Supply Chain of Nescafe in India –A Study

Submitted by :Bhaskar Kumar14MB000001

Objective of the study

• The objective of the study is based on the strategy adopted by Nestle

India Ltd. for managing supply chain processes of Nescafe.

The study focuses upon:

Process views of Supply Chain.

Social welfare programs for sustainability of Supply Chain.

Major issues and challenges with coffee supply chain.

Introduction

• The collection of all producers, suppliers, distributors, retailers and

transportation, information and other logistics providers that are involved in

providing goods to end consumers. A supply chain includes both the internal

and external participants for the firm. - Chow & Heaver (1999)

• Since around 1990, companies across a wide variety of industries have

become increasingly interested in exploring the opportunities for

competitive advantage that can be gained by leveraging the core

competence and innovative capabilities to be found among network of

business partners.

Supply Chain of FMCG Sector in Indian Context

• Proper supply chain management provides capabilities to overcome the

disadvantages of logistic infrastructure in short run while enabling the

businesses to develop competitive advantages in long run.

• Technology in supply chain has been upgraded over time enabling FMCG

firms like Nestle to monitor customer Take-Offs in a better way.

• The agri-business sector’s supply chain, has witnessed significant changes

with increase in investment for cold-chains across the country.

• Warehousing is generally provided by third party which have lack proper

facilities due to lack of investment and infrastructure.

Overview of supply chain of coffee Industry• Coffee is one of the world’s most valuable agricultural commodities and is

widely traded across the globe.

• Corporate firms face challenge of operating global supply chain profitably

and CSR plays important part to ensure it.

• the market and demand for differentiated coffees is still growing. So to

ensure healthy and sustainable producer-buyer relationship, speciality

coffee trade requites short global value chains (GVC)

• The supply chain of coffee is complex and generally involves many

stakeholders :

– Growers

– Intermediaries

Continued..

– Processors

– Government agencies

– Exporters

– Brokers/ Dealers

– Roasters

– Retailers

Apart from entities mentioned above, there exists more of

them between roasters and retailers.

Supply chain of Nescafe

Upstream Supply Chain of Nescafe

The NESCAFÉ Plan

• Nestlé launched the NESCAFÉ Plan in India in the year 2012.

• By working closely with Indian coffee farmers for training and development

and ensuring competitive prices, transparency and traceability, Nestle India

Ltd. is seeking to ensure coffee supply chain sustainably.

• Setting up Coffee demonstration farm.

• Farmers are given high-yielding, disease resistant plantlets suitable for

Indian conditions.

Continued...

• Suppliers of coffee bean are mentioned below :

– Trade International Ltd.

– Karnataka Plantation

– Best of Coorg

– Prabhath coffee Works.

– Etc.

Continued...

• Primary operations that are coffee are carried out by farmers and

smallholders are discussed below.

• Growing : Coffee plant grows best in a humid, warm climate with a

relatively stable temperature around 27ºC all year round.

• Processing : Coffee cherries picked from the plant goes through many

processes to end as the saleable product - the green coffee bean:

– Picking

– Drying and hulling

– Sorting, grading and packing

Continued...

• At Nanjangud Factory, four more operations are carried out on coffee beans

before they are ready for being used in production of various coffee products.

– Blending: Coffee blending is done by experts. Quality and taste of each

and every variety of coffee mix has to be same and as per standards.

– Roasting: Green beans are roasted under controlled environment.

Roasted beans are brown in colour and have characteristic aroma of

coffee.

– Grinding: Coffee beans are ground to convert coffee in powder form

– Evaporation and spray drying : It is done to eliminate extra moisture from

the grinded coffee beans.

Continued..

– Bulking

All these steps are carried out by the suppliers according to the desired

standards and requirement of Nestle.

Sourcing of Chicory

• Chicory is an important ingredient for various coffee drinks. (For example, Nescafe

Sunrise has 30% chicory content)

• In 2001 Nestle started developing new areas to cultivate chicory. Support was given to

Paras Spices in 2005 to diversify into chicory roasting and to start cultivation with local

farmers.

• The suppliers were trained on sowing, drying and roasting of chicory.

