QUALITY AUDIT IN FOOD INDUSTRIES

CLASS: MBA 3A SUBMITTED TO: Dr. Yaseen SUBMITTED BY: SIDRA NAJAM (23006) FARYAL AFZAL (22964) HINA WAQAR (22972)

DATED: 14-12-2011

ACKNOWLDGEMENT

First of all we would like to thank our Almighty Lord who is most gracious and beneficent. This report covers a detailed account on the Quality Audit in Engro Foods Limited.

We are grateful of our course facilitator Dr. Yaseen who provided us the opportunity to make a report on the topic of our interest and guided us throughout the making of it.

Last but not least, the support and cooperation of our families was a big strength in making this report interesting for the reader and for ourselves.

It was a pleasant experience for us making this report as we got to know so much about the quality audit in food industries. The knowledge we have gained while making this report is immense and would go with us a long way.

At Engro Foods Limited, we would like to mention the name of 1. Mr. Jahanzeb Ali Khan (Packaging Development Manager) Who gave us his precious time & gave us all the required information about Engro Foods Limited.

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CONTENTS
EXECUTIVE SUMMARY.................................................................................4 INTRODUCTION TO QUALITY AUDIT............................................................6 QUALITY AUDIT.........................................................................7 TYPES OF QUALITY AUDIT.........................................................8 INTRODUCTION TO ENGRO CORPORATION.................................................9 INTRODUCTION TO ENGRO FOODS LTD......................................................10 INTRODUCTION.........................................................................11 MISSION STATEMENT................................................................12 DESCRIPTION OF THE REPORT....................................................................13 QUALITY AUDIT.........................................................................14 QUALITY AUDIT OBJECTIVES......................................................15 INTERNAL AUDIT.......................................................................15 EXTERNAL AUDIT......................................................................16 PHASES OF QUALITY AUDIT......................................................16 QUALITY ASSURANCE...............................................................17 QUALITY CONTROL SYSTEM......................................................18 QUALITY AUDIT TRAINING PROGRAMME...................................19 SIX SIGMA AT ENGRO................................................................19 QUALITY STANDARDS FOLLOWED IN ENGRO FOODS................20 QUALITY SETUP........................................................................21 HOW TO MINIMIZE PRODUCT DEFECT RATIO.............................21 MANAGING EXPIRED STOCK......................................................21 ENGRO COMPETITORS..............................................................22 TETRA PAK MILK MARKET SHARE..............................................22 QUALITY PERFORMANCE...........................................................24 CONSUMERS ATTITUDE TOWARDS MILK PAK AND OLPER.........24 SWOT ANALYSIS........................................................................26 QUALITY AWARDS.....................................................................29 CONCLUSION..............................................................................................30 RECOMMENDATIONS..................................................................................31 APPENDIX...................................................................................................32 BIBLOGRAPHY.............................................................................................33 QUESTIONAIRE............................................................................................34

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EXECUTIVE SUMMARY
We were assigned to choose a company and analyze its quality audit in detail. In order to achieve this objective we used our analytical skills that we learned in the class and the information we received from the company we chose. The company that we chose was: ENGRO FOODS LIMITED This report is about the quality audit in Engro Foods Limited. Engro Foods Limited is a subsidiary of Engro Corporation Limited, one of Pakistans most respected enterprises with more than 40 years of business in the fertilizer and chemicals industry. Engro Foods Limited was officially launched as a fully owned subsidiary of Engro in 2004. We start by giving a brief introduction about quality audit and its types than a brief history of Engro Foods Limited and how it came into existence. We talk about its aim, mission statement and the vision. We move further with its quality audit objectives, internal audit, external audit and phases of auditing. We discuss the quality assurance and quality control system. We also discuss the quality audit training programmes in Engro Foods Limited, six sigma at the Engro, quality standards that are followed in Engro Foods Limited. We move further talk about quality setup and minimizing product defect ratio and managing expired stock. The report also contains the market share of Tetra pack milk and Nestle Milk Pak, quality performance and consumer attitude towards Milk Pak and Olpers. Then the SWOT analysis in which we talk about the strengths, weaknesses, opportunities, and threats the organization is facing. In the end it is followed by conclusion, recommendation and questionnaire.

