Logistics and Supply Chain Management 1

LOGISTICS AND SUPPLY CHAIN MANAGEMENT: NESTLE COMPANY

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 Logistics and Supply Chain Management 2

LOGISTICS AND SUPPLY CHAIN MANAGEMENT: NESTLE COMPANY

Introduction: Report

Supply is a fundamental organizational function that businesses execute to achieve their

basic goals in the verge of their operation. Mangan and Lalwani postulate that the main aim of

production is to serve the clients with products and services that they need at the acceptable time,

in the precise quantity, in the correct manner, and more importantly, in an effective way that is

satisfactory (2016). Supply chain management and logistics play a vital role in ensuring delivery

of goods to the users and furthering the profit margin of the organization. More specifically, this

paper scrutinizes supply chain management’s purpose and its potential influences on

organizational success. Moreover, it illustrates innovations in online business models and

numerous communication approaches. The report examines some of the most effective practices

in supply chain management in Logistics subject to Nestle Company.

Introduction: Nestle

Nestle Company is a global food and beverage company whose headquarters are located

in the city of Vevey, Switzerland. In regard to revenue and other metrics, this company is the

largest food company worldwide (Nestle 2018). Assumedly, one of the potential features that has

influenced the company’s successes is effective supply chain management and logistics. The

company’s achievements are recognizable globally. Nestle appeared in the 2016 edition of

Forbes business magazine as number 33 out of 2000 largest companies across the globe (Nestle

2018). Specifically, Nestle deals in products such as medical food, coffee, tea, pet foods, bottled

water, confectionery, snacks, and dairy products. Even though the company does not have

branches in every country, its products are widely used nearly in all countries in the world due to

its wide and effective supply scale. About 28 products of Nestle earn $1 billion per year. Since
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the company deals in products, its profitability is highly dependent on the supply of its products

to its customers in numerous countries. Nestle is also a shareholder of other companies such as

L’Oreal, the world’s largest cosmetics company. The paper examines the company’s progress in

regard to the management of its supply chain and logistics effectiveness following its operations,

successes, and challenges. The diagrammatic representation below shows a sample of Nestle

distribution channel that has enables it to achieve an effective supply chain management and

logistics.

Fig. 1 Nestle Distribution Channel (Mangan & Lalwani 2016)

1. (a) Relationship between Supply Chain Management and Logistics Management

Logistics management is relatively complex than supply chain management. That is,

logistics deals with effectiveness of the supply service of a company. Moreover, it deals with the

flow of information from the client to the company after the delivery of the product to the

customer. The main aim of logistics management is to connect the manufacturing activities with
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the marketing operation of an organization effectively (Marion 2018). Logistics promotes

coordination and implementation of appropriate measures in the supply chain management.

Nestle logistics management has been effective over time due to its concentration on the three

basics of logistics including inventory management, network design, and transportation. The

company in question ensures adequate control of warehouses, manufacturing plants, and stores.

The supply chain management team monitors every movement of goods to various places of the

world in order to control surplus and shortage of goods (Master 2013). In terms of supply chain

management, the company practices effective inventory planning, adequate transportation,

proper packaging, and warehousing.

Inventory planning is the prediction and minimization of supply chain and logistic costs

to maximize the profitability of the organization and promote its performance. Huge supplies

carried out by the organization requires proper planning that would enable smooth running of the

organization, availability of the products to the customers, and accessibility of the product at the

right time (Patel & Vij 2013). Nestle does not do general supply of goods but looks into the

distribution of specific products to predetermined places to ensure that specific needs of the

customers are served. In July 2013, Nestle realized its efficiency in the supply of coffee and

implemented the necessary measures to improve coffee supply to strategic areas where clients

experienced shortage and other areas where their local and international competitors showed stiff

competition. Nestle Company transports products through air transport, roads, rails, and

waterways. The company transports nearly 140,000 tons of its products per year from 1600

warehouses that it has across the world (Nestle 2018). When necessary, Nestle makes effective

replenishment decisions to promote its sustainability irrespective of a few distributions that go

wrong. The company also monitors its inventory level via electronic data interchange, which is a
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special technology that helps in monitoring the size of inventory and distribution activities from

warehouses and other sources.

