Professional Documents
Culture Documents
The movement of materials as they flow from their source to the end customer. Supply Chain includes
purchasing, manufacturing, warehousing, transportation ,customer service ,demand planning
, supply planning and Supply Chain management. It is made up of the people, activities, information and
resources involved in moving a product from its supplier to customer. Although this Supply Chain definition
sounds very simple, effective management of a Supply Chain can be a real challenge.
Raw materials
Manufacturer
Distribution Center
Customer
A typical Supply Chain flow of goods is shown above. In some models, the product is shipped from the
Manufacturer to the Distribution Center as soon as it is manufactured. In other models, such as a Hub & Spoke
model, the product is held at the manufacturer once produced. It is then sent out to the Distribution Center
only when it is needed.
Supply Chain Management becomes a tool to help accomplish corporate strategic objectives:
Milk is the most perishable and fast moving customer good. The very first and initial requirement or feed for
any human being is milk. Milk is complete diet as it contains every nutrient except iron. Fortunately Pakistan
is the fourth largest producer of milk in the entire world and its annual production is surprisingly 45 billion
liters which is very high. But unfortunately only 27 billion liter of milk is available for human consumption.
Therefore most of the milk is lost and Pakistan cannot fulfill its demand. Despites of these facts and figures
Diary Industry is playing a very crucial role in the Pakistan economy and contributing 14% to the countrys
overall GDP. More than 20% of the entire population of Pakistan is involved in this sector directly or indirectly.
If we talk about the Dairy Supply chain management of Pakistan, we can divide it in to two categories: One is
Formal and second is Informal sector.
The share of formal sector is 4% whereas the rest of 96% of share is taken by the informal sector. In the formal
sector Nestle is the market leader in Pakistan and contributing 60% of market share as per fact and figure of
2008. In formal sector, milk is collected by different milk collection centre. Then it is taken in to the processing
plant where milk is stored in cooling towers. In the processing plant, milk is processed and packed and then it
is distributed to the retailer and finally milk is reached to the ultimate consumer. In formal sector we can
divide it in to two sectors. In first category farm milk is collected by gawalas (milkmen) who sell the milk
directly to the consumers or the milk collectors. In second case, farm milk is collected by different milk
collectors who sell their milk to the retailers and these retailers provide it to end consumers.
The foremost problem dairy industry is facing is the adulteration means adding water, fats and other harmful
substance to the milk that makes the milk unhealthy and less hygienic. This problem is difficult to control and
requires serious consideration from both public and private sectors. Transportation, storage and processing
make this product more costly. Day by day electricity is a problem in the country therefore majority of the
milkmen use ice to keep the temperature of milk low but this method is not optimal and quality of milk is
affected. If we talk about the facts and figures as per World Bank reports 15%of the milk is lost at the stage of
farm due to mishandling and wrong milking practices. While 5% gets wasted during the transportation stage.
The buying capacity for small scale farmers is very low they do not afford high cost of feed for their animals
and they are lacking advantage of economies of scale. They do not access to formal market channels and are
often exploited by the middlemen who offer low prices for their milk and they enjoy the huge profit margin for
their own customer.
Nestle Pak works as a subsidiary of Nestle S.A. Nestle Pak started working in Karachi since 1988 under a joint
venture with Milk Pak Ltd. With its headquarter in Lahore, Nestle Pak. has four production facilities. Two of its
factories are in the heart of Punjab province; Sheikhupura and Kabirwala which are multi-purpose factories,
one in Islamabad and the other in Karachi, Sindh which produces bottled water. Nestle Pak is the biggest milk
collector in Pakistan. Currently, it collects milk from 190,000 farmers over 145,000 square kilo meters in
Punjab and Sindh. With its 8000 brands world-wide, Nestle is the leading brand in beverages and food
industry. It has a separate department for supply chain management which was founded in 2001. The
objective behind the creation of separate department of supply chain management is to ensure the smooth
running operations from the supply of raw materials from farms or other sources to the supply of finished
products into the markets.
Optimize and consolidate resources and processes for a low-cost but efficient.
Develop and manage simplified and effective supply network to achieve a high level of service.
Create a continuous improvement culture driven by performance measures and reward.
NESTL PRINCIPLE:
Nestl is based on the principle of decentralization, which means each country is responsible for the efficient
running of its business - including the recruitment of its staff.
Nestle Pakistan has a wide range of products from nutrition to beverages, as so we chose MILK PAK to explain
the supply chain of Nestle Pakistan.
