2011

SDMIMD

SUBMITTED BY: ASEEM A KABIR PGDM NO: 11007 SECTION A PGDM 2011-13 SUBMITTED TO: Dr. R. JAGADEESH

TABLE OF CONTENTS
INTRODUCTION ....................................................................................................................................... 2 HISTORY: ............................................................................................................................................. 2 PROMOTERS AND OWNERS: ............................................................................................................... 4 NESTL INDIA: ..................................................................................................................................... 6 PRESENCE ACROSS INDIA: ................................................................................................................... 6 PRODUCTS IN INDIA: ........................................................................................................................... 7 PERFORMANCE: .................................................................................................................................. 7 ACHIEVEMENTS:.................................................................................................................................. 8 OPERATIONS STRATEGY ........................................................................................................................ 10 THE TEN PRINCIPLES OF BUSINESS OPERATIONS: ............................................................................ 10 SUPPLY CHAIN: .................................................................................................................................. 11 THE FOUNDATION FOR SUSTAINABILITY AND CREATING SHARED VALUE: ...................................... 12 PROBLEMS FACED & MEASURES TAKEN: .......................................................................................... 13 PRODUCTIVITY ...................................................................................................................................... 14 SECTOR TRENDS: ............................................................................................................................... 14 Industry Expectations ....................................................................................................................... 14 Analysts/market expectations : ........................................................................................................ 14 Outlook: ............................................................................................................................................ 15 COMPETITIVENESS ................................................................................................................................ 16 INDUSTRY - FOOD AND DAIRY PRODUCTS MULTINATIONAL ........................................................ 16 Issues and Challenges: ...................................................................................................................... 16 Consistency in Ranking: .................................................................................................................... 17 FORECASTING........................................................................................................................................ 18 NAVE APPROACH: ............................................................................................................................ 18 MOVING AVERAGE METHOD: ........................................................................................................... 19 WEIGHTED MOVING AVERAGE: ........................................................................................................ 19 EXPONENTIAL SMOOTHING: ............................................................................................................. 20 TRENDLINE ANALYSIS: ....................................................................................................................... 22 COMPARING THE METHODS APPLIED: ............................................................................................. 22 QUALITY CHECK OF THE REPORT .......................................................................................................... 23 REFERENCES .......................................................................................................................................... 24

INTRODUCTION
Nestle is the world's leading Nutrition, Health and Wellness company. The 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 believes that leadership is about behaviour, and we recognise that trust is earned over a long period of time by consistently delivering on our promises. It is only possible to create long-term sustainable value for our shareholders if the behaviour, strategies and operations also create value for the communities where we operate, for the business partners and of course, for the consumers. Nestle calls this principle as 'creating shared value'. The Nestl Corporate Business Principles are at the basis of the companys culture, developed over 140 years, which reflects the ideas of fairness, honesty and long-term thinking. The Company was founded in 1866 by Henri Nestl in Vevey, Switzerland, where the headquarters are still located today. Nestle employs around 280 000 people and have factories or operations in almost every country in the world. Nestl sales for 2010 were almost CHF 110bn.

