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Supply Chain Analysis of Emerald Durian Palace, Tagum City, Davao del Norte

Barredo, Maria Jeaia Alexia

Boborol, Honey Jane

Gica, Eugenio Jr.

Peñaflor, Jan Kendrick

Onella, Rona Allyn

BS Agribusiness Economics

1st Semester A.Y. 2014-2015

University of the Philippines Mindanao

MGT 191: Supply Chain Management

Nikko L. Laorden

Instructor

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Chapter 1

Introduction

1.1 Background of the Study

Food and beverage processing has been considered as the most dominant

manufacturing sector in the country due to its 58 percent contribution of the total

manufacturing output and 20 percent of the country’s gross domestic product (Mabasco,

2011). Food processing has been used as a technique to prolong the shelf life of a food

product. It may include a diverse range of chemical and physical treatment. Food items that

are minimally processed are washed, peeled, diced, trimmed and packed. These food items

remain in a fresh state wherein it doesn’t undergo freezing and thermal processing. Fruits

processed as fruit concentrates, jams, jellies, preserves and syrups are added with sufficient

amount of sugar and is heated at 60-82C which results to reduced water activity and reduced

bacterial growth (Hui, 2008).

Mindanao, as known to be the fruit basket of the country produces lots of agricultural

commodities such as banana, papaya, mangosteen and durian. Durian has been synonymous

to Davao because of its abundance in the region. Davao Region has been labeled as the

Durian republic of the Philippines. In 2010, the city government has recorded at least 36,800

metric tons of Durian that have been harvested from different parts of Davao City (Bacongco,

2012) To increase its shelf life, some Durian fruits undergo food processing and is turn into

processed products such as jams, jellies and pastries. These products have been well known

pasalubong for tourists, travelers and vacationers who visit Davao.

Many business firms have ventured into durian processing. Establishments such as

Lola Abon’s and Apo ni Lola are some of the major durian processors in Davao City. In

Tagum City, Davao del Norte Emerald Durian Palace is one of the leading durian processor.

It was established on 2006 with durian jams as their first processed product. Over the years,

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they have improved and ventured into other processed products. They now have over ten

processed durian products such as tarts, pastillas, polvoron and yema. Their products have been

distributed all over the city, through their very own plant and distribution center, in the malls,

schools and several commercial and business centers. These products are also being sold in cities

around Mindanao such as Davao City, Cotabato City and Zamboanga City through department

stores and other outlets.

Emerald Durian Palace has its own farm that supplies the durian fruit necessary for

processing. They have more or less 6000 durian trees in their 50 hectare farm. The durian

fruit is processed in their own plant that has acquired new technologies and techniques to

assure the quality and efficiency of production. Occasionally, they buy durian fruit from other

farmers but this only amounts up to 10 percent of their production. This is done to utilize the

surplus of the farmers, and those that are slightly damaged and over-ripe which are

considered unmarketable to consumers.

1.2 Statement of the Problem

Durian processing is one of the most ventured businesses in Davao. A lot of similar

product is available in the market. Differentiating a durian processed products from its

competitors is a challenge for the company. Emerald Durian Palace also distributes by bulk

which does not favors the preference of individual consumers, which is to buy in retail packs.

They also have few retail outlets which could be a problem for the company. Also, the supply

chain of the company is very limited because they supply their own inputs.

1.3 Objectives of the Study

This study would like to assess the supply chain of the processed

durian products of Emerald Durian Palace. It also aims to identify the market competition

among processed durian. Also, this study would like to map out the supply chain of durian

candy production, assess the chain performance, and to identify possible areas for

improvement. Specifically, the supply chain will be assessed with respect to function, market,

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actors and flow of the chain.

1.4 Significance of the Study

This study is designed to help Emerald Durian Palace to strengthen their company.

This aims to identify possible areas of improvement in the supply chain management, thus

making recommendations for the company. This study may also help those who want to

venture in this kind of business.

1.5 Scope and Limitations

This study focuses only on the qualitative improvements of the company. Other

possible improvements such as profit maximization and cost minimization were not included

in this study. Also, this study only focuses on the supply chain management of Emerald

Durian Palace factors like location, competitors and pricing were not quantified in this study.

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Chapter 2

Methodology

A. Data Collection

The data we have acquired are from primary and secondary sources. The primary data

have been gathered through interviews with key informants with the help of the Emerald

Durian Palace Authority and some retailers whom we have interviewed. The secondary data

has been acquired through the internet, published journals, articles, as well as theses of

previous studies of students in the university.

B. Data Analysis

The analysis of our data was done through STEEP Framework and Porter’s 5 Five

Forces Model. Gathering all these information will identify the possible innovations for the

firm to achieve maximum efficiency and flaws which could affect their operations in the long

run.

