INTRODUCTION OF SUPPLY CHAIN The movement of materials as they flow from their source to the end customer. Supply Chain includes purchasing, manufacturing, warehousing, transportation ,customer service ,demand planning , supply planning and Supply Chain management. It is made up of the people, activities, information and resources involved in moving a product from its supplier to customer. Although this Supply Chain definition sounds very simple, effective management of a Supply Chain can be a real challenge.

EXAMPLE OF A SUPPLY CHAIN:

Raw materials Manufacturer Distribution Center Customer

A typical Supply Chain flow of goods is shown above. In some models, the product is shipped from the Manufacturer to the Distribution Center as soon as it is manufactured. In other models, such as a Hub & Spoke model, the product is held at the manufacturer once produced. It is then sent out to the Distribution Center only when it is needed.

OBJECTIVES OF SUPPLY CHAIN MANAGEMENT:

The fundamental objective is to "add value".

That brings us to the example of the fish fingers. During the Supply Chain Management '98 conference in the United Kingdom this fall, a participant in a supply chain management seminar said that total time from fishing dock through manufacturing, distribution, and final sale of frozen fish fingers for his European grocery-products company was 150 days. Manufacturing took a mere 43 minutes. That suggests an enormous target for supply chain managers. During all that time, company capital is-- almost literally in this case--frozen. What is true for fish fingers is true of most products.

Examine any extended supply chain, and it is likely to be a long one. James Morehouse, a vice president of consulting firm A.T. Kearney, reports that the total cycle time for corn flakes, for example, is close to a year and that the cycle times in the pharmaceutical industry average 465 days. In fact, Morehouse argues that if the supply chain, of what he calls an "extended enterprise," is encompassing everything from initial supplier to final customer fulfilment, could be cut to 30 days, that would provide not only more inventory turns, but fresher product, an ability to customise better, and improved customer responsiveness. "All that add value," he says. And it provides a clear competitive advantage.

Supply Chain Management becomes a tool to help accomplish corporate strategic objectives:

ß reducing working capital,

ß taking assets off the balance sheet,

ß accelerating cash-to-cash cycles,

ß increasing inventory turns, and so on.

SUPPLY CHAIN BENEFITS:

Experience shows that the benefits of a well designed and implemented Supply Chain Management strategy is substantial. Successfully implemented projects have provided benefits such as:

Reduction of Transportation, Warehousing, and Distribution Costs Lean Processing from Supplier to customers Reduced Direct and Indirect Labor Costs Optimized Stock Levels Increased Material Flow Velocity Accurate Job Costing and Scheduling Streamlined Purchasing Control Increased Decision Making Speed and Responsiveness to Demand Change Increased Customer Service Increased Inventory Availability, Customer Order Fill Rates, Accuracies and services Reduced Operations Support Costs Reduced Inventory Carrying Costs Improved Productivity of Procurement Operations Improved Quality of Products and Services

INTRODUCTION OF SUPPLY CHAIN OF MILK IN PAKISTAN

Milk is the most perishable and fast moving customer good. The very first and initial requirement or feed for any human being is milk. Milk is complete diet as it contains every nutrient except iron. Fortunately Pakistan is the fourth largest producer of milk in the entire world and its annual production is surprisingly 45 billion liters which is very high. But unfortunately only 27 billion liter of milk is available for human consumption. Therefore most of the milk is lost and Pakistan cannot fulfill its demand. Despites of these facts and figures Diary Industry is playing a very crucial role in the Pakistan economy and contributing 14% to the country’s overall GDP. More than 20% of the entire population of Pakistan is involved in this sector directly or indirectly. If we talk about the Dairy Supply chain management of Pakistan, we can divide it in to two categories: One is Formal and second is Informal sector.

The share of formal sector is 4% whereas the rest of 96% of share is taken by the informal sector. In the formal sector Nestle is the market leader in Pakistan and contributing 60% of market share as per fact and figure of 2008. In formal sector, milk is collected by different milk collection centre. Then it is taken in to the processing plant where milk is stored in cooling towers. In the processing plant, milk is processed and packed and then it is distributed to the retailer and finally milk is reached to the ultimate consumer. In formal sector we can divide it in to two sectors. In first category farm milk is collected by gawalas (milkmen) who sell the milk

directly to the consumers or the milk collectors. In second case, farm milk is collected by different milk collectors who sell their milk to the retailers and these retailers provide it to end consumers.