HISTORY:
The company dates to 1867, when two separate Swiss enterprises were founded that would later form the core of Nestl. In the succeeding decades, the two competing enterprises aggressively expanded their businesses throughout Europe and the United States. In August 1867, Charles and George Page, two brothers from Lee County, Illinois, USA, established the Anglo-Swiss Condensed Milk Company in Cham. Their first British operation was opened at Chippenham, Wiltshire, in 1873. In September 1867, in Vevey, Henri Nestl developed a milk-based baby food, and soon began marketing it. The following year, 1868, saw Daniel Peter begin seven years of work perfecting his invention, the milk chocolate manufacturing process; Nestl's was the crucial cooperation that Peter needed to solve the problem of removing all the water from the milk added to his chocolate, and thus preventing the product from developing mildew. Henri Nestl retired in 1875, but the company, under new ownership, retained his name as Farine Lacte Henri Nestl. In 1877, Anglo-Swiss added milk-based baby foods to its products, and in the following year the Nestl Company added condensed milk, so that the firms became direct and fierce rivals.
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In 1905, the companies merged to become the Nestl and Anglo-Swiss Condensed Milk Company, retaining that name until 1947, when the name Nestl Alimentana SA was taken as a result of the acquisition of Fabrique de Produits Maggi SA (founded 1884) and its holding company, Alimentana SA of Kempttal, Switzerland. Maggi was a major manufacturer of soup mixes and related foodstuffs. The companys current name was adopted in 1977. By the early 1900s, the company was operating factories in the United States, United Kingdom, Germany and Spain. The First World War created new demand for dairy products in the form of government contracts, and by the end of the war, Nestl's production had more than doubled. After the war, government contracts dried up, and consumers switched back to fresh milk. However, Nestl's management responded quickly, streamlining operations and reducing debt. The 1920s saw Nestl's first expansion into new products, with chocolatemanufacture becoming the company's second most important activity. Nestl felt the effects of the Second World War immediately. Profits dropped from US$20 million in 1938, to US$6 million in 1939. Factories were established in developing countries, particularly in Latin America. Ironically, the war helped with the introduction of the company's newest product, Nescaf ("Nestl's Coffee"), which became a staple drink of the US military. Nestl's production and sales rose in the wartime economy. The end of World War II was the beginning of a dynamic phase for Nestl. Growth accelerated and companies were acquired. In 1947 came the merger with Maggi, a wellknown manufacturer of seasonings and soups. Crosse & Blackwell followed in 1950, as did Findus (1963), Libby's (1971) and Stouffer's (1973). Diversification came with a shareholding in L'Oral in 1974. In 1977, Nestl made its second venture outside the food industry, by acquiring Alcon Laboratories Inc. In 1984, Nestl's improved bottom line allowed the company to launch a new round of acquisitions, notably American food giant Carnation and the British confectionery company Rowntree Mackintosh in 1988, which brought the Willy Wonka brand to Nestl. The first half of the 1990s proved to be favourable for Nestl. Trade barriers crumbled, and world markets developed into more or less integrated trading areas. Since 1996, there have been various acquisitions, including San Pellegrino (1997), Spillers Petfoods (1998), and Ralston Purina (2002). There were two major acquisitions in North America, both in 2002 in June, Nestl merged its U.S. ice cream business into Dreyer's, and in August a US$2.6 billion acquisition was announced of Chef America, the creator of Hot Pockets. In the same time-frame, Nestl came close to purchasing the iconic American company Hershey's, one of its fiercest confectionery competitors, although the deal eventually fell through. Another recent purchase included the Jenny Craig weight-loss program, for US$600 million. In December 2005, Nestl bought the Greek company Delta Ice Cream for 240 million. In January 2006, it took full ownership of Dreyer's, thus becoming the world's largest ice cream maker, with a 17.5% market share.
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In November 2006, Nestl purchased the Medical Nutrition division of Novartis Pharmaceutical for $2.5B, also acquiring, in 2007, the milk-flavouring product known as Ovaltine. In April 2007, returning to its roots, Nestl bought US baby-food manufacturer Gerber for $5.5 billion. In December 2007, Nestl entered into a strategic partnership with a Belgian chocolate maker, Pierre Marcolini. Nestl agreed to sell its controlling stake in Alcon to Novartis on 4 January 2010. The sale was to form part of a broader US$39.3 billion offer, by Novartis, for full acquisition of the worlds largest eye-care company. On March 1, 2010, Nestl concluded the purchase of Kraft's North American frozen pizza business for $3.7 billion. In July 2011, Nestl SA agreed to buy 60 percent of Hsu Fu Chi International Ltd. for about $1.7 billion.

PROMOTERS AND OWNERS:

Nestl has a Board of Directors, led by the Chairman Peter Brabeck-Letmathe, who was the former Nestl CEO. There are 15 members of the Board of Directors.

NESTL LEADERS: Peter Brabeck-Letmathe, left, Nestl Chairman and Paul Bulcke, Nestl Chief Executive Officer (CEO). The day to day management of the Nestl business is taken care of by the Executive Board members. The 13 designated Board Members manage diverse parts of the global business. The Nestl Group is managed by geographies (Zones Europe, Americas and Asia/Oceania/Africa) for most of the food and beverage business, with the exceptions of Nestl Waters, Nestl Nutrition, Nestl Purina Petcare, Nespresso, Nestl Professional and Nestl Health Science which are managed on a global basis - these we call the Globally Managed Businesses. Nestle also have joint ventures such as Cereal Partners Worldwide and Beverage Partners Worldwide.
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PRODUCTS AND SERVICES OFFERED WORLDWIDE: Nestl has some 6,000 brands, with a wide range of products across a number of markets, including coffee (Nescaf, Nespresso, etc.), bottled water (Buxton, Perrier, etc.), milkshakes and other beverages (Nesquik, Milo, Carnation, etc.), chocolate (Milky Bar, After Eight, and many others), ice cream (Hagen-Dazs, Skinny Cow, etc.), breakfast cereals (Cheerios, Golden Nuggets, Shreddies, etc.), infant foods (now including Gerber products), performance and healthcare nutrition (Nesvita, PowerBar, etc.), seasonings, soups and sauces (Maggi, Buitoni, etc.), frozen and refrigerated foods (Findus, Lean Cuisine, etc.), confectionery (Rowntree products, Caramac, Wonka products, etc.), and pet food (Winalot, Felix, etc.). Baby Foods - Cerelac, Gerber, Gerber Graduates, NaturNes, Nestum.. Bottled Water - Nestl Pure Life, Perrier, Poland Spring, S.Pellegrino Cereals - Chocapic, Cini Minis, Cookie Crisp, Estrelitas, Fitness, Nesquik Chocolates & Confectionery - Aero, Butterfinger, Cailler, Crunch, Kit Kat. Coffee - Nescaf 3 in 1, Wonka, Nescaf, Nescaf Classic, Nescaf Decaff, Nescaf Dolce Gusto, Nescaf Gold, Nespresso. Culinary, Chilled & Frozen Food Stouffer's, Thomy. Buitoni, Herta, Hot Pockets, Lean Cuisine, Maggi,

