AD3/November 2016

Advanced diploma in procurement and supply

Improving the competitiveness

of supply chains
Date

Wednesday 16 November 2016

Time

Start 09:30

End 12:30 Duration 3 hours

CASE STUDY

IMPORTANT
The examination format for this CIPS unit is open book
Please remember to take your case study into the examination with you

QP04

INSTRUCTIONS FOR CANDIDATES

The pre-released case study examination is designed to assess your ability to apply the relevant theories,
principles and techniques associated with the unit content to a realistic business situation.
The examination is a three hour open-book examination. The examination questions will test each of the
learning outcomes from the unit content.
You will be expected to demonstrate your knowledge and understanding of relevant theoretical principles,
concepts and techniques; to apply these appropriately to the particular situation described in the case
study; and above all, to make sound decisions. You will not gain marks by writing a general essay on the
topic. Prepared notes may not be included as part of the answer.
Please note that all work should be your own. Copying or plagiarism will not be tolerated and could
result in no marks being awarded. If quotes or short extracts are used they should be attributed or the
source of the information identified.
You should acquaint yourself thoroughly with the case study before the examination. You must take your
copy of the case study into the examination.

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NESTL CASE
This case has been produced for assessment purposes only. It has been sourced from the articles indicated
within the reference list, which are available in the public domain. It contains a number of direct extracts
and quotations which have been referenced within the text.
The views and opinions expressed within the case are those of the authors of the reference material and
are not necessarily the views or opinions of CIPS or the companies mentioned. The case may not reflect the
actual situations of the specific companies mentioned.
The case was written in April 2016 and may not reflect the current situation. Candidates are advised to base
their answers on the situation depicted in the case.
A bibliography can be found at the end of the case study.

Introduction
Nestl SA (Nestl) is one of the largest consumer goods companies in the world, operating in the food
and beverages sector. The companys product portfolio includes baby foods, beverages, dairy products,
prepared dishes, healthcare, nutrition and pet care products. Nestl operates in Europe, the Americas, Asia,
Oceania and Africa. It is headquartered in Vevey, Switzerland, and employed about 339,000 people as of 31
December 2014. The company recorded revenues of CHF91,612 million (Swiss francs) during the financial
year ended December 2014 (FY2014), a decrease of 0.6% compared to FY2013. The operating profit of the
company was CHF10,905 million in FY2014, a decrease of 16.6% compared to FY2013. The net profit of the
company was CHF14,456 million in FY2014, an increase of 44.3% over FY20131.
Quality
Nestls actions to ensure quality and food safety are guided by the companys quality policy, which
describes its commitment to:
building trust by offering products and services that match consumer expectation and preferences
complying with all internal and external food safety, regulatory and quality requirements
achieving a zero-defect, no-waste attitude by everyone in the company
and making quality a group-wide objective.
Nestl also operates a quality management system, which is the platform that it uses globally to guarantee
food safety, compliance with quality standards and to create value for consumers. The internal quality
management system is audited and verified by independent certification bodies to prove conformity to
internal standards, ISO norms, laws and regulatory requirements.
The quality management system starts on farms. Nestl has a long history of working together with
farmers in rural communities to help them improve the quality of their produce and adopt environmentally
sustainable farming practices. The quality management system not only ensures Nestls ongoing access
to high quality raw materials, but also enables farmers to protect or even increase their income. Often,
the standard of living of entire rural communities is raised as a result. The system helps address key global
environmental and social issues.
Quality is built in during product development according to the requirements of the consumers and
following all food safety and regulatory requirements. Nestls R&D network applies this quality by design
concept to all the companys products.
1