DAIRY INDUSTRY CHALLENGES IN SUPPLY CHAIN

This business is unregulated and there is no as such involvement of government therefore the middlemen often take advantage of poor farmers and charge low prices for their milk and usually delay their payments. Large contractors often blackmail small producers and processors. Most of the farmers are uneducated and they are unaware of modern technology and equipment. And again there is no as such Government involvement to train the farmers in modern dairy practices so the famers are lacking in this area. Average Animal of Pakistani breed gives only 1300 to 2400 kg of milk per annum as compared to yield 6000 kg/animal/year in the modern world. As the farmers are not educated in their practices so due to wrong milking methods most of the cow and buffalo have expose to mastitis. Farmers have not sufficient idea of using different types of feed available in the market so they have no precaution to save their animals from diseases. Farmers are not taking the facility of any veterinary doctors which leads to decrease in the milk yield and animal is less productive for longer period of time.

Milk productivity is seasonal and it is going to be the most important issue that milk producers are facing in this industry. In summer season, animals do not find enough food because grass and herbs dry out quickly. Due to higher temperature the digestive system of animal is weak and farmers yield less quantity of milk. Milk production falls in June and increases in December. The significant difference between the two seasons is really a concern for the dairy sector of Pakistan.

The foremost problem dairy industry is facing is the adulteration means adding water, fats and other harmful substance to the milk that makes the milk unhealthy and less hygienic. This problem is difficult to control and requires serious consideration from both public and private sectors. Transportation, storage and processing make this product more costly. Day by day electricity is a problem in the country therefore majority of the milkmen use ice to keep the temperature of milk low but this method is not optimal and quality of milk is

affected. If we talk about the facts and figures as per World Bank reports 15%of the milk is lost at the stage of farm due to mishandling and wrong milking practices. While 5% gets wasted during the transportation stage.

The buying capacity for small scale farmers is very low they do not afford high cost of feed for their animals and they are lacking advantage of economies of scale. They do not access to formal market channels and are often exploited by the middlemen who offer low prices for their milk and they enjoy the huge profit margin for their own customer.

INTRODUCTION OF NESTLE PAKISTAN LTD.

Nestle Pak works as a subsidiary of Nestle S.A. Nestle Pak started working in Karachi since 1988 under a joint venture with Milk Pak Ltd. With its headquarter in Lahore, Nestle Pak. has four production facilities. Two of its factories are in the heart of Punjab province; Sheikhupura and Kabirwala which are multi-purpose factories, one in Islamabad and the other in Karachi, Sindh which produces bottled water. Nestle Pak is the biggest milk collector in Pakistan. Currently, it collects milk from 190,000 farmers over 145,000 square kilo meters in Punjab and Sindh. With its 8000 brands world-wide, Nestle is the leading brand in beverages and food industry. It has a separate department for supply chain management which was founded in 2001 . The objective behind the creation of separate department of supply chain management is to ensure the smooth running operations from the supply of raw materials from farms or other sources to the supply of finished products into the markets.

NESTLE SUPPLY CHAIN VISION:

“Nestle’s ambition is to achieve high level of customer satisfaction through low cost, highly efficient operations driven by value creation and continuous improvement”

NESTLE SUPPLY CHAIN MISSION:

Optimize and consolidate resources and processes for a low-cost but efficient. Develop and manage simplified and effective supply network to achieve a high level of service. Create a continuous improvement culture driven by performance measures and reward.

NESTLÉ PRINCIPLE:

Nestlé is based on the principle of decentralization, which means each country is responsible for the efficient running of its business - including the recruitment of its staff.

ORGANIZATIONAL STRUCTURE OF NESTLE:

NESTLE MILK PACK

We choose Nestle Milk Pack for our supply chain report among 1000 products of Nestle. Pure, rich and delicious NESTLÉ® MILKPAK® standardized UHT milk benefits from Nestlé’s expertise in bringing consumer the very best life has to offer and benefits from 140 years of consumer trust. Nestlé’s extensive milk collection system ensures that the milk you get is of the finest quality.

Encourage your family to exercise regularly, eat a healthy, well-balanced diet and drink pure, nutritious milk for good health. Milk is a must-drink for your children as it is a rich source of Calcium that helps in the growth

and development of strong bones and teeth. It is equally beneficial in keeping grown-ups bones strong. So live to the fulles and enjoy the pure, wholesome goodness of milk with NESTLÉ® MILKPAK®!

A 250 ml glass of NESTLÉ® MILKPAK® fulfills your daily requirement of 27-30% of Calcium, 15-18% of Protein, 31-34% of Phosphorous, 6-9% of Vitamin A and 160-16 Kcal of energy, as Recommended Dietary Allowance by the National Academy of Sciences, USA.

SUPPLY CHAIN PROCESS OF NESTLE MILK PAK PAKISTAN

Nestle Pakistan has a wide range of products from nutrition to beverages, as so we chose MILK PAK to explain the supply chain of Nestle Pakistan.

