1

SUPPLY CHAIN MANAGEMENT

BY

MEGHNA JOSHI 14A2HP430

PRIYA SHARMA 14A1HP062

ANIRUDH SHARMA 14A2HP066

ROHAN RAKESH 14A1HP059

NISHANT AGARWAL 14A3HP647

INSTITUTE OF MANAGEMENT TECHNOLOGY

HYDERABAD
RD
23 DECEMBER, 2014
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SUPPY CHAIN MANAGEMENT REPORT ON

Prepared for-

Professor KalyanCherjerla

Institute of Management Technology

Hyderabad

BY

MEGHNA JOSHI 14A2HP430

PRIYA SHARMA 14A1HP062

ANIRUDH SHARMA 14A2HP066

ROHAN RAKESH 14A1HP059

NISHANT AGARWAL 14A3HP647

INSTITUTE OF MANAGEMENT TECHNOLOGY

HYDERABAD
RD
23 DECEMBER 2014
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PREFACE

The project talks about the supply chain management of NESTLE. It is important for a company
to provide quality products at right place, to the right people, at the right time and for that the
supply chain with added values place a crucial role in providing quality products to the
customers.

Nestle, in order to provide quality products to its customers focuses a lot on their supply chain
management. How they manage and what all includes in their value chain is included in this
project.

There is one very good thing about Nestl that everyone should follow. They do not compromise
with their baby products range. For them, infants and children are the future and one should not
consider them as just a target market. Just because of this they do not advertise any of their baby
product range.
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ACKNOWLEDGEMENT

On the very commencement of this report, we would like to extend our sincere obligation
towards all the personages who have helped us in this endeavor. Without their active
guidance, help, cooperation and encouragement, we would not have made headway in this
project.

We are ineffably indebted and thankful to our faculty Professor KalyanCherjerla for his
critical advice, valuable guidance which supported to accomplish this assignment.

We extend our gratitude to IMT Hyderabad for giving us this opportunity.

We also acknowledge with a deep sense of reverence, our gratitude towards our parents,
who have always supported us morally as well as economically.

THANK YOU

Meghna Joshi
Priya Sharma
Anirudh Sharma
RohanRakesh
NishantAgarwal
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TABLE OF CONTENT
Preface
Acknowledgement

S. No. Topic Page No.

1. Introduction to Nestle 6

2. Vision and Values 7

3. Food processing industry 8

4. Value chain analysis 8

5. Capabilities of Nestle 11

6. SWOT Analysis 12

7. Porters five force model 14

8. Supply chain 16

9. Process 17

10. Nestle around world 18

11. Absorbing business change 18

12. Feeling the benefits 19

13. Reference 20
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INTRODUCTION TO NESTLE

Nestl is one of the largest companies, founded by Henri Nestl in 1867. It is a Swiss company
with its headquarters located in Vevey, Switzerland. Today its revenue is around $92.16 billion
and is also the worlds largest consumer food company, employing 3, 33,000 people worldwide
in the production of more than 15,000 different products. The company is also a major
stakeholder in cosmetic company (LOreal). It manufactures and markets some of the best
known international FMCG food and beverage brands in the world like - Nescafe, Kit Kat,
Quality Street, Buitoni, Cheerios and Shredded Wheat.

Nestl is a decentralized organization. It produces a wide range of products like beverages,

prepared dishes and cooking aids, and milk products. The company is organized into seven
worldwide strategic business units that have responsibility for high-level strategic decisions and
business development. These strategic business units engage in overall strategy development,
including acquisitions and market entry strategy.

For a company to start from a small domestic town and then expand internationally, the strategic
vision of the company plays a central and key role.
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VISION AND VALUES

The vision of Nestl reflects ideas of fairness, honesty and long-term thinking
Nestl aims to achieve high level of customer satisfaction through low cost.
Highly efficient operations driven by value creation.
Optimize, consolidate resources and processes to obtain low cost and high efficiency.
Develop and manage simplified and effective supply network to achieve a high level of
service.
Create continuous improvements which are culture driven by performance measures and
reward.