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INTRODUCTION TO QUALITY AUDIT

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Quality:
A frequently used definition of quality is: Delighting the customer by fully meeting their needs and expectations

Audit:
An examination and verification of a company's financial and accounting records and supporting documents by a professional, such as a Certified Public Accountant.

Why Audit?
Quality systems control the mechanisms that develop and deliver products and services to customers. To determine if an organizations Quality System complies with the requirements of the Reference Standard. To determine if the acts and decisions made by an organizations personnel conform to the Quality System as defined in Quality Policies, Procedures, Instructions, Manuals, Standards, etc. To verify the effectiveness of the activities that makes up organizations Quality System. To promote Continuous Improvement.

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Quality Audit:
Quality audit may be defined as: A process for checking that procedures are in place to assure and improve quality, integrity or standards of provision and outcomes.

In general, the purpose of a quality examination is to determine whether the company is complying with its quality program or whether it needs to make changes to its business practices. A company may also perform a quality audit in order to determine whether it is complying with certain quality standards, like those set by the International Organization for Standardization (ISO) 9000. Simply put, the ISO 9000 is a certification that a company is following formal business procedures.

Types of Quality Audit:

Internal Audit - (First Party) External Audit - (Second or Third Party) Product Audit Process Audit Systems Audit

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Types of Quality Audit:

Internal Audit: Internal audits ensure that an organization is meeting
its own quality standards or contractually required standards. This is also called a first party audit. Internal audits may be done by auditors who work for the company being reviewed.

External Audit: External auditors are separate from the company

they are auditing because they are independent. External audits done by a company that has a contract with the audited firm is called a second party audit. External quality audit done by an organization that has no contract with the company it is auditing is called a third party audit.

Product Audit: Product quality audit verifies that a physical product

meets design specifications and other quality measurements. Product audits may require checking the calibration, product testing, or destructive testing.

Process Audit: Process audit verifies that a documented process

meets quality standards. This process could be a manufacturing process or service process.

System Audit: A system audit is a review of the quality system used

by a company. It is a review of how quality standards are measured and met by the company. It verifies the procedures used to measure the quality of the product, how defects are recorded, and how the company ensures that failed product is not passed.

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INTRODUCTION TO ENGRO CORPORATION

Engro stands for energy for growth. From inception, Engro is a legacy of continuous growth, new challenges and fulfilled promises. From fertilizers to dairy products, business solutions to PVC resin, power generation to commodity trade, at Engro their ambition is to become the premier Pakistani enterprise with a global reach. The company was incorporated in 1965 and was formerly Exxon Chemical Pakistan Limited until 1991. The Company was renamed as Engro Chemical Pakistan Limited in 1991. The Engro Corporation is one of the leading Pakistani business conglomerates with stakes in the fertilizer, food, power generation, petrochemicals, automation and terminal storage industries. As a holding company its subsidiaries include:

Engro Fertilizers Limited Engro Foods Limited Avanceon Limited Engro EXIMP Private Limited Engro PowerGen Limited Engro Polymers and Chemicals Limited Engro Vopak Terminal Limited

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ENGRO FOODS LIMITED

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INTRODUCTION TO ENGRO FOODS LIMITED

