Supply Chain Management of Bread

Bread Rural Marketing & Agri-business

Supply Chain Analysis of Bread

Bhuwan Maharjan Bikash Bhagat Laxmina Shrestha Madhu Sudan Koirala Saroj Shrestha Supriya Tamrakar

20-Aug-13

INTRODUCTION OF PRODUCT Bread is a fast and convenient food based on wheat. There are many varieties of bread depending upon the local demand like whole flour bread, brown bread, bread fortified with vitamins and minerals, milk bread and bread for diabeticpatients. Its consumptions are more in cities and towns where industrial working group population is more. Bread consumption is increasing day by day and it is being used for various feeding programmer for children managed by voluntary agencies and state department of health.

Inputs Needed Bread recipes can be made with a minimal of ingredients: typically yeast; wheat, or non-wheat flour (or gluten-free substitutes); water or other liquids; and, optionally, salt. To this short list, recipes can include a variety of interesting ingredients added to the structure of the dough, such as eggs, milk, butter, flavorings and non-wheat grains. Others can be added after the structure of the dough has been formed, such as seeds, nuts, or dried fruit, to create thousands of unique varieties. Primary Raw Materials: Flour, Yeast, Salt, Water Secondary Raw Materials: Secondary raw materials are materials which improve the dough or final product in one way or another. These are fats, emulsifiers, sugar, and milk products. The inputs needed for the production of the raw materials of Bread are seeds of the wheat, compost and pesticides.

Where do farmers obtain these inputs? The raw materials for farmers to grow wheat are seeds and manure. Seeds are easily available in the agro center but have to be careful about the quality of the seeds. Generally, farmers produced manure themselves as well as buy from agro centers. There is large no. of suppliers which is mostly the miller. It is because flour is very consumable product not only to produce bread but for other purpose like making rotis, biscuits, sweets, pastas etc.

Understanding the Value Chain Consumers Seed kept by them

Farmers

Millers

Seed purchase from agri-centre

Retail Stores

Manufacturi ng Company

Wholesalers/ Distributors

Inputs Used by Farmers, Millers and Manufacturing Company Farmers Harvester and tools

Millers Processing raw into flour

Irrigation facilities

Refining

Storage Quality of seeds Farm medicines and manures

Packaging Storage

Manufacturing Company Primary ingredients (Salt, flour, water, oil, yeast) Secondary/other ingredients (Fat, emulsifiers, enzymes, preservatives, soya flour) Packaging & branding Product variety and its ingredients

Are there any dominant companies at input supply level? Locally produced bread industry doesn’t go for long term contract with big suppliers. Rather they prefer to go for local millers or farmers for their daily need. But big manufacturer like Hot Breads, Nanglo Bakery, Krishna Pauroti due to their huge demand and market need to have timely available of raw materials, they actually get into contract. Some of the suppliers areGyanChakkiAata, Trishakti food industry, Shree Mahalaxmi Maida Mills, Shiva Ram Mills

Technological Advances The farmers have been using advanced technology for ploughing the farm. There has been the use of hybrid seeds that results in high production. Similarly, development of high quality and effective pesticides help to reduce the decay of wheat at times increasing the fertility of the soil.

AGRICULTURE PRODUCTION

Production Process for Flour

Grading the Wheat

Purifying the Wheat

Preaparing the Wheat for Grinding

Grinding the Wheat

Processing the Flour

Source: http://www.madehow.com/Volume-3/Flour.html

The main agricultural process for the production process that goes into bread is the flour which comes from wheat. After the wheat is harvested, samples of wheat are taken for physical and chemical analysis by the flour mill. The wheat is graded based on several factors; the most important is the protein content. Purification process is taken in each step to ensure no foreign matter ends up in the flour. Similarly all the equipment used in milling is thoroughly cleaned and sterilized by hot steam and ultraviolet light and treated with antibacterial agents to kill microscopic organisms. Wheat of different grades are blended together to obtain the batch of wheat. Small amount of bleaching agents, oxidizing agents, vitamins and minerals are added as required by law to produce enriched flour. Time taken to produce Flour Flour could be made from various grains like- wheat, acron, bean, almond, buckwheat, cassava, coconut, rice, potato starch, rye, etc. To grow wheat, it takes one growing season. This is equal to about four months. Wheat comes from wheat kernels or wheat berries. Wheat is an annual plant. Depending on the temperature it takes approximately 103 days for spring wheat and 147 days for winter wheat to grow.

