A PROJECT REPORT

On
CHOCOLATE INDUSTRY
By
Sonali Dhimmar
Priyanka Dhimmar
Aakash Tantia
Parth Pandey
Batch (2015-18)
Submitted To
Mrs. Richa Agarwal

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CHOCOMOCO
Pvt. Ltd.

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ACKNOWLEDGEMENT
We would like to express our deepest appreciation to all those who provided us the possibility to
complete this report. A special gratitude we give to our Module Leader, Mrs. Richa Agarwal
whose contribution in stimulating suggestions and encouragement helped us to coordinate the
project especially in writing this report.

Furthermore we would also like to acknowledge with much appreciation the crucial role of the
staff of AURO UNIVERSITY, who gave the permission to use all required equipment and the
necessary material to complete the project. We appreciate the guidance given by other supervisor
as well as the panels especially in our project presentation that has improved our presentation
skills thanks to their comment and advices.

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Table of Contents

CHAPTER – 1.................................................................................................................................................. 6
Introduction .................................................................................................................................................. 7
Raw materials ........................................................................................................................................... 7
Location..................................................................................................................................................... 8
Suppliers.................................................................................................................................................... 8
Stock keeping unit ..................................................................................................................................... 8
CHAPTER – 2.................................................................................................................................................. 9
Supply Chain Strategy and Performance Measures.................................................................................... 10
Supply Chain performance measures ..................................................................................................... 10
Customer Order penetration point ......................................................................................................... 11
Push strategy or Pull Strategy ................................................................................................................. 11
Functional product .................................................................................................................................. 12
CHAPTER – 3................................................................................................................................................ 13
Outsourcing: Make versus Buy ................................................................................................................... 13
Criteria on which an organization takes make or buy decision .............................................................. 14
Reasons for Making................................................................................................................................. 14
Reasons for Buying.................................................................................................................................. 14
In house activities ................................................................................................................................... 15
Process of Making Chocolate .................................................................................................................. 15
Outsourcing activities ................................................................................................................................. 17
Nature of relationship ................................................................................................................................. 17
CHAPTER – 4................................................................................................................................................ 18
Inventory Management .............................................................................................................................. 18
The quantity of raw material to be ordered ........................................................................................... 19
Economic Order Quantity ....................................................................................................................... 19
Aggregate Planning Strategy ................................................................................................................... 20
Inventory Control techniques ................................................................................................................. 20
Bull-whip effect ....................................................................................................................................... 20
CHAPTER – 5................................................................................................................................................ 21
Transportation ............................................................................................................................................ 21

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 Key transportation-related decisions ..................................................................................................... 22
Transportation Mode .......................................................................................................................... 22
Drivers of transportation decisions ........................................................................................................ 22
Transportation strategies........................................................................................................................ 23
Direct shipment................................................................................................................................... 23
Milk Run .................................................................................................................................................. 24
Design of the distribution network ......................................................................................................... 25
Saving matrix approach....................................................................................................................... 26
Supply chain integration from suppliers to customers ........................................................................... 27
CHAPTER – 6................................................................................................................................................ 28
Demand Forecasting ................................................................................................................................... 28
Simple Moving Average .......................................................................................................................... 29
Weighted Moving Average ..................................................................................................................... 29
Exponential Smoothing ........................................................................................................................... 29
Regression Model ................................................................................................................................... 30
Forecasting Error..................................................................................................................................... 30
Cost Sheet ................................................................................................................................................... 31
Companies case studies…………………………………………………………………………………………………………………………32

Bibiography…………………………………………………………………………………………………………………………………………..43

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CHAPTER – 1
Introduction

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Introduction

Chocolate is one of the most popular foods of the world. It has been traded internationally for
centuries, mostly from the underdeveloped to the developed world. Consumption of chocolate
specially DARK chocolate is growing rapidly because of reported health benefits. Chocolate has
amazing complexity and levels of reported health benefits. The word chocolate entered the
English language from Spanish. Chocolate comes from Nahuatle, the language of Aztecs, from
word “xocolatl” made up from word “xococ” meaning, sour or bitter, and: atl” meaning water or
drink. Chocolate is made from beans derived from the cacao tree. These beans are very bitter, so
the cocoa solids and cocoa butter has sugar added to it.

An overview of chocolate industry in India: -

The chocolate industry in India as it stands today is dominated by two companies, both
multinationals. The market leader is Cadbury with a lion's share of 70 percent. Till the early 90s,
Cadbury had a market share of over 80 percent, but its party was spoiled when Nestle appeared
on the scene. The Gujarat Co-operative Milk Marketing Federation (GCMMF) and Central
Recant and Cocoa Manufactures and Processors Co-operative (CAMPCO) are the other
companies operating in this segment. Competition in the segment will get keener as overseas
chocolate giants Hershey's and Mars consolidate to grab a bite of the Indian chocolate pie.

INDIA, stands nowhere even near to these countries when compared in terms of Per Capita
Chocolate Consumption. The Indian chocolate industry is extremely fragmented with a range of
products catering to a variety of consumers. We have the bars/slabs, jellies, lollipops, toffees and
sugar candies. Given India's mammoth population, it comes as a surprise that per capita
chocolate consumption in the country is dismally low - a mere 20gms per Indian. Compare this
to over 7 kgs in most developed nations. However, Indians consumed 22,000 tons of chocolate
last year and consumption is growing at 10-12 percent annually. The market size of chocolates
was estimated to be around 16,000 tones, valued around Rs.4.16 billion in 1998. Volume growth
which was over 20% pa in the 3 years preceding 1998, slowed down thereafter. Both chocolate
and sugar confectioneries have abysmally low penetration levels, in fact, even lower than
biscuits, which reach 56 per cent of the households. Market growth in the chocolate segment has
hovered between 10 to 20%. In the last five years, the category has grown by 14-15% on an
average and will expect it to continue growing at similar rate in the next five years. Per capita
consumption of chocolates in India is minuscule at 20gms in India as compared to around 5-8
kgs and 8-10 kgs respectively in most European countries. Awareness about chocolates is very
high in urban areas at over 95%.