Engro Foods Limited is a subsidiary of Engro Corporation Limited, one of Pakistans most respected enterprises with more than 40 years of business in the fertilizer and chemicals industry. Engro Foods Limited was officially launched as a fully owned subsidiary of Engro in 2004. Using dairy as a stepping stone to enter into the food business, the Company has established state-of-the-art processing units in Sukkur and Sahiwal, along with an ice cream production facility in Sahiwal. The companys brands include Olpers Milk, Omore ice cream, Tarang, Olpers Lite, Owsum and Olpers cream. To support these brands and their highest standards of quality, Engro Foods has invested heavily in milk processing and milk collection infrastructure. Besides selling milk, the company also sells related products such as creams and unbranded products. After the success of our dairy products, to which our customers testify, Engro Foods now plans to venture beyond the dairy sector. 2012 will also see the beginning of sales from its own rice processing plant. Engro Corporation plans its first international venture to enter the `Halal food` business in America and Canada through acquisition of `Al Safa Halal`. With an acquisition of Al Safa a fast growing and established Halal meat brand Engro Foods is now venturing into North American market starting from Halal Foods category. The new organization, Engro Foods Canada Ltd. with a subsidiary Engro Foods USA, LLC, intends to aggressively grow the business in this market.

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Engro Foods Limited Aim:

Dominate the food business and to achieve this we will settle for nothing less than the cream.

Engro Foods Limited Vision:

To become fast growing mega Food Company & also to elevate

Consumer Delight Worldwide

Mission of Engro Foods Limited:

Our mission is to build branded food business to improve quality of life
by offering tasty, affordable and highly nutritional products to our consumers while maximizing stake holders' value.

We believe our success depends on our customers. Thus, our primary value is fulfilment of our customer's needs. Our manner of achieving this success is to include value for money.

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DESCRIPTION OF THE REPORT

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Quality Audit:
A quality audit is a review in which an auditor analyzes and verifies various records and processes relating to a companys quality program. In Engro Foods Limited audits are typically performed at predefined time intervals and Engro Foods Limited ensure that the institution has clearly defined internal system monitoring procedures linked to effective action. This can help to determine if the organization complies with the defined quality system processes and can involve procedural or results-based assessment criteria. In Engro Foods Limited audits can be used to establish a high degree of confidence to remain under an adequate level of control in quality.

Quality is a perception (Mr. Jahanzeb Ali Khan, EFL)

Quality audit according to Engro Foods Limited is:

Its not a `hide n seek` game. Its fact finding practice. To verify compliance. To unlike inspection which is a `fault finding`.

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Quality Audit Objectives:

In Engro Foods Limited quality audits are intended to achieve the following kinds of objectives: To determine to what extent your quality system:

Achieves its objectives. Conforms to your requirements. Meets customers' contractual requirements. Conforms to a recognized quality standard.

To improve the efficiency and effectiveness of your quality management system. To list your quality system in registry of an independent agency. To verify that your quality system continues to meet requirements.

Internal Audit:
In Engro Foods Limited internal audit is being done in every department and at every level. Internal audit is being done in every 3 months for every department.

Engro Foods Limited tries to achieve consistency between manufacturing and testing facilities. To identify problems internally and correct problems.

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External Audit:
External audit is being done once a year and they give certificate. Its actually a compressive plan.

Engro Foods Limited ensures that adequate quality systems are maintained to assess compliance with the firm standard operating procedure.

Phases of Quality Audit:

Engro Foods Limited starts the audit by having an opening meeting with the auditee senior management. This meeting:

Introduce the audit team. Clarify scope, objectives, and schedule. Explain how the audit will be carried out. Confirm that the auditee is ready to support the audit process.

Engro Foods Limited prepares audit working paper:

Prepare checklists (use to evaluate quality management system elements). Prepare forms (use to record observations and collect evidence).

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Engro Foods Limited collect evidence by:

Interviewing personnel. Reading documents. Reviewing manuals. Studying records. Reading reports. Analyzing data. Observing activities. Examining conditions.

Investigates clues: Engro Foods Limited find clues that point to possible quality management system nonconformities should be thoroughly and completely investigated. Draw conclusions: Engro Foods Limited auditors draw conclusions about how well the quality system is applying its policies and achieving its objectives. Discuss result: In the end, Engro Foods Limited auditors discuss evidence, observations, conclusions and recommendations with auditee senior managers before they prepare a final audit report.

Quality Assurance:
Quality Assurance is strictly followed in Engro Foods. Qualified food technologists at this department ensure that highest quality parameters are adhered to through all steps of production and that the products reach the consumer as per promise.