CHALLENGE:

Supply chain knowledge is becoming more and more critical to ensure competitive supplies of goods and

services, especially for large companies dealing with a complex network of suppliers, customers, distributors

and consumers. All parties in the chain need to have a particularly good grasp of how their individual activities

work together and affect the performance of the whole supply chain. At Nestlé, Key Performance Indicators

(KPIs) provide the standard metrics for measuring supply chain performance. Nestlé launched a new initiative

to communicate the value and use of KPIs to line managers.

How do Nestle create competitive gaps in the upstream supply chain?

With “Farmer Connect”, where they have direct contacts with producers to:

Ensure traceability up to farmers’ level Assure quality, safety and volume growth of raw materials Mitigate price volatility exposure Reduce transaction costs and serving our brands guaranteeing access to specific raw materials Ensure safety & quality of raw materials Secure availability of adequate agricultural raw materials

Milk is collected from more than 2000 village milk centers and 500-600 sub centers and then milk is transported to 25 main centers. In both stages the temperature of the milk is kept at 4C to keep the quality of milk up to standard. After whole process of milk collection, it is transported to the Sheikhupura and Kabirwala factories. In the processing stage milk is passed through different stages i.e standardization, pasteurization UHT treatment and packaging. After processing, milk is then reached to the factory warehouse which is near the premises of the factory. Finally milk is transported to the south, north and central regions. Then finally distributors of MILKPAK carry it and transport it to the super marts and retail shops so that it’s available to the end consumers. Supply Chain of Nestle MILKPAK guarantees environmental friendly practices and for this they are continuously making their contributions in the society for keeping the environment safe and secure. Their ultimate objective is to make sure that the green supply chain is in practice while keeping their benefits, profits and business activities intact.

SUPPLIER’S SUPPLIER:

Improving Feed

Even before calling Nestlé in, Milkpak Ltd. had tried to ensure that milk cows were given fresh fodder during the summer.

Their teams are always prepared to offer practical advice. They have planted a variety of fodder crops and demonstrate to farmers on field day. They also provide training on best practices in animal husbandry. For instance, they stress the importance of giving cattle enough water, and train farmers in hygiene and milking.

Livestock Breeding & Health

Pakistan's vast milk production comes largely from buffaloes, despite their small yield. Nestle agronomists have shown that with artificial insemination they can actually triple milk production. Yet artificial insemination

is still not widely used. In 1996, their vets and agronomists independently formed an NGO to promote artificial insemination using high quality semen.

Today, with help from Nestlé and others, they have established a training programs for inseminators, and provide high quality imported semen at low cost to farmers Nestle Pakistan concentrate on preventative measures against the most common diseases that afflict cattle in Pakistan. Farmers know that they can call on our trained vets whenever necessary.

Better Equipment

Nestle agricultural services staff have drawn up technical plans for cowsheds, which are provided free of charge. Their mechanics have also developed prototypes of machines to cut fodder quickly an inexpensively.

Starting 2004, we went a step further and proposed a system of small loans for farmers who wanted to make improvements to their farms, such as building cowsheds.

Nestle drew up the sample specifications for a model farm to be presented to the bank disbursing the loans. The Service even helps farmers fill out applications for loans.

Nestlé Pakistan collects quality milk from 190,000 farmers spread over 146,000 sq. km of Punjab and Sindh.

PARTNERSHIP WITH SUPPLIERS:

Nestle always do efforts to provide pure, high quality milk to consumers in distant towns, Nestlé entered into an unprecedented partnership with local farmers. Today, 14 years after Nestlé first entered the milk district in force, the hard work and determination of our milk collection & technical assistance teams and their dedication to Corporate Social Responsibility have raised the bar for dairy concerns in Pakistan.

1000 Small Village Diaries

An agent runs the diary. It occupies a small room of about 20 to 30 m either in the agents house or in a building that nestle’ rents.

The milk collected on average is two times 150 liters per day. The agent does a quick tasting test on the milk before recording the delivery in the farmer’s personal milk

logbook. The dairy is open two or three hours morning or evening. The agent transports the milk to one of the 972 secondary receptions and cooling station before closing.

972 Secondary Reception And Cooling Stations

These generally occupy about 40 m, divided into two rooms. One of these houses an electrically powered milk-cooling tank with a capacity of 600 to 2500 liters. Power cuts are frequent, so 95% of the stations have their own generator. An agent who also works as a milk inspector to run quality tests runs each secondary station.

Main Reception And Cooling Stations

These constitute the final stage in milk collection before it is delivered to factories. It also fitted high capacity milk tanks. 8 of them are equipped with plate heat exchangers for

getting the milk re cooled before transported to the factories.

