final om nestle
TRANSCRIPT
Kazakhstan Institute of Management, Economics and Strategic ResearchBang College of Business (BCB)
OM5202 Operations ManagementFall Semester 2011
Final Project “Operations management at Nestle”
Instructor: Dr. Ha Jin Hwang Prepared by: Irina Novokshenova ID 20090542
Fatina Ashirova ID 20090005 Kamilla Gizatulina ID 20090948
Table of Contents
List of Figures/Tables ………………………………………………………………………………………………… 3
List of Abbreviations …………………………………………………………………………………………………. 4
Executive summary………………………………………………………………………………………………….… 5
1. Introduction…………………………………………………………………………………………………………... 6
2. Company’s background 7
2.1 History of Nestle……………………………………………………………………………………………….... 7
2.2 Current situation of Nestle in Kazakhstani market………………………………………………………………. 9
2.3 Major Nestle products……………………………………………………………………………………………. 10
2.4 Major Competitors……………………………………………………………………………………………... ... 10
2.5 Market share…………………………………………………………………………………………………..…. 11
2.6 Problems issue/recommendations………………………………………………………………………………... 11
3. Major OM tools using in Nestle: data collection and analysis
3.1 Location strategy………………………………………………………………………………………….…….. 12
3.2 Quality management…………………………………………………………………………………………….. 15
3.3 Cause-and-effect diagram……………………………………………………………………………………….. 21
3.4 Supply Chain Management……………………………………………………………………………………… 21
3.5 Inventory management process …………………………………………………………………………………. 23
3.6 Product Life Cycle………………………………………………………………………………………………. 27
3.7 Action of Plan…………………………………………………………………………………………………… 28
Conclusion……………………………………………………………………………………………………………… 29
Recommendations……………………………………………………………………………………………………… 29
Suggestions ……………………………………………………………………………………………………………. 30
References……………………………………………………………………………………………………………… 31
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List of Tables
Table 1 Inventory investment………………………………………………………………………………….. 22
Table 2 Weeks of supply……………………………………………………………………………………….. 22
Table 3 Number of inventory days……………………………………………………………………………... 23
Table 4 Types of packaging materials used by Nestle…………………………………………………………. 26
Table 5 Plan of Action…………………………………………………………………………………………. 28
List of Figures
Figure 1 Dominant market competitors………………………………………………………………………… 10
Figure 2 Market share of Nestle………………………………………………………………………………… 11
Figure 3 Sales volume of the Nestle………………..…………………………………………………………… 12
Figure 4 Location strategy……………………………………………………………………………………… 11
Figure 5 Quality process………………………………………………………………………………………… 16
Figure 6 Management process…………………………………………………………………………………... 17
Figure 7 Continuous Improvement……………………………………………………………………………… 20
Figure 8 Cause-and-effect diagram……………………………………………………………………………... 27
Figure 9 Product Life Cycle…………………………………………………………………………………….. 28
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List of Abbreviations
COGS Cost of Goods Sold
CPFR Collaborative, Planning, Forecasting and Replenishment
FEFO First expiry – first out
FG Finished Goods
GMI Genetically Modified Ingredients
HACCP Hazard analysis and critical control points
IBM International Business Machine
ISO International Organization for Standardization
JIT Just - in -Time
KPIs Key Performance Indicators
LLP Limited Liability Partnership
MRO Maintenance/repair/operating supply
MRQ Management Review of Quality
NQMS Nestle Quality Management System
OM Operations Management
PoA Plan of Action
PLC Product Life Cycle
SCM Supply-Chain Management
SNS Supply Network Solutions
VMI Vendor-Managed Inventory
WIP Work-in-Progress
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Executive summary
Nestle is the world's leading food company which in recent years has focused on becoming a nutrition, health and
wellness company. This is the idea of supporting people to lead healthier lives through better products and nutrition.
Unfortunately, Nestle hasn’t got any manufacturing process in the territory of Kazakhstan. The Nestle Food Kazakhstan is
the operational company of the world leader is Nestle. Nestle Food Kazakhstan LLP was created since 1997.
In Kazakhstani market Nestle Food LLP has a dominant position in childhood nutrition. For example, according to
statistics, 36% is childhood nutrition in the Kazakhstani market. Apart from childhood nutrition, Nestle Food Kazakhstan
has another competitive product such as the bouillon cubes Maggi. There are three major competitors in the Kazakhstani
market are Maggi (Nestle), Gallina Blanca (Alimeticos) и Knorr (Unilever).
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1. Introduction
This is the Final Group Project dedicated to the confectionary, food and beverage products of Nestle including its
key statistics performance on the Kazakhstani market.
The aim of our project is to implement knowledge obtained during the course of operations management on an
example of Nestle Company which is world's leading Nutrition, Health and Wellness Company. The mission of which is
"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.
The current paper starts with an introduction about Nestle followed first of all, by history of the Company; Secondly, its
key major products and main competitors as in Kazahstani market as well as abroad; and finally, the last session will be
highlighted of the key OM tools applied in the Company. Also we are going to cover it’s main issue problems and
simultaneously, we will give a recommendations.
In order to identify the operations management problems, the current paper will cover the main aspects of operations
process of the Nestle’s products. The information presented in the work will based on the OM lecture materials. It will be
highlighted the key OM strategic decisions, basically, location selection, product quality, supply-chain management and
inventory. To identify the key problems related to the operation strategy, the mentioned above 10 OM decisions will help
to answer the follow questions:
what’s the company’s operations strategy position in product life cycle;
does the Company build a production process in order to meet customer needs through identifying the
process strategy;
how the company managing the supply-chain for different products;
how the company managing the good inventory management in order to achieve a low-cost strategy;
what’s the long-run efficiency of Nestle operation and etc
Answering to these questions will define the key problems faced by Nestle in operation management. The short
background and key performance, using of key OM tools of the Nestle is presented below.
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2. Company’s background
2.1 History of Nestle
Nestle began in Switzerland in the mid 1860s when founder Henri Nestle created one of the first baby formulas.
Henri realized the need for a healthy and economical product to serve as an alternative for mothers who could not
breastfeed their babies. Mothers who were unable to breastfeed often lost their infants to malnutrition. Henri’s product
was a carefully formulated mixture of cow’s milk, flour and sugar. Nestlé’s first product was called Farine Lactée
(“cornflour gruel” in French) Henri Nestle. The product was first used on a premature baby who could not tolerate his
mother’s milk or other alternative products of that time. Doctors gave up on treating the infant. Miraculously the baby
tolerated Henri’s new formula and it provided the nourishment that saved his life. Within a few years the first Nestlé
product was marketed in Europe.
