Nestle Coffee Supply Chain

Management

Ariana Nunes
N01092520
Supply Chain Management
February 26th 2016

Executive Summary
Nescafe, a popular brand of Nestle, has become very popular in Canada and
across the globe. Their success can be owed to their strong distribution network, allowing
Nescafe to be readily available across Canada. Nescafes great quality coffee beans, taste,
value and variety of products have contributed to them gaining majority of the market
share of coffee consumption in Canada. Despite their success, their supply chain strategy
can be improved in terms of demand planning, forecasting and procurement. This
document will explore the ways in which Nestle is currently operating and provide
recommendations for how they can remedy any current faults.

Introduction
A Nestl brand that started as an idea to solve the problem of what to do with
unsold coffee has been positioned as one of the worlds favourite drinks. The increasing
demand for product choice, value and quality has led to an increase in the coffee being
available to consumers. Nescafe is one of the worlds most popular coffee brands. Nestle
carefully selects their coffee beans to deliver a unique experience to each jar. Nestle is
dedicated to providