NestléSupply Chain Analysis

By:Alok Kumar 1510006

Introduction• Established by Henri Nestle in 1866.

• World largest food processing company with total sales of 88785 million Swiss F in 2015.

• 435 production factories operating in 35 countries.

• More than 15000 products are sold across 189 countries.

• Focus on CREATING SHARED VALUE across all channels

Nestle Products

Powdered & Liquid

BeveragesWater

Milk Products & Ice Cream

Nutrition & Health Science

Prepared Dishes &

Cooking AidsConfectioner

y Pet Care

Nestlé’s Typical Supply ChainGroup A Group B

Class 1 82 95

Class 2 76 88

Class 3 84 90

• First bullet point here• Second bullet point

here• Third bullet point here

Sourcing & Procurement• Nestle buys approximately 10 percent of the world's

coffee production, 10 percent of the cocoa crop, and 2 percent of the milk and sugar.

• Also responsible for the supplier’s way of doing business

• Supply Chain Mapping programme for responsible sourcing traceability operations.

• To create value among suppliers, technical training is provided to farmers level which in turn will improve quality.

Supplier

Code

Human Rights

Safety and

Health

Business Integrity

Environmental

Sustainability

Nestlé's Quality Management System• Ensuring quality standard are met globally at each step

in entire value chain

• Starts with farms by addressing key global environmental and social issues.

• R&D network theme is “Quality by design”.

• Good Manufacturing Practices (GMP) to ensure quality and food safety.

• ISO 9001:2005, ISO 22000:2005/ISO 22002-1, HACCP standards verified by external bodies

Build trust by offering expected

consumer product and

services

Comply with food safety standards,

regulations and quality

requirements

No waste attitude with Zero Defect

Global Objective: Quality

Quality Policy

Distribution • Nestle transports more than 140000 tonnes of product from 1600

warehouses.

• Most of transportation and logistics is outsourced to third parties.

• Under VMI, Nestle distributor makes the replenishment decision.

• Nestle monitors the inventory level using Electronic Data Interchange.

• EDI provides the data related to inventory, pricing, and product movement etc.

• Distributor further connect with retailers to ensure delivery of products to end consumer.

IT Tools & Improvement Programs• Achilles Supply chain mapping to tracing the source of materials

• EDI to facilitate instant and paperless purchase orders with suppliers.

• Also, ERP, SAP-SCM software are used to ensure seamless information flow across the globe.

• BARLOWORLD CAST Program for supply chain modelling and optimization.

• Project GLOBE: $2.4bn project aimed at standardizing the procurement, distribution and sales management systems across globe.

• Ingenious: crowdsourcing initiative to facilitate communication about supply chain challenges, problems and ideas across supply chain teams worldwide.

• Blue Number Program: started by United Nations in 2015. Giving farmers an online presence, encourages them to improve their sustainability practices by enabling self-assessment of voluntary standards, and connects them to buyers

Nestle IndiaSupply Chain Management

Sourcing in India

• Target – responsible and traceable sourcing in all product categories

• Working alongside NGO partners, they map the supply chains, and conduct supplier audits and farm assessments to ensure the procurement of 12 priority ingredients

• Example : milk

1.3 million kilograms of milk per day 110,000 farmers 2,815 milk collection

centres

This leads to effective quality control and helps in garnering vendor support

Manufacturing • 8 factories ( 4-north; 4-south)

• Internationally recognized Good Manufacturing Practices (GMP) to ensure quality and food safety

• Improving quality through TQM

• Inventory : Continuous Review model using a complete computerized system.

• WIP inventory is maintained low

• Ware house management systems (WMS) with Radio Frequency (RF) technology

• During the last 15 years, for every tonne of production, the Company has reduced the usage of energy by around 47%, water usage by around 55%, greenhouse gases by around 57% and waste water by around 61%.