In 1874 the Nestle Company was purchased by Jules Monnerat. Nestlé developed its own condensed milk to
contend with its competitor, the Anglo-Swiss Condensed Milk Company. The Anglo-Swiss Condensed Milk Company
made products like cheese and instant formulas. The two companies merged in 1905, the year after Nestlé added
chocolate to its line of foods. The newly formed Nestle and Anglo-Swiss Milk Company had factories in the United
States, Britain, Spain and Germany. Soon the company was full-scale manufacturing in Australia with warehouses in
Singapore, Hong Kong and Bombay. Most production still took place in Europe.
The start of World War I made it difficult for Nestlé to buy raw ingredients and distribute products. Fresh milk was
scarce in Europe, and factories had to sell milk for the public need instead of using it as an ingredient in foods. Nestlé
purchased several factories in the U.S. to keep up with the increasing demand for condensed milk and dairy products via
government contracts. The Company’s production doubled by the end of the war. When fresh milk became available
again after the war, Nestle suffered and slipped into debt. The price of ingredients was increasing, the economy has
slowed and exchange rates deteriorated because of the war.
An expert banker helped Nestle find ways to reduce its debt. By the 1920s Nestle was creating new chocolate and
powdered beverage products. Adding to the product line once again, Nestlé developed Nescafe in the 1930s and Nestea
followed. Nescafe, a soluble powder, revolutionized coffee drinking and became an instant hit.
With the onset of the Second World War, profits plummeted. Switzerland was neutral in the war and became increasingly
isolated in Europe. Many of Nestle’s executive officers were transferred to offices in the U.S. Because of distribution
problems in Europe and Asia, Nestle opened factories in developing countries in Latin America. Production increased
dramatically after America entered the war. Nescafe became a main beverage for the American servicemen in Europe and
Asia. Total sales increased by $125 million from 1938 to 1945.
Nestle continued to prosper, merging with Alimentana S.A., a company that manufactured soups and seasonings, in 1947.
In the coming years, Nestlé acquired Crosse & Blackwell, Findus frozen foods, Libby’s fruit juices, and Stouffer’s frozen
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foods. Nescafe instant coffee sales quadrupled from 1960 to 1974, and the new technology of freeze-drying allowed the
company to create a new kind of instant coffee, which they named Taster’s Choice.
Expanding its product line outside of the food market, Nestlé became a major stockholder in L’Oreal cosmetics in 1974.
Soon after the company suffered with increasing oil prices and the slowing growth in industrialized countries. Foreign
exchange rates decreased, in turn reducing the value of sterling, the pound, dollar and franc. Prices of coffee beans and
cocoa rose radically, presenting further problems for Nestlé. The company decided to venture into the pharmaceutical
industry by acquiring Alcon Laboratories, Inc. While trying to deal with unstable economic conditions and exploring its
new ventures, Nestlé faced the crisis of an international boycott.
Many organized groups began boycotting all of Nestle’s products because they disapproved of Nestle marketing its
baby formula in developing countries. Problems like illiteracy and poverty caused some mothers to use less formula than
recommended. In a watered down formula, vital nutrients are lessoned. Contaminated water presented another problem,
since the formulas had to be mixed with water. The organizations argued that the misuse of formula resulted in the
malnutrition or death of many infants in developing countries.
According to Nestle the World Health Organization never made statements tying infant death or malnutrition with
baby formulas. The company didn’t deny the superiority of breastfeeding and agreed that substituting breast milk for
other substances could be very dangerous. Nestlé explained that breastfeeding and non-breastfeeding mothers in
developing countries often gave their babies whole cow’s milk, tea, cornstarch, rice water or a mix of flour and water.
These alternatives were very unhealthy and a nutritional baby formula was a better choice. Nestlé says that it has never
discouraged breastfeeding when it was possible. Nestlé agreed to follow the International Code in developing countries in
1984, and the boycott was suspended. It resumed several years later when the organizations believed Nestlé was sending
free or low cost baby formulas to developing countries. Nestlé said it only sent formula to countries that allow donations
for orphans, multiple births, and babies with no access to breast milk. The company has stopped all public advertising for
formula in developing countries for almost 20 years. The boycott continues to some extent to this day without satisfactory
resolution.
By the 1980s Nestle had a new Chief Executive Officer. The company focused on improving its financial situation and
continuing to expand. In the one of the largest takeovers at that time, Nestle bought Carnation for $3 billion and parted
with any unprofitable businesses. International trade barriers diminished in the 1990s, opening trade with parts of Europe
and China. In the 1990s Nestle acquired San Pellegrino, and Spillers Petfoods of the UK. With the acquisition of Ralston
Purina in 2002, the Nestle-owned pet care businesses joined to form the industry leader Nestlé Purina PetCare.
Today, Nestle is the world's largest Food and Beverages Company, and a global leader in health, nutrition and
wellness.
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2.2 Current situation of Nestle in Kazakhstani market
"Nestle Food Kazakhstan" LLP is an operating company of the world giant NESTLE, local region of Central Asia and
Caucasus. NESTLE is operating in Kazakhstan since 1997 as a representative and as an operating company since 2004.
One of the main factors influenced the decision to create LLP "Nestle Food Kazakhstan" is a dynamic economic
development of the Central Asian region.
At present time, "Nestle Food Kazakhstan" LLP has an extensive distribution network throughout Kazakhstan.
The company plans to expand its business in Kazakhstan due to increased sales and increased range of products. The
main activities of NESTLE is the production and sale of food products, such as: chocolate, confectionery, baby food,
coffee and beverages, cooking, mineral water, animal feed, etc.
According to the operation results for 2010 the company sales in Eurasia region grew by 15% comparing to the previous
year results. In 2010 "Nestle" continued to surprise customers with new products. Company carried on an effective
marketing support for its brands, allowing the company to strengthen its leading position in many categories of the
Kazakhstan food and beverages market.
As an expert in nutrition and healthy lifestyles, the company offers customers quality products with extra nutritional
value. For example the last year, "Nestle" introduced on Eurasia market(including Kazakhstan) innovative coffee
NESCAFE Green Blend, which combines green and roasted not fried beans. One cup of NESCAFE Green Blend contains
as much antioxidants as a cup of green tea, with benefit that it is digesting by human body two times better than normal
one. By launching the new products, "Nestle" strengthens its position in the segment of freeze dried instant coffee, and
confirms the title of leader on the Kazakhstan market of instant coffee with a share of over 50%.
Despite strong competition in the chocolate market in Kazakhstan, the company "Nestle" managed to hold its share of
over 20% * and increase their share in the segment of chocolate bars through launching several new products. Variety of
chocolate bars was greatly extended from Lyon bars of white chocolate NESQUIK, and the trademark "RUSSIAN" -
"generous soul" presented a novelty - Chocolate "Milk It."
