Lily Della-Vedova

ID: N9586601
AMB204: Purchasing and Procurement

DILMAH TEA
For lovers of tea.
 Table of Contents
1.0 Executive Summary..................................................................................................... 3
2.0 Context for Procurement of Tea Leaves. ...................................................................... 4
2.1 Tea Leaves. ................................................................................................................. 4
2.2 Industry. ..................................................................................................................... 5
2.3 Significant factors affecting Tea Leaf Product supply. .................................................. 5
3.0 Approaches to Evaluating the Prospective Suppliers. ................................................... 6
4.0 Issues related to Ongoing Management of Product/Service Supply. ............................ 6
5.0 Conclusion and Recommendations. ............................................................................. 7
Reference List. .................................................................................................................. 9

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 1.0 Executive Summary.
This report demonstrates how the task of managing suppliers is important in procuring Tea
Leaves. It will also explain how the ongoing management of supply will be evaluated. While
Dilmah is a company that already purchases Tea Leaves for their products, this report will
outline how it can be improved while keeping that 12 unique principles which guide Dilmah
in their values.

Dilmah aims to provide natural, traditional, finest quality of tea while remaining ethical, and
sustainable in their practise. Tea comes from an evergreen bush “CAMELLIA SINENSIS” that
grows best at a fairly high altitude. It can take 5 – 7 years after being planted for the tea
bush to become for commercial exploitation, after which it can productive for over 100
years. (Hemaratne, 2016).
There are a lot of aspects of Tea Leaf procurement that can be difficult to manage through
the supply chain. To import the Tea Leaves into the country, there are many conditions that
the Tea must comply with.

As Dilmah is interested in maintaining their ethical standards and sustainability, key

environmental performance criteria has been developed when evaluating a suppliers
performance.

Recommendation 1. Have a full-time Procurement team and system put into place in the
Dilmah Company.
Recommendation 2. Sustainability commitment.

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 2.0 Context for Procurement of Tea Leaves.
The Procurement role is indispensable to any business that purchases anything, if a business
is buying goods, services or any other items, then the better the procurement function
performs, the profits of the business will increase. (Chief Procurement, 2016). In a typical
corporate setting, the purchasing function should play an important role in shaping the
competitive capability of the firm in its marketplace. (Watts, Kim, & Hahn, 1995).
Dilmah is a distinct, Single Origin, authentic and ethical Ceylon tea, manufactured according
to traditional methods that maintain its quality and freshness. (Fernando, 2017).

There are a lot of aspects of Tea Leaf procurement that can be difficult to manage through
the supply chain. To import the Tea Leaves into the country, there are many conditions that
the Tea must comply with. These conditions are outline by the Australian Government:
Department of Agriculture and Water Resources, BICON (Australian Biosecurity Import
Conditions).
It is the responsibility of the importer to comply with the Act and ensure imported food
meets the requirements of the Food Standards Code and any other relevant Australian
standards or requirements. (Australian Government, 2018)

2.1 Tea Leaves.

Mr. HD Hemaratne’s report explains that all types of tea are from the same buds and leaves
produced on the same plant. This includes black tea, green tea, white tea etc. To produce
the different types of teas, the leaves are processed in different ways. (Hemaratne, 2016).
Figure 1 summarises the Tea Leaves value chain in the production of Tea.

Figure 1. Tea Leaves Value Chain.

(Taken from Mr. HD Hemaratne, (Hemaratne, 2016))

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 Dilmah was the first producer-owned tea brand to offer tea ‘picked, perfected and packed’
at origin – Single Origin Tea from Sri Lanka, one of the finest tea countries in the world.
(Fernando, 2017). Because Dilmah has provided its customers with a single origin tea, it
must continue that tradition and uphold those standards. As the Tea Leaves are from Sri
Lanka plantations, Dilmah must import the product to Australia in order to sell the finished
product.

2.2 Industry.
Sri Lanka placed 3rd largest tea extend, 4th biggest tea producer, 3rd largest tea exporter, 1st
higher tea export revenue earner, and largest value added tea exporter (Hemaratne, 2016).