Nestl Marketline Report, 23 October 2015

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Nestl applies internationally recognised Good Manufacturing Practices (GMP) to ensure quality and
food safety. GMP covers all aspects of manufacturing, including standard operating procedures, people
management and training, equipment maintenance, and handling of materials.
Nestl also applies the internationally recognised Hazard Analysis and Critical Control Point (HACCP)
system to ensure food safety. This preventive and science-based system identifies, evaluates and controls
hazards that are significant for food safety. It covers the entire food production process from raw materials
to distribution and consumption. Nestls HACCP plans and systems are verified by external certification
bodies against the international ISO22000:2005/ISO22002-1 standards.
Nestls products carry information to ensure that they are used safely with the highest level of quality
for the consumer. Nestls worldwide consumer services organisation ensures that the company can
immediately respond to any consumer enquiry, question or concern. The labels of all Nestls products
invite consumers to talk to the company, and provides address or telephone number details.2
Continuous Improvement
According to Bchel and Zintel (2013), Nestl has long been a leader in driving performance improvement,
so much so that by 2007, business units around the globe were finding it difficult to remove any additional
costs. Many, including then CEO Peter Brabeck, were concerned that the continued focus on cost saving
could eventually compromise product quality and they wondered if the savings initiatives were sustainable
over the longer term. In his blueprint for Nestl in 2006, Brabeck advocated moving from project-driven
initiatives to a sustainable, attitude-inspired approach. The challenge was to engage everybody at all levels
of the organisation in everyday continuous improvement to accelerate performance improvement and
ensure sustainability. This was where the first seeds of the Nestl Continuous Excellence (NCE) initiative
took root.
When Jos Lopez started in a new role as Vice President of Global Operations in February 2007, Brabeck
gave him a new mandate: I need you to think about a way to engage people in order to accelerate
execution. The first thing that Lopez did in his new position was to tour Nestl operations around the
world, looking at different markets for inspiration in already established continuous improvement
initiatives.
In Brazil, Nestl had implemented Lean Thinking, a management philosophy focusing on zero waste, and
Total Productive Maintenance (TPM) in its plants beginning in 2005. In Malaysia, semi-autonomous workteams (SAWTs) frontline production teams that were empowered to determine their own goals and
directions for improvement in alignment with the company and factory goals had been in place since
2003. In Australia, Nestl had been working in mini business units, which were similar to the concept of
SAWTs in Malaysia. Nestl USs Future Manufacturing initiative focused on teamwork with teams having
100% responsibility utilising all talent in the company. Nestl Germanys Aufwind programme was closely
related to TPM. In Southeast Asia (Philippines, Thailand, Japan and Indonesia), quality circles and smallgroup activities (SGAs) had sprung up during the 1990s; these groups of employees identified a problem
and were given two months to find a solution, which they then presented as a group, with the best projects
being implemented.
After touring Nestls operations around the world, Lopez developed his vision of the NCE model: a single
operating system for Nestl operations that built on the best practices already implemented internally
around the world. He argued that having a common model for the entire organisation was critical as it
would: (i) ensure the sustainability of the programme independent of changes in management; (ii) use one
validated set of best practices; (iii) eliminate duplication of effort; and (iv) enable sharing of learning on
implementation.

www.nestle.com, April 2016.

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Lopez advocated an approach that went beyond cost-cutting and focused on consumers, quality and
safety. His proposed performance improvement emphasised three areas The 3Cs of: (i) delighting the
Consumer; (ii) delivering Competitive advantage; and (iii) excelling in Compliance. NCEs guiding philosophy
of Lean Thinking the Nestl Way would be supported by five key principles that focused on value
creation: (1) engage our people; (2) understand value; (3) evaluate which activities add value or not;
(4) eliminate non-value-added activities; and (5) continuously improve value creation.
To implement this philosophy, three NCE foundations had to be in place before undertaking any further
activity.
The first foundation element was the Nestl Integrated Management System (NIMS), which served to
ensure that health, safety and quality guidelines and processes were in place and complied with to
consistently deliver high-quality products and services to consumers in a safe and trustworthy manner.
The second foundation element was Leadership Development, which consisted of three components:
success profiles (defining roles and behaviours); talent pool and succession planning (developing the
right people for the job); and leadership and coaching. A major emphasis was placed on coaching and
empowerment as these were considered essential to engaging people and unlocking their potential.
The final foundation was Goal Alignment, a set of practices that aimed to align employees actions with
business priorities and to ensure reliable execution of those actions. Cascading objectives allowed everyone
to understand the link between the strategy and their day-to-day actions and promoted teamwork. It
included several visual elements: an operational master plan, performance measures, reviews, standard
routines and basic problem solving.
An operations unit had to demonstrate that it had effectively implemented the three foundations in
order to unlock the gate and begin Total Productive Maintenance (TPM). The next step was to optimise
manufacturing operations using the TPM pillars. All of these elements combined were called the ONE
Nestl Operating Model. A diagram of this is shown below.
Nestl Integrated Management System (NIMS)
Quality, Safety, Environment, Standards

Leadership Development
Coaching and Empowerment
Goal Alignment

Operational Masterplanning, Performance Measures, Operations Review, Problem Solving

...Measure, Monitor, Organise

TPM

Audits, Self Assessment Tools...

LEAN Supply Chain

Consumer Customer Distribution

Manufacturing

Packaging

Raw Material

Total
Performance
Management

Source: Company Information

Fig 1: The ONE Nestl Operating Model3
Note: the ONE Nestl operating Model uses the acronym TPM to refer to Total Performance Management.
This is distinguished from the lean technique of Total Productive Maintenance.
3

 chel, Bettina & Zintel, Christopher; Nestl Continuous Excellence: Lessons for Driving Performance Improvement, European
B
Financial Review, 1 March 2013.