Diary - Carnation, Coffee-mate, La Laitiere, Nido Drinks - Juicy Juice, Milo, Nesquik, Nestea Food Service - Chef, Chef-mate, Lean Cuisine, Minor's, Sjora, Stouffer's Healthcare Nutrition - Boost, Nutren Junior, Peptamen, Resource. IceCream - Dreyer's, Extreme, Haagen-Dazs, Movenpick, Nestle icecream. Petcare - Alpo, Bakers Complete, Beneful, Cat Chow, Chef Michaels Canine Creations, DogChow,Fancy Feast, Friskies, Gourmet, Purina, Purina ONE, Purina Pro Plan Sports nutrition - PowerBar Weight Management - Jenny Craig

GLOBAL PRESENCE: Nestl's unmatched geographic presence is one of its competitive advantages. From Swiss beginnings, the company grew to establish a presence in almost every country in the world. Today, Nestl's presence in most markets, including emerging markets, dates back many generations, and in some cases more than a century. This has created very close relationships between the brands and consumers, as well as a deep understanding of local needs and trends wherever Nestl operates. Local management teams, manufacturing, R&D have all been developed, as well as long-term relationships with farmers and other suppliers.

NESTL INDIA:
Nestl India is a subsidiary of Nestl S.A. of Switzerland. With seven factories and a large number of co-packers, Nestl India is a vibrant Company that provides consumers in India with products of global standards and is committed to long-term sustainable growth and shareholder satisfaction. The Company insists on honesty, integrity and fairness in all aspects of its business and expects the same in its relationships. This has earned it the trust and respect of every strata of society that it comes in contact with and is acknowledged amongst India's 'Most Respected Companies' and amongst the 'Top Wealth Creators of India'.

PRESENCE ACROSS INDIA:

After nearly a century-old association with the country, today, Nestl India has presence across India with 7 manufacturing facilities and 4 branch offices spread across the region. With an employee-strength of over 3000 and turnover of US$ 497 million in 2003, Nestle India is one of the leading companies in the FMCG space in India. The company is acknowledged amongst Indias Most Respected Companies and amongst the Top Wealth Creators of India. Nestl Indias first production facility, set up in 1961 at Moga (Punjab), was followed soon after by its second plant, set up at Choladi (Tamil Nadu), in 1967. Consequently, Nestl India set up factories in Nanjangud (Karnataka), in 1989, and Samalkha (Haryana), in 1993. This was succeeded by the commissioning of two more factories - at Ponda and Bicholim, Goa, in 1995 and 1997 respectively. The seventh factory was set up at Pantnagar, Uttarakhand, in 2006. The 4 branch offices in the country help facilitate the sales and marketing of its products. They are in Delhi, Mumbai, Chennai and Kolkata. The Nestl India head office is located in Gurgaon, Haryana.

During the first half 2004, the company registered a total income of US$ 257.8 million and net profit of US$ 23.73 million. Nestl India is a 61.85 per cent subsidiary of Ne s t l e S .A. Switzerland and was incorporated as a limited company in 1959. It produces a wide range of products including beverages, prepared dishes and cooking aids, milk products and nutrition, chocolate and confectionery. Milk products and nutrition account for around 45 per cent of Nestl Indias total revenues. The companys beverage products generate 22 per cent of the companys total revenues, while prepared dishes and cooking aids generate 18 per cent, and chocolate and confectionery 15 per cent.

