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Value Chain Analysis Value Chain Analysis

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Term PaperTerm Paper OnOn

Akij Biri Factory LimitedAkij Biri Factory Limited

Shawkat Kamal

Submitted to:

Assistant Professor

BRAC Business School

BRAC University

Submitted by:

Arafat Mizan (07104081)

Kanij Sharmin (07104082)

Nazdia Sarwar (07104094)

Razia Sultana (07104089)

Sec - 01

Date of Submission: 30th November, 2010

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Letter of Transmittal

November 30, 2010

Shawkat Kamal

Course Instructor

MGT- 401, Business Strategy

Subject: Submission of Term Paper

Dear Sir,

This is our pleasure to present our “Business Strategy” report entitled “AKIJ BIRI”.

This is a popular brand of “AKIJ Group” which is manufacture handmade bidi. The purpose of

this report was for us to analyze the value chain activities of the company. Here we have

gathered information through the actual interviews from the Assistant Manager of the

organization. We truthfully hope that our study will help to give the idea how a company does

value chain activities in the real world. We are thankful to you for your guidance, suggestions,

and constructive criticisms during the preparation of this report that only impelled us further into

excelling.

We will always be available for any supplementary interpretation or clarification that you may

require. We sincerely hope that this project will live up to your expectation.

Yours Sincerely,

Arafat Mizan

Kanij Sharmin

Razia Sultana

Nazdia Sarwar

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Acknowledgement

One individual without the help of others can do no work. In every step of this study, many

individuals and institutional experts supported us. It gives us an immense pleasure to

acknowledge them with our gratitude.

We would like to acknowledge our respected Lecturer, Shawkat Kamal, BRAC Business

School, BRAC University. His sincere guidance, untiring cooperation, valuable advice and

endless inspiration enabled us to overcome all the quandaries that cropped up during the

preparation of our report.

This report is on the study of value chain activities of “AKIJ BIRI”. We also take this

opportunity to thank Rashed Rafiuddin, Assistent Manager (Marketing) and Bejoy Kumar

Saha, Senior Officer (Research) of Akij Biri Factory Limited for giving us the necessary

information related to our report. That’s why we again thank them to give us such an

opportunity.

At the end of our acknowledgements we want to give heartiest thanks to our group members

without whom this team effort cannot be successful.

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Table of Content

Contents Page Number

i) Executive Summary

1.1 Introduction 07

1.2 Objective 07

1.3 Methodology 07

1.4 Limitation 08

2.0 Company Overview 09

3.0 Competitor Analysis 10

4.0 Value Chain Analysis 12

4.1 Primary Activities 12

4.1.1 Chapter 1: Supply Chain Management 14

4.1.2 Chapter 2: Production 16

4.1.3 Chapter 3: Distribution 20

4.1.4 Chapter 4: Sales & Marketing 22

4.1.5 Service 22

4.1.6 Cahpter 5: Labor Management 25

4.2 Chapter 6: Support Activities 27

6.0 Recommendation 28

7.0 Conclusion 28

8.0 Appendix 29

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Executive Summary

The report is on the value chain process of Akij biri, which is a well known product of Akij

group. We tried to cover every part of value chain analysis of Akij Biri including primary and

support activities. They are leading the bidi market of Bangladesh by their 45% of total market

share. The supply chain management process is ensuring the product availability and maintaining

the quality of the product. Their distribution channel is also very strong all over the country

which is their important competitive advantage than other bidi brands. As this business is labor

oriented we focus on the facilities, working environment for the workers. In the supporting

activities part we discussed about their research and development department, human resource

department and the general administration. After completing the report we suggest some

recommendations and strategies which can be beneficial for Akij Biri.

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1.0 Introduction:

Bidi smoking is a popular habit in Bangladesh, especially in rural areas and among the urban

poor. Bidi is a popular sold item in Bangladesh. It is traditionally offered in public places such as

bazaars or tea-stalls. It is the cheapest substitute for a cigarette and is generally available in filter

less form in Bangladesh. Among several bidi brands Akij Biri is one of the popular brands of

manufacturing bidi in this country. Akij Biri has several products under its name in the market

for the consumers like handmade cigarette and tobacco which are popular to almost everyone

since a long period of time. Akij Biri covers a wide range of market in urban and rural area of the

country.

The value chain process includes strategic decision making situation at different stages. Several

strategies are made and executed to gain sustainable competitive advantage, to gain significant

market share and ultimately to gain profit. Value chain analysis is one key tool to analyze how

efficiently one firm is managing its value adding activities and implementing strategies for

gaining competitive advantage over rivals.

