TERM PAPER

ON

ITC LIMITED (TOBACCO DIVISION)

FOR

STRATEGIC MANAGEMENT

AND

SUPPLY CHAIN MANAGEMENT

UNDER THE GUIDANCE OF

PROF. ASOKUMAR
VIT BUSINESS SCHOOL
VIT UNIVERSITY

COMPLETED BY

AYYAPPAN (07 MBA 000)

M. KARTHIK (07 MBA 050)
K.A. GOPINATH (07 MBA 039)
J. KARUNANITHI (07 MBA 053)
S. MAHENDRAN (07 MBA 058)
MOHAMMAD NAUFAL (07 MBA 063)

INTRODUCTION-COMPANY PROFILE
 ITC is one of India's foremost private sector companies with a
market capitalization of nearly US $ 18 billion and a turnover of over US $
5.1 Billion. ITC is rated among the World's Best Big Companies, Asia's
'Fab 50' and the World's Most Reputable Companies by Forbes magazine,
among India's Most Respected Companies by BusinessWorld and among
India's Most Valuable Companies by Business Today.ITC ranks among
India's `10 Most Valuable (Company) Brands', in a study conducted by
Brand Finance and published by the Economic Times.ITC also ranks
among Asia's 50 best performing companies compiled by Business Week.
ITC has a diversified presence in Cigarettes, Hotels, Paperboards &
Specialty Papers, Packaging, Agri-Business, Packaged Foods &
Confectionery, Information Technology, Branded Apparel, Personal Care,
Stationery, Safety Matches and other FMCG products.
ITC's diversified status originates from its corporate strategy
aimed at creating multiple drivers of growth anchored on its time-tested
core competencies: unmatched distribution reach, superior brand-building
capabilities, effective supply chain management and acknowledged service
skills.Over time, the strategic forays into new businesses are expected to
garner a significant share of these emerging high-growth markets in
India.ITC is one of the country's biggest foreign exchange earners (US $
3.2 billion in the last decade). The Company's 'e-Choupal' initiative is
enabling Indian agriculture significantly enhance its competitiveness by
empowering Indian farmers through the power of the Internet. This
transformational strategy, which has already become the subject matter of
a case study at Harvard Business School, is expected to progressively
create for ITC a huge rural distribution infrastructure, significantly
enhancing the Company's marketing reach.
 ITC was the first company in India to voluntarily seek a
corporate governance rating.ITC employs over 24,000 people at more than
60 locations across India. The Company continuously endeavors to
enhance its wealth generating capabilities in a globalizing environment to
consistently reward more than 3,75,000 shareholders, fulfill the aspirations
of its stakeholders and meet societal expectations.

ITC’s VISION

Sustain ITC's position as one of India's most valuable corporations through

world class performance, creating growing value for the Indian economy
and the Company’s stakeholders
ITC’s MISSION
To enhance the wealth generating capability of the enterprise in a
globalizing environment, delivering superior and sustainable stakeholder
value

THE ITC LEADERSHIP

Flowing from the concept and principles of Corporate
Governance adopted by the Company, leadership within ITC is exercised
at three levels. The Board of Directors at the apex, as trustee of
shareholders, carries the responsibility for strategic supervision of the
Company. The strategic management of the Company rests with the
Corporate Management Committee comprising the whole time Directors
and members drawn from senior management. The executive management
of each business division is vested with the Divisional Management
Committee (DMC), headed by the Chief Executive. Each DMC is
responsible for and totally focused on the management of its assigned
business.

ITC - Business Portfolio

ITC

FMCG: Agr i Business Pa per boar

Cigar ettes Hotel Lea f Toba cco d
Ot her FMCG s Agr i Pa per &
Commodit ies Pa ckaging

As already stated earlier we will be studying the ITC’s Tobacco products

only.
FMCG - Cigarettes
Historical Overview of Tobacco in India
Tobacco cultivation has a history of about 8000 years.
Europeans were introduced to tobacco when Columbus landed in America
in 1492. Portuguese traders introduced tobacco in India during 1600.
Tobacco’s easy assimilation into the cultural rituals of many societies was
facilitated by the medicinal (and perhaps intoxicating) properties attributed
to it. Tobacco became a valuable commodity in barter trade and its use
spread rapidly. Introduced initially in India as a product to be smoked,
tobacco gradually began to be used in several other forms. Paan(betel
quid) chewing became a widely prevalent form of smokeless tobacco use.
Although some Chinese and European systems of medicine supported the
use of tobacco, Ayurveda—the Indian system of medicine—never
supported the use of tobacco as medication. The ill effects of tobacco use
on human health were recognized even in the sixteenth century, which led
to restrictions on its use. Tobacco thrived everywhere in the world despite
social (and some religious) disapproval.

