an increasing trend per year. Akora Khatak plant produces 23 billion sticks per annum whereas Jhelum plant produces 22











•

o

Lunch breaks, coffee breaks

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Stoppages (Time loss)

Changing product mix, shortage of materials etc.

Capacity planning: Pakistan Tobacco Company focuses on pull strategy while doing capacity planning. Pakistan Tobacco Company has designed its operations on the basis of made to stock rather than made to order. Because in the Tobacco industry the demand is always high and there is a continuous struggle for meeting the demand. Pakistan Tobacco Company executes its capacity planning on the basis of previous trends in sales. However there is a high demand before budget and demand sharply goes down after budget and in the period period of Ramada Ramadan. n. The monthly monthly produc productio tion n plan plan is prepar prepared ed at Pakist Pakistan an Tobacc Tobacco o Company head office based upon market research and previous history. Competitive market analysis also plays a vital role in capacity planning. For the capacity planning according to demand demand (which (which is ever increa increasin sing) g) and previo previous us sales sales trends trends,, Supply Supply chain chain manage managemen mentt











Capacity Strategies Capacity cushion is the amount of reserve capacity a process uses to handle sudden increases in demand demand or tempor temporary ary losses losses in product production ion;; it measur measures es the amount by which which the average average utilization (in terms of total capacity) falls below 100 percent. As the cigarette demand is on increasing trend, so 15% of capacity cushion is enough for Pakistan Tobacco Company. Capacity Cushion = 100% - Utilization Rate (%) Capacity cushion = 100% - 93.75%

=

6.25%

Expansion In the case of Pakistan Tobacco Company, generally it meets the forecasted demand and it happened rare that the company fell short of supply. The two plants in Jhelum and Akora Khatak are enough to meet the country demand of cigarettes. So “wait-and-see strategy” is being used













Location Location considerations are very important for any business. Location decisions represent an integral part of strategic planning process of virtually every organization. Pakistan Tobacco Company also focused on important issues pertaining to location because location decisions often have an impact on investment requirements, operating costs and revenues, and operations. A poor choice of location might result in excessive transportation costs, a shortage of qualified labor, labor, loss of competitiv competitivee advantage, advantage, inadequate supplies of raw materials, materials, or some similar similar condition that is detrimental to operations.











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Plant on Grand Trunk Road (GT Road).

The brands that are produced in Jhelum plant are: •

Benson & Hedges

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John Player Gold Leaf

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Capstan

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Gold Flake

Akora Khatak Factory Akora Khatak factory started its operations in 1976. Akora Factory is situated 100 kilometers in











required. But the following dominant and secondary factors are considered by Pakistan Tobacco Company, if at any point in time, in future, they have to establish a new plant: Dominant Factors •

Proximity to raw material: Prized Leaf (Because prized leaf is blend mixed and costs more than normal leaf, so it is most important of its safe supply)

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Skilled Labor (Labor is the major resource for effectively and efficiently carrying out the business operations)

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Investment and costs

Secondary Factors











Layout Layout decisions are important for the three reasons: (1) they require substantial investments of money and effort, (2) they involve long term commitments, which makes mistakes difficult to over overco come me and (3) (3) they they have have signi signifi fica cant nt impac impactt on the the cost cost and and effi effici cien ency cy of shor shortt term term operations. Pakistan Tobacco Company has built the lay out in such a way to avoid inefficient operations or accidents. As for the project of course “Operations & Productions Management” we have selected Jhelum plant of Pakistan Tobacco Company and visited the plant location and studied the layout.











Conclusion All the activities carried out at Pakistan Tobacco Company are well planned and are adjusting to Political Political – Legal environment, environment, Cultural Cultural Environment Environment,, Technological Technological environment environment and other related strategic issues. British American Tobacco Company is giant of the World in cigarette manufacturing industry and is following the best operating procedures to enhance the business. The management team at Pakistan Tobacco Company and workforce in both plants are well compet competent ent to carry carry out the indust industry ry operat operation ionss effect effective ively ly.. We visit visited ed the Jhelum Jhelum plant plant of Pakistan Tobacco Company and understood how effectively each operation within plant has been













Recommendations











Action Plans











Bibliography











Annex – A (deleted)











PTC Operations

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