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AN ANALYSIS OF THE SUPPLY CHAIN OF “NESTLE”

Harshit Shrivastava

2017A2PS0085P

Abhinaw Kumar

2017A2PS1009P

Vibhor Sharda

2017A4PS0424P

Atharva Patil

2017A4PS0256P

Antriksh Jain

2017ABPS0782P

Mohit Wanvat

2017A4PS0573P

G Y Saket Reddy

2017A2PS0938P

Lakshay Nagpal

2017A4PS0308P

Amratanshu Shrivastava

2017A7PS0224P

D Krishna Swaroop

2017A3PS0315P

Debarpan Adhikari

2017ABPS0334P

Project pursued under the guidance of Prof. Srikanta Routroy in partial fulfillment of the course “Supply Chain Management” (MF F421), Case Study of Nestlé Supply Chain 1

TABLE OF CONTENTS 1. Acknowledgement ................................................................................................................................................................ 2. Introduction ....................................................................................................................................................................... 4 3. Supply Chain Configuration .............................................................................................................................................. 6 4. Achieving Strategic Fit ....................................................................................................................................................... 8 4.1. Strengthening the core ...............................................................................................................................................10 4.2. Re-establishing public image .....................................................................................................................................11 5. Distribution in NESTLE -- Logistical Drivers ..................................................................................................................... 5.1. Inventory Management.............................................................................................................................................. 12 5.2. Transportation ...........................................................................................................................................................14 5.3. Facility Management .................................................................................................................................................17 6. Cross functional drivers ....................................................................................................................................................... 6.1. Information Architecture ..........................................................................................................................................21 6.2 Pricing.........................................................................................................................................................................23 6.3 Sourcing................................................................................................................................ .................27 7. Coordination in Supply Chain ............................................................................................................................................. 7.1. Lack of Coordination .................................................................................................................................................31 7.2. Achieving Coordination in SC ...................................................................................................................................32 7.3. Working on customers-dealers and logistics management ........................................................................................33 8. Obstacles faced in Supply Chain 8.1. Supply chain obstacles ...............................................................................................................................................34 8.2. Nestle: Greening the Supply Chain............................................................................................................................35 9. Recent Supply Chain Issues ................................................................................................................................................. 9.1. Case of slavery in Thailand Seafood Industry ...........................................................................................................37 9.2. Case of Child slavery on CocoaHarvest in est Africa ................................................................................................40 9.3. Case of ban of Pasta products in India ......................................................................................................................42 10. SWOT ANALYSIS OF NESTLE ....................................................................................................................................... 10.1. Strengths ..................................................................................................................................................................43 10.2. Weaknesses ..............................................................................................................................................................45 10.3. Opportunities ...........................................................................................................................................................46 10.4. Threats .....................................................................................................................................................................47 11. Conclusion……………………………………………………………………………………………………………………..49 12. List of References……………………………………………………………………………………………………………...50

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ACKNOWLEDGEMENT

We would like to extend our sincerest gratitude to Dr. Srikanta Routroy, Associate Professor, Mechanical and Manufacturing Engineering Department for providing us with the opportunity to work on this project. We thank him for his continued and persistent guidance without which this study would not be possible and for providing us with the knowledge to understand the intricacies involved in analyzing the Supply Chain Strategies of a company. His valuable suggestion regarding the work distribution among the group members made the entire study, a smooth going process for all of us. We all express our heartful gratitude towards all those who had helped directly or indirectly in the completion of the project. This report presents a detail analysis of Nestle Supply Chain and thus can be looked into for future references as well. The preparation of this report and the background study has been a great learning experience for each member of the group.

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2. INTRODUCTION Nestlé is a Swiss multinational food and drink processing conglomerate corporation having headquarters in Switzerland. It is the largest food company in terms of revenue and other metrics since 2014. 1866, Henri Nestle started Nestle. It became the worlds’ largest Swiss packaged food company in a short period. In 1905, Nestle got merged between the “Anglo-Swiss Condensed Milk Company” and the “Societé Farine Lactée Henri Nestlé.” With more than 150 years of stability in the market, Nestle has marked its strong position as top nutrition, health, and Wellness Company. Ulf Mark Schneider currently holds the position of CEO at Nestle.

Nestle owns more than 2000 brands out of which 29 Nestlé’s brands have annual sales over US $1.1 Billion. With 447 factories and employees more than 339,000, Nestlé operates in 189 countries. During World War I and World War II, it expanded significantly. During the Second World War, it grew considerably by increasing it’s a product range from initial offerings of milk and infant products. Nestle focuses on merger and acquisition strategy as its Internationalization strategy for expansion in different countries.