This report contains the current value chain activities performed by the specific company named

“Akij Biri” states the analysis findings from different aspects.

1.1 Objectives: The objectives are as follows:

To gather some practical knowlegde about the manufacturing process

To be familiar with the elements of the product

To know the value chain process

Analysis on competitors

1.2 Methodology: We have divided our source into primary and secondary sources but we did

not use any secondary sources from their website.

We have made this report on the basis of interviews taken with Rashed Rafiuddin, Assistant

Manager (Marketing) and Bejoy Saha, Senior Officer( Research) at the head office of Akij

Group in Akij Chamber, Motijheel Dhaka.

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We have visited their office two times. We had a chat over phone with Rashed Rafiuddin and he

gave us an appointment on 4th Novebmer, at 3 p.m. Our four members went to their office. We

asked him several question about value chain process. He talked with us for 2 hours and gave us

necessary infomation about value chain activities.

On 11th November, 2010 we again visited their office as we needed some pictures and more

information regarding their distribution channel. There Mr. Rafiuddin introduced us with Senior

Officer Bejoy Kumar Saha. After introduction period had ended they provided some documents

and pictures.

On 26th November, at 11:30 pm we started for Rangpur by bus to visit the factory of Akij Biri.

We reached there at 5:30 am and went to our relative’s house for refreshment. After that at 11:00

am we started to visit Bengal Biri in Haragas as we did not get the permission to visit the Akij

Biri factory. We went there by microbus. After visiting the Bengal Biri we decided to take a

chance to visit Akij Biri factory which is in Mithapukur. Initially we got the permission to enter

into the factory but did not get the permission to take any pictures or videos. After visiting the

Akij Biri factory we came back at Rangpur city and stayed a night there. Next morning we

started our journey towards Dhaka at 8:00 am and reached at 3:00 pm. The visit help us to make

our report on the basis of real scenario.

1.3 Limitation:

As we did not get the permission to take any pictures or video of the production process

so we use the Bengal Biri’s production process video as the process is same.

The company maintained secrecy to provide information so in the report there can be

some lackings.

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2.0 Company Overview

History of Akij Group:

History of Akij Group stretches back to later part in 1940. Akij Group is one of largest and

fastest growing companies in Bangladesh. It is a family oriented business. The founder of “Akij

Group” Late Sheikh Akijuddin, first started his business with jute trading. Later on beside this

they started bidi business. It is now one of the most successful companies in terms of

proffesionalism and management excellences the main business objectives are to provide quality

products, fair and competitive price total customer satisfaction.Now it has number of companies

under one umbrella like cigarettes, handmade cigarettes, printing & packaging, textiles, hard

board, pharmaceutical, leather processing, footwear, cement, food & beverage and real-estate

business are in operation, catering jobs for more than 100,000 people in various categories.

Akij Biri Factory Limited: Those who smoke bidis “Akij Biri” is a very familiar brand to them.

Akij went into manufacturing handmade bidi in 1948. They established “Akij Biri Factory Ltd”

in 1980. Now Akij Biri has eight bidi making factories in all over the country. It is the leading

bidi manufacturing company in Bangladesh. Among the several units of Akij Group Akij Biri is

one of the vital sectors of the group. The product is distributed under strong distribution system.

For that reason, the company has a large number of satisfied and loyal customers with strong

brand image. This sector gave a real boost to the revenue earning of the group as well as making

a substantial contribution to government exchequer.

Product Line

On 10/10/2010 Akij Biri extended their product line by introducing Akij King. Previuosly there

were not any filtered bidis being produced but in this case, Akij Biri has introduced their new

product known as Akij King which contains filter in bidis. Filter helps to reduce the harmfulness

of biri.

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What is Bidi?

Bidi is a small roll of dried TOBACCO leaf. Bidi is the cheapest substitute of cigarette and is

generally available in filter less form in Bangladesh. It is a crude form of smoking, smaller than a

cigarette in size, home-made, and consists of about 0.5 g of raw, dried and crushed tobacco

flakes, hand-rolled in a dried leaf of or white paper.

At past bidi was wrapped in a leaf and that bidi was called “Patar Bidi”. The leaf by which bidi

was wrapped into is called “Tendu leaf”. After Mujib government importing tendu leaf was

banned. After that Akij Biri started to make paper made bidi.

