Supply Chain of Nescafe in India

– A Study

Term Paper submitted

In partial fulfilment of the requirement for the Degree

of

Master of Business Administration

By

Bhaskar Kumar

Admission No. 14MB000001

Department of Management Studies

Indian School of Mines, Dhanbad

July 2015

DECLARATION

I, the undersigned, hereby declare that the Project Report entitled “Supply Chain of Nescafe

in India – A Study” written and submitted by me to the DEPARTRMENT OF

MANAGEMENT STUDIES, INDIAN SCHOOL OF MINES, DHANBAD in partial

fulfilment of the requirements for the award of degree of MASTER OF BUSINESS

ADMINISTRATION , is my original work and the conclusion drawn therein are based on

the material collected by myself.

Place: Dhanbad (Bhaskar Kumar)

Date:

ACKNOWLEDGMENT

I am a student of 4rd semester of Masters of Business Administration in INDIAN SCHOOL

OF MINES, DHANBAD. Term Paper is a golden opportunity for learning and exposure. I

would like to express my heartfelt gratitude to faculty members, as without their active

guidance, cooperation and encouragement, this project would not have been a success.

.

Bhaskar Kumar

CHAPTER 1

1.1 INTRODUCTION

Supply chains are basic functions to trade for movement of raw materials, intermediate and

finished products efficiently from origin to destination and thus enabling firms to compete in

markets successfully.(Shister, 2005).

In order to achieve and maintain competitive advantage firms adopted outbound logistics

during the 1960s and 1970s. The focus of physical distribution was on set of interrelated

activities that included warehousing, transportation, distribution, inventory levels, materials

handling and distribution packaging to ensure the efficient delivery of finished goods to

customers (Langley et al., 2008). In 1980s the firms also started focusing upon inbound

logistics (materials management). Thus business logistics encompassed inbound as well as

outbound logistics. It provided firms an opportunity to plan and execute operations for

procurement of raw materials from suppliers to delivery of finished goods to the consumers.

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.

In order to create competitive advantage through supply chain efficiency for improving their

market shares, the problem arises whether all functions should be carried out by a single

organisation (vertical integration) or whether each function should be outsourced to other

specialist firm in order to strengthen core competencies. Various firms in supply chain enjoy

specialization and economy of scale through segmentation of supply chain activities (Trkman

et al., but they often tend to maximize their own profitability without considering overall

performance of entire supply chain.

For example, in Indian context, several supply chains include private sector as well as public

sector firms.The main goal of the private sector is to maximise profit, while that of public

sector is social welfare , and so achieving overall efficiency becomes complex and difficult.

Maintaining efficiency and effectiveness is management’s main objective. The effectiveness

of a supply chain can be defined as “The degree to which the desired level of service is

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provided to meet stated goals and objectives” (Pienaar, 2009a), while efficiency may be

expressed as “a measure of the way that allocation of resources maximises outputs with the

given inputs and technology” (Pienaar,2009a).

Supply Chain management becomes one of the vital functions of business organisations

venturing in food and beverage sector due to short lead times rendered by spoilage of

products. For Example, In Nestle 90% of operational (handling) cost is incurred by Supply

Chain Department. F&B sector is a part of FMCG industry, so Supply Chains must be

responsive as well as efficient. Responsiveness of supply chain affects Sales of product

directly. According to an estimate about half of all food grown is lost or wasted before and

after it reaches the consumer (Lundqvistet al. 2008). Robust and responsive supply chain is

required to minimise wastage raw materials for the industry. Efficiency affects landing cost

of goods for various firms of supply chain.

1.2 Supply Chain of FMCG Sector in Indian Context

The Indian logistics sector comprises the entire inbound and outbound segments of the

manufacturing and service supply chains. Although holistic approach of infrastructural

development has been initiated by the government but still it is one of the most prominent

causes of bottlenecks in growth of Industries. 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.