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Lopez summarised his views on NCE thus: This is our road map to improve our performance but it also
serves as our new mindset, which will drive ongoing improvement and continuous excellence in all we do.
Engaging all our people will be key to this mindset change. This is the power that will take us to the next
level as a company and indeed beyond.
The history of the company was based on autonomy, independence and the entrepreneurial spirit of
local operations. Lopez knew he needed to win people over and obtain their buy-in to ensure a bottomup, employee engagement-driven common Nestl programme. While the idea of having one common
approach was applauded by many, the concrete implications were not clear. One manager commented, It
sounds great. But Im not entirely sure what Lean, TPM, goal alignment or NIMS really mean. Others were
more sceptical: NCE? Another quality performance initiative? Sounds like the flavour of the month to me.
Wait another three years and there will be a new one.
As Lopez planned how to deploy NCE, he considered the roll-out of GLOBE, Nestls global IT platform,
which established common processes, systems and data across the organisation. GLOBE had been a topdown initiative that left little choice to markets. He wanted local management to be excited about NCE and
to actively engage with this new approach. Lopez also realised that GLOBE would be a key engine to drive
NCE, because the standardisation of processes, systems and data across Nestls markets would provide the
transparency needed to identify improvement opportunities in operations.
In order to gain momentum and rouse employee engagement, NCE was piloted and rolled out across the
technical organisation in ten reference factories. Zone managers proposed factories in their regions, who
then talked to the technical managers, visited the factories and interviewed the factory managers to assess
their readiness. The launch of NCE in a factory began with formally handing over the production lines to the
operators.
Operators were asked to write down what was wrong with their machines on red slips of paper, which were
attached to the machines. The problems were then quickly corrected. To ensure the shop-floor teams took
ownership during the weekly operational review meetings, only factory workers were able to contribute.
Review meetings took place in a reserved space demarcated by a green line that the factory manager
was not allowed to cross. Whiteboards were used to list key performance indicators (KPIs), which were
reviewed during the meetings. Each worker had to write the KPI for which they were responsible. If it was
not achieved, the worker responsible had to cross it out and write a new target in red.
The initial results of the pilot were encouraging: consumer complaints decreased by more than 30%; the
master schedule attainment level improved by more than 14%; conversion cost reduction was down by
more than 9%; and efficiency was at 90% with zero accidents.
In late 2008, 45 market heads travelled to Brazil where NCE had been successfully piloted on three- to
four-day go see study tours during which they went to see NCE in action in various Nestl plants. Seeing
NCE at work was critical to converting market heads and key champions to NCE.
As the benefits of NCE became apparent, enthusiasm spread. But could it be applied to other areas of the
business like finance, marketing, IT and human resources? Some were convinced that NCE could make
a contribution outside of operations. Others had concerns about how appropriate NCE was for different
functions: NCE is a very structured approach, which is good at reducing waste in operations but if it is
implemented in a function like marketing, there is a real danger that it will limit creativity. Not everything
can be inserted into a process and optimised using the tools offered by NCE.
In July 2009, the Nestl board approved the decision to roll out NCE beyond operations. By the end of 2010,
NCE had been implemented in 300 factories in 15 countries and had brought well over CHF1.5 billion in
cost savings. But the effects of NCE had spread well beyond cost savings; factory managers were passionate
about the effect NCE was having on the morale of their workers: You can see it on their faces! Theyre
proud of their work and are fully engaged. The motivation level has completely changed.
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Nestl then started to introduce NCE which now touched a third of the overall staff to the rest of its
factory network and into other functions. Nestl CEO Paul Bulcke saw NCE as key to the companys success:
Taking our performance to the next level and beyond will be led by NCE: a long-term, permanent approach
that will change our mindset to one of ongoing performance improvement. NCE will provide the focus,
tools and experiences for all our people to adopt Lean Thinking the Nestl way. Starting in operations
and then moving through the group, it will result in zero waste, simplicity and efficient activity at
individual, team, factory and eventually function levels. NCE will build on our past success in performance
improvement and change how we act: people will have greater control over their destiny, the consumers
demands will determine our business and operational responses, and we will increase the distance
between our leadership positions and our nearest competitors.
The story of NCEs inception, roll-out and widespread adoption provides a number of lessons in relation
to the introduction of sustainable continuous improvement cultures to drive performance in complex
organisational environments:
CREATE YOUR OWN ADAPTABLE MODEL.
In seeking to roll out a global continuous improvement initiative, Nestl adapted different
approaches and techniques elements from Lean, TPM, Six Sigma, quality circles and SAWTs with
existing internal Nestl global best practices in areas such as leadership development, functional
excellence and compliance to create the unique Nestl approach: NCE and ONE Nestl Operating
Model. As NCE was rolled out to different functional areas, the flexible base model allowed each
functional area to introduce local adaptations.
START WITH THE FOUNDATIONS.
To succeed in continuous improvement and change initiatives, companies must begin with strong
philosophical foundations. Nestl implemented three foundational elements for NCE goal
alignment, leadership development, and compliance which had to be in place before undertaking
any further activity. Goal alignment is of critical importance. During his experience as market head,
Lopez developed the belief that technical operations have to align with the business strategies. Goal
alignment which linked business goals was also key to attaining results early on, as goals were broken
down in each factory into clear activities that could be improved in a short time-frame. Having
aligned goals for NCE early on, Nestl then focused on leadership development with an emphasis on
coaching and empowerment as well as on compliance, which ensured that health, safety and quality
guidelines and processes were in place. The combination of these three elements constituted the
foundation of NCEs success.
CHANGES WILL NOT COME QUICKLY.
Many companies believe that continuous improvement will provide a quick fix, but this is rarely the
case. Nestl realised that NCE is a 10- to 20-year journey. Employee engagement takes time and
must be based on changing attitudes and behaviours rather than just tools. NCE has its own in-built
sustainability and a long-term focus: it was designed as a sequence of steps that took on average
between two and ten years to complete. At each step, progress was assessed against milestones to
demonstrate concrete performance improvement in waste elimination. The introduction of a gate in
the NCE model was not a one time pass always pass gate: monitoring was done on a regular basis.
As such, the gate served as a continuous improvement tool but also as a way to slow down quick
implementation, which might not be sustainable.
BALANCE LOCAL AGILITY AND GLOBAL EFFICIENCY.
A central dilemma facing many large organisations is how to balance the desires for local flexibility
and global efficiency. Nestl is successfully leveraging scale and global efficiencies with GLOBE and
is growing more agile and locally focused with NCE. Together with GLOBE, which shows benchmarks
of best practices across locations, the methodologies provided by NCE enable Nestl employees to
proactively drive sustainable performance improvement at all levels of the organisation.

