ASSESSMENT OF RESOURCES
In a resource-based view, a company or firm is emphasized to utilize its resources to create a competitive advantage which results to value creation. These resources are specific assets useful of the firm which is superior against its competitors’ and creates a competitive edge for the company. Such resources are divided into two: tangible and intangible resources.
Tangible resources are physical assets used by the firm when performing value-creating activities. These resources include:
Financial resources are valuable funds which put the operations of a company to work. It is neither rare nor inimitable, and thus can be substitutable due to numerous ways of acquiring finance, such as through loans and stock issuance or even donation. The current resources of Central Azucarera de Tarlac, based on the financial analysis within the chapter is quite high of which indicates that the company has the ability to pay off its short-term finances.
Physical resources such as raw materials, machineries and equipment are essential in the company’s production. Competitive advantage can be achieved through effective and efficient production process. The raw materials, sugar cane, are harvested within the Tarlac district and nearby towns of Pampanga. Central Azucarera de Tarlac may surpass its competitors by using crops with better quality.
Using of intense mechanization involving traffic of heavy machinery from planting to harvesting and transporting to the sugar mill or distillery.
In sugarcane weeds have been estimated to cause 12 to 72 % reduction in cane yield depending upon the severity of infestation.
This is the distribution of plant nutrients more evenly throughout the wetted root zone resulting in increased nutrient availability & uptake contributing to higher crop growth rates and cane yields.
Harvesting of sugarcane at a proper time i.e., peak maturity, by adopting right technique is necessary to realize maximum weight of the millable canes (thus sugar) produced with least possible field losses under the given growing environment. On the other hand, harvesting either under-aged or over-aged cane with improper method of harvesting may lead to loss in cane yield, sugar recovery, poor juice quality and problems in milling due to extraneous matter.
Central Azucarera de Tarlac is a corporation duly organized and existing under and by virtue of the laws of the Philippines. The company believes that corporate governance is a necessary component of what constitutes sound strategic business management and will therefore undertake every effort necessary to create awareness within the organization as soon as possible.
Corporate governance is the framework of rules, systems and processes in the company that governs the performance of the Board of Directors, management, employees and shareholders. It is also a system of direction, feedback and control using regulations, performance standards and ethical guidelines which aims to maximize the organization’s long-term success. To pursue their organization-wide objective the Board of Directors and management of Central Azucarera de Tarlac commit themselves to the principles and best practices of their company.
Intangible resources are skills and knowledge the company has employed that hosts a competitive edge in the production and managerial processes. Intangible resources of the company include:
1. Human Resource
The company shall be headed by a competent, working board to achieve the long-term success of the company and sustain competitiveness and profitability. Aside from the board, Central Azucarera de Tarlac is managed by 6 officers, namely the Chief Executive Officer (CEO), President and Chief Operating Officer (COO), Treasurer, Vice President for Finance, Corporate Secretary, and Assistant Corporate Secretary.
As of June 30, 2017, 321 employees and over 6,000 farmers also serve the company. CAT treats their employees as their most valuable and unique assets. Thus, they are provided with dental, parking, life insurance, medical, loans, and miscellaneous allowance benefits.
Product differentiation is virtually non-existent in a commodity industry. Buyers often patronize products that cost less but are of high quality. Such quality and efficiency could be improved and met through conducting research and development techniques. Envisioning itself as a globally competitive company, Central Azucarera de Tarlac must engage in activities that promotes such vision.
Table 5. Assessment of Resources ; Sources of Competitive Advantage
Valuable Rare Difficult to Imitate Difficult to Substitute Implication for Competitive Advantage
Financial Yes No No No Competitive Parity
Physical Yes Yes Yes Yes Sustainable
Technological Yes Yes Yes Yes Temporary
Organizational Yes Yes Yes Yes Sustainable Competitive Advantage
Human Resource Yes Yes Yes Yes Sustainable
Innovation Yes Yes Yes Yes Sustainable
The physical, organizational, human resources and resource innovation of Central Azucarera de Tarlac are capable of promoting sustainable competitive advantage since these resources are rare, valuable, difficult to imitate and difficult to substitute. The financial resources of CAT is at competitive parity with its competitors since there are different mode of acquiring short and long term finances offered to any company and is not unique in favor of the company. Although technology of the company may be deemed as rare and difficult to imitate, technology is only said to be temporary competitive advantage since these assets of the company diminishes in such that it can only be used for a specific period of time or its useful life. Overall, the company’s tangible and intangible resources offer a competitive edge against its competitors.
