WHAT IS SUPPLY CHAIN?

Supply chain management (SCM) is management of a network of interconnected businesses

involved in the provision of product and service packages required by the end customers in a
supply chain. Supply chain management spans all movement and storage of raw materials,
work-in-process inventory, and finished goods from point of origin to point of consumption.
It defines SCM as the "design, planning, execution, control, and monitoring of supply chain
activities with the objective of creating net value, building a competitive infrastructure,
leveraging worldwide logistics, synchronizing supply with demand and measuring
performance globally."

INTRODUCTION
Nestle India Ltd. is a part of the Nestle SA group which is one of the largest manufacturing
companies in the world. Henri Nestle founded the company (with its headquarters in Vevey,
Switzerland) in 1867. Nestle has two major divisions - Le Societe des Produits which looks
after the production and marketing and Nestec Ltd. which provides the technical assistance to
the group companies. Since its inception in 1867, the company has diversified its product
range from the infant weaning formula (which was its first product) to beverages,
confectionery, ice creams and pet foods among others. In a span of 130 years the company
has ranked 26th among the worlds largest corporations and boasts of a turnover of $48932.5
million and employee strength of 221,144 people spread over 75 countries worldwide.(1)
Nestle India is a subsidiary of Nestle S.A. of Switzerland. Nestle India manufactures a variety
of food products such as infant food, milk products, beverages, prepared dishes & cooking
aids, and chocolates & confectionary. Some of the famous brands of Nestle are Nescafe,
Maggi, Milky bar, Milo, Kit Kat, Bar-One, Milkmaid, Nestea, Nestle Milk, Nestle Slim Milk,
Nestle Fresh 'N' Natural Dahi And Nestle Jeera Raita. Nestle was founded in 1867 in Geneva,
Switzerland by Henri Nestle. Nestle's first product was "Farine Lactee Nestle", an infant
cereal. In 1905, Nestle acquired the Anglo-Swiss Condensed Milk Company. Nestle's
relationship with India started 1912, when it began trading as The Nestle Anglo-Swiss
Condensed Milk Company (Export) Limited, importing and selling finished products in the
Indian market. After independence, in response to the then economic policies, which
emphasized local production, Nestle formed a company in India, namely Nestle India Ltd,
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and set up its first factory in 1961 at Moga, Punjab, where the Government wanted Nestle to
develop the milk economy. In Moga, Nestle educated and advised farmers regarding basic
farming and animal husbandry practices such as increasing the milk yield of the cows through
improved dairy farming methods, irrigation, scientific crop management practices etc. Nestle
set up milk collection centres that ensured prompt collection and paid fair prices. Thus,
Nestle transformed Moga into a prosperous and vibrant milk district. In 1967, Nestle set up
its next factory at Choladi (Tamil Nadu) as a pilot plant to process the tea grown in the area
into soluble tea. Nestle opened its third factor in Nanjangud (Karnataka) in 1989. Thereafter,
Nestle India opened factories in Samalkha (Haryana), in 1993 and two in Goa at Ponda, and
Bicholim in 1995 and 1997 respectively. Nestle India is now putting up the 7th factory at
Pant Nagar in Uttarakhand. Today, Nestle is the world's largest and most diversified food
company. It has around 2, 50,000 employees worldwide, operated 500 factories in
approximately 100 countries and offers over 8,000 products to millions of consumers
universally.

COMPANY PROFILE
Nestle has been associated with India since the beginning of the century through the
importing and trading of infant food and condensed milk, manufacturing in India only began
with the setting up of the factory in Moga in 1962. The first product to be manufactured was
Milkmaid. In the last 35 years the company has shown rapid progress and has increased its
product range to 80 products as of October 1997. Nestle India Ltd. now ranks 22ndamongst
Indias most valuable companies. This remarkable growth has been achieved through Rapidly creating greater manufacturing capacity, both at factories as well as with copackers.
Taking measures to ensure availability and improved quality of key raw materials - fresh
milk in particular.
Strengthening of the sales and distribution network (particularly in smaller towns)
Ambitious and cohesive manpower training and development programs for the personnel of
the company across all disciplines.(1)

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The companys exports also resulted in a very successful year in this area as exports grew by
27% to Rs. 250.8 crores. The main contributors to this increase were the export of tea and
coffee to USA, Japan, Russia, Hungary and Taiwan. Nestle India Ltd. wants to further
increase its operations in India and has started construction of its sixth Factory at Bicholim,
Goa for the manufacture of culinary products.

NESTLES MISSION
To be in every way the leading company in the Indian food industry and a good corporate
citizen by providing our consumers with superior quality products, our shareholders with
rapid growth & fair returns and our employees with a challenging and satisfying work
environment.

