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Supply Chain Management at Nestle

Organization Background

Nestle is the leading food manufacturing company in the world, with its presence being felt all over the globe and its products sitting comfortably at the dining table of almost every homestead around the world. The company was founded by Henri Nestle in the 1960s with an aim of solving the problem of child malnutrition emanating from the inability of some mothers to breastfeed. The initial product was Farine Lactee Henri Nestle, a food supplement that was made from a combination of cow milk, wheat flour, and sugar, which was used to curb child mortality by offering an alternative nutritional value to breast milk. The growth of the company was witnessed in the early years of the 20th century when it reorganized itself, spread to countries like Britain, the US, Spain, and Germany, and diversified its product portfolio to include chocolate following its merger with Swiss General Chocolate Company (Resource. and, n.d). Later the company spread to Australia, Singapore, Hong Kong, and India in order to cater to the emerging lucrative Asian market which influenced the rapid growth of Nestle Food Company, and later to other parts of Africa, the Middle East, and Southern America.

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Currently, Nestle boasts of having some of the most famous brands in the world’s food market including Milo, Nido, and Nescafe. Over the years, the company has gone through a lot of transformation, including diversifying to pharmaceutical products. The company has also endured turbulent economic and global market conditions by engaging in acquisitions and mergers with hitherto leading food companies like Carnation of US, San Pellegrino of Italy, and Spillers Petfoods of UK. Through its initiative dubbed GLOBE (Global Business Excellence) cutting across the group, the company has been able to take advantage of global market leadership, its size notwithstanding, by harmonizing and simplifying its business processes (Resource. and, n.d). Currently, the company boasts over US$70 in turnover and over 200 units.

The secret behind Nestlé’s operation success lies in having sound business strategies that incorporate product innovation and renovation; as well as customer value creation priorities and practical business core values of cultural diversity, quality products, brand strength, consumer or customer satisfaction, and company’s high-performance targets. Incorporating these with its sensitivity to dynamic global economic climate makes Nestle gain a competitive edge over its close rivals who are as well very competitive. Nestle has also taken cognizance of the idea of supply chain management which is the current trend for many firms who wish to survive the ever-growing global market competition.

Management Structure and Supply Chain Management at Nestle Food Company

The current management structure at Nestle tends to revolve around GLOBE, an initiative whose aim is to standardize the operations of all Nestle business units all over the world. This entails the assurance that management of procurement, sales and distribution, factory operations, and administrative functions are being handled through a single system. In addition, a single information system was put in use across all its units by eliminating the different enterprise planning systems and replacing them with a single web-based mySAP.com software (Steinert-threlkeld, 2006). Due to its broad network and product lines, fewer levels of information flow, and a flat and broad span of control that encourages horizontal communication and accountability has been favored. Under this management structure, a uniform process in the manufacturing of Nestle products and a uniform mode of formatting and storing data has been in place in all of Nestlé’s 200 units spread across all the continents of the world. This standardization has made Nestle win a competitive advantage over its close rivals, who include; Kraft Foods of US and Unilever of UK. This is because operational speed and personal responsibility are assured, thus boosting the performance in nestling and minimizing bureaucracy (Nestle Management and Leadership principles 2003).

The company’s management structure tries to embrace the concept of Supply Chain Management by outsourcing some of its activities while using a large workforce (over 270,000) including executives, managers, and line/production workers to ensure the operations of the Supply Chain run smoothly. In addition, the company ensures that the tastes of all customers are taken care of by producing products of different types and sizes, and ensuring there is sanity when marketing the products. It is in this view, that products like Nescafe, Kit kat candy bar, Perrier sparkling water, and Buitoni spaghetti have become some of the best-selling products in the global market. Customer satisfaction has always been the key to the success of Supply Chain Management and a conduit through which a company’s competitive advantage and profitability are achieved (Rosenthal 2001). Moreover, running of all activities from the time of sourcing raw material to the time the finished products reach the consumer is tedious and may also affect the utility of the goods to the consumer – having the right product at the right time and at the right place. Therefore, nestle finds it important to embrace a unified Supply Chain that also ensures the quality of the products is maintained at all times.