Logistics in India typically strives for reducing transportation costs primarily due to

concentration of manufacturing in small geographical regions and distribution of goods in

scattered and large areas. Apart from this, lack of technology and inadequate infrastructure

also adds to the cause. Movement of fright is now slowly shifting to Roads from Rail. The

rise of large third party logistics (3PL) carriers like DHL and FedEx and the expansion of

domestic networks of Indian firms like Gati and Shreyas Shipping is also transforming the

nature of services and the business practices across the sector. These firms provide end to end

solutions for supply chain partners for various industries. Typically in FMCG Sector,

Manufacturing firms have started to reduce the number of Distributors so as to increase the

reach and capacity and consequently the returns to distributors. This has resulted in increase

in capability and investment in production technology and leveraging effective managerial

practices.

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Technology in supply chain has been upgraded over time enabling FMCG firms like Nestle to

monitor customer Take-Offs in a better way. But still lack of penetration of IT for

management of Rural and semi-urban markets implies that scope for change is immense. Of

late, companies have successfully implemented penetration of hand held devices for order

processing and tracking, materials handling and product tracking in downstream supply chain

that has resulted in better use of IT in decision making. Mobile technologies is being used for

better coordination between upstream and downstream part of supply chain, it also renders

vital information for real time decision making.

The agri-business sector’s supply chain, has witnessed significant changes with increase in

investment for cold-chains across the country. By cold-chains, vegetables, fruits, processed

milk products are being transported across the country. Milk grid is capable of picking up

and delivery of liquid milk from and to remote and rural areas frequently. Here MNCs like

Nestle and cooperatives like AMUL are significantly increasing the size of the distribution

network and also investing in CSR activities to build social capital – a must for growth in

developing economies like India (Chandra and Tirupati, 2003).

Proper warehousing plays an important role in ensuring quality of products to consumers.

FMCG firms faces challenge of maintaining proper storage of finished/semi finished products

at various points in supply chain as warehousing is generally provided by third party which

have lack proper facilities due to lack of investment and infrastructure. Typical warehouses in

india lack capacity and technology for monitoring, stacking and handling products. Cold

storages and allied machinery are not available as per requirement. Still most of operations

are carried out manually as deployment of technology and mechanisation of operations is not

feasible due to poor and irregular power supply.

1.3 Overview of supply chain of coffee Industry

Coffee is one of the world’s most valuble agricultural commodities and is widely traded

across the globe. (Giovannucci et al., 2008) and is a source of livelihood for around 60

millions of smallholders and farm workers worldwide (Ponte,2002). Corporate firms face

challenge of operating global supply chain profitably and CSR (corporate social

responsibility) plays important part to ensure it. While the market and demand for

differentiated coffees is still growing (Petit, 2007; Weber, 2007), to ensure healthy and

sustinable producer-buyer relationship speciality coffee trade requites short global value

chains (GVC) (Lewin et al., 2004).

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Coffee plant requires hot and tropical weather conditions for growth. Coffee farms are

generally small (3 hectares or less) and is owned and managed by small holders.

The supply chain of coffee is complex and generally involves many stakeholders. It is varies

form country to country but typically includes:

Growers – These are farmers usually working on a very small plot of land of just one

or two hectares. Most of them also perform primary operations such as drying

themselves.

Intermediaries –In coffee supply chain intermediaries are involved at various stages.

They buy coffee beans after the harvest and do some primary processing before

selling it again to other intermediaries. Some intermediaries collect small volume of

product and sell or transport sufficient quantity to processors or dealers. Thus there

may be five types of intermediary links in the chain.

Processors – Processors convert coffee cherries to green coffee beans. A processor

may be a individual farmer or a farmer’s cooperative that pools resources from

farmers to buy processing equipment and machinery.

Government agencies - In some countries government act as intermediary by buying

produce from farmers and then selling it at regulated rates to other supply chain

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entities. This is done by government to regulate trade and control prices of coffee.

This is not applicable to coffee industry in India.

Exporters - Exporters buy from local cooperatives or auctions and then sell it to

dealers. Their knowledge about crop and local area enables them to guarantee the

quality of coffee.

Brokers/ Dealers – They are responsible for supply the coffee beans to the roasters.

They ensure timely supply of shipment and quality and quantity of product. The price

is determined by negotiation and agreement between Broker and rosters.

Roasters – roaster are generally firms which processes green coffee beans to products

for consumers. Companies like Nestle, Bru, CCD buy coffee beans from brokers,

process it and add value to the product by advertising packaging branding and

marketing it.

