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UNIT
MAN6920.2015.1.ONCAM

NAME OF STUDENT

STUDENT
ID NO.

Hassan Sajjad

10328167

PUS Supply Chain

Management

NAME OF LECTURER

DUE
DATE

Professor Paul Alexander

Topic of assignment

Nescafe Supply Chain Management

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CAMPUS

Course
MASTERS OF MANAGEMENT
INFORMATION SYSTEMS

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18/05/2015

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Executive Summary
Supply chain management is the process of planning and management of all
activities which starts at acquiring of raw materials and finishes at delivering the
end product to consumers. This report aims to discuss the supply chain
management system of Nestls very famous brand Nescafe.
As Nestle is the largest food and beverage company in the world and offers wide
range of products to all age groups. Since its origin in 1866, the company has been
providing its customers with healthy and nutritious products thus living up to its
slogan, Good food, Good life. Nescafe in coffee industry became a giant since it
launched back 1938, and is now established in 180 countries all over the world. It
has a well managed supply chain network with strong links throughout its supply
chain cycle. According to Forbes, the Nescafe brand as of May 2015 has a net worth
of $17.3 Billion.
Nestls supply chain management stands at number 21 in Gartners Top 25 supply
chains globally. Nescafe practices different supply chain methods in different parts
of the world to suit needs to different customer preferences and tastes. Though the
general supply chain practice followed by Nescafe includes Procurement,
Manufacturing, Distribution Centers, Retailers and then the end product delivered to
consumers which is the discussed in detail as you would find it in the report. A very
important supply chain management principle, Push-Pull Boundaries along with
Upstream and Downstream process of supply chain management is also explained
in this report.
After analysis and detailed discussion of Nescafes supply chain management
practice a conclusion has been drawn upon which several recommendations have
also been suggested to further improve Nescafes existing supply chain
management practice.

Introduction
The objective of this academic report is to examine the Supply Chain Management
practice for one of the brands of Nestle, Nescafe. Chapter 1(Executive Summary) of
this report will be the executive summary which will briefly explain the introduction,
company profile, analysis and conclusion so the reader will have an overview of
what this report is about before they start reading. In chapter 3 (Company Profile) of
this report, we will discuss a couple of things related to Nescafe which includes a
brief history of the parent organization Nestle, the birth of Nescafe, its
organizational structure, revenue information, different Nescafe products, its
manufacturing centers, distribution centers and warehouses etc. Furthermore this
information will be used in chapter 4(Analysis) to further elaborate the different

Supply Chain practices implemented by Nescafe

among different parts of the world according to
region and personal needs. Very important concept
of Supply Chain Management which is Push-Pull
boundary principle and also Upstream and
Downstream supply chain management process will
also be discussed in this chapter. In chapter 5
(Conclusion) which is the conclusion part of the
report, we will analyze our findings and will come up
with recommendations if there are any for the
current Supply Chain Management practices of
Nescafe.

Company Profile
Nestle, the largest Food and Beverages Company today in terms of revenues was
founded in 1866 by Henri Nestle in Vevey, Switzerland where its headquarters are
still located. Currently Nestle employs 333,000 people in 194 countries and has 447
factories all over the world. ( "Nestle's SWOT Analysis," n.d .) Nestl describe its mission
statement as Our mission of "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. (Nestle, 2014) Being the
worlds largest food and beverages company, Nestle produces a wide range of
products which includes coffee, breakfast cereals,
Figure 1 Newspaper advert
baby food, confectionary, frozen foods, pet foods,
from Switzerland in 1938, one
of the first campaigns launched tea, ice cream, snacks and dairy products. Some of
from Nescaf
market dominant products include Nescafe,
Nespresso, Purina, Friskies pet food and Kit Kat etc. In this report we will be
discussing Nescafes supply chain management practices in detail.

Nescafe
The idea of soluble coffee started in 1929 when Louis Dapples, the Chairman of
nestle at the time was given a responsibility by his former employer Banca
Commerciale Italiana to make soluble coffee cubes out of the coffee beans stock
owned by the bank was sitting in Brazil at the time. Expertise of a chemist named
Dr. Max Morgenthaler was acquired by the company for this special task. After eight
years of research and experimentation, Dr. Max came up with a soluble coffee
solution which could be made by just adding water while keeping its natural flavors.
This soluble coffee product was named Nescafe as Nes after Nestle and meant
Miracle and caf means coffee hence miracle with coffee was first launched in
Vevey, Switzerland on Ist April 1938.
Two months later the product was launched in UK and was later rolled out in United
States by 1939. By 1940 Nescafe was available in 30 countries worldwide including