The quality analyses run as each tanker of milk arrives are more thorough than in the secondary station.

The 23 main stations also stores the laboratory supplies needed in the secondary stations and village diaries.

Link to the two factories by telephone and Internet, the main stations act as the communication and administration centers for the entire collection system.

Maintenance And Breakdown Service

Looking after more than 1000 generators with the same number of water pumps and ancillary equipments demands a systematic

approach. Each of the 23 main stations employs full time

mechanics/electricians. For more complex problem mechanic/electrician

can immediately calls one of the five Nestle maintenance service station located in five of the main reception stations.

The Nestle repair service was originally based in Shaikhupura factory. But over the period of time it was transferred to the fresh milk-purchasing department.

Number of farmers selling their milk to Nestle

Year Number of farmers1994 39,2051996 53,6931998 65,5682000 68.2772002 89,3942004 121,2592006 137,784

MILK COOLING:

Milk pack set up reception centers with cooling facilities where farmers and dodhies, small-time milk merchants, could bring their wares.

It was a simple solution, but difficult in practice: importing the stainless steel chilled containers required was prohibitively expensive. By 1988, the company purchased 120 tons of milk a day from 26,000 farmers.

After acquiring a share in Milkpak Ltd in 1988, Nestlé immediately began investing in milk cooling tanks. Between 1988 and 1992, 100 milk tanks were installed.

1992 onwards, with full support from the Nestlé headquarters in Switzerland, reorganization of the milk collection operation and the provision of agricultural technical assistance became top priorities.

The investment paid off. Within a decade, Nestlé's purchase of fresh milk had quadrupled, and the number of small farmers selling milk to Nestlé tripled.

MILK COLLECTION SYSTEM

Follow the story of Nestlé's dairy products, from humble beginnings on tiny farms in Sheikhupura district, all the way to your table!

Step 1A small farmer in rural Sheikhupura district milks his buffalo twice a day and takes about 4 liters to one of Nestlé's 500 Village Milk Collection Centers.

Step 2At the Village Milk Collection Centre the farmer's milk is poured into aluminum churns.The agent checks the milk's freshness and purity, and enters the quantity into the farmer's logbook. He takes it to one of Nestlé's 1308 Secondary Reception and Cooling Stations, about 2-4 kilometers away.

Step 3The Secondary Reception Station has a large electrically powered cooling tank. A milk inspector measures the fat content, the non-fat solids content, and the milk's acidity. Once satisfied, he takes the milk to one of 27 Main Reception and Cooling Stations.

Step 4At the Main Reception and Cooling Stations the milk is poured into huge tanks and is thoroughly checked for quality. The milk is dispatched to the factories.

Step 5At the Sheikhupura and Kabirwala factories, the milk is processed and packed into the familiar Nestlé cartons you can find in your grocery store. It is checked for quality thrice before being released for sale. Some is processed into yoghurt, powdered milk, or other dairy products.

INBOUND LOGISTIC:

Inbound logistics used for milk collection from different milk collection centre is centrally owned by nestle Pakistan limited. In Pakistan, logistics has always been a problem especially for sensitive product like milk in the hot weather. Initially the supplier who supplied there milk

NESTLE FACTORIES:

Our products are manufactured in five facilities scattered around the country, from

Islamabad in the north, to Karachi in the south.Two state-of-the-art multipurpose factories are located in the agricultural heartland of thePunjab, and the remaining three are dedicated to producing our trusted brands of bottledwater.As citizens of Pakistan, we consider it our duty to make sure that our manufacturing processes are clean, hygienic and safe. We are constantly working to reduce emissions at our factories, reducing and treating wastewater, and making our packaging environmentally friendly. Regular audits have confirmed that our factories' environmental management meets the Nestlé international standard.

Sheikhupura Factory

The factory commenced operations as part of Milkpak Ltd in 1981. At the time it produced only UHT milk, but by 1988 had expanded to produce butter, cream and ghee, as well as fruit drinks. Milk filling machine TBA-22 (most modern and efficient and high speed equipment available in dairy industry) National distribution centre was also constructed in 2000 with capacity to store8300 pallets.

Kabirwala Factory

In 1990, Nestlé Milkpak acquired the Kabirwala factory, located in Khanewal district of the Punjab, as a subsidiary. By 1997 it was a fully owned unit of Nestlé Pakistan Ltd. 2006 has seen the commencement of Kabirwala Extension Project that would be completed in April 2007 at a cost of about Rs. 4.0 billion. The project has seen expansion of milk processing capacity to triple its current size, both for powder and liquid.In 2005 Fresh milk capacity was increased from 676 to 800 tons per day. In 2007 an additional raw and packing and semi finished product stored and a bigger distribution. Centre, a stick pack filling machine and 1000 gr. Powder filling machine will be added.