Last year, "Nestle" continued to please novelties Maggie housewives who are willing to use these products.
The company introduced on the market Maggi "Sea taste", Maggie "Appetite" and a few new recipes to Maggie. The
launch of new products strengthened market position of culinary products in Kazakhstan. Currenlty Maggi brand market
share is 45%.
Young consumers are also under “Nestle” focus group. "Nestle" is a leader in the Kazakhstan market of baby food with
large market share - almost 40% . In 2010 the company introduced new hypoallergenic oatmeal NESTLE, nutritious
purees GERBER meat and cheese. Also Nestle has upgraded and expanded its range of products under the brand name
NAN, offering customers milk for children with age 1 and 1.5 year old. Nestle has extensive experience in the production
of baby food and it is constantly investing in research and development. The company "Nestle" is producing an wide
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range of products for babies. The food is made from natural ingredients to provide all necessary needs for healthy
children growth.
2.3 Major Nestle Products
Nestle has some 6,000 brands, with a wide range of products across a number of markets, including coffee ( Nescafe,
Nespresso, etc.), bottled water (Buxton, Perrier, etc.), milkshakes and other beverages (Nesquik, Milo, Carnation, etc.),
chocolate (Milky Bar, After Eight, and many others), ice cream (Häagen-Dazs, Skinny Cow, etc.), breakfast cereals
(Cheerios, Golden Nuggets, Shreddies, etc.), infant foods (now including Gerber products), performance and healthcare
nutrition (Nesvita, PowerBar, etc.), seasonings, soups and sauces (Maggi, Buitoni, etc.), frozen and refrigerated foods
(Findus, Lean Cuisine, etc.), confectionery (Rowntree products, Caramac, Wonka products, etc.), and pet food (Winalot,
Felix).
2.4 Major Competitors
To be successful in today's very competitive business world, it is important for businesses to be aware of what their
competitors are doing and to find a way to compete by matching or improving on the competitors' product or service. By
this way a lot of companies in confectionery, food and beverage industry are changes and looking for a new ways,
strategy and policy in order to take a dominant position in the market. And of course, Nestle is not an exception. Being a
multinational company it has competitors in a global and in a local market as well as. The major competitors of Nestle are
Heinz, Groupe Danone, Kraft Foods Inc., Unileve NV, HLL and others. For example, baby food and Instant coffee are
categories where brand loyalties are very strong and Nestle is the market leader. On other hand, HLL company is a
significant competitor to Nestle in the baby foods market. While for instance, Nestlé and Danone are third market in the
growth which produces milk for babies and toddlers generating 60 percent of its sales in Asia.
The Figure 1 below illustrates three producers dominate the chocolate market. Cadbury with around 28% while Mars and
Nestlé each have around 24%. Sales of milk chocolate (96%) predominate, with plain and white chocolate accounting for
about 2% each.
Figure 1. Dominant market Competitors
Source: http://www.thetimes100.co.uk/downloads/nestle/nestle_8_full.pdf
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2.5 Market share
Nestle achieved a significant 25% share in the chocolate/confectionery market. The company has recently expanded its
dairy products portfolio including milk, curd and butter. The Figure 2 illustrates the market share of the Nestle and its
major competitors. As shown in the Graph, the Nestle has a dominant position in confectionery, food and beverage
industry over Kraft and Unilever.
Figure 2. Market share of Nestle
In order to determine the Company’s Sales volume the initial information have been taken from the annual financial
report from follow link: http://www.nestle.com/Media/Reports/Pages/Report-2009.aspx.
The Figure 3 illustrates that the Company’s position is quite stable. The products of the Nestle is successfully recognized
all over the world. For example in 2009 the Growth Sales has been increased by 1.95% in comparison with 2010.
Figure 3. Sales volume of the Nestle from 2005 - 2010
2.6 Problems issue/recommendations
Our current paper consists of the follow format. We highlighted the main OM tools such as Location strategy, Quality
process, SCM and Inventory. The appropriate problems and recommendations are included already at the end of each
sections. The separate section for problems issue and recommendation will not be covered. Also based on our materials
lecture we used ss method investigation we used Cause-and-effect diagram (fishbone) which will be represented below.
3. Operations management tools: Analysis and data collection
3.1 Location strategy
Nestle had 500 factories in 76 countries and sold its products in a staggering 193 nations-almost every country in the
world. Similarly, only 3 percent of its- 210,000 employees were located in Switzerland. Nestle was the world’s biggest
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2005 2006 2007 2008 2009 2010
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maker of infant formula, powdered milk, chocolates, instant coffee, soups, and mineral waters. The Figure 4 illustrates
that it was number two in ice cream, breakfast cereals, and pet food. In 2010, roughly 36 percent of its food sales were
made in Europe, 42,2 percent in the America, and 21,8 percent in Africa and Asia.
Figure 4. Location Strategy
Nestle is a decentralized organization. Responsibility for operating decisions is pushed down to local units, which
typically enjoy a high degree of autonomy with regard to decisions involving pricing, distribution, marketing, human
resources, and so on. At the same time, the company is organized into seven worldwide strategic business units (SBUs)
that have responsibility for high-level strategic decisions and business development. In recent years, two-thirds of
Nestlé’s growth has come from acquisitions, so this is a critical function. Running in parallel to this structure is a regional
organization that divides the world into five major geographical zones, such as Europe, North America and Asia.
Factors that affect location decisions
The large Western European and North American markets were mature. In several countries, population growth
had stagnated and in some, there had been a small decline in food consumption. The retail environment in many Western
nations had become increasingly challenging and the balance of power was shifting away from the large-scale
manufacturers of branded foods and beverages, and toward nationwide supermarket and discount chains. Increasingly,
retailers found themselves in the unfamiliar position of playing off against each other – manufacturers of branded foods,
thus bargaining down prices. Particularly in Europe, this trend was enhanced by the successful introduction of private-
label brands by several of Europe’s leading supermarket chains. The results included increased price competition in
several key segments of the food and beverage market, such as cereals, coffee and soft drinks.
At Nestlé, one response has been to look toward emerging markets in Eastern Europe, Asia and Latin America for
growth possibilities. The logic is simple and obvious a combination of economic and population growth, when coupled
with the widespread adoption of market-oriented economic policies by the governments of many developing nations,
makes for attractive business opportunities. Many of these countries are still relatively poor, but their economies are
growing rapidly. For example, if current economic growth forecasts occur, by 2012, there will be 700 million people in
China and India that have income levels approaching those of Spain in the mid-1990s. As income levels rise, it is
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increasingly likely that consumers in these nations will start to substitute branded food products for basic foodstuffs,
creating a large market opportunity for companies such as Nestlé.
