Logistics networks are the backbone of contemporary global commerce. They keep Nestle Bangladesh in business by facilitating the movement of raw materials to processing factories and finished goods to the market. While logistics networks facilitate the movement of goods, its transportation, inventory management, goods handling, warehousing, order processing, and packaging functions represent wastes because they are costly and time-consuming.
Industry Description
One can use various measures to analyze Nestle Bangladesh’s industry effectively. One such measure is Porter’s Five forces, which measures the threat of new entrants, the bargaining power of suppliers, the bargaining power of customers, the threat of substitutes, and competitive rivalry among the existing companies. Nestle operates in the food and beverages industry, which is open to any new entrant (Ackerman et al., 2012). There are no barriers to entry, and any interested corporation can join the business. The industry is characterized by an average supplier and buyer power due to the perfect competitive nature of the market.
The competitive rivalry within the industry is also typical of the Asian food and beverages market, dominated by multinational corporations from the United States and Western Europe. Given the existence of many related products in the Bangladeshi food and beverages market, the threat of new substitutes is significantly high. As such, Nestle Bangladesh cannot increase the prices of its goods in the market without losing customers, who will have switched to the next available option.
Another way to examine the Bangladeshi food and beverages market is to use the PESTLE analysis. It looks at the political, economic, social, technological, legal, and environmental factors that may affect a company’s operations. Bangladeshi’s food and beverages industry is highly regulated to ensure that the participants offer high-quality and safe products (Annual review, 2019). Although its geographical location exposes it to political tensions in South Asia and the risk of Islamist jihadist groups, Bangladesh is politically stable. Bangladesh also has a developing economy, and the purchasing power of the purchasing power is average.
Still, companies can make significant sales by packaging their products adequately and using competitive pricing. Socially, Most Bangladeshis are communal and dependent on microfinancing. For this reason, Muhammad Yunus’ Grameen Bank – a socially-focused microfinance institution founded in 1983 – is hugely successful. Its concept has been copied in many parts of the world. Bangladesh is also a primarily Muslim country, meaning that selling pork products is not a viable business in the region. The recent COVID-19 pandemic has also affected the social lives of many Bangladeshis. The country also has moderate technological development and the usual environmental concerns.
Inbound and Outbound Logistics
Inbound logistics covers the receiving of goods by a given firm, while outbound logistics covers the delivery of goods (Varella & Gonçalves, 2013). For Bangladesh Nestle, inbound logistics include all the products that the company sells in Bangladesh. They are received at a central distribution point, having been shipped from the Sreepur, Gazipur. They are then distributed to such retailers as supermarkets countrywide.
Cost Reduction
Waste elimination within logistics networks reduces operational costs. Minimizing or eliminating waste results in saving money because there are fewer defects (Sroufe & Melnyk, 2013). Logistics networks with a lot of wastes are costly to run because wastes result in redoing some work. When companies repeat work because the previous one was defective, they spend additional labor and other production factors. In a logistics network, repeating work because the previous one was defective means spending more money with no returns (Trent, 2008). If there are enough defective processes, companies could become bankrupt.
Waste elimination helps institutions to avoid these additional costs that have no return. They increase the company’s lead time and ensure that processes moved as planned (Wee, 2011). Without wastes, there are no delays in delivering products, which are needed as input for other production processes. Without delays in the delivery of supplies and raw materials, there will be no stoppage in the production process, and customers will always have the goods they need at the right time.
Wastes in the logistics networks can affect business continuity and result in significant losses. For example, it can cause delays in moving raw materials to the manufacturing plant and finished goods to the market (Somapa et al., 2018).
When raw materials or finished goods fail to reach their destination on time, they may become spoilt if they are perishable. This unexpected spoilage of products is costly because it means that the company’s investment in the finished goods or raw materials was useless. Alternatively, the products getting stack on the supply chain can lead to business discontinuity, resulting in a series of negative outcomes that culminate in the loss of customers (Ruffa, 2008). For example, failure to produce goods constantly and availing them in the market on time can force existing customers to look for alternative products. Therefore, companies must do everything in their power to reduce wastes in the supply chains and logistic networks, ensuring business continuity. Waste elimination is achieved through continuous process improvement and related approaches.
Inventory Control Methods
The five lean principles that ensure effectiveness and efficiency in the Bangladeshi food and beverages industry include value identification, value mapping (waste elimination), flow creation, pull establishment, and continuous improvement. Identifying value is an important lean principle that focuses on designating what the company considers critical to its operations to eliminate wastes (Saleh, 2015). Once the value is established and mapped to the value stream, it would be easier for an organization to create strategies to achieve these values and the associated business advantages.
Flow creation allows for simplifying processes and the movement of raw materials to the manufacturing plant and finished goods to the market. Creating and maintaining a good flow leads to predictability, which helps with production planning and forecasting (Roni et al., 2016). With improved product and information flow, just-in-time manufacturing and delivery of goods would be possible. In this regard, customers will pull products from the manufacturer whenever they want and in the amounts that they do. After that, the company will continuously improve its operations and eliminate waste, leading to a virtuous cycle.