Figure: Patar Bidi

3.0 Competitor Analysis:

Bidi is a large industry in Bangladesh. There are many brands who are manufacturing bidis like

Aziz Biri, Abul Biri, Bengal Biri, Momotaz Biri, Raja Biri etc. At present, Akij Biri is not

considering any bidi brands as their competitors. As Akij Biri is the market leader and they have

the 45% share of the market on the basis of market survey, revenue board, internal report,

random sampling etc. So it means that the other bidi brands are not that position to compete with

them. They are mainly considering cigarette brands as their competitors. Their dominant regions

are Tangail, Mymensingh, and Kushtia including other district of the southern part of

Bangladesh.

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As Akij Biri does not consider any other bidi brands as their competitors but we think they have

many competitors. But the distribution channel of other bidi brands is not so strong like Akij

Biri. So Akij is leading the bidi market.

Figure: Different brands of bidis in Bangladesh

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A company’s value chain is consists of two broad categories of activities. These are:

• Primary activities

• Support activities

Our selected company Akij Biri is a manufacturing company and also perform value chain activities to

ensure the best quality for the product. The value chain activities that is maintaining by Akij Biri is shown

in the below by a diagram.

4.1 Primary Activities:

Figure: Primary activities of Akij Biri

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4.1.1 Supply Chain Management:

To be succesful, a company needs an effective supply chain management. The whole function of

Akij Biri is rely on supply chain management system. Firstly, Akij collects raw materials from

different suppliers for their bidi production. Their main market from where they collect tobacco

is Rangpur. After collecting the tobacco they usually preserve it for 6 months to 1 year. But in

the meanwhile the storage place of tobacco has to be changed at 1 week interval. This is because

storing the tobacco in one place for long causes to lit up fire due to the heat build up inside the

stack of stored tobacco. It is not possible to use new fresh tobacco for making bidi because the

more day’s tobaccos are persevered; the taste of tobacco will be better and can make good

quality bidis. When the market demand is high, than the tobacco will be preserved for six

months. Akij do not have any specific suppliers from where they accumulate raw materials. They

choose suppliers according to the market demand, availability of raw materials, quality of the

tobacco and low price etc. Akij Biri always tries to produce better qualityproduct and also ensure

the standard of the product. The objective behind the management efforts are:

• Ensuring the product availability

• Maintain the quality of the product

Raw materials: Tobacco, jaggery, small amount of chemical

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4.1.2 Production: The production process of Akij Biri is purely labor based. Almost every steps

of production is done by human hands. They use three different machines for drying, cutting,

crashing and mixing and rest of the process is done by manually. The basic steps in

manufacturing of Akij Biri are generally as follows-

• Sun cure

• Washing

• Re dry

• Crashing

• Mixing of different ingredients

• Making paper tube

• Packaging

Sun cure: After collecting the tobacco from the farmers, the tobacco is dried in sun. It is the

natural process of drying tobacco. When the farmers collect the tobacco, the tobacco is full of

dirt. The purpose of drying tobaccos in sun light is to ensure that raw tobaccos become dust free.

Labors carry those tobaccos and spread it in the clean space. This process is called sun cure.

Washing: After sun cure, they wash the tobacco in water so that tobaccos get divest of dust.

Re dry: When the tobacco are cleaned tobaccos than again re dried under the sun. The objective

behind this step is to make sure that the tobaccos contain possibly least percentage of moisture.

The process of re dry is the same process of sun cure.

Crashing: In crashing part the tobaccos are cut into small pieces which are done by a machine.

Mixing: When the tobaccos are into pieces it is mix with some ingredients. Such as: jaggery and

a very small percent of chemicals. This process is called blending. They add jaggery and

chemicals to give a taste of sweetness.

Paper Tube: After adding together different ingredients the mixture is ready to put into the

paper tube. They purchase the paper from different suppliers. Workers make the paper tube by

hand and use a belt to wrap it around the bundle of 1000 tubes. They spread the tobacco over the

tubes and jerk the whole set of bundle. They jerk the bundle for 2-3 times and when the tubes are

filled with tobacco, they close the end of the tube. Then it is send to the factories. In the appendix

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the Figure 1 shows the manufacturing process of Akij Biri. In the following diagram shows each

steps of the labor in the production process:

Tobacco drying

Tobacco cutting into pieces

Crashing and mixing

Putting the mixture into paper tube

Closing the end of the tube

Putting 25 bidi sticks in a plastic packet

Closing the packet with heat

Wrapping the plastic with paper

Tied up the packet with a ribbon

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Picture: The process of making bidi

Packaging: The last part of the production is packaging. The packet is color printed paper. They

purchase the paper from diferrent suppliers according to the level of cost. They collect the ribbon

from treasury of the Bangladesh government which they are used to tied up the packet. In each

packet there are 25 sticks. Total 20 packets makes one outer. For distribution, one carton

contains 500 outers (10,000 sticks).