In general, the company’s strategy had been to enter emerging markets early – before competitors – and build a
substantial position by selling basic food items that appeal to the local population base, such as infant formula, condensed
milk, noodles and tofu. By narrowing its initial market focus to just a handful of strategic brands, Nestlé claims it can
simplify life, reduce risk, and concentrate its marketing resources and managerial effort on a limited number of key
niches. The goal is to build a commanding market position in each of these niches. Knowing that innovation and quality
were key determinants, Nestle transferred these distinctive competencies to foreign markets. That is why, the company
needs to be flexible and able to adapt rapidly to local demand and cultural differences. It can build up a powerful position
by selling food items that appeal to the local population base. Doing business in different countries means different ethical
standards, different business expectations, and different cultural norms.
Nestle can earn greater return from its distinctive competencies, i.e. unique strengths that allow a company to
achieve superior efficiency, quality, innovation and customer responsiveness. Furthermore, Nestlé can take advantage of
location economies. Location economies arise from performing a value creation activity in the optimal location for that
activity, anywhere in the world. The optimal location for a value creating activity lowers the costs of value creation
therefore helping the company achieve a low-cost position. Moreover, it enables Nestle to differentiate its products
offerings and charge a premium price. Consequently, by dispersing value creation activities to optimal locations, Nestle
should have a competitive advantage over a company that places all its value creation activities in a single location.
Another reason why it makes sense for Nestle to focus its growth on emerging markets, is that the company is able
to move down the experience curve. The experience curve is a systematic decrease in production costs that occur over the
life of a product. Learning effects and economies of scale underlie the experience curve and a company that moves down
the experience curve will have a cost advantage over its competitor and is therefore consistent with the business-level
strategy of cost leadership.
Nevertheless, Nestle must evaluate basic entry decisions before entering an emergent market. The company has to
make a choice among different foreign markets on the basis of their long-run profit potential. Nestle has to balance the
benefits, costs, and risks associated with doing business in that country. The timing of entry to a foreign market is also
important, as a company could realize first-mover advantages and establish a strong brand name.
Environmental problem
Historically, Nestle has relatively narrow range of products, with food and beverage occupying their main business
focus. In the early 1970s, Nestle began exploring the possibilities of diversifying its product base. The most common
motivation for diversification includes growth, profitability and risk reduction. In the case of Nestle, growth and
profitability are the main drivers of diversification strategy. Nestle’s approach for increasing growth are geographic
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expansion, innovation and renovation and channel growth (Nestle, 2008). Nestle's geographic presence is one of its
competitive advantages. However, competitive nature of Nestle as global leader in food production leads to the
inadequacies of the Nestle’s environmental strategy. In many case, conflicts have arisen as result of trying to satisfy both
maximization profits and environmental responsibility. Driving this competitive force is the ability of Nestle to maximize
profits while at the same time addressing both societal and environmental concerns to establish acceptance and public
position. Pressure to meet environmental regulations and operational compliance has forced Nestle to develop a
systematic process to gauge environmental performance (NEMS), however, the NEMS is more of a superficial outline to
company goals than an actively implemented strategy.
Nestle operations also inherently lead to an incomplete environmental management strategy. Nestle claims great
achievement with the adoption of the ISO 14001 international standard for environmental performance in many of their
factories, however, of a total of 509 facilities worldwide a mere 46 of these are certified. In general, the certification
process (including EPIs, auditing, and facility surveys) is inefficient and inaccurate for such a number of reporting
facilities. The margin of error is much larger when considering that individual factories are manually reporting
measurements of performance based on facility inputs and outputs (i.e. waste, water generation, greenhouse gases, energy
consumption, etc.) The accurate consolidation of all this environmental performance data is skeptical.
In addition, many of the controversies over Nestlé food products have involved the promotion of infant formulas in
developing countries and the company’s use of GMO ingredients in products. Nestle violated the World Health
Organization’s Code of Marketing Breast-milk Substitutes with their promotion of inappropriate distribution of powder
infant formulas to women in developing countries. Nestlé supplied information to women that promoted artificial feeding
and did not educate them on the benefits of natural breastfeeding as the optimal form of infant nutrition. Nestlé also
distributed free samples of infant formula long enough to support the infants until the mother was notable to lactate.
Without money to buy milk, inadequate sterilization methods, and lack of clean water, many newborn babies in these
developing countries suffered from severe malnutrition.
Recommendations
Nestle provides a variety of food products that we use in our everyday lives. Therefore, it important to assess how
the company could improve its environmental strategy to benefit consumers and simultaneously maintain a competitive
advantage. One of our recommendations regarding Nestlé’s current advertising policies is that the company use marketing
to promote responsible environmental practices or products they may have or may develop in the future. Therefore, we
recommend that Nestlé develop and advertise “greenness” by using non-GMO ingredients, using organic ingredients, and
using recycled packaging.
In addition to a revised marketing program, it would be in the best corporate interest of Nestlé to establish an
environmental eco-labeling program to identify and promote environmental responsibility. The Current developments in
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consumer behavior and lifestyle that may threaten Nestlé’s efforts to be “green” is the increasing demand for single
servings and more ‘convenient’ food products that require more packaging (Nestle, Ltd. 2008). Unfortunately for the
environment, Nestlé’s mission is to provide consumers with the products they want in a highly competitive market. This
change in consumer demand will require Nestlé to look more closely at their corporate strategy if they wish to make their
corporate environmental strategy consistent with their corporate strategy.
3.2 Quality Management
Nestle Quality Management System structure
The future and the success of Nestle depend on the level of trust that consumers and customers have in brands and
in company. Trust is a factor of competitiveness. Today, with more choice than ever, it is not so much competition
between competitors, but competition for the trust of the consumer. Consumer trust is based on safe, high Quality
products preferred by the consumers.
The Nestle Quality Management System (NQMS) is one of the cornerstones that maintains and continuously
builds trust, on the basis of four key elements:
Implementation of a process-based Quality Management System in which all Value Chain functions are
responsible for achieving Quality objectives;
A Quality System structure based upon centrally established requirements, Product-Specific Quality
Standards and local management;
Achievement of Compliance through flawless execution, factual and transparent communication and
verification by independent audits;
Implementation of Continuous Improvement Programmers to achieve Consumer Trust and preference
through excellence and competitiveness.
The Nestle Quality Management System covers the Food Safety and Regulatory Compliance systems as well as all
other systems needed to ensure Quality Compliance and performance across the Value Chain.
The Nestle Quality Management System includes:
1. The Global Quality Standards consists of:
The Quality Policy;
The Management process, including the Management System framework and the mandatory requirements
applicable to all Quality-related activities and product categories;
The mandatory principles and responsibilities for Quality-related activities of functions by process.
