K6221 Business IntelligenceUnilever US – Lipton Risks

Management

Sesagiri Raamkumar AravindMane Shivaji Dilip KumarBalasubramaniam DivyaThangavelu Muthu KumaarSelvaraju Nirmala

Agenda

• Unilever– Introduction and Statistics

• Lipton– Overview and Statistics

• Lipton Supply Chain• Risks Management

– Risk Map– Key Risks– BI Solutions and Mitigations

Unilever – Overview

• Multinational Consumer Goods Company started in year 1930.

• World’s third largest Consumer goods

• Products sold in more than 180 countries

• Dual Listed Company ( Unilever NV + Unilever PLC)

• Both Unilever Shares are listed on New York Stock exchange

• More than 400 brands which includes 13 one billion euro brands.

• Lipton is one among them.

Source - http://www.unileverusa.com/Images/ir_Introduction_to_Unilever_March2011_tcm23-226573.pdfhttp://en.wikipedia.org/wiki/Unilever#Products

Lipton

Source:unilever website

• Established in 1893 as Thomas J Lipton Co

• Lipton was completely acquired by Unilever in the year 1972.

• Lipton is now the leading tea brand in the world

• 1964 - Lipton Iced Tea mix introduced in the US which forms the major share of their sale today.

• There are more than 11 major varieties of Lipton tea with Iced Tea having 85% share in US.

• 1991 – Unilever created a joint venture with Pepsi Co for the marketing of Ready to Drink

Source - http://www.liptont.com/index.aspxhttp://en.wikipedia.org/wiki/Lipton

Unilever Global Sales(in million euros)

Unilever Divisional Sales

-3

-1

1

3

5

7

9

11

13

15

37000

39000

41000

43000

45000

47000

12.4

8.5

9.6 9.2

Sales vs YOY Growth % vs Net Profit Margin %

250

750

1250

1750

2250

2750

3250

11250

11750

12250

12750

13250

13750

14250

14750

15250

Regional, Divisional and Lipton Sales(in mil Euros)

• US zone accounts to 32.82 % of Total Sales of Unilever• Ice-cream & Beverages accounts to 18.94 % of US Division

• Lipton contributes to 40.72 % of its Food Division

Unilever attributes its dip in 2011 Net Profit Margin % to rise in cost of raw materials - Bloomberg

US - Lipton and Competition

79%

3%%4%% 7%% 7%%

Soft Drinks and Alternative Beverages generate retail sales of over 70$ billion

Bottled Water is the fastest growing

beverage category!!!

Lipton has been leading the market by introducing innovative products such as dieting and flavored teas backed up by smart spending on Rainforest Alliance to gain access to non-auctioned tea - Teaconomics

Lipton vs Competitors in Google Trends

Unilever Tea Plantations 10

30.40%

14.40%

24.40%

5.20%

2.00%

2.20%7.90%

2.00%

3.10%

2.20%4.30% 1.90%

UV Plantation- Kenya

UV Plantation- India

UV Plantation- Tanzania

China

Taiwan

Japan

Srilanka

Korea

Nepal

Vietnam

India

Russia

Global Tea Plantations

Major Tea Plantation Countries

SuppliersDistribution Marketing

Shipping

Sales

Warehouse

Manufacturing

Inventory

Research & Development

Quality Assurance

Consumers Endpoints

Information Systems

UV Plantations

Suffolk

Packaging

Manufacturing

Suffolk, Virginia

Lipton Supply ChainTea Supply Chain

Challenges in Tea Industry

• Auctioning & Brokering process is dominated by the big players including Unilever.

• Deforestation in certain countries for growing new Tea plantations.

Due to the lack of global governance initiatives, there is no international platform to bring together major global players to improve the social, environmental and economical conditions of tea producers worldwide.

Strengths

• Owned by Unilever.

• Long history in tea manufacturing industry.

• Extensive knowledge of local culture and tastes.

• Wider product range with technological superiority, e.g.

Brooke Bond’s hot tea can.

• Alliance with Rainforest Organisation.

• Single point of tea distribution in US from Suffolk.

• Strong financial position.

• Increased health consciousness among US population

and health benefits of tea such as herbal and green tea is

another major cause.

• Supply Chain Management.

Weaknesses

• Having too many brand extensions can dilute and

confuse consumer perception and give fresh and new

competitors to seize market share.

• Political unrest in certain plantation country

Opportunities

• Alliance with Pepsi to access massive distribution

network. Presence of big, well known partners drives

demand further.

• Technology advancements in manufacturing.

• Greater awareness of health benefits of tea.

• New varieties of tea drink flavours can be launched

particularly in the Ready to Drink segment.

• Acquisitions of companies in developing markets.

Threats

• Overcrowded and small market with about 200 other

brands which might cause significant demand reduction.

• Presence of other major players such as Coca-Cola and

Nestle leading to tough competition.

• Competition from local competitors

• Indirect completion from other energy drinks like

Redbull which could eat into Lipton’s market share.