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QUALITY CONTROL SYSYTEM: It goes without saying that Engro Foods Limited is committed to providing the best quality of products to the consumers at the lowest possible costs. In other words, it is a company that believes in the virtues of cost leadership and its prioritization for quality maintenance that are carried out both before and after the processing of the milk. In Engro Foods Limited following types of quality control system exist to assure the procurement of the best quality raw milk. 1. First System: Engro Foods Limited quality control procedures are introduced right at the point of milk collection that is at the milk collection centres. Lab tests are conducted in order to check the milk. Quality check is carried out right at the time of milk reception at the plant. It is only after the milk clears certain tests that the Quality Control department accepts it and transfers it to the cooling plants. 2. Second System: Quality control experts are involved throughout the production process. After the packaging process is complete, Quality control resurfaces this time not only to ensure that the packages are sterilized but also to ensure that the milk packages are of the prescribed weight. And after a final approval, the milk products are considered fit for delivery and transferred to the warehouse.

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Quality Audit Training Programme:

Quality audit programme is being organized in Engro Foods Limited for every department, special training programs. Engro conducts internal audit training program, external audit training program, supply audit training program, product audit training program. There is a five day training program for employees.

Six Sigma at Engro:

Engro is among the first Pakistani companies implementing six sigma across all areas and utilizing it as a management system to execute our strategic objectives. Six sigma was launched in February 2006. Among the focus areas, employee development is the most critical and six sigma will be leveraged to help bring out the best in our people. Employees drive improvements in other areas: speed, innovation, perfection and becoming world class. Six sigmas robust problem-solving methodology and statistical tool allows the company to benchmark processes against global standards in a language that is comparable across any industry or function. It helps ensure that we sustain our promise of delivering high quality products and services to our customers on time, every time. Communication is critical and Engro conducted six sigma launch events country wide as well as two internal conferences and electronic and print updates throughout the year management and non management employees were trained extensively during 2006 & 2007 on six sigma principles.
- Mr. Jahanzeb Ali Khan (Packaging Development Manager)

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Quality Standards That Are Followed In Engro Foods:

In Engro Foods more than 10 standards are being used for the quality control and quality assurance of every products quality. Some of them are as follows: BRC HALAL SQF 2000 IFS ISO 22000 ISO14000 ISO9000 ISO 18001

Quality is a perception. Engro mainly focus on quality not on quantity as quantity will come from quality in any way. Our benchmark is every product.
- Mr. Jahanzeb Ali Khan (Packaging Development Manager)

Main Focus:
Engro Foods Limited main focus is quality and then our customers satisfaction. Both are very important for us. We try our best that we dont perform any unethical practices so that we dont face any loses in every term.
- Mr. Jahanzeb Ali Khan (Packaging Development Manager)

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Quality Setup:
Our organization has set some specifications. And Engro Foods Limited work according to that. Profit is nothing for us. Healthy relationship with our customers is very much important for us. We follow ethical practices. Its very difficult for us to maintain our prestige and name. We maintain our goodwill.
- Mr. Jahanzeb Ali Khan (Packaging Development Manager)

How to Minimize Product Defect Ratio:

Engro has set a certain product requirements, which they have to fulfil and meet. They have different elements, different audits, they have to follow them to minimize our product defect ratio. There are no such big loses faced by Engro Foods Limited in terms of production. As our plants, are being continuously monitored at every level of the production. They make their best to assure quality of our each brand. Every department is under strict observation at every level so that our product defect ratio minimizes at its maximum level.

Managing Expired Stock:

As Engro holds the biggest market share, its products are fully consumed. But if any of the milk is left behind than that milk is retreated so that it can be used again. That expired milk is not thrown or disposed of. As this condition never arises but if somehow arise than that milk is re treated for use again.