PRODUCTS/SERVICES
MARKETING MIX
Product strategy
No matter how effective the promotion and packaging, a firm will find it very difficult to
market a product which fails to satisfy a consumer need. Kit Kat owes much of its success to
a unique dual appeal - as a four-finger chocolate bar, (known in the confectionery trade as a
count line), sold at corner shops and newsagents, but also as a two-finger biscuit sold in
supermarkets. It is a product that has endured because of its wide appeal across the age
ranges and to both sexes. Altering the actual product is potentially a very hazardous act for an
established brand name as it risks altering the consumer perceptions of quality built up over
decades. Tampering with the recognised core qualities could well damage the integrity of the
brand. For Kit Kat, these intrinsic elements of the brand or unique selling points include the:

chocolate fingers
foil and band wrapping, unique in the count lines market and seen as an important

feature which encourages involvement and sharing by consumers

Well-known strap line - Have a Break, Have a Kit Kat.

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In spite of the risks of altering the product, the two finger bar and multipacks were
introduced in the 1960s to meet the increased needs of supermarket shopping and more
recently, Orange, Mint and Dark Chocolate Kit Kats have been available for limited periods.
In the third week that Kit Kat Mint was available, it more than doubled total Kit Kat Sales.
The Orange Kit Kat proved particularly popular with sales of 38 million bars in just three
weeks. It provided very positive market research results. While they are seen as novelties,
they can also be used to provide reassurance and reinforcement of the core attributes of the
original established brand name. Special editions are used primarily as promotional tools.
Market research has shown that consumers prefer special editions to be available for limited
periods only and that consumers are likely to purchase the original Kit Kat at the same time
or shortly after. (They are, therefore, a good way of injecting new life into the Kit Kat product
life cycle). Depending on their popularity, some special editions are introduced more than
once. The Orange Kit Kat has proved so popular that the two-finger multipacks are now
permanently available. Apart from these variants, the intrinsic characteristics of the Kit Kat
product and packaging have changed very little during the last sixty years. Although some
minor, subtle changes have been made in packaging, merchandising and sales promotions, a
Kit Kat from the 1930s would be instantly recognisable to modern consumers today.
Pricing strategy
A key advantage of maintaining a strong brand image in a competitive market is a degree of
flexibility in the pricing strategy. It is a common characteristic of imperfectly competitive
markets for producers to concentrate on non-price competition. When looking at the pricing
strategy for Kit Kat, it can be seen from the figures that the real price has remained
remarkably stable over the last sixty years.
Promotional strategy
Nestl has used a wide range of promotional tactics with Kit Kat. Promotion offers have
included free bars in the multi-bar family packs and an instant win deal with Burger King in
1996. This promotion, where over 75 million free burgers were on offer, increased sales of
Kit Kat by an estimated 30 In 1998, an on-pack promotion featuring 'The Simpsons,' with the
chance to win20,000 cash and hundreds of other prizes, increased sales of Kit Kat by a
staggering 41Advertising plays an extremely important part in the confectionery industry,
with spend approaching 114 million in 1996. They Have a Break, Have a Kit Kat theme

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appeared briefly in1939, but has been the on-going Kit Kat slogan, or strap line, since the mid
1950s. Kit Kat's advertising is concentrated in two media:

television commercials - which follow the well-known Have a Break tradition

Posters - where the powerful colours of the pack and product are used to dramatise the
message. A particular challenge for the advertisers is to appeal to both the consumers
and the purchasers Women account for two thirds of all confectionery sales, but a
large proportion of these purchases are subsequently consumed by children. Men eat
as much as they purchase suggesting they are less generous!

Place strategy
Nestl has developed distribution channels which ensure the availability of Kit Kat to buy
wherever and whenever the consumer wishes to purchase it. Sales of confectionery depend
heavily on its availability, with market research showing that well over 60of all purchases are
made on impulse. Consequently, Nestl tries to supply as many outlets as possible both
wholesaler and retailer channels.

FACTORIES OF NESTLE
These are the factory of Nestle in India:
1. Moga (Punjab):
The Nestle factory in Moga has the pride of being the first and most comprehensive factory
of Nestle India. Set up in1962, it represents the core competence of Nestle India in the
manufacture of milk products (Everyday, Milkmaid), beverages, culinary products (Maggi
sauces, noodles, soups etc.), weaning cereals and infant milk formulae.
2. Choladi (Tamil Nadu):
The factory in Choladi started production in 1967 situated about 60 miles from Calicut. The
factory produces 1.5% of the total turnover of Nestle India. It is a 100 percent export oriented
unit which processes freshly picked tealeaves into soluble instant tea.

3. Nanjagud (Karnataka):
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Production in this factory began in 1989with the manufacture of Nestle instant coffee and
Sunrise. Today in addition to instant coffee the factory also manufactures health beverages.
The plant to manufacture MILO was also commissioned at this factory.
4. Samalakha (Haryana):
This factory was set up in 1993. Located 70 kilometres from Delhi , it manufactures weaning
cereals , culinary products ,health beverages and milk products. Recently the expansion of
manufacturing capacity for Milkmaid Dessert Mixes was undertaken at this factory as this
new and unique product category is viewed to have great potential in the future.
5. Ponda (Goa):
This Kit-Kat factory was set up in Goa in 1995 at a cost of Rs. 50 crores. It represented a
major step by Nestle towards becoming the Number 1 Chocolates and Confectionery
Company in India.