• Currently Nestle is connected to more than 7500 farmers and 7 suppliers for

procurement of chicory.

Continued...

Packaging

• Packaging protects food products from

damage due to external environment and

keeps them safe till consumption by customer.

• Coffee is packaged by Nescafe in attractive jars

and sachet of various sizes.

• Nescafe sources jars and sachet from third

party suppliers.

• air tight foiling is done for keeping the coffee

fresh for long time.

• After packaging, labelling of jars is done.

Process Views

• Cycle view

Continued...

• Push/Pull process : Nestle follows push based supply system. Pull System is only prevalent at penultimate node of supply chain i.e. retailers.

Downstream Supply Chain of Nestle India

• Nescafe does not have exclusive downstream supply chain, that is, Nescafe

reaches its consumer in the same way as other products of nestle.

• Nescafe is manufactured at Nanjangud Factory of Nestle India Ltd.

Supply chain is relatively new function at Nestle India. It was formed in 1998.

Continued...

Supply chain department is divided into 6 sub-functions:

• Category Demand Planner: It is responsible for demand forecasting of each

category of products. Over there are 7 CDP at head office. CDP of Beverages

looks after Nescafe. Demand is forecasted SKU wise for each distribution

centre.

• Customer Service and distribution: It looks after key customer accounts and

facilitates distribution operation for them.

• MIS Officer: It is responsible for handling SAP system and coordination with IT

department. Responsibility of MIS officer is generating various reports and

Analytics.

Continued...

• Distribution Resource Planner: DRP is responsible for allocation of unskilled

labour, Distribution Centre Staffing, DC layout, equipment and machinery

purchase planning.

• Logistics And Budgeting: It is responsible for handling 3PLs.

• Warehouse Manager: It is responsible for maintenance of warehouse facility.

Storage of products as per norms, maintaining FIFO , Implementation of

stacking rules, Safety standards for staff (Safe by Choice principles).

Order processing and billing for every State DC is done by OMC. OMC generates

orders based upon NORMS. Norms are prepared automatically based mainly

upon sales of every cash distributor.

Continued..• OMC-DC-CD co-ordination:- It is ensured by Supply chain management

department. Timely delivery of order after invoicing is critical. It is also

responsible for physical loading stock to vehicles. It replenishes stock information

(logical and automated process).

DC supply stocks to every CD. Timely and exact delivery of ordered stock is very

essential, it is ensured by CSP. CSP (customer service plan) is planning of next 18

days in advance. Order consignment is delivered at CD point from DC godown on

next day of invoicing.

• Norms: Minimum quantity of stocks which needs to be there at CD pt. on the day

of Invoicing. It is affected by factors such as LY, TY, Sales Plan, Festival, Season, etc

Generated Order = Norms – physical holding – In-transit

Analysis of SCM at Nestle

• Nestle has adopted the policy of “Creating Shared value” (CSV) for development of Supply chain partners.

Continued..• Nestlé India ltd is determined and willing to pay fair price for coffee produce to farmers

as good quality raw material is essential for business.

• Nestle promotes better agricultural practices, support rural development in line with

local priorities, and address supply chain issues from gender inequality to deforestation.

• The Lean Supply Chain of Nescafe is ensured by NCE.

• Issues and Challenges

– Overproduction

– Lead Time management

– Quality Maintenance throughout the SC

– Excess Inventory

– Seasonality

Finding of the study

• Nescafe supply chain is well coordinated alignment between its supply chain partners.

• Coffee business is thriving because of strong distribution network, through which

Nescafe available in every part of our country.

• But Supply Chain of Nescafe in India is still in developing stages as compared to that

in developed Countries. This is mainly due to lack of investment of other supply chain

partners and poor infrastructure.

• Complexity of managing supply chain partners is increasing.

• Although Creating Shared Values principal is fruitful in long run but it also requires

huge capital investment.

• CSV for coffee is still in initial stages as compared to other businesses of nestle.

Conclusion

Limitation

• The study is restricted to a particular brand of a company.

• Time was not sufficient to complete the study.

• The study is theoretical and qualitative.

Thank You