PRODUCTS IN INDIA:
Milk Products & Nutrition: NESTL EVERYDAY Dairy Whitener, EVERYDAY Ghee, Milk, Slim Milk, Dahi,Slim Dahi,Bhuna Jeera Raita,NESVITA Dahi,Real Fruit Yoghurts, Creamy Vanilla,MILKMAID, NESLAC, ACTIPLUS, NESTL Start Healthy Stay Healthy. Beverages: Nescaf Classic, Nescaf Sunrise Premium, Nescaf Sunrise Special, Nescaf Cappuccino, Nestea Iced Tea With Green Tea, Nestea Iced Tea, Nestea Instant Hot Tea Mixes, Nescaf 3in1. Prepared Dishes & Cooking Aids: Maggi 2-Minute Noodles, Maggi Vegetable Atta, Maggi Noodles, Maggi Cuppa Mania, Maggi Healthy Soups, Maggi Masala-ae-Magic, Maggi Sauces, Maggi Pichkoo, Maggi Pizza Mazza, Maggi Magic Cubes, Maggi Vegetable Multigrainz Noodles, Maggi Bhuna Masala, Maggi Coconut Milk Powder, Maggi Pazzta, Maggi Sanjeevni Cup Soup, Maggi Imli Pichkoo, Maggi Noodletz. Chocolates & Confectionery: Nestl Kit Kat, Nestl Munch, Nestl Munch Pop Choc, Nestl Milkybar,Nestl Milkybar Choo, Nestl Bar-One, Nestl Milk Chocolate, Polo, Nestl Eclairs, Nestl Milkybar Eclairs, Nestl Milkybar Crispy Wafer, Polo - Hole New Fashion, Nestl Dark Chocolate.

PERFORMANCE:
The net sales has increased by 20% to Rs 1768.06 crore. Net domestic sales increased by 21% to Rs 1643.48 crore on back of volume and selling price growth. The export sales inclined by 11% to Rs 119.57 crore. Export growth has been adversely impacted by the ban on export of milk powder. The OPM has declined by 40 basis points to 19.4% due to rise in other expenditure by 80 basis points to 23% and employee expenses by 50 basis points to 7.7% of adjusted net sales.
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However, raw material cost saw dip by 140 basis points to 48.1% of adjusted net sales. The higher commodity prices, mainly Milk Solids, Green Coffee and Oils/Fats, were partially offset by an improved product/channel mix and operational efficiencies. The operating profit has increased by 18% to Rs 343.7 crore. Other income has declined by 46% to Rs 2.97 crore as there was a positive impact due to maturity of discounted treasury instruments last year. Interest amount increased by 57% to Rs 0.58 crore. Depreciation has increased by 21% to Rs 36.67 crore. The profit before tax has increased by 16% to Rs 309.42 crore. Total tax outgo has increased by 33% to Rs 95.59 crore due to rise in effective tax rate at 31% from 27%. The increase in Tax Expense is due to the end of the first 5 years of Income Tax holiday @ 100% of the profits of Pantnagar factory. For the next 5 years, the Tax Holiday will continue @ 30% of the profits of Pantnagar factory. The net profit has increased by 10% to Rs 213.83 crore due to rise in tax rate.

ACHIEVEMENTS:
While your Company's products continued to be trusted for their high Quality, your Company has increasingly emphasised better consumer engagement. The success is reflecting in the awards and recognitions that your brands received during the year. They are also a strong indication of the hard work and sustainable in natives being Implemented to delight consumers Some of the key awards and recognitions: Conferred 'Marketing Company of the Year' award al PITCH India's Top 50 Marketers Awards 2010 to recognise excellence in Marketing. Pitch Magazine recognised MAGGI amongst the top 3 Ageless Brands and adjudged MAGGI Masala-ae-Magic amongst the top 3 for innovative work at the 'Bottom of the Pyramid'.
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NESTEA Voted 'Product of the Year' in the powdered beverages category by Nielsen's Consumer Survey of product innovation 2010. KIT KAT adjudged 'Master Brand' by the World Brand Congress. MAGGi Masala-ae-Magic recognised amongst 'The Chartbusters' of 2010 by The Economic Times. 'NESCAFE Know Your Neighbours' campaign amongst Top 5 'Most Liked' Digital Campaigns of 2010 listing by AFAQS. MAGGI again rated the No. 1 Food Brand in India by an ICMR consumer study. 'Me and Meri MAGGI' campaign recognised by Campaign India Digital Media Awards-Silver for Best Website' (FVCG) and Bronze for Best Loyalty Campaign'. MAGGI rated amongst India's Top 10 Buzziest Brands by AFAQS Survey 2010. 'Me and Meri MAGGI' advertising campaign received Silver and Bronze Awards at 2010 ABBV'S. Coffee Board Awards for Best Exporter of Coffee to Russia and CIS, and Second Best Exporter of instant Coffee, (2009-2010). In a survey by Business Today and indicus Analytics to understand external perceptions Nestle India amongst the section toppers for FMCG on Best Companies to Work for 2010.