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4.1.3 Distribution: Akij Biri has its own strong distribution channel. The product is available

throughout the country with the help of an organized distribution channel. The product is

manufactured at 8 different factories throughout the Bangladesh. The factories are in Rangpur,

Jessore, Bagerhat, two in Pabna, two in Lalmonirhat and Ishurdi.

Sales Centre: The finished product is then delivered to the sales centers of Akij Biri. Akij Biri

has in total of 12 sales centres in Bangladesh. These are in Dhaka, Mymensingh, Brahmanbaria,

Sylhet, Comilla, Chittagong, Faridpur, Rajshahi, Rangpur, Bogra, Khulna and Jessore. The

products are delivered by using their own transport such as tracks.

Distribution Point: The Company has divided the whole area of the country into 200 territories

and each of them having a single distribution point. The products are thus thereafter transported

to these distribution points. In this case also they use their own transport to deliver the goods.

Retail Outlet: At this stage the products are then distributed to 700,000 retail outlets throughout

Bangladesh from these distribution points. To deliver the goods to the outlets the company

planned 7,000 different routes so that each route is planned to deliver at 100 retail outlets. There

is a sales person for each of these 7,000 routes. There are 500 zone in-charges to monitor the

distribution process in the routes. So that for 14 routes there is one zone in-charge. In this stage

the transport is not provided by the company. The type of transport is depended on the route and

the distribution points are responsible to arrange for the transports to deliver the products to the

retail outlets. In the appendix Figure 2 shows the whole distribution procedure.

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4.1.4 Sales and Marketing:

As Akij Biri is only for a certain group of customers, right marketing efforts are needed to

capture profit.

• The target market of Akij Biri is low socioeconomic group. They mainly target aged

between 18-60 years, from both urban and rural areas.

• In our country it is banned to advertise any kind of tobacco product. There are some

rules and regulation which protest to show any tobacco advertising in television,

newspaper or any outlets. Due to government restriction Akij Biri cannot use any kind of

media to promote their product. Only the retailer can place an 8.5/5.5 printed

advertisement in their store, but they cannot convince the customer to purchase.

4.1.5 Services: No after sales services are provided by the company.

The reason behind continuing bidi business of Akij group:

As Akij Biri is a big company and many people are working in this company so always they

have to think about their workers. Many people are working with Akij Biri. At earlier period it

was a very small business. But now the business has expanded a lot and they also add many

different industries in their business. They earn a lot of profit from different industries of their

business. The profit that comes from Akij Biri is 10%. They can easily close down this business

and can invest the money in other sectors. But the only reason they still continue this business is

due to the affection for the poor people. Every bidi factory of Akij group is situated in

underprivileged rural areas. Almost all the poor people who are living in the surrounding villages

of these factories have to depend only on the bidi factories for their living. If Akij group close

down this bidi business almost all the people of those areas will have to starve and go through

many other suffering. Although Akij biri factory is producing one of the most harmful products

for human life but at the same time they are also providing jobs for a large poor population of

Bangladesh. For this reason they still continue this business.

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Although they said that they are earning a small amount of profit from Akij Biri which is 10%

but we think the percentage is higher and they are earning a huge amount of profit from Akij

Biri. As we have visited one of their factories we have seen that the condition of the factory is

very developed. They also maintain fair wages of their workers which other bidi brands are not

maintaining. They also introduce a new bidi with filter which is Akij King. We think without

huge amount of profit it is not possible to maintain all these things and lead the market.

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Labor Management:

All Akij Biri factories are situated in very rural area. Most of the people of that area are directly

or indirectly related to the production of bidi. Management of Akij Biri is very concerned about

their worker. Child labor is strictly prohibited in those factories but sometimes the children

voluntarily help their mother or father during their leisure time. According to the payment

scheme imposed by the Bangladesh government the company pays their workers at least TK105

per day. The payment can also vary up to TK150 to TK180 depending on the productivity of the

workers. Besides this they also give various facilities to their worker such as:

• Working environment: Usually tobacco factory is harmful for both the workers and the

environment. But Akij Biri is highly concerned with the associated harmful effects of

their tobacco production. Each of the factories is built over a large area. Inside the factory

there is enough working space for the workers so that they can work comfortably. The

management of Akij Biri planted a large number of trees inside the factory area. They

also dug ponds within the factory area to increase the natural beauty inside the factory.

