Lapjang Tea is a tea manufacturer based in Pakistan, which has two factories and sells its tea through distribution centers across the state. The tea from the local port in Karachi is transported to the two factories and then to the distribution centers. The strategic issue that Lapjang Tea’s management has faced is Ahad Walla’s decision to terminate the transportation contract. This paper will analyze the strategic issue that Lapjang Tea faced and recommend an action plan.
To analyze the issues presented in the Lapjang’s Tea case study, the root cause approach is used. The transportation company that Lapjang Tea partnered with terminated its services, requiring Lapjang’s management to either find a new transportation company or renegotiate their contract. This problem came in conflict with Lapaj’s strategic plan to expand the geography of their sales. The root cause of the issue was Ahad Walla CEO’s dissatisfaction with Lapajang’s untimely payments for the invoices, which is why he decided to terminate the full truckloads (FTL) contract (Rehman et al. 2). From the viewpoint of Lapaj’s management, however, they have established supplier payment policies, with payments issued 15 days after the invoice was submitted.
The termination of contracts is most probably linked to a miscommunication issue between the personnel at Lapjang’s logistics department and Ahad Walla’s employees. Rehman et al. note that Ahad Walla is an old-fashioned company, which utilizes old trucks and a pre-trip or per kilometer pricing model (4). Moreover, their trucks do not have GPS and other advanced safety systems, which in Pakistan are crucial for protecting the tea from hijackers. Rehman et al. also mention some issues with the staff since “his support staff had a poor business understanding” (4). Hence, the approach to business that Ahad Walla’s management has practices was outdated, considering that Pakistan’s logistics market was booming, with MNCs and new companies offering advanced payment models, truck availability depending on the customer’s needs, and technology inside the trucks. From the perspective of Porter’s 5 forces, Ahad Walla’s power as a supplier is limited because the logistics competition is intense.
Lapjang Tea should negotiate a logistics contract with the new transportation company. As Rehman et al. note, Ahad Walla will receive all of their payments within 60 days after the termination of cooperation and will no longer have any ties to the tea company (3). These recommendations will help solve the problem because it is unclear what caused the invoice payment conflict, apart from Lapjan’s CEO’s absence from the office, which is an issue that can be settled. However, Ahad Walla’s trucks are outdated, and this company has little competitive advantage over the others. Considering that Lapjang plans on implementing a new enterprise control system that will require the trucks to have GPS, the contract with Ahad Walla would be terminated eventually regardless of this conflict.
Considering that the case study outlines the new model of logistics companies in Pakistan, where several providers share trucks, allowing to tailor to the customer’s capacity needs, Lapjang Tea should request more trucks from these companies to cover for the temporary absence of Ahad Walla. This recommendation targets the concerns that the tea will disappear from the shelves if they are unable to replace Ahad Walla. From the perspective of costs, Ahad Walla charges more per kilometer than open transporters, while multinational corporations work on a dedicated cost per month basis (Rehmn et al., 5). Hence, from the perspective of costs, Lapajan would also benefit from changing its transportation company. However, since the tea manufacturer aims to have two companies as their transporters to account for competition, they should negotiate a new contract with the new provider.
Rehman, Abdul, et al.. Lajpal Tea: Black Gold At Stake—supplier Selection. Ivey Publishing, 2019.