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The company's vision is “To be a leading, competitive, Nutrition, Health and Wellness Company delivering improved shareholder value by being a preferred corporate citizen, preferred employer, and preferred supplier selling preferred products.” Its mission statement is “To be the world's leading nutrition, health and wellness company. Our mission of "Good Food, Good Life" is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night.”

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3. SUPPLY CHAIN CONFIGURATION Supply chain network design determines the structure of the supply chain and the sequential links among components of the system with which supply chain can achieve a high level of performance and satisfy customer demands.

Fig: A table depicting various metrics proposed to describe a supply chain configuration To define the supply chain configuration of Nestle, we follow Canatio’s metrics which includes all considerations from the supply chain processes and their respective scales. In general, all of the raw materials can be found from the local suppliers for the manufacturing sites in every region, and the products are distributed to the local market. Therefore, the strategic supply chain configuration can be summarized as Local Sourcing – Global Manufacturing – Local Distribution

Source: A Model To Support Strategic Configuration Of Global Supply Chain, Guang Song 6

1. Local Sourcing Being in the Fast-Moving Consumer Goods (FMCG) industry, speed is the topmost priority. The perishability of its supplies necessitates local sourcing. Dairy, cocoa beans, coffee beans, and other such ingredients have been sourced out to farmers and other local suppliers. As a part of total quality management, Nestle maintains a healthy relationship with its main and sub-tier suppliers with its AAA program while maintaining high-quality standards. 2. Global Manufacturing Nestle boasts 447 manufacturing facilities in 189 countries while employing 339,000 people. Although most countries find a way to source the supplies locally, some regions which do not have the necessary resources might import certain products. Likewise, a country with abundant resources may export the products to the aforementioned regions. This shifts the local manufacturing perspective into a global one. 3. Local Distribution Confectionaries and other products of Nestle have a short shelf life. This makes it imperative to make distribution local. Only a small percentage is distributed globally and while that does play a role in the overall network configuration, the impact is quite low.

Inbound Logistics

Outbound Logistics

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4. STRATEGIC FIT Most companies in Food processing industries focus on maximizing supply chain efficiency because the implied demand uncertainty in this industry is less as compared to other industries. The same holds true for Nestle. At present, Nestle is the world’s largest nutrition, health and wellness company, not only in terms of sales but also in its product range and geographical presence. Let’s first have a quick view of the resources and capabilities that Nestle possesses and how it resonated and matched with the opportunities available in the market. So we examine it firstly through the SWOT framework. Although we have a section covered for SWOT analysis in depth later in this report, so here it is discussed in brief. Nestlé’s strengths include strong geographic presence diversifying its products across 190 countries, strong R&D and unrivalled product and brand portfolio with Colgate, Coca-Cola etc. ● Nestlé’s weakness lies in the fact that it has faced criticism on high water usage, selling contaminated food, anti-unionism, forced child labour and using other unethical practices, which may be bad for company’s image, ● Opportunities include online shopping, the launching of new, sugarfree Kit Kat (world’s most eaten chocolate bar per second), growing ready to drink tea and coffee. In short growth of healthier food products and the distribution channels through which it reaches every possible customer. ● At last, the threats of Nestle are changing trend towards healthy food. Nestle has its major product as chocolate, and people becoming health aware may be a reason for the decline of its sales. Contamination may also be a concern as it can hurt the reputation of the company (Maggi incident). ●

This was brief about the aspects of the company and it gave us an idea of how Nestle has planned its strategies till now and what it can do to fit into the market opportunities. Nestle SC has shown a positive growth through various means to lead the food and beverage industry. Some of them are listed below● Demographic Environment- Nestlé’s product is for everyone. People from any area (they have 6 continents as their costumer), any age (Nestle baby food, milo, chocolates, ice creams, Maggi for youths) can easily buy and use their products.

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● Global Environment- It improves operational efficiency by integrating the company’s business on a global scale. It is focusing on R&D to meet different customers need and preferences. ● Technological Environment- the growth of mobile and internet technology has helped Nestle in promoting their products online. Customers can get information, can file a complaint on their site, understanding customers in a better way. ● Economic Environment- it shares its knowledge and expertise to the small companies, collaborates with the government to help farmers. Nestle in return gets good help in sourcing, saving a lot of money, creating goodwill and contributing to market growth. These were the tricks and techniques Nestle is using to make its SC more efficient through the drivers- Transportation, Facilities, Inventory, Information, Sourcing, and Pricing. These all are discussed in depth later in this report.