Promotion in Distribution Network• Nestle Super Awards as motivation for channel partners

• Incentives for specific target achievements in form of additional margins and Certificate of acknowledgement

• Dealership in Practice (DIP) training– Nestle Quality System– Good Warehousing Practices (GWP)– Good Distribution Practices

Maintaining excellent relationships with vendors will help garner support in times of difficulty

Distribution Network

Consumer

Wholesaler

Retailer

Super-StockiestDistributor

Carrying and forwarding agent

Factory

Retailer

Distributor

• Due to prioritizing on shared value it gained immense support during the Maggi crisis• enabled to speedily complete the

withdrawal without hampering the sale of the Company’s other products.

• almost zero attrition amongst the business partners during this time

• Realises the growing importance of e-retailing and continues to successfully engage with the leading e-retailers

BritanniaSupply Chain Management

Company Overview• Established in 1892 in central Kolkata

• In FY2016, the company recorded a net margin of 9.6%, compared to a net margin of 8.8% in FY2015.

Food

Bakery Products

International Bakery Products

J B Mangharam

Foods

Manna Foods

Ganges Vally Foods

Sunrise Biscuit

company

Daily Bread Gourmet

Foods

Dairy Products

Britannia Dairy Holdings

Private Limited

International Operations

Strategic Foods International

&Al Sallan Foods

Britannia and Associates

&Britannia Dairy

Holdings private limited

Management Objective

“Your Company has been making focused efforts to balance cost, quality

and aspiration in its brand for consumer affordability. Cost

effectiveness has been a key pillar of your Company’s value

creation strategy and this was achieved through scale in operations,

technology interventions and wastage reduction in the value chain along

with efficient management of working capital. Your Company will

continue and intensify the thrust on cost effectiveness in the coming

year as well.”

Sourcing• Some components are sourced locally.

– E.g.: Wheat, Sugar, Butter

• Some components are imported– E.g.: Crude Palm Oil which gets refined here in India

• Sourcing is not integrated in the supply chain as we saw in case of Nestle.

Engaging with vendors will lead to better control on quality and definitely cost advantages in long run

Manufacturing• Increasing control on capacity

– Acquisition of contract manufacturing unit

• Investments in greenfield projects in Tamil Nadu, Karnataka

• Trying to leverage synergies in cost with existing factories

• Consolidation of SKUs done to enhance operational efficiency but also new product lines are created

Distribution & Retailing• Intensive distribution strategy

• Emphasis on expanding into rural market

• Trade channels– General Trade : Standalone shops, retail shops– Modern Trade : Big Bazar, Reliance Fresh, etc.– Institutional Trade : Hotels, Airlines, IRCTC, etc.

• Use of SAP-APO solution to achieve better inventory deployment across supply nodes

Domestic/International

Suppliers

Manufacturing Units

CnF Agents

Distributors

Retailers

Customers

Supply chain metricsParameters(in INR)

Britannia (in INR) Nestle Global (in CHF) Nestle India(in INR)

2015-16 2014-15 2015-16 2014-15 2015-16 2014-15

Sales 8097.81 crores 7269.26 crores 88785 million 91612 million 8430.44 crores 10129.5 crores

Cost of goods sold 4622.33 crores 4316.84 crores 44730 million 47553 million3468.91 crores

4523.96 crores

Average inventory 185.58 crores 166.38 crores 8662.5 million 8777 million832.45 crores

790.02 crores

Average trade receivable 88.84 crores 62.34 crores 12855.5 million 12832.5 million88.76 crores

91.69 crores

Average trade payable 637.33 crores 549.95 crores 17237.5 million 16754.5 million736.13 crores

680.88 crores

Inventory days 14.65 days 8.35 days 70.69 days 67.38 days36.06 days

28.47 days

Trade receivable days 4 days 3.13 days 52.85 days 51.12 days3.84 days

3.3 days

Trade payable days 50.32 days 46.50 days 140.92 days 128.61 days77.49 days

54.97 days

Cash conversion cycle -31.67 days -35.02 days -17.38 days -10.11 days -37.59 days -23.2 days

Conclusion• Depending upon the management objective, supply chain activity system

varies across companies.

• Nestle focuses on CSV while Britannia on Cost Effectiveness.

• Nestle engages closely for long term while Britannia’s relationships are short term and transactional in nature.

• Britannia is planning to expand its distribution network in rural area under new leadership.

• Nestle already has strong and intensive distribution in India.

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