Vinamilk Marketing Analysis

This report aims to analyse how the strategic operational process and management contributed to the business vision of Vinamilk¹ which is becoming the leading milk products manufacturer in Vietnam. First of all, by identifying precisely customer’s expectations of company products, the operations performance objectives will be determined in order to make the process of producing and delivering products could be processed efficiently. These objectives are aiming for the final purpose of the whole process is providing products in a way that maximise customer’s satisfaction.

Secondly, the performance objectives identified in the previous part will then be translated into significant action which is designing the manufacturing process. Put simply, manufacturing process of the company will be designed appropriate for what the company is trying to achieve. The chosen process design also needs to match with the characteristics of an output resources and it is manifested through lay-out.

Finally, some recommendations will be provided in order to overcome the shortcomings that the company has been facing in managing its production and delivery process

1.1 Background of company

Vinamilk company established in 1976 as the Southern Coffee-Dairy Company, then renamed to United Enterprises of Milk Coffee Cookies and Candies I in 1978 and finally

Vietnam Dairy Company was formally established in 1993. In 2003, follows its IPO to the Ho Chi Minh Stock Exchange, the company legally changed its name to Vietnam Dairy Products Joint Stock Company (VINAMILK). The company is a state owned enterprise in which the government owns about 50.01 % of the shares and the rest of the shares are currently active trading at the Ho Chi Minh Stock Exchange.The principal activities of Vinamilk are manufacturing and distributing products derived from milk such as fresh-milk, condensed milk, powdered milk, yogurts, ice-cream, cheese and others drinks such as fruit juice and soya milk. According to Euromonitor, it has been the number dairy player in Vietnam for the three years ending 31 December 2007.From its equitization in November 2003 to now, the sales of Vinamilk have experienced an average growth rate of 21%/year. In 2009, total sales of Vinamilk have reached a

record of over VND 10,000 billion and its profit also has got the highest amount ever before.Vinamilk’s main competitors and Dutch Lady Vietnam, a division of Friesland Foods, Nestlé Vietnam, Abbott, Mead Johnson, Friso and Nutifood

Customer

Basically, when any company decides to enter a market, identifying its target markets is the very important thing needed to do. By doing so, a company will define precisely the groups of particular customers it wants to serve and therefore could get right products or services to a right person or company. In order to target the market, a company would firstly segment its market into smaller segments, each segment is a group of purchasers with the same set of needs and buyer behavior < www.marketingteacher.com.> Back to Vinamilk, by breaking up its market based on analysing demographic and geographic variables, it can be seen that Vinamilk’s goal is to satisfy all customers from kids to elder in any occupation. Especially, the group of kids under 14-years-old is considered the target market that Vinamilk wants to come forwards. In the present time, Vinamilk’s segment in rural areas and small towns has been weak, thus, this segment will also become the target market which Vinamilk want to focus more in the early future. With the products which is directly refers to the health of customers as Vinamilk’s products, quality always is the issue that the customers care the most. Products need to match with the requirement for hygienic and safety food and the ingredients need to be ensured their orginal resources. Otherwise, different customers will have different taste and different preferences, but generally their preference always change, they could also willing to try a new product, new flavor or even the same products with a new layout design. In addition, one of the most important element when choosing a product is price, a product with good quality and acceptable price in comparison with other products will be regarded as a sucessful product. These three elements mentioned above are the requirements of customers to Vinamilk products.

After packaging, products are delivered to consumers through two distribution channels:

Traditional channel

Distributors → Outlets → Consumers

Modern trade

Supermarkets / Metro → Consumers

The distributors, supermakets and outlets are regarded as the internal customers of the company in the supply chain. Delivering products on time is considered the most important thing in which the company needs to concern. If the delivery process because of some reasons are delayed, it will lead to many problems, in which might directly influence to their businesses.

CONSUMERS

3.0 Operations

INPUT

RESOURCES

TRANSFORMATION PROCESS

OUTPUT RESOURCES

Figure 1.1 Operations through-put process

(Source: Slack et al.2009)

Transformed Resources

Raw materials

Main ingredients for products derived from milk: imported milk power, fresh milk from domestic farms.

for other products:

fruit juice, soya bean…

Others ingredients:

sugar,

Transforming Resources

Facilities

Process technology

International standard assembly line

Modern manufacturing facilities

Staff

Group of skilled engineers who control mechanical systems

Raw materials quality analysis

Processing raw materials

Final quality testing processing

Packaging

Finished products

Analyze the 4VS

High volume

Vinamilk products are produced at 9 factories with the high capactiy approximately of 570.406 tonnes per annum and distributed to all provinces of the country. The manufacturing processes are taken systematically from processing raw materials to packaging finished goods. In each process, a team of staff as engineers and workers will directly specialize in tasks related to this process. Their tasks are repeated and systemized in the standard procedures, therefore it is often worth developing specialized technology that gives higher processing efficiencies ( Slack, et al).

