An Overview of Dhaka Tobacco Industry by regan rose

View with images and charts "An Overview of Dhaka Tobacco Industry" Introduction It was more than fifty years ago that DTI emerged into the market. Then it was a small jute trader. From such small beginning, DTI have expanded into one of the top corporation in Bangladesh. DTI are proud of our infallible quality and excellent service. DTI value our consumers as unique individuals and try our best to provide merchandise to suit the needs of each distinct consumer group. The founder late SK. Akij Uddin realizes to do something for this country is to do for its people. He made a sense how to develop and customize whatever growers grow like Tobacco, Jute etc. In this regard, first he established a traditional handmade Bidi factory in 1952s. Over a decade, he made several no. of giant manufacturing industry throughout the country. Now-a-days it consisting of Akij Group . The Dhaka Tobacco Industries is one of the biggest factory of Akij Group History of Background History of Akij Group stretches back to later part of the forties. In its infancy, the group started in humble way with jute trading which was known as the golden fiber of the country, earning highest amount of foreign exchange. AKIJ GROUP has never limited its aims to profit making. It paid to the Government Tax over 1200 cores Taka per Year. Besides playing a part in developing the country commercially we have also worked hard to preserve its environment and culture. It proud to say that the word wastage means little to our factories have been constructed with recycling and the environment in mind. The non-profit making concerns of the Group are involved directly in sustaining the progress of Bangladesh. A large number of people around 50,000 are employed by us and cared for as members of the AKIJ family. It can certainly make business easier. The activities of the group are diverse and varied. AKIJ group copes with the versatile market of the present by being flexible. Creative new ventures are the secret of our accomplishments. Dhaka Tobacco Industries (DTI) Dhaka Tobacco Industries came to fold of Akij Group in late seventies when Government has decided to disinvest and hand over the Factory to private sector from the nationalized sector. The factory is located at Morkun near Tongi and lot of investments into MEN & Machineries has turned the Factory into a Modern cigarette-producing unit. It employs about 1200 people who work in a congenial atmosphere to deliver right quality to satisfy the million of smokersâ&#x20AC;&#x2122; taste and needs. Currently, Dhaka Tobacco industries produce ten brands of cigarettes. These are: Navy, Legend White, Five Star, Red & White, K2, Surma, Diamond, Castle Full flavor, Castle Lights, Sheik White Approximately one billion cigarettes are produced monthly by the companyâ&#x20AC;&#x2122;s factory in Tongi, Gajipur. One hundred million of the quality Navy brand is exported in Dubai. Develop the Organization structure of DTI The following are the organizational structure of DTI.

Organizational Chart of Corporate Head office:

Managing Director

Director

General Manager

NM= National Manager MM= Marketing Manager SM= Sells Manager FM=Financial Manager TO = Territory officer

ASM

SDO

AFM

RM= Regional Manager ASM=Assistant Sells Manager SDO=Senior Distribution officer AFM=Assistant Financial Manager ZI= Zone In-charge

In this organization from peon to top level Managers have to report to Managing Director, which is not a right way of practice. Furthermore informal communication is so prominent that greatly affect the chain of command. From this organizational chart it was seen that there is no Distribution Manager. Actually in this organization sales Manager is not a sales Manager rather he play the role of Distribution Manager. Marketing Manager is not a Marketing Manager rather he plays the role of Sales Manager. The Managing Director indirectly plays the role of Marketing Manager. The number of Product officer is too little to provide the adequate promotional support for more than 25 products.

Organization Chart of Factory:Managing Director Director GM Technical

Manager Coordination

Asstt. Manager Technical

Sr. production officer

Sr. and D. Officer

Sr. QC officer

Engineering officer (Mechanical)

In the organizational chart of the factory, it was seen that there is no plant Manager, Factory Manager, Production Manager, QC Manager, R&D Manager and Engineering Manager. The above Managerial posts are vacant for long time. The department of Quality Assurance is absent in the factory. Without this department it is very difficult to ensure the standard product quality. Human Resource Policy:In my point of view modern human resource policy is not existed in this organization. It is one of the most important reasons for stagnancy of this organization. Here I like to discuss four important issues: ● Recruitment ● Compensation ● Salary Structure ● Increment Policy ● Leave Policy Distribution manpower: The number of manpower engaged in DTI is very high compare to other companies. The list of manpower involved in distribution in different depots given below: Sl.#

