Zhejiang Tobacco delivers high performance and efficient business processes

With IBM Global Business Services

Published on 21-Mar-2012

Validated on 01 Oct 2013

"We felt IBM had the necessary expertise, skills and experience to implement an effective solution. Zhejiang Tobacco is happy to have built a partnership with IBM – we certainly made the right choice." - Zhihua Zhang, IT Director, Zhejiang Tobacco

Zhejiang Tobacco

Industrial Products

Deployment country:

BA - Business Intelligence, Enterprise Resource Planning, Information Integration, Small & Medium Business, Information Infrastructure, Optimizing IT

IBM Business Partner:


Headquartered in Hangzhou, Zhejiang Province, the China Tobacco Zhejiang Industrial Co., Ltd (Zhejiang Tobacco) generated over RMB35 billion (€3.8 billion) in 2010.

Business need:
With sales revenues of over RMB35 billion (€3.8 billion) last year, Zhejiang Tobacco wanted to modernize its business processes to support future growth, including international expansion. The partnership’s strategic objective was to enhance performance across business units, and to deliver the greatest possible efficiencies to the supply chain by fully integrating its commercial processes. Existing business software and servers were not capable of meeting these challenges, with limited scalability and integration.

To bring greater efficiency as well as effective process and management controls to its operations, the company turned to IBM hardware and services and chose SAP ERP applications for business integration. Zhejiang selected SAP ERP applications for business integration, and SAP ERP Human Capital Management for personnel management. Zhejiang deployed IBM Power Systems servers and IBM DB2 technology to support its new SAP software, to process, store and manage its vast volumes of business-critical data.

Zhejiang Tobacco has enabled maximum communication and synergy between sales, distribution and production teams. Standardization and automation of business processes has resulted in time and cost savings. Enterprise Resource Planning has enabled the complete integration of planning, finance and production, facilitating strategic decision-making. The Tobacco Leaf Management solution provides direct cost management and analysis of this key area and complies with national industry requirements.

Case Study

Headquartered in Hangzhou, Zhejiang Province, the China Tobacco Zhejiang Industrial Co., Ltd (Zhejiang Tobacco) generated over RMB35 billion (€3.8 billion) in 2010.

With around 3,000 employees working at two factories in Hangzhou and Ningbo, Zhejiang Tobacco produces and distributes cigarettes to consumers in China and around the world. In a market controlled by the state monopoly of the China National Tobacco Corporation, Zhejiang Tobacco has striven to become one of the leading, influential companies in the industry. In order to continue its development and remain at the forefront of this industry, Zhejiang Tobacco realized that it needed to modernize its operations.

With IBM® technology and services supporting innovative ERP software, the company delivered a high performance solution that strategically improved its supply chain, cost control, production planning and management capabilities.

Information as a strategic asset
For Chinese industrial enterprises, the adoption of and integration with IT has become paramount over the past decade. Zhejiang Tobacco was acutely aware of the vital importance of this ‘informationization.’

As Zhihua Zhang, IT Director, Zhejiang Tobacco, explains, “Informationization is one of the key differentiators between traditional and modern businesses. The company understood that IT could be used as a crucial strategic asset in the modernization and innovation of its entire operations. This is what we set out to achieve: how could we use informationization to improve organizational performance?”

Zhejiang Tobacco wanted to improve its use of business management software. According to Zhihua Zhang, “International ERP software products offer huge advantages in terms of functionality, internal logic, technical structure and the way they integrate different elements of the business, including finance, HR and production.”

Managing raw materials – specifically, the outsourced threshing and redrying processes – is key to production efficiency. Zhejiang Tobacco wanted to introduce closer cost and quality controls, and include automated payments based on goods processed. This would eliminate manual processes, incomplete information and increase production throughput.

Additionally, the company wanted to achieve greater supply chain efficiencies, real-time access to market information, and greater system performance. In searching for a partner that could help deliver these objectives and modernize its business, the Zhejiang Tobacco team was attracted by the global reach and excellent reputation of IBM.

Zhihua Zhang comments, “We felt IBM had the necessary expertise, skills and experience to implement an effective solution. Zhejiang Tobacco is happy to have built a partnership with IBM – we certainly made the right choice.”

Implementing a solution
The business had outgrown its existing IT hardware, which was not providing the capacity or performance to allow for the introduction of necessary software that would enhance operational processes. Implementing a scalable, secure infrastructure was a prerequisite for improved business performance.

IBM Global Business Services® helped Zhejiang Tobacco to upgrade their servers to IBM Power Systems™, which could provide the architecture to implement the necessary ERP software to transform the company’s processes. IBM DB2® database software provided the platform to support the ERP applications. As Zhihua Zhang reports, “Almost all of our hardware now is made by IBM. We needed a solid, reliable infrastructure and understood that this was crucial to the company’s future success.”