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Low variety

The product portfolio of Vinamilk is diversified with over 200 different types of products however except fruit juice and soya milk, all products are derived from the main resource is milk( www.vinamilk.com.vn). Raw materials are gone through the similar processing stages, could have some different preparation in the next stages, but it doesn’t impact much on the standardization systems.

Low availability (Rowbotham et al)

With the stable and predictable demand from customer for dairy products, Vinamilk is always actively the way it produces and distributes products to market through maintaining the stability of milk material sources. Although ice-cream products are products have the seasonal charateristic, with the demand of it in the summer time higher than other season, its changing demand doesn’t impact much on the general production situation of the company.

Low visibility

The way Vinamilk analyses its customers’s behaviour basically depends on salespersons who are committed to understand the consumers’ preferences in their regular contact with customers across different outlets.

Performance Objectives

The objective of the production management is ‘to produce goods and services of Right Quality and Quantity at the Right time and Right manufacturing cost” (Kumar & Suresh,2009)

Quality

Quality means doing things right, trying to satisfy customers by providing

goods and services which are fit for their purpose. The quality advantage

in manufacturing and service operations can be achieved through a

skilled workforce, adequate technology and effective communication of

quality standards and job specifications.(Rowbotham,2007)

Being the company operating in the food branch, quality is regarded as the first important objective that Vinamilk needs to care for. All Vinamilk products are produced by the modern system machines and closely controlled by the International Quality Control Standards of ISO 9001: 2000 and HACCP certified by the world leading corporations. These products’s quality are also ensured to fully announce as stipulated by the Laws under the direct and indirect supervision of competent authorities. With such the control process and strict supervision of competent authorities, released Vinamilk products are qualified with food quality, hygiene and safety standards in accordance with the published standards. Additional, the stability of milk material sources is extremely important as it helps Vinamilk maintains and increases the productivity. As a result, Vinamilk have established stable relationships with suppliers and have committed to purchase high quality fresh milk at the highest price. The company’s factories, which are located in strategic locations near farms of milk cows, enable the company to maintain and improve these relationships with suppliers.

Speed

An extensive distribution network located nationwide with 201 distributors and over 141,000 outlets in 64 provinces and continued being expanded over time allows Vinamilk to bring its core products to consumers in a fast and effective way. In addition, Vinamilk has a range of modern factories located along the country that helps to reduce transportation expenses as well as to make a way the company’s products are distributed to customers becomes easier and more convenience. Furthermore, the company has two transport enterprises, one is located in suburbs of Hanoi specialised in distributing products for Southern, and one is the main distributor for Northern, which is placed at Ho Chi Minh stuburb.

Flexibility

Flexibility means being able to change what you do to respond to changes in customer requirements in terms of the product’s and service’s design, volume, mix and delivery times. This can be achieved through dependable suppliers, mobility of multi-skilled labour, and versatile equipment, etc. The product portfolio of Vinamilk is so diversified and successfully satisfies the increasing various demands of consumers. The company owns 3 core brands, in which Vinamilk and Dielac are two key brands and Vfresh is a new one but it offers a great potential for development. Vinamilk products are divided into 6 groups and each group also consists of specific brands for specific customers.

For instance, group of powered milk:

Diealac Alpha for kids.

Dielac Pedia for children with poor appetite and malnutrition.

Dielac Mama for pregnant and breast feeding woman.

Group of liquid milk:

For Adults ( 100% Fresh Milk, UHT Milk Flex)

For kids ( UHT Milk kid)

Vinamilk has continuously introduced to the market its new products to meet the diversified demands of consumers, including Vinamilk Aloe Vera Yogurt Milk with rich source of vitamin A and E, Dielac Diecerna, Vinamilk Slimming Milk, orange smoothies, etc..

Cost

With the manufacturing milk products like Vinamilk, milk materials sources being one of the main bought -in items which has a great influence to the price of products. The fluctuations of input resources may be due to many causes, however in general the increase of input resources will lead to the increase of finished products. In order to stabilize the price of products, Vinamilk has established stable relationships with suppliers and till now approximately 60% milk material has been bought from domestic sources. Vinamilk’s factories are located near farms of milk cows, enable the company to maintain and improve these relationships with suppliers as well as help the company to limit the costs incurred from delivering milk material.

Dependability

Dependability means the ability of a firm to deliver a product for customers with the exact time promised. Customers might judge the dependability of an operation only after the product and service has been delivered.

For instance, one supermarket is the distributor of Vinamilk, the delay of delivering products is shown clearly in the way the supermarket’s sheves have been being empty for a long time. This trouble has the huge impact to the business situation of the supermarket while its customers can not find the product they need, and so on.