The chocolate industry has grown to a worldwide industry topping $50 Billion in retail sales
worldwide and continues to show healthy growth. Recently, there has been an increasing trend
towards high quality chocolates such as chocolates with high cocoa content and or chocolates
flavoured with natural flavours and rich spices.

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Raw materials (ingredients of chocolate)
 Cocoa bean
 Cow Milk
 Milk powder
 Sugar
 Flavors (like vanilla)
 Dry fruits

Location of Manufacturing Plant:

Palsana near kadodara high way, gujrat,India

Our Suppliers:
Milk: Sumul Dairy (25km, 40 min)

Sugar: Kamrej Sugar Factory (26km, 32min)

Cocoa Bean: Viyors Incorporation, Surat (20km, 40min)

Dry Fruits: Mahalaxmi Dry Fruit, Vesu, Surat (35km, 44min)

Stock keeping unit (16)

Stock keeping unit

1. Funway (12gm, Rs 5)

2. Lovebite (12gm, Rs 5) (20gm, Rs 10)

3. Chocobite (12gm, Rs 5) (20gm, Rs 10)

4. Choco twenty (20gm, Rs 10) (40gm, Rs 20)

5. Butter Stick (20gm, Rs 10) (40gm, Rs 20)

6. Crunch Creation (20gm, Rs 10) (40gm, Rs 20) (90gm, Rs 75)

7. Fruit & nut chocolate (20gm, Rs 10) (40gm, Rs 20) (90gm, Rs 75)( 150gm, Rs 100)

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 CHAPTER – 2
Supply Chain Strategy and
Performance Measures

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Supply Chain performance measures:
 Customer satisfaction
 Product quality
 On-time delivery
 Service capability/performance
 Price competitiveness
 Compliance with contract terms
 Response
 Lead time
 Technical capability
 Environmental, health, and safety performance
 Innovation

Customer Order penetration point (COPP)

Customer Order penetration point (OPP) means the point in material flow, where the product is
attached to customer‟s order. The order penetration point (OPP) defines the stage in the
manufacturing value chain, where a particular product is linked to a specific customer order.

There are essentially three types of Supply Chains:

MTS (Make to Stock): standard product made to a forecast before any committed orders come in

MTO (Make to order: standard products not held in inventory and made after a committed order
comes in

CTO: The standard product has variations; as many as not to justify the creation of a part number
for every variation but not as many as to make the underlying structure too complex to handle

We follow MTS Production Method:

In the MTS (Make to Stock) production customer orders are delivered from finished product
stock. These products are produced with anticipation for the finished product stock based on
forecasts, for example, by supplement orders triggered by order point control. In the MTS
production the order penetration point (OPP) is closest to customer.

Push strategy or Pull Strategy:

Supply chains are planned based on when a product is produced, delivered to distribution centers
and made available at retail stores. The most common strategies for moving from upstream to
downstream sites are push and pull strategies, or some mix of both. A pull strategy is when

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customer demand drives the entire production process. On the other hand, a push strategy is
when production is based on long term customer forecasts.

We use push strategy but when we take into consideration seasonal demand we can use pull
strategy. This is because the new premium chocolate is at the introductory stage of the product
life cycle. Along the same line, it is believed that if we can package our products so as to be
something like a gift can lead to a better market position of our new premium dark chocolate.

The distribution channels will include supermarket chains, gift stores, and delicatessens as well
as specialized coffee shop franchises and or not limited to major departmental stores.

The feedback found from the large consumer market should be tested and the research elements
applied to other point of contact like the letterhead, logistics, packaging and several others in
order to complete the integrated marketing communication cycle. The IMC involves integrating
all promotional tools in order to achieve harmony. They all should speak together with one
voice.

The direct mail, sales and advertising departments within the company can help each other via
data integration. To achieve this, a marketing information system should be put up in place to
collect and share data that is relevant across the different company departments.

Functional product
Our product is basically functional product because of its basic needs, low variety, stable &
predictable demand, not much uncertainty in demand, long life cycles & low profit margins.)
But in long term, it can be innovative product also as it requires continuous innovation to survive
in the market

Functional product are products that people buy in wide range of retail outlets and those products
have more stable and predictable demand as well as long life cycles.

Segmentation is an essential task for any marketer as it provides indispensable understanding and
a unique insight of the market place and an advantage over the competition. The underlying
principle of the process is the notion that “There are different types of customers who have
different types of needs”.

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 CHAPTER – 3
Outsourcing: Make versus Buy

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Criteria on which an organization takes make or buy decision

We are making a make-or-buy decision, based on four numbers. Our decision will be based on
the values of these four numbers.