Retailers – Sellers of coffee product to consumers. They may be retail outlets, hotel,

catering organisations, etc.

Apart from entities mentioned above there exists more of them between roasters and retailers.

A supply chain of coffee industry is efficient and effective only when various factors related

structuring and planning of product distribution, terms and conditions for payment and

arrangements for handling, and storing the product. Long term business relationship can

foster only if fair to stakeholders are taken into consideration. Different and complex

relationships exists between organisations involved in the separate stages of the chain -

whether it is in the trading agreement is implemented ensuring that parties are getting a fair

deal. Apart from this information flow must be timely and transparent. MNCs like Nestle

stress upon rural development and support local society to achieve corporate objectives.

Business practices needs to ensure environmental sustainability for achieving profitability

goals in long run.

1.4 Reason For Selecting the Topic

Nescafé coffee was launched in India in 1963.Itis the leading soluble coffee brand in the

country. Products are available in different sizes and at different price points, from affordable

single serve sachets to premium blends.

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As an employee of Nestle India ltd. , I am working for value addition to sales and distribution

of various products of Nestle. Nescafe is sourced, manufactured and sold in India as well as

exported to many other countries. The supply chain forms the backbone for success of the

brand. Nescafe does not have exclusive downstream supply chain, that is, Nescafe reaches its

consumer in the same way as other products of nestle. Nestle supports upstream part of

supply chain by executing various programs that supports farmers and local small scale

coffee businesses. The Supply Chain of Nescafe is affected by various factors. It needs to be

more effective and efficient in order to reduce wastage, maintain quality , and penetrate more

markets.

1.5 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. Supply chain function forms backbone of coffee business

for the company in fulfilling the customer demand. Various steps taken and activities carried

out by company for making is SCM function more efficient and effective is discussed in this

paper.

Primary Objective:-

Analysis of Supply chain Management of Nescafe in India.

Secondary Objective: -

Process views of Supply Chain.

Social welfare programs for sustainability of Supply Chain.

Major issues and challenges with coffee supply chain.

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CHAPTER 2

2.1 LITERATURE REVIEW

References from various related projects and journals were taken into consideration.

Supply chains are fundamental to businesses in order to move raw materials, semi-finished

and finished products efficiently from origin to destination and thus enabling firms to

compete successfully (Shister, 2005). Chow & Heaver (1999) defines supply chain as “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”.

The integration of key business processes from original supplier through to end user, to

provide products, services and information that add value for customers and other

stakeholders. (The Global Supply Chain Forum, 2009). One of the most important objectives

is to improve company’s competitive position in the market and to sustain that position in

spite of fierce competition and changing customer needs (Langley et al., 2008).

Simchi-Levi & Kaminsky(2008) states that supply chain integration is best achieved by

integrating the front end of the supply chain, customer demand, to the back end of the supply

chain, the production and manufacturing portion of the supply chain.

One of the trends observed in global transportation is that many countries have been

deregulating and liberalising various aspects of their transport systems.(Department of Public

Enterprises, 2000). Indian government initiated liberalisation in 1991, and after that many

policies were implemented to liberalise logistics sector.

Push-based supply chain systems stresses upon deciding when and how much of a given

product must be kept in storage onto the manufacturing firm. Inventory and transportation for

manufacturing and distribution decisions are based on long-term forecasts of demand and the

current levels of stock on-hand. The manufacturing firm controls and determines the core

factors in the supply process in a push-based supply chain (Pienaar, 2009c).

In a pull-based supply chain, warehousing function controls and determines when and how

much of a given product is required. The manufacturing and distribution decisions are

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demand driven. Coordination of pull-based supply chains is determined by actual demand

and not by forecasted demand. It results in a substantial reduction in inventory level. (in a

pure pull system, the firm strives to carry zero product inventory and only starts working as

soon as orders are received) (Pienaar,2009c).

Supply chain of FMCG industry requires close integration of internal functions within a firm

and efficient and effective linkages with channel member’s external operations.(Lee, 2000).

The supply chains must not remain static, rather chains must evolve continuously in

accordance with the changing customer needs and market (Little, 1999).

