Unilever Case Study: Transport Management

Question:

Discuss about the Unilever Transporters and Incoterms.

The purpose of the paper is to analyse the effectiveness of transport management in three areas namely, Incoterms, selection of careers and  management of relationship with transporters. The transporters carry out functions of supplying raw materials and distribution of finished products. The multinational companies depend on these transporters both get raw materials and to distribute their products globally. The paper studies these role the transporters play for the multinational companies considering Unilever Singapore as the example of the multinational company.

Unilever is one of the leading fast moving consumer goods (FMCG) manufacturing companies in the world with its headquarters in London and Rotterdam. The product portfolio of the company can be divided into four categories namely, food and drink, home care, personal care and water purifiers. Unilever is the manufacturer, marketer and owner of leading international brands like Axe, Magma, Cornetto, Dove, Ponds, Lux and Pureit.  The company has recently strengthened its Ayurvedic and wellness segment, Lever Ayush. The main markets of Unilever are America, Europe, Asia and Australia. The main competitors Unilever in the food products segment is Nestle while the main competitor in the home and skin care segment is Procter & Gamble. Companies like LG compete with Unilever in the water purifier market. The organisational goal of Unilever is to offer more beneficial products to its consumers and operate sustainably to reduce pollution. The strategies of Unilever to operate globally consists of collaborating with suppliers and distributors in all its markets to ensure production of high quality products. The company applies acquisition strategies to dominate important markets like Asia (unilever.com, 2017).          

Unilever Singapore applies effective transportation facilities, which enables it to transport materials from raw materials to its factories and finished goods to all its markets all over the world. The company has operations through the world in more than a hundred countries and is one of the largest manufacturer and marketer of FMCG goods. This requires the company to purchase raw materials from all over the world and distribute its finished goods to its markets. This international operation brings the company under the jurisdiction of International Commercial Terms or Incoterms, which is laid down by the International Chamber of Commerce or ICC (iccwbo.org, 2017). Unilever Singapore following its parent company adopts two strategies to make its transportation of goods more cost effective, fast and convenient namely, centralised supply chain management or SCM and centralised  logistics management system called Ultralogistik.

Incoterms

Unilever follows a centralised SCM to transport raw materials from all over the world, which requires it to comply with Incoterms of various countries like Singapore. Transportation of raw materials from different markets across the world involves high costs, risks and expenditure to manage the risks like insuring the goods. This requirement of quality sourcing of materials all over the world and control costs necessitates the multinational company to use Incoterm pricing methods to operate economically. The company primarily follows two popular price terms while importing goods as perm International Commercial Terms namely, CIF and FOB (Stapleton, Pande & O'Brien, 2014).

Unilever imports raw materials from all over the world using the Free On Board (FOB) method. The suppliers or sellers of the raw materials pay the expenses like freight and insurance and clear the goods at the port export. This shows that sellers load the ship according to the requirement of the buyer, Unilever (Nugroho, 2015). Thus Unilever can gain using FOB because it allows the company to take advantage of the differential freight rates to import raw materials from all over the world(Appendix).

Unilever caters to customers all over the world, which requires it on hold, and manage distribution chains in all the markets. The distribution chain of Unilever is called Ultralogistik, which operates all over the world. The company sells its products to distributors and stockists, which also includes foreign distributors. The company sells and exports its products to overseas distributors using the CIF system.  The Cost Insurance and Freight or CIF refers to the system when seller must pay the expenditure to export the goods to the destination markets. This analysis shows that using the CIF system, Unilever can decide the amount of expenditure it wants to spend on exporting the products. Moreover, according to the CIF system, the risk is transferred to the buyer after the goods the load onto the ship. This shows that when the goods are loaded on the ships, the risk is transferred from Unilever to the buyer (Nugroho, 2015). 

This analysis shows that Unilever is able to transport goods to and from different parts of the world using the Incoterms price rates to buy and sell goods all over the world. It can be recommended that the company must use the freight differences between countries as per Incoterm to buy raw materials at the lowest rates and sell the finished goods to the distributors at a higher rate.

Transportation of Raw Materials using FOB

The transportation goal and needs of Unilever is to obtain high quality raw materials from all over the world at lower rates and transport the finished goods to the distributors at high rates to earn high profits. Thus, these carrier selection criteria play very important role when the company chooses its suppliers and transporters. The following are the transportation goals of the company:

The first career selection criterion is to obtain variety of raw materials at cheaper rates. The multinational companies like Unilever Singapore require producing a variety of finished products, which they sell in the global market to earn revenue. As shown in the figure below, these companies as a result aim to acquire cheap but high quality raw materials from all across the world to produce this high quality finished products. For example, Unilever obtains raw materials like palm oil from Asia and cocoa butter from African countries. Thus, company requires transporting all these materials to its factories spread all over the world. An efficient transportation enables Unilever to transport these raw materials to its production plants at economic rates, which in turn enables it to reduce its cost of production. This helps Unilever to earn higher profit margin by cutting down production cost (Šafa?ík & Badal, 2013).

The second criterion of selecting carriers or transporters, which Unilever considers, is that they should enable the company to distribute the finished products throughout the world. Unilever manufactures diverse products like skin care products, food products and electronic products, which requires massive investment from it. The transport goal of the company is to distribute these goods all over the world to be able to sell them to a huge consumer base. This ensures that Unilever is able to gain high returns on the amount it invests to manufacture and market these products (Walker, 2016).