 The volume
 The fixed cost of making finished product.
 Per-unit direct cost when making Products.
 Per-unit cost when buying Raw Material

Reasons for Making

 Cost concerns
 Desire to expand the manufacturing focus
 Need of direct control over the product
 Intellectual property concerns
 Quality control concerns
 Supplier un-reliability
 Lack of competent suppliers
 Volume too small to get a supplier attracted
 Reduction of logistic costs (shipping etc.)
 To maintain a backup source
 Political and environment reasons
 Organizational pride

Reasons for Buying

 Lack of technical experience

 Supplier's expertise on the technical areas and the domain
 Cost considerations
 Need of small volume
 Insufficient capacity to produce in-house
 Brand preferences
 Strategic partnerships

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In house activities
Manufacturing of chocolates

Process of Making Chocolate:

Roasting

After being cleaned, the cacao beans pass to the first

critical step in flavor development at the factory:
roasting. There are two main approaches to roasting:
roast the beans for a short time at high heat, which
produces a strong chocolate flavor but eliminates any
subtle, floral notes and risks the development of
charred flavors from over-roasting, or roast the beans
for a long time at low heat, which allows the more
delicate flavors to come through but sacrifices the big,
chocolate flavor.

Winnowing — Getting Rid of the Shells

After roasting, the beans are put through a winnowing machine which removes the outer husks or
shells, leaving behind the roasted beans, now called nibs.

Milling — Making Cocoa Liquor

The nibs are then ground into thick liquid called chocolate liquor, which essentially is a cocoa
solid suspended in cocoa butter. Despite its name, chocolate liquor contains no alcohol.

Pressing — Cocoa Powder and Cocoa Butter

The processing now goes in a couple of different directions. Some batches of chocolate liquor
are pressed to extract the cocoa butter, which leaves a solid mass behind that is pulverized into
cocoa powder. The remaining cocoa butter is reserved
to help in chocolate-making. Other batches of chocolate
liquor are used directly to make chocolate.

The Beginnings of Chocolate

To make dark chocolate, chocolate liquor, sugar and

other minor ingredients such as vanilla are mixed
together and kneaded until well blended.

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To make milk chocolate, milk and sugar are mixed together and then blended with chocolate
liquor. This sweet combination of ingredients is stirred until the flavors are thoroughly
combined.

Refining — Smoothing It All Out

After being mixed, both dark and milk chocolates go

through the same process. The mixture travels through a
series of heavy rollers which press the ingredients until
the mixture is refined to a dry flake. Additional cocoa
butter and a small amount of emulsifying agent are
added to the flake and then mixed to make a smooth
paste ready for “conching.”

Conching — Kneading for Exquisite Flavor Conching

further develops flavor by putting Chocolate through a
kneading process. The conches, as the machines are
known, have heavy rollers that plow back and forth
through the chocolate mass anywhere from a few hours to
up to seven days.

Tempering — Temperature Magic For A Perfect

Product

The mixture is then tempered, or passed through a heating,

cooling and reheating process. Tempering allows you to solidify chocolate in a way that keeps it
glossy, causes it to break with a distinctive snap and
allows it to melt smoothly in your mouth.

Moulding — We're Getting Closer The mixture is

then poured into moulds and cooled in a cooling
chamber.

Finally — Something We Can Eat!

Once cooled, the chocolate is demoulded, packaged

for distribution and is ready for savoring.

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Outsourcing activities (raw materials)
Raw material for finished goods are to be outsourced:

Cocoa bean (cocoa butter)

Milk

Sugar

Dry fruits

People:

All labor class

Supplier

Distributors

Nature of relationship

Long-term relation with suppliers

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 CHAPTER – 4
Inventory Management

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The quantity of raw material to be ordered
Sugar - 1 quintal

Milk - 1000 liters

Cocoa beans - 500 quintal

We will order stock at start of the every month and then replenish it.

We will hold inventory in warehouse inside the factory only.

We will follow Q-model (fixed quantity) inventory will be reviewed continuously and when 10%
of inventory left.

Economic Order Quantity

We will operate for approx... 300 days a year and our average daily demand will be 200 units for
one of the item.

For Cocoa beans:

 Ordering cost is estimated to be Rs.300/order.

 Inventory carrying cost will be 20%.
 Purchase Cost will be Rs.150/kg
 Lead Time for supplier: 10 days

Carrying Cost per unit = H = 150*0.20 = Rs.30 per kg

Economic Order Quantity for cocoa beans: EOQ = Sqroot(2*300*60000)/30 = 1095 Approx.

For Milk:

 Ordering cost is estimated to be Rs.150/order.

 Inventory carrying cost will be 20%.
 Purchase Cost will be Rs.60/liter.
 Lead Time for supplier: 2 days

Carrying Cost per liter. = H = 60*0.20 = Rs.12 per liter.

Economic Order Quantity for milk: EOQ = Sqroot(2*150*60000)/12 = 1225 approx.

For Sugar:

 Ordering cost is estimated to be Rs.200/order.

 Inventory carrying cost will be 20%.
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  Purchase Cost will be Rs.30/kg
 Lead Time for supplier: 4 days

Carrying Cost per unit = H = 30*0.20 = Rs.6 per unit.

Economic Order Quantity for sugar: EOQ = Sqroot(2*200*60000)/6 = 2000 Approx.

Aggregate Planning Strategy

We think Level Strategy would be best suited for our company for lowering our overall costs. It
will allow us to maintain a steady production rate and/or a steady employment level. In order to
satisfy changes in customer demand, the firm must raise or lower inventory levels in anticipation
of increased or decreased levels of forecast demand. We will maintain a level workforce and a
steady rate of output even when demand is somewhat low. So, this will allows us to establish
higher inventory levels than are currently needed. As the demand increases, we will be able to
continue a steady production rate/steady employment level, while allowing the inventory surplus
to absorb the increased demand. Therefore, it will allow us to maintain a constant level of output
and still meet demand.