Availability of road infrastructure (it includes paths, tracks and feeder roads), transport

services and storage facilities increases mobility and improves production. (Gebresenbet and

Oodally, 2005).

The reduction of spoilage and damages improves the marketing value of the product. To

minimise damages, it is necessary to facilitate exclusive management for each variety of

product, adequate processing, and storage facilities (Gebresenbet and Oodally, 2005).

For ensuring food safety and quality, development, implementation and maintenance tracing

system is very important. It can be achieved by increasing in transparency of food supply

chain. (Gebresenbet et al., 2011, Smith et al., 2005).

Since 1990’s, flow of goods has tremendously increased, not due to the increase in the

amount of goods, but due to other factors such as centralization and specialization of

production systems. Apart from these cause, Globalization of marketing has also contributed

to the fact. (Gebresenbet and Ljungberg, 2001).

In addition to geographical distance, locally produced food is also considered as food which

meets a number of criteria such as employment, fair trading relations, cultural and

environmental issues, producer profitability, and health. (Bosona et al., 2011).

Currently it is observed that customers are more inclined to purchase the local food as it

gives them pleasure (hedonistic reason) and also satisfies their quality needs and contribute to

their satisfaction as they feel contributing positively to the ecosystem (altruistic reason)

(Brown et al.2009; Bosona and Gebresenbet, 2011).

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CHAPTER 3

3.1 Nestle Continuous Excellence (NCE)

Nestle India Ltd. strives for execution of NCE throughout the supply chain of its businesses.

It was introduced by CEO of Nestle, Mr. Paul Bulke. Its objective is to engage everyone’s

heart and mind in order to focus upon consumer driven war on waste.

Objective of NCE is - 0 Waste, 1 Team, 100% engagement.

3C’s of NCE:

Delight Customer Deliver Competitive Advantage Excelling in Compliance

Nestle strives to follow NCE throughout the supply chain to enable the organisation and

channel partners to achieve the 3 C’s

3.2 Upstream Supply Chain of Nescafe

The NESCAFÉ Plan

Nestlé launched the NESCAFÉ Plan, as part of its global initiative, in India in the year 2012.

The plan aims to bring under one leaf Nestlé’s commitment on coffee farming, production

and consumption. The launch was followed by an inauguration of a Coffee demonstration

farm in Coorg. This coffee demonstration farm in India intends to help farmers improve the

quality, productivity and sustainability of their crops across the states of Karnataka, Kerala

and Tamil Nadu to develop their agricultural practices as demand for NESCAFÉ soluble

coffee grows in the country. Furthermore, Nestlé's research and development teams aim to

provide farmers with high-yielding, disease resistant plantlets suitable for Indian conditions.

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

competitive prices, transparency and traceability, we are seeking to source coffee sustainably.

Under this plan more than 1200 farmers were given training. Coorg and Chikmagalur in

Karnataka and Waynad in Kerala

Nestle sources coffee beans from 26 (2010) suppliers in India.

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Nestle India Ltd. buys’ green coffee beans from roasters’. It is itself a processed product.

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 temperaturearound

27ºC all year round. In India coffee plantations are therefore found in south Indian states of

Karnataka , Kerala, and Tamilnadu and North-eastern states. Mainly Arabica and Robusta

species are sourced by Nestle.

Processing

For the fruit to ripen in to red coffee ³Cherries´It takes about 6 to 8 months for Arabica

Coffee and 11 months for Robusta Coffee after the coffee trees begin to produce fruit, for

fruit to ripen in to red coffee Cherries. Coffee cherries picked from the plant goes through

many processes to end as the saleable product - the green coffee bean.

1. Picking

Coffee is picked up by hand. Coffee cherries become red when they are ripe, but all cherries

do not ripen at same time. So, an only red cherry has to be picked up at harvest time to get

better quality coffee. This job is highly labour intensive as farm has to be visited repeatedly

for getting red cherries. Therefore some farmers prefer to strip both ripe and unripe coffee in

one visit thereby compromising over quality of overall produce.

2. Drying and hulling

A coffee cherry consists of bean, skin, and pulp. Bean has to be separated from rest of cherry.