Islamabad factory:

AVA water factory Islamabad was acquired by Nestle Pakistan in 2001 and wassubsequently merged with it. Thereby becoming a fully owned unit of Nestle Pakistan in2003.The production capacity of the factory is approximately 8000 bottles per day.

PLANNING:

The successful execution of a planning strategy demands that the analysis has been performed with: Confidence in the accuracy of the information provided; Clarity in the way the information is presented; Completeness of the information to be considered.

Planning must also address the resources and expertise that will be needed to implement the chosen purchasing strategy. The trend to outsource both the initial conversion of raw

materials, the manufacture of certain semi-finished or finished products and some services, requires that the original expertise in purchasing these materials and services is now needed tomanage suppliers fulfilling a higher added-value process. In addition, consideration must be given to decide the specific value drivers of the subcontracting initiative for which Nestlé needs to control either the sourcing or pricing (or both).The realization of the importance of the S&IM spend categories will result in Purchasing allocating more attention to them. The task of planning a S&IM purchasing initiative may wellrequire a different skill set and knowledge base to that traditionally expected of a Strategic Buyer.

MANUFACTURING:

Manufacturing is very important part of supply chain. In our factories, the objective is to maximize eco-efficiency – that is to maximize the production of goods, while at the same time, minimizing of consumption of resources and reduce wastage and emissions. The factories are equipped with complete testing and monitoring facilities for wastage and emission enables them to stringently monitor the gaseous environments and ensure that these are in accordance with environmental standards (NEQS).

MILK PROCESSING:

Milk ReceptionThe Milk Reception Unit receives milk and liquid milk products for a milk processing plant. The unit measures and pumps the product for buffering or further treatment.

Mixing

Tetra performs in-line mixing for a wide range of powders and liquids for dairy applications such as reconstituted and recombined milk, yoghurt milk, flavored milk, evaporated milk, recombined concentrated milk, ice cream mix, chocolate slurries, dairy desse ghee.

Heating and CoolingHeating and cooling are basic processes within dairy processing and take place in plate or tubular heat exchangers. Tetra Pak heat exchangers have high thermal efficiency for low energy consumption.

StandardizationAutomatic direct in-line standardization of milk and cream. Accurate control of fat, fat/solids and non-fat ratio gives better utilization and control of the production parameters

PasteurizationAlong with correct cooling, pasteurization is one of the most important processes in the treatment of milk. If carried out correctly, these processes will supply milk with longer shelf life.

Temperature and pasteurization time are very important factors which must be specified precisely in relation to the quality of the milk and its shelf life requirements etc. The pasteurization temperature for homogenized, HTST pasteurized, regular-grade milk isusually 72-75 °C for 15-20 seconds.

UHT treatmentUHT treatment is a thermal process for preserving liquid milk. UHT stands for Ultra High Temperature and by heating to 137 – 140 °C for a very short time (2-10 s) the micro-organisms are inactivated. If the milk is packaged under aseptic conditions it can be stored at room temperature for months.

Packaging MaterialsNestlé is committed to reducing the environmental impact of packaging, without jeopardizing the safety, quality or consumer acceptance of its products.

As far as milk is concern packaging is very important, it is perishable item which requires special packaging to preserve it for few months. To meet this objective NestleMilkpak use tetra Pak to deliver fresh milk to its customer without sacrificing in health measures. Nestle have following objectives in mind 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; 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 the recyclables and compatibility of

packages with existing waste management schemes.

FACTORY WAREHOUSE OF NESTLE:

The finished tetra pack is sent to the factory ware house which is 4 km away from the processing plant. Factory ware house is located near the plant to reduce the transportation cost. At Factory warehouse temperature is controlled to ensure the condition of the milk is fresh when it reaches the consumers. Milk is a very perishable item; therefore it requires very effective storage conditions at warehouses to preserve milk in its real condition. For this Nestle milkpak warehouses contains very suitable temperature that should not increase from 38’C in order to keep preserved milk in its fresh condition.

Lay out of the warehouse

This warehouse has no shelving or racking system instead the goods are kept on pallets. Information tags are placed on every carton as well as on the top of the pallets. The warehouse’s height is about 17 feet. The building is divided into two sections; one for carrying heavy weights products and the other for carrying lighter ones. There are two gates; one for receiving the goods and the other for distribution. In this way, receiving

and dispatching of goods can be done at the same time which is a time saver. There is a room used as check post to ensure the safety and security along with keeping track of what goes in and out of the warehouse. The whole warehouse was divided into individual lanes; the lanes were designed in such a way that it creates a “U shaped” flow of goods which makes easier for the pickers to carry the goods to the trolleys using safe lifting and reduces the time and motion wastage.