SUPPLY CHAIN MANAGEMENT

Supply Chain Management is absolutely critical to rapid growth. Through BECA, Nestle has
concentrated heavily on streamlining and improving their supply chain management in order
to make it more dependable, more cost effective and most importantly, more responsive to
market needs. For better supply chain integration the planning of key operations - purchase,
production, distribution and sales are synchronised to ensure that everybody works towards a
common business plan. Monthly objectives are broken down into weekly and (wherever
necessary) into daily plans and monitored regularly to ensure smooth implementation and
quick corrective action when needed . Major benefits accrued thus far include reduction in
working capital through lower inventories of finished goods and materials, better stock
availability and reduction in obsolescence of materials. In addition to traditional performance
indicators, quantifiable performance measures have been identified and implemented in all.

Supply chain flowchart of Nestle

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NESTLE

Production canter

Factory1
(Haryana)

Factory2
(Pune)

Factory1
(Banglore)

DISTRYBUTION CHANNEL

RETAILERS ALL OVER INDIA

CUSTOMERS

Nestle Supply Chain

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Farmers milk buffalo

Nestle factory

Nestle factory

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Nestle village milk centre

Milk poured in chums

Milk reception and cooling centre

Nestle warehouse

Nestle retailers

Nestle milk pack customer

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Responsible Sourcing of Nestle

Source: www.nestle.com
Nestle India plans to optimize coffee supply chain Nestle India has launched one of its global
programmes - Nescafe Plan - to shore up coffee farmers and help it optimize its coffee supply
chain. Under the Nescafe Plan, the company has introduced its first Nescafe coffee demo
farm and training centre in Karnataka. The farmers will get help to improve quality,
productivity and sustainability of the coffee crop through this coffee demonstration farm. The
company's research and development team aims to offer farmers high yielding, disease
resistant plantlets suitable for Indian conditions. Through the initiative, the company will
source coffee sustainably by working with Indian coffee farmers. (Source: Ace Equity)

MARKETING STRATEGY
Nestle has adopted a four pronged growth strategy: 1. Gunning the market with new products and brand extensions.

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2. Expansion of the distribution network to small towns for extensive availability.

3. Reduce prices and introduce smaller packages for products to make them more affordable
(a tool to enter price sensitive markets).
4. Focus on employ training and develop a positive attitude through enhanced manpower
development.

SWOT ANALYSIS
Strengths

Parent support- Nestle India has a strong support from its parent company, which is
the worlds largest processed food and beverage company, with a presence in almost
every country. The company has access to the parents hugely successful global folio

of products and brands.

Brand strength- In India, Nestle has some very strong brands like Nescafe, Maggi

and Cerelac. These brands are almost generic to their product categories.
Product innovation -

The company has been continuously introducing new products for its Indian patrons on a
frequent basis, thus expanding its product offerings.
Weakness
Exports- The Company is exports stood at Rs 2,571 m at the (11% of revenues) and
continue to grow at a decent pace. But a major portion of this comprises of Coffee (around
67% of the exports were that of Nescafe instant to Russia). This constitutes a big chunk of the
total exports to a single location. Historically, Russia has been a very volatile market for
Nestle, and its overall performance takes a hit often due to this factor.

Supply chain- The company has a complex supply chain management and the main
issue for Nestle India is traceability. The food industry requires high standards of
hygiene, quality of edible inputs and personnel. The fragmented nature of the Indian
market place complicates things more.

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Opportunities
Expansion- The Company has the potential to expand to smaller towns and other
geographies. Existing markets are not fully tapped and the company can increase presence by
penetrating further. With India's demographic profile changing in favour of the consuming
class, the per capita consumption of most FMCG products is likely to grow. Nestle will have
the inherent advantage of this trend.
Threat:

Indications of shift in consumer spending towards asset building and non-food related

life style changes, diverting consumer demand for FMCG products.

Rising prices of raw materials and fuels.
Change in fiscal benefits.

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REFRENCES
1. http://www.nestle.in/aboutus/Pages/PresenceAcrossIndia.aspx
2. http://www.nestle.com/Common/NestleDocuments/Documents/Libra
ry/Documents/Corporate_Governance/Corporate-BusinessPrinciples-EN.pdf

3. http://www.iloveindia.com/economy-of-india/top-50-companies/nestleindia.html
4. http://www.candyandsnacktoday.com/archives/2009/10/nestl-invests-4567min-sustainability.shtml#
5. Vipul, BBA(GEN),A Project Report on Nestle

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