Based on the principle of decentralization i.e. each country is responsible for the efficient
running of its business including recruitment of its staff

COMPANYS OBJECTIVES

The main objective of Nestl can be appropriately summed up by the phrase Creating Shared
Value (Nestl, 2012) This principle at Nestl can be described as having a conviction to build
long term and beneficial relationships with their stakeholders, comply with all legal requirements
and ensure all activities that the business undertakes are sustainable and result in value creation
for both the company and the society at large.
Supply chain management became a tool to help accomplish:-
Corporate strategic objectives.
Reduce working capital.
Reducing assets off the balance sheet
Accelerate cash-to-cash transactions.
Increase inventory turns.
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FOOD PROCESSING INDUSTRY

Food processing industry is indispensable for overall development of an economy as it provides

a vital linkage and synergy between the agriculture and industry. It helps to diversify and
commercialize farming, enhance income of farmers, create markets for export of agro foods as
well as generate greater employment opportunities.
Through the presence of such industries, a wider range of food products could be sold and
distributed to the distant locations.
The term food processing is mainly defined as a process of value addition to the agricultural
and horticultural produce by various methods like grading, sorting and packaging.
In other words, it is a technique of manufacturing and preserving food substances in an effective
manner with a view to enhance their shelf life improve quality as well as make them functionally
more useful. It covers spectrum of products from sub sectors comprising agriculture,
horticulture, plantation, animal husbandry and fisheries.

VALUE CHAIN ANALYSIS

Inbound Outbound Marketing

Operations Service
Logistics Logistics & Sales

Value chain analysis is defined as a chain of activities that a firm operating in a specific industry
performs in order to deliver a valuable product or service for a market. The concept comes from
business management and was first described and popularized by Michael Porter in his 1985 best
seller, Competitive Advantage: Creating and Sustaining Superior Performance.
If we conduct the value chain analysis for Nestl we can see that it has a very good supply chain
and integration of all operational business units otherwise it would be very difficult for the
company to achieve global dominance. This is why the supply of Nestl products is hardly ever
scarce in the market.

It includes two activities namely:

Primary Activities
Inbound logistics
Operations
Outbound logistics
Sales and marketing
Services
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Support Activities
General administration
Research and Development
Human resources
Procurement

Primary activities of Nestl involve the following:-

Inbound logistics-
The inbound logistics include warehousing and inventory control.
In Nestl it is a computerized and automated system of inventory control that is
different for each country.

Operations-
The operations of Nestl are very successful as they transform a lot of raw material into
very nutritional products and create value for their customers.

Outbound logistics-
Outbound logistics is the process by which finished goods are transferred to the
sellers.
For this purpose Nestl has started to set up distribution channels in each country
where its production plant is set up so ensure timely delivery.

Sales and Marketing-

Marketing and Sales of Nestl help in creating the brand that Nestl has evolved into
today.

Services-
The service area is that which responds to concerns and after sale service and Nestl tries
its best to provide good customer service to any customers that may be dissatisfied by the
product (Bonn, I. 2001).
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Support activities of Nestl involve the following:-

PROCUREMENT

The key raw materials purchased by Nestl are milk, coffee and cocoa. Fruits, vegetables,
cereals, and potatoes are partly sourced directly from farmers. Sugar, salt, meat, spices
and other ingredients are sourced only through the trade. Sourcing has to contribute to the
sustainable and profitable development of their company by providing the base for
quality differentiation of finished products to customer. This requires a supply of raw
materials at specified quality, quantities and the timing needed at the lowest possible
system costs.

TECHNOLOGICAL DEVELOPMENT

Nestl is strengthening its leadership in research and development by enlarging its global
product technology for confectionary, based in United Kingdom. Nestl product
technology centers have two roles-
To develop breakthrough technologies and building blocks that is basis of new
product development.
To deploy these technologies to the companys operations.

HUMAN RESOURCE MANAGEMENT

The term human resource is dedicated to their employees and ensures that they have all
the right people with right skills. Understanding their people is the bedrock of all their
business strategies. It is their mandate to enhance their with cutting edge training and
provide them with world standard facilities. Their management training program aims to
develop talented young men and women and help them advice their potential in a
dynamic and enabling environment.