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 MULTI-LEVEL LEADERSHIP IS CRITICAL.

A combination of sustained senior management support, strong in-country management and
entrepreneurial local talent contributed to the success of NCE. Launching a continuous improvement
initiative requires persistence and patience on the part of top management. Additionally, Nestl
realised that it is not just the leadership at headquarters that matters: local champions, middle
management and trained coaches are critical to the increased adoption of NCE throughout Nestls
global network.
ENCOURAGING PARTICIPATION AND OWNERSHIP IS NECESSARY TO CREATE A MINDSET AND
BEHAVIOUR CHANGE.
Companies can make a big difference in encouraging participation and ownership through
continuous improvement. Nestl realised that engaged employees feel enabled to perform well,
are involved in decision making, are free to voice their ideas and concerns, and are listened to by
management at all levels of the organisation. The NCE initiative depends on employees who go the
extra mile and feel engaged and empowered to pursue continuous improvement in their everyday
positions.4
Demand and Supply Planning
According to SAS (2016), a billion units roll off Nestl production lines every single day. This number
illustrates the sheer quantity of goods produced by the worlds biggest food company. To ensure the
right amounts of those products make it onto the shelves and into customers hands, Nestl relies on
forecasting. After all, even the best marketing promotions can backfire if the shelves are empty when the
customers show up for their favourite foods.
It comes as no surprise that Nestls interest in closely managing the supply chain and keeping inventories
within tight limits is proportionate with the size of its operations. Its sheer size makes planning on a global
scale highly complex. Product categories, sales regions and an abundance of participating departments
combine to weave a tangled web. Its also the nature of the food and beverage industry that makes
operational planning a challenge. Seasonal influences, being dependent on the weather to provide a good
harvest, swings in demand, other retail trends, and the perishable nature of many products make it difficult
to plan production and organise logistics.
Supply chain management is a well-established, recognised stream and process at Nestl, explains Marcel
Baumgartner, who leads global demand planning performance and statistical forecasting at Nestls
corporate headquarters. Our professionals take care of transportation networks, run efficient warehouses
and are the first point of contact with customers. One area of focus is planning or, more precisely,
demand and supply planning.
According to Baumgartner, this process tackles two important metrics: customer service levels and
inventory levels. One can improve customer service levels defined as the percentage of complete and
on-time deliveries by expanding inventories. But that ties up capital, and its often difficult to find storage
space. The freshness of the product suffers as well.
In this industry, products are processed in very large batches to keep unit prices low, ensure quality and
take advantage of raw ingredient availability. This make-to-stock production strategy contrasts with the
make-to-order principle frequently seen in other sectors such as the automobile industry.
To have the right quantity of the right products at the right place and time, we rely heavily on being able
to predict the orders our customers will place as precisely as possible, says Baumgartner. Other business
metrics, such as budgets and sales targets, are also important factors. The overarching goal, according
4