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Chapter 3

Results and Discussion

Supply Chain of Processed Durian Products

Emerald Durian Palace is located at Tagum city, Davao del Norte. They are known for

their production concept of “real durian”, where they provide a guarantee of no artificial

flavorings added in their durian products. The main source of their raw durian inputs came

from their own farm contributing 90% of the overall production, while 10% of the remaining

portion came from different farmers located in Tagum city. With an area of 50 hectares fully

planted with 6000 durian trees, their quality assurance of durian is unquestionable. The raw

materials gathered from other farms were monitored and selected based on the quality of

durian fruit produced.

3.1 Supply Chain of Durian

The main actors in the durian fruit supply chain are the input suppliers, farmers,

processor, inspector, transporter, retailer, and consumers. Figure 1 shows the supply chain

system of the durian fruit industry.

Figure 1. The Supply Chain System of Durian Fruit in Tagum City

Each actor has a specific characteristic which makes them unique from others. Input

suppliers are responsible for the inputs needed by a farm and firm or industry to operate;

durian farmers, in this case the Emerald durian farmers and other farmers, are supplying raw

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durian fruits to the next actor of the chain which is the processor wherein they manufacture

or creates additional value to the raw material; inspectors checks the quality of the processed

good and provides appropriate certifications for each kind; transporter transports the products

to different retail outlets; retailers sells and presents the firm’s products to the consumers; and

lastly, the consumers buy the processed products and decides for the quality of the good a

firm has produced.

3.2 Supply Chain Sub-system

Durian products can either be sold as fresh fruit or processed good. In this case, the

Emerald Durian Palace as the core of our study creates additional value to the durian by

processing it into tarts, pastitlas, empanada, hopia, polvoron, yema, cookies, cake, Brazo de

Mercedes, roll, pie, pudding and buns. Their quality assurance and production concept of

“real durian” has made them competitive in the processed durian industry. Furthermore, we

have identified the sub-system of the supply chain system of durian fruit and led us to the

supply chain of processed durian products of Emerald Durian Palace.

Figure 2. Supply Chain of Processed Durian Products of Emerald Durian Palace

Figure 2 shows the supply chain of processed durian products of Emerald Durian

Palace. The supply chain sub-system of durian fruit is actually the supply chain of Emerald

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Durian Palace’s processed durian goods. This sub-system is the processing part of the supply

chain system where durian fruits are added with value to create different varieties that could

provide more satisfaction to the consumers. The sub-system starts with the input suppliers of

Emerald Durian farm. These suppliers provide fertilizer, other chemicals, and equipment to

the farmers to aid them on their production. Emerald Durian farm comprises 90% of the total

raw durian input for processing, while the remaining 10% came from different farmers in

Tagum city. After thorough selection and quality inspection, these durian produce will

undergo several processes in the Emerald’s processing plant which includes packaging

(according to kind, class, etc). Inspectors from Halal, a certifying body, visits their

production site to monitor and evaluate whether or not the firm complies with the standards

being set. When the firm and the processed durian products have been certified true halal, a

distribution body from Emerald distributes the products to different retail outlets such as their

main retail outlet, supermarkets, and pasalubong center. These outlets present the durian

products to different consumers and the final consumers would decide whether the product

has achieved their standards.

3.3 Value Creation

Their product concept of “real durian” and Halal certified processed durian products

has made them cater several customers especially Muslims. This adds value to their products

which makes them more competitive in the industry of processed durian products.

3.4 Chain Governance

Being the champion of the chain, Emerald Durian Palace maintains the good quality

of their products by ensuring that the standards set by the firm, from raw materials to end

products, and other certifying body is achieved. To avoid wastage of input supplies, the firm

monitors the quality of their durian fruits and provides majority of the raw materials

(accounting 90% of the overall durian input supply); while a portion of 10% is taken from

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other durian farmers within Tagum city.

Since majority of the processes involving the production of processed durian products

is performed by Emerald Durian Palace, the firm encourages labor from different individuals

within the vicinity. This provides profit not only for the firm but also for the laborers. The

certifying body from Halal visits the processing site of the firm to inspect whether or not the

firm has met the standards set. Given these standards, the processed durian products sold by

the firm has complied all the regulatory process involved and are certified Halal products.

The firm has received an Award of Excellence from Davao City’s Chamber of Commerce &

Industry, Inc. for their durian jam being an accredited brand that has achieved the minimum

criteria for quality and safety standards.

3.5 Porter’s Five Forces Analysis

Barriers to Entry

Low

Rivalry among

Competing Firms in

Industry

High

Bargaining Power of Buyers

Low

Bargaining Power of Suppliers

Low

Threat of Substitute Products

High

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Bargaining Power of Suppliers

Emerald Durian Palace has their own input supplier or own farm. Only 10% of their

raw materials come from other Durian Farmers. Farmgate suppliers of Durian are seasonal

and contracted only. Overall, they have no market power except for the biggest producers.

Emerald Durian Palace itself is a processor and a wholesaler of Differentiated Durian

products. They impose high bargaining power to their wholesalers since they are producing

huge quantities of processed durian products that are differentiated and have high quality.

Barriers to Entry

Durian products nowadays are highly differentiated. For the processors, acquiring

technology may require high capital input and needs differentiation of products.