CHALLENGE:
Supply chain knowledge is becoming more and more critical to ensure competitive supplies of goods and
services, especially for large companies dealing with a complex network of suppliers, customers, distributors
and consumers. All parties in the chain need to have a particularly good grasp of how their individual activities
work together and affect the performance of the whole supply chain. At Nestl, Key Performance Indicators
(KPIs) provide the standard metrics for measuring supply chain performance. Nestl launched a new initiative
to communicate the value and use of KPIs to line managers.
Milk is collected from more than 2000 village milk centers and 500-600 sub centers and then milk is
transported to 25 main centers
of milk up to standard. After whole process of milk collection, it is transported to the Sheikhupura and
Kabirwala factories. In the processing stage milk is passed through different stages i.e standardization,
pasteurization UHT treatment and packaging. After processing, milk is then reached to the factory warehouse
which is near the premises of the factory. Finally milk is transported to the south, north and central regions.
Then finally distributors of MILKPAK carry it and transport it to the super marts and retail shops so that its
available to the end consumers. Supply Chain of Nestle MILKPAK guarantees environmental friendly practices
and for this they are continuously making their contributions in the society for keeping the environment safe
and secure. Their ultimate objective is to make sure that the green supply chain is in practice while keeping
their benefits, profits and business activities intact.
SUPPLIERS SUPPLIER:
Improving Feed
Even before calling Nestl in, Milkpak Ltd. had tried to ensure that milk cows were given fresh fodder during
the summer.
Their teams are always prepared to offer practical advice. They have planted a variety of fodder crops and
demonstrate to farmers on field day. They also provide training on best practices in animal husbandry. For
instance, they stress the importance of giving cattle enough water, and train farmers in hygiene and milking.
Livestock Breeding & Health
Pakistan's vast milk production comes largely from buffaloes, despite their small yield. Nestle agronomists
have shown that with artificial insemination they can actually triple milk production. Yet artificial insemination
is still not widely used. In 1996, their vets and agronomists independently formed an NGO to promote artificial
insemination using high quality semen.
Today, with help from Nestl and others, they have established a training programs for inseminators, and
provide high quality imported semen at low cost to farmers Nestle Pakistan concentrate on preventative
measures against the most common diseases that afflict cattle in Pakistan. Farmers know that they can call on
our trained vets whenever necessary.
Better Equipment
Nestle agricultural services staff have drawn up technical plans for cowsheds, which are provided free of
charge. Their mechanics have also developed prototypes of machines to cut fodder quickly an inexpensively.
Starting 2004, we went a step further and proposed a system of small loans for farmers who wanted to make
improvements to their farms, such as building cowsheds.
Nestle drew up the sample specifications for a model farm to be presented to the bank disbursing the loans.
The Service even helps farmers fill out applications for loans.
Power cuts are frequent, so 95% of the stations have their own generator.
An agent who also works as a milk inspector to run quality tests runs each secondary station.
Looking after more than 1000 generators with the same number of water pumps
and ancillary equipments demands a systematic approach.
Each of the 23 main stations employs full time mechanics/electricians.
For more complex problem mechanic/electrician can immediately calls one of the five Nestle
maintenance service station located in five of the main reception stations.
The Nestle repair service was originally based in Shaikhupura factory. But over the period of time it was
transferred to the fresh milk-purchasing department.
Number of farmers
39,205
53,693
65,568
68.277
89,394
2004
2006
121,259
137,784
MILK COOLING:
Milk pack set up reception centers with cooling facilities where farmers and dodhies, small-time milk
merchants, could bring their wares.
It was a simple solution, but difficult in practice: importing the stainless steel chilled containers required was
prohibitively expensive. By 1988, the company purchased 120 tons of milk a day from 26,000 farmers.
After acquiring a share in Milkpak Ltd in 1988, Nestl immediately began investing in milk cooling tanks.
Between 1988 and 1992, 100 milk tanks were installed.
1992 onwards, with full support from the Nestl headquarters in Switzerland, reorganization of the milk
collection operation and the provision of agricultural technical assistance became top priorities.
The investment paid off. Within a decade, Nestl's purchase of fresh milk had quadrupled, and the number of
small farmers selling milk to Nestl tripled.
Step 3
The Secondary Reception Station has a large electrically powered cooling tank. A milk inspector measures the
fat content, the non-fat solids content, and the milk's acidity. Once satisfied, he takes the milk to one of 27
Main Reception and Cooling Stations.
Step 4
At the Main Reception and Cooling Stations the milk is poured into huge tanks and is thoroughly checked for
quality. The milk is dispatched to the factories.