 chel, Bettina & Zintel, Christopher; Nestl Continuous Excellence: Lessons for Driving Performance Improvement, European
B
Financial Review, 1 March 2013

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to Baumgartner, is to be able to take proactive measures instead of simply reacting. To accomplish this,
Nestl focuses on strong alignment processes, stronger collaboration with customers, and the use of the
proper forecasting methodology.
There are two main options for generating forecasts. The subjective method is mainly dependent on the
estimation and appraisal of planners based on the experience they draw upon. The statistical method
approaches the forecasting problem with data. Statistical forecasting tends to be more reliable if sufficient
historical data is available. But one thing has become clear to us you cant predict the future with
statistics by simply looking at the past. It doesnt matter how complex your models are. So its not the
statistical methodology thats the problem for Baumgartner and his team. The critical factor in this complex
environment is being able to assess the reliability of forecasts.
Predictability of demand for a certain product is highly dependent on that products demand volatility,
says Baumgartner. Especially for products that display wide fluctuations in demand, the choice and
combination of methods is very important. Of particular importance for demand planning are the so-called
mad bulls, a term Nestl uses to characterise highly volatile products with high volume. A mad bull can
be a product like Nescaf, which normally sells quite regularly throughout the year, but whose volumes
spike dramatically through trade promotions. A simple statistical calculation is no more useful in generating
a demand forecast than the experience of a demand planner for these less predictable items. The only way
out is to explain the volatility in the past by annotating the history. Baumgartner and his team rely on the
forecast value added (FVA) methodology as their indicator. The FVA describes the degree to which a step in
the forecasting process reduces or increases the forecast error.5
Rebalancing the UK Supply Chain
Making sure that the right goods get to the right UK multiples, wholesalers and retail outlets at the right
time every time is a huge logistical undertaking, and is underpinned by Nestls two biggest UK distribution
hubs at York and Bardon in Leicestershire.
According to Total Logistics (2016), when Nestl UK decided to sell off a significant part of its food business
to Premier Foods in 2002, it was faced by the simultaneous problems of under- and over-utilisation at
the two main distribution hubs. Total Logistics, a logistics and supply chain consultancy, was appointed to
undertake detailed supply chain analysis, assess the options and specify the strategic solution (dubbed
Project Shirt) for the rebalancing of Nestls supply chain in the UK.
Whereas Nestls York centre is operated in-house, the 456,000 sq.ft Bardon centre is managed on behalf
of Nestl by TDG, one of the UKs largest supply chain solutions providers with 8,000 employees and a
1,600-strong vehicle fleet. York handles Nestls confectionery business and Bardon concentrates on the
rest of the Nestl product portfolio. This was principally the food and beverage range, where TDG was
assembling deliveries for Nestl throughout the UK by utilising a network of eight trans-shipment centres
around the country.
While the York facility was already being over-utilised on the confectionery side of the business, Nestls
food products represented a major proportion of the volumes passing through Bardon. This inevitably
meant that the sale of the companys food business to Premier Foods would create the opposite problem
for the Bardon facility: that of under-utilisation.
Having spare capacity provided an opportunity for detailed supply chain analysis to assess how customers
were served and this was the principal driver for the re-engineering of Nestls supply chain. However,
it was not the only one: there was also a supply chain risk management issue. Nestl no longer felt
it appropriate to hold entire product stocks under one roof and a solution had to be found for the
strategic storage and distribution of major lines, such as coffee or KitKats, that protected them without
compromising access and delivery efficiency.
5

Nestl Case Study, www.sas.com, April 2016.