Production Risk of Raw materials  Degraded land  Genetic diversity (65 landrace varies to various districts, Nepal Agric. Res. J. Vol. 7, 2006)  Seasonal variation (irregular rainfall)  Distance from major market (Bara, Rupandehi, Dhanusa largest producer, New Janak School Atlas, 2065 )  Wheat grower’s farm size, debt, farming experience  Low quality of seeds Perishability of Raw materials Many of the raw materials required to prepare bread are highly perishable and go sour quickly. They should be stored in an airtight container, either refrigerated or kept frozen. Proper storage facility, safeguarding from insects and decaying helps to keep raw materials for longer future. Technological Advances SWI (System of Wheat Intensification) Technology is used by farmers. SWI Technology includes methods of cultivation, line sowing and broadcasting methods as well as priming the seed. With the adoption of SWI technology, farmer can increase yield by more than 156 kg per 0.05 Hectare of land. (Tej Thapa) In 1965/66, wheat area in the country was 100,000 ha and the production was 112,000 metric tons. In 2006/07, its area and production have increased to 702,664 ha and 1,515,139 metric tons respectively. The present national average wheat productivity is 2156 kg/ha. Wheat is cultivated in 20 percent of the total cultivated land area and contributes 18.8 percent to the total national cereal production. Per capita wheat consumption has increased from 17.4 kg in 1972 at the time of NWRP (National Wheat Research Program) establishment to 60 kg in 2007. (Madan raj Bhatta, 2007)

FIRST LEVEL HANDLING Different raw materials are needed for making breads. First level handling of each of these raw materials is explained as below:

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Wheat: wheat is a perishable agricultural product which needs to be stored in safe place. Rural farmers might have their own storage or might get access to the community based cold storage to store their product.

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Sugar: Sugar is generally procured through other sugar processing companies (where sugar is final product for them). Safety storage should be maintained.

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Milk Product: Milk is procured through local dairies or local wholesaler on need basis. Since it is also a perishable dairy product it needs a cold storage to store it for long term use.

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Yeast: Yeast requires moisture, food and warmth for growth. Its function in bread making is to: produce carbon dioxide gas to enable the dough to expand the dough's cellular network to form bread crumb.

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Salt: Salt is an essential ingredient in bread. It is used in very small amounts to give bread flavor. It also helps to strengthen the gluten.

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Water: Clean and hygienic water is required to make breads.

After harvesting the wheat, farmers either sell their wheat to millers or millers contact the farmers to collect the wheat. Similarly, for large producers, flour producing companies contact the farmers for the wheat.

PROCESSING Production Process for Bread

Mixing and Kneading the Dough

Fermentation

Division and Gas Reproduction

Molding and Baking

Slicing and Packaging

Details on Bread Manufacturing Process Usually the bread making takes about 8 hours of work. It starts from morning 6am till 2pm. Step 1:The flour is poured into an industrial mixer. Temperature-controlled wateris piped into the mixer. This mixture is called "gluten" and gives bread its elasticity. A pre-measured amount

of yeast is added. Depending on the type of bread to be made, other ingredients are also poured into the mixer. The mixing process takes about 12 minutes. Step 2:Three methods are used to ferment the dough. In some plants, the high-speed machinery is designed to manipulate the dough at extreme speeds and with great force. Fermentation can also be induced by the addition of chemical additives such as 1-cysteine (a naturally occurring amino acid) and vitamin C. Some breads are allowed to ferment naturally. In this instance, the dough is placed in covered metal bowls and stored in a temperature-controlled room until it rises. After the dough has fermented, it is loaded into a divider with rotating blades that cut the dough into pre-determined weights Step 3:Then the dough is conveyed to a molding machine which re-shapes the dough into loaves and drops them into pans. Step 4:The pan is then inserted into oven for baking for about approximately 30 minutes. Step 5:The bread continues to cool as it moves from the oven to the slicing machine. Here vertical serrated blades move up and down at great speeds, slicing the bread into consistently sized pieces. Step 6:Metal plates now hold the slices together while picking up each loaf and passing it to the wrapping machine. Pre-printed plastic bags are mechanically slipped over each loaf. At some bakeries, workers close the bags with wire twists. Other plants seal the bags with heat. Packaging of Bread The company uses the plastic packaging for the regular product as there are low in cost compared to other wax coated packages which are expensive. Another advantage of the plastic package is that they are transparent so that it is easier for the customers to see the quality of the without inside without opening the wrapper. When they use the wax coated packages, the price for the bread will eventually go up as the printed packages cost more than simple ones. Production Risks The major production risks for bread manufacturing companies are Nepal Bandhs and Load shedding. Employees refuse to come to work walking if they need to walk more during strike days and they demand for more money. Also, during power cut off times, cook needs to come to work as per the loaf shedding schedule which increases the labor cost to manufacturers.