2. Product-Specific Quality Standards which cover all product and process standards, policies, specifications,
instructions, methods and tools specific for a product category.
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3. An Operating Quality Manual for all Units*, based upon the Nestle Quality Management System framework, the
global mandatory requirements and the mandatory principles by function. The manual includes or refers to Product-
Specific Quality Standards and local Regulatory requirements. It also contains detailed descriptions of the processes in
Figure 5 below.
Figure 5. Quality Process
Management by process is a key principle of the Nestle Quality Management System. It provides a framework for
attaining and maintaining Compliance, measuring performance and continuously improving the effectiveness of the
Quality Management System across the Value Chain processes to achieve consumer satisfaction. Each process has an
owner responsible for defining, implementing, monitoring and improving it, in line with the Continuous Improvement
principle.
Processes are classified in three main categories:
The Management process describing the global mandatory elements necessary for an effective Management
of Quality in all processes which represents in Figure 6 below;
Value chain processes linked to customer and consumer satisfaction and for which activities affecting
Quality as well as the related mandatory requirements are identified;
Support processes to provide assistance and expertise to the Management process and Value Chain
processes.
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Figure 6. Management process
Management Process
1. Planning
The Management Process covers the planning of global mandatory requirements for:
Food Safety Compliance, as described in the Food Safety System Guideline, including Prerequisite
Programs, HACCP, Quality Monitoring Scheme, Product Traceability, Recall and Crisis Management,
Release System, Instrument Calibration, Traceability, Laboratory and Test Methods;
Regulatory Compliance, as described in the Food Safety System guideline and in the Regulatory
Compliance Principles;
Quality-related Compliance for products and services, including Quality Monitoring Scheme, Sensory
Evaluation, Release and Status Control System, Shelf-life Management, Keeping Quality tests, and any
other Quality procedure referred to in Value Chain processes and described in Technical Instructions.
2. Documentation
The Quality System documentation required by the Nestle Quality Management System includes the following:
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The Quality Policy;
The Quality Objectives;
The Operating Quality Manual;
The global requirements and Product-Specific Category Standards;
Quality records
The Nestle Quality Management System requirements provide the framework for the Operating Quality Manual
that is established in each Unit and includes:
The scope;
The Quality Policy cascaded at local level;
A map and description of all processes and their interactions;
All documents established for the Quality System, or reference to them, including procedures and
instructions, relevant Product-Specific Category Standards, specifications, instructions, methods and tools,
documents needed to satisfy Regulatory requirements and any other customer requirement.
3. Management Responsibilities
There are four strategic areas of responsibility for Quality assigned at the Centre and in each Unit:
System design, including the definition of the Quality Strategy and objectives, and management of Quality
related procedures, instructions and tools;
Quality mastership that covers all activities necessary to achieve Compliance with instructions and
standards, to drive Continuous Improvement and to ensure transparent communication;
Quality auditing and verification to assess that the Quality System is in place, is efficient and is obtaining
expected results;
People and know-how, including the development and maintenance of competences and Quality awareness,
and commitment to Quality.
4. Resource Management
Each function at the Centre and in each Unit makes the necessary human and financial resources available for
implementing the Quality strategy, achieving the objectives and driving improvement across all processes. With regard to
competence, awareness and training, each function defines and documents the skills and competence requirements
necessary for all of their personnel, including those in roles affecting Quality across the Value Chain.
5. Compliance
Compliance of products must be verified and demonstrated through monitoring plans designed on the basis of various
inputs, such as regulatory or internal requirements and the variability of materials, products and manufacturing processes.
6. Auditing
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On the basis of the outcome of previous audits, centrally managed audits are planned and periodically conducted
in each Unit in order to:
Verify the compliance with the Nestle Quality Management System requirements;
Provide relevant recommendations in case of deviation;
Identify opportunities for Continuous Improvement once compliance audits are completed, factories must
achieve certification of their Food Safety System against ISO 22000:2005 by accredited bodies.
These audits are coordinated and managed by a Central Audit Group, and conducted by Nestle dedicated resources and
third party auditors to ensure objectivity and impartiality.
7. The Management Review of Quality
The Management Review of Quality (MRQ) is a periodic review, conducted at least once a year, of Quality performance
data from all processes across the Value Chain and all levels of the organization, including data from external business
partners. The Management at the Centre and in each Unit is responsible for reviewing the performance data, identifying
relevant actions, setting targets and communicating conclusions. The following areas must be reviewed:
Follow-up and recommendations from previous MRQs;
Performance and Compliance results, KPIs, audit reports and results of corrective/preventive actions;
Resources allocation;
Internal and external issues.
8. Management non-conformities and corrective actions
All non-conformities and failures have to be dealt with and must trigger root cause analysis, corrective actions and action
plans. Each Unit has a procedure to ensure that:
Non-conformities are reviewed through analysis of monitoring results and performance indicators of the
process;
Root causes for non-conformities are identified;
Proper corrective actions are defined and implemented to rectify non-conformities;
A tracking system is in place to verify effectiveness and efficiency of the corrective actions.
9. Preventive actions
Appropriate actions are taken to eliminate causes for potential non-conformities related to each process, and to prevent
occurrences that might negatively impact consumer satisfaction, preference and trust.
10. Continuous Improvement
Continuous Improvement is a mindset that involves all employees across all functions of the Value Chain. Continuous
Improvement is an element of all of Nestle activities which allows to achieve and maintain consumer trust and preference
and to reach company goal of “Zero defect and No Waste” through excellence and competitiveness.
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The Continuous Improvement process includes:
Identifying areas for improvement by evaluating Quality-related data, the results of verification activities
and the occurrence and resolution of issues;
Defining and selecting the improvement targets;
Developing and implementing strategies to meet the targets;
Verifying that targets are achieved and formalizing successful changes.
The Figure 7 below illustrates the Continuous Improvement activities are applied to every process and activity, and are
supported by various programmers such as “5-S”, small group activities and task forces.
Figure 7. Continuous Improvement
3.3 Cause-and-effect diagram
A tool for identifying quality and inspection points is the cause-and-effect diagram, also known as an Ishikawa diagram or
a fish-bone chart.
Cause-and-effect diagram shows us the causes of complaints on Nestle products. There are six categories of elements in a
system: suppliers, workers, machines, environment, processes and materials. Supplier’s problems relates to delivery
process. Worker problems relates to people organizing and participating in production process.
Within machine element the main causes are issues related to equipment: poor maintenance, poor calibration, type of
equipment and age (use of equipment with exceeding equipment lifetime). Material causes in this case mean the material
which used in production and problems related to this: materials out of specification, problem with package quality and
material compatibility. Process problems concerns: poor quality control, poor product design and poor process follow up.