Inventory Control techniques

ABC Classification:

Class

A - Fruit & nut chocolate, Chocobite

B - Lovebite, Choco twenty, Crunch Creation

C - Butter Stick, LoveBite, Funway

FSN Classification: (F=Fast-Moving, S=Slow-Moving, N=Non-Moving)

Class

F - Fruit & nut chocolate, Chocobite

S - Lovebite, Choco twenty, Crunch Creation

N - Butter Stick, LoveBite, Funway

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VED Classification: (V=Vital, E=Essential, D=Deisrable)

Class

V - Fruit & nut chocolate, Choco twenty, Crunch Creation

E - Butter Stick, Lovebite, Chocobite

D – Funway

Bull-whip effect

Actual demand from a customer is 200 units, the retailer may then order 210 units from the
distributor; an extra 10 units are to ensure they don‟t run out of floor stock. The Supplier then
orders 300 units from the manufacturer; allowing them to buy in bulk so they have enough stock
to guarantee timely shipment of goods to the retailer. The manufacturer then receives the order
and then orders from their supplier in bulk; ordering 500 units to ensure economy of scale in
production to meet demand. Now 500 units have been produced for a demand of only 200 units;
meaning the retailer will have to increase demand by dropping prices or finding more customers
by marketing and advertising.

Collaborate with customers and suppliers

To improve supply chain effectively is through better collaboration with customers and
suppliers. When companies work with customers to understand their plans and forecasts, they
can build promotions and seasonality into the forecast and then provide more insight to their
suppliers to help prevent the buildup of unnecessary inventory due to the bullwhip effect.

Improve forecast accuracy

Even if a company tries to become more demand driven, it still need a forecast to plan long lead
time items or to cover demand from new customers, new products or in-house promotions. While
it‟s a given that a forecast will be inaccurate, there are steps that can improve accuracy. Ensuring
that you use the right algorithm to project demand is one way to increase accuracy; taking input
from sales and customers is another.

In our company it‟s defiantly going to effect.

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CHAPTER – 5
Transportation

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Key transportation-related decisions
Transportation Mode

We use road for transportation of raw-materials and finished good inventory to reach destination
point. Special Trucks will be used for transportation because chocolate gets melted so it requires
to be stored in cold.

Why we use road for transportation:

Low Cost-Low Service Equilibrium

Trucks (Truck freights are lower)

Door-to-door

Shorter Lead Time

Drivers of transportation decisions

Value density: value of the product / Weight of the product (3000/600=75kg/m3)

Low Value Density

Slow Modes

Value of Product –Inventory Carrying Cost (20%)

Weight of Product -Transportation Cost (3000rs)

Nature of uncertainty- low (stable demand)

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Transportation strategies
Direct shipment

Weekly Demand 846 bars

Truck Carry Unit 200 bars

Transportation Cost 3000

Inventory Carrying Cost 20%

Product Cost 100

Inventory Carrying Cost 40rs

Destination Distance D*2

D_1 22 2 44
D_2 19 2 38
D_3 18 2 36
D_4 20 2 40
D_5 23 2 46
Total Distance: 204

Inventory carrying cost

Product Cost 100rs

5
Q 500
Q/2 2
250
Inv. Car.Cost 20
5000rs For One Outlet
Depot 5
25000rs For Five Outlet

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Milk Run

Destination Distance
D-1 22
1_2 4.4
2_3 2
3_4 1.2
4_5 2.2
5_D 23
54.8 distance travel in one cycle
274 transportation cost

Inventory carrying cost

200 unit/outlet

Q/2 200/2 100

H*ic 100*40 4000

4000*5 20000

20000 for 3 outlet

Distance Transportation Inventory Annul Total Cost

Travelled In One Cost Carrying Cost
Cycle
Direct Shipping 204 10200 25000 35200

Milk Run 102 274 20000 20376

We use milk run for transportation because it cost cheaper than direct shipping.

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Design of the distribution network
Saving matrix approach

D 1 2 3 4 5

1 22 _

2 19 4.4 _

3 18 1.4 2 _

4 20 4 6.6 1.2 _

5 23 1.1 3.2 7.4 2.2 _

1 2 3 4

2 36.6

3 38.6 35

4 38 32.4 36.8

5 43.9 38.8 37.8 40.8

Route: D_2_3_1_5_4_D

Final route according to savings matrix:

Manufacturi Swiss
-ng house Chocolates

Gujrat Monginis
Essence The Cake
Mart Shop

Pure Emotion Sunshine

Chocolate Chocolate

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Supply chain integration from suppliers to customers

Supplier
Mahalaxmi Dry
Fruit (Dryfruits)
Sumul Dairy
(Milk) Surat
Surat
Viyors
Kamrej Sugar Factory Incorporation(Cocoa
(Sugar) bean)
Kamrej Surat

Manufacturer (kadodra)

Retailar

Sunshine
Chocolate Pure Emotion
Chocolate
Surat
Surat

Swiss Chocolates Gujrat Essence Mart

Surat Surat

Monginis Cake
Shop
Surat

Customers

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CHAPTER – 6
Demand Forecasting

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We use quantitative time series method and qualitative for the assumption of
weekly sales form the case studies of other companies.

