Select a local service/manufacturing organisation of your own choice or a part of such an organization if this is more appropriate. You should prepare a report and address the following issues:
l Describe the background information of the organization.
l Conduct SWOT and Porter’s Five Forces analysis on the organization.
l Using the SCOR (Supply-Chain Operations Reference) model as the reference, investigate the supply chain activities/processes and management of the organization.
l Assess how well the organization implements the SCM.
Suggest solutions/ ways to improve the organization business; especially by improvements on SCM of the organisation
This report details a competitive analysis of Teys Australia which is one of the largest meat processing companies in Australia. Its headquarters are situated in Brisbane. The report will give the company background including the geographical extent of its operations. It will then discuss the meet of the analysis using 3 frameworks. The Strengths, Weaknesses, Opportunities and Threats or SWOT analysis, Michael Porter’s 5-forces model and the SCOR framework especially from the perspective of the supply chain of this company. References will be provided where necessary.
Teys Australia has been in existence since the late 40s. It started when 4 Teys brothers formed a company in 1946. The concern began by retailing and whole selling meat in South East Queensland. Circumstances in the form of the 1946 meat strike led them to vertical integration. They bought a slaughter yard to ensure uninterrupted supplies to their meat stores. In 2012, Teys is the largest Australian-owned beef processing company in Australia. It processes one million cattle and has a turnover of 1.3 billion AU. Teys comprises four beef processing facilities located at Beenleigh, Rockhampton, and Biloela Naracoorte. It owns a number of other related businesses such as tanneries, feedlots and other facilities that employ over 2600 people. Today, Teys is in partnership with the Cargill Group. Both sides have a 50% stake in the venture.
The Cargill Group is a privately held conglomerate with a variety of interests in agriculture, food and finance. It was founded in 1865. It began by trading grain and even today, grain and agricultural commodities form a significant portion of its product portfolio. It operates in 59 countries spanning Asia, the Americas and Africa.
(Teys Australia, n.d`.)
The global beef industry
Before we can analyse Teys Australia, we need to have an overview of the global beef industry. This is because Teys operates globally and it would be incorrect to consider just its local operations since a significant portion of Teys’ revenue is derived from exports.
The world’s largest producer and consumer of beef is the United States of America. It has the highest whole sale prices of beef therefore is a coveted market for exporters. The recent economic recession has fuelled a price rise since US consumers have switched to ground beef which is leaner and less expensive. However, this has corresponded with a reduction in the size of local herds which has further increased prices. Specifically, The US cattle herd continues to shrink. On 01 July 2011, it consisted of 90.1 million head – the smallest cattle inventory on record. Despite this, The US cattle herd remains the world’s fourth largest cattle herd after those of India, Brazil and China.
In terms of exports, the USA used to be one of the biggest exporters of beef. However, these exports experienced a sharp dip after an outbreak of BSE. Things changed in 2011 when exports reached 1.26 million tons cwt which is 11% above the pre-BSE levels of 2003. This increase was facilitated by a comparatively week US dollar, a focus on external markets and a high cattle on feed number.
In spite of the above, the USA still imports beef. It is the second largest beef importer in the world. Imports were 932,708 tons cwt in 2011. Australia is the second largest beef exporter after Brazil.
(Meat & Livestock Australia, n.d.)
For 2011, Australian exports were valued at 4.7 billion dollars (US) and accounted for two-thirds of domestic production. The remaining produce is sold and consumed locally.
Key points about the Australian beef industry
To analyse the beef industry, we must start at the first stage of production, namely the cattle. Cattle entered into Australia in 1788. Cattle at that time were meant to help in development. Cattle escaped and bred rapidly. Cattle farming became viable and consequently commercial. This commercialization was strengthened by the gold rushes of the 1850’s where demand for beef in the interiors increased greatly. Initially, land holders would walk cattle to market. Losses were high since the cattle were not adapted to Australian weather conditions. After many years of breeding, this situation has improved significantly.