Nestle products can be packaged given their nature. The company packages their

products into sustainable material depending on the size and quantity of the product. In this case,

logistics of the Nestle products may refer to packaging in different quantities to promote

customer satisfaction whereas supply majors on the distribution of such packaged products to

places where they are needed (Sengupta 2017). Effective supply chain management ensures that

goods reach the customer at the required time in the correct quantity, the right quality, and for

the correct price. Warehousing is another subject of logistics that also relates to distribution.

Nestle warehouses are meant for products that await distribution either in a short period or a long

period.

Significantly, large organizations such as Nestle hardly store items in warehouses for a

long period since that would pose a risk or either breakage or damage of the goods while they

stay in the warehouse. Given that Nestle deals in food products and beverages, it would not store

items in the warehouse for a relatively long time. Therefore, logistics also involves enabling the

good condition of goods before they are dispatched to various areas (Odeh & Smallwood 2012).

The safety of goods while they are in the warehouse is key to mitigate risk and enable timely

supply since some clients are bound to make orders at any given time. An effective supply chain

and logistics management may ensure that goods are stored in the warehouse within an

appropriate time. Nestle warehousing and packaging activities clearly describe the relationship

between supply and logistics management.

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(b) Assessing the Significance of an Effective Logistics Management

Logistics facilitates easy control and planning of the supply of particular goods from a

point of production to a point of consumption in the most convenient way that ensures customer

satisfaction. Nestle Company distributes its products from various points of production to points

of consumption (Sengupta 2017). For some production, the production process begins from the

firms before they are taken to the factories or manufacturing plants. After the manufacturing

plant, the consumer goods are taken to the warehouse where the manager ought to monitor how

they are sourced out of the facility to the appropriate target market. A target market is a specific

market in which the customers of a particular product are located or expected to show up for the

purposes of trade.

Nestle focuses on distributing its products to restaurants, supermarkets, small business

owners, and other retailers. Availability of such goods to the businessperson enables them to

reach clients who buy the products and also give feedback. According to Marion, effective

logistics management attempts to deliver services and products to customers at an appropriate

time (2013). Moreover, effective logistics management involves adequate response to the

customers’ feedback to further customer satisfaction. For Nestle, some customers make orders

whereas other customers purchase the goods as they arrive in the market. The company has an

obligation to satisfy both their needs regardless of the different approaches that they use to

access the market and receive the goods.

An effective logistics management oriented towards ensuring customer satisfaction

ensures an improvement in operating cost structure, increase in revenue, improvement of

customer service, and reduction in transport costs. The need to minimize operating cost is

important since that strategy would maximize profitability overtime (Hanifan, Sharma, Mehta
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2012). Maximizing profits is a primary objective of every organization. Nestle has been making

huge profits in the recent past. Effective logistics management is believed to be one of the factors

that contribute to Nestle’s huge profits at the end of a given financial period. As mentioned

earlier, an effective logistics management regards customer satisfaction through improving the

customer service in one way or another. Ultimately, an effective logistics management reduces

transports cost by making prudent transport decisions. Nestle often transports perishable items

via planes and ensure that they are kept safely in fridges and other recommendable safe places

(Master 2013). Markedly, Nestle transports bulky goods that are not urgent via ship to their

various destination markets since sea transport is relatively cheap and saves on transport cost.

The diagram below shows a succinct of the relation between supply and logistics specifically in

Nestle Company.

Fig. 2 Nestle Logistics (Mangan & Lalwani 2016)

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2. Enterprise Resource Planning (ERP)

This is a technological management system which is used to break down complex

managerial roles digitally in order to ensure a more efficient and satisfactory data processing in

any organization’s department, including the supply and chain management department (Patel &

Vij 2013). ERP is an innovation program that integrates various organizational information

systems to manage information effectively and promote efficiency in business process. Supply

chain management and logistics is one of the managerial roles where ERP can be applicable and

helpful.

Implementation of ERP in an organization is meant to improve the performance of the

organization through efficiency maximization. For instance, Nestle has implemented various

enterprise systems in an attempt to improve its level of efficiency. For a period of 5 years, Nestle

implemented SAP R/3 that served about 6,000 users at a time (Nestle 2018). Later on, Nestle

started another ERP project for Y2K that began in 1998. Thereafter, the employees had an

additional obligation to learn new skills and adopt to the new technology that the company

implemented to ensure customer satisfaction and beat its competitors. The cost of ERP for Nestle

at the time was about $280 million, which was relatively expensive (Master 2013). However, the

company, through its managers, believed that the ERP that they were to implement was

worthwhile and would pay back in the near future. Updating of ERP is an organizational culture

of Nestle since it is oriented toward growing further, promoting customer satisfaction, and

maximizing profits per given time.