Inventory Management in the warehouse

The inventory is managed by software called SAP (System Applications and Products). Another method for managing the inventory is “Manual Counts” that is done by the “inventory clerk” on daily basis, who is specially hired for this purpose. The counted stocks are recorded on a whiteboard that’s placed inside the warehouse. It contains not just the information about the name and no. of products but also in which lane they are and in what volume they are in. The whiteboard information is updated every time a picker picks the order and also when the goods are loaded on a truck for delivery. For further verification, Barcodes are also placed to scan the cartons of the products every time they enter or exit the warehouse. Every batch of goods has a batch code like this 2 043 1382 1 Z

Which tells the following information: The year in which that product was Manufactured

The day of the year in which it was Packed

A plant code in which it was Manufactured

The no. of times a good goes through the machine

A machine code How the goods are picked in the warehouse?

There are five pickers in the warehouse. The supervisor assigns 4 of them to pick products by a list. The list contains information about the product batch number, quantity, lane number and the pallet number. Two of them pick the goods, the third one gives instruction and the fourth person rechecks it. The FIFO method is adopted in the warehouse because Nestle is a FMCG company and most of its goods are perishable and have limited time span. So what first goes into the warehouse should be dispatched first.

How the goods are ordered?

The goods are ordered on the basis of LIFO method. Orders are received from distributors across the country. LIFO is used because it takes transportation cost, time to record and place an order along with the delivery process. As for Nestle MilkPak, it has an expiry of 6months, so it needs to be delivered first.

How goods are delivered from the warehouse? There is a gate in the warehouse from where the goods are delivered, once the picker picks up the goods, the process of delivery from warehouse begins. The supervisor of the warehouse rechecks the goods are picked in the right quantity, packed in the right way and loaded in the right truck.

Capacity Of Trucks

Nestle milkpak has trucks which have the following capacity. The data is on the basis ofcartons per truck.

Size of item No. Of cartons

1 liter 1092250ml 18151.5 liter 1040500ml 1750

LOADING, UNLOADING, HANDLING AND TRANSPORTATION CONDITIONS

ACCEPTANCE LETTERAcceptance letter is the conformance letter that ensures that the warehouse accepts orreceives the inventory, it includes:

Invoice number Whom to sold Whom to ship Dispatch date From whom Product description Unit price

MAJOR ITEMS SALE

1 liter of Nestle milkpak has the major 55% of total sales. 250 ml of Nestle milkpak has 25% of sales 1.5 liter of Nestle milkpak has 10% of sales 500 ml pf Nestle milkpak has 10% of sales

NUMBER OF ITEMS PER CARTON

Type of carton No. Of item units

1 liter 12250ml 271.5 liter 8500ml 12

OUTBOUND LOGISTICS:

Outbound logistics concerns finished milk movement from factory to differentwarehouses located in different cities.The logistics usually take 3 days to arrive at Nestlé’s warehouses in Karachi from their

manufacturing factories at Lahore, kabirwala and shaikhupura

Size of item No. Of cartons

1 liter 1092250ml 18151.5 liter 1040500ml 1750

DISTRIBUTION:

According to the distribution, Pakistan is divided into three geographical zones and thenin further Regional Sales Offices.

North Zone: Islamabad and north outstations Peshawar Jhelum

Central Zone: Lahore Faisalabad Gujranwala Multan Sahiwal

South Zone: Karachi Hyderabad Quetta Sukker

Selection of Distributors

The Criteria followed are: 1Capital Investment

Depends on both present and future capital investments by distributors

Amount vary from Area-wise to marketwise

2.Relevant experience Prior experience in FMCG sector is preferred to save on training expenses Distributor should not be dealing in Competitor’s product Should handle entire range of Nestle products (Both fast and slow moving SKU’s)

3.Infrastructure Godowns / Storage space with appropriate refrigeration as per product needs Delivery vehicles Salesmen

4.Company’s discretion based on markets served

Distribution process

The distributors have sales force to collect orders. There are two methods for distribution of goods:

ORDER BOOKING SPOT SELLING (Where sales force first books (Where sales force is given a van orders from the shops or retailers full of Nestle goods to sell) and then delivers the goods)

Nestle Milkpak goes for indirect channel of distribution, that means there is a chain of intermediaries through which a product moves through additional steps as it moves from manufacturing business via distributors to wholesalers and then to retail stores or super marts. The distribution strategy of Nestle MilkPak is intensive as it is covering wide market. There are regional headquarters of the company in all big cities of Pakistan. In this report we have covered distribution channel of Nestle MilkPak in Karachi. In order to reach remote areas the company is linked with the main distributor and sub-distributors. The company is directly linked with the main distributors; they provide the products inventory to the main distributor that is further dispatched to retailers and sub- distributors. The targets differ from area to area and set on the basis of history of the area sale and also from the monthly forecasting.