FIRM INFRASTRUCTURE

The Nestl report provides a fact based analysis of how, overtime, their manufacturing
plants have helped to create large, skilled labor forces in rural areas and educate people
who supply them as well as build an important infrastructure such as roads and water
treatment systems. Through its infrastructure, the firm strives to effectively and
consistently identify external opportunities and threats, identifies their resources and
capabilities of Nestl and supports their core competencies.
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CAPABILITIES OF NESTL

Capabilities refer to the firms capacity to deploy resources that have been purposely
integrated to achieve the desired results. Capabilities are often based on developing,
carrying and exchanging information and knowledge through the firms human capital
and often developed in specific functional areas such as R&D, marketing, manufacturing,
management and so on.
Following are the capabilities of Nestl:-
Distribution
Nestls distribution network ensures that every day more than 1,00,000tons of products
are transported to customers from their factories and distribution centers.
They optimize their distribution network such as transport and warehousing in order to
minimize greenhouse emissions, to ensure the most efficient use of their transport to
reduce the distances travelled.

Human Resources
The company employs around 3, 30,000 people and it operates in over 150 countries.
Nestls provides training on the Code with staff from 14 departments that are part of the
Codes compliance system participating in yearly or twice yearly training.

Management Information System

By using their research for information technology, they control all aspects more
efficiently.

Marketing
It has a famous brand name and efficient strategy to meet the taste of each type of
consumers. So as to increase the sales and build a brand image in the mind of the
consumer, Nestl advertise their product in different ways- with the help of radio,
television, newspaper, billboards, etc.

Management
Nestl produced probiotic especially for all infant formulas and created and patented a
spray drying process which is used in manufacturing milk powders and Nescafe was first
used to make powdered paint dispersions.

Research and Development

Nestlcompany first acquired milk sterilizing site to develop milk products and processes.
Nestl is boosting its research and development in Switzerland by extending its Product
Technology Centre (PTC) in Konolfingen. The extension will help to enhance Nestls
innovative technologies for new product development and apply these to the companys
operations worldwide.
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SWOT ANALYSIS

The SWOT Analysis is part of a strategic planning process for small and medium sized
organizations mostly (Houben, 1999). The analysis measures the company on two fronts; internal
and external. In the internal area the strengths of the business and the weaknesses it possess in its
own operations are analyzed while in the external analysis, the opportunities and threats faced by
the business in its macro environment are analyzed.

Strengths: -

One of the biggest strengths of Nestl is the brand image that it has. Its brands such as Kitkat,
Nescafe and Nesquick are almost synonymous with the brand name. The company also has the
heavy financial muscle to invest in its research and development which can further enhance its
product line as well as invest in marketing. It also has a very strong global presence both in terms
of production capacities as well as market share.

Weaknesses: -

One weakness of the company is that it has had to recall many of its products due to bad quality
and that has greatly hampered its brand image. For a company as big as Nestl the customers do
not expect such a dangerous mistake to be made especially since it operates in the food industry.
The company also is the target of being boycotted because of media pressures and
environmentalists for engaging in non-green practices and usage of child labor.

Opportunities:

The fact that Nestl has gone from being merely a food brand to being nutrition and wellbeing
brand is a good opportunity for the company as it opens many new areas for product line
extension. Entering into emerging markets and establishing manufacturing plants also helps the
company in reducing its costs.
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Threats: -

The food industry is probably one of the most saturated industries in the world. Keeping this in
mind Nestl faces the very strong threat of competition. This competition can emerge both from
international brands as well as local brands of the market in which Nestl enters and tries to
operate. The rising prices of raw materials, fuel as well as the political instability in many third
world countries where Nestl has set up their production plants also threatens to cause
unreliability in the supply line.