PORTER’S VALUE CHAIN MODEL ANALYSIS
Every firm is a collection of activities that are performed to design, produce, market, deliver, and support its products (Porter, 1985). The company creates value by performing activities identified by Porter as primary and support. Each activity has a significant role in achieving competitive advantage as well as attaining success of the company.
The primary activities within Michael Porter’s value chain provide the firm a competitive advantage against competitors. The following are the primary activities involved in Central Azucarera de Tarlac’s value chain:
The company does not practice inbound logistics. Rather than importing crops needed for its production, the Central Azucarera de Tarlac plants and harvests its raw materials, sugarcane, which shall be refined into its final product to be distributed to firms, dealers and retailers associated with the company.
The production processes of the company are essential to its growth and profitability as it affects the product quality. CAT uses its resources efficiently by producing several products and by-products. Initially, sugar cane is processed to produce sugar. Most of which are processed in the refinery into refined sugar. Molasses are produced as a by-product in the refinery. The combined captive molasses of the mill and refinery is processed further in the distillery to produce alcohol. Finally, slops from the distillery are utilized by the carbon dioxide plant to produce liquid carbon dioxide.
Central Azucarera de Tarlac values its labor force as much as its processes. The company considers the human resource as its most valuable assets and a source of competitive advantage. Training, coaching and counseling are provided for the employees to attain individual growth in their career.
Teamwork and communication are exercised in every part of the business operations. The employees uphold and adhere to the organizational goals, rules and regulations, and code of conduct. Additionally, it is ensured that no resource is put into waste. Through these practices, Central Azucarera de Tarlac executes efficient and effective business operations.
Support activities make sure that the primary activities of the value chain are efficiently performed. The following are the support activities in the value chain of Central Azucarera de Tarlac:
Technology plays one of the most crucial roles in the production and refining of sugar. Central Azucarera de Tarlac uses equipment in order to supply the amount of its products to the demands of its partner firms, dealers and retailers. In order for Central Azucarera to meet the world-class quality it aims to attain, the company must continuously update and upgrade its technology to further automate its processes in order to be at par with international companies of the same industry.
Human Resource Management
Human Resource Management (HRM) is responsible for recruiting people, training them, performance appraisals and motivating employees. The purpose of HRM is to improve the employee existence which in turn will help the company in achieving their goals. The company’s performance will be based mainly on their human resource. If employees’ motivation decreases too much, turnover rates will increase. High turnover can have negative effect on company’s profit. Hence, it is important to have an effective HRM to minimize these happenings.
In CAT, employees and farmers are treated as one of the most important aspect of the company. Human resource is the foundation of the company so it is their responsibility to provide the employees and farmers with a safe, humane, and stimulating work environment. CAT also gives the employees and the farmers opportunities to explore and develop their skills and share with them rewards when they do well.
Infrastructure is the fundamental facilities and systems serving the business, including the services and facilities necessary for its business to function. Central Azucarera de Tarlac plant is located at Barrio San Miguel, Tarlac City. They have their own land where the farmers plant the sugar canes. It also has a warehouse where they process the raw sugar and store their products.
The Company owns a 100% stake in Luisita Land Corporation (LLC), a domestic corporation engaged in developing, leasing, and selling real properties and other ancillary services. CAT, thru LLC, provides water distribution and wastewater treatment series to locators of Luisita Industrial Park and residents of Las Haciendas de Luisita.
CAT strives for continuous improvement of sustainable development by developing, placing and continuously improving effective controls and procedures to conserve energy, water and other raw materials. Implementation of reduce water consumption and other supporting programs has been spearheaded to prevent depletion of water resources. CAT encourages the implementation of reusing and recycling materials to reduce environmental impact down to a minimum.
Performance Evaluation: Strengths and Weaknesses
The employees of CAT are being trained to be knowledgeable about their respective jobs, for them to do their work correctly. They are also provided with some benefits that they can use. The management are strictly implementing their company policies to attain their ethical leadership.
