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Defining our Core Business
In our industry, there are three ways of participation – firstly, as a positional, directional and proprietary trader where earnings can be substantial but extremely volatile; secondly, as a global scale agricultural processor where participants commit about 60-70% of total assets to investments in fixed assets; and thirdly as an integrated supply chain manager. Olam has chosen to participate as an integrated supply chain manager offering end-to-end supply chain solutions, from the farm gate in the producing countries to our customers’ factory gate in destination markets.
We are today a leading global supply chain manager of agricultural products and food ingredients. Our 8000 employees worldwide operate an integrated supply chain for 14 products in 56 countries, delivering these products to over 4500 customers in over 60 destination markets. We are today a global leader in many of these businesses including Cocoa, Coffee, Cashew, Sheanuts, Sesame, Rice, Cotton and Teak Wood.
We are suppliers to many of the world's most prominent brands offering them reliability, consistency, trust, traceability, and other value added services. This has helped us earn a reputation as the "brand behind the brands".
Integration across the Supply Chain
We manage each activity in the supply chain from origination to processing, logistics, marketing and distribution. In our business model, we try and capture a predictable fee quality kind of income for providing supply chain solutions. Our complete integration allows us to control our supply chain, achieve operational efficiencies, add value and manage the various risks along the entire supply chain, enabling us to therefore appropriate the margins which exist in each part of the supply chain.
Our distinctive position is based on the strength of our origination capability, our strong position in the destination markets worldwide by virtue of our ability to offer customised marketing solutions and value-added services to our customers, as well as our strength in risk management. We have been able to differentiate ourselves from competition as a result of these three distinctive capabilities while matching the best in the industry in respect of logistics, processing and distribution.
Origination
Our experience starts at the origin. At the heart of our business is our origination activity, where our knowledge and expertise assist farmers and collectors and provide us with a consistent supply of good quality produce.
Our physical presence across a wide network of locations allows us to source the products from as close to the farm gate as possible directly in the origin. To support this, we have developed a network of up-country procurement units and warehouses. Our trained and experienced field managers, with well-institutionalised field operating systems, enable us have an accurate stock and quality assessment process and practice effective risk management. This ensures a complete control over procurement, logistics and storage.
There are major advantages by being present in up-country locations near the farm gate. Firstly, we gain access to a larger profit pool. Based on our estimates, 65% of the profit pool lies between the farm gate and exporters in the origin countries. By playing the role of an integrated supply chain manager, we disintermediate all other middle-men and brokers in the supply chain (town level agents, port city agents, exporters) and thereby are able to earn the higher margins.
Secondly, we enjoy better delivery and fulfillment capability as our up-country infrastructure and systems have enabled us to secure and deliver reliable supplies of agricultural products to customers in volatile commodity markets.
Thirdly, being present at the farm gate allows us to differentiate ourselves from competition by embedding value-added services in our products, such as traceability, customised grades and qualities, organically certified and fair trade certified produce, all of which allow us to earn a premium for our products.
Finally, we are a multi-product company, which enables our country operations to cross-source products by sharing resources, thereby making each country and business, cost competitive and locally effective.
However, the reason behind our extraordinary success in origination lies not simply in our physical presence in many origins and our innovative approach to business but in our belief in partnerships, enabled by the close and productive relationships that we foster and develop with growers and suppliers.
Processing
Olam is engaged in processing and adding value to the various agricultural products that we handle. We process many of the products before they are delivered to the final customer. The primary and intermediate processing of products in the origin enhances our origination strengths. Adding value through processing is fundamental to our strategy and enables us to provide the required quality for our customers on a consistent basis.
Our processing activities range from processing and grading of coffee, pressing of cocoa beans, shelling and blanching of cashews and other edible nuts, ginning of seed cotton to cotton lint, to sawing of timber logs to sawn timber and milling and polishing of rice.
Our qualified and experienced managers closely monitor every stage of processing and packaging to maintain stringent quality standards. The ability to control and add value through our own processing activities is pivotal to strengthening our overall supply chain management.
Olam's processing activities, particularly in the developing countries, has helped to transfer technology, build local capability, create local employment, and generate higher foreign exchange earnings for these economies.