Depot

Driver

Dhaka

Packer Assistant cum deliverym en 64 16

Depot

Total

111

Gazipur

Rjshahi

014

Bogra

Mymensingh

Rangpur

Khulna

Kushtia

Barisal

10) Noakhali

11) Faridpur

12) Comilla

13) Chittagong

14) Coxâ&#x20AC;&#x2122;s Bazar

15) Sylhet

192

315

Grand Total

a. Recruitment Policy:It is one of the most important tasks of Human Resources Department. But in this organization there is no existence of Human Resources Department. Administration Department looks after this recruitment policy. There is no Manager of Administration Department for three years. Managing Director directly handles this department. Only two officers and one office assistant are available in this department. In case of vacancies in the senior and mid level positions, company usually uses employee referral sources or head hunting recruitment of front line employees (Mainly Sales Representative) completed through circulation in daily Newspaper. In the recruitment of front line employees the organization uses a policy that is the organization makes a contact for three years with the newly selected person so that he/she will be bound to stay in this organization. The organization also takes all the academic certificates of newly selected person for the years. If any employee wants to leave this organization by this time he will bind to pay TK. 40,000,00. From my experience I didnâ&#x20AC;&#x2122;t see this policy in any other Tobacco company till now. b. Compensation Policy:The compensation policy of this organization is below standard. This policy is one of the oldest one. No body tries to change this policy. The living cost has been increasing day by day but the compensation policy is not changed over the last 15 years.

The compensation package of DTI includes following components: Extrinsic:

Intrinsic:

●Basic salary ●House rent ●Medical fee ●Utilities ●Mobile facilities ●Profit share ●Three festival bounds (each bonus Equivalent to one basic salary) ●Car facilities

●Gratuity ●Provident fond ●Incentives ●Leave fare assistance

Car and mobile facilities are given to the managers onward. After 5 years of service length company contribution is 50% and after 7 years of service length company contribution is 100%. Below 5 years of service Length Company does not contribute to the provident fund. c. Salary Structure: The salary structure of front line field force is not the standard as per the market situation. This structure has been continued for long period of time without any kind of modification. The salary structure of them is given as follow. Gross salary for fresh Marketing Executive is TK. 6000 (Six thousand only) Breakdown: Basic House rent Telephone bill Utilities City allowance

TK. 2125 1550 1000 650 675

At present this salary structure is quite unacceptable. All the big and mid-level companies have been revised their salary structure taking consideration of living cost in their mind. But DTI did not give any concentration for ling time about this matter. d. Increment Policy: The field personnel whose have achieved at least 80% of their target will be enlisted for the increment. Every year management takes over ambitious budget that is not achievable one. Only 3-5% field personnel exceptionally can achieve more than 80% But majority of people failed to achieve 80% or more. The increment other then field personnel depends on the basic salary. Increment has been calculated on 10% of basic salary. They don’t consider the performance, productivity, efficiency etc. As a result young generation is become depressed. Further more it was seen that increment is given without any change of basic salary. e. Leave Policy:

Keeping consistency with the Government labor laws, DTI follows its own style of leave policy for different category of its employees. Following table shows the leave entitlement of different employees: Type of leave Annual leave Casual leave Medical leave Maternity leave