Simple Moving Average

Week Demand
1 825
2 830
3 833
4 863
5 880

AVERAGE 846.2

Weighted Moving Average

Week Demand Weight W*D
1 825 0.1 82.5
2 830 0.15 124.5
3 833 0.2 166.6
4 863 0.25 215.75
5 880 0.3 264
AVERAGE 373.6

Exponential Smoothing
Week Demand ALPHA=0.5
1 825 825
2 830 825
3 833 827.5
4 863 830.25
5 880 846.625

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Forecasting Error (Exponential Smoothing)
Week Sales Forecast Error Absolute Square Absolute
Deviation Error % error

1 825 825 0 0 0 0

2 830 825 5 5 25 0.60241

3 833 827.5 5.5 5.5 30.25 0.660264

4 863 830.25 32.75 32.75 1072.563 3.794902

5 880 846.625 33.375 33.375 1113.891 3.792614

Sum 43.25 76.625 1870.563 8.850189

Mean Error (ME) 8.65

Mean Absolute Deviation (MAD) 15.325

Mean Square Error ( MSE ) 374.1125

Mean absolute percentage error( MAPE) 1.770038

Regression Model
Week(x) Demand (y) Xy x2
1 825 825 1
2 830 1660 4
3 833 2499 9
4 863 3452 16
5 880 4400 25
Sum 15 4231 12836 55
Average 3 846.2

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 Y=803.3+14.3x
X Forecast

1 817.6

2 831.9

3 846.2

4 860.5

5 874.8

6 889.1

7 903.4

8 917.7

9 932

10 946.3

Forecasting Error (Regression)

Week(x) Demand (y) Forecast Error Absolute Square Absolute %
Deviation Error error
1 825 818 7 7 49 0.8

2 830 832 -2 2 4 0.2

3 833 846 -13 13 169 1.6

4 863 861 2 2 4 0.2

5 880 875 5 5 25 0.57

Sum -1 29 251 3.5

30
 Mean Error (ME) : -0.2

Mean Absolute Deviation (MAD) 5.8

Mean Square Error ( MSE ) 50.2

Mean absolute percentage error( MAPE) 0.7

Regression is the best method because its gives minimum error.

Cost Sheet
For The One Month Total Output = 4,000 Units

Particulars Cost Per Unit Total Cost

Raw Material:
Sugar 4000
Milk 7000 5 20000
Dry Fruits 3000
Coco Bean 6000
Direct Labor (20) 90000 2.25 9000
Carriage On Material 3000 0.75 3000
Prime Cost 8 32000
Factory Expenses:-
Fixed
Rent 30000
Supervisors Salary (2) 15000 20 80000
Variable –
Electricity Charges 20000
Power And Consumable Stores 15000
Factory Cost 28 112000
Office And Administration Expenses
Computer 10000
Furniture 10000 7 28000
Telephone 5000

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 Rent, Rates, And Taxes 3000

Office And Administration Cost:- 35 140000

Selling & Distribution Expenses
Advertisement (Print And By Local
5000 4.5 18000
T.V. Channels)
Packing Rates 10000
Transportation 3000

Total Cost 39.5 158000

Typical values per 100 g

Energy (KJ) 2237 kj

Energy (Kcal) 536 kcal

Total fat 30.0 g

(of which satured fat) 18.0 g

Carbohydrates 56.0 g

(of which sugar) 56.0 g

Fiber 2.3 g

Protein 8.1 g

Equivalent as salt 0.24 g

PER 1/2 BAR (26.5 g)... %

Calories 142 kcal

Fat 8.0 g

Saturates 4.7 g

Sugars 15.0 g

Salt 0.06 g

32
 Supply Chain Management of Nestlé case study
Introduction

Most of us love chocolate in one form or another and every week a typical UK citizen spends
around £1.80 on it. Amazingly, UK consumers have a choice of over 5,000 chocolate lines
available from 150,000 outlets. Because it is so widely and readily available, we tend to take
chocolate for granted, and few of us probably ever consider what is involved in producing it.

This case study looks at the massive, complex worldwide operations that ensure that chocolate
products are on the shelves of retail outlets 365 days a year. We tend to treat this achievement as
routine. In reality, it represents a triumph for careful planning and meticulous organization. We
don't know who first discovered that cocoa beans could be turned into a drink, but we do know
that by 600AD the Mayan people living in what is now Mexico were growing cocoa in the
jungles of Yucatan.

In the 16th century the Spaniards invaded South America, quickly learned the secrets of making
chocolate as a drink and started shipping back cargoes of cocoa beans. By the 18th century,
chocolate-based drinks were popular in British high society. In the mid-19th century an English
cocoa manufacturer, Joseph Storrs Fry, tried mixing cocoa butter with sugar and cocoa paste and
invented the world's first solid blocks of chocolate.

The UK has long been a major manufacturer (and consumer) of chocolate products. All over the
world you will find prominent brands first developed in the UK e.g. Smarties, Dairy Milk, Aero
and of course Kit Kat (the UK's Number 1 selling confectionery brand since 1985). Three
producers dominate the chocolate market. Cadbury with around 28% while Mars and Nestlé each
have around 24%. Sales of milk chocolate (96%) predominate, with plain and white chocolate
accounting for about 2% each. Boxed chocolates such as Quality Street make up 15% of the
confectionery market. Blocks and bars like Kit Kat and Yorkie account for 65% and bitesize
chocolates e.g. Smarties and Rolo make up 10%. Easter eggs are another big seller, accounting
for 5% of the market.

The UK's chocolate industry is over 150 years old. Chocolate manufacture provides steady
employment and job security for tens of thousands of employees in manufacturing locations like
York and Birmingham. The industry also generates jobs in marketing, administration, transport
and storage. Chocolate sales are an important source of income for many retailers.

33
Resources needed for production

All goods and services depend on resources for their production; these are known as factors of
production. One key factor is enterprise: the risk-bearing associated with any business. In the
past, many firms owed their existence to perhaps just one person, who set it up. Nowadays, with
the growth of companies, business risk tends to be born by shareholders, whilst managers
exercise day to day control.

Manufacturing, marketing and distributing a product for worldwide consumption involves a huge
amount of careful planning.