Various inventory control methods are used in the Bangladeshi food and beverages industry to implement the lean principles mentioned above. They include economic order quantity, minimum order quantity, ABC analysis, just-in-time inventory management, safety stock, first in first out (FIFO), last in fast out (LIFO), and consignment inventory, among others. The utilization of the right inventory control method allows an organization to ensure business continuity and serve its customers’ needs always (Plenert, 2007).
One such inventory control method is just-in-time inventory. Here, the company orders needed raw materials only when they are needed. This approach to inventory control reduces supply chain costs and storage requirements. It also optimizes operations and reduces the risks of raw materials becoming spoilt before usage (Qrunfleh & Tarafdar, 2014). A just-in-time inventory does not dependent on the company’s sales expectations, which are computed based on previous sales and other assumptions. Instead, it uses real-time demand and supply data to stock just enough raw materials for business continuity.
Value of Logistics Functions
On the one hand, the performance metric chart is a visual representation of company sales or revenues and profits or other indicators of success. On the other hand, logistics functions include order processing, materials handling, warehousing, inventory control, packaging, and transportation. Coordinating each of these functions is necessary to ensure the successful movement of raw materials to processing plants and finished goods to the market (Myerson, 2012).
The business manager can measure the value of the logistics function by using the metric chart. For example, the chart can illustrate current demand compared to the actual goods supplied to the market. When the demanded products exceed the supplied ones, the company may be experiencing difficulties creating new products and getting them to the market on time. This problem could occur because the company’s capacity is exceeded or because problems exist in the logistic network. Thus, the manager will embark on a critical investigation of this issue and make recommendations for improvement.
Similarly, the company can supply more goods to the market than the demanded amounts. Often, oversupplying finished goods is an indication of less-than-effective supply chain management processes. The responsible manager can resolve this problem by implementing the just-in-time approach to avoid excessive inventory (Goldsby & Martichenko, 2005). The metric chart could also show the manager how well the company is performing in terms of profits.
If the profits are low despite high revenues, it could imply that the company is using more money than it should in its operations. This problem can be resolved by doing an extensive and critical analysis of internal processes to eliminate wastes and associated costs. Lean processes can also help to minimize other unseen costs and to deliver optimum operations for any organization (Hannon, 2004). With continuous improvement, the manager can help his or her organization achieve even greater profitability in the future. The more the manager focuses on continuous improvement, the more positive the outcomes.
Total Logistics Costs
For the Bangladeshi food and beverages industry, the total logistics costs comprise the individual costs of each of the six critical supply chain functions. The first one is the order processing cost, which refers to the payments made to facilitate clearing and forwarding of inbound and outbound logistics (Long et al., 2018). In the Bangladeshi food and beverages industry, the order processing cost is managed by having centralized distribution centers that manage all incoming and outgoing logistics. The second notable cost in logistics is materials handling cost. This money is paid for services rendered in loading and offloading goods and entering them in the appropriate systems.
In Bangladesh, these material handling goods are handled by independent contractors for each organization. However, Nestle has own employees that load and offload goods and enter their details into inventory management software. The third important cost concerns warehousing charges and related payments. Companies in the Bangladeshi food and beverages industry can use in-house warehouses or lease them, depending on their needs. Nestle Bangladesh has leased several warehouses in the country.
The fourth important cost that companies in the Bangladeshi food and beverages industry pay are inventory control. For most of the industry operators, this is an in-house function done at specified distribution centers. Retailing outlets may also have inventory control specialists or clerks receiving monthly payments as regular employees. Inventory control workers are responsible for monitoring inventory and making orders as per the business schedule and company policy to ensure operational continuity. The fifth type of cost that Nestle and other food and beverage companies in Bangladesh pay are the packaging costs. It caters to the material, labor, and associated costs of breaking bulk and sorting it in appropriate sizes.
Packaging is done to preserve the product while also remaining attractive to the customer to draw their attention when appropriately arranged on supermarket shelves. Packing for Nestle is done in-house, but other companies within the same industry in Bangladesh utilize outsourced labor. Lastly, the companies also pay the cost of transporting goods from one place to another. The final destination depends on the product involved. Nestle uses company-owned lorries to transport its goods and occasionally hires independent contractors to do the same.
Demand Patterns
Nestle Bangladesh sells both dependent and independent products to its customers. The distinction between independent and dependent demand is that while the former refers to the demand for finished goods (readily useable ones), the latter refers to the demand for components or parts (Edirisuriya et al., 2019). Some of the Nestle products are useable as they are, while others are needed as special ingredients for foods and drinks. For example, the ready-to-drink Nestle products satisfy independent demand while milo and other products are needed to make beverages at home or in cafeterias.
Demand Forecasts
Demand forecasts can reduce inventory costs by giving an idea of how much inbound and outbound logistics a company expects. However, the forecasts can never be 100 percent accurate as surges in demand may occur from time to time depending on various market forces (Davis, 2013). Forecasts help the Nestle Bangladesh company to keep the right level of inbound and outbound inventory that guarantees business continuity. Since forecasts are not always accurate, they can result in wastes at times. Managers can avoid these losses by using just-in-time inventory and lean processes, including continuous improvement (Ahmed, 2017). For example, just-in-time inventory ensures that Nestle Bangladesh has only the inbound and outbound logistics level that it needs.