Distribution Channels:

Nestle employs different distributors for different areas. Distributors employ their own sales force and vans, which deliver Milk Pak to the doorstep of the retailers. Every distributer has three territories per area. In the “A” territory, the distributor’s vans visit the outlets every alternate day. In the “B” territory, the vans visit the retailers at least twice a week, while in the “C” territory; the vans visit once a week.

Distributors’ sales target:

It is interesting to note that the distributors are given sales targets, which are then communicated by the distributors to their sales team. The targets are usually like 15% annual growth in sales. The distributors achieve this by selling more units to the existing clientele (outlets in their region). In some cases the clients themselves ask for more stock. In other cases they have to be persuaded to buy more. The norm usually is that

if a retail client asks for 12 pack the distributor’s sales team sells him 15. The reason is to leave no space available for the competitors.

Daily Incoming And Outgoing Logistics

Minimum one or two nestle milkpak trucks daily being arrived at each ware house from the sheikhupura and kabirwala factories, and is distributed in the same amount to the retailers all over the city.The logistics usually take 3 days to arrive at Nestlé’s warehouses in Karachi from their manufacturing factories at Lahore, kabirwala and shaikhupura.Nestle milkpak has their owned and outsourced trucks.

SHELF LIFE OF NESTLE MILKPAK

Nestle milkpak has 3 months of shelf life.

Objectives Of Nestle’s Distribution Centers Or Warehouses

There are three main objectives of Nestlé’s distribution centers. Meeting the targets Distribution at Right time At Right place

DEMAND FLUCTUATION OF NESTLE MILKPAK :

The demand of Nestle milkpak usually increases in the festivity season or any event such as. Eid Ramazan and Moharram

There is a shortage of supply of milk during the pregnancy season of cows.

RETURN POLICY OF NESTLE MILKPAK:

Nestle milkpak has an efficient return policy for inventory in case of any defect. Every carton and item has assigned a certain batch number. If any defect has found in item or carton then the batch number of that item orcarton is noted and disposes the defected item right on there.

GLOBE (GLOBAL BUSINESS EXCELLENCE)

In the year 2005 the successful launch of GLOBE remained probably the most significant achievement for Nestle Pakistan. It was recognized locally as well as in the Nestle world as the most successful implementation of GLOBE.GLOBE is a worldwide program/project designed to align Nestle Pakistan with other Nestle companies around the world and to learn and benefit from each other’s experience.

The project has three main objectives; Creation and adoption of common business practices across all countries where Nestle operates. Standardization of data and, Standardization of information technology system.

Migration to an ERP

The final phase of the project entails migration of Nestle Pakistan to an ERP (Enterprise Resource Planning) called SAP (System Application Products), which is one of the most integrated business application software in the world. Nestle Pakistan achieved this final migration on February 7, 2005. On that date all Nestle sites including the head office, all factories, distribution centers and three zonal offices went live on the new application.

Information system and Purchasing

Purchasing task will be greatly facilitated by standard IS/IT infrastructure, common business applications and best practices, Visibility of standardized, real-time purchasing data/information will permit aggregated spend category analysis. This will help identify opportunities and define more effective purchasing strategies with the objective of achieving lower total cost.

Over View of Supply Chain of Milk Pack

So what makes our supply chain so special?

Well, for a start, we're the leading nutrition, health and wellness company in the world and possess one of the most sophisticated supply chains in the world - putting the customer at the heart of everything we do. As a result, every success (and, by definition, every failure) we experience is multiplied to the nth degree. And for the right type of person, that should be an exhilarating prospect.

Each element of the supply chain relies heavily on strong relationships with other areas, and that creates a community of like-minded people; a real team ethos where everyone goes out of their way to help each other deliver.

It's the passion, dedication and energy from our people that drives our winning culture. You'll quickly come to appreciate this diverse environment, regardless of which role you find yourself in.