One cherry contains two beans. The operation carried out to separate beans is known as

‘hulling’. After hulling; beans has to be dried either by sun rays or by mechanical dryers.

Small farmers dry beans naturally by sun.

3. Sorting, grading and packing

After drying; broken beans, sieves and other unwanted matter are separated by sorting.

Sorting is done manually or by machines. Then beans are again segregated according to their

physical characteristics. This is known as ‘grading’. Then similar graded beans are packed

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together in a sack. 1 sack usually weights 60 kg. Nestle procurement professionals always

collect coffee beans which are of good quality. They do not accept insect damaged beans,

immature beans and broken beans.

4. Bulking

After performing initial operations farmers and small holder sell sacks of coffee to a

middleman. These are generally coffee merchants who are having small godown for storage

of sacks. Nestle buys large quantity of beans from merchants. Coffee Merchants bulk

together many small sacks of beans and form a batch of necessary amount. Bulking of only

same grade of beans is done together.

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

requirement of Nestle. 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. These

operations are fully automated and are carried out by machines under supervision of experts

and machine operators.

5. Blending

Coffee blending is done by experts which have experience to decide which grade of coffee

are to be mixed together in order to meet the taste of customer. Quality and taste of each and

every variety of coffee mix has to be same and as per standards. As coffee beans are from

various origins and every batch is not same, so proper blending is very important.

6. Roasting

The coffee beans reaching factories are green and unfit for preparation of a coffee mix. Green beans are roasted under controlled environment. Roasting is very important to have desired aroma out of green beans. Green beans are roasted within 180 degree C to 240 degree C for 3 to 12 minutes. Different time intervals and temperature of roasting are used to prepare different types of coffee products. When the desired aroma and is achieved, the beans are removed from the heating machines and left to cool. Roasted beans are brown in colour and have characteristic aroma of coffee. Roasted coffee beans are ready to be processed further for making variety of coffee products manufactured by nestle under the Brand Nescafe.

7. Grinding:

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After roasting coffee beans, it is ground to convert coffee in powder form. Like other processing, grinding is also important as taste and aroma of coffee depends on grinding.

8. Evaporation and spray drying:

It is the last operation carried out on coffee before packaging. Evaporation and spray drying is done to eliminate extra moisture from the grinded coffee beans.

3.2.1 Ensuring Supply of Quality Coffee Beans in India

Taste is the major attribute that consumers expect when they are enjoying a cup of Nescafe.

Consequently Nestle Factories perform cup tasting on each batch of green coffee supplied

and only accept coffee beans for processing when cup taste meets the expectations.

Nestle coffee factory in India, Nanjangud, was facing a serious problem: taste of coffee

supplied was not consistent, rejections were high, and suppliers were dissatisfied, not

understanding the Nestle requirements and getting reluctant to sell to Nestle.

Coffee for Nestle India is supplied by 25 traders who buy dried coffee cherries from

middlemen and farmers, then hulling and grading the beans in their curing plants. Like this,

the coffee batches are heterogeneous in quality.

The traders do not have facilities or experts to carry out cup tasting or to educate farmers

about good post-harvest practices. Therefore, in March 2007, Nestle Nanjangud set up 3

small field laboratories in the main coffee procurement districts and asked suppliers to get

their coffee batches pre-tasted at Nestle Field laboratories before supplying to Nestle.

This worked to a certain extent but most traders were still reluctant to pass their coffee

through the field lab and did not understand why Nestle was imposing this, while their other

customers do not care. Nanjangud Factory started a supplier development function for green

coffee by allocating dedicated staff. The experts are regularly visiting and educating

suppliers, giving feedback in case of rejections, encouraging suppliers to pass through Nestle

Field Labs and explaining root causes of cup taste deviations to traders and even to supplying

farmers

3.2.2 Sourcing of Chicory

Apart from coffee, chicory is an important ingredient for various coffee drinks. (For example,

Nescafe Sunrise has 30% chicory content). Chicory is a root crop used in various Nescafe

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blends. In India, the root is harvested in April/May, washed and cut to cubes, then dried in the

sun before being stored for year-round roasting. Chicory is supplied to Nestle by roasters /

extraction plants either as roasted cubes or liquor extract. The crop does not have a ready

market besides its usage in coffee, which is why contract farming organized by roasters is

very successful. Chicory is bought in India mostly by Nestle.