Logistics and Shipping
Olam's infrastructure in the origins facilitates the efficient export and import of our products. We have the ability to manage the multi-modal transportation requirements of our businesses. This ensures we remain competitive and flexible to meet our client's requirements, no matter how complex they are.
We place significant emphasis on our ability to organise every detail of the logistics chain, beginning with the aggregation of numerous small parcels into suitably sized lots for shipment. Our investment in transportation infrastructure, combined with contractual agreements with numerous haulage companies, enables us to move our products quickly and efficiently from up-country to the port. The effective management and co-ordination of shipments is integral to our success, with our in-house shipping function providing the company with additional advantages. The strength of our freighting and forwarding capability provides us with a competitive platform for our business and ensures reliable and timely delivery to our customers.
Efficient logistics management is enabled by our wide geographical spread and the extensive infrastructure of warehouses and transportation systems we use. With our network, we have a global reach, but at the same time, we provide a local response to our customers and ensure a customised and efficient service. Everyday, throughout our worldwide operations, goods are being moved to our warehouses, shipped, discharged and delivered to our customers. The in-house management of our shipping operation also enables us to reduce costs, improve efficiency and maintain the quality of products. We are able to impact the rate of loading and discharge in the case of vessels on time charters, where there are significant benefits to be gained from compressing the turnaround time. As a result, customers receive reliable, timely and competitive supplies at their chosen destination.
Marketing, Solutions and Services
Our extensive network and integration within the supply chain enables us to provide our customers with timely, consistent and reliable supplies as well as up-to-date information on the world markets. This has helped us forge privileged relationships with the end-users to whom we provide various value added services and customised solutions.
Our customers expect a reliable supply and efficient service. We achieve this by getting to know our business partners and determining their specific needs. We are dedicated to building unique and long term relationships with customers that reflect their individual requirements. We provide them with customised solutions, including special grades and quality, traceability, vendor-managed inventory solutions, organically certified supplies or fair trade produce certified supplies, market intelligence and tailor-made risk management solutions. We are able to provide such solutions because of our origination capability and direct presence at the farm gate where we have a clear line of sight and visibility of the chain of custody of the products which we source and supply.
Our offices in Singapore, London and New York form the axis for all our hedging activity, with rapid access via our brokers to the London (LIFFE), New York (NYBOT) futures exchanges, the National Commodity & Derivatives Exchange, Dalian Commodity Exchange and Zhengzhou Commodity Exchange and to our banks for covering our currency exposure. These offices form the key hubs for our marketing activities with experienced traders who are in constant contact with our customers worldwide.
To service the more specific customer requirements marketing offices have been established in Poland, Netherlands, Russia, France, Dubai, South Africa and China. In addition to our own marketing expertise and infrastructure, we have an extensive network of trusted and experienced agents, who complement our marketing capability with their in-depth understanding of the local markets.. With our origination skills, we are able to offer a level of service and information, which differentiates us in the market place. We have strong relationships with our customers, including major multinationals and support their supply chain requirements adding value and providing a reliable source of raw materials and customised solutions and services to them.
Distribution
Olam provides timely and cost effective deliveries to customers throughout the world. Our supply chain infrastructure and our close relationships with other logistics companies enable us to meet the specific needs of our customers which vary in terms of location, time of delivery, volume, and packaging. What differentiates Olam is our willingness and ability to service each client's unique requirements.
As one of the world's leading supply chain managers of agricultural products and food ingredients, we deliver products of a consistent standard to our customers in the destination markets. With expertise in shipping and logistics, we are able to manage the supply chain and provide cost effective delivery of our products. We also provide value-added services such as Vendor Managed Inventory (VMI), which involves the outsourcing of inventory activities by our customers to us to reduce working capital requirements and improve just-in-time practices by tapping our inventory management expertise. In order to understand our customers' requirements, we maintain regular communications with them, both pre-and post-delivery, through our network of offices and marketing agents/brokers.
The timely supply of products of a consistently high standard ensures that our customers can outsource their inventory management to us, while having complete confidence in our ability to deliver.
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