A second major resource is the land: cocoa trees grow on it, chocolate factories are built on it.
Cocoa is grown in Central and South America, the west coast of Africa and more recently in
South East Asia. Eight countries - Ivory Coast, Ghana, Indonesia, Nigeria, Brazil, Cameroon,
Ecuador and Malaysia supply 88% of world output. Over 40% of the world's supply comes from
Ivory Coast, where cocoa is grown mainly on over 600,000 small, family-owned farms. Most
cocoa farms occupy between one and three hectares.

Labour is another key input. Small farmers (who are entrepreneurs in their own right) have
developed the skill of producing a high yielding, top grade product. Cocoa production is often
their only source of income. They may also grow subsistence crops such as yams or palms, but
they typically rely on the cash from cocoa to pay for extras such as health services and educating
their children. Raw materials are another important resource within the production process.
Besides the cocoa beans themselves, raw materials for the chocolate industry include sugar, milk
and wrapping/packaging materials e.g. paper, foil and card. Another input is the buildings, plant
and equipment required for manufacturing and distribution e.g. factory premises, complex
machines and fleets of trucks. These items are known as capital.

Chain of production

The supply chain is the sequence of activities and processes required to convert raw materials
and components into consumer goods and services and to deliver them to the consumer. For
cocoa, the chain is often complex and varies from one country to another. However, a typical
pattern would pass through the following stages.

Primary producers

The first stage is to grow the cocoa beans. Often the many small farmers involved will live some
distance from the market. They depend on people operating in the tertiary or service sector of the
economy to collect, purchase and transport the cocoa product to warehouses. In an exporting
country like Ivory Coast, export warehouses are located near one of the country's ports, Abidjan
and San Pedro. It is at this stage that companies such as Nestlé play an important role in the
supply chain by checking consignments for quality. Nestlé may buy directly from an export

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warehouse, or it may approach intermediary suppliers who buy cocoa beans in bulk from across
the world and arrange shipment to the confectionery manufacturers.

Secondary stage

The secondary stage of production is the manufacturing companies . These companies bring
together the sugar, cocoa and other raw materials to manufacture the chocolate products we
know so well: they convert the beans into chocolate bars and other finished products.

Tertiary stage

The final stage in the production chain is selling (retailing) to final consumers. Just as Nestlé
buys in bulk from exporters and suppliers, retailers buy in bulk from Nestlé. Every Kit Kat or
other chocolate product that you buy will have been through all these stages of production.

Production

Chocolate production consists of many stages. Farmers are at the start of the production chain.

 Cocoa plants are generally grown in low lying areas and planted in the shade of other
trees such as banana or coconut. It takes up to five years for a new plant to fruit, after
which it may have a life span of 30 years, unless severe weather or disease destroys it.

 Ripe pods are cut from the tree, broken open and the beans removed.

 The beans are then allowed to ferment, often in baskets, perforated vats, holes in the
ground, or in piles covered by banana leaves. This process takes about six days.

 The beans will by now have turned brown. They will then be spread out to dry in the sun.
Sometimes they are dried artificially. This process reduces the moisture content from 60
to 13

 The beans are then sold. Manufacturers and processors are the major buyers.

The manufacturer then takes over the production process. This involves:

 cleaning: ensuring materials such as sticks and stones are removed

 winnowing: the shells are cracked open, the beans isolated, collected and heated

 roasting: the beans are roasted in furnaces at temperatures between 100ºc 150ºc for 20 to
50 minutes. This releases the cocoa's full flavour and aroma

 grinding: this process breaks down the cocoa butter on the beans and produces a smooth
liquid (cocoa paste)

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  blending: different varieties of cocoa paste are combined to ensure a consistent final
product and to determine the flavour, quality and hardness of the chocolate.

Thereafter, manufacture follows two different paths to produce either cocoa powder (used in
chocolate drinks, pastries, ice creams and desserts) or solid chocolate. Because cocoa powder
requires a low fat content, the paste is pressed to remove most of the cocoa butter. It is then
crushed, pulverised and finely sieved. Making solid chocolate requires combinations of four
basic ingredients: cocoa paste, cocoa butter, sugar and milk. The mixture depends on the type of
chocolate being produced. Other processes involved in providing high quality chocolate include:

 refining to reduce the size of the particles

 conching (stirring) to produce a smooth and glossy chocolate

 tempering (heating at 45ºc to produce an even smoother end product

 moulding the chocolate into shape, before it is finally packaged.

Typically, chocolates are produced using a continuous flow method along a production line
dedicated to producing large quantities of a single product. To make soft-centre items such as
Rolo, liquid chocolate is poured into deep moulds. These are inverted very quickly, leaving a
coating of chocolate on the inside. Once this hardens, the mould is again turned over. The filling
is then poured inside and covered with another layer of chocolate to form the base. A continuous
flow method is far more economical than producing in batches, for example, because once the
equipment settings have been established the line can run cost efficiently. This production
advantage is known as a technical economy of scale. By producing very large quantities at very
low costs per unit, a company like Nestlé is able to offer consumers good value for money and so
remain competitive.

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 Supply Chain Management of Cadbury
Supply Chain Management of Cadbury: Cadbury plc. is a British confectionery company, the
industry's second-largest globally after the combined Mars-Wrigley.[2] Headquartered in
Cadbury House in the Uxbridge Business Park in Uxbridge, London Borough of Hillingdon,
England and formerly listed on the London Stock Exchange, Cadbury was acquired by Kraft
Foods in February 2010, after integration the combined Cadbury and Kraft companies became
the Largest confectionery company in the world again.

The company was an ever-present constituent of the FTSE 100 from the index's 1984 inception
until its 2010 takeover.