OPERATIONS STRATEGY
THE TEN PRINCIPLES OF BUSINESS OPERATIONS:
Consumers: 1. Nutrition, Health and Wellness The core aim is to enhance the quality of consumers lives every day, everywhere by offering tastier and healthier food and beverage choices and encouraging a healthy lifestyle. Nestle express this via our corporate proposition. Good Food, Good Life. 2. Quality assurance and product safety Everywhere in the world, the Nestl name represents a promise to the consumer that the product is safe and of high standard. 3. Consumer communication Nestle is committed to responsible, reliable consumer communication that empowers consumers to exercise their right to informed choice and promotes healthier diets. Nestle respects consumer privacy. HUMAN RIGHTS AND LABOUR PRACTICES: 4. Human rights in the business activities : Nestle fully support the United Nations Global Compacts (UNGC) guiding principles on human rights and labour and aim to provide an example f good human rights and labour practices throughout the business activities. OUR PEOPLE: 5. Leadership and personal responsibility Nestles success is based on the people. We treat each other with respect and dignity and expect everyone to promote a sense of personal responsibility. We recruit competent and motivated people who respect our values, provide equal opportunities for their development and advancement, protect their privacy and do not tolerate any form of harassment or discrimination. 6. Safety and health at work

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Nestle is committed to preventing accidents, injuries and illness related to work, and to protect employees, contractors and others involved along the value chain. SUPPLIERS AND CUSTOMERS 7. Supplier and customer relations We require our suppliers, agents, subcontractors and their employees to demonstrate honesty, integrity and fairness, and to adhere to our non-negotiable standards. In the same way, we are committed to our own customers. 8. Agriculture and rural development Nestle contributes to improvements in agricultural production, the social and economic status of farmers, rural communities and in production systems to make them more environmentally sustainable. 9. Environmental sustainability Nestle commits themselves to environmentally sustainable business practices. At all stages of the product life cycle Nestle strives to use natural resources efficiently, favour the use of sustainably-managed renewable resources, and target zero waste. 10. Water We are committed to the sustainable use of water and continuous improvement in water management. We recognise that the world faces a growing water challenge and that responsible management of the worlds resources by all water users is an absolute necessity.

SUPPLY CHAIN:
The current volatile and complex economic environment requires efficient and cost effective processes. During 2010 your Company has ensured timely and efficient supply of materials to run the factories, accelerating the development of local suppliers. The distribution of finished goods to consumers across the country continues to be cost effective and more environmental friendly with increasing share of rail deliveries. During the year, the Company also delivered sustainable coat optimisation initiatives as part of Nestle Continuous Excellence (NCE) to eliminate waste and manage input costs. This year the NCE programme will be expanded further to cover all supply chain processes and select distribution centres. In line with the philosophy of Creating Shared value, Nestle India rolled out its Responsible Sourcing programme in 2010. All the key vendors were engaged on this Initiative through
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procurement led vendor meets at the Company's Head office and factories Vendors wore supported through a pre-assessment process, consultant visits, dedicated help desk and continuous engagement and education All vendors were registered on the SEDEX platform and independent Audits by internationally approved agencies were conducted on the key vendors shortlisted All these vendors were found compliant with minor gaps for which road maps have been agreed mutually.

THE FOUNDATION FOR SUSTAINABILITY AND CREATING SHARED VALUE:

As Nestl is a principle-based company, the Nestl Corporate Business Principles form the foundation of all we do. Compliance with Nestl Corporate Business Principles, and with specific policies related to each principle, is non-negotiable for all employees and their application is monitored and regularly audited. As shown in the diagram below, compliance with Nestl Corporate Business Principles is the foundation for the Companys commitment to be environmentally sustainable and to create shared value. Creating Shared Value is the basic way the business is done, which states that in order to create long-term value for shareholders; we have to create value for society. But it cannot be either environmentally sustainable or create shared value for shareholders and society if it fails to comply with the Business Principles. At the same time, Creating Shared Value goes beyond compliance and sustainability. Any business that thinks long-term and follows sound business principles creates value for shareholders and for society through its activities, e.g. in terms of jobs for workers, taxes to support public services, and economic activity in general.

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But Creating Shared Value goes one step further. A company consciously identifies areas of focus, where: a) shareholders interest and societys strongly intersect, and b) where value creation can be optimised for both. As a result, the company invests resources, both in terms of talent and capital, in those areas where the potential for joint value creation is the greatest, and seeks collaborative action with relevant stakeholders in society. Nestl have analysed the value chain and determined that the areas of greatest potential for joint value optimisation with society are Nutrition, Water and Rural Development. These activities are core to the business strategy and vital to the welfare of the people in the countries where it operates. Nestle actively seek engagement and partnerships with outside stakeholders that optimise positive impact in these areas of focus. However, Creating Shared Value is not about philanthropy. It is about leveraging core activities and partnerships for the joint benefit of the people in the countries where we operate. In doing so, Nestl maintains a very long-term perspective on business development and welcomes dialogue with external stakeholders who are committed to principled behaviour and constructive engagement. This includes government and regulatory authorities, intergovernmental organisations, non-governmental organisations, academic and professional bodies, and local communities.