Australia though local production of Nescafe in Australia started in 1948. Today the
company has more than 75 years of expertise in providing best coffee experience to
its consumers all over the world. Nescafe is the market dominating giant today as
more than 5500 cups of Nescafe instant coffee are consumed per second all over
the globe and is present in more than 180 countries at the moment with potential to
grow by every passing day. (Nestle, 2013)

Product Categories
Nescafe has many product categories which include premium and non-premium
brands as they are being offered to different consumers in different parts of the
world. Some of the product categories are listed below. (Nescafe, 2015)
Nescafe Original: Rich and full flavored
Nescafe 3 in 1: Sweet and Creamy
Nescafe Espresso: Rich, intense and short
Nescafe Alta Rica: Rich, bold and smouldering
Nescafe Cap Colombie: Smooth and fruity
Nescafe Gold Blend: Smooth taste, rich aroma
Nescafe Green Blend: Roasted and unroasted coffee beans
Nescafe Cappuccino: Light and frothy
Nescafe Original Decaff: Medium dark roast
Nescafe Gold Blend Decaff: Golden roasted

Nescafe falls under Beverage Strategic Business Unit at Nestle and works closely
with the headquarters in Switzerland to achieve its goals. According to the (Forbes,
2015), Nescafe brand value as of May 2015 is $17.3 Billion. Nestle global sales
recorded for full year 2013 were CHF 92.9 Billion with an increase of 2.7% from
previous year and Nescafe was a major contributor. (Nestle, 2013)

Warehouses, Manufacturing & Distribution Centers

Nescafe being a global brand has its warehouses, manufacturing and distribution
centers all over the world. Though working of these facilities differ from one region
to another. For example in Nigeria, company has several small warehouses rather
than having a central warehouse which is usually the case in most countries. Also
the trucks carrying company products are only allowed to travel in the day usually
with the arm guards because of the security reasons in the country. In other
example of China, when the company first started its manufacturing operations in
the country back in 1987, they soon realized that the road and the rail infrastructure
in the country was inadequate for the collection and the delivery of raw materials
and finished products. To counter this problem company established its own
distribution network known as milk roads. ( Guruvayurappan, n.d.)

Nescafe Supply Chain Analysis

Nestle is the world leading Nutrition, Health and Wellness company currently
employing 333,000 people in 194 countries and has 447 factories all over the world
while owning 8000 brands relating to almost all sects of life. To deliver its wide
range of products to its consumers, Nestle has one of the most successful supply
chain management systems in place. According to (Gartner, 2013), Nestle stands at
number 21 in The Gartner Supply Chain Top 25 in the whole world. Though
different supply chain practices are tailored to suit different products and different
regions accordingly.

Nescafe being the major brand of Nestle is now established in more than 180
countries. To deliver its instant coffee product to its customers, Nescafe has an
established supply chain management system to dominant the market and fulfill its
customer needs. As explained earlier, Nescafe practices different supply chain
techniques to meet the needs of different regions but the general supply chain
technique practiced by Nescafe is explained in the figure below.

Procurement

Manufacturer

Distribution
Center

Retailer

Consumer

Figure 2 Nescafe Supply Chain Management Structure

Procurement
Procurement is the first step in Nescafe supply chain management system. Nescafe
or Nestle doesnt grow the coffee beans used for making coffee but buys the
product from farmers instead. Usually these are small farmers who own 2-3
hectares of land where they grow coffee and then sell it directly to Nestle or through
intermediaries. For coffee growers to sell their coffee directly to Nestle is very
attractive as they get more value for their product than selling it to dealers but it is
impossible for Nestle to buy all their coffee from farmers directly. Though Nestle
prefers to buy their coffee directly from producers where they can as they want to
the farmers to get the maximum value of their product as Nestle only prefers the
premium product and pay premium price for it and this also ensures regular
supplies with guaranteed quality product. Nestle started buying direct from farmers
back in 1986 and today stands as the largest direct buyer in the world. In countries
like Thailand, in 1998 green coffee beans bought directly from the farmers for its
local factories accounted for 90%. Whereas in countries like UK, it is impossible for

company to buy directly from farmers so farmers sell it to dealers and get the
minimum price set by Nestle at the time. (Buying Direct Coffeen.d.)