There are issues that the industry (Producers, Growers, and Exporters) face which include
the following;
- Producers are faced with labour scarcity, there isn’t enough employees.
- Producers are faced with the correct distribution of Labour Wages, they need to pay
employees the correct wage.
- Producers have the ban of Agrochemicals, they need to make sure that they are
using the correct pesticides.
- Producers and Growers are confronted with Price Depression, they need to make
sure that they know how to handle these situations.
- Exporters have to deal with the delay of realising the sales proceeds due to
economic sections
(Hemaratne, 2016).

The price of tea in different markets is strongly linked to production and is effected by
weather conditions, as well as many other factors. (Davey, 2017). In Tom Davey’s article
about Tea Industry Trends, he states that the average price for tea across all markets is
down slightly since 2012, and was $2.40 per kilo in 2015. Prices are expected to grow as
there is a deficiency in tea globally and demand is only continuing to rise.
As the different flavours and types of teas continue to grow each year, this may be the
reason for higher demand for tea along with the many health benefits it brings.

2.3 Significant factors affecting Tea Leaf Product supply.

There are many factors that can affect the product supply of Tea Leaves, as it is an
agricultural practise, the atmosphere around the harvests plays an immense part in the
supply of adequate tea leaves. These factors include torrential rain and flooding, drought,
bug infestation and natural disasters.
Tea comes from an evergreen bush “CAMELLIA SINENSIS” that grows best at a fairly high
altitude. It can take 5 – 7 years after being planted for the tea bush to become for
commercial exploitation, after which it can productive for over 100 years. (Hemaratne,
2016). If Tea plantations are effected vastly by natural disasters, this could mean the loss of
many years of hard work and potentially the livelihood of farmers. The evergreen bush
takes many years for it to be ready for harvest, it would not be easy for farmers to
overcome such a loss.

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 Tea production in Sri Lanka and India was reduced due to extreme dry weather. Sri Lankan
production in August 2016 was down 13% from 2015, the lowest crop in 10 years. This had a
knock-on effect of increasing prices due to lower supply. (Davey, 2017)
As Fairtrade explains, there are also non-environmental factors that affect the Tea Leaf
trade, these include the exploitation of vulnerable women when wages are low, the lack of
appropriate agricultural tools (fertilisers, irrigation), and the little control they have because
of the supply chains controlled by large companies. (Fairtrade, 2016).
Because the Camellia Sinensis bush takes many years to grow and can be easily effected by
the weather, Dilmah will have to be careful in approaching their procurement strategy.
Efficient Tea Leaf purchasing will involve Dilmah in developing an efficient category
approach and observe its supply chain.

3.0 Approaches to Evaluating the Prospective Suppliers.

To be able to evaluate and oversee the ongoing management of supply for Tea Leaves,
there is a requirement to assess and select a supplier for this product. For this to be easily
done, there is a supplier evaluation and selection process that can be followed in seven-
steps. (See below in Figure 2.)

Figure 2. Supplier Evaluation and Selection Process .

6. Determine
1. Recognise the 7. Select supplier
method of supplier
need for supplier and reach
evaluation and
selection agreement
selection

2. Identify key
5. Limit suppiers in
sourcing
the selection pool
requirements

3. Identify the
4. Determine the
potential supply
sourcing strategy
sources

(Robert M. Monczka, 2015)

4.0 Issues related to Ongoing Management of Product/Service Supply.

Procurement management increasingly plays more and more important role in business
enterprises with the globalization of economy and fast development of information
technology. (Zheng, 2008)
Supply management’s evaluation of a supplier’s ongoing quality performance should include
more than just direct, out-of-pocket purchase price, level of defects, and on-time delivery

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 performance. It must also provide for the analysis of related indirect costs; i.e., transaction
costs, communication, joint problem resolution efforts, buyer administrative oversight,
accompanying services, cost of quality, and switching costs. In addition, the buyer must also
evaluate the supplier’s delivery consistency and reliability because higher levels of inventory
will be necessary to cover inconsistent delivery and quality performance by a supplier.
(Robert M. Monczka, 2015)
As Dilmah is interested in maintaining their ethical standards and sustainability, key
environmental performance criteria has been developed when evaluating a suppliers
performance. This criteria is outline in figure 3 below.

