Strategic Management Analysis: PT. Bogasari Flour Mills

19 Oct 2021

Chapter I

INTRODUCTION

Opening

  1. Bogasari Flour Mills is a part of PT. Indofood Sukses Makmur, Tbk, that engaged in the field of wheat flour industry. This company was established on 19th of May 1969 as Perseroan Terbatas (PT) by 4 people, Soedono Salim, Sudwikatmono, Dhuhar Susanto, and Ibrahim Risjad. The establishment of Bogasari was initially encouraged due to 2 factors, which are: bad quality wheat flour production and lack of production domestically back then. Relying on import was also very hard because of the vast transportation track. Therefore, the quality had dropped significantly as it takes enormous time to enter Indonesia’s port. Then government had tried to find 4 investors that has privilege to establish wheat flour company which are those 4 people. Talking about business field, PT. Bogasari has 2 main product lines, wheat flour and pasta. Bogasari produced variety of wheat flour for different purposes under some prominent brands which are: Segitiga Biru, Kunci Biru, Cakra Kembar, Lencana Merah, and Taj Mahal. On the other hand, Bogasari is also the largest pasta producer, not only in Indonesia but in Southeast Asia however product line for pasta has only 1 brand that is called “La Fonte.” Despite only 1 brand, Bogasari has become the market leader in pasta moreover they successfully export it to Philippines, Korea, and Japan.

Company History

On 29th of November 1971, was the first day PT. Bogasari Flour Mills operated. First factory was built for the first time in Jl. Cilincing, Tanjung Priok, Jakarta Utara with 33 hectare of area that can produce up to 650 tonnes of wheat. As time went by, Bogasari couldn’t fulfill the demand with its current coniditon, then they proceeded to establish its second factory in East Java with 3.3 hectare of area. Then in 1992 they started to expand their market by introducing a new product line which is pasta. Although their first and foremost industry is still wheat flour, they tried to achieve market expansion with new product line and new market. They started to produce various brands in pasta product line which is “La Fonte.”  In 1970-1990, PT. Bogasari really has done a great progress on capacity production. They had established many new factories dispersed in various area of Indonesia. Their first capacity production was 650 tonnes, but as of now their capacity production has increased enormously reaching up to 200,000 tonnes. In 1999, was a great milestone for PT. Bogasari. This was the first time Bogasari exports wheat flour. The first export activity was to Singapore, they managed to exported 860 sacks of wheat flour. On 1st of December 1996, PT. Bogasari received ISO 9001 from United Kingdom. This means that PT. Bogasari had done brilliantly on their control process, operation, handling storage, internal quality audit, packing, and delivery. In addition, they also received ISO 22000 in 2007. As of now, PT. Bogasari has been still operating wheat flour and pasta to fulfill Indonesian people needs of wheat flour. Also PT. Bogasari helps Indonesian ecomonic greatly as wheat flour is an important commodity to export with. Looking back at its history until now, PT. Bogasari has been operating for 50 years, shows that PT. Bogasari has a great implementation of sustainability strategy.

Vision and Mission

Vission is what the organization what to achieve Bogasari’s Vision is to become an integrated leading company in producing premium quality wheat flour product including service related It can be seen that PT. Bogasari main goal is to be leading company in wheat flour industry with premium quality. To achieve this vision, PT. Bogasari set 5 missions as a guidelines that must be done.

Missions:

  1. Producing high quality products to meet customer needs
  2. Distributing products intensively to reach all potential areas, both in Indonesia and regional areas
  3. Developing human resource competencies
  4. Strengthening competitiveness by appling the right technology and effective process
  5. Trying to continuously add value to the company for the company stakeholders

There are 5 core elements here which are high quality products, a good distribution channel, human resource competencies, fighting competitor, and continuously doing innovation.