STRENGHT WEAKNESS
a) Brand Image a) Recalled bad quality
b) Financial strengh products
c) Strong Global presene b) None-green practices.
c) Useage of child labour

OPPORTUNITIES THREATS

a) Brand of nutrition of a) One of the most

welbeing. saturated industry.

b) Entering into b) Competition from

emerging markets. international and
local brands.
c) Establishing new
improved c) Rising prices of raw
manufacturing units materials and fuel.
d) Political instability
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PORTERS FIVE FORCE MODEL

Michael Porter (1979) gave a framework by virtue of which the competitive advantage of
companies can be assessed in the market in which they operate in. The framework includes an
analysis of five concurrent forces that affect a business' ability to compete (Michael Porter 1979).
Keeping in mind the global market in which Nestl operates in, the Porters five forces analysis
will be carried out keeping a general view of the entire world as the potential market for Nestl.
Threat of New Entrants: -
Nestl despite being in a food and nutrition industry faces the serious threat of new entrants in
the market. Weather this threat is domestic or from international firms, it exists because it is an
industry where the barriers to entry are very low. If we discuss Nestl in India for example there
are low barriers to entry and many small domestic players can enter the market and challenge the
market of Nestl through their pricing or product offering which is tailored to the local culture
and tastes.
Bargaining Power of Suppliers: -
The bargaining power of suppliers of Nestl is very low especially in regions where the countries
are economically backwards such as Pakistan or Bangladesh. That is because Nestl being such a
giant in the market has the ability to bring lots of new business to the suppliers and therefore the
suppliers have to produce the raw materials according to the outlines set by the company or they
can be replaced.
Bargaining Power of consumers: -
The bargaining power of the customers of Nestl is high. That is because it is a brand which
greatly relies on consumer appreciation for the product. If a product is launched in any part of the
world where the consumers do not like the taste, they will refuse to buy it. Similarly in third
world countries the consumer base is very price sensitive. This raises their bargaining power if
Nestl wants to penetrate, then it will have to reduce its prices to their affordability level.
Threat of Substitutes: -
Threat of substitutes for Nestl is also very high. In all areas of its operations there are multiple
other firms that are offering either similar products or substitute products. For this purpose
Nestl has to ensure that it offers a product experience that cannot be imitated and is demanded
by its consumers.
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Industry Rivalry: -
Industry rivalry for Nestl is very high in no matter what part of the world it operates in. In
United Kingdom it faces threat of competition from brands like Kelloggs, in India it faces
competition from local brands and brands such as Knorr which are starting to venture into the
food industry.

THREAT OF NEW ENTRANTS BARGAINING POWER OF

a) threat from domestic and SUPPLIERS
international firms. a) Nestle being a giant market can
b) Low entry barrier can invite bring new business to suppliers.
small players RIVALRY
a) Kellogg's
b) Knor
c) Local brands
BARGAINING POWER OF BUYERS
a) Relies on consumer THREAT OF SUBSITITUE
appreciation for the products. a) Multiple other firms offering
b) consumer base is very price similar products.
sensitive
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SUPPLY CHAIN

Nestl has been one of the most trusted brands in the whole world. Nestl has worked hard to
retain this image in the market. Not only are the brand which are enough to sell any of their
products, the quality of the product that includes the major ingredients, flavors are given a lot of
importance.

95% of the raw material is procured from the country they are originally grown or processed.
Until unless the production department is 100% satisfied with the quality, they do not accept the
raw materials. Therefore, only 5% of raw material is imported from another country.

Processing of coffee is one of the best example- Nestl imports coffee from Vietnam even when
it possess a factory in India. Reason behind this is, firstly, coffees imported from Vietnam are of
better quality. Secondly, the Indian government purchases cocoa directly from the farmers and
sells the same to the companies in bulk. Buying coffee in bulk will add on to the warehouse cost
and chances of coffee getting degraded are also high. Its feasible for Nestl to place an order
from Vietnam in every 15-20 days.
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PROCESS-
Milk is procured and processed. Later it is sent to the factory warehouse and after than directly to
the distribution centers that are privately owned and contracted by Nestl). Milk is then
transferred to the distributers of every state and then later finally to the retailers.