• Increasing Tea prices

• Fluctuating Economy

Lipton SWOT Analysis

Unilever

Health Benefits

Rainforest Alliance

Strong cash flow

Market Share

Brand extensions

Geographical distance from Tea Plantation countries

Constantly changing Consumer needs

Alliance with Pepsi

Greater awareness of health benefits of tea

Newer Tea drink flavours

Acquisitions

Overcrowded market resulting in DEMAND

REDUCTION

Presence of other global players

Increasing Tea Prices

Fluctuating Economy

Lipton

SWOT

Analysis

Lipton PEST Analysis

Lipton Risk Map

Generated using

Identified Risk Events/FactorsRank Risk Event Likelihood

Business Impact

1 Difficulty in Investments, expansions in D & E markets with forex fluctuation High High2 Market capture by competitors through product changes and new partnerships Medium Very High3 Change in customer needs and Lack of Process innovation Medium High

4Political unrest(Frequent violence, Political Unrest, mass strikes ,rallies and Uncertain worker movement or activities) in plantation country Medium High

5 Disruption in operational capability of production and distribution Low Very High6 Inflation in labour cotsts Medium Medium7 Stragetic partnerships and alliances breakdown(Pepsico-Lipton) Low Very High8 Corruption and collusion among supply chain and plantation country governments Low High9 Low standards of working and living conditions(ex:exploitation) in tea plantations High Low

10 Uncertainity of weather patterns, water scarcity and natural calamities Low High11 Decline in beverage consumption during recession periods Low Medium

12Inability to meet company's goal to source the tea in all Lipton tea bags from Rainforest Alliance Certified™ estates by 2015 High Low

13 Competitors influence the brokers in the tea auction market to favour their bid. Low Medium14 Health issues raised by activists based on scientific discoveries Low Medium15 Failure to realize digital advetising ROI Low Low16 Inefficient idea-to-market process lifecycle Low Low17 5-10% of labourers are child labours in Tea Plantations High Very Low

18Exaggerated and misleading promotional campaigns - (MISBRANDING) with unproved and questionable health facts Medium Very Low

19 Unexpected downtime with Sirius(SAP based) and Mountain internal info systems Very Low Medium20 Non-conformance to Sustainability plan Very Low Low

Risk Classification Risk Type Description

Procedure RisksLack of formal procedures, lack of quality

control system

Decision RisksBureaucracy, lack of authority, lack of

decision supportCommunication

RisksCultural differences, language barriers,

misunderstanding

Knowledge RisksLack of formal education, lack of training,

unskilled labor

Supply RisksDisruption of supply, inventory and schedules,

incoming delays

Operational Risks

Failure or breakdown of operations, changes in technology

Demand Risks Variations in demand, changes in technology

Security RisksTheft, counterfeiting, terrorism, piracy,

infrastructure breakdown

Macro RisksEconomic shifts, recession, labor costs,

exchange rates, customs

Policy RisksActions and sanctions of governments, shifts

in legislation

Competition Risks

Uncertainty about competitor's moves and actions

Resource RisksLack of human resources, capital or

technologyUnclassified

Risks  Unclassified

Very High

High

Medium

Low

Very Low

Foreign exchange derivatives, Forex hedges, Availing

electronic brokering services

MIS, Data Mining(Forecasting with economic indicators),

What-if Analysis

IMF, World Bank

LIKELIHOOD BUSINESS IMPACT

60% of its total sales resulting from

developing and emerging markets

Difficulty in Investments, expansions in D & E markets with forex

fluctuation

Data Source

Risk Factor

Mitigation

Macro Risks

Risk Event

BI Solution

Groupthink, SWOT framework, R&D up-

scaling

Reflective E-intelligence

Annual reports, Promotional Campaigns,

Press Releases

LIKELIHOOD BUSINESS IMPACT

Market share of Lipton is 26.5% as of

2010

Market capture by competitors through product changes and

new partnerships

Data Source

Risk Factor

Mitigation

Competition Risks/Demand Risks

Risk Event

BI Solution

R&D and conducting customer feedback

Conducting crowdsourcing for finding innovative solutions

Social CRM

Agency and External Consultancy Reports, Customer feedback data

LIKELIHOOD BUSINESS IMPACT

35% of RTD tea sales is of Multi pack category

Change in customer needs and Lack of Process innovation

Data Source

Risk Factor

Mitigation

Demand Risks

Risk Event

BI Solution

Identifying alternative suppliers, increasing onsite audit,

deploying resources in supplier location

DSS-SCM Systems for getting alternate suppliers and EIP for displaying political unrest news