Customer Segment

Looking at Bogasari’s customer segment can be seen in 3 aspects, demographic, geographic, and psycographic. From the demographical aspect, Bogasari segments both male and female but adult only as we all know their product is related with raw materials means that it is not suitable for children. From the geographical aspect, Bogasari segments all areas in Indonesia despite when it first operated their segment focused on fulfilling Java demand only. But now, factories are dispersed everywhere means that the geographical segmentation of Bogasari is very wide. Moreover, Bogasari also exports their manufactured products to many other countries. From the psycographical aspect, Bogasari main segment is for people who are interested in cooking and baking. However, Bogasari also segments wide area for psycographical as their prominent wheat flour brands have different purposes. For instance, Cakra Kembar is for high protein level, Segitiga Biru is for middle protein level, and Kunci Biru is for low protein level. But it can be concluded that the main psycographical segment is for people who love baking.

Competitors

Bogasari has some domestic and global competitors. Bogasari is the market leader for wheat flour industry in Indonesian market. Some of the notable domestic competitors of Bogasari are Berdikari, Sriboga, and Pundi Kencana, etc. Here is a graph of market share for wheat flour industry in Indonesia.

Table 1.1 Market share of wheat flour industry in Indonesia

As one can see, Bogasari has a total domination since the beginning of establishment.

However, Bogasari is not a market leader in global wheat flour industry. Some of Bogasari notable global competitors are Euricom S.P.A, Pastaworks, Siemer Milling, Pilmico Foods, Helsinki Mills, and Zerega. Bogasari revenue is too low compared to these giants companies.

Marketing

Marketing is an aspect that every company must have. As we all know marketing mix consists of 4P which are product, price, place, and promotion. Talking about promotion, PT. Bogasari has done promotions in various ways. Their main promotion is by utilizing online platform such as their website. Also they have done

CHAPTER II

ANALYSIS AND DISCUSSION

Internal Analysis

Internal analysis is conducted to know your organization’s competency by pondering many aspects. According to the strategic framework, the first step si to analyze your resources both tangible and intangible. Resources are essential to work with. Tangible resources are consists of financial, physical, and technology whereas intagible resources are consists of human talents and innovation (something that can’t be seen). In this case, PT. Bogasari has great tangible resources as they have large capitals with the right technology to produce the wheat flour. Also, Bogasari also has their intangible resources consists of their manpower with talents. Next, is to know what is Bogasari’s capabilities. Capabilities is related with how the company does, represent the firm’s capacity to deploy it resources. Bogasari has a great capacity of production up to 200,000 tonnes, shows that it has an enormous capabilities.

The next framework is core competencies, it means that capabilities that serve as a resource of competitive advantage over its competitors. There are 2 main criterias in discovering core competencies which are 4 criteria of sustainable advantages. First, valuable means that what value do you offer to customer by exploiting your opportunity. In this care, Bogasari has a great value to offer by offering premium quality of wheat flour with decent price. Second, rare means that it is uncommon, not easy to be imitated. Although in general making wheat flour is all the same, but there must be some different steps to be done by wheat flour companies. Same with Bogasari, the steps must be secret following some great intricate steps. Third, hard to imitate means that capabilities that other company can’t copy. This is similar to the second one, the process must be intricate to be followed by others. As if other companies can follow Bogasari process steps, it will decrease Bogasari’s market share as they will sell wheat flour with the same steps. Fourth, non-substitutable. As we all know, wheat flour is a non-substituable product, it is inelastic. Unlike rice that can be substituted with noodle or potato. Hence, looking at criteria of sustainable advantages, Bogasari has already been great. The second one is value chain analyisis (e.g. outsource). Outsourcing requires a great capacity and connection, truly Bogasari doesn’t miss this one also.

Next framework is related with competitors. When we develop strategy, we must have a strategy that can handle competitors. There are 3 main strategic competitiveness that can be applied which are cost leadership, differentiation or value, and market niche. Cost leadership means that you gain your market more by selling product or services below market price (e.g. Xiaomi). Differentiation means your product must have a high value to gain your market (e.g. Apple). Last but not least, market niche means focuses on your product line with your segmentation (e.g. Eiger). All of these strategies must be chosen nicely by looking at the capabilites despite all the advantages and drawbacks. Competitive strategy of Bogasari will be discussed further in business level strategy. However the main point is doing what should be done fighting competitors derived from your internal analysis.