Figure 2. Supplier Evaluation and Selection Process .

Ongoing sustainability practices and top management support for

sustainable practices, including a Corporate Responsibility Report

The company’s current and projected CO2 emissions

Attainment of ISO 14000 certification

Evidence of measuring or requiring sustainable practices by their

suppliers

Formal hazardous and toxic waste reduction programs exist

Purchasing recycled materials and implementation of practices

encouraging recycling and reuse in internal operations

Disclosure of any environmental infractions

Programs to control or eliminate ozone-depleting substances

(Robert M. Monczka, 2015)

The criteria above would be used in choosing future suppliers and used for when renewing
contracts.

5.0 Conclusion and Recommendations.

Dilmah already uses some good techniques but with the help of the recommendations
below, they could provide a seamless purchasing and procurement experience within their
company.

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 Recommendation 1. Have a full-time Procurement team and system put into place in the
Dilmah Company.
“Utilise the Six Sigma Theory of Supplier Quality Management.” Along with this theory of
management, If Dilmah apply the criteria that is shown in the above report they will be able
to build strong and reliable relationships and contracts with their suppliers while still
aligning with their core beliefs.

Recommendation 2. Sustainability commitment.

Dilmah already has a core commitment to sustainability but they could show that they have
put this into action by seeking recognition from an organisation that promotes sustainability
all over the world. One of these organisations is World Vision Australia and Fairtrade
Australia and New Zealand.

Recommendation 3. Create a “Back-up” contract with an alternative supplier.

If Dilmah implemented this strategy, they would not have the risk of their main supplier not
being able to supply them with Tea Leaves. This will ensure that they have a constant supply
stream in case of any natural disasters or any damaging situations that could impact Dilmah
providing Tea to their customers.

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 Reference List.
Australian Government. (2018, May 11). BICON, Australian Biosecurity Import Conditions.
Retrieved from Australian Government, Department of Agriculture and Water
Resources:
https://bicon.agriculture.gov.au/BiconWeb4.0/ImportConditions/Conditions?Evaluat
ableElementId=290253&Path=UNDEFINED&UserContext=External&EvaluationStateI
d=98a58b95-3d64-483e-832f-
e3a1fd0fe0c9&CaseElementPk=839939&EvaluationPhase=ImportDefinition&HasAler
ts=False&HasChangeNotices=False&IsAEP=False
Chief Procurement. (2016, December 14). Importance of Procurement. Retrieved from Chief
Procurement: http://chiefprocurement.com/importance-of-procurement/
Davey, T. (2017, January 11). TEA INDUSTRY TRENDS 2016 – WHAT TO EXPECT IN 2017.
Retrieved from World Tea Directory: https://worldteadirectory.com/tea-industry-
trends-2016-expect-2017/
Fairtrade. (2016). Tea. Retrieved from Fairtrade: http://fairtrade.com.au/Fairtrade-
Products/Tea
Fernando, M. J. (2017). The Story Begins. Retrieved from Dilmah:
https://www.dilmahtea.com/dilmah-tea-company/founders-message.html
Gebely, T. (2018, February). 2018 Tea Outlook. Retrieved from World of Tea:
https://worldoftea.org/2018-tea-outlook/
Hemaratne, M. H. (2016). The role of tea producers in tea value chains. United Nations
Conference on Trade and Development , Sri Lanka Tea Board. Geneva: Colombo Tea
Traders’ Association.
Robert M. Monczka, R. B. (2015). Purchasing and Supply Chain Management. Retrieved
from ProQuest:
https://ebookcentral.proquest.com/lib/qut/detail.action?docID=4771012#
Watts, C. A., Kim, K. Y., & Hahn, C. K. (1995). Linking purchasing to corporate competitive
strategy. International Journal of Purchasing and Materials Management, 31(2).
Retrieved from ProQuest: https://search-proquest-
com.ezp01.library.qut.edu.au/docview/235196605?accountid=13380
Zheng, Q. L. (2008). Study on e-procurement application in fripp. Retrieved from ProQuest:
https://search-proquest-
com.ezp01.library.qut.edu.au/docview/1872244227/188C0426BAD84940PQ/6?acco
untid=13380