Today, Cattle farmers in Australia collectively run 28 million cattle across 200 million hectares. The number of cattle in Australia makes it a relatively small producer on a global scale. However, due to its lesser population, Australia exports around 60% of produce making it the world’s second largest beef exporter after Brazil.
|Key facts about the industry|
|Herd size||28 million head|
|Beef Exports||$5 billion|
|Live Exports||$600 million|
|Herd size||28 million head|
(PWC, June 2011, The Australian Beef Industry From family farm to international markets)
Defining competition and or competitiveness
Our final stop before we begin analysis is defining what we mean by competitiveness.
For a company, competitiveness is the ability to provide products and services more effectively and efficiently than its competitors. In our analysis, this translates to continuous success in international markets without any external support such as subsidies. Easy means of carriage may give a firm an advantage in local or adjacent markets but on a global scale, productivity is the only driver that will yield an advantage to a firm. Competitiveness can be gauged by examining indicators like market share and sales divided by output.
The SWOT analysis is a basic qualitative framework used for examining a firm’s strategy. It can also be applied to an industry. It considers the strengths, weaknesses, opportunities and threats that a firm or firms in an industry are subjected to. This allows firms to focus on their core competence thereby optimising business strategy. The threats and opportunities are usually external factors while the strengths and weaknesses are usually internal factors. The SWOT analysis helps create a single platform on which these disparate factors can be taken into account while planning for the business.
1. Efficient production methods.
Teys like other meat producers has had to adopt efficient production methods. Efficiency increases are the only way to reduce costs in the beef industry. This is because a significant amount of the meat producing industry is labour intensive. Yet beef production and consumption are seasonal activities so many times, producers have to sell their products at a loss. Many producers use casual labour. Since Teys is vertically integrated, it is subjected to the above variables therefore has to keep labour and automate as much as it can.
2. Industry reputation
Australian industry has firm electronic tracking systems. Ear tagging is an essential part of the national livestock identification system. This allows for easy identification of cattle and tracing it to its farm. Such a system can be used to control the outbreak of diseases such as the foot and mouth disease.
3. Access to global markets
Thanks to its merger with Cargill, Teys has access to not only the USA market but also the global market there by expanding its export base.
4. Favourable currency movement
The Australian dollar has declined viz a- viz other currencies thereby making Australian imports cheaper. This has allowed Teys to expand to other markets such as Japan and South Korea.
- High exposure to currency fluctuations
Australian beef remains competitive as long as the Australian dollar stays low. If the dollar rises, then the industry has difficulties in selling. It is not possible to sell any excessive meat locally due to Australia’s smaller population. Reliance on a relatively small number of export markets gives rise to significant challenges for the industry. This was seen in 2011, when the Government suspended live cattle exports to Indonesia. The suspension of trade to this market threatened the future of many northern cattle producers. In the short time that the suspension was imposed it did not appear as if the industry, including Teys could easily access alternative export markets.
- Exposure to climatic conditions
Several parts of Australia experience drought conditions almost permanently so it is difficult to raise cattle. Moreover, the Australian government, recognizing this fact has stopped support to producers except in the case of extreme drought.
The key opportunity for Teys lies in the fact that Australian beef producers enjoy a reputation for quality and trust therefore it is unlikely that existing customers will switch. Developing markets such as Indonesia are growing and a significant quantity of beef was exported to that country. Moreover, Teys’ competitiveness is increasing due to its adoption of automated slaughter houses etc.
- Climatic variability
The 2011 floods in Queensland and other parts of northern Australia have benefitted the livestock industry. Cattle have multiplied rapidly placing the industry in a strong position.
- Currency fluctuations
Teys’ export ability is dependent on the Australian dollar. As long as the Australian dollar is lower, Teys will be able to sell.
This is a danger in any agricultural operation. Teys is vertically integrated so is its exposure to this threat is high. If there is an outbreak of a disease such as foot and mouth disease, then Teys could suffer significant losses. The national livestock identification system does mitigate this threat to a significant extent since traceability is easy and steps can be quickly taken to control the spread of the disease.
- The growth of poultry
Poultry consumption is growing since it is perceived to be healthier than red meat. This reduces the number of customers who are willing to purchase beef
Note: Ways to counter the above mentioned threats will be discussed in the recommendations section.