External Analysis

            After doing internal analysis, next step is to do external analysis. There are several factors that are in part of external analysis. Those factors are economic, sustainable physical, sociolcultural, global, technological, politic, and demographic. First off economic factor. This economic is related with the demand for consumer goods .In this case, PT. Bogasari is producing wheat flour. The demand of wheat flour since 1950 has been lacking as it was the embodiment of establishing PT. Bogasari Flour Mills. Therefore, looking at the demand then is quite nice. We will know that the market share of wheat flour is large as the demand follow it. Next on the line is about sociocultural. Sociocultural is related with cultures and societies that affect behavior, in other words this also can be perceived as habit or psygrophical aspect. The psychographical customer segment of Bogasari is people who loves baking cake. Definitely, it also high as the demand of wheat flour is also high. Sociocultural factor is linked with economical factor. After economic and sociolcultral factors, next factor to be considered is global factor. This factor is related with geographic condition that affect the resources and process of production. Talking about wheat flour production, the base material is wheat. This is not positive as Indonesia is one of the biggest country that imports wheat. It is stated in 2018, Indonesia is ranked 1 country of wheat import. BPS said that 6.1% of wheat import in the world occurs in Indonesia. Hence, in producing wheat flour Bogasari is extremely relying on import activity. Also it was said since 1950, Indonesia has been a country that imports wheat.

On the technological aspect, Bogasari is said to have many factories with its technologies and machines to fasten and boost production capacity with still minimizing risk and error. Producing such amount of wheat flour with just using manpower is hard to be done, relying on technology is much better, and Bogasari does it. Next factor is related with politic. Politic factor is related with government intervency. For instance, trade policy, tax, and tariffs, political stability, etc. Politic factor is truly postive for Bogasari. Looking back at the history of the establishment of Bogasari is empowered by government due to the supply of wheat flour can’t match the demand. Not to also forget that Bogasari exports their wheat flour to other countries which help Indonesian economic activity. It will bring positive affinity and surplus to the balance of trade. Hence it can be concluded that politic factor also supports. Last but not least is demographical aspect. This aspect is also linked with sociolcultural and economic factor. Indonesia is ranked fourth as a country with biggest population. Definitely follows the demand. The demand is truly high. Also Indonesia’s population is getting larger and larger. This is a positive impact towards Bogasari’s business. Hence, it can be concluded that economic, sociolcultiral, technology, politic, and demographic brings positive impact towards Bogasari but not global factor. In a big picture, external analysis factors stills support Bogasari as the advantages cover the drawbacks there.

The Five Forces of Competition Model

  • Threat of New Entrants

The usage of wheat flour on daily basis is growing significantly, this means that there will might be many new entrants joining this industry. However, PT. Bogasari is the market leader of wheat flour industry in Indonesia. They have dominated the market since it first operated. The amount of factories, capital, and brand name are everything that Bogasari has. It is stated that Bogasari can produce wheat flour up to 200,000 tonnes with premium quality. It can be concluded that although there will be many new entrants in the future but to dominate the market is truly hard. Hence the threat of new entrants is low.

  • Rivalry among Competing Firms

In every businesses, competitive is inevrtable, likewise wheat flour industry. PT. Bogasari as mentioned before is the market leader of wheat flour industry in Indonesia. They have the biggest production rate with premium quality. Also, they have tens of factories that manufacture it. Looking at the table 1.1 in the introduction part, Bogasari has over taken roughly half or 50% market share of wheat flour industry in Indonesia. But it is important note to be taken that some domestic competitors of Bogasari are Berdikari, Sriboga, Panganmas, and Pundi Kencana. Hence the threat of rivalry among competing firms is low.

  • Threat of Substitute Product

As we all know, wheat flour is an important raw material to be used. Almost every baking activities are using wheat flour as its main ingredient. Wheat flour is inelastic as there is no substitution towards wheat flour. Different with rice (elastic) it can be replaced with noodles or potato. However wheat flour is wheat flour. It can’be replaced with other ingredients. Hence the threat of substitute product is low.