Perishability of the Final Product Expiry date for bread is seasonal. During summer bread has short life than compared to the winter days. The average life of bread is 5-6 days. Krishna Pauroti brings back all breads from the market to factory once its date has expired. All these expired breads are waste. The wastage is of Rs. 2000 to Rs. 3000 per day. Technological Advancement at Level of Bread Production Technological advancement has made production process easier and efficient. During initial couple of years of inception, the process of making dough was done manually but today speed mixer and dough molder is used. Similarly dough rounder, dough divider and dough kneader is used to divide the dough, for the rolling the dough and cutting the rolled dough. Bread slicer is used to cut the loaves into equal pieces in order to reduce damages and wastages. Bread baking fryers and ovens are also used in production process. There are large numbers of bread manufacturers in Nepal. Some of them target the regular urban and rural consumers while others target the high end consumers. The major bread manufacturers of Nepal are Hot Breads, Heman’s Bakery, Mabacos Oven Fresh Bakery, Nanglo Bakery and Utsav Breads. The dominant companies are Nanglo Bakery and Hot Breads as they target on high end consumers and produce similar lines of products.

WHOLESALERSAND /ORDISTRIBUTORS Some bread manufacturers focus on distribution network while some do not. Krishna Pauroti located in Kamal Pokhari doesn’t focus much on distribution network and marketing of their products. Breads produced at the factory are sold directly on the store Krishna PaurotiBhandar itself. According to the owner, only 20% of them go into small retail shops, college canteens, bank canteens and hotels and rest of them are sold from store itself. In contrast, Utsav Bread has huge distribution network. Many retail stores both in Kathmandu valley and outside Kathmandu valley serve Utsav bread. Krishna Pauroti follows the one level distribution channel where store sells the bread either to retailers / vendors who then sells to final consumer or directly sells bread to final consumer. Utsav bread follows the two level distribution channel where store first sells the bread to distributors then either to retailers / vendors who then sells to final consumer.

One level Channel Retailers/ Vendors

Bread Manufacturer

Final Consumers

Two level Channel Bread Manufacturer

Distributors

Retailers/ Vendors

Final Consumers

Once it leaves the processing facilities the product could be distributed directly by the processor themselves as Krishna Pauroti is doing today to the retailers or final consumers. The distribution through independent wholesaler and distribution run by retailer could be also possible. The company can appoint independent wholesaler who then supply to the retailer and retailer will supply to final consumer. Mostly, we can find that bread processors sell the bread using vehicles that act as wholesaler or vendor and distribute their products to retailers and final consumers.

RETAILERS There are almost millions of retail stores opened in the every nook and corner of the country. It sells lot of stuff to the customers. Bread is the most common stuff available in every retail shops. Sales agents for the particular area carry the breads in their bicycle to the retail shops every morning. This help to ensure that the consumers always get fresh bread. In the places where there are not proper transportation facilities, the retailer places the order to the sales agent depending upon the demand of the consumers. The retail outlet owner makes order slip and put goods as in list. Dominant Companies at this level of the supply chain Breads are those stuffs which have many close substitutes available in the market as cakes, muffins, patties, cookies, pastries and buns etc. Thus potential competitors can be Hotel breads, Bakeries, Herman’s bakery, Nanglo bakery, cafes etc.

Technological Advances The technological advances are one of the factors of success. Previously, many processes were manual but today use of equipments as grinding machine; mixture, etc have helped to meet the increasing demand of the growing consumers. The key technological advances at this level of supply chain are as follows:  Automatic processing unit It has recently added an automatic processing unit in their production facility to reduce the production wastage by maintaining a constant cooking temperature to prevent food wastage.  Cold Storage With the increasing demand it installed a bigger cold storage to accommodate the large quantities of the perishable product.  Use of Large Mechanical Equipment It uses large mechanical equipments such as mixture, roller, cutting machine, packing machine for the preparation of the bread. This reduces the time and effort of the employees thereby increasing their productivity.  Oven It has used large ovens to bake the bread instead of using fire for baking the bread. This help to minimize the risk of over baking and maintain the quality of the bread.