Indian tobacco industry:

 A view Chewing tobacco has been a tradition in India for
centuries. Of the total amount of tobacco produced in the country, around
48% is in the form of chewing tobacco, 38% as bidis, and only 14% as
cigarettes. Thus, bidis, snuff and chewing tobacco (such as gutka, khaini
and zarda) form the bulk (86%) of India's total tobacco production. In the
rest of the world, production of cigarettes is 90% of total production of
tobacco related products.
The per capita consumption of cigarettes in India is merely a tenth of the
world average. This unique tobacco consumption pattern is a combination
of tradition and more importantly the tax imposed on cigarettes over the
last 2 decades. Cigarette smokers pay almost 85% of the total tax revenues
generated from tobacco.
The Indian tobacco industry
India is the second largest producer of tobacco in the world
after China. It produced 572 m kgs of tobacco in FY03. However, India
holds a meager 0.7% share of the US$ 30 bn global trade in tobacco, with
cigarettes accounting for 85% of the country's total tobacco exports.
Despite being the second largest producer, India is only the
ninth largest exporter of tobacco and tobacco products in the world. Out of
the total tobacco produced in India, only one-third is flue-cured tobacco
suitable for cigarette manufacturing. Most of the tobacco produce is
suitable for the manufacture of chewing tobacco, bidis and other cheap
tobacco products, which have no demand outside the country.
CIGARETTES:
ITC is the market leader in cigarettes in India. With its wide
range of invaluable brands, it has a leadership position in every segment of
the market. It's highly popular portfolio of brands includes Insignia, India
Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan,
Berkeley, Bristol and Flake. ITD (Indian Tobacco division) also sells two
luxury filter brands of its parent company Benson & Hedges and 555.
The Company has been able to build on its leadership position
because of its single minded focus on value creation for the consumer
through significant investments in product design, innovation,
manufacturing technology, quality, marketing and distribution. This
strategic focus on the consumer has paid ITC handsome dividends. ITC's
pursuit of international competitiveness is reflected in its initiatives in the
overseas markets. In the extremely competitive US market, ITC offers
high-quality, value-priced cigarettes and Roll-your-own solutions. In West
Asia, ITC has become a key player in the GCC markets through growing
volumes of its brands.
ITC's cigarettes are produced in its state-of-the-art factories at
Bengaluru, Munger, Saharanpur and Kolkata. These factories are known
for their high levels of quality, contemporary technology and work
environment.
LEAF TOBACCO
ITC pioneered the cultivation and development of Leaf
Tobaccos in India. The Leaf Tobacco business' partnership with the farmer
is also almost 100 years old. ITC is the largest buyer, processor and
exporter of leaf tobaccos in India - creating a global benchmark as the
single largest integrated source of quality tobaccos. Serving customers in
48 countries across more than 69 destinations, ITC co-creates and delivers
value at every stage of the leaf tobacco value chain. ITC buys nearly 50
per cent of all tobacco types grown in India. It has a team of experienced,
highly skilled and professional buyers and classifiers who source and
segregate tobaccos to exacting customer specifications.
 A large inventory base of quality tobaccos provides an edge in
serving customers through product customization, portfolio rationalization,
product bundling and value added services. This strategic direction
insulates customers from crop fluctuations, a key 'winning proposition'
acknowledged worldwide. ITC's comprehensive and sophisticated R&D
facilities cover all aspects of cultivation, product development and
processing through fundamental and applied research.
Thus, ITC's value proposition to its customers is "On Time In
Full" delivery of quality tobaccos spanning across all tobacco types at
competitive prices. ITC's Green Leaf Processing plants at Chirala and
Anaparti in Andhra Pradesh, the tobacco hub of India, are benchmarked
with the best in the world. State-of-the-art technology, shared product
knowledge base, sophisticated process and quality controls enable ITC to
process and deliver 120 million Kgs of high quality tobaccos annually.
These factories have integrated warehousing complexes that match
international standards in hygiene, infestation control and monitoring.
ITC's quality emanates from its intimate involvement with the
tobacco farmers in India. Effective reach mechanisms help transfer 'best
practices' from the lab to the land. With an extensive presence in rural
India, ITC's Leaf Tobacco business maps critical Soil, Crop and Process
control parameters across cultivated areas. Intermediation through a
dedicated pool of trained managers in critical areas like soil testing,
varietal improvements, vermicomposting, nutrient management and post
harvest management results in a superior agri output.
These initiatives position ITC as an integral part of India's
agricultural landscape. ITC's collaboration with related Government
agencies has helped develop new varieties of tobaccos and explore new
areas for tobacco cultivation.
Components of a Cigarette

