Key supply chain networks in a multi-billion dollar industry...
One of the many challenges in the tobacco industry on a global scale is the significant presence of illicit trading. For British American Tobacco (BAT) Nigeria, establishing a strong working relationship with state government has been key in the company’s success, both locally and across West Africa.
BAT Nigeria has been developing and selling tobacco products in Nigeria since 1912 and today the company stands tall as the leading tobacco manufacturers in West Africa. With a long history of working closely with the Nigerian government, Charles Kyalo, Operations Manager, BAT Nigeria, believes the company has built a strong reputation across the industry.
The company operates across the whole of the country through a major factory which develops, manufactures and exports tobacco products – in Ibadan as the central operational base and with extended operations in Zaria.
“We are a very proud Nigerian company because we started our operations over 100 years ago in Nigeria and we are still here to this day in Nigeria and will continue to be here,” says Kyalo.
Locally sourced industry leaders
As a Nigerian tobacco company BAT strives to support and develop the local communities in which it operates. This is exemplified in the number of local suppliers that provide BAT with the necessary raw materials to create and manufacture industry leading tobacco products.
Since 2003, with the construction of the Ibadan processing factory, BAT has developed a portfolio of over 1,000 local suppliers and farmers, which all serves the overriding goal of benefiting Nigeria.
“Our goal is to stimulate the local economy and we believe in supporting local suppliers and businesses to grow in structure and become much more competitive,” says Segun Abati, Procurement Business Manager, BAT.
The bulk of BAT’s supplier base, around 80 percent, is made up completely of local suppliers. This allows the company to provide great leverage for local businesses to grow through close working and infrastructure development with BAT.
The local supply chain is almost the sole provider of the raw materials that BAT requires to manufacture its products which comes from about 1000 farmers across Nigeria, while also working with local companies to provide shipping cases for exportation and ink for printing.
Through the very nature of the business, BAT also exports to international partners and has a strong portfolio of international suppliers. Kyalo states that two thirds of the company’s entire production is for domestic consumption with the remaining third used for exports. When it comes to manufacturing, BAT sources most of its technical requirements from international suppliers across Japan, Europe and the Americas.
“All our equipment is imported, with the manufacturing equipment supplied from Italy and Germany in which we purchase spare parts,” says Kyalo. “Some specialised materials such as cigarette paper and materials, we still have to import from Japan, Europe or Americas.”
Legitimacy over illicit forces
Tobacco as an industry is a considerably controversial market with close to 600 billion cigarettes traded illicitly in the global market. This has a significant impact on governments as it is they who are left to foot the bill in taxes, something close to upwards of £30 billion annually. It presents a further problem as it is believed that profit gained through illicit trade is used to fuel terrorism and organised crime. This is a pressing issue that BAT and the Nigerian government are all too aware of.
“At one point in the last decade, 80 percent of trade across Nigeria was illicit,” says Kyalo. “BAT has worked closely with the government to put measures and controls in place to minimise such a high figure and right now, illicit trade is significantly lower at 20 percent.”
The controversy around the tobacco industry has presented challenges for BAT despite its reputation, as suppliers and partners are weary of the suspicion that still rests within the industry.
Procurement has played a critical role in the success and sustainability of BAT. Segun Abati outlines the key objective of procurement, to provide smart spend management that is future safe and marries closely with the wider business strategy of BAT.
“We drive continuous improvement to the business through supplier innovation and ensuring we have a value-added relationship with our suppliers,” he says.
“Our way of working is to make procurement a competitive advantage through strong market intelligence, having enough knowledge of the market to bring it to our choice of materials, our products and the services we offer.”
The sustainability of the BAT ties into the overall economy of the company, to support and develop the local community through local suppliers. For a company like BAT, choosing the right suppliers is important in this market.
“Being financially sound and getting the materials and processes through sustainable sources is very important,” says Kyalo.
BAT ensures that the suppliers it works with match the criteria needed through a supplier evaluation which looks at the sustainability of the business and whether it can continue to work with BAT in the future.
“We go beyond trying to simply negotiate prices with suppliers to ensuring that we share business practices and making sure they can run their business properly,” says Kyalo.
It is an ethos shared throughout the business. Abati and BAT sees suppliers more as partners as a way in supporting one another. BAT has KPI measurements that the company uses to measure its own performance as well as the suppliers’ to ensure that both the company and the supplier is offering the best possible service to one another.
“It’s a win-win situation,” says Abati. “We want them to be here for the long haul because we want to be here for the long haul.”
One of the largest suppliers that BAT works with in Nigeria is the South African company Nampak. Nampak supplies BAT with the printed materials for the packaging of its tobacco products. Nampak Cartons was established in Ibadan in close proximity to the BAT Ibadan factory in 2004, and Kyalo cites this as a clear example of BAT bringing strong business links and opportunities to Nigeria.
BAT remains one of Nampak’s largest customers, but Kyalo believes that Nampak is just one example of local businesses profiting from BAT’s legacy.
“We have seen a lot of local suppliers grow in Nigeria by harnessing BAT’s capabilities to source materials cheaper. As an example, we negotiate for the prices of some materials globally and we assist our local suppliers to go out and get the best materials for the best prices,” he adds.
A bright future
Nigeria has been experiencing a recession, which highlights the significant impact of BAT on local businesses and the economy. This has and will continue to present a number of challenges, not just for BAT but for business across the country.
In spite of the economic downturn, with foreign exchange “squeezing all the margins” for Nigerian business, Kyalo is confident that the future of West Africa is bright.
“The government has been working hard to create projects and initiatives to get the country out of recessions,” he explains. “But look at the population of Nigeria. It’s growing and there are more and more educated people which means the future workforce is already here.”
Abati agrees that there is reason to be hopeful in that BAT can play a crucial role in helping local business grow to serve more than just BAT but serve the wider country’s people and economy.
For BAT and it’s rich 100-year history serving Nigeria the plan for the future is a simple one.
“We have been here for 100 years and we want to be here for another 100 more. BAT is a very aspirational company and has a strong reputation of being a good corporate citizen, supporting local businesses and making sure we share our ideas and grow the communities we operate in,” concludes Kyalo.