Step 5
At the Sheikhupura and Kabirwala factories, the milk is processed and packed into the familiar Nestl cartons
you can find in your grocery store. It is checked for quality thrice before being released for sale. Some is
processed into yoghurt, powdered milk, or other dairy products.
INBOUND LOGISTIC:
Inbound logistics used for milk collection from different milk collection centre is centrally owned by nestle
Pakistan limited. In Pakistan, logistics has always been a problem especially for sensitive product like milk in
the hot weather. Initially the supplier who supplied there milk
NESTLE FACTORIES:
Our products are manufactured in five facilities scattered around the country, from
Islamabad in the north, to Karachi in the south.
Two state-of-the-art multipurpose factories are located in the agricultural heartland of the
Punjab, and the remaining three are dedicated to producing our trusted brands of bottled
water.
As citizens of Pakistan, we consider it our duty to make sure that our manufacturing processes are clean,
hygienic and safe. We are constantly working to reduce emissions at our factories, reducing and treating
wastewater, and making our packaging environmentally friendly. Regular audits have confirmed that our
factories' environmental management meets the Nestl international standard.
Sheikhupura Factory
The factory commenced operations as part of Milkpak Ltd in 1981. At the time it produced only UHT milk, but
by 1988 had expanded to produce butter, cream and ghee, as well as fruit drinks. Milk filling machine TBA-22
(most modern and efficient and high speed equipment available in dairy industry) National distribution centre
was also constructed in 2000 with capacity to store
8300 pallets.
Kabirwala Factory
In 1990, Nestl Milkpak acquired the Kabirwala factory, located in Khanewal district of the Punjab, as a
subsidiary. By 1997 it was a fully owned unit of Nestl Pakistan Ltd. 2006 has seen the commencement of
Kabirwala Extension Project that would be completed in April 2007 at a cost of about Rs. 4.0 billion. The
project has seen expansion of milk processing capacity to triple its current size, both for powder and liquid.In
2005 Fresh milk capacity was increased from 676 to 800 tons per day. In 2007 an additional raw and packing
and semi finished product stored and a bigger distribution. Centre, a stick pack filling machine and 1000 gr.
Powder filling machine will be added.
Islamabad factory:
AVA water factory Islamabad was acquired by Nestle Pakistan in 2001 and was
subsequently merged with it. Thereby becoming a fully owned unit of Nestle Pakistan in
2003.The production capacity of the factory is approximately 8000 bottles per day.
PLANNING:
The successful execution of a planning strategy demands that the analysis has been performed with:
Confidence in the accuracy of the information provided;
Clarity in the way the information is presented;
Completeness of the information to be considered.
Planning must also address the resources and expertise that will be needed to implement the chosen
purchasing strategy. The trend to outsource both the initial conversion of raw
materials, the manufacture of certain semi-finished or finished products and some services, requires that the
original expertise in purchasing these materials and services is now needed to
manage suppliers fulfilling a higher added-value process. In addition, consideration must be given to decide
the specific value drivers of the subcontracting initiative for which Nestl needs to control either the sourcing
or pricing (or both).
The realization of the importance of the S&IM spend categories will result in Purchasing allocating more
attention to them. The task of planning a S&IM purchasing initiative may well
require a different skill set and knowledge base to that traditionally expected of a Strategic Buyer.
MANUFACTURING:
Manufacturing is very important part of supply chain. In our factories, the objective is to maximize ecoefficiency that is to maximize the production of goods, while at the same time, minimizing of consumption of
resources and reduce wastage and emissions. The factories are equipped with complete testing and
monitoring facilities for wastage and emission enables them to stringently monitor the gaseous environments
and ensure that these are in accordance with environmental standards (NEQS).
MILK PROCESSING:
Milk Reception
The Milk Reception Unit receives milk and liquid milk products for a milk processing plant. The unit measures
and pumps the product for buffering or further treatment.
Mixing
Tetra performs in-line mixing for a wide range of powders and liquids for dairy applications such as
reconstituted and recombined milk, yoghurt milk, flavored milk, evaporated milk, recombined concentrated
milk, ice cream mix, chocolate slurries, dairy desse ghee.
UHT treatment
UHT treatment is a thermal process for preserving liquid milk. UHT stands for Ultra High Temperature and by
heating to 137 140 C for a very short time (2-10 s) the micro-organisms are inactivated. If the milk is
packaged under aseptic conditions it can be stored at room temperature for months.
Packaging Materials
Nestl is committed to reducing the environmental impact of packaging, without jeopardizing the safety,
quality or consumer acceptance of its products.