The third criterion, which Unilever considers while selecting carriers, is, retention of high competitive advantage, which it owns internationally. The capacity of Unilever to transport raw materials at lower costs and finished goods all over the world decides its profit making power and global competitiveness. Unilever faces threats from both local and international FMCG firms from all its markets. This analysis shows, that its power to mobilise raw materials towards production and finished goods towards the consumer markets gives it competitive advantage over its rivals. Thus, the transport goal of Unilever over here is to gain competitive advantage in the global market (Huang, 2017).

Distribution Chain using CIF

An analysis shows that Unilever has three transportation goals, obtain high quality raw materials, and ensure global distribution of its products and retaining its high global position. As per Incoterms, it requires to incur immense expenditure to transport the raw materials and the finished, both of which are perishable. The company has to invest a huge amount of money to insure the goods against the risks like spoilage and shipwreck. Thus, one can recommend that Unilever should use transporters who can provide it with ships with modern storage facilities at economic rates. This would enable Unilever to minimise the expenditure to transport the inventories and finished goods. The company would also be able to minimise the loss of goods due to shipwrecks and spoilage. It can also be recommended that the Unilever can gain shares of its important transporters.   This would enable the company to gain transportation facilities from these companies at more economic rates.

Unilever maintains healthy professional relationship with all its transporters throughout the world. The following are the transportation goals or needs which the multinational company seeks to achieve by maintaining a steady business relationship with these transporters:

Unilever maintains healthy relationships with the transporters supplying raw materials to maintain command over the raw materials sources. As pointed out, one of the criteria Unilever takes into account while selecting transporters is to maintain its hold over the international market. Hojnik and Ruzzier (2016) points out that this competitive advantage today depends large on the ability to obtain high quality raw materials from the suppliers and transporters. Unilever has powerful competitors all over the world that manufacture similar products hence, compete to obtain the similar kinds of raw materials. For example, Beaute Naturelle in Singapore manufactures and exports beauty products, thus competing with Unilever Singapore. The beauty products range Naturlle offers under the brand name SES competes with brands like Lakme and Ponds, which Unilever owns (mybeautenaturelle.com, 2017). Moreover, they use the similar raw materials.  Analysis of the discussion shows that, this intense competition in the FMCG market necessitates Unilever to maintain strong relationship with the transporters so that it can obtain raw materials of higher qualities than these competitors can, so that its finished products lead the markets.

Unilever requires maintaining strong relationship with the transporters to distribute and sell its finished products all over the world. Chowdhury, Simu and Uddin (2016) point out that the competitive advantage of companies is dependent on their capacity to distribute their products all over the world as shown in the figure below. Unilever has to compete with international competitors like Procter & Gamble in the perusal care segment and with Nestle in the food product segment. It must be pointed out that these two competitors are present in all the significant markets like Europe and North America. J. Contractor (2013), states that the multinational companies are increasing their presence in the emerging markets to maximise their revenue generation by catering to the increasing demands of these markets. Moreover, the local companies in the markets also compete with Unilever. This intense competition requires Unilever maintain strong relationship with the transporters to transport its finished products all over the world at economic prices (Huang, 2017).

Transportation Goals and Needs of Unilever

The third goal of Unilever to maintain healthy relationship with the transporters is obtain sustainability. Starik and Kanashiro (2013) points out that it has become very important for the multinational companies to gain sustainability. Sustainability has several implications like producing finished goods which are eco-friendly, adopting production methods which are less polluting and operating in ways to minimise expenditure. However, it must be pointed out that sustainability production methods and finished goods require Unilever to obtain sustainable raw materials from all over the world, which are far more expensive than their inorganic counterparts are. It can once again be reiterated that competitors of Unilever are also competing with it to obtain sustainability (Johnson, 2015). Kumar et al. (2017) further points that fake organic raw materials usage of which in finished goods is capable of damaging the market reputation of the manufacturing companies are widely available in the market. This analysis shows that Unilever requires maintaining strong relationships with the transporters and suppliers of organic raw materials to ensure that it is able to acquire authentic eco-friendly raw materials. This would lead to minimum waste products, thus minimising the waste management expenses of the company. The company would be able to use these authentic raw materials to manufacture high quality products for which it holds a high position in the international market (Wen, Yang & Peng, 2017).

The analysis shows that Unilever requires maintaining strong relationship with the transporters to obtain high quality raw materials, to achieve global market penetration of its finished goods and obtain authentic organic raw materials.  It can be recommended that the multinational company should maintain strong relationship with multiple transporters in all its markets. One can also recommend that the company should aim to acquire some of its main organic raw materials transporter. This would ensure that the company has deeper access to organic raw materials at more economic rates.

Conclusion:

One can conclude from the above findings that multinational companies like Unilever require maintaining healthy relationships with transporters all round the world. They require following the Incoterms to acquire materials and distribute their finished goods globally. Unilever should maintain centralised selection criteria to acquire transporters. It should also maintain healthy long term relationship with these transporters.

References:

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Hojnik, J., & Ruzzier, M. (2016). The driving forces of process eco-innovation and its impact on performance: insights from Slovenia. Journal of Cleaner Production, 133, 812-825.

Huang, J. (2017). Sustainable Development of Green Paper Packaging. Environment and Pollution, 6(2), 1.

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Stapleton, D. M., Pande, V., & O'Brien, D. (2014). EXW, FOB OR FCA? Choosing the right Incoterm and why it matters to maritime shippers. Journal of Transportation Law, Logistics, and Policy, 81(3), 227.

Starik, M., & Kanashiro, P. (2013). Toward a theory of sustainability management: Uncovering and integrating the nearly obvious. Organization & Environment, 26(1), 7-30.

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