CREATING SHARED VALUE ALONG THE SUPPLY CHAIN :

Supply chain activities transform natural resources and raw materials into finished products which are delivered to the end consumer. Each stage of the process adds value to the overall end product.Nestlé operates within complex supply chains. Its milk supply chain goes from farms to facility. . Nestlé sources materials from thousands of farms, many of them small farmers in poorer rural regions of the world. In many rural communities, a lack of investment in infrastructure has a serious impact on the quality and quantity of raw materials that Nestlé and other companies rely on. Nestlé provides training in order to

encourage sustainable production, protect the supply and quality of its raw materials and have a positive, long-term impact on the local economy and farmers’ standards of living.Around two-thirds of Nestlé’s worldwide expenditure is on raw materials. Nearly 40% of this goes on three main ingredients: milk, coffee and cocoa. It is a prime example of Nestlé’s Creating Shared Value approach to business The initiative aims to help farmers to run profitable farms, respect the environment, have a good quality of life and give their children a better education.So what does Nestle do in order to stay successful in its supply chain management? There are multiple innovative strategies that Nestle employs time-to-time on a global level.

To conclude:Sustainability, Compliance, “Farmers Connect” sourcing model contribute to…

Replicable and consistent quality and food safety Predictable timing and volume Increased price stability Sustainable production Farmer loyalty

RECOMMENDATIONS

1. Nestle Pakistan can establish their own dairy farms near their factory.

Benefits

a. Transportation cost that incurs from the collection centres to the factories will be minimized.

b. Less dependency upon local farmers.

c. These dairy farms will act as Crisis Management point in dynamic conditions as we have recently faced in the form of worst floods in all over Pakistan.

d. More employment opportunities for local people around that region.

e. As milk is collected twice a day so there will be less repetition of work; if Nestle establishes its own dairy farm near its factory.

2. Nestle can also establish a few of their own retail outlets or franchises in major cities of Pakistan to fill the demand and supply gap more efficiently just like Millac (Pvt) Ltd.

Benefits a. These outlets will save the repute of the company from stock outs in peak seasons like Ramazan, Eids, & Moharram. b. These retail outlets will align with Nestle’s production planning with the demand of customers. c. There will be less occurrence of bullwhip effect.

d. These outlets will serve as a competitive advantage for Nestle in their marketing strategy. e. Nestle will also be less dependent on other retailers.

3. Nestle should introduce vertical shelf system in the warehouse Benefits a. As Nestle’s warehouse has a ceiling of 17 feet, it should use the ample space above the lower shelves. b. This system will allow the storage of goods in segregation.

4. Nestle should install Voice Picking technology in warehouses. Benefits a. Although it’s a bit expensive, but use of this technology will benefit Nestle in future as it reduces the time and human error and increases efficiency.

CONCLUSION

In the end, we would like to conclude that Nestle Pakistan is the leader in FMCG industry. Nestle keeps track of its goods by maintaining its supply chain all over the country. From Nestlé’s manufacturing system to its Distribution channels, everything is properly managed. They have a strong relationship not only with their customers but also with their suppliers, distributors and retailers. They maintain a proper Corporate Social Responsibility by training their local farmers about milking and feeding of their animals. In 2004, Nestle proposed a system of small loans for farmers who wanted to make improvements to their farms, such as building cowsheds. They drew up the sample specifications for a model farm to be presented to the banks disbursing the loans. The Service even helps farmers fill out applications for loans. In short, Nestle takes care of its inside and outside customers. The manufacturing plant of Nestle is the strength and serves as a competitive advantage for Nestle because of its perfect system. The hygiene, safety and security control is

done under Nestle MilkPak’s manufacturing plant. We learnt a lot about Nestle’s Supply Chain; from the manufacturing department to distribution, everything is done perfectly.

BIBLIOGRAPHY:

To collection information we have considered following source in order to gather authentic data:

http://www.supplychaindefinitions.com/http://scm.ncsu.edu/scm-articles/scm-termshttp://www.investopedia.com/terms/s/supplychain.asphttp://www.adi.pt/docs/innoregio_supp_management.pdfLogistics and Supply Chain Management : Strategies for Reducing Cost andImproving Service (Financial Times Management) -- Christopher Martin; Introduction to Supply Chain Management -- Robert B. Handfield, Ernest L. Jr. Nicholshttp://prezi.com/1qfek0tjvy4h/supply-chain-management/http://www.nestle.pk/asset-library/documents/financial_reports/nestle_annual_report_2010_en.pdfhttp://www.slideshare.net/neelamasad1/nestle-in-pakistan-16381502http://www.nestle.pk/asset-library/documents/financial_reports/nestle_annual_report_2010_en.pdfwww.nestle.pkwww.nestle.comwww.tetrapak.comwww.cia.gov.comwww.smeda.comwww.wekipdia.com

Books concerned:

Nestle management report 2005Nestle management report 2006SEMIDA report 2005 for milk production and distributionEconomic survey of Pakistan 2006

Personnel concerned:

Mr Shakeel MirzaReigional Sales Manager