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In addition, a further objective of the project for Nestl was the establishment of a single customer service
centre in York. There was also a clear need to respond to the impact of the EU Working Time Directive:
the travel time for lorries delivering from York into the south of England is long. Without an alternative
solution that reduced delivery lead times, adhering to the directive would have almost certainly meant cost
additions.
Ian Hill, Nestls director of supply chain services and eBusiness, stated: The sale of our Foods Division
was the ideal opportunity to build in a far greater level of flexibility and responsiveness into our national
logistics network. We spent a lot of time listening to our customers and they wanted to see a higher
frequency of deliveries but with less volume in effect giving them a much more effective JIT-based
method of operation.
The initial supply chain analysis involved establishing the flows of product of the remaining business
streams and modelling the costs of alternative warehousing and transport options. One of the possible
options considered was to mitigate the under-utilisation impact of the sale of the food division by
reconfiguring the existing network from two product-specific national distribution centres to two
regional distribution centres each carrying the full range of products. Effectively, this would merge the
confectionery deliveries with those of the remaining food and beverage products.
Having established the right supply chain strategy for change, a more detailed analysis was undertaken of
this option and its operational implications. As Hill added: The secondary analysis gave us clear options
from which to operate combined deliveries, including the right methods for stock deployment at York and
Bardon. They quickly identified the changes that needed to be made to the warehouses and transport
system in order to secure improvements in customer service, optimised warehouse utilisation, faster
response times, combined ordering and an on-tap capability for more frequent deliveries.
Once the right model had been developed, work on its implementation began. The York and Bardon hubs
had to be united closely across the systems, people, processes and transportation. This involved accurate
coordination between Nestl and TDG at Bardon, and also covered the Autostore warehouse management
system (WMS) running all product movements at both sites. All of this needed to integrate with Nestls
SAP enterprise resource planning (ERP) system located at the companys Croydon headquarters.
The new supply chain also had to work within the parameters of Nestls UK manufacturing operations.
With major manufacturing centres at York, Halifax, Castleford, Fawdon, Tutbury, Hayes and Dalston, Nestl
generates about 70% of UK demand from UK centres with the balance of 30% coming from overseas or
being re-imported following export for finishing.
Throughout 2003, the necessary changes to warehouse configurations, supporting systems and processes
were put into place with the first combined deliveries starting in September 2003. The full roll-out of the
revised supply chain to Nestls major multiple, wholesale and retail customer base took place successfully
over the following months and into 2004 and delivered many critical business benefits for both Nestl
and its customers.
Hill summarised the benefits of the supply chain rebalancing project: We have for the first time been
able to operate composite pallet loads for the whole of the UK, combining confectionery and beverages
through two vehicle fleets and two distribution hubs. We have been able to maintain our cost base and run
smaller delivery volumes more frequently without increasing costs. The customer response has been very
favourable: they are receiving an improved level of service that is inherently more flexible while we have
been able to decrease our fleet size which has a positive environmental impact.
We have created the single customer centre in York we sought there we have centralised the control of
all of our day-to-day operational planning. Lead times are shorter, order throughput is increased and we
are now operating a supply chain with seven day ordering and 24/7 delivery. Importantly, we have been
able to absorb the stipulations of the EU Working Time Directive without creating extra costs for us or our
customers.6
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Supplier Sourcing
Nestl operates a Supplier Code which defines the non-negotiable minimum standards that are required
from its suppliers and their sub-tier suppliers when conducting business with Nestl. This document
helps the continued implementation of Nestls commitment to international standards such as the OECD
Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, the Core
Conventions of the International Labour Organisation (ILO) and the ten Principles of the United Nations
Global Compact, beyond its own operations to every link of its upstream supply chain back to farms and
plantations. The code is an extension of Nestls Corporate Business Principles and the foundation of its
Responsible Sourcing programme.7
Nestls Responsible Sourcing Guideline (RSG) complements the Nestl Supplier Code and is applicable
to all stages of the upstream value chain back to the primary production level. The RSG is meant to be
complemented, as appropriate, with additional guidelines, specifications and practical tools at local or
regional level (according to the region and its climates, ecological variables, farming systems, cultures,
consumer preferences, etc.) while respecting national laws and regulations. The aim of the RSG is to guide
Nestls suppliers to improve their practices where necessary and to facilitate Nestls implementation of
international standards and its own policies and commitments relating to responsible sourcing.8
Under the responsible sourcing initiative, all Tier 1 suppliers are subjected to third party auditing. There
is also a traceability programme in place for suppliers further upstream in the supply chain for high-risk
spend categories, such as palm oil, pulp and paper, cocoa, soy, sugar, dairy, coffee, seafood, meat, vanilla
and hazelnuts. This direct contact with producers enables Nestl to optimise its value chain and gain
competitive advantage in a number of ways, by:
ensuring traceability up to the farmers level
assuring quality, safety and volume growth of raw materials
mitigating price volatility exposure
reducing transaction costs
and serving Nestl brands by guaranteeing access to specific raw materials.9
In the pulp and paper supply chain, Nestl has adopted a standard approach to deal with responsible sourcing:
1. Supply chain mapping to identify the country and forests from where the converters, paper mill and
pulp mills source virgin fibre. This is done through assessment visits to each of the processing sites to
determine and verify this information.
2. Risk assess the origin of the fibre to determine the level of compliance against the RSG requirements.
This identifies the high and medium priority sources.
3. Assess the high and medium priority sources to determine compliance with the requirements of the RSG.
4
Where a forest source does not fully meet the requirements, an action plan with the company is
established to work towards closing out the gap to fully meet the RSG.
5. Monitoring of suppliers and raw material inputs.
This approach to transparency enables Nestl to better know its supply chains and to source only pulp and
paper that meet its no deforestation requirements or, at the very least, to source pulp and paper from
suppliers who are making measurable progress to meeting those requirements.
Supply Chain Analysis: Nestl Re-balancing Case Study, www.total-logistics.com.
Nestl Supplier Code, December 2013.
8
Nestl Responsible Sourcing Guideline, September 2013.
9
Nestl Investment Seminar Presentation, 7 June 2011.
6
7