There is one very good thing about Nestl that everyone should follow. They do not compromise
with their baby products range. For them, infants and children are the future and one should not
consider them as just a target market. Just because of this they do not advertise any of their baby
product range. They only produce such products where they are 100% satisfied. For instance,
lectogen is ONLY processed in Samalka and nowhere else. Also, you will never see any
advertisement for cerelac.
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NESTLE AROUND THE WORLD

Nestl makes sure that right goods get to their right multiples, wholesalers and retail outlets
around the world and at the right time to its end customers. When Nestl decided to sell off
significant part of its food business to Premier Food in 2002-covering such brands such as
Branston pickle, Sunpat, Sarsons vinegar and Rowntree Jelly it faced simultaneous problems of
under and over utilization at the two main distribution hubs. Total logistics was appointed to
assess the options and specify the strategic solutions dubbed project shirts-for the rebalancing
of Nestls supply chain in UK. Nestl New York center which is operated in-house, the 4,
56,000 sq.ft. Bardoncenter is managed on behalf of Nestl by TDG, one of the largest supply
chain solution providers located in UK with 8000 employee and a 1600 strong vehicle fleet.

Nestls confectionery business is handled in New York and Bardon concentrates on the rest of
the Nestl product portfolio which is primarily the food and beverage range where TDG was
assembles delivery for Nestl from the Scottish highlands to the Channel Islands plus all sites
in between utilizing a network of 8 trans-shipment centers around the countries.

ABSORBING BUSINESS CHANGE-

While the New York facility was already being over utilized on the confectionary site of the
business, Nestl food products represented a major portion of the volume passing through
Bardon. This inevitably meant that the sale of the companys food business to premier foods
would create the opposite problem for the Bardon facility that of underutilization.

Bardon largely mirrors the US operations in terms of basic warehousing process of good-in;
product storage strategy and zoning; high bay management; low bay management; order
processing; RDT-based use picking; and loading process. However Bardon is a bigger operation,
with 14 un-manned cranes, 57,000 high bay pallet locations on 14level aisles, 6000 pallet
locations in the manual bay, 20 picking trucks and a range of other trucks.

Having spare capacity provided an opportunity to excess how customers were served and this
was the principle driver for bringing the total logistics to help with the re-engineering of the
Nestl supply chain. But it wasnt the only one: there was a risk management issue. Nestl no
longer felt it appropriate to hold entire product stocks under one roof and a solutions had to be
found for the strategic storage and distribution of major line- like coffee or the hugely popular
Kitkat-that protected then but without compromising access and delivery efficiency. In addition,
a further objective of the project for Nestl was the establishment of a single customer service
center in York.

There was also a clear need to respond to the impact of the EU working time directive: the travel
time for Lorries delivering from US region into the south of England is long. Without an
alternative solution that reduced delivery lead time, adhering to the directive would have almost
certainly meant cost additions.
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FEELING THE BENEFIT

Throughout 2003, the necessary changes to warehouse configuration, supporting system and
processes were put into place with the first combined deliveries started in September 2003. The
full roll out of the revised supply chain to Nestls major multiple, wholesale and retail customer
base to place successfully over the following months and into 2004 and has delivered many
critical business benefits-for both Nestl and its customers.

The customer response has been very favorable: they are receiving an improved level of service
that is inherently more flexible while we have been able to decrease the fleet size which as a
positive environmental impact
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REFERENCES

http://en.wikipedia.org/wiki/Food_processing

http://en.wikipedia.org/wiki/Nestl%C3%A9

http://www.nestle.com/csv

http://www.nestle.in/jobs/experienced-professionals/supply-chain-management

http://www.total-logistics.eu.com/logistics-clients/logistics-case-studies/nestle-re-balancing-
case-study.html

http://www.mckinsey.com/insights/operations/building_the_supply_chain_of_the_future

https://www.scribd.com/doc/86355121/Supply-Chain-Management-of-Nestle

https://www.academia.edu/7181909/Nestle_case_study

https://www.academia.edu/5598620/Nestle_international_business_strategy

http://www.scmworld.com/research/reports/case-study--creating-shared-value-at-nestle---
how-rural-development-alleviates-farmer-poverty-and-assures-supply/

http://www.powersimsolutions.com/Nestle.aspx

http://www.emeraldinsight.com/doi/abs/10.1108/13598541011028769