Operation Management at Nestle Food Company

According to Rosenthal (2001), Nestle has realized the importance of customer satisfaction as the source for competitive advantage based on the success of Supply Chain Management. Competition is even stiffer today following the emergence of e-trading, forcing companies to act quickly otherwise they find themselves knocked out of the race. Supply Chain Management allows a company to draw value by ensuring free flow of goods, services, and information from the manufacturer to the consumer, with little chance of damage or spoilage especially when it comes to perishable goods or fragile goods. This is despite the ever-increasing costs of outsourcing experienced all over.

Nestlé’s operation management success is tailored around the concept of innovation and renovation whereby, new product ideas are continuously being developed to cater to the dynamic market while at the same time improving and strengthening the existing products to suit the tastes of the target market. This is coupled with embracing global strategies that go beyond a commitment to cultural and social diversity, not forgetting the pragmatic and dogmatic business approach employed. For example, the success of the Nescafe brand has been born through Nestlé’s sensitivity to the cultural needs of the target market where different flavors and formulations are being made in order to suit the tastes of the local market. Through innovation and renovation, Nestle becomes open to dynamic technological, market behavior, and opportunity trends without overlooking the basic human values and attitude (Nestle Management and Leadership principles 2003).

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Long-term success can easily be achieved by engaging in sound business practices. Through its GLOBE initiative, it has always been a priority for Nestle to build a winning culture comprised of sound profits and value to all its stakeholders. Creating standards on how operations have to be carried out have eliminated the hassles of management control and also has made the work of reports consolidation well cut out. The initiative addresses three key areas of standardizing processes, standardizing data, and standardizing the systems. This means that what is being done in one country is no different from what is done in another country, including conducting sales, factory scheduling, making management reports as well as reporting financial results. However, local legal circumstances and emergencies may provide an exception.

Responsibility for protecting the quality of products rests with the company and therefore, Supply Chain Management is important. According to Rosenthal (2001), Nestle has to protect its image by taking responsibility for its Supply Chain, taking into consideration that, consumers will base the product quality on the company whose logo appears on the product regardless of who supplied the product.

In recognizing the importance of SCM, Nestle has been able to outsource its distribution activities. For instance, the Nestle Chile SA unit contracted Ryder System Inc for distribution and transportation management services, while Nestle USA entered into a transportation management contract with RedPrairie. These are some of the contracts that are aimed at making distribution of Nestlé’s products to be done without delay, putting in mind that, Nestle is in the food industry where products are prone to spoilage if not delivered to the consumer on time, and where quality is second to nothing.

The emergence of e-Marketplace has allowed companies to efficiently manage the Supply Chain. Nestle sees the evolvement of different exchanges as an opportunity to improve performance and has made the change of its IT infrastructure as number one step towards interfacing with the new marketplaces. However, due to the many players in the food industry, embracing e-marketing has been slower than for other industries with fewer players, with outsourcing being made more on IT infrastructure. One notable benefit of e-marketplace is increasing efficiency in the management of the Supply Chain, while most companies will be tied to the decision about which e-Marketplace to join.

Procurement remains one of the most important functions as it forms the initial stage of any business that will be carried out. Nestle has taken this idea into account by entering into e-procurement. The efficiency of production will be attributed to the kind and quality of inputs used which will as well affect the quality of the products released to the market. The contract entered into between Nestle and FreeMarkets Inc. was aimed at providing Nestle access to its B2B (Business to Business) Global Marketplace to source goods across the American market for use in its operation. A well-established procurement outsourcing allows the suppliers to be effective, while good communication that allows feedback on delivery date and quality helps in effective management of inventory and output.

Sound operation strategies by Nestle have ensured the company takes the first position in the global food industry. This has been contributed by the realization that competitive advantage can be easily achieved through assurance of quality, dependability, flexibility and the price offered to the consumer. In addition, the production system must be efficient in order to efficiently manage the supply chain, maintain the correct levels of inventory and minimize wastage. The underlying factor in the successful production system is the cost of production which should be as low as possible when the company is in its optimal capacity. According to Slack et al (2007) operations management may be challenging, yet it is core to the success of business performance in the company.