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When companies in Nestls supply chains do not comply and/or are not willing to engage/change, the
company takes all necessary measures to exclude them from its supply chains, monitoring progress to
determine whether to engage with them again or not.
Achieving transparency and traceability throws up challenges. Pulp and paper supply chains vary
considerably between countries, and packaging origination may change very fast, because of reformulation
of the paper recipe. In Brazil, for example, pulp and paper companies are predominantly integrated. This
means that they own the forests, as well as the pulp and paper mills and the converting factories that
supply Nestl with the fibre-based packaging products. This helps to secure information about supply
chains and raw material, because the data is internalised by one company, which helps in preparing site
visits and any follow-up action required. Brazilian pulp and paper companies are also typically certified,
which is complementary to the RSG and helps demonstrate compliance with many of its requirements.
In China and Malaysia the situation is very different. These supply chains are incredibly complex as
the fibre used by the Chinese or Malaysian converters is often grown elsewhere and sourced through
middlemen and traders from paper and pulp mills in different countries. These pulp and paper mills might
also be sourcing the fibre from other countries, hence achieving traceability and access to these upstream
processing sites and forests is much more complex. Nestls ability to influence suppliers decreases further
upstream in its supply chains and, where the company is faced with suppliers who are not cooperative and
do not support the approach, Nestl looks for more willing alternatives.10
Supplier Relationships
Nestl held its 2016 UK and Ireland Supplier Awards event at The Queens Hotel in Leeds, with over 300
suppliers and key Nestl personnel in attendance. Smurfit Kappa UK, a packaging supplier, was awarded
first place in the Outstanding Service category. Over the course of the year Smurfit Kappa worked in
partnership with Nestl on a number of initiatives to help support Nestls Virtuous Circle programme,
which focused on working together, adding value and driving profitable growth. Smurfit Kappa supply
Nestl from various sites throughout the UK. Gayle Waywell, Smurfit Kappa National Account Manager,
who manages the Nestl account, collected the award on behalf of the Smurfit Kappa team.
Nestl outlined the purpose of the Outstanding Service Award: Our suppliers have a direct impact on
whether our factory is able to run and when things go wrong, the consequences can be severe. As a
manufacturer, Nestl recognises that things can and do go wrong. However, the way a supplier deals with
and communicates incidents can make the difference between a planned change or a stopped line. The
award is a way to celebrate those suppliers who have either delivered a consistently high level of service or
who have shown proactivity to overcome significant obstacles.11
Cepac, another packaging supplier, won the overall Supplier of the Year award. Cepac has provided Nestl
with over 100 million corrugated packs in the past three years without any non-conformance issues. Rod
Ainslie, Cepac managing director, said the award was a testament to the firms tireless quest for innovation
and improvement. Were absolutely delighted to be named Nestls top supplier ahead of such a large
field of suppliers. The key to this relationship is our understanding of Nestls desire to create the very best
packaging for their products and to set the benchmark for performance throughout the supply chain.
As with Smurfit Kappa, Ainslie also emphasised the collaborative nature of the relationship with Nestl.
Working closely with a multinational such as Nestl has allowed Cepac to pioneer numerous developments
together, including making full use of technology. Cepac has been working with Nestl since 2007 and has
delivered in excess of 32 million coffee wraparounds in 2015 with no quality issues and at a 100% on time
in full (OTIF), correct quantity, perfect service level.

10
11

Nestl Pulp and Paper Responsible Sourcing Progress Report, July 2014.
www.smurfitkappa.com, April 2016.