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Engros Competitors:
Engro`s competitors are different in different fields as Engro Foods Limited provides a vast range of products. Ice cream- walls Dairy liquids- nestle Juices nectars- nestle

Tetra Pak Milk Market Share:

Others, 5%

Haleeb, 15%
Olpers

Olpers, 37% Good Milk, 10%

MilkPak Good Milk Haleeb Others

MilkPak, 33%

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Nestle Milkpak:
Nestle has been serving Pakistani consumers since 1988, MILKPAK is a standardized UHT milk and is a trusted brand known throughout the country for its nutritious wholesome goodness and pure natural taste. MILKPAK is now fortified with extra strength of Iron, Vitamin C and Vitamin A.

Engro Olpers:
Engro Foods has been serving Pakistani consumers from 2004. Olpers is also standardized UHT milk throughout the country. The prices of Olpers vary according to the size.

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Quality Performance:
Consumers of Olpers due to its availability and rich taste voted more for Olpers. Olpers provide good taste in tea and other dishes which include milk. The other brand perception is shown in graphs as under:

Consumers Attitude towards Milkpak and Olpers:

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STRENGTHS

WEAKNESSES

SWOT ANALYSIS

OPPORTUNITES

THREATS

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STRENGTHS
Engros back: Olpers is a brand of ENGRO foods. This means that consumers can relate their former image of ENGRO foods to Olpers. The brand is well known so customers will automatically have a brand association with Olpers and see it as a premium quality product. ENGRO is world renowned so it can easily attract foreign investors in backing it against other competitors such as Nestle.

PR with farmers: ENGRO has been interacting with the farmers for fertilizers and has gained quite a good reputation over the years. It has led to a strong bond and long term relationship with the farmers. This is an added advantage and strength for the company because it will never be short of milk production. The farmers also wont have to look elsewhere to sell their milk.

Positive response from customers: In first year, EFL crossed 1.4 billion sales figure which shows customers satisfaction upon EFLs products.

Its taste: Its taste, quality proposition and world-class quality proposition system.

Third-Generation Plant: EFL only, has the third-generation UHT milk plant in the country. EFL plant is the only plant in Pakistan that uses Bactofuge technology to virtually eliminate bacteria and ensure premium quality and hygiene.

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WEAKNESSES
Packaging: EFL is dependent upon Tetra Pak for the packaging of its entire dairy products. Tetra Pak is the only option available to Olpers for packaging because it is having monopoly in the packaging sector in Pakistan. Due to this reason, Tetra Pak can charge them higher and it could increase the production costs.

Milk collection & distribution costs: EFLs 34 out of 40 milkcollection centres are located in Punjab, whereas its only milk processing facility is situated near Sukkur (Sindh). It increases the milk collection & distribution costs; and also increases the chances of milk getting spoiled because of increased travelling time.

Low Quality Milk: EFL is not having its own dairy farms; it largely collects loose milk from farmers & gwalas through its 40 milk collection centers, which sometimes is of low quality and impure because they add vegetable oil to milk to get higher prices.

Brand loyalty of customers: Consumers are brand loyal toward competitors products like Nestle Milkpak and Haleeb, because of which Olpers is still not the best milk selling brand in Pakistan.

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OPPORTUNITIES
Awareness: Growing dissatisfaction with loose milk and increasing awareness about health and hygiene issues have led to increased processed milk consumption.

Capital to expand: EFL has sufficient capital to expand.

Global Businesses: May merge with other global businesses to eliminate competitors.

THREATS
Competition: Competition may pose a threat because the company will have to maintain its leadership in an expanding market so that it doesnt lose its market share to its competitors. For Olpers it might be difficult to penetrate in a market where the loyalties exist for such brands as Nestle and Haleeb. These brands have been in the milk industry far too long and have left a mark in the minds of consumers in terms of quality.

Perceptions and Price Differentials: Consumers perceptions and price differentials can cause a threat for the company. It is important that Olpers comes up to the expectations of the customers. Consumers preferences change with time and prices might create certain barriers in terms of the profit margins for Olpers. For example, lose milk is still cheaper than packaged milk and that is also one factor that people still prefer to buy lose milk.