Porter’s 5 forces model
Porter’s five forces model is a qualitative framework used for analysing business strategy and industries. Porter lists five forces that determine the intensity of competition in a market. This intensity of competition also determines market attractiveness that is, whether firms will be attracted to enter a particular market. In the case of Teys Australia, the model provides a useful overview of its strategic situation and industry constraints.
- Threat of new competition
Profitable markets will attract more firms unless existing players block new entrants, usually via high barriers to entry. These barriers include patents, rights, brand equity, high exit costs, etc. For example, high exit costs may deter new entrants from investing for fear of not being able to quit the market easily. Similarly, patents rights and consequent royalty payments may deter new firms. Brand equity is also a potential deterrent though this can be addressed in the medium to long term via brand building exercises like advertising and sales promotion. None of these factors are significant in the case of Teys since it operates in a near perfect competition scenario. There are a number of vertically integrated meat producers in Australia who have access to the same information and are subject to the same set of rules.
- Threat of substitute products or services
By substitutes, Porter does not refer to direct substitutes. For instance, if selling video games, other video games are not regarded as substitutes. However, activities like outdoor sports, going to the movies will be considered as substitutes. The key factor to consider is product boundaries. These substitutes lie outside common product boundaries. Some of the factors that determine the ease of substitution are, buyer’s propensity to switch, perceived level of product differentiation, switching costs of buyers etc, the number of substitutes in the market and quality of incumbent products. In the case of Teys, Beef and or red meat is now competing with poultry. In many circles, poultry is considered a healthier alternative so beef is losing market share especially since it sells at a higher price than poultry. The consumption of poultry stands at 37 KG per person in 2010 as opposed to 6 KG per person in 1975. The per capita consumption of beef is a constant at 33 kg. There is no switching cost for the consumer for that matter; the customer is left with more disposable income after purchasing poultry due to its lower price. Moreover, as we saw above, there is a high degree of product differentiation since beef and poultry are not interchangeable.
- The bargaining power of buyers (customers).
The bargaining power of buyers refers to the buyer’s ability to pressurize the firm with respect to price. Some of the key factors to consider include, the degree of dependency on existing channels of distribution, buyer to firm concentration ratio, buyer volume and buyer information availability. Buyers are scattered in the form of individual firms and consumers. However, some firms purchase large quantities of meat which is where their bargaining power comes from. For Teys, Large buyers do have bargaining power. For instance, large supermarket chains such as Woolworths buy about 6% of all products of companies such as Teys. These chains are the largest single chunk of buyers therefore can regulate the price. Price can also be regulated to an extent by foreign buyers who can use macro-economic measures to control beef imports. For example, trade restrictions play a significant role. Countries can block exports from Australia which would not only hit Teys but other producers too.
- The bargaining power of suppliers
Suppliers can be a source of power over a firm if the suppliers provide unique input. Some of the factors that determine if suppliers have power over a firm include, supplier switching costs for the firm, differentiation of inputs, strength of distribution channels, presence of substitute input and the supplier concentration to firm concentration ratio. This is not a significant factor in the case of Teys since it is vertically integrated. Moreover, it has been in business since 1947 so has strong supplier relationships. There is little input differentiation and there is no control over channels of supply since they are common for all parties.
- Intensity of competitive rivalry
This is the key factor that determines if a firm will enter and or stay in a market. Key determinants include competitive strategies of incumbent firms and level of advertising expenditure. Meat processors such as Teys operate in a near perfect competition scenario and have always done so. Many of them carryout innovations in a bid to increase market share. As of this writing, Teys has stayed ahead of the curve and has adopted unusual practices such as the installation of CCTV cameras at its facilities. This leads to better monitoring which translates into a better product and consequently a better brand.
The SCOR model
The Supply Chain Operations Reference-model (SCOR) is a framework created by the Supply Chain Council. It is a cross-industry standard diagnostic tool for supply chain management. SCOR gives participants in an industry a common language to discuss supply chain best practices. It is based on 5 key processes.
(Supply Chain Council, 2007)
- Plan – Processes that allow a firm to weigh aggregate demand and supply to develop a strategy which best meets sourcing, production, and delivery requirements.