As far as milk is concern packaging is very important, it is perishable item which requires special packaging to
preserve it for few months. To meet this objective Nestle
Milkpak use tetra Pak to deliver fresh milk to its customer without sacrificing in health measures. Nestle have
following objectives in mind regarding packaging:
Result in the lowest possible weight and volume of packages whilst still maintaining pack integrity;
Take into account new packaging materials and processes that reduce the impact on the environment of
unnecessary transportation;
Avoid the use of substances that can adversely impact the environment during packaging production and
disposal;
Decrease packaging waste at all stages in the supply chain, including package manufacturing, utilization
and disposal;
Increase the use of recycled materials wherever possible, and increase the recyclables and compatibility of
packages with existing waste management schemes.
No. Of cartons
1 liter
250ml
1.5 liter
500ml
1092
1815
1040
1750
Invoice number
Whom to sold
Whom to ship
Dispatch date
From whom
Product description
Unit price
1 liter
250ml
1.5 liter
500ml
12
27
8
12
OUTBOUND LOGISTICS:
Outbound logistics concerns finished milk movement from factory to different
warehouses located in different cities.
The logistics usually take 3 days to arrive at Nestls warehouses in Karachi from their
manufacturing factories at Lahore, kabirwala and shaikhupura
Size of item
No. Of cartons
1 liter
250ml
1.5 liter
500ml
1092
1815
1040
1750
DISTRIBUTION:
According to the distribution, Pakistan is divided into three geographical zones and then
in further Regional Sales Offices.
North Zone:
Islamabad and north outstations
Peshawar
Jhelum
Central Zone:
Lahore
Faisalabad
Gujranwala
Multan
Sahiwal
South Zone:
Karachi
Hyderabad
Quetta
Sukker
Selection of Distributors
The Criteria followed are:
1Capital Investment
Depends on both present and future capital investments by distributors
Amount vary from Area-wise to marketwise
2.Relevant experience
Prior experience in FMCG sector is preferred to save on training expenses
Distributor should not be dealing in Competitors product
Should handle entire range of Nestle products (Both fast and slow moving SKUs)
3.Infrastructure
Godowns / Storage space with appropriate refrigeration as per product needs
Delivery vehicles
Salesmen
4.Companys discretion based on markets served
Distribution process
The distributors have sales force to collect orders. There are two methods for distribution of goods:
ORDER BOOKING
(Where sales force first books
orders from the shops or retailers
and then delivers the goods)
SPOT SELLING
(Where sales force is given a van
full of Nestle goods to sell)
Nestle Milkpak goes for indirect channel of distribution, that means there is a chain of intermediaries through
which a product moves through additional steps as it moves from manufacturing business via distributors to
wholesalers and then to retail stores or super marts.
The distribution strategy of Nestle MilkPak is intensive as it is covering wide market. There are regional
headquarters of the company in all big cities of Pakistan. In this report we have covered distribution channel
of Nestle MilkPak in Karachi. In order to reach remote areas the company is linked with the main distributor
and sub-distributors. The company is directly linked with the main distributors; they provide the products
inventory to the main distributor that is further dispatched to retailers and sub- distributors. The targets differ
from area to area and set on the basis of history of the area sale and also from the monthly forecasting.
Distribution Channels:
Nestle employs different distributors for different areas. Distributors employ their own sales force and vans,
which deliver Milk Pak to the doorstep of the retailers. Every distributer has three territories per area. In the
A territory, the distributors vans visit the outlets every alternate day. In the B territory, the vans visit the
retailers at least twice a week, while in the C territory; the vans visit once a week.
In the year 2005 the successful launch of GLOBE remained probably the most significant achievement for
Nestle Pakistan. It was recognized locally as well as in the Nestle world as the most successful implementation
of GLOBE.
GLOBE is a worldwide program/project designed to align Nestle Pakistan with other Nestle companies around
the world and to learn and benefit from each others experience.
The project has three main objectives;
Creation and adoption of common business practices across all countries where Nestle operates.
Standardization of data and,
Standardization of information technology system.
Migration to an ERP
The final phase of the project entails migration of Nestle Pakistan to an ERP (Enterprise Resource Planning)
called SAP (System Application Products), which is one of the most integrated business application software in
the world. Nestle Pakistan achieved this final migration on February 7, 2005. On that date all Nestle sites
including the head office, all factories, distribution centers and three zonal offices went live on the new
application.