The delay of delivering products to customers may be caused by many reasons in which the most important reason is the quality of manufacturing process. One stage in the process goes wrong, will lead to a whole manufacturing get troubles. If the company does not do well to perform dependability, the delivery is always late, therefore the company itself will lose the goodwill of customers. As a milk company, Vinamilk considers quality is the top target, therefore, its processes have been designed as a error-free process in which some unpredictable errors that may affects the quality of finished products will be minimized. Vinamilk is one of the companies that apply the HACCP approach in manufacturing process. The HACCP approach is a scientific system for food safety assurance (Nguyen et al.,2004). It’s main purpose is to provide a system whereby food businesses can control quality and safety throughout the entire food operation.(‘Applying quality function deployment in food safety management’, British Food Journal Vol. 112 No. 6, 2010 pp. 624-639).

( Source: Slack et al.2007)

Figure 1.2 Polar diagram for Vinamilk

3.0 Process design

The whole point of process design is to make sure that the performance of the process is appropriate for what the operation is trying to achieve(Slack et al,2007). Therefore, it can be said that operations process design is an translation of performance objectives. A question here is ” What type of process design currently adopted in Vinamilk?”

Generally, the basic process for all products in Vinamilk is the same. Raw materials are tested, processed, contained, then containers are filled, capped, labelled and packed. Inspections are carried out at appropriate stages.Therefore, an idea to adopt batch process can be given. In a batch environment, the basic machinery is fixed in place, but it is used on different batches of different products( Rowbotham et al,2009). For instance, raw milk and other main raw materials all need to pump into the preventation silo from which the milk will undergo the sterilization process. (http://www.dairyvietnam.org.vn/).

In this example, sterilizing machine is fixed machine, it can be used to sterilizing say, a batch of whatever yohurt, freshmilk or powered milk. After sterilizing, raw milk is undergone four more processes such as homogenising, spliting a certain amount of butter from milk, final processing and packaging. Some appropriate adjustment of parameters can be carried out in order to produce different type of products. Like for whole milk products and low fat products, butter will be added until it reaches the level of fat at 3.25 percent and 1 percent, respectively in the processing.

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However, because of the high volume characteristic of output resources, the production processes have been conducted repetitive, thus, it could be said that the whole manufacturing process of Vinamilk is also a mass process.

Basically, flowlines are inflexible because of the design just allows to produce a particular product at a particular rate of output. Therefore, if demand for the product changes, capacity cannot be easily increased and reducing output simply reduces utilization and may result in very little cost saving.

An idea of the process design that mixed between batch process and mass process applied in Vinamilk is called group technology will overcome drawbacks of batch and mass process individually. Group Technology (GT) is the analysis and comparisons of items to group them into families with similar characteristics (Kumar & Suresh, 2009).Rowbotham et al., 2007 has the explanation of group technology as belows:

Group technology can be seen as an attempt to obtain some of the cost benefits of flowlines in a batch environment.A company manufacturing 200 different products will often find that these products fall into families based upon their manufacturing characteristics, and a group of perhaps ten products could require very similar processing in terms of machinery, process sequence and operation times. While the demand for each product individually will not be great enough to justify dedicated plant and labour, the output for the whole group may be great enough to justify setting up dedicated facilities. The group technology organization rarely leads to fully fledged flowlines and is more likely to lead to small manufacturing cells containing the necessary plant and labour for that group of products. Set-up and control are easier and transport is reduced compared with batch operations. Compared with both batch and flow operations, workers can see the context of their work within the overall scheme since group technology cells are usually small enough so that all process stages are visible from every point.

The process design is expressed through layout which is simply understood as the physical arrangement of production facilities used in production. The basic aim of a group technology layout is to identify families of components that require similar of satisfying all the requirements of the machines are grouped into cells. (Kumar & Suresh, 2009). Vinamilk could consider a group technology organization based upon the five groups of products identified:

Group of powdered milk and infant cereals

Group of condensed milk

Group of liquid milk

Group of yogurt, ice-cream and cheeses

Group of fruit juice, soy-bean milk, purified water

It means that five cells layout are designed and each of them is capable of satisfying all the requirements of the component family assigned to it. In another word, all the components assigned to a cell are almost processed within that cell itself. Like the cell of powdered milk and infant cereals has the process line which comprises sterilizing, drying, additional micronutrients, mix, containing and packaging process. The cost of transportation and equipments are minimized in group technology layout. Furthermore, group technology is help to reduces production planning time for jobs as well as set-up time.

4.0 Conclusion

In conclusion, this report gives an illustration of how important operations management has contributed to the success of Vinamilk in Vietnam market. First, Vinamilk understands what is important for its customers includes: high quality, stable cost, a wide range of products and reliable delivery.

Seconds, the way it produces and delievers its products is right for the market. Thereby Vinamilk can indentify the order- winning and qualifying objectives is

price and quality, range of products, respectively. The internal performance objectives are also determined as cost, quality and speed.

5.0 Recommendation

At the present time, the manufacturing process of Vinamilk is being proceed well which is reflected in the ways Vinamilk have applied the lastest technology in manufacturing and packaging for all factories. Vinamilk is also the only company in Vietnam which possesses the system of machines that uses the eject-deciccation technology by Niro Denmmark, a world leading company in industrial desiccation technology. The company should maintain and promote the results achieved in the future