Nestle’s Supply Chain Management Improvement

Table of Contents

Introduction

The current economic environment is challenged by limitations in sourcing, production, and distribution because of the COVID-19 pandemic. This means that organizations, especially multinational companies that operate worldwide, have reliable supply chain management strategies and practices that will allow dealing with a complicated situation. Strategies implemented by companies that produce food and essential products are especially relevant today due to the rising demand for them. Supply chain management encompasses various processes that control the flow of goods and services offered by organizations and include steps taken to transform raw materials into final products (Nakano, 2020). It implies streamlining the supply-side activities performed by an organization to gain maximum value from customers and attain a competitive advantage in the marketplace. Increasing supply chain management performance is a strategic effort that implies the implementation of steps and practices targeted at addressing the already existing and those that are predicted to arise in the future (Zimon, Tyan and Sroufe, 2019). It includes efficient collaboration and communication between key managers, the increase of information sharing, as well as consistent measurement and review. However, any supply chain management practice that aims to improve performance should fit an organization at hand and align with its overall strategy, structure, and managerial practices (de Abreau and Chicarelli, 2015).

This paper aims to explore and evaluate supply chain management strategies and practices implemented by Nestle, which is multinational nutrition, health and wellness company producing and marketing prepared dishes, milk-based products, pharmaceuticals, baby foods, and others (Forbes, 2020). As of May 2020, the company’s market cap encompasses $304,1 billion, with 291,000 employees worldwide (Forbes, 2020). Beyond evaluating Nestle’s supply chain management strategies, recommendations will be made regarding the recommended practices that can improve the company’s performance while also increasing its competitive advantage in the industry.

Nestle’s Current Supply Chain Management Strategy

Effective supply chain management is essential for Nestle because of the need to ensure a high quality of products that reach consumers efficiently and quickly. The first strategy that the company implements is linked to the collaboration with commercial teams for developing a forecast of demand (Supply chain and procurement, 2020). This collaboration also extends to global suppliers to maintain the responsible process of materials sourcing. Maintaining connections provides alignment with operations, the balance of inventory levels, and the right supply of products.

Nestle’s procurement strategy is detrimental to the company’s supply chain management because it enables the achievement of sustainable growth. The company has opened procurement hubs in Malaysia, Panama, and Switzerland, which allows capturing multiple geographic areas to procure raw materials, packaging, materials, and other services (Shah, 2017). The distribution of procurement centers across the globe also supports markets and manages local spending. The third supply chain management strategy that Nestle implements refer to fostering transparency (Batato, 2018). The approach implies the disclosing of a list of suppliers as well as a variety of data about the company’s priority priorities. Such a strategy allows the company to establish a positive reputation among consumers who have the option to see from where the products that they purchase are coming (Nestle speeds up efforts towards full supply chain transparency, 2019). Transparency is beneficial for the organization because it will facilitate an improved brand image and the potential for increasing the demand for its services.

Given the importance of Nestle’s reputation as a multinational brand, the company has also been investing in the transformation into a zero-waste company. As a response to the 2020 media criticism of the organization’s environmental practices, Nestle initiated a change in its supply chain management (Wilson, 2017). The strategy included a no-deforestation policy and the effort to eliminate waste in the upstream supply chain. By the end of 2020, the company expects to become a completely zero-waste-to landfill (Wilson, 2015). Through reaching environmental sustainability, the company aims to reach optimal supply chain management.

The final strategy that Nestle implements imply the acquisition for reaching better product diversity. It means that most of the supply chain depends on the purchase of new companies under the Nestle umbrella to diversify the range of products that are offered by the company (Wilson, 2017). In addition, the commitment to invest in other brands can eliminate competition and access new suppliers that have been unattainable previously.

Recommendations for Improving Nestle’s Supply Chain Management

The first strategy recommended for Nestle to implement is associated with demand-driven planning, a business operating model that is based on current demand insights. Because there may be an increase in the demand for the products by Nestle associated with the pandemic, the contingency planning approach toward supply chain management is expected to ensure a wide-encompassing view of the current processes and ensure the capacity of implementing an effective response to risks and the need to expand logistical operations to ensure that the supermarkets are being stocked regularly (Deloitte, 2020). By monitoring the current situation and applying statistical forecasting to predict demand for Nestle products, the times of global lockdowns, the company will be able to develop cohesive promotional and pricing strategies to drive revenue growth and further expand margins (Chenneveau, Eloot, Kuentz and Lehnich, 2020). The core principle behind this strategy is to have the foresight that would help to leverage opportunities and mitigate the impact of challenging events.