Employee category For all “ “

Leave entitlement 15 days 10 days 20 days

Condition for entitlement

Female employees

3 months

Pre and post natal

After conformation of Service

Except maternity leave all types of leaves becomes effective after confirmation of service. Generally the probation period is four months but it may extend depending on the performance of the employees. If any body needs leave prior to confirmation that is allowed as leave without pay. An assessment of the field force of DTI Overall quality of the employees of Dhaka Tobacco. The overall quality of DTI employees other that field force is good. But problem is that no body can do their own work freely; because every body has to report their job to the Managing Director in every steps of work that ultimately delay the overall procedure. Most of the cases the new employees do not cope with this environment and become depressed due to their failure to meet with the Managing Director. Job Security of Employees: One of the worst things in DTI is the lack of job security. Without any notice Management sometime fire the employees for which most of the employees always remain under pressure. Due to the lack of job security, most of the employees cannot do their job full-heartedly. The half-hearted job never makes a good result. The drop out rate of young generation is very high. One of the major reasons behind this high dropout rate is incorporation by the senior personnel of the organization. Dropout rate of field force: Dropout of field force is a common phenomenon in a tobacco company. The usual dropout range is 5-6% in a year. One of my studies in DTI I found that excess dropout rate (average rate is 15% of total field force in each year) of front line field force is another big reason for the stagnancy of DTI. The main reasons of this dropout are as follows: • Poor salary structure compared to other similar grade company. •Irrational salary structure within the same position and its field forces. • Unjustified target and limited promotional support. • Have no right direction for career progression. Quality and Intelligence of Sales Representatives: The overall performance of a Tobacco company mostly depends on the quality of front line people i.e. Sales Representatives. Because they promote the products to the Retail Shop and subsequently total outlets the products for the smokers. If they do not visit the retail shop and wholesaler properly and unable to convince the customer by his professional approach, prescription will not be generated as per the expectation .As a result the total sale of the organization will fall down.

The company employs persons with academic qualifications of B.Com/ Graduate in any discipline Graduate level. The overall quality of TSO of DTI is below standard. Their product knowledge and communication skill is not up to the mark. Most of the TSO do not visit the qualified customers due to lack of self confidence.

Structure of Marketing Department:

Marketing Department Marketing Manager

Sales Manager

Asst. Sales Managers

Sr. Distribution Officer

Regional Sales Managers

Depot In-Charge

Area Managers

Delivery Man

Field Executives In thisMRs/MPOs/ organization, mar MRs/Sr. SMPOs Marketing manager performs the job of sales Manager and sales manager performs the job of Distribution Manager. But this is not the right way of practice. Marketing Manager never directly involved with the sales force. He just formulates the innovative marketing strategies; solve the different problematic issues and monitoring the overall sales progressions: Marketing strategy: DTI always prefers conservative marketing strategy. Due to their conservativeness they never launched any product as first time in Bangladesh. Actually DTI is the follower company. They never take any risk by introducing any new product. But other company introduces new product and become the brand leader within a very short time though this opportunity can easily avail by the DTI as they think about this product 1-2 years back. In this way they lose so many opportunity just due to their lack of confidence and conservative marketing strategy.

Marketing Expense: The benchmark of total marketing expense of the Company in Bangladesh is around 20% of the total sale that includes distribution expense, promotional expense and salaries of all marketing and sales personnel. But marketing and sales expense of Dhaka Tobacco Ltd is 15% of their total sales that is insufficient compared to competitive Tobacco market. Moreover, two third of the above 15% is used by the distribution department which is much higher than the benchmark of the total distribution expenses in Bangladesh. Due to unbelievable distribution activities and salaries of all marketing 5% is totally insufficient for promotional activities and salaries of all marketing and sales personnel. Distribution expense: The distribution of DTI is probably the highest in the industry. The benchmark of total distribution expenses of Tobacco Company in Bangladesh is around 4.0%-5.0% of total sales. The distribution expenses of big company like British American Tobacco are less that 3% of sale. But the distribution expense of DTI is above 10% that is really questionable. The distribution expenses include the following components: 1. Salaries 2. Contributions to retirement benefit scheme 3. Handling, freight and transport 4. Repairs and maintenance 5. Motor running expense 6. Depreciation 7. Taxes 8. Communication 9. Insurance 10. Fuel 11. Office expenses 12. Traveling Expenses of delivery personnel Promotional Strategy: Yearly product promotional strategy has to be developed by Marketing Manager by consultation with product management Department. The implementation of promotional strategy as well as monitoring has been performed by product Officers. Marketing Manager supervises the overall marketing and sales activities. But in this organization there is no formal product promotional strategy. Most of the cases there is no uniformity between the allocated promo-mix and product to be promoted, As a result the Marketing Executive has not performed effective promotion. This type of promotion has been continued for long time. For this reason most of the Marketing Executive does not visit the market. Lack of visit in market ultimately declines the profit as well as sales of the company. Evolution of sales: Yearly sale of DTI remains almost static or minimum growth over the last 4-5 years. There are many reasons behind this situation. But interestingly Management did not take any necessary steps to increase the sales by this time.