Manufacturing
Manufacturing is the second step in Nescafes supply chain management system.
Here the raw material or coffee beans are delivered to the factories so that it could
be processed towards the finished goods. Nestls Nescafe Plan is a global initiative
taken by company towards responsible production as $195 million have already
been spent towards the cause in last 10 years. (David, 2010) The purpose of
Nescafe Plan is to reduce the environmental footprints and employing cleaner and
natural energy resources. The company really strives to produce top of the line
product on any cost and delivering best value to their customers according to their
mission statement. After the product is ready, it will be packed into air tight jars and
other forms and is ready to be shipped to warehouse and distribution centers.

Distribution Centers
This is the third step in the Nescafe supply chain management system. The finished
product from the manufacturing facilities gets delivered to warehouses and
distribution centers. Here the demand of the product is already noted down from
retailers and then the stock is compared to the demand at the moment. The
distribution center then advises manufacturing facilities of future forecasts. This
product on hand from distribution centers is then dispatched to its destination so
that it could get to the end consumers.

Retailers
This is the fourth step in the Nescafe supply chain management system. Here the
Nescafe products are replenished on the shelves alongside its competitor brands.
Retailers act as the middle entity between Nescafe and its consumers. As retailers
or wholesalers are major part of the supply chain so they are entitled to certain
perks. These perks include that company offers discounts to wholesalers and also
company provides small or medium retailers with easy payment options.

Consumer
This is the last step of Nescafes supply chain management system where
consumers utilize the end product. Nestle put consumers at the heart of the
company and value consumers more than shareholders as they are the reason
shareholders came in the first place. Customer satisfaction is the companys priority
and the customers feedback is really valued so the product and the service could
further be improved in the future.

Push/Pull strategy and Boundary

A million dollar question for any supply chain manager today is whether which
strategy to adapt between push and pull.
Push: Supply chain strategy based on push based system is usually recommended
for products with small demand uncertainty as the forecast lays out what to produce
and keep in inventory and also for products with high importance economies of
scale in reducing costs. It has higher lead time.
Pull: Supply chain strategy based on pull based system is usually recommended for
the products which have high demand uncertainty and with low importance of
economies of scale. It has less lead time.
Push-Pull Boundary: Push based systems are forecast driven where pull based
systems are demand driven and interface between them is called push-pull
boundary.

(Sehgal, 2009)
Most commonly used practice by Nestle for Nescafe is push strategy because
Nescafe product consumptions are relatively higher than other Nestle products.
Nestle strives on product quality and its availability at all costs to its customers, so
keeping the product on the retailer shelves alongside its competitors is the ultimate
goal no matter the circumstances. In 2013, Nestle announced that they are building
a new storage and shipping facility in Vietnam. This was a very smart move as it
served two purposes, first they will store the beans grown in the country and
neighboring countries like Brazil and Colombia. Second they can target the growing
coffee drinking population in the country. (Master, 2013)
Delivering the Nescafe products to its customer has several stages and each stage
has its own significance. For example acquiring quality coffee beans is the first step
which requires careful considerations of quality farmer product, demand projection

and pricing strategy according to the circumstances which could be affected by bad
crops or any other reasons. Second step is to take this raw material to the factories
for manufacturing and processing it to the finished product while meeting the
forecast criteria. At this point any issues like manufacturing delays or increased
demand if the winter is approaching can be crucial to product success or setbacks.
After this the finished product is ready to move to the warehouses and distribution
centers where orders are already lined up to deliver the finished products to
retailers and wholesalers. A delay at this point might cause company to lose
revenues if the product is not delivered on time retailers or the company couldnt
meet the increased demand levels. So the above discussion reveals that push
strategy is better suited for Nescafe rather than pull strategy.

Pull process
Custome
r

Retailer

Customer order
cycle
Replenishment
cycle

.
Boundary
Distribut
or

Manufacturing
cycle

Manufact
urer

Push/Pull

Push Process

Procurement
cycle

Supplier
(Munna, n.d.)
As you can see from the figure that push-pull boundary falls between retailer and
distributer. The retailer order more products when previous product is moved from
store shelves bought by customers. Though push strategy is becoming less affective
by every passing day because of the increasing inventory and transportation costs.
Nestle is now slowly moving from push strategy to pull strategy gradually
considering the cost and benefit analysis. Recently Nestle acquired the services of
Total Logistics as they previously had three sites in UK but with the help of Total
Logistics, Nestle redesigned the supply chain system by shutting one site and
making the remaining two sites more efficient and productive to provide better

customer services and also saving cost of running an extra site as well. (Total
Logistics, n.d.)