Nestlé’s operation management model is based on the tenets of upholding human values and principles, making it one of the best-managed outfits in the globe. With a turnover of over US$100 annually, nestle dedicates much of its earnings to the management of research and development activities. This is coupled with a well-managed supply chain built around the GLOBE initiative that has hit the global market with a storm.

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Nestlé’s Middle East units are the latest to integrate their operations into the GLOBE system. In doing so, Nestle had to outsource a supplier for an integration platform that would integrate the SAP system with the various management systems across the Middle East units. In this regard, Supply Network Solutions (SNS) was contracted to manage the integration project that required integration of the various import/export and stock reconciliation interfaces with the SAP system. With its credible supply chain services in logistics, system integration, and project management as well as professionalism in solution development, SNS stands out to ensure the success of the GLOBE program and world-class integration solution in nestling (1888PressRelease, 2009).

Recommendations on improving operation management at Nestle

The key to success at Nestle has been the efficiency in its operational management and a business initiative that addresses the importance of an effective supply chain. This has been reinforced by the company’s tendency to put human needs fulfillment at the peak of its priorities. However, the dynamic trend in the global market arena necessitates improvement in innovation practices through research and development as part of the company’s operation management. This will ensure the company in question stays abreast with the ever-evolving global market. According to Kleindorfer (2005), ensuring the success of sustainable operation management through integrating the profit and efficiency orientation of the existing operation management is of paramount importance, as much as is the sensitivity of the company to all its stakeholders’ welfare and socially responsibility. Technological prowess dictates the limit to which an organization can stretch to tap the most lucrative, yet competitive opportunities in e-commerce. Although Nestle has taken the front line in technological advancement through its e-procurement, e-marketing, and technologically integrated operations and information systems, a lot of improvement is required to invigorate the sustainability of its operation management.

Operation management at nestle can not be complete without elaborate logistical strategies that revolve around all pillars of the supply chain. Frazelle (2001) defines logistics as “the activities (transportation, warehousing …) that connect and activate the objects in the supply chains”. Although logistics may be simply regarded as a means of creating a utility to the consumer through efficiency in distribution, its success can not be achieved without having to balance the various variables involved that include efficient inventory management, sound procurement/purchasing practices, and elaborate risk management strategies. According to Ballou (2004), planning, organizing, and controlling are essential for the success of logistics in the supply chain. The diverse consumer needs have to be satisfied through efficient management operations. The most efficient way to achieve this is by diversifying the means through which goods find their way to the consumer while management control remains flexible. This implies that there is a need for improvement in the way the supply chain is managed. Indeed, Hartmut and Kilger (2007) claim that “measures should be assigned in the supply chain to evaluate changes and assess the performance of the complete supply chain as well as individual processes.”

References

Ballou, R. H. (2004) Business logistics/supply chain management: planning, organizing, and controlling the supply chain. NJ, Pearson/Prentice Hall.

Frazelle, E. (2001) Supply chain strategy: the logistics of supply chain management. NY, McGraw-Hill Professional.

Hartmut, Stadler and Kilger, Christoph (2007) Supply chain management and advanced planning: concepts, models, software, and case studies. 4th Edition. NY, Springer publishers.

Kleindorfer, Paul et al. (2005) Sustainable Operations Management. Production and Operations Management. (Online). Vol. 14, No. 4, 2005. Web.

Nestle Management and Leadership Principles (2003) Nestle Management and Leadership Principles. Web.

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Resource.axd (N.d) Nestlé’s History. (Online). Resource.axd. Web.

Rosenthal, B. E. (2001) Supply Chain Management: Nestle is Quick to Adopt EProcument. (Online). OutsourcingCenter.

Slack, Nigel et al. (2007) Operations management. 5th Edition. NJ, Prentice Hall/Financial Times publishers.

Steinert-Threlkeld, T. (2006) Nestlé Pieces Together Its Global Supply Chain. (Online). Projects: processes-Baseline. Web.

1888PressRelease (2009) Nestle Streamlines It’s Supply Chain Operation with SNS Integration Services. Web.

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