Understanding the industry
It was IBM’s depth of experience in advising clients that helped Zhejiang Tobacco to deploy an effective ERP solution – SAP® ERP.

“Our previous ERP application simply became more and more unsuitable for our requirements. It wasn’t meeting our management needs. We wanted greater control of planning, and better process management,” comments Zhihua Zhang. IBM Global Business Services advised the company on adopting an innovative SAP business management solution, and also spearheaded its implementation.

“We relied on IBM’s deep understanding of our enterprise and the industry, as well as its project management and implementation expertise. Through running and evaluating practice trials, IBM helped us to choose a globally optimal and agreed solution.”

A comprehensive range of SAP applications was tailored to Zhejiang Tobacco’s business needs. The company consulted IBM Global Business Services to help choose the right SAP ERP applications, and selected financial accounting, materials management, sales and distribution, and production planning, comprehensive budgeting, project management, equipment management with SAP ERP Human Capital Management for managing personnel and payroll. IBM built an integrated supply chain platform specifically for Zhejiang Tobacco, unifying operational information with management decision-makers. By linking operations with sales administration, the SAP ERP-based solution almost eliminates communication errors, ensuring manufacturing processes match customer demand as closely as possible.

The SAP budgeting and forecasting component was tailored by IBM to meet the specific rules and policies of the China National Tobacco Industry. Budgeting and forecasting data is fully integrated with the accounting, project system and tobacco leaf management solutions.

Leaf management is specific to the tobacco industry. Tobacco leaf is purchased in bulk from growers, and then sub-contracted for steam-dried processing. IBM built a Tobacco Leaf Management function, designed to handle leaf procurement, sub-contracting, costing and final settlement.

By creating an integrated Tobacco Leaf Management solution within the SAP software environment, Zhejiang Tobacco sees accurate data on a range of key performance indicators for this critical raw material. For example, the solution shows quantities in stock, work in progress, expense allocation, vendor cost and payment positions. IBM built the Tobacco Leaf Management using the SAP system and integrated shared data through SAP NetWeaver Process Integration.

“What was impressive was that IBM implemented the solution in such a short time, less than 14 months. IBM’s planning and project management methodology was fundamental to its success, completing the roll-out on time and within budget,” reveals Zhihua Zhang.

“We chose SAP software because it offered the right infrastructure for our domestic and international business. IBM helped us to customize the applications according to our needs, and the SAP software runs efficiently and reliably on the IBM Power Systems servers, an extremely important factor for us.”

Systemic harmonization enhances strategic planning
Since implementation of the solution, the business has experienced a real improvement especially in terms of the integration of its processes.

“The harmonization of our finance and operational divisions has been a significant benefit. The SAP applications provide an integrated, reliable centralized platform that unites all aspects of our supply chain,” praises Zhihua Zhang.

“For example, with our production planning and materials management applications we can ensure effective and timely communication with our suppliers, which has optimized procurement so that now there are neither supply shortages nor overstock issues.”

Standardization has eliminated divisional misalignment in favor of harmonized business processes. “The whole supply chain, from sales forecast planning, production planning, procurement and operations, is fully integrated, facilitating management and enabling us to make better decisions,” explains Zhihua Zhang.

“With the rapid development of our company, our system required timely, stable support to our business operation and management improvement. Now our IT architecture provides us with the technical tools and capabilities to realize our strategic objectives.”

Highly integrated finance and operational processes, supported by the SAP platform, have facilitated management decisions for Zhejiang Tobacco. The new applications allow for enhanced budget management, improved financial controls and greater transparency. The company was also able to significantly improve its data exchange and data processing capacity, production execution and transaction speed. IBM tailored the budgeting system according to national tobacco industry-specific regulations and policies. As a result, month-end closing has been reduced by three days, a 20 percent TCO saving.

“The ERP solution, which integrates each of our business units, is a vital link – it’s the middle component – between management, at the top of the pyramid, and production execution at the bottom. It provides us with the essential information to make business-strategic decisions. With the formidable IBM Power Systems server infrastructure in place, we are in a position now where we could even consider deploying business analytics software in the future,” suggests Zhihua Zhang.

Products and services used

IBM products and services that were used in this case study.

Power 550 Express, Power 570, Power 595, Power 750, Power 770, Storage, Storage: DS5300, Storage: DS8300, Storage: XIV

AIX, DB2 for Linux, UNIX and Windows

Operating system:

GBS ISV Community: SAP

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