PROBLEMS FACED & MEASURES TAKEN:

Battle for market share starts eating into revenues and margins of Nestle. As there is intense competition in the FMCG sector, companies are battling for market shares. This has resulted in the reduction of shares of the companies. The year 2011 saw some near term challenges like inflation and irregular monsoon, which impacted its margin and profitability harder. The rise in raw material costs took a toll on the operating margins across companies. The increasing competition among players also resulted in greater Advertising & Promotion (A&P) expenses of majority FMCG companies barring a few. To tackle the input cost pressure, the have already taken price hikes or are planning to rise prices to protect margins from erosion. Fast Moving Consumer goods has a tough time in calendar 2011. The slowdown in the economy has led to shrinking disposable incomes, leading to degrowth in various segments of the industry. As a result, the industry is bogged down by down trading, wherein users move to low priced inferior products, to satisfy their basic needs within their shrinking budget.

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PRODUCTIVITY
SECTOR TRENDS:
The FMCG sector saw new launches, re-launches and acquisitions in 2010 contributing to the sector's phenomenal top-line growth of 15% led largely by volumes. But the year also saw some near term challenges like inflation and irregular monsoon, which impacted its margin and profitability harder. The rise in raw material costs took a toll on the operating margins across companies, with margins contracting by approx. 200 bps to 500 bps. The increasing competition among players also resulted in greater Advertising & Promotion (A&P) expenses of majority FMCG companies barring a few. To tackle the input cost pressure, the have already taken price hikes or are planning to rise prices to protect margins from erosion. FMCG sector also saw lots of acquisitions in other emerging as well as developed markets, which would also be earnings accretive in the long run. The sector is likely to perform in medium to long term as favourable demand scenario.

Industry Expectations
Focus on the rural areas to continue. Sustained focus on agriculture growth. Direct subsidy to farmers to be reviewed. Continued thrust and higher allocations to social and developmental programs especially MGNREGA. Increase in tax slabs for personal income tax No change in Cenvat rate, considering the high inflation and rising input prices No increase in excise duties for cigarettes, given strong increase last year. Full exemption from excise duty for packaged water from current 8% and biscuit, which has currently 4% duty. Also full exemption on sanitary napkin from 10% level. Reduction in excise duty on sugar confectionary from 10% to 4% and condensed milk from 10% to 4% - 8%. Increase in service tax from 10% to 12% Reduction of MAT rate currently applicable at 18% Reduction in dividend distribution tax from currently 15% (1.66% surcharge + education cess) to 10%. Roadmap for FDI in retail sector Roadmap for implementation of DTC and GST

Analysts/market expectations :
Higher allocations to social and development programs targeted for rural India like Indira Gandhi Vikas Yojana, NREGA, Bharat Nirman, Indira Awas Yojana and Krishi Vikas Yojana

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We believe the excise duty on cigarettes may remain unchanged or may be marginally rise in this Budget after a 15% increase in the effective excise rate in the last Budget. Cenvat rate to increase from 10% to 12% - full rollback of fiscal stimulus granted in FY09-10. MAT increase may happen as it could be a step towards direct tax code.

Outlook:
The Indian fast moving consumer goods (FMCG) sector with a market size of Rs 130000 crore is the fourth largest sector in the Indian economy. The sector has grown at a CAGR of 11% over the last decade and is expected to sustain the strong growth on the back of strong domestic consumption in the long run. Robust GDP growth estimated at 8.75% in FY11, increased income in rural areas, growing urbanisation and changing lifestyle of consumers would be key growth drivers for companies. However, the high food inflation and the surging input cost are likely to affect its growth in the near term. Hence, we expect the government to provide some support to the sector in the upcoming budget.

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COMPETITIVENESS
INDUSTRY - FOOD AND DAIRY PRODUCTS MULTINATIONAL
India is the world's second largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector. The total food production in India is likely to double in the next ten years and there is an opportunity for large investments in food and food processing technologies, skills and equipment, especially in areas of Canning, Dairy and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo Processing. Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods, Alcoholic Beverages & Soft Drinks and Grains are important sub-sectors of the food processing industry. Nestle India is ranked No. 1 in the Indian food and dairy products industry. The competitors of Nestle in India are Britannia Industries, Cadbury India, GlaxoSmith C H L, Perfetti Van Mel, Heinz India and Jubilant foods. The table shows the total sales of each companies during the financial year 2010-11. Food And Dairy Products Multinational Sales (in cr.) Net Profit (in cr.) 824.34 129.65 211.45 298.16 49.66 73.53 72.4 1631.56

Nestle India Britannia Industries Cadbury India GlaxoSmith C H L Perfetti Van Mel Heinz India Jubilant Food. TOTAL

6,254.74 4,213.71 2,503.24 2,306.12 834.56 720.65 678.07 17614.83

Nestle has sales of Rs. 6,254.74 crores during the financial year 2010-11 and registered a profit of Rs. 824.34 crores. Nestle is the market leader in food and dairy products industry in India. Overall? What are the issues and challenges? How consistent is the company in its ranking? Do their products enjoy monopoly?