Tk in Crore

The sales evolution of last 5 years given below: Y

2002

2003

2004

2005

2006

Year 25 20 15 10 5 Major causes of poor growth: 1. Failure of new product launching in the right time 2. Lake of special promotional activity for new products 3. Insufficient promo tools for day-to-day promotional activity. As a result most of the Marketing Executive cannot cover all the potential market places. 4. Very little promotional budget (Only 3% of total sales) against products. 5. People reduced smoking of Biri. Brand image of DTI Perhaps the most distinctive skill of professional marketers is their ability to create, maintain, protect and enhance brands of their products and services. A brand is a name, term, sign, symbol or design or combination of these, that identifies the market or seller of a product or service. Consumers view a brand as and important part of a product and branding can add value to a product. DTI have brand image of few products. Though the products are the brand leader in their respective therapeutic category, but due to their low price the company is unable to earn the sufficient revenue from these products. The total contribution of the products is 14% of their total sales. Moreover, DTI is now loosing their brand image due to lack of proper promotion. Here I would like to give some example of the companyâ&#x20AC;&#x2122;s brands those are capable of earning huge amount of revenue. Sales contribution of Different Brands Brand

Total sales (yearly)

Navy Legend White Five Star Red & White K2 Surma Diamond Castle

2510,176 4490545 2,510,176 4,490,545 1,399,936 4,490,545 4,490,535 1,279,349

Brand (yearly) 416,640 330,714 281,693 265,949 240,433 206,981 200,870 197,002

sale % Contribution 17 7 11 6 17 4 15

Data Source: Sales Department of DTI The success/failure of a new product launching fully depends on the first 6 months promotional activity. No product has clicked in the market due to their improper product launching, inadequate promotional support and failure of product launching in right time. Procurement Policy Most of the cigarette raw materials have imported from India, China, Germany, Italy etc. Basically all the Tobacco companies imported their raw materials from the above countries. DTI also import their raw materials from above countries but their internal procurement policy is so lengthy that will make impossible to launch the product in right time. Though there is a procurement Manager, but all matter regarding import as well as local purchase directly handled by Managing Director that is not the formal procurement policy. This is the only reason for delaying the new product launching in right time. In case of local purchase, most of the time Managing Director prefers to give the order to his relatives without any tender. Therefore it is not possible to compare price of delivered goods with the market price. This is another informal procurement policy practiced by the Dhaka Tobacco Industries. Distribution system Dhaka Tobacco Industries distributes their product through their own distribution channel. Most of the Tobacco companies are distributed their product through distributors which is more cost effective than the own distribution system. The benchmark of total distribution expenses of Tobacco Company in Bangladeshis around 4%-5% of total sales. But distribution expense of DTI is 10% to total sale. Distribution network: Distribution is the end task of sales promotion. DTI has its own distribution setup and channels and the products are directly supplied to the customers against order received directly or through the sales force. DTI distribute their products in whole country through 15 Depots by using their own 63 vehicles. At the beginning of the month all products are distributed in all depots according to their demand. Deliverymen deliver cigarettes to the shops according to the order submitted through the Marketing Executives. The list of 15 Depots and number of vehicle given in the following table: Sl.# 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Depot Dhaka Depot Gazipur Depot Rajshahi Depot Gogra Depot Mymensingh Rangpur Depot Khulna Depot Kushtia Depot Barisal Depot Noakhali Depot Faridpur Depot

No. of Vehicle 30 04 02 02 05 02 02 02 01 02 02

12. 13. 14. 15.

Comilla Depot Chittagong Depot Coxâ&#x20AC;&#x2122;s Bazar Depot Sylhet Depot Grand Total