These ponds also help them to collect water if there are any fire incidents.

• Grocery shop: Akij Biri set up their own grocery shops inside their each factory. From

these grocery shops the workers can buy their daily necessary commodities at a very low

price compared to the general market.

• Education facilities: They give financial support to those workers who have school

going children at their home. Most of the workers cannot afford their children’s

educational expenses hence this is an appreciable support provided by the company.

• Medical facilities: They also give medical facility to their workers. The facility includes

bearing all the expenses of the worker’s health care and medicines if they cannot afford.

The company is also bound to take the responsibilities for any major casualties occurred

due to an accident within the factory.

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4.2 Support Activities:

There are different departments which provide support to the value chain activities such as

Research and Development, HR department.

Research and Development (R&D): The main task of R&D department is divided in two types.

One is market research and another is product development. In market research they analyze the

demand of the product, competitor’s product etc. In product development they analyze their

product. In this case they cannot improve their product because any change in product

development will create cost. So price will be high. But if price will high consumers will switch

to substitute products. But recently they are thinking to change their packaging because same

packaging style is continued from the beginning of their business. On the other hand, it will risky

to change their packaging style. They are also worried about how their consumers will react.

Human Resource Department: Since Akij Biri is a labor intensive company it means that they

are much concern about human resource. There are numerous people who are working under

Akij Biri and these human resources are managed by Human Resource Department. The main

function of human resource department is to recruit people, supervise workers, work for

wellbeing of the employee and to think about the safety and happiness of the workers. They have

one supervisor to control 20 workers.

General Administration: On the top of the organization they have chairman. Beneath chairman

they have a managing director. There are two directors who are working under the managing

director. Akij Biri has several departments such as marketing department, audit department,

account department, transport department, finance department, purchase department etc. In each

department they have an individual head of the department. In the following there is a diagram

which shows the hierarchy of the organization.

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Chairman

Managing Director

Director

Head of the Department

5. SWOT Matrix: After completing the value chain analysis, we found several strength,

opportunity, strength and threat of Akij Biri. By analyzing these, we have come up with some

strategies which can be beneficial for Akij Biri. In Figure 3 in the appendix we have discussed

this in details.

6. Recommendation:

• They should follow backward integration to produce the packet by their own. This will

minimize the risk of dependency on others.

• They should reduce the amount of nicotine in their product.

• They can give incentives such as Eid bonus, Pooja bonus etc. to their workers.

7. Conclusion: Through the appropriate value chain activities, both primary and supporting, the

company is leading in the bidi industry. Although they claim that they are not earning huge profit

from bidi industry but we think they earn a big amount of profit. At the same time it helps a huge

number of unemployed poor people in rural areas to earn their living. With a well structured

distribution channel the company is ensuring the availability of the product to the consumers of

all areas of the country.

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8. Appendix:

Figure 1: Manufacturing Process of Akij Biri

Sun Cure Washing Re Dry

Crashing Mixing

Packaging

Making Paper Tube

Distribution

Tobacco is mixed with different ingredients

Tobaccos are cut into small pieces

Fill with mixture and close the end of the tube and send to distribution centre

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Figure 2: Distribution process of Akij Biri

Factory

Sales Centre

Distribution Point

Retail

Outlets

Raw materials send to the 8

factories

There are 200 distribution points in

They have 12 sales centres

They send the finished goods to sales centre by their

All together they have seven lakh small retail outlets

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Strength S1:Product quality S2: Production is extremely cost effective S3: Low price S4: Product availability S5: Huge number of loyal customers

Weakness W1: No product development W2: Cannot reach to higher and middle level of income customers W3: Packaging W4 Hazard product W5: Following strict procedures

Opportunity O1: Vast number of potential customer

Threat T1: Government tax T2: Decreasing cultivation land day by day T3: Cigarette T4: Crisis of raw materials T5: Restrictions on promotional activities T6: Social and religious pressure

Figure 3: SWOT Matrix

SWOT Matrix

(S3, O1): Fix the price to attract potential customer

(S5, W1): Justify no product development with low price

(W5, T6): Validate strict procedure to reduce social pressure