Issues and Challenges:

Nestle is facing intense competition from other players in the industry.
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Other players are utilising the different possibilities prevalent in the market and registering good growth. Even Indian diary players like AMUL are giving good competition to Nestle in the diary sector. Nestle has to launch innovative products in the market to maintain its market leader position. Also, Nestle can consider more diversification in the Indian industry.

Consistency in Ranking:
Nestle is consistently the market leader for the past few years in India. Nestle has improved productivity and operations to maintain its market leader position throughout in the industry. Nestle has undergone many changes in its production and operations to maintain its position. Also, Nestle has made many product changes and modifications to maintain its position. Nestle products like Nescafe, Maggi, Milkybar, etc. are having major share in their own segment. Maggi has almost a monopoly in the market.

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FORECASTING
Forecasting is the process of making statements about events whose actual outcomes (typically) have not yet been observed. A commonplace example might be estimation for some variable of interest at some specified future date. Qualitative forecasting techniques are subjective, based on the opinion and judgment of consumers, experts; appropriate when past data is not available. It is usually applied to intermediate-long range decisions. Quantitative forecasting models are used to estimate future demands as a function of past data; appropriate when past data is available. It is usually applied to short-intermediate range decisions. Example of Quantitative forecasting methods:

NAVE APPROACH:
Naive approach looks at no data past the present Forecast for the next period is the same for the last period Does not work with data that is trended or has a clear pattern

In Nave Approach, forecasting is done considering the data for the last period only. Net Sales 1820.48 1935.82 2140.56 2229.07 2475.01 2819.16 3500.65 4327.67 5129.38 6254.74 6254.74

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Forecast for year 2011

The Net Sales Forecast for the year 2011 using moving average method is Rs. 6254.74 crores.

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MOVING AVERAGE METHOD:

This simplest forecasting method is the moving average forecast. The method simply averages of the last m observations. It is useful for time series with a slowly changing mean. Applying moving average method to forecast the Net Sales of Nestle India in 2011: Year Net Sales 2001 1820.48 2002 1935.82 2003 2140.56 2004 2229.07 2005 2475.01 2006 2819.16 2007 3500.65 2008 4327.67 2009 5129.38 2010 6254.74 Forecast for year 2011 3 yr. M A Error Abs . Dev Sqr. Error APE

1965.62 2101.816667 2281.546667 2507.746667 2931.606667 3549.16 4319.233333 5237.263333

263.45 373.1933 537.6133 992.9033 1396.063 1580.22 1935.507 7078.95

263.45 373.19333 537.61333 992.90333 1396.0633 1580.22 1935.5067

69405.903 139273.26 289028.1 985857.03 1948992.8 2497095.2 3746186.1

0.118188 0.150785 0.1907 0.283634 0.32259 0.308072 0.309446

7078.95 9675838.4 1.683415

The Net Sales Forecast for the year 2011 using moving average method is Rs. 5237.263 crores. The error calculation in this forecast is given below: Error CFE Mean Error MAD Mean square error MAPE Values 7078.95 1011.279 1011.279 1382263 24.04879

WEIGHTED MOVING AVERAGE:

Weighted moving average is a moving average where each historical demand may be weighted differently. Average: At = W1 Dt + W2 Dt-1 + W3 Dt-2 + ... + WN Dt-N+1
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where: N = total number of periods in the average Wt = weight applied to period t's demand Sum of all the weights = 1 forecast: Ft+1 = At = forecast for period t+1

Applying weighted moving average method to forecast the Net Sales of Nestle India in 2011: 3 Yr. WMA Abs . Dev

Year Net Sales 2001 1820.48 2002 1935.82 2003 2140.56 2004 2229.07 2005 2475.01 2006 2819.16 2007 3500.65 2008 4327.67 2009 5129.38 2010 6254.74 Forecast for year 2011 The Net Sales Forecast for 5531.718 crores.