The firm was known as "Cadbury Schweppes plc." from 1969 until a May 2008 demerger, which
saw the separation of its global confectionery business from its U.S. beverage unit, which has
been renamed Dr Pepper Snapple Group inc.

Elements of the Supply chain

A simple supply chain is made up of several elements that are linked by the movement of
products along it. The supply chain starts and ends with the customer.

Customer: The customer starts the chain of events when they decide to purchase a product that
has been offered for sale by a company. The customer contacts the sales department of the
company, which enters the sales order for a specific quantity to be delivered on a specific date. If
the product has to be manufactured, the sales order will include a requirement that needs to be
fulfilled by the production facility.

Planning: The requirement triggered by the customer‟s sales order will be combined with other
orders. The planning department will create a production plan to produce the products to fulfill
the customer‟s orders. To manufacture the products the company will then have to purchase the
raw materials needed.

Purchasing: The purchasing department receives a list of raw materials and services required by
the production department to complete the customer‟s orders. The purchasing department sends
purchase orders to selected suppliers to deliver the necessary raw materials to the manufacturing
site on the required date.

Inventory: The raw materials are received from the suppliers, checked for quality and accuracy
and moved into the warehouse. The supplier will then send an invoice to the company for the
items they delivered. The raw materials are stored until they are required by the production
department.

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Production: Based on a production plan, the raw materials are moved inventory to the production
area. The finished products ordered by the customer are manufactured using the raw materials
purchased from suppliers. After the items have been completed and tested, they are stored back
in the warehouse prior to delivery to the customer.

Transportation: When the finished product arrives in the warehouse, the shipping department
determines the most efficient method to ship the products so that they are delivered on or before
the date specified by the customer. When the goods are received by the customer, the company
will send an invoice for the delivered products.

Supply chain management

To ensure that the supply chain is operating as efficient as possible and generating the highest
level of customer satisfaction at the lowest cost, companies have adopted Supply Chain
Management processes and associated technology. Supply Chain Management has three levels of
activities that different parts of the company will focus on: strategic; tactical; and operational.

Strategic: At this level, company management will be looking to high level strategic decisions
concerning the whole organization, such as the size and location of manufacturing sites,
partnerships with suppliers, products to be manufactured and sales marker.

Tactical: Tactical decisions focus on adopting measures that will produce cost benefits such as
using industry best practices, developing a purchasing strategy with favored suppliers, working
with logistics companies to develop cost effect transportation and developing warehouse
strategies to reduce the cost of storing inventory.

Operational: Decisions at this level are made each day in businesses that affect how the products
move along the supply chain. Operational decisions involve making schedule changes to
production, purchasing agreements with suppliers, taking orders from customers and moving
products in the warehouse.

Supply Chain Management Technology

If a company expects to achieve benefits from their supply chain management process, they will
require some level of investment in technology. The backbone for many large companies has
been the vastly expensive Enterprise Resource Planning (ERP) suites, such as SAP and Oracle.

Since the wide adoption of Internet technologies, all businesses can take advantage of Web-
based software and Internet communications. Instant communication between vendors and
customers allows for timely updates of information, which is key in management of the supply
chain.

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In 1993, Cadbury France decided to adopt the SKEP® solutions by DynaSys. On every step of
the company‟s external growth, the reliability of the DynaSys solutions has been confirmed
compared to other systems on the market, but also at every technological turn taken by the
production management field. The latest example: during the adoption of the integrated software
SAP in 1999, when Cadbury France decided to adopt SKEP® by DynaSys for Supply Chain
Planning. ‟In the process industry with finite capacities, we have to plan under the constraint of
quite detailed modelling of our production lines. SKEP® and its interface certified by SAP
constitute the ideal tactical alternative to the global Supply Chain Planning solutions, in order to
carry out what-if scenarios under constraints, but without becoming involved in huge, long and
costly projects‟, estimates Bruno Berton, Supply Chain Director at CadburyFrance.

The challenges

With the acquisition of Hollywood, Cadbury France decided to create a centralised planning cell.
From a technical and functional point of view, the DynaSys solutions have gone much further
than the simple planning of several production lines. „With the DynaSys solutions we have
moved without any problem from one-site management, with a single family of products, to a
complex environment with four production sites, a warehouse, co-manufacturing, outsourced
packaging and various sub-contracting purchases, all that with a high level of customer service„,
summarises Paul Courtet, Systems & Networks Manager and witness of this progress as well as
of the very first steps of the corporate planning.

The same applies to the transfer of production from one industrial site to another. The
anticipation of the stocks needed, going with the changes of the item codes between both sites as
well as a detailed management of the production capacities (progressive load of the machines
and precise transfer of manpower to other production lines) are constraints used by the Cadbury
France team in order to reach its main objective: a high quality customer service level.

Easy to implement

Without minimizing the importance of these unfixed strategic simulations allowing quick
decision-making when faced with unexpected events, the most interesting aspect of this project
has been the implementation managed internally from A to Z by Emmanuel Fermaut, "Process
and Project Development" Support Manager, and by the Planning team. The Cadbury France
Supply Chain team has assimilated the transferred knowledge and has been able to use it
successfully very quickly.

„Indeed the fact that at any level we have hardly needed support from DynaSys to deploy
SKEP® is a positive sign‟, confirms Emmanuel Fermaut. „The strong point of a modelling tool is
how easy it is to use by taking into account the organisation of the company and of its production
processes.‟

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'„In 1999, when our system for computer integrated manufacturing management was not passing
the year 2000 and as SAP users hardly began talking about advanced planning on APO, the
decision to carry on with DynaSys and the stage crossed by parameterising SKEP®, based on the
description of the processes on each site, have reinforced our idea to go further into the use of
data centralization.