Optimal Inventory Level
The optimal inventory level for Bangladeshi Nestle is the one where customer demands can be satisfied for six months. The company often keeps six-months-worth of outbound inventory to create lead times, particularly in cases of unexpected demand surges. For inbound logistics, the optimal level for the company is a six-months-worth of raw materials under normal demand circumstances. Lean processes such as just-in-time operations are yet to apply to the company due to the general market stability, raw material availability, and relatively low costs of raw materials (Trent, 2008). Most importantly, the raw materials have a long shelf life once properly treated.
Operational Performance
For Nestle Bangladesh, the main advantage of maintaining optimum inventory levels is that it ensures business continuity. Market forces change from time to time, which affects the availability of raw materials and customer demands. Having an optimum level of inbound and outbound logistics ensures that Nestle Bangladesh can meet customer demands even during unexpected demand surges. It also shields the company from shocks occurring due to sudden increases in the price of raw materials. When market forces are favorable, Nestle Bangladesh maintains six months of inbound and outbound logistics and continues with the same level throughout its operations. Market forces that the company fears could negatively impact its performance emanate from various sources, including the entry of new players and changes in the legal landscape.
Value Stream Map
As shown in Table 1, the entire Nestle Bangladesh supply chain adds no value to the company. The company acquires value only when it makes a sale. In other words, the only valuable process that Nestle Bangladesh benefits from is sales, which is, unfortunately, not a logistics function. From Table 1, it is evident that Nestle Bangladesh loses a lot of money and time through outbound and inbound logistics. However, in monetary terms, the former is more than the latter. Part of the reason for this is that the company has greater control over the outbound logistics than the inbound one, which is handled by business partners spread across different parts of the country. The company can use this value stream map to identify processes to shorten the supply chain as much as possible to eliminate these wastes.
The more the company focuses on improving its performance, the more likely it will realize that some investments in the logistics network are not worthwhile. Eliminating the unworthy processes is in the company’s interest because saving costs improve the company’s profitability, public image, value, and appeal to high net-worth investors.
Table 1: Value Stream Map.
Customer Focus in Strategic Plans
When creating strategic plans to manage total logistics costs, it is important to remain customer-focused for various reasons. First, remaining customer focused helps the team stock the products that customers want (Sroufe & Melnyk, 2013). Keeping what customers want reduces bad stock and increases business continuity. some plans to manage the logistics costs can inconvenience the customer. For example, extreme cost-cutting strategies can result in increased difficulties for the customer to locate the product. Such extreme measures and strategies might, in the long run, affect the performance of the company.
However, if the manager is customer-focused from the beginning, they are unlikely to make mistakes that lead to greater inconveniences for customers. Notably, organizations and customers pull in different directions as each tries to maximize its own value. Naturally, this arrangement leads to conflicting interests between them, and one way to resolve the stalemate is to remain customer-focused when implementing any new strategy.
Elimination of Waste Using Value Stream Map
Nestle Bangladesh managers can eliminate the wastes identified on the value stream map by utilizing lean principles and approaches such as continuous improvement. Therefore, the managers’ goal should be to eliminate the costly and time-consuming inbound and outbound logistics processes of transportation, order processing, materials handling, inventory control, warehousing, and packaging. One way to reduce transportation waste is to reduce the distance between the customer and the company, which can be done by having online stores and making products only when customers order them. The cost and time associated with the order processing can be reduced by automating the processes. Notably, it is impossible to completely eradicate these wastes. Hence Nestle Bangladesh managers should try to minimize them as much as possible.
Global Challenges in Logistics
Nestle Bangladesh managers face various challenges as they operate their global logistics networks. These challenges include delays, spoilage of goods, theft of goods, tariff changes, lack of accurate data, and political issues. Nestle Bangladesh’s parent company is in Switzerland, and this means the subsidy receives from and sends to its parent company a significant amount of logistics. Shipment is handled by various agencies and organizations, which leads to costly delays. The company also has to contend with the risk of piracy and other forms of theft. Natural disasters such as tsunamis and earthquakes can also affect the movement of inbound and outbound logistics globally.
Lean Principles in Global Logistics
Value identification, value mapping, flow creation, pull establishment, and continuous improvement are some lean principles utilizable in global logistics. However, these principles must be applied to a massive scale due to the participation of many players there. Managers in Nestle Bangladesh can apply these principles to global logistics to reduce wastes and save on time and resources.
Conclusion
Nestle Bangladesh operates in a highly regulated food and beverages industry. A PESTLE and Five Forces analysis can help determine the nature of the industry and help the management make appropriate adjustments. The company’s logistics network is responsible for the movement of raw materials to the processing plant and finished goods to the market. The entire inbound and outbound logistics functions represent significant time and monetary wastes because they add no value to the company. Therefore, Nestle Bangladesh managers must look for ways to minimize these wastes and achieve greater profitability and overall success.
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