Nestle revamps product distribution in the Philippines

Three enlarged DCs with improved racking system cover vast archipelago

Swiss food and beverage giant Nestle has redefined the way it distributes its products in the
Philippines. Instead of delivering to every mom and pop store across the vast archpelagic island
nation, Nestle Philippines, Inc, has begun sending its coffee, cereals, confectionary, milk and
beverages to distributors.

The direction of the company is to go into distributorship serving 10 to 12 customers in big
trucks. In the past we distributed to small sari sari stores. From November 2005, 60% of our sales
are to distributors, said Orlando Ruel Arga, Project Manager, Supply Chain, Management
Division, Distribution Resource Management, Nestle Philippines.

Consequently the number of distribution centres (DCs) it needs to operate has been reduced.
From 33 DCs in 2000, most of which were located in the sprawling capital Manila, it reduced the
number to nine in 2006. By the end of 2007, Nestle will have only three enlarged DCs, two of
which are located in the main island Luzon, where some two-thirds of the Philippine population of
over 85 million live, and a third in the southern island of Mindanao.

The North Distribution Center, a brand new facility in Bulacan, supplies part of Manila and the
north while the expanded South Distribution Center serves the rest of Manila, South Luzon and
part of Visayas in Central Philippines. A third DC in Cagayan, Mindanao, delivers to the rest of
the country. Supply planners in the companys headquarters in Manila will determine where
products should be delivered.

Its more efficient, we have savings and there is less duplication, less inventory. In the past we
have four weeks of inventory in every DC, now we have two-and-a-half weeks inventory in four
DCs, Mr Arga added.

The reorganisation allows Nestle Philippines to re-look at its DCs and the way it operates, and
take corrective actions when necessary. At the South Distribution Center in Laguna, owned and
operated by Fast Services Corporation and leased to Nestle on long-term, the racking protection
system was a cause for concern.

With the drive-in pallet racking system that was installed in 2000, Manuel Onrejas, J r., Operations
Manager of Fast Services Corporation, said warehouse operators were regularly hitting the infill
for the lead in while putting away the pallets, damaging both the racking system and the products.
Fast Services, which operates the DC for Nestle on a one-year renewable contract, had to
employ one man just to undertake daily repairs. It was an unsatisfactory situation which had to be
addressed when the company embarked on its extension to expand the warehouse by 9,718 sq.
metres to 14,903 sq. metres.

Schaefer Philippines clinched the contract against other contending bids. Developed in
consultation with Nestle Philippines and Line Services, the new racking system comprises the
Schaefer Seismic Drive-In System with 10,640 pallet locations, which makes it the biggest drive-
in system in the Philippines, and the Selective Racking System with 4,004 pallet positions.

What I like most about the new racking system is the attention to details for rack protection and
damage to goods. They are small changes, but very helpful, said Mr Arga.

Unlike the previous design, which was rectangular in shape, the infill for the lead in for the
Schaefer Drive-In is a V-shaped structure. The possibility of hitting it is less than before, said Mr
Onrejas.

Another notable difference is the protective guard for the post. It has a V shape as against the
rectangular shaped guard used previously and trucks just glide over it, rather than knock into it.
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The metallic spring used to cushion the post from any impact provides an additional layer of
defence - an improvement over the rigid square like metal used in the previous design. In the
past when you hit the guard, it was hitting the post, Mr Onrejas noted.

Extending 11 metres high, the new racking system is constructed to withstand seismic pressures
for zone 4 seismic ratings. Apart from poles, cables and bracings to insulate the racking system
from shocks and after-shocks, the posts have a continuous profile. Only Schaefer can supply a
continuous profile. Because it is unspliced, it is strong and rigid, said Schaefer Philippines
Account Manager Sherryl Nepomuceno.The reliability of the system was approved by
independent structural engineer Niedermuller.

At the same time Line Fast/Nestle reconfigured the old racks to standardise the cell height to 1
metre from 2.5 metres previously for easy storage and retrieval, and took corrective measures to
improve the safety of the post guard. With the completion, Mr Arga said the South Distribution
Center is well equipped to meet Nestles requirements till 2011.

Following the successful installation of the new racking system for the South Distribution Center,
Schaefer went on to secure the racking contract for Nestles North Distribution Center, which is
owned and operated by Supima Holdings. The brand new facility in Bulacan will be equipped with
the Schaefer Drive-In with 39,872 pallet locations and Selective Racks with 7,280 pallet locations