The second strategy recommended for Nestle is concerned with building an agile supply chain that also includes rapid planning and integrated execution (IBM, 2010). Once the company’s higher management has a better understanding of the demands and risks, it is possible to adapt to the company’s supply chain to the changing events in the marketing (Field, 2014). To ensure that Nestle products are being distributed across stores and supermarkets worldwide, it is recommended to use dynamic planning capabilities and continuously adjust operations to facilitate responsive agility (EY, 2015). This approach is better than the old model because there is no longer a need to wait until the end of the month to shift production and supply based on sales or shipments. The new model is associated with ongoing dynamic supply chain adjustments that align with market changes.

The third recommendation implies the optimization of product designs and production management within such areas as supply, manufacturing, and sustainability for accelerating innovation that facilitates growth and profitability (Roos, 2016). This means making decisions during the primary stages within the cycles of product development. Designs should be optimized for supply, the cost-efficiency of production, and supply chain operations (Iakovu, Bochtis, Vlachos and Aidonis, 2016). Therefore, it is important to integrate product innovation to make informed decisions about product design. For example, Nestle may choose to use cheaper packaging to decrease product prices because there is a higher demand for them during the COVID-19 pandemic.

Investing in cloud supply chain technologies is the fourth recommendation for Nestle to improve its management and facilitate will also have a higher capacity of monitoring its inventory in real-time to control the stock on store shelves as well as the rate at which new products are being manufactured (Fund Business Intelligence, 2018). Such an approach calls for agility in supply chain management and requires end-to-end visibility across the business. Cloud technologies will significantly improve Nestle’s supply chain management because it facilitates advancement in analytics capabilities and the integration of several platforms (Min, Zacharia and Smith, 2019). In addition, since Nestle is an international company, cloud technologies will remove geographic and political limitations that create challenges for supply chain management practices.

The Most Appropriate Practices for Performance Improvement

Given Nestle’s goal to reach sustainable supply chain management while also increasing the number of products in the market, it is expected that cloud technologies will be the most beneficial (Graham, Manikas and Folinas, 2013). The use of cloud-based technologies within the supply chain management framework will lead to economic and operational benefits due to real-time accuracy and 360-degree management of relevant processes (Clervi, 2015). By converting to a cloud service, information management no longer requires internal resources, and product innovation and improvement can come more quickly (Kale, 2019). The flexibility of cloud-based services is important for Nestle as a multinational company because it allows connecting all critical supply chain players, providing a more strategic approach for inventory deployment (Geissbauer, Schrauf, Berttram and Cheraghi, 2017). In addition, geographical analytics is an option for cloud computing, which can enable monitoring delivery networks and prioritizing shipments (Leimbach et al., 2014).

Cloud computing is a solution that can strengthen the positive impact of other supply chain management recommendations (Al-jawazneh, 2016). For example, an agile supply chain framework requires virtual integration to share information across multiple departments to determine the real demand in the market (Sher, 2016). An agile supply chain is the one that can guarantee an end to end visibility to identify bottlenecks in the existing networks as well as any other issues that limit performance (Melnyk, Narasimhan and DeCampos, 2013). In addition, agility is network-associated, which means that every player in the supply chain management framework should have the capacity to contribute with their knowledge.

Besides enhancing the agility of supply chain management, cloud networks are necessary to integrate because they can also improve demand-driven planning, which is essential to conduct in real-time. Demand-driven planning can benefit from cloud technologies because it relies on a broad range of values instead of a definite outcome (Ranger, 2018). A cloud solution can provide a straightforward approach to identifying the limitations in the production or supply of goods and place ‘buffers’ in the areas that need them (The future is now, 2019). Because demand-driven planning implies adjusting quickly, it is also possible to increase supply chain agility and the manufacturing process (Tiwary and Unhelkar, 2019). Overall, there is a broad range of benefits that Nestle can attain from using cloud-based supply chain management as the core improvement. It can facilitate the integration of multiple players within the system and cover a vast range of information services and unify them into a reliable and agile framework.

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