Supplier data(from internal systems),Newsfeeds, Government Reports

LIKELIHOOD BUSINESS IMPACT

60% of tea dust comes from Kenya, Tanzania and India

Political unrest(Frequent violence, mass strikes ,rallies

and Uncertain worker movement or activities) in

plantation country

Data Source

Risk Factor

Mitigation

Supply Risks/Resource Risks

Risk Event

BI Solution

Identifying alternate options at each level in supply chain

Training and Quality Controls

EAI Systems(Tibco and ICAN) and SC RFID data analysis

Audit Reports, System Maintenance Logs

LIKELIHOOD BUSINESS IMPACT

80% of retail price goes to supply chain

Disruption in operational capability

of production and distribution

Data Source

Risk Factor

Mitigation

Operational Risks

Risk Event

BI Solution

Casualization of labor

DSS(What-if Analysis)

Agency Reports, Internal information flow from

workers union

LIKELIHOOD BUSINESS IMPACT

50-60% of production cost goes to labor

wages

Inflation in labor costs

Data Source

Risk Factor

Mitigation

Resource Risks/Macro Risks

Risk Event

BI Solution

M&A

Re-contract with modified terms

Social web mining, ESS, Opinion mining of public

speeches

Enterprise 2.0 data, market intelligence data

LIKELIHOOD BUSINESS IMPACT

More than 1 billion sales of Pepsico Lipton brand in

2011

Strategic partnerships and

alliances breakdown

Data Source

Risk Factor

Mitigation

Operational Risks

Risk Event

BI Solution

Renewal of contracts for finding linkages, external

policing

Content Analytics

Enterprise 2.0 data, SNA data

LIKELIHOOD BUSINESS IMPACT

80% of retail price goes to supply chain

Corruption and collusion among supply chain and

plantation country governments

Data Source

Risk Factor

Mitigation

Procedure Risks

Risk Event

BI Solution

Open house with workers union and standards(CSR and ILO

conventions and national laws)

Benchmarking

Survey Reports

LIKELIHOOD BUSINESS IMPACT

30-40% of tea plantations in Kenya

and Sri Lanka are owned by Unilever and

competitors

Low standards of working and living

conditions(eg: exploitation) in tea

plantations

Data Source

Risk Factor

Mitigation

Resource Risks

Risk Event

BI Solution

Finding alternate suppliers, Crop

insurance

DSS-SCM Systems for getting alternate

suppliers

Weather forecast data and regional

demographics data

LIKELIHOOD BUSINESS IMPACT

Two-thirds of the raw materials

come from agriculture

Uncertainity of weather patterns, water scarcity and natural calamities

Data Source

Risk Factor

Mitigation

Supply Risks/Operational Risks

Risk Event

BI Solution

Revising sales forecast

Seek to improve sales by repackaging and finding alternate

avenues

DSS- What-if Analysis

Agency Reports

LIKELIHOOD BUSINESS IMPACT

33% decline in Commodity Food

and Beverage price index in 2008

Decline in beverage consumption during recession periods

Data Source

Risk Factor

Mitigation

Demand Risks

Risk Event

BI Solution

Setting short term milestones and revising

targets

MIS – Historical Analysis

Internal milestones data

LIKELIHOOD BUSINESS IMPACT

22% of tea plantations are rainforest alliance certified

Inability to meet company's goal to source the tea in all

Lipton tea bags from Rainforest Alliance

Certified™ estates by 2015

Data Source

Risk Factor

Mitigation

Procedure Risks

Risk Event

BI Solution

Cordial relationship with the brokers, setting standards in

auctioning & brokering process

Proactive E-intelligence

Surveillance reports

LIKELIHOOD BUSINESS IMPACT

70% of global tea production is sold through auctions

Competitors influence the brokers in the tea

auction market to favor their bid

Data Source

Risk Factor

Mitigation

Competitor Risks

Risk Event

BI Solution

Collaboration with Universities, M&A, KM

implementation

EAI systems integrating university knowledge

bases and EDW

Internal process data, Intellectual Property

Audit data

LIKELIHOOD BUSINESS IMPACT

2-2.5 % of turnover

invested in R&D

Inefficient idea-to-market

process lifecycle

Data Source

Risk Factor

Mitigation

Knowledge Risks

Risk Event

BI Solution

UV Lipton BI Integrated Solution

Data Information Knowledge Action

Logistics External Agencies

Customers Suppliers

Competitors & Market

Product&

Marketing

ERP CRM & SCM

Other IS

Central Datawarehouse

Data

Inte

grati

on

Met

adat

a M

anag

emen

t

Enterprise Application Integration(EAI)

ETL

Datamarts & ODS

Non-stop Operations Scability Performance Security

End User Analysis

Operational Planning

Desktop

Handheld computing devices

Cloud based IS

Mobile devices

Enterprise Information Portal(EIP)

Alerts & Monitoring

Financial Reporting

Generic Analysis

Dashboards What-If Analysis

Rolling Forecast Goal Setting

Predictive Analytics

Bench-marking

MIS

DSS

ESS

Scorecards

Collaborative Decision Making

“A man without tea in him is incapable of

understanding truth and beauty”

Okakura Kakuzo, The Book of Tea (1906)

Q&AThank You