Upstream and Downstream of Push-Pull Boundary

Upstream Process: The upstream process in supply chain management includes
searching and acquiring raw materials.
Downstream Process: The downstream process in supply chain management
includes processing that raw material into finish goods.
Nescafe supply chain management push-pull boundary falls between distribution
centers and retailers and push-pull boundary helps us to recognize the part of
organization working towards customer orders from the part which plans
production. Downstream from push-pull boundary is influenced by customers as
they are demand driven while upstream from push-pull boundary of supply chain is
forecast driven. Therefore the upstream falls in the push area of push-pull boundary
because it is forecast driven and downstream falls in the pull area of push-pull
boundary because it is market driven. (Chung, July, 2008)

Conclusion
The complexity associated with todays supply chain management process is
increasing by every passing due to increase in customer demand and global
competition. Though Nestle is managing its supply chain practice efficiently enough
that it falls at number 21 at The Gartner Supply Chain Top 25. But as our research
showed many positive aspects of Nescafe supply chain management, there is still
room for improvement. Positive aspects include having a strong brand name with
heaps of loyal customers all over the globe mostly because the quality of product
and its availability. They also have strong relationship throughout the supply chain
including suppliers, distributors, retailers and consumers creating shared value for
all stakeholders. Taking in account all aspects of this research, we propose following
recommendations.

Recommendations

They should look for new markets and instead of producing themselves from
the start, the better way would be acquiring and merging with already
established firms which will also eliminate in the threat of new competitors.
Another wise thing to do would be investing in youth especially in under
developed countries where there is lot of potential but many opportunities,
this move will benefit company in the long run.
As the fuel costs are increasing with every day passing, company should
invest in warehouses which should be close to farmers and consumers.

Company should also expand their scope to rural areas where growth of
Nescafe products is very promising.
Also the issue of child labor, working conditions of company employees and
paying minimum wage to employees in under developed countries should be
handled with more delicacy.

References:
http://en.wikipedia.org/wiki/Nestl%C3%A9
http://www.nestle.com.au/aboutus
http://www.nestle.com/media/newsandfeatures/nescafe-75-years
Nescafe. (2015). Products - Our Coffees - NESCAF COM. Retrieved from
http://www.nescafe.com/products_flash_en_com.axcms#/?content=overview

Forbes. (2015). Nescafe on the Forbes World's Most Valuable Brands List. Retrieved
from http://www.forbes.com/companies/nescafe/

Nestle. (n.d.). Retrieved from

http://www.nestle.com/media/pressreleases/allpressreleases/full-year-results-2013
Guruvayurappan. (n.d.). Nestl: Global Strategy INTRODUCTION | Saranya
Guruvayurappan - Academia.edu. Retrieved from
http://www.academia.edu/5366973/Nestl%C3%A9_Global_Strategy_INTRODUCTION
The Gartner Supply Chain Top 25 for 2013. (n.d.). Retrieved from
https://www.gartner.com/doc/2493115/gartner-supply-chain-top-#1739401341

Buying Direct - Coffee - The Supply Chain - Nestl | Nestl case studies, videos,
social media and information | Business Case Studies. (n.d.). Retrieved from
http://businesscasestudies.co.uk/nestle/coffee-the-supply-chain/buyingdirect.html#axzz3aPJa6oN8

David. (2010, August 31). Nestle to Spend $487M on Sustainable Coffee Supply
Chain Environmental Leader Environmental Management & Sustainable
Development News. Retrieved from
http://www.environmentalleader.com/2010/08/30/nestle-to-spend-487m-onsustainable-coffee-supply-chain/
Supply Chain Management: Considerations for Push or Pull. (2009). Retrieved from
http://www.supplychainmusings.com/2009/10/considerations-for-push-or-pull.html

Master. (2013). Nestle Incorporates Warehouse Logistics to Improve Coffee Supply

Chain. Retrieved from http://www.rfgen.com/blog/bid/304055/Nestle-IncorporatesWarehouse-Logistics-to-Improve-Coffee-Supply-Chain
Munna. (n.d.). Supply Chain Management of Nestle | Kazi Arafat Munna Academia.edu. Retrieved from
https://www.academia.edu/7978765/Supply_Chain_Management_of_Nestle
Total Logistics. (n.d.). Nestle Consolidation Case Study. Logistics Case Studies.
Supply Chain Consultants - Total Logistics, The Complete Supply Chain Consultancy,
UK. Retrieved from http://www.total-logistics.de/logistikkunden/fallstudien/nestleconsolidation.html
http://www.ccsenet.org/journal/index.php/ijbm/article/viewFile/1395/1355