  • Bargaining Power of Buyer
  1. Bogasari is considered as B2B or business to business. It means that Bogasari’s buyers consist of organization or firm not direct customer. Besides domestic market, Bogasari also exports their wheat flour to other countries such as Singapore, Japan, Korea, etc. Bogasari is a big company and market leader means that they can reject customer if it’s not lucrative for Bogasari. Bogasari mainly controls the price. Hence the bargaining power of buyer is low.
  • Bargaining Power of Supplier

When talking about supplier, PT. Bogasari mainly get their materials from other countries. This is due to the fact that wheat flour quality in foreign countries are better than Indonesia. As it is stated in the vision and mission that Bogasari also pays attention to its quality. This can be concluded that Bogasari is still very dependent to suppliers. Imagine if Bogasari stop the connection, Bogasari needs to find other suppliers with the same quality. Bogasari can’t control the supplier but the supplier control it. Hence the barganing power of supplier is high.

Competitive Dynamics

In a business, competition is inevitable. Competitive is a common thing. First of all, it is important to be stated that PT. Bogasari is the world largest wheat flour producer in the world with a capacity of 3.6 millions tons per year. It shows that based on the production level, PT. Bogasari is on the top among it competitors. Next step is to know who are your competitors. According to Zoominfo, these are some international competitors that PT. Bogasari competes: Euricom S.P.A, Pastaworks, Slemer Milling, Pilmico Foods, Helsinki Mills, and Zerega. Judging from its revenue in international market, Bogasari has over $11 Million revenues. However, Euricom has $17 Million, Pastaworks has $20 Million, Slemer Milling has $28 Million, Pilmico Foods has $19 Million, Helsinki Mills has $12 Million, and Zerega has $58 million. Also these are some domestic competitors that PT. Bogasari is currently competing with: Berdikari, Sriboga, and Panganmas. Looking at the graph on previous years since 1998, Bogasari has already among the top compared to its competitors domestically (table 1.1). PT. Bogasari always has the biggest market in terms of wheat flours from years to years. A company is strong enough, when they have power above 50%, but just looking at the upper graph, judging from 1998 to 2009 Bogasari not just wins the market, but they also had market above 50% each year.

Hence, it can be concluded that although Bogasari is the biggest wheat flour production in the world, Bogasari is still trying to compete international market despite Bogasari has already conquered wheat flour industry in domestic market (Indonesia). Now looking at the market concentration to show how great is Bogasari dominates domestic market. Now judging from the market concentration, according to Aptindo:

Table 2.1 Market concentration of wheat flour industry in Indonesia

This is the market concentration of PT. Bogasari. Looking at the market concentration from CR1, CR2, and CR4, it shows that wheat flour industry really dominates the market. This shows that the demand of wheat flour is really big which can be fulfilled easily by domestic production. Hence, it is very easy for new competitors to enter the market as the substition product is really big. Now looking at the internal facility that manufacturing the products, Bogasari has a vast facility that is utilized in daily operation. They have over 30 Ha of space, modern laboratory with great and educated manpower, dock with a capacity over 3.200 tonnes, and many trucks. This facility truly helps the internal process of Bogasari in dealing with its dailty activities. Just by comparing the facility, other wheat flour industry companies are not as prestigious as Bogasari. Hence, it can be concluded that in competitive dynamics, PT. Bogasari has succeeded compete with domestic competitors but not with global competitors.