Paul Courtet, Systems & Networks Manager at Cadbury France

Measurement of the Supply Chain performance

In 2002, the Cadbury France team got interested in the multi-dimensional analysis potential of
SKEP® extended Scoring, the solution for Supply Chain performance measurement by
DynaSys.

At the beginning, the Scoring Project was only intended to follow up the reliability of sales
forecasts and demand management at a weekly bucket. Nowadays SKEP® eXtended Scoring
allows the implementation of performance indicators for the whole logistics decision chain called
"Supply Chain KPI‟s" (Key Performance Indicators) of Cadbury France. SKEP® eXtended
Scoring is a tailor-made solution for all Supply Chain decision-makers: in fact it enables to check
at any time the used capacity compared to the forecasted load or to know instantaneously the
forecast inventory level.

SKEP® eXtended Scoring targets immediately the respect of the stock policy and possible stock-
outs by a manipulation of the multi-dimensional analysis cubes which allow information display
at different levels of the customers-items hierarchy.

Proven benefits

Implemented in 1993 at Cadbury, that is to say for already 10 years, the assisted planning with
the SKEP® solution by DynaSys has permitted significant profits within one half-year (since
September 1993)

Reduction of backward and forward inventory levels without compromising the quality of the
service. Saving of a refrigerating warehouse, representing a profit of € 76,500.
Better growth management. Reduction of the finished products inventories by 5 days. Quick
return on investment.

Source: http://www.managementparadise.com/forums/elements-logistics/211404-supply-chain-management-
cadbury.html

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 Supply Chain Management of Mars
The Family-owned Mars has been operational for nearly a century, but was only established in
Dubai in 1993. Logistics Middle East asked three of Mars‟ executives: Patrick Higgins (META
supply chain manager), Ozge Guner (factory supply chain manager) and Matthew Theocharous
(logistics manager), to tell us more about its operations.

“The supply chain function for Mars GCC is a critical step across our entire value chain because
it‟s the part that we outsource,” they reveal. “We manufacture some of the world‟s most loved
brands such as SNICKERS®, GALAXY®, TWIX®, BOUNTY®, M&M‟S® and
MALTESERS® and we depend on regional and global third party providers to get prime
materials both into our regional factories, and finished goods out to our customers and
consumers.

“We keep our value chain principle quite simple; we run a consumer-led replenishment process.
Real time consumption drives our factory production schedule and pipeline replenishment
process. This enables us to react quickly to changes in demand. We reduce as much as possible
our dependency on forecasts, and instead we run a lean process based on consumption signals at
our distributors.”

FACILITIES

Approximately 50% of our portfolio is produced within the META region either at our facility in
Dubai or at our facility at 6th of October, in Egypt. The balance of 50% is imported from Mars
factories across Europe. We are also in the process of building a new facility in King Abdullah
Economic City in Jeddah, which is very exciting for Mars, for our Associates and our business
partners. This investment is to cater to the significant growth we are experiencing in the region
so our focus will remain on outsourcing our logistics and warehousing operations to those who
are the experts in the fields of logistics, warehousing and supply chain management. We need to
continue to be focused 100% on the consumers, understand what‟s important to them and deliver
according to their expectations.

SOURCED PRODUCTS

With our raw materials coming from all over the world, for eg. peanuts from Argentina or milk
powder from New Zealand, we are dependent on a very robust supply route. For this reason, our
global ocean tender plays an important part of our annual commercial logistics buying process.
While speed to market is important for our consumers and we transport approximately 95% of
our volume on land.

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DISTRIBUTION

From our Dubai factory and our consolidation HUB we dispatch in the region of 4000 truck trips
across the GCC and wider Middle East countries. Our transporter has invested in quality reefer
infrastructure complete with the latest GPS technology that helps us track our shipments and the
chill chain integrity of our products.

LOGSITICS PARTNERS

We are committed to creating a culture of mutual respect where our associates are empowered to
innovate and collaborate together with our business partners. The varied backgrounds and
combined talents of our supply chain associates enrich our business and complement the equally
multi-cultural diversity of our service providers. Many of the significant improvements that have
been delivered over the last few years in customer service, supply chain, logistics or warehousing
have emerged as ideas, (as a lean phrase puts it), from „the gemba‟ i.e. the real place where the
work is being done by Mars associates and our business partners. Empowered to act as if this
was their own business, associates of Mars and our business partners are creating value for the
consumer by eliminating waste and improving supply responsiveness.

VOLUMES

Our imported chocolate finished goods from other source units into the Gulf and Saudi markets
this year will be approximately 4000 TEUs, all of which are temperature controlled. Raw
materials supplied in our Dubai factory to produce SNICKERS® and GALAXY® represents
another 2500 TEUs.

EFFICIENCY

Through our business partners, we also pursue the relentless task of eliminating waste along our
supply chain and in recent years have made considerable improvements in the efficiency of our
transport operations. This has resulted in significant reductions in our carbon footprint. For
example, this year alone, a collaborative project from R&D, production, supply chain,
commercial, and a number of our logistics partners has reduced 237 tonnes of CO2 – the
equivalent carbon offset of 3300 trees.

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BIBLIOGRAPHY:

http://www.iimm.org/ed/index.php?option=com_content&view=article&id=45&Itemid=107

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http://www.logistiikanmaailma.fi/en/logistics/production/order-penetration-point-opp/make-to-
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http://www.logistiikanmaailma.fi/en/logistics/production/order-penetration-point-opp/make-to-
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