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QUALITY AWARDS:
Engro Foods Limited has received many quality awards. Among of all some awards are listed below: 2011: Engro Foods Limited has been awarded EPICA Award Excellence Award: Recognizing a life time of excellence. The Engro Excellence Awards aims to be an annual event and in the long run aims to be seen as one of the most prestigious civilian awards ceremony in Pakistan. 2008: Engro Foods Limited is adjudged as the Best Local Company to Work for by Pakistan Society for Human Resource Management in a survey of twenty companies across Pakistan. 2007: Olpers Milk is adjudged Best Brand Campaign and Best Television Commercial by Business Recorder. Engro milk automation network has been awarded the Pakistan Software House Association-ICT award in the category of ECommerce and E-Inclusion.

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CONCLUSION
Engro Foods Limited is the subsidiary of Engro group. Engro Foods Limited is engaged in the production dairy items. The organization is running its business successfully. The Engro Foods Limited believes that the goodwill created amongst customers is mainly due to the customer trust which they have gained since the time of its establishment. Engro Foods Limited quality audits are used to establish a high degree of confidence to remain under an adequate level of control in quality. Engro Foods Limited audit is being done in every department and at every level. Olpers is running their business productively and effectively. They enjoy a good place in market and compete with MILK PAK and HALEEB. Their quality is their strength. Olpers with its high quality production has successfully made a strong place in the market and is now recognized globally as a superior brand.

Brand Consumers
Others 10%

Haleeb 20%

Olpers 40%,

Olpers 40% Milk Pak 30%

Milk Pak 30%,

Haleeb 20% Others 10%

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RECOMMENDATIONS
Following are the suggestions and recommendations for Engro Foods Limited.

They should also start to manufacture powder milk in order to meet the domestic demand. Olpers Lite advertising should conform to local values. Develop an integrated awareness plan in order to aware the people about the quality of the UHT milk as compared to other pasteurized or loose/fresh milk. Engro Foods Limited is not having its own dairy farms. Engro Foods Limited needs to have their own Dairy Farm so that they can meet the increasing demand and to have quality milk procurement as well. They should expand their brand portfolio by investing in yogurt market as their competitors are enjoying it just because of low competition their otherwise Milk pack has its brand name in drinking milk market only. So its an opportunity for them to grab & enjoy the flavour.

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APPENDIX

RELATED SITES :
http://www.ehow.com/list_6833307_quality-audit-types.html http://www.wisegeek.com/what-is-a-quality-audit.htm http://en.wikipedia.org/wiki/Quality_audit http://www.praxiom.com/iso-10011-1.htm http://engro.com/our-businesses/ http://engro.com/our-company/our-history/ http://engro.com/news-centre/engro-in-the-news/awardsrecognition/ http://engro.com/our-businesses/engro-foods-limited/

RELATED BOOKS:

TQM and ISO 14000 (Dr. KC Arora)

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BIBLOGRAPHY

Attached:

VISITING CARD OF MR. JAHANZEB ALI KHAN

(PRODUCT DEVELOPMENT MANAGER, EFL)

QUESTIONARE OF QUALITY AUDIT

REFERENCE LETTER

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Questionnaire
Q1.What is quality audit according to you? Q2. Are you using any international standards, ISO9000, ISO14000 and ISO22000? Q3. Have you done any preventive measures to overcome the problems? Q4. What are your criteria for Quality check? Q5. What is the percentage of defects every year? Q6. How do you facilitate Quality audit? Q7. What are your Quality audit objectives? Q8. How do you manage an auditing programme? Q9. Is there any training programme you are providing to auditors for improving audit skills? Q10. Do you focus more on Quality or Quantity? Q11. Have you improved your Quality production in last few years? Q12. How much do you compromise on Quality for your profits? Q13. What measures do you take on removing Quality errors? Q14. When do you require internal audit? And in which department? Q15. Do you have any Quality operations problem? Q16. What are the phases of quality audit in your organization? Q17. Do you face any financial problems, experience, solutions, and losses?

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