Gujarat had been the traditional area of chicory growing with a few key players controlling

the market. Supply disruption due to local weather conditions was a constant risk.

Therefore, in 2001 Nestle started developing new areas to cultivate chicory. This was no

easy task, since local farmers did not know the crop and chicory is competing for land with

wheat, garlic and tobacco.

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

with farmers on good agricultural practices. One more region was then developed in Punjab.

Support was given to Paras Spices in 2005 to diversify into chicory roasting and to start

cultivation with local farmers. Line sowing was successfully introduced in Punjab as an

innovation in farming.

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

chicory.

3.2.3 Packaging

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Green coffee Beans from

suppliers

Warehouse (Nanjangud)

Factory at Nanjangud

(Packaging& processing)

Figure: Packaging and processing of Nescafe

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. Basic objective of packaging is to ensure convenience in transportation,

protect product from damage, and Utilization of casing space. Apart from these objectives

packaging of coffee is done in such a way that it is attractive and easy to use for customers.

Nescafe sources jars and sachet from third party suppliers. Nestle does use any preservatives

not use any preservative for their coffee, so air tight foiling is done for keeping the coffee

fresh for long time. After packaging, labelling of jars is done.

3.3 Supply Chain of Nescafe - Process View

1. Cycle view

There are four cycles followed by Nescafe.

a) Customer order cycle: customers purchase Nescafe from Retailers.

b) Replenishment cycle: Retailers purchase Nescafe from cash distributors.

c) Manufacturer cycle: Manufactured Nescafe products are transported to Distribution centre

after invoicing.

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Local Suppliers (label, jar,

sachet, etc)

d) Procurement cycle : Procurement of Raw materials (coffee beans) is periodic activity and

it is based upon inputs from Demand planning. Coffee beans are purchased from suppliers.

Ssupply occurs at the interface between two successive stages of the chain.

Fig: Cycle View

2. Push/Pull process

Nestle follows push based supply system. It is implemented through calculation of “Norms”.

Norms are discussed in detail later. Inventory level of Nescafe and other products at Cash

distributors and Distribution Centres are controlled by Nestle. Pull System is only prevalent

at penultimate node of supply chain i.e. retailers. As nestle is consumer off-take driven

organisation, so various merchandising and promotional activities are carried out by sales

team to increase demand dependent on pull system.

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Fig: Push/Pull View

3.4 Downstream Supply Chain of Nestle India

NESTLÉ India set up its first manufacturing facility at Moga (Punjab) in 1961 followed by

its manufacturing facilities at Choladi (Tamil Nadu), in 1967; Nanjangud (Karnataka), in

1989; Samalkha (Haryana), in 1993; Ponda and Bicholim (Goa), in 1995 and 1997,

respectively; and Pantnagar (Uttarakhand), in 2006. In 2012, Nestlé India set up its 8th

manufacturing facility at Tahliwal (Himachal Pradesh). 

The 4 Branch Offices located at Delhi, Mumbai, Chennai and Kolkata help facilitate the sales

and marketing activities. The NESTLÉ India’s Head Office is located in Gurgaon, Haryana.

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Fig: Location of Factories and Offices

There are 38 distribution centre located in every states capital and other big cities.

Distribution centre of Nestle operates on facilities provided by third party infrastructure.

More than 1600 Distributors are located in urban areas and rural and semi-urban areas are

covered by 6000 re-distributors.

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Fig: Downstream Supply Chain

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

SCM have 6 sub functions. In eastern zone SCM department has 14 managers. Nescafe

Distribution is not exclusive. Nescafe products traverses through supply chain members just

like other products of Nestle (except chilled diary).

Supply chain department is divided into 6 sub-functions:

1) 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.

2) Customer Service and distribution: It looks after key customer accounts and

facilitates distribution operation for them.

3) MIS Officer: It is responsible for handling SAP system and coordination with

IT department. Responsibility of MIS officer is generating various reports and

Analytics.

4) Distribution Resource Planner: DRP is responsible for allocation of unskilled

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

purchase planning.