However, retailing processed durian products requires minimal capital input and has high

incidence of market entrants.

Bargaining Power of Buyers

As per mentioned that Emerald Durian Palace itself is a processor and a wholesaler

of Differentiated Durian products. Although they are producing high numbers, they have a lot

of substitutes in the market. However, since the company also have their own distribution

centers, considering Emerald Durian Palace as a supplier, their buyers does not highly affect

as to their importance to Emerald Durian Palace.

Threat of Substitute Products

To the wholesalers, they impose high threat of substitute products since only a

few companies like Emerald Durian City produces in huge quantities of processed durian

products in the local region and since most of the suppliers of the processed durian require

high quality of products that is demanding for better technology.

For retailers, this thereat imposes a very high incidence of substitute products since

processed durian products are part of the desserts category wherein consumers can choose a

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lot of available choices.

Rivalry Among Competing Firms in Industry

There is a high rivalry among the firms in this industry because the processed durian

products require high differentiation and cost for technology is demanding and requires high

capital

Competitors in this industry are fast paced and they must update products due to high

competition and rivalry.

3.6 STEEP Analysis

Social-Cultural

Emerald Durian Palace provides scholarships for deserving aspirants that

allows them to have an opportunity to have a job in the said company. As a part of Emerald

Durian Palaces’ social responsibility, the donated to those flooded victims. They also provide

orientation seminars for small-scale farmers who want to venture in agricultural business

Technological

For retailers, most of their losses do not come from pilferage or personal consumption

but instead from the quality of durian that they are selling. The quality of durian in retail

stores greatly depends on how the product is being handled by the traders during transfer and

transport. As much as possible these activities should be minimized in the chain, even if

durian is a sturdy solid fruit but the way it is handled it can still be damaged. One of the

many reasons that contribute to the poor quality of durian can be attributed to product

mishandling.

Economical

The absence of supply, demand, price, and other relevant market information is a

considerable constraint for expanding the market of durian, particularly taping the export

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market. Expansion would necessitate the determination of current supply and demand

situation, the specific markets and their requirements as well as whether existing supply

chains are able to meet such requirements.

Environmental

Growers lost majority of their production from pests and diseases. Majority of them

blame the production loses from Phytophthora palmivora a soil-borne fungus which

continues to wreak havoc in many durian producing areas. It causes the most devastating

diseases among durian fruits, affecting all stages of the cropping cycle. Rats and fruit and tree

borers combined with the dreaded disease would affect an annual yield of as much as 30%.12

Political

Durian can take advantage of the lower tariff in the world market and trade

liberalization under the General Agreement on Tariffs and Trade (GATT). Global demand,

particularly Asia, offers bright opportunity for the industry

Formulation and availability of the National Road Map for fruit crops in the

Philippines is initiated by the Department of Agriculture (DA). The objectives are to increase

of-season production, reduce post-harvest loses, expand market, and produce globally

competitive processed products.

When it comes to processed durian products they strictly require processors to be

registered under the Bureau of Food and Drugs (BFAD) and Halal certification. A

supermarket in average can sell 250 kilos of fresh durian a week and 650 packs of assorted

processed durian products. Souvenir shops “pasalubong centers” and fruit stands around the

region sell not only fresh durian but also processed durian in most cases.

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Chapter 4

Conclusion and Recommendations

4.1 Conclusion

Emerald Durian Palace is a firm that specializes on processed durian production (i.e.

durian tars, durian candy, durian cake, etc.). All processes along the chain are handled by the

firm – from the harvest of raw inputs to processed durian products.

Based on the Porter’s Five Forces of competition, it is shown that the bargaining

power of both suppliers and buyers are low. Since Emerald Durian Palace has its own durian

farm they rarely need to get supplies from external suppliers. Buyers also have low

bargaining power which means that the firm does not necessarily need to adjust to the

customers wants (i.e. lower price but higher quality) in order to survive in the industry. The

threats of substitute products and rivalry among firms are quite high. Durian processing is a

fast paced industry and Emerald Durian Palace has to keep up and update new technology

and include new services in order to lessen the threats of substitute products as well as fend

off increasing competition among firms.

4.2 Areas of Improvement

Include new and unique products and services in order to lessen threats of

substitute goods.

Increase competitiveness by upgrading technology and increasing marketing.

Keep buyers satisfied by producing high quality products.

Buyers would be more enticed to buy from Emerald Durian Palace if they sell their

products in smaller packages.

Increase production of high selling items like Durian cake and Durian rolls.

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Chapter 5

Reference List

Macabasco, D. R. (2011, May). A Brief on the Processed Food and Beverage Industry in the

Philippines. Retrieved from Agriculture and Agri-Food Canada: http://www.ats-

sea.agr.gc.ca/ase/6212-eng.htm

PHILEXPORT. (2012). The Philippines: General Economy and Export Industry. Retrieved

January 31, 2014, from Philippine Export Confideration, Inc.:

http://www.philexport.ph/philippines-economy