Business Level Strategy

Competition in business is inevitable. To survive in business one needs a strategy on how to compete with competitors. This is called as a business level strategy. There are 3 main cores in business level strategy which are cost leadership, differentiation, and market niche or focus. Cost leadership means that you compete with competitors taking their market share by selling the product with lower price than your competitor. This will attract customers more as it is a human nature to always buy product that is cheaper. Differentiation or value is different with cost leadership, they emphasizes on values. They compete with competitors not by price metrix but on value. The value that they offer to customers are big despite the pirce is above average. Last bt not least, is focus or market niche. This last strategy focuses on market niche means that they only focus on 1 product or product line. The benefit of using this strategy is that you can really focus on your segmented customer with your focus product. This might gain customer loyalty better than cost leadership and differentiation. But in a broad way, there are 5 business level strategies in management which metrixes basis for customer value and target market. Basis for customer value means that what do you offer to customer whereas target market explains on how big your target market is. Those 5 business level strategies are: Cost leadership (low cost and broad market), focused cost leadership (low cost and narrow market), differentiation (distinctiveness and broad market), focused differentiation (distinctiveness and narrow market), and integrated cost leadership/differentiation.

In this case, PT. Bogasari business level strategy is cost leadership. The basis for customer value is that they sell products with cheap price with broad target market. As we all know that their industry is wheat flour. Wheat flour is a basic ingredients raw material that has high demand everywhere. Bogasari knows their customer and they are trying to gain market share by selling cheap price. Wheat flour has a very high demand better to gain the market share by utilizing cost of production and price. Bogasari also utliizes technology which affect their error and risk. Error and risk are something that might plague the process of production which will entail extra cost. On the other side, their target market is broad as their segmentation is also very broad. It is very difficult to utilize either differentiation or focus strategy because differentiation means value. It is not easy to give extra value to something that is high demand. Differentiation is better to be implemented in specific products not raw material. For instance, mobile phone, car, taste, etc. Whereas focus is also not. Bogasari has many brands in it with, this is not focus. Also they sell pasta too which is a different product line. Hence it is best to take note that PT. Bogasari only focuses on cost of production and price. But despite low price and low cost of production, they still ponder profoundly on the quality as their vision is to be the market leader but not forgetting the quality.

Type of Diversification

  1. Bogasari Flour Mills is built in 1970, firstly they initially start with producing wheat flour only. They also started many manufacturing factories. After many years passed saw a great result was seen in 1991. As a result of that they were trying to implement one of the strategies in market development which is “diversification.” Diversification strategy means that PT. Bogasari should have new product for new market different with market penetration which focuses same product with same market or product development (new product, same market) or even product development (new market, same product). First, they were only producing wheat, but they had started to implement new products which are pasta and macaroni. In 1991, they built a new special factory specializes in pasta.

In a nutshell, it can be concluded that PT. Bogasari has 2 product lines in their diversification aspect which are wheat flour and pasta. In wheat flour product line, PT. Bogasari also produced a variety of flavor for different purposes under some prominent and prestigious brands. Some examples of it are Segitiga Biru, Kunci Biru, Cakra Kembar, Lencana Merah, and Taj Mahal. Every single of this are different. Segitiga Biru is a type of wheat flour that is usually used for making all kind of snacks including cup cakes, brownies, pund cakes, etc.This flour has a strength which is their flexible and practical type of wheat flour. Kunci Biru is a type of wheat flour that specializes on cookies cakes, biscuits, and water. The characteristic of this type is that it has low water absorbency level, means that it specific for food that is usually fond with water. Cakra Kembar is a type of wheat flour that specializes on noodles and bread. It also has high water absorbency level. Lenana Merah is a type of wheat flour specializes for making traditional cakes, fried snacks, moon cake, ice cream cone, etc. It specialty is for fried snacks not related with water unlike the 2 before. Lastly, Taj Mahal is a type of wheat flour specializes for making Indian flat bread mixed with plain flour. As we can see here, even in one product line, PT. Bogasari also has a profound detailed products in its brands. Different from their wheat flour product line, their pasta product line only has 1 brand in it which is called “La Fonte.” La Fonte has 2 types spaghetti and macaroni. It processed from selected drum wheat with high protein and fiber but low fat.