2. Production and Operation
The total revenues in the second quarter of the year 2017 increased by 121% from the preceding year. All revenue centers, apart from the carbon dioxide sales, generated an increase in volume sales. The cost of goods sold went up by P204.7M due to increases in repairs and maintenance, inventory cost, depreciation, outside services, and power and steam. Lastly, the level of operating expenses moderately increased by 2% due to increases in the salaries, wages and bonuses, and the security and outside services.
3. Research and Development
CAT spent approximately 0.05-0.10% for product research and development over the last three (3) years. The company adheres to its core product, sugar, and finds no need to further conduct product research and development. However, it continuously adopts new production technology to which spending is through capital expenditure amounting to P100-120M annually.
Key Findings, Issues, Challenges, and Problems
Raw Material Shortage
Due to recent damage left by typhoons and other calamities in the previous years, there has been a shortage of sugarcane for refinement and production of ethanol and sugar. Because of the shortage, sugar industry was relentlessly failing to meet expectations in the sugar business and a large portion of its pieces of the overall industry were lost. Since most occurrences of these calamities impacted Visayas and Mindanao region, the CAT was not gravely affected. However, the possible calamities that might hit Luzon will impact the company significantly.
Central Azucarera de Tarlac may often deal with product supply shortage. This may be linked to two reasons: crop shortage and obsolete technology. CAT is a company known to harvest and convert its raw materials into the product they are distributing. But during seasonal changes or fortuitous events, the supply of these crops may fall short resulting to a decrease in the amount of products produced. Another reason for product shortage is the obsolete technology. Equipment and machineries with obsolete technology may often undergo downtime making production inefficient, thus the quota amount or the budgeted level of production may not possibly met.
Updated and Obsolete Technology
Updating facilities, equipment and machinery of Central Azucarera de Tarlac is a one of the best leap forward to conduct in order to improve the efficiency of its production. Updating such assets will improve the quality of product which the company seeks to achieve. Machineries or equipment that will remain outdated may possibly result to downtimes which will cause production inefficiency. Obsolete technology may lead to deterioration of the quality of the products.
Employment relationships between the management and the labor force could become strained and affect teamwork and profitability. Whether a strike is legal or illegal, the business is affected and it is imperative for employers to know their rights and to keep up to date with current labour laws and legislation. As a result, the company may opt to hire workers to replace the striking employees.
Identification and Assessment of Risks
The impact of crop shortage is significant because any assembling procedure basically requires that there is satisfactory measure of materials to be handled, generally target levels of generation won’t be met. The likely occurrence is medium because in spite of the fact that the danger of deficiency has been managed by CAT by getting factories inside and past the nation, the harms realized by catastrophic events contribute much to the underperformance of agribusiness along these lines seriously reducing the supply of sugar cane to be prepared.
Supply shortage occurs when the demand of goods at the marketplace is greater than supply provided. The impact of it is mild because the company will also benefit from its occurrence since the price will be set higher as the demand increases. The likelihood is medium-high because the occurrence of crop shortage is medium.
The impact of it is significant because the inefficient operations of machineries and other processing facilities may lead to wastes, defects and losses for CAT and such inefficiency may also be caused by poor maintenance and may lead to hazardous situations for the operators. The likelihood of it is low-medium because the machine down time or interruption seldom happens.
Employee strike is a work stoppage caused by mass refusal of employees to work. It usually takes place in response to employee grievances. The impact of it is moderate because this risk does not affect the total production of the business. The likelihood of it is medium because the employee strike only happens when there is inequality treatment among their company.
Table 6. Oregon State University (OSU) Risk Assessment Tool
RISK Impact Likelyhood Risk Score
Employee Strike (Farmers) Moderate 3 Medium 3 9
Obsolete Technology Significant 4 Low-Medium 2 8
Crop Shortage Significant 4 Medium 3 12
Product Shortage Mild 2 Medium-High 4 8
The identified risks stated above are assessed using the Oregon State University’s Risk Assessment Tool. The risks were scored according to its possible impact on Central Azucarera as well as how likely the risks are to occur. After assessment, the tool computed the overall risk score of each risk and was plotted in the heat map shown below.
Figure 1. OSU Risk Assessment Tool: Heat Map