5) Logistics And Budgeting: It is responsible for handling 3PLs (third Party

logistics)

6) 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).

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3.4.1 Supply Chain Possesses

OMC (Order Management System) is situated at every regional DC except Guahati.

(Delhi, Mumbai, Kolkata, Chennai, guahati). OMC is a centralized body which takes

order from DC’s SDS (SAR Distribution System Software) and uses SAP (ERP

system at Nestle). 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.

Nestle outsources its IT and networking functions to IBM worldwide. IBM is

responsible for providing network infrastructure, data warehouses and ERP

implementation and maintenance for nestle.

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.

PED concept: Due to difference in taxes among states, cost of products varies from

state to state. So PED (price equivalent difference) is adjusted in invoice so as to keep

MRP of SKU equal throughout the country. It is implemented by OMC.

MSP (Monthly Sales planning): MSP is planning for 5-18 months for each DC. \

Lead Time: Lead time calculation based upon availability of current stock at each DC.

It provides information for optimum dispatch timing of consignments from regional

DC to state DCs.

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).

Generated Order = Norms – physical holding – In-transit

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.

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CHAPTER 4

Analysis

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

chain partners.

Fig. Value Chain of Nescafe

CSV is applicable for Nescafe supply chain also. Nestle contributes to society and

environment by adopting fair and sustainable practices.

Like every cash crop, price of coffee bean is determined by market demand and regulated by

Coffee board of India. 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 advertises a

minimum base price for purchasing of coffee known as Nestlé price. It acts as a reference

level for farmers and compels middlemen to keep their prices competitive and fair for

farmers. Coffee farmers can sell their produce in many ways: they may sell to the next link of

the traditional supply chain, the collector or merchants, they may sell direct to manufacturer

like Nestlé. However, usually farmers in India are unable choose the method by which they

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sell their coffee as they have small farms and coffee beans are very less in quantity.Selling

directly to Nestle is attractive as farmers can receive above the market price. However, it is

not feasible for company to buy from individual farmers a few bags at a time.

Nestlé is pioneer of purchasing coffee beans directy from growers. In India, it is not possible

to purchase from most of smallholders due to procurement constraints. Nestlé operates in a

way that takes it as close to the farmers as possible.

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

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

Apart from rural development, Nestle is also promoting Vender development by supporting

and training supply chain partners .

Issues and Challenges

- Overproduction

- Lead Time management

- Quality Maintenance throughout the SC

- Excess Inventory

- Seasonality

The Lean Supply Chain of Nescafe is ensured by NCE. NCE is generally used to identify

value- added activities. NCE is not only focusing on value- added and non value- added

activities but also improving cycle time of processes in supply chain.

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CHAPTER 5

Conclusion

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.

Findings

Nescafe is leading brand of country due to its robust supply chain. But it is facing stiff

competition from other brands and 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.

Limitation

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

The facts and information are not sufficiently available as the company has not

been referred directly.

The time was not sufficient to complete the study.

The study is theoretical and qualitative.

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References

Pretty, Jules N., and Rachel Hine. Reducing food poverty with sustainable agriculture: A summary of new evidence. Colchester: University of Essex, 2001.

Parfitt, J., Barthel, M., & Macnaughton, S. (2010). Food waste within food supply chains: quantification and potential for change to 2050. Philosophical Transactions of the Royal Society of London B: Biological Sciences,365(1554), 3065-3081.

Minnich, Dennis. Efficiency and Responsiveness of Supply Chains in the High-Tech Electronics Industry-A System Dynamics-Based Investigation. Diss. Universitätsbibliothek, 2007.

Parwez, S. (2014). Food supply chain management in Indian Agriculture: Issues, opportunities and further research. African Journal of Business Management, 8(14), 572.

Chandra, P., & Jain, N. (2007). The logistics sector in India: Overview and challenges. World Scientific Series on 21st Century Business, 105.

Nestle India Ltd. Coffee: The NESCAFÉ Plan. Retrieved on April 2, 2016, https://www.nestle.in/csv/rural-development/coffee

Nestle India Ltd. Nestlé in society Creating Shared Value and meeting our commitments 2015. Retrieved on April 2, 2016, http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-csv-full-report-2014-en.pdf

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