Error

Sqr. Error

APE

2015.122 213.948 213.948 45773.7467 2143.867 331.143 331.143 109655.6864 2334.338 484.822 484.822 235052.3717 2597.897 902.753 902.753 814962.979 3091.075 1236.595 1236.595 1529167.194 3777.862 1351.518 1351.518 1826600.904 4563.121 1691.619 1691.619 2861574.841

0.095981 0.133795 0.171974 0.257882 0.285742 0.263486 0.270454

5531.718 6212.398 6212.398 38593888.91 1.479312 the year 2011 using weighted moving average method is Rs.

The error calculation in this forecast is given below: Error CFE Mean Error MAD Mean square error MAPE Values 6212.398 887.4854 887.4854 5513413 21.13303

EXPONENTIAL SMOOTHING:
This method considers the entire past in its forecast, but weighs recent experience more heavily than less recent. The computations are simple because only the estimate of the

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previous period and the current data determine the new estimate. The method is useful for time series with a slowly changing mean.

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Net Sales 1820.48 1935.82 2140.56 2229.07 2475.01 2819.16 3500.65 4327.67 5129.38 6254.74

Exp. Smoothing 1878.15 1860.849

Error -57.67 74.971

Abs . Dev 57.67 74.971 257.2197

1883.3403 257.2197

1960.50621 268.5638 268.56379 2041.075347 433.9347 433.93465 2171.255743 647.9043 647.90426 2365.62702 1135.023 1135.023

2706.133914 1621.536 1621.5361 3192.59474 1936.785 1936.7853 3773.630318 4517.963223 2481.11 2481.1097 8799.37 8799.377 7 4

Sqr. Error 3325.828 9 5620.650 8 66161.97 4 72126.50 9 188299.2 8 419779.9 3 1288277. 2 2629379. 3 3751137. 1 6155905. 3

APE -0.03168 0.038728 0.120165 0.120482 0.175326 0.229822 0.324232 0.37469 0.377587

Forecast for year 2011

0.396677 2.12603 77429043 1

The Net Sales Forecast for the year 2011 using exponential smoothing is Rs. 4517.963223 crores. The error calculation in this forecast is given below: Error CFE Mean Error MAD Mean square error MAPE Values 8799.377 879.9377 891.4717 1458001 21.26031

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TRENDLINE ANALYSIS:
7000 6000 5000 4000 3000 2000 1000 0 1 2 3 4 5 6 7 8 9 10 y = 468.83x + 684.66 R = 0.8797 Year Net Sales Linear (Net Sales)

Sales forecast for the year 2011 is given as: = 468.83*11+684.66 = Rs. 5841.79 crores

COMPARING THE METHODS APPLIED:

The forecasting is done using Nave Approach, Moving Average Method, Weighted Moving Average Method, Exponential Smoothing Method and Trendline Analysis. The forecasting method in which the forecasted values are closer to the actual value is the Weighted Moving Average Method. The error is less in Exponential Smoothing method. The Weighted Moving Average Method also has less error. Considering the forecasted value and the error measurement, the Weighted Moving Average Method is the best suited method for forecasting in this case.

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QUALITY CHECK OF THE REPORT

All data collected for the report are from reliable sources and utmost care is taken while framing the report. The operations management concepts are applied to the best of my knowledge in the report. All important details are included in the report. The details included in the report are: o History of the company, Promoters and owners, Segment or sector, Products and services offered, Location and capital structure, Performance, Significant achievements awards, milestones. o Operations Strategy - The Ten Principles of Business Operations, Supply Chain, The Foundation for Sustainability and Creating Shared Value, Problems Faced & Measures taken. o Productivity - Sector Trends, Industry Expectations, Analysts/market expectations, Outlook. o Competitiveness -Industry-Food and Dairy Products Multinational, Issues and Challenges, Consistency in Ranking, Forecasting. o Forecasting Techniques - Nave Approach, Moving Average Method, Weighted Moving Average, Exponential Smoothing, Trendline Analysis, Comparing the Methods Applied. The operations management of the company is discussed in detail in the report including the forecasting techniques which can be applied.

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REFERENCES
http://www.nestle.com/Pages/Nestle.aspx http://nestle.in/nestle_india_landing.aspx

Lee J, Krajewski and Larry P Ritzman. Operations Mangement: Strategy and Analysis , 6th Edition. - New Delhi: Pearson Education Asia.xxv. 882p. Lee J, Krajewski and Larry P Ritzman, Manoj K Malhotra., Operations Management: Processes and Supply Chains, 9th Edition. - New Delhi: Pearson Education Asia.

http://web.ebscohost.com/ehost/results?sid=2f98c8b2-a0be-4722-96ea804d1aac4969%40sessionmgr10&vid=3&hid=8&bquery=(nestle)&bdata=JmRiPWJza CZkYj1id2gmZGI9bHhoJmRiPThnaCZ0eXBlPTAmc2l0ZT1laG9zdC1saXZl

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