02 04 01 02 63

The number of vehicles is too much. Most of the Tobacco companies distribute their product by rented vehicle. Due to the high number of vehicle, the distribution expenses become much higher than the benchmark. SWOT ANALYSIS OF DTI During information collection from different department I gathered many strength and weaknesses of this company. Side by side as a product Executive I know the opportunities and threats of this company. Here I would like to point out the strengths, weaknesses, opportunities and threats of DTI. Strengths: 1. Well known and acceptable company image in the market 2. Overall product quality is good 3. Dominates in some specialized segment like Antimalarial, Vitmin-Mineral preparations, Local Anaesthetic etc. 4. Huge production capacity 5. Financially sound and have no bank loan 6. Strong IT Department Weaknesses: 1. Lack of professional Management is the main weakness of DTI. 2. Authority not dedicated to the Managers 3. All employees, from peon to Manager must report to Managing Director, i.e. no existence of formal communication 4. In may aspect, les priority is given to Sales and Marketing personnel 5. Employee dropout rate is comparatively higher which indicate the infectiveness of Human Resource policy. 6. Unorganized product Management Department (PMD) in all aspect 7. Most of the time Sales team suffered from short supply of products Opportunity 1. Its Quality is higher this that of all same product 2. It has high market segmentations 3. The cost is low 4. Low nicotine Threats: 1. De-motivated field force is a big threat for DTI. 2. Day-by-day competition in Tobacco market is increasing significantly. In such situation if the Management fails to take the right decision now, then it will be difficult to survive in domestic market. 3. Due to the lack of carried progression, young generation is not coming to DTI. 4. In all department company could not make any second man who will take the all responsibility in future.

Methodology To prepare this report I have colleted necessary in formations from primary & secondary data. The source of primary data is: 1. Questionnaire for customer 2. Some of my friends those are working in different Tobacco companies. 3. Survey report of some renowned Tobacco Market The Sources of Secondary data are: 1. Sales report of Dhaka Tobacco Industries Ltd. from 2001-2006 2. Distribution department 3. Administration Department 4. Marketing Department 5. Accounts Department Result Comparative analysis of DTI successful ones DTI a conservative-minded company in all aspect. Due to their very conservativeness, they could not grow as per their expectation. The Tobacco market is now very competitive. Those companies did not cope with this competition are now facing very critical situation. Reasons for DTI’s stagnancy There are so many reasons behind this situation, Some of the major reasons are as follows: • Very much conservative marketing policy • Poor judgment for the increment policy which allows the drop out of efficient employees • Unethical agreement policy during recruitment of employees • Demodulated and less qualified field force • Unstable field force. The average dropout rate is 15% of total field force in every year • Over-aged field force without any promotion for last 10-15 years • Excess informal communications which affect the normal flow of work procedure • Lack of job security • Wrong job description of Marketing Manager and Sales Manager • Unfair commercial policy • Binding of 15% marketing expenses • Lack of product Portfolio Manager, Plant Manager, Factory Manager, Production Manager, QC Manager, R and D Manager and Engineering Manager. • Failure of new product launching in right time • Inadequate promotional support especially for new products • Excess distribution expense Recommendations Here we would like to give some proposal to get rid of from this stagnancy of Dhaka Tobacco Ltd:

•

Compensation package to be revised as competitors are doing

•

Fare judgment to be done for the increment of the employees

•

Unethical agreement policy must be stopped during recruitment of employees. Because efficient peoples are not interested to do so. Only the competitive salary and good working environment can retain the efficient people not by the agreement

•

Slowly de-motivated and less qualified field force have to be replaced by the qualified field force and should provide competitive salary package which Ultimately reduce the drop-out rate of frontline field force

•

Company has to take decision regarding over-aged field force without any promotion for last 10-15 years. Either they have to be promoted or replaced by new field force gradually.

•

Informal communications should be minimized for normal flow of work procedure

•

The Management has to assure the Job security of the employees.

•

The job description of Marketing Manager should be and Sales Manager should be revised

•

Commercial policy must be fair

•

Should be recruited product portfolio Manager, Plant Manager, Factory Manager, Production Manager, QC Manager, R and D Manager and Engineering Manager. New product must be launched in right time

• •

Provides at least 6 months aggressive promotional support for new products

•

Distribution expense must be minimized to a great extend.

Conclusion It is very interesting that though DTI has had very good infrastructure to be a leading tobacco company but could not happened, just because of the autocracy of the Top Management. From now, if the Management takes some aggressive decisions then the company will grow; otherwise it will be very difficult to survive DTI in this competition market. In near future lot of entrepreneurs will come with huge capital to invest in tobacco sector as because it is one of the potential and rapid growing sectors in Bangladesh. Those companies cannot cope this competitive situation will automatically be dropped out from this segment.