From the analysis, there are 3 types of diversification which are low levels of diversification, moderate to high level of diversification, and high level of diversification. Looking at the revenue level, PT. Bogasari is considered in low level of diversification (dominant business). Dominant business in low level of diversification means that between 70% to 95% of revenue level come from a single product line. PT. Bogasari main revenues come from wheat flour production. There are 2 factors on why the wheat flour covers their revenue up to 70 to 95%, first wheat flour is their first and foremost product line from 1970. It has a great sustainability even now has been operating for 50 years. Second, many brands are integrated in wheat flour product line such as Taj Mahal, Kunci Biru, etc. whereas pasta line only has 1 brand which is La Fonte.

CHAPTER II

SUMMARY AND SUGGESTIONS

  1. Bogasari is Flour Mills is the world largest wheat flour producer in the world with a capacity of 3.6 millions tons per year. The reason behind the establishment of Bogasari is due to 2 factors which are: lack of wheat flour production in Indonesia, the supply can’t match the demand. and bad quality wheat flour production. Moreover, government was the one who behind it. oCurrently Bogasari is the market leader of wheat flour industry in Indonesia beating its competitors gaining market share up to 50%. Bogasari’s vision is to be the market leader of wheat flour industry but still producing with premium quality. To achieve the long-term vision, Bogasari emphasizes on high quality products, a good distribution channel, human resource competencies, fighting competitor, and continuously doing innovation.

To know whether Bogasari has been operating good or not derives from the analysis. There are 6 fundamental analysis that are used which are: Internal analysis, external analysis, the five forces of competition model (Porter), competitive dynamics, business level strategy, and type of diversification. First off, internal analysis. Bogasari has vast capabilities, resources, and core competencies. It is said that they have 200,000 tonnes capacity of production perday, great resoures, and values. Next, is external analysis. Based on this, economic, sociocultural, technology, politic, and demographic are all supporting Bogasari business. The demand of wheat flour is high, government eases the export and import of wheat and wheat flour to encourage the balance of trade, technologies that are used in operating wheat flour are advanced. However global environment is not supporting as main raw material to make wheat flour is wheat. Indonesia currently is not good in producing wheat on their own, hence they really rely on import from other countries. After both internal and external analysis, is 5 porter forces of competition model. The main conclusion is, threat of new entrants, rivalry among competitive firms, threat of substitue product, and bargaining power of buyer are all low which is good for Bogasari. On the contrary, bargaining power of supplier is high means that it is not good for Bogasari. As Bogasari really relies on importer, without the importer the wheat flour can’t be produced. From competitive dyanmic aspect, PT. Bogasari is the market leader of wheat flour in Indonesia but lost when competing globally against other giant multinational companies. Next up is business level strategy. Bogasari mainly utilizes cost leadership strategy means that they sell product cheaply with large target market. Last but not least is type of diversification, Bogasari has 2 product lines which are wheat flour and pasta. Wheat flour line has some prestigious brands whereas pasta line has only 1 brand which is La Fonte but it is already the best out there in Indonesia. The type of diversification is low leverl of diversification (dominant business). Dominant business in low level of diversification means that between 70% to 95% of revenue level come from a single product line.

Regarding suggestions, from my point of view I want to give a suggestion on improving the supply. As we can see from the external analysis that talks about global aspect and porter talking about bargaining power of supplier is emphasizing on not really good supply. Bogasari really relies on supply from other countries, to state the fact, it is very hard to produce wheat in Indonesia as it requires special temperature and soil (rainfall 600 mm and pH soil of 6.5 – 7.1) but there’s still a room of improvement. To increase the company performance, they need to invest more on producing wheat domestically. If Bogasari doesn’t rely on import anymore, it can reduce cost more. I genuinely believe despite this is hard but this is the best choice to reduce cost and make overall company performance to be better than before.

References:

Websites:

 

Journals:

  • Ang, Hendry. “Model Supplay Chain Management dan Perancangan Aplikasi E-SCM pada PT Indofood Sukses Makmur Tbk Bogasari Flour Mills Division.” The Winners, vol. 15, no. 1, 2014.
  • Andriani, A., & Isnaini, M. (2011). Morfologi dan Fase Pertumbuhan Gandum. Balai Penelitian Tanaman Serealia: Maros.

 

 

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