1. Filter made of 95% cellulose acetate.

2. Tipping paper to cover the filter.
3. Rolling paper to cover the tobacco.
4. Tobacco blend.

Supply Chain Management

“..Supply Chain Management is

Getting the right things to the right place at the right time, for profit”
 New information and communications technologies have
revolutionized today’s supply chains, making them extraordinarily better,
faster, and cheaper

Supply Chain Evolution

 Two hundred years ago, giant mechanical machines replaced labor to

complete tasks in large factories. Railroads, electricity and new
communications mediums expanded markets and also made supply
chains better, faster, and cheaper.

 In the early 1900s, Henry Ford created the first moving assembly
line, utilizing scientific management methods. This reduced the time
required to build a Model T from 728 hours to 1.5 hours, and
ushered in the mass production era.

 But in the 1970s, U.S. manufacturing’s superiority was challenged

by lower costs and higher quality products from foreign firms in
many industries.

 Starting in the early 1970s, Japanese manufacturers like Toyota

changed the rules of production from mass to lean. Lean
manufacturing focuses on flexibility and quality more than on
efficiency and quantity.

Components of supply chain

The supply chain has basically four components:

  Production: where businesses focus on how much to produce, where
to produce it, and what suppliers to use.
 Inventory: where businesses decide where to store their products,
and how much to store.

 Distribution: where businesses address questions about how their

products should be moved and stored.
 Payments: where businesses look for the best ways to pay suppliers
and get paid by customers.

The efficiency and effectiveness of a supply chain is contingent on the

ability to gather and analyze important information through these
components.

The Indian Tobacco Division has:

 3 contract manufacturers (OCMs)

1) Reliable Cigarette and Tobacco Industries Private Ltd. (RCTI)
2) Asian Tobacco Company (ATC )
 3) Hyderabad Deccan Cigarette Industries (HDC)
 Huge distribution network with 19 marketing branches and 33
Godowns across nation.
 Also caters to the exports mainly in United States and Middle-
Eastern countries.

The Manufacturing Process

 Cigarette manufacturing process involves processing of tobacco leaf

and stem to different tobacco blends, which is called cut tobacco

 Cut tobacco is then converted to cigarettes using other raw materials

for making cigarettes and packing them in various forms as per the
trading requirements

 ITD receives various grades of Tobacco Leaf and Stem from Indian
Leaf Tobacco Division (ILTD) based mainly in Guntur, Andhra
Pradesh

 Processed to form tobacco blends at one of the three Tobacco

Processing Units at Bangalore, Saharanpur and Munger.
 Tobacco Processing Unit is called PMD or Primary Manufacturing
Division.

 The cut tobacco is then sent to the Secondary Manufacturing

Division (SMD) for making and packing cigarettes
  Three OCMs and Kidderpore factory don’t have in-house PMD, and
are supplied with tobacco from one of the three ITD PMDs. Rest of
the raw material (WMS) required for making or packing cigarettes is
provided to all factories from various WMS suppliers, most of which
are part of ITC Ltd

 At SMD, there are two processes: Making and Packing

✔ Making process is the rolling of cigarette sticks
✔ Packing process is packing of these cigarette sticks in the
cigarette packets of various pack styles.

 Cigarettes are categorized in different segments based on filter or

non-filter type, cigarette length, circumference, pack style, filter
length and cigarette placement. Under each segment there are
various brands.