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Emma Canavan, head of direct procurement, Nestl UK and Ireland, said: Our winner was Cepac who
delivered 32 million packs in 2015, achieving a fantastic 100% OTIF, with zero quality complaints. They
have successfully implemented innovation, giving our brands a point of difference versus competition and
strengthening the Nestl brands. Working with the Nestl teams, understanding our challenges and finding
technical solutions, they have fuelled the Virtuous Circle, whilst driving improvements in sustainability.12
Supplier Development
Nestl relies on millions of farmers around the world to supply it with the agricultural raw materials
needed for its products. More than 695,000 of them supply Nestl either directly or through cooperatives
and collection centres. These farmers and farm workers are essential to the ongoing success of Nestls
business, so the company has a vested interest in contributing to the sustainable development of the rural
areas where they work. Nestl therefore assists farmers with agricultural support and capacity-building
programmes to increase yields, crop quality and income levels. Nestl has developed a Rural Development
Framework to help the company align its business activities with local priorities.13
Supplier development started in 2005 when Nestl India, aware of the need and opportunity to source
more raw materials locally, established a dedicated supplier development department. The teams
objectives were to achieve cost savings by relying less on imports, overcoming quality and food safety
issues, and creating a wider, more flexible supply base.
After four years, the team had managed to:
secure local sources for 12 previously imported raw materials
avoid ten single supplier situations
develop over 70 new Indian suppliers able to meet Nestls specifications
save CHF5 million
provide technical assistance to suppliers to close safety and quality gaps
and speed up the building of infrastructure and access to better technology for suppliers.
Supplier development has also given suppliers new opportunities for expanding their reach, including
exports to other Nestl markets. For example, local chicory supplies from Uttar Pradesh are now sent in
large quantities to Nestl South Africa, as well as other exports to Nestl Europe and Korea. By the end of
2009, this highly successful initiative had been replicated in Bangladesh, Brazil, Indonesia, Iran, Malaysia,
Russia and South Africa.
One successful example of supplier development in India is with suppliers of cornflakes for infant cereals,
which need to have a dry-mix quality within specific microbiological limits because they do not undergo any
additional processing or heat treatment. The only supplier in Asia approved by Nestl was a single Indian
supplier who had experienced occasional quality issues. The search for alternative suppliers began in 2005.
After an exhaustive series of audits, assessments and laboratory tests, a new supplier began commercial
production of cornflakes for Nestl in November 2008.14
Nestl has also undertaken supplier development in China. In 2012, having recognised a need to improve
the sustainability of the milk supply chain, the company established the Nestl Dairy Farming Institute.
Helping farmers to increase their knowledge and skills is a key focus area of its rural development strategy.
By adopting best practices, farmers are able to improve productivity, trading relations and cost control.
The Institute consists of three demonstration dairy farms, where farm owners and workers attend training
sessions to improve farm management skills, learn how to use the latest technology and gain practical
experience in expanding their businesses. In 2014, the Institute launched training programmes covering
dairy farm management and dairy cow breeding.15
www.packagingnews.co.uk, 8 April 2016.
Developing the Dairy Farming Sector in China, www.nestle.com, 17 August 2015.
14
Supplier Development in India, www.nestle.com, 18 September 2012.
15
Developing the Dairy Farming Sector in China, www.nestle.com, 17 August 2015.
12
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REFERENCES
Bchel, Bettina & Zintel, Christopher, Nestl Continuous Excellence: Lessons for Driving Performance
Improvement, European Financial Review, 1 March 2013
Nestl, Developing the Dairy Farming Sector in China, www.nestle.com, 17 August 2015
Nestl Investment Seminar Presentation, 7 June 2011
Nestl Marketline Report, 23 October 2015
Nestl Pulp and Paper Responsible Sourcing Progress Report, July 2014
Nestl Responsible Sourcing Guideline, September 2013
Nestl Supplier Code, December 2013
Nestl, Supplier Development in India, www.nestle.com, 18 September 2012
SAS, Nestl Case Study, www.sas.com, April 2016
Total Logistics, Supply Chain Analysis: Nestl Re-balancing Case Study, www.total-logistics.com, April 2016
www.nestle.com, April 2016
www.packagingnews.co.uk, 8 April 2016
www.smurfitkappa.com, April 2016

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AD3 Case Study November 2016

PLEASE RETURN TO:

CIPS ASSESSMENT MANAGEMENT CENTRE
c/o LINNEY DIRECT, A2 GOODS IN
BELLAMY ROAD, MANSFIELD
NOTTINGHAMSHIRE NG18 4LN
UNITED KINGDOM
TEL: +44(0) 845 880 1188
FAX: +44(0) 845 880 1187
www.cips.org

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AD3 Case Study November 2016