Information system and Purchasing
Purchasing task will be greatly facilitated by standard IS/IT infrastructure, common business applications and
best practices, Visibility of standardized, real-time purchasing data/information will permit aggregated spend
category analysis. This will help identify opportunities and define more effective purchasing strategies with the
objective of achieving lower total cost.
encourage sustainable production, protect the supply and quality of its raw materials and have a positive,
long-term impact on the local economy and farmers standards of living.
Around two-thirds of Nestls worldwide expenditure is on raw materials. Nearly 40% of this goes on three
main ingredients: milk, coffee and cocoa. It is a prime example of Nestls Creating Shared Value approach to
business The initiative aims to help farmers to run profitable farms, respect the environment, have a good
quality of life and give their children a better education.
So what does Nestle do in order to stay successful in its supply chain management? There are multiple
innovative strategies that Nestle employs time-to-time on a global level.
To conclude:
Sustainability, Compliance, Farmers Connect sourcing model contribute to
RECOMMENDATIONS
1. Nestle Pakistan can establish their own dairy farms near their factory.
Benefits
a. Transportation cost that incurs from the collection centres to the factories will be minimized.
b. Less dependency upon local farmers.
c. These dairy farms will act as Crisis Management point in dynamic conditions as we have recently faced in
the form of worst floods in all over Pakistan.
d. More employment opportunities for local people around that region.
e. As milk is collected twice a day so there will be less repetition of work; if Nestle establishes its own dairy
farm near its factory.
2. Nestle can also establish a few of their own retail outlets or franchises in major cities of Pakistan to fill
the demand and supply gap more efficiently just like Millac (Pvt) Ltd.
Benefits
a. These outlets will save the repute of the company from stock outs in peak seasons like Ramazan, Eids, &
Moharram.
b. These retail outlets will align with Nestles production
planning with the demand of customers.
c. There will be less occurrence of bullwhip effect.
d. These outlets will serve as a competitive advantage for
Nestle in their marketing strategy.
e. Nestle will also be less dependent on other retailers.
3. Nestle should introduce vertical shelf system in the
warehouse
Benefits
a. As Nestles warehouse has a ceiling of 17 feet, it should
use the ample space above the lower shelves.
b. This system will allow the storage of goods in segregation.
4. Nestle should install Voice Picking technology in warehouses.
Benefits
a. Although its a bit expensive, but use of this technology will benefit Nestle in future as it reduces the time
and human error and increases efficiency.
CONCLUSION
In the end, we would like to conclude that Nestle Pakistan is the leader in FMCG industry. Nestle keeps track
of its goods by maintaining its supply chain all over the country. From Nestls manufacturing system to its
Distribution channels, everything is properly managed. They have a strong relationship not only with their
customers but also with their suppliers, distributors and retailers. They maintain a proper Corporate Social
Responsibility by training their local farmers about milking and feeding of their animals. In 2004, Nestle
proposed a system of small loans for farmers who wanted to make improvements to their farms, such as
building cowsheds. They drew up the sample specifications for a model farm to be presented to the banks
disbursing the loans. The Service even helps farmers fill out applications for loans. In short, Nestle takes care
of its inside and outside customers. The manufacturing plant of Nestle is the strength and serves as a
competitive advantage for Nestle because of its perfect system. The hygiene, safety and security control is
done under Nestle MilkPaks manufacturing plant. We learnt a lot about Nestles Supply Chain; from the
manufacturing department to distribution, everything is done perfectly.
BIBLIOGRAPHY:
To collection information we have considered following source in order to gather authentic data:
http://www.supplychaindefinitions.com/
http://scm.ncsu.edu/scm-articles/scm-terms
http://www.investopedia.com/terms/s/supplychain.asp
http://www.adi.pt/docs/innoregio_supp_management.pdf
Logistics and Supply Chain Management : Strategies for Reducing Cost and
Improving Service (Financial Times Management) -- Christopher Martin;
Introduction to Supply Chain Management -- Robert B. Handfield, Ernest L. Jr. Nichols
http://prezi.com/1qfek0tjvy4h/supply-chain-management/
http://www.nestle.pk/asset-library/documents/financial_reports/nestle_annual_report_2010_en.pdf
http://www.slideshare.net/neelamasad1/nestle-in-pakistan-16381502
http://www.nestle.pk/asset-library/documents/financial_reports/nestle_annual_report_2010_en.pdf
www.nestle.pk
www.nestle.com
www.tetrapak.com
www.cia.gov.com
www.smeda.com
www.wekipdia.com
Books concerned:
Nestle management report 2005
Nestle management report 2006
SEMIDA report 2005 for milk production and distribution
Economic survey of Pakistan 2006
Personnel concerned:
Mr Shakeel Mirza
Reigional Sales Manager