3. Reduction of Logistics Cost

Cost reduction is an indirect objective of an effective businesses that looks forward to

maximize profits. However, reducing expenses in an organization may take place in various
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ways. Effective managers identify appropriate departments or areas where they can minimize

cost and still promote efficiency (Mangan & Lalwani 2016). Supply and logistics is one area

where managers may consider in reducing costs using numerous prudent ways that would

promote customer satisfaction and enable the accomplishment of organizational objectives. More

specifically, the notable ways in which logistics cost reduction may take place include shipment

consolidations, avoiding excess labor, vessel maintenance, application of latest technologies, and

implementation of prudent decision-making.

First, shipment consolidation means joining various lighter or smaller goods into one carrier

to save space and funds. For example, Nestle Company has vehicles of different sizes that help in

transporting a given amount of goods depending on the quantity; this saves space and reduces

cost (Bhandari 2017). Secondly, organizations should consider hiring adequate labor rather than

excess labor that may lead to more spending. Moreover, the maintenance of the transportation

vessel is key to avoid regular breakdowns and repairs that would be costly (Grant 2017). Using

technologies in the storage and transportation of goods is key since it maximizes efficiency by

reducing the possible loss or pilferage of stock. Wise decision-making is also important since it

enables the management team to make wise decisions rather than irrational decisions that would

misguide the management team (Grant 2017). Nestle is one of the companies that makes prudent

decisions, which promotes its growth in turn by reducing costs on logistics.

Conclusion

In conclusion, supply chain and logistics management has a direct influence on the success of

an organization. Nestle Company’s success over many years is also as a result of an effective

management of supply and logistics. ERP is an essential subject that also determines the

achievement of organizational goals and success of various organizational departments.

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References

Bhandari, R., 2017. Impact of technology on logistics and supply chain management. IOSR

Journal of Business and Management (IOSR-JBM), 19-24. Retrieved from

http://www.iosrjournals.org/iosr-jbm/papers/7th-ibrc-volume-2/17.pdf

GRANT, D. A., 2017. Sustainable logistics and supply chain management: Principles and

practices for sustainable ... operations and management (1st ed.). London, UK: Kogan

Page.

Hanifan, G. L., Sharma, A. E., & Mehta, P., 2012. Why a sustainable supply chain is good

business. The Journal of high-performance business, 3(1), 1-7. Retrieved from

https://www.accenture.com/t20150522T061611__w__/ph-

en/_acnmedia/Accenture/Conversion-Assets/Outlook/Documents/1/Accenture-Outlook-

Why-Sustainable-Supply-Chain-is-Good-Business.pdf

Mangan, J., & Lalwani, C., 2016. Global logistics and supply chain management (1st ed.).

Chichester, West Sussex: Wiley.

Marion, G., 2018, March 24. Logistics and supply chain management. Retrieved from

https://www.thebalance.com/logistics-4073998

Master, N., 2013, July 2. Nestle incorporates warehouse logistics to improve coffee supply

chain. Retrieved from http://www.rfgen.com/blog/bid/304055/nestle-incorporates-

warehouse-logistics-to-improve-coffee-supply-chain

Nestle., 2018. Supply chain & procurement. Retrieved from

https://www.nestle.com/jobs/functions/supply-chain-procurement

Odeh, M. A., & Smallwood, J., 2012. Sustainable supply chain management: Literature review,

trends, and framework. IJCEM International Journal of Computational Engineering &

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Management, 15(1), 85-91. Retrieved from

https://pdfs.semanticscholar.org/c87e/fcf6607aa0551e1150839327d67bf4f92e72.pdf

Patel, K. K., & Vij, S., 2013. Enterprise resource planning models for the education sector:

Applications and methodologies (1st ed.). Hershey, PA: Information Science Reference.

Sengupta, A., 2017. Supply chain inventory control model for Nestle India Ltd. International

Journal of Scientific and Engineering Research, 8(8), 523-527. Retrieved from

https://www.ijser.org/researchpaper/Supply-Chain-Inventory-Control-Model-for-Nestle-

India-Ltd.pdf