 Finished Good (Cigarettes) are supplied from the factories to

godowns using mainly road and rail transportation. From marketing
godowns, the FG flows to wholesale distributors and from there on
to retail channel. Requirement for each warehouse is expressed
brand-wise.
ITD Supply Chain Network
 Grand strategy
YEAR STRATEGY
1901 The British and American Tobacco Entry
Company expanded their trade into
India and set up three companies,
 which later together became the
Imperial Tobacco Company India,
i.e. the present Indian Tobacco
Company (ITC) Ltd.
1928 The Indian Leaf Tobacco Division A market oriented concentric
(ILTD) of ITC experimented on the diversification.
black soils of Guntur, Andhra
Pradesh and successfully cultivated
Virginia Tobacco.
1929 Commercial and large-scale A Horizontal Integration.
production of tobacco was initiated
by the ILTD. The company
established demonstration barns,
provided technical guidance to them
and encouraged local farmers to
grow tobacco by providing financial
assistance to construct barns,
purchase fertilizers, wood fuel, etc.
Slowly, tobacco cultivation spread to
all the coastal districts of Andhra
Pradesh.
1933 The ILTD introduced flue-cured International Expansion
Virginia (FCV) tobacco into the
international market.

1936 A cigarette tobacco research station Horizontal backward

was established in Guntur to study integration
the effect of soil and manure on the
flavour of tobacco.
1940 Cultivation of FCV tobacco was Horizontal expansion
initiated in north Bihar (1940), Uttar
 Pradesh (1940) and Gujarat (1945–
1946).
1956 The Tobacco Export Promotion Horizontal forward integration
Council (TEPC) was established to
support, protect and promote the
export of tobacco
1998 Rs 375-crore invested for leaf- Horizontal backward
processing plants and modern integratipon
storage facilities to "improve quality,
reduce wastage and enhance
productivity."
1998 ITC will modernise its cigarette Technological concentric

plants by inducting "contemporary" diversification

technology, involving Rs 900 crore
over the next five years.
DISTRIBUTION NETWORK(Tobacco Div.)

Bangalore Calcutta Saharanpur Munger

Factories (4)

GODOWNS BRANCHES
(19) (19)

Information
WHOLESALEDISTRIBUTORS Goods
(60 PERBRANCH)

RETAILERS SECONDARY
WHOLESALERS
BCG Matrix
STARS QUESTION MARK
• Hotels • FMCG- Others
• Paperboards/ Packaging.
• Agri business
COWS DOGS
• FMCG-Cigarettes • Maybe ITC Infotech.

SWOT ANALYSIS
ITC is one of India's biggest and best-known private sector
companies. In fact it is one of the World's most high profile consumer
operations. Its businesses and brands are focused almost entirely on the
Indian markets, and despite being most well-known for its tobacco brands
such as Gold Flake, the business is now diversifying into new FMCG (Fast
Moving Consumer Goods) brands in a number of market sectors.
Strengths
ITC leveraged it traditional businesses to develop new brands for
new segments. For example, ITC used its experience of transporting and
distributing tobacco products to remote and distant parts of India to the
advantage of its FMCG products.
Weaknesses
The company's original business was traded in tobacco. ITC stands
for Imperial Tobacco Company of India Limited. It is interesting that a
business that is now so involved in branding continues to use its original
name, despite the negative connection of tobacco with poor health and
premature death. To fund its cash guzzling FMCG start-up, the company is
still dependant upon its tobacco revenues. Cigarettes account for 47 per
cent of the company's turnover, and that in itself is responsible for 80% of
its profits. So there is an argument that ITC's move into FMCG (Fast
Moving Consumer Goods) is being subsidised by its tobacco operations.
Its Gold Flake tobacco brand is the largest FMCG brand in India - and this
single brand alone hold 70% of the tobacco market.
Opportunities
ITC is moving into new and emerging sectors including Information
Technology, supporting business solutions.
Threats
The obvious threat is from competition, both domestic and
international. The laws of economics dictate that if competitors see that
there is a solid profit to be made in an emerging consumer society that
ultimately new products and services will be made available. Western
companies will see India as an exciting opportunity for themselves to find
new market segments for their own offerings.
ITC's opportunities are likely to be opportunities for other
companies as well. Therefore the dynamic of competition will alter in the
medium-term. Then ITC will need to decide whether being a diversified
conglomerate is the most competitive strategic formation for a secure
future.
Competitors
In India, three major cigarette players dominate the market,
primarily ITC with 72% market share, Godfrey Phillips with 12% and
VST with 8% share of the market.