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We have seen the resources and the capabilities that Nestle have and also the available opportunity in the market is known to us. Now we have to just make a bridge to see how we are going to connect these 2 sides, how are we going to fit in the situation. Let’s see the 2 aspects in detail1. Strengthening the core“Good food, Good life’’- It’s a good business. Customer expectations, competition, trade landscapes and society are all evolving at an unprecedented pace. Everyone has now started showing concern to their health, everybody wants good food without bothering much about price. Good is about holding to high standards and always striving to be better. There is a need for a portfolio of products that evolves with customer needs, offering good nutrition, contributing to healthier, balanced lives and a healthier planet. The long-term value creation model is based on the balanced pursuit of resource-efficient growth as well as improved capital efficiency. These are-

● Increasing growth through innovation, differentiation and through acquisitions and divestitures. ● Improving operational efficiency with the goal to increase the underlying trading operating profit margin to between 17.5% and 18.5% in 2020 (from 16.0% in 2016) These can be delivered by focusing mainly on health & wellness and R&D, for strengthening the core of Nestle. ● Using expertise to increase access to nutrients for everyone, everywhere, to enhance the health and wellness of people in today’s time-constrained lifestyles. Along with it, they have shared recipes, cooking tips, nutrition basics, knowledge on balance diet etc. for gaining the trust and goodwill of the customers.

● Nestle has a dynamic global network of R&D working on scientific research and product development. It has the world’s largest food and nutrients research organization, with 5000 involved in R&D. Bringing in, the premium food innovations and offering a wide array of plant-based food products, will diversify the diets.

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2. Re-establishing Public ImageNestle has a well-established setup of operations, distribution network, and marketing. The company should invest in building its public image as a corporately responsible company as well. Nestle is one of the world’s most boycotted companies because of the certain perception that it commits the crime when coming to environmental practices (high water usage, selling contaminated food, anti-unionism, forced child labour and using other unethical practices). The company need to make sure that this particular image is altered. Also, there are some products which are not doing so well in particular markets due to varied culture. These products should be pulled out rather than constantly spending more on them to turn their value around, to ensure sunk costs (unrecoverable) do not occur.

It is safe to say that Nestle has a lot of positive attributes backing its larger than life product portfolio and therefore the company has managed to sustain its position in the list of fortune 500 and Forbes. We have discussed the strategies, Nestle is following and also recommended a few strategies and actions to achieve the strategic fit.

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5. LOGISTICAL DRIVERS 5.1 INVENTORY Logistics refers to the overall process of managing how resources are acquired, stored, and transported to their final destination by book definition. Inventory often comprises the maximum share of a company’s current assets, thus have a direct impact on the success or failure of a company. Inventory management refers to the planning and control of inventories to meet the competitive priorities of a company. Benefits of inventory management: 1. Supply-Demand balancing 2. Cutting cost and improving efficiency 3. Improving Customer service Demand is often uncertain hence it becomes nearly impossible to produce an exact number of goods as the demand leaving a manager to tackle the problem of overstock or understock. Overstocking occurs when a company decides to store more than what’s required thus trying to play safe. But extra inventory comes with extra cost related to working capital, labour, warehousing and time. Understocking occurs when the present demand exceeds the available inventory level resulting in loss of profits and loss of customer trust which might have a long-lasting impact on a supply chain. A firm’s position on the responsiveness/ efficiency spectrum depends upon the inventory management policy it adopts. The firm’s agility and responsiveness are governed by the amount of inventory it holds. Thus, decisions regarding inventory policy involve a tradeoff between a supply chain’s responsiveness and cost-cutting. For a company like Nestle which produces eatables (perishable items), it becomes more challenging to keep a minimum amount of inventory and simultaneously maintaining product availability.

Nestlé’s Inventory Management and Procurement Strategy The procurement life cycle at nestle is divided into several integrated components and involves several processes like inventory management, purchase requisition, shipment order, the involvement of retailers, goods receipt and managing accounts payable Whenever at one of the Nestle locations an inventory item is received or issued from the inventory, the stock quantities, inventory levels automatically get updated in the system. The determination of the optimum source of supply, analysis, and comparison of vendor pricing, issuing purchase orders, authorization for purchase requisitions, processing invoices for payment and recording the same helps in simplifying time-consuming tasks. For an efficient supply chain at Nestle, it requires all stock planning and operational activities to be formulated into a uniform business-process flow. 12

Inventory management at nestle includes three types of Goods Movements: goods receipt, goods issue and transfer posting. The stocks are updated and material documents are created as soon as the goods movement is entered to record the event followe...