Tuesday, February 11, 2014

Good network, good life- Nestle’s supply chain network

Nestle has been consistently ranked among top 25 in the Gartner supply chain report for the past three years, thanks to our friend’s blog "Top 25 supply chains for 2013,2012and 2011".

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. Let’s discuss a few of them today:

In mid-2013, Nestle announced that it was building a new storage and shipment facility in Vietnam. Along with it, it also started using warehouse logistics as a way to make its supply chain more effective. This was a smart move because the world’s largest coffee bean producing countries such as Brazil, Colombia and Indonesia are not actually the biggest consumers, but on the other hand Vietnam produces more robusta beans than any other place and the country has a rapidly growing coffee-drinking population. So, this strategy makes Nestle store the beans grown in the region and also cater to the local population which is a potential large market for them.

Although building a warehouse in a growing market doesn’t seem to be a cutting edge supply chain network strategy, there are quite a few takeaways at every company should think about while designing their supply chain network and logistics such as market diversification, guarding one’s revenues from unexpected supply chain disruptions and saving fuel and shipping costs.

Another new strategy developed by Nestle in conjunction with Total Logistics consultants has been implemented in the distributions sites in UK. Nestle UK has been distributing from three sites: Bardon in Leicestershire, Scunthorpe in Lincolnshire and York in North Yorkshire. Nestle UK wanted to revisit its three-site strategy and come up with a better distribution network for their wide range of wet, dry, water, coffee, water, confectionery and perishable goods. Coupled with the expansive nature of products is their large number of end-markets and huge seasonal demands for confectionery products during Christmas and Easter. 

From a supply chain modelling perspective, it is a complex project since it included an analysis of in-bound and outbound flows, transport costs, road links and inventory issues and to top it off, risk and service factors created by any new network proposed were also to be considered. So various analyses were carried out such as the cost-benefit analysis of keeping export and seasonal confectionery streams in the same facility and quality assurance involved in keeping the confectionery items in ideal temperature and humidity. An assessment model was created taking all these analyses into consideration and 16 different scenarios were developed.

 Based on the results of analysis, a twin site model with centralization in Bardon site was developed. Scunthorpe site was closed and risk management strategy was developed for Bardon-centralized twin site model. This has reduced the overall cost of distribution and enabled the company to combine its business streams and product supply chains to create far greater flexibility.

Nestle now has a much more robust logistics operation enabling it to deliver more frequent and low-volume drops to retailers and other players in the supply chain network. Additionally, the design of Brandon site was given a lot of emphasis by implementing strict fire protection, security and communications infrastructure since unexpected failures in the main site can potentially disrupt various key components of a supply chain network such as product availability, response time, time to market, order visibility, transportation etc. which ultimately ruins customer experience which is the single most important factor of success for any business.

What else do you think Nestle can do to improve your experience and make you say “Good food, good life”?

1) http://www.total-logistics.de/logistikkunden/fallstudien/nestle-consolidation.html
2) https://www.globalreporting.org/resourcelibrary/Interview-Nestle.pdf
3) http://www.rfgen.com/blog/bid/304055/Nestle-Incorporates-Warehouse-Logistics-to-Improve-Coffee-Supply-Chain

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