- Source – Processes that obtain goods and services to meet planned or actual demand.
- Make – Processes that create the finished product to meet planned or actual demand.
- Deliver – Processes that ensure that the finished product is available to meet actual or anticipated demand. These include but are not limited to order management, transportation management, and distribution management.
- Return – Processes associated with returning or receiving returned products for any reason.
Note: These processes do not stop once the product is delivered. They deal with customer service and after sales support too.
- Plan processes
Teys or any other producer cannot do much to influence external demand since it operates in a near perfect competition scenario. However, internal constraints such as labour management can be accounted for via automation especially during off-season times.
The beef industry starts with cattle. Teys has strong sourcing since it is vertically integrated. Teys appears to have strong internal planning. This is demonstrated by the adoption of vertical integration to better control supply.
- Make process
Teys has developed strong quality assurance processes. More importantly, it follows a process of continuous improvement with respect to its products at its facilities. The Australian Quarantine Inspection Service (AQIS) ensures compliance with meat hygiene and safety regulations at all Teys plants. This ensures that it is a moving target for other competitors who will have to invest considerable resources to catch-up.
(Teys Australia, n.d.)
- Deliver processes
Teys has located its facilities at the juncture of transport networks which makes servicing markets easier and prevents losses. For example, Teys’ Tamworth location is situated on the Peel River. This translates into more of the Teys product reaching the buyer. Moreover, losses due to spoilage etc are minimized which leads to higher profitability.
Returns were not applicable to the industry and to Teys. However, the quality of cattle does matter therefore in that sense, a bad product will adversely affect Teys brand. Returns
Teys has taken the initial steps towards market dominance via its partnership with Cargill. It is already in a strong position in the local market. However, it could benefit by adopting the following measures.
- Acquiring land in international locations
Teys should consider acquiring land and cattle in emerging locations such as Brazil and China. This will allow it to remove the constraint its focus on quality and premium brands will allow it to compete effectively in these markets. Such acquisitions will offset the shortage of land in its home market.
- Further focus on niche markets
Teys should further develop its brands in high value markets such as Japan and South Korea. It should consider marketing to niche consumers thereby building a captive consumer base. This enhances its ability to insulate itself against competition and mitigates the risk of new entrants capturing its customers since it creates high barriers to entry.
- Move into retail
Teys should complete its integration and form joint ventures with retail outlets or open its own outlets. This way, it could become a price maker in several market segments instead of being subject to the pricing demanded by large super market chains.
Teys Australia, the Teys Story viewed 07 April 2012
Brindal, R, 21-01-2012, marketWatch Bulletin, Australian beef exports forecast to hit record, viewed 07 April 2012 http://www.marketwatch.com/story/australian-beef-exports-forecast-to-hit-record-2012-01-22
Meat & Livestock Australia, Beef, viewed 07 April 2012 http://www.mla.com.au/Prices-and-markets/Overseas-markets/North-America/Beef
PricewaterhouseCoopers, June 2011, The Australian Beef Industry From family farm to international markets, viewed 07 April 2012
PricewaterhouseCoopers, Agribusiness Forum, Newsletter June 2011, from family farm to international markets, viewed 07 April 2012, http://www.pwc.com.au/industry/agribusiness/assets/newsletters/agribusiness-forum-jun11.pdf
Supply Chain Council, n.d., SCOR Frameworks, viewed 07 April 2012 http://supply-chain.org/resources/scor
Teys Australia, Plants viewed on 07 April 2012 http://teysaust.com/au/index.php? option=com_content&view=article&id=6&Itemid=28&lang=en
Beef Retail – Wholesale Price Update, n.d., Wholesale Price Update, viewed 07 April 2012 http://www.beefretail.org/wholesalepriceupdate.aspx
Independência, n.d., The Beef Industry, viewed 07 April 2012 http://ir.independencia.com.br/independencia/web/conteudo_en.asp?idioma=1&conta=44&tipo=20876
BEEF Magazine, Global Competition, viewed 07 April 2012 http://beefmagazine.com/mag/beef_global_competition
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