CONSUMERS In Nepalese households, bread is generally consumed as breakfast with tea. It acts as light refreshment during morning and afternoon. It is also use for making sandwich. So with the increasing number of the population, numbers of the potential customers are increasing day by day. For instance: the total demand for bread in Kathmandu valley is 4 tones whereas the production is only 1.5 tones. There are also large supply constraints in areas outside Kathmandu valley. Thus to remove such constraints and cope with the increasing demand of the customers, it have switched its production method from manual to mechanical.Customers profile for bread can be defined in following ways:

Demographic Profile The target age group for bread ranges from 5 years to 60 years. The regular pack of bread is mostly consumed by low and medium income families. Whereas the premium pack is geared towards high end families. Since, it targets low to medium to high income families, it caters to household of all income sizes. Geographic profile The target customer resides in both rural as well as urban areas. Since, urban consumers prefer quality and taste, premium bread product is offered. Among the rural consumers, they already have established a strong brand loyalty since its inception. It is through price, quantity that it delivers through its mini pack and medium pack products. Psychographic profile Nepalese are price sensitive consumers of product. Since, people do not have a high disposable income; they want value for the price they pay. It caters to this psychographic profile by providing quality product at reasonable price. Consumers who prefer biscuits, puffs, cookies than breads do not consume this product. Since the taste of the bread is sweet, salty, and soft those consumers who demand crispy bakery items can be a possible reason as to why people do not consume bread. As stated earlier, with the increase in population, the demand for bread is increasing. Expansion plans for factory is in full phase to cater to this increasing demand. The changing lifestyle, consumption habit and health consciousness of consumers have increased demand for variety of breads products as white bread, brown bread. In addition, taste and preference for bread differs among various segments of customers. There exists tremendous opportunities for serving these various segments of markets. The strength of bread lies in strong brand loyalty it enjoys among its customer. Hence, bread has become one of the refreshment meals. COMPETITION Among the indefinite manufacturers of the nation, the major bread manufacturers that have significant market share are: 

Nanglo Bakery

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Hot Breads

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Hermann’s Bakery

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Mabacos Oven Fresh Bakery

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Utsav Breads

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Hulas

There are other contributors to the bakery segment in the valley. These are however concerned with high end markets and have established a niche for themselves. They are Annapurna Cake shop, Cuppas and Pumpernickel Bakery. The major players that have quite been dominating the high end consumers are Hermann’s Bakery, Nanglo Bakery and Hot Breads. Besides the bread industry is severely affected by products like puffs and biscuits and snacks like instant foods like-noodles. These product range thus fitting the price range and needs of people qualify as the substitute of bread.

RESULTS AND RECOMMENDATIONS Taking into considerations the facts, we have identified that the supply of raw-materials for manufacturing of bread is inadequate to fulfill its demand. The daily consumption of bread and its variety is around four tons whereas the supply is constrained to 1.5 tons only. Most of the raw-materials are imported from neighboring country. Moreover the quality of flour is also important for the final outcome but the quality of flour in inconsistent that affects the long term relations of producers and manufacturers. According to our analysis, the primary reasons for market failure are: Supply Constraint Nepal has been relying on its neighboring country for the supply of wheat. There is a large gap between demand and supply. Since the farmers here are faced with inadequate seeds its ripple effect is seen on its supply. While all these actors are closely linked, the manufacturers of bread are no exception. This is the reason they are unable to meet the high demands of the consumers. Quality of the raw-materials The main requirement for the product is wheat. The farmers do not get good quality of seed for producing adequate wheat. Thus, they produce whatever is available to them ultimately affecting the ultimate quality of bread too.

Market Network of Producers and Manufacturers The major constraint in the development of the economy is infrastructure. The facilities like road transportation and storage of seeds is crucial. When the raw materials get proper storage and link to market, the problems of spoilage will be significantly reduced. In order for the bread manufactures to flourish, some of the recommendations to address the market failures are discussed below: Support Retailers The manufacturers should support their retailers. These retailers may be large supermarkets or small local independent shops. Retailers will often require expert advice on how best to service the needs of their customers. As part of its support these manufacturing firms can provide them with market research data of selling trends and buying habits. This enables them to predict the week-by-week stock levels they require and solve the problems of supply. Focus on Quality A focus on quality is the heart of improving bread and the market for it. The manufacturers in association with non-governmental organizations like Fintrac, Mercy Corp should be involved in guiding and training the farmers with improved techniques of farming and act as an intermediary to providing high quality seeds when required. Besides, the manufacturers of bread should also be efficient, reducing waste and keeping health and safety risks down at their end for the final products. Explore new market A manufacturing organization has to constantly move forward. The manufacturers has to constantly invests in plant, people and products which means it should take advantage of new ways of storing and producing better products. These firms should also be dedicated to producing new products that meet ever-changing consumer demand and be involved in exploring markets beyond Kathmandu valley.

Thus, these bread manufacturers should focus on sustainable development by dedicating to continuously supply high quality bakery products to the consumers.