Environment problems are related to proper storage of product: poor temperature and ventilation control. All together
leads to poor satisfaction and complaints from customer on Nestle products. The fishbone diagram of the Nestle is
represented in Figure 8 below.
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Figure 8. Cause-and-effect diagram
3.4 Supply Chain Management
Nestle is giant food and pharmaceuticals company that operates virtually all over the world. Best known for its
chocolate, coffee (it invented instant coffee), and milk products, Nestlé sells thousands of other items, most of which are
adapted to fit local markets and cultures. For example, the Company, currently makes ice-cream in Dubai, soups and
cereals in Saudi Arabia, yogurt and bouillon in Egypt, chocolate in Turkey, and ketchup and instant noodles in Syria. For
the present, Nestle can survive in these markets by using local materials and focusing on local demand. The Syrian
factory, for example, relies on products that use tomatoes, a major local agricultural product. Syria also produces wheat,
which is the main ingredient in instant noodles. Even if trade barriers don’t come down soon, Nestle has indicated it will
remain committed to the region. By using local inputs and focusing on local consumer needs, it has earned a good rate of
return in the region, even though the individual markets are small.
Traditionally this huge firm has allowed each local organization to conduct business as it saw fit, taking into
account the local conditions and business cultures. To support this decentralized strategy, it has had 80 different
information technology units that run nearly 900 IBM AS/400 midrange computers, 15 mainframes, and 200 UNIX
systems, enabling observers to describe its infrastructure as a veritable Tower of Babel. Interestingly, despite its size, the
company has had no corporate computer center.
However, Nestle's management has found that allowing these local differences created inefficiencies and extra
costs that could prevent the company from competing effectively in electronic commerce. The lack of standard business
processes prevented Nestlé from, for example, leveraging its worldwide buying power to obtain lower prices for its raw
materials. Even though each factory uses the same global suppliers, each negotiated its own deals and prices. In addition,
every division and every factory had assigned different names to the same product, so that the company could not even
check on the situation. Keeping control of its thousands of supply chains, scores of methods of predicting demand, and its
WorkersSuppliers
Environment Processes
Customer dissatisfaction on Nestle products
poor quality control
poor product design
temperature
ventilation
defects
out of spec material
late deliveries
poor process follow up
supervision
MachinesPoor maintenance
calibration
typeagemotivation
ability
training
Materials
out of specification
package quality
material compatibility
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uncountable variety of ways of invoicing customers and collecting payments was becoming ever more difficult and eating
into the company's bottom line.
In addition, Nestle is affected by Bullwhip effect. Bullwhip effects are created when supply chain members
process the demand input from their immediate downstream member in producing their own forecasts. Demand input
from the immediate downstream member, of course, results from that member's forecasting, with input from its own
downstream member. One remedy to the repetitive processing of consumption data in a supply chain is to make demand
data at a downstream site available to the upstream site.
Several years ago, Nestlé embarked on a program to standardize and coordinate its information systems and
business processes. The company installed SAP's R/3 enterprise resource planning (ERP) software to integrate material,
distribution, and accounting applications in the United States, Europe, and Canada. In addition, Nestle installed SNS
(Supply Network Solutions) in Middle East. SNS is a leading provider of superior supply chain services including
distribution center design, system integration and implementation, training, support, solution development and supply
chain consulting. SNS provides its services to companies operating in various industries such as third party logistics,
distribution, wholesale, retail and freight forwarding. SNS’ cutting-edge services are delivered by a professional team of
supply chain specialists with a highly customer-oriented culture. Use of electronic data interchange will undoubtedly
facilitate information transmission and sharing among chain members. However, even if the multiple organizations in a
supply chain use the same source demand data to perform forecast updates, the differences in forecasting methods and
buying practices can still lead to unnecessary fluctuations in the order data placed with the upstream site.
Recommendations
In order to achieve effective management in supply chain Nestle need use following opportunities:
1. Vendor-Managed Inventory (VMI), use of local supplier to maintain inventory for manufacturer or retailer.
2. Collaborative, Planning, Forecasting, and Replenishment (CPFR), members of supply chain must share planning,
forecasting, and inventory information.
3. Implementing RFID based inventory management system in order to avoid overproduction, and unnecessary
inventory
Inventory researchers have long recognized that multi-echelon inventory systems can operate better when
inventory and demand information from downstream sites is available upstream. In that way, we recommend Nestle try to
get demand information about the downstream site by bypassing it. For example, Apple has a "consumer direct" program,
i.e., it sells directly to consumers without going through the reseller and distribution channel. A benefit of the program is
that it allows Apple to see the demand patterns for its products.
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Finally, long resupply lead times can aggravate the bullwhip effect. Improvements in operational efficiency can
help reduce the highly variable demand due to multiple forecast updates. Hence, just-in-time replenishment is an effective
way to mitigate the effect.
According to our textbook, we calculated the weeks of supply at Nestle as follow:
Weeks of supply = Inventory Investment / (Annual COGS/52 weeks)
Table 1. Inventory Investment in mio
2006 2007 2008 2009 2010
Inventory 8 029 9 272 9 342 7 734 7 925
COGS 40 713 45 037 47 339 45 208 45 849
While Inventory of Nestle consists of raw materials, work in progress and finished goods.
Table 2. Weeks of supplyin mio
2006 2007 2008 2009 2010
Raw materials (RM), Work in progress (WIP) 3102 3590 3708 3175 3243
Finished Goods (FG) 4682 4559 5634 5682 4682
Inventory 8 029 9 272 9 342 7 734 7 925
Weeks of supply 10,3 weeks 10,7 weeks 10,3 weeks 8,9 weeks 9,0 weeks
3.5 Inventory Management process
As we learnt from our Operations Management course, the Companies maintain 4 types of Inventories (J.Heinzer
“Operations management, 2010”):
raw material inventory
work-in-process inventory
maintenance/repair/operating supply (MRO) inventory
finished goods inventory
In case of Nestle, there is a separate department in the factory which is responsible for purchasing the materials and
managers its supply. There is a centralized system of mater is also a stores officer which also looks after the materials
management.
For controlling inventory the Nestle uses Continuous Review system. They have the whole computerized system. How
much stock is in the store room how much stock has been further put into warehouse and how much stock has been drawn
from the stores? In this way they keep continuous control over their inventory. The stores officer not only maintains
records but also makes visits at the warehouses to see the actual situation of materials. The officer can review the
inventory at any time. Operations manager and the auditing people also check the inventory and its records so that the
risks of loss or manipulation may be minimized.
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In order to identify what’s the inventory process of the Nestle, let’s determine the number of inventory days that means
how many days it take to hold inventory in warehouse.
Based on the Table 1 from SCM section it will help to determine how many days the Company holds its inventory in
warehouse and convert inventory into cash.
In order to analyze the number days in inventory, it was taken Cost of Goods Sold (COGS) and Inventory for the last 5
years (from 2006 - 2010) in order to make more clear analysis from Annual reports retrieved from the follow link:
(http://www.nestle.com/Media/Reports/Pages/Report-2009.aspx).
Table 3. Number of Inventory days
2006 2007 2008 2009 2010
Number of Inventory Days 72 days 75 days 72 days 62 days 63 days
Inventory turnover (times) 5,07 4,86 5,07 5,85 5,79
Based on the formulas below it was calculated the days in Inventory:
Inventory turnover = COGS / Inventory
Days in Inventory = 365 days / Inventory turnover
The Table 3 above illustrates that it takes 72 days in 2006 and 2008, 75 days and 62, 53 days in 2009 and 2010
respectively, the Company holding its Inventory in warehouse. In other words, which means it took Nestle average 62 and
63 days in 2009 and 2010 respectively to covert its inventories into cash. Inventories consist primarily of raw materials
and packaging (which includes ingredients and supplies) and finished goods. The difference in inventory days can be
explained by the nature of products it sells.
Raw materials
The key raw materials purchased by Nestle are: milk, coffee, and cocoa as well as fruit, vegetables, cereals, potatoes are
partly sourced directly from farmers. Sugar, oil, meat, spices and other ingredients are sourced only through the trade.
Nestle is in principle not directly involved in primary production of raw materials and other food ingredients. The
Company uses locally available raw materials and purchases them either directly from producers or through existing trade
channels. Raw materials have to meet clearly established quality criteria and are checked for possible contaminants
including environmental contaminants.
Nestle applies the following principles when sourcing raw materials:
all raw materials must meet both legal and internal quality criteria, including limits on possible environmental
contaminants; whenever possible, preference is given to raw materials that are produced by environmentally
sound farming methods (e.g. integrated crop management);
farmers are encouraged to apply sustainable farming methods and, where appropriate, are provided with
assistance in crop production and dairy farming. Such assistance includes the provision of recommendations for
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the conservation of natural resources (soil, water, air, energy and etc) and techniques for reducing environmental
impact.
There are two challenges face the company in its sourcing of raw materials. The first one is how to fulfill the increased
global need for food while resources of land and water are limited. The second challenge is to meet the changing concerns
of the consumer. As consumers become more well-off they become increasingly interested in social responsibility and
personal value issues, for example: fair trade, animal welfare, labour issues, environmental issues.
The difficulty for Nestle in addressing these challenges is that these issues are located in the upstream supply chain and
are thus out of the company's direct control, except to a limited degree when purchasing from farmers. The solution is to
enhance mainstream agricultural production towards sustainability with the focus on food quality and safety aspects.
Packaging
Manufacturing comprises all unit operations necessary to transform perishable raw materials into finished products, with
the aim to make them safe and convenient for the consumers.
The manufacturing activities of the Company:
respect natural resources by efficient use of raw materials and energy
minimize waste generation and emissions
ensure environmentally safe disposal of all waste which cannot be recycled
Packaging serves a major role in our daily lives. It protects food products from spoilage and ensures safety from
manufacture through storage, distribution and consumption.
Nestle has the following general requirements for the packaging of the materials delivered:
The material must be packed in suitable, clean and sound containers with no loose or detachable closures or other
potential foreign matter hazards. The packaging must conform to the relevant legal requirements for materials in contact
with food.
All packaging materials used for the storage of foodstuffs must be free from taint must not contaminate the materials that
they contain. Each packaging unit must be permanently and legibly identified as agreed with Nestle. The minimum
requirements from a quality and food safety perspective include: material description or trade name, batch or lot number,
producer (and distributor if applicable), production or expiry date. Specific storage or handling conditions must be
indicated.
Nestle have following objectives regarding packaging:
Result in the lowest possible weight and volume of packages whilst still maintaining pack integrity;
Take into account new packaging materials and processes that reduce the impact on the environment of
unnecessary transportation;
Avoid the use of substances that can adversely impact the environment during packaging production and disposal;
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Decrease packaging waste at all stages in the supply chain, including package manufacturing, utilization and disposal;
Increase the use of recycled materials wherever possible, and increase compatibility of packages with existing
waste management
Packaging is of course essential for both Nestle and for the consumer. It ensures the safety and quality of products from
manufacture though to storage, distribution and consumption. Nestle utilizes a number of packaging materials to ensure
that products are delivered to our customers and consumers in the same way they left the factory. Those material types are
as detailed in Table 4 below.
Table 4. Types of Packaging Materials Used by Nestle
Packaging Type Description Typical Use
Coated Paper Wax coated paper Sugar confection wrappers
Wood Wooden sticks Ice cream sticks, pallets
Flexible laminates Composite flexible materials printed and laminated to form bags
Confectionery bags and wrappers. Powdered sauce and soup mixes
Noodle meal wrappers
Paper Labels Paper labels Labels for cans bottles and cartons
Plastics containers Polypropylene, polystyrene. Yoghurt containers thin plastic confectionery trays, Ice Cream tubs
Carton board Folding Cartons Frozen Pizza, frozen meal
Metal Steel containers Condensed milk tins, milk powders
Glass Clear glass containers Sauce bottles and coffee
Composite Can Containers with paper walls and metallic ends Coffee substitute beverages
Source: http://www.nestle.co.nz/AboutUs/SHE/OurFootprint/Documents/NestleNPCActionPlan20052008.pdf
Finished Goods
Placement of Finished Goods Inventory
The fundamental decision is where to stock an inventory of finished goods (FG) there can be two alternatives:
Forward Placement Backward Placement
Forward Placement
The forward placement finished goods are stored closer to customer. Nestle uses forward placement as they use to keep
the stock of finished goods in their regional offices and distribution centers. From the distribution centers the goods are
further sent to the retailers.
Backward Placement
In backward placement FG are stored at the manufacturing plant where they keep goods stocked. So in this way they use
backward placement also. So for inventory placement Nestle uses a mix of forward placement and backward placement in
order to provide goods to the market on time.
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Transportation and delivery
The vendor must ensure that shipping and handling will not cause damages to the material. The vendor must follow the
first expiry-first out (FEFO) principle. The vendor must ship the minimum number possible of batches of the same
material per shipment. A formal agreement is mandatory between Nestle and transport companies. Subcontracted
transport companies cannot be used without prior Nestle authorization. The carrier selected for the delivery of the
materials must be suitable for food use; it must be clean in order to prevent possible contamination, and must protect
against deterioration. Tankers used must be designated for food use only. Tanker cleaning locations can be subject to
assessment where required.
Distribution of the Nestle is the management of the flow of materials from manufacturer to customer and from warehouse
to retailers involving the storage and transportation of goods.
Problem issues
Nestle is planning to increase production by expanding the number of lines operating in the facility in the next few years.
They are looking to improve the efficiency of their existing warehouse both in terms of space utilization and efficiency.
The proposed layout must be robust, able to meet future needs without additional equipment or re-design. Long-term
goals are to reduce the amount of ingredients inventory in stock and to reduce dependence on outside warehouses. The
design will improve the efficiency of the material moves and provide separate space for the different type of storages. The
continuing recommendations will change the process and reduce the number of moves.
Recommendations
Some recommendations about inventory reduction can be a good communication between departments purchasing and
material control to work just-in-time (JIT). Reduce lead and testing time, some materials do not need too much time to be
release and reducing the days of weight-up area to one day can reduce the inventory changing the purchase to less
quantities more frequently (weekly).
3.6 Product Life Cycle
Business theory suggests that products follow a life-cycle, going through phases of development as follows:
The conception of an idea/product
Research and development
Introduction to the market
A period of growth then follows as сconsumers become increasingly aware of the product and, if successful, it becomes
profitable. Eventually, the growth of sales will level off - this is the mature phase and is usually the result of increased
competition. The theory predicts that sales will gradually decline as the market becomes saturated and consumer tastes
change. However, it would be wrong to assume that after the uphill struggles of the development and growth phases, life
becomes easier on the level. It is a considerable challenge to the marketers to prolong the profitable mature phase for as
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long as possible, using a range of extension strategies. Nestle product life cycle (PLC) is represented in the Figure 9
below.
Figure 9. Product Life Cycle
A major drawback with the product life cycle theory is that it cannot be used as a predictor. Firms may be able to identify
some of the stages of development from historical sales data, but they cannot know their exact position on the cycle, nor
in which direction they might be heading. In addition, some products seem to enjoy very long maturity, if not immortality,
with no signs of decline. Extending the product life span is the goal of many firms, but achieving this requires careful co-
ordination of corporate and marketing objectives and strategies.
3.7 Action of Plan
The Table 5below illustrates the Nestle Plan of Action (PoA).
Table 5. Action of Plan
Target Action Plan
Improve packaging
To develop and implement procedures to define the process and approvals required for
all packaging decision
to update and deliver internal training on the packaging policy using the most efficient
and appropriate packaging materials
Improve Human Resource (HR)
policy
To overview offering of competitive compensation package and social benefits with
Nestle’s commitment to high standard
Maintain Nestle’s No Waste at
work program at all manufacturing
sites and distribution centers
To implement a waste information management system, particularly, packaging,
environmental and waste minimization project
Improve Environmental Management
To develop and advertise “greenness” by using non-GMO ingredients, using organic ingredients,
establish an environmental program to promote environmental responsibilityAchieve effective management in supply chain
To use of local supplier to maintain inventory for manufacturer or retailer. To improve interaction between members of supply chain.
To devise strategies that lead to smaller batches or more frequent resupply
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Conclusion
Nestle is the largest food and beverage company in the world. It is also well on its way to becoming world leader
in nutrition, health and wellness. Nestle continued to make good progress in a period characterized by political and
economic instability, natural disasters and rising raw material prices. For 2011 year, company expects organic growth at
the top end of the 5% to 6% range. Nestle ambition is to achieve a high level of customer satisfaction through low cost,
highly efficient operations driven by value creation and continuous improvement. However, Nestle also has some major
problems. Fist, geographic expansion of Nestle as global leader in food production leads to the inadequacies of the
Nestle’s environmental strategy. Second, keeping control of its thousands of supply chains and scores of methods of
predicting demand leads to ineffective management in supply chain. Last, looking to improve the efficiency of existing
warehouses Nestle need reduce the amount of inventory. Thus, based on the materials covered in our Final Paper we
would like to sum up our recommendations and suggestions as follow:
Recommendations
Regarding Nestle’s current advertising policies is that the company use marketing to promote responsible
environmental practices or products they may have or may develop in the future. Therefore, Nestle should develop
and advertise “greenness” by using non-GMO ingredients, using organic ingredients, and using recycled
packaging;
In addition to a revised marketing program, it would be in the best corporate interest of Nestle to establish an
environmental eco-labeling program to identify and promote environmental responsibility. The Current
developments in consumer behavior and lifestyle that may threaten Nestlé’s efforts to be “green” is the increasing
demand for single servings and more ‘convenient’ food products that require more packaging. Unfortunately for
the environment, Nestle’s mission is to provide consumers with the products they want in a highly competitive
market. This change in consumer demand will require Nestle to look more closely at their corporate strategy if they
wish to make their corporate environmental strategy consistent with their corporate strategy;
Inventory researchers have long recognized that multi-echelon inventory systems can operate better when
inventory and demand information from downstream sites is available upstream. In that way, The Nestle should try
to get demand information about the downstream site by bypassing it. For example, Apple has a "consumer direct"
program, i.e., it sells directly to consumers without going through the reseller and distribution channel. A benefit of
the program is that it allows Apple to see the demand patterns for its products;
In addition, long resupply lead times can aggravate the bullwhip effect. Improvements in operational efficiency can
help reduce the highly variable demand due to multiple forecast updates. Hence, just-in-time replenishment is an
effective way to mitigate the effect.
29
And finally, some recommendations about inventory reduction can be a good communication between departments
purchasing and material control to work just-in-time (JIT). Reduce lead and testing time, some materials do not
need too much time to be release and reducing the days of weight-up area to one day can reduce the inventory
changing the purchase to less quantities more frequently (weekly).
Suggestions
Our Group members would like to make the follow suggestions in order to improve Company’s operations:
Nestle in their milk products should concentrate on all age groups (by showing its benefits) instead of
concentrating just on child growth;
Nestle should try to create strong brand loyalty among customers;
Nestle should keep in mind the competing environment while designing their strategies;
The Company should concentrate on customer retention
The Company should improve their customer services
Bonus packages and increment in salaries for a selective level of work and efficiency should be awarded to
attract the employees’ concern;
Skilled workers of the company should join the security department to enhance the system
Inventory should be maintained.
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References
Heizer, J., & Render, B. Principles of Operations Management, 8th edition
Slack, N., Chambers, S., & Johnston, R. Operations Management, third edition
www.nestle.com
http://www.wfin.kz/node/2786 (statistics in the Kazakhstani market)
http://www.kursiv.kz/1195202287-nestle-prodala-bolshe-maggi.html?menu_view_select=/arhiv/svoi-biznes-
arhiv/ (statistics in the Kazakhstani market)
http://www.nestle.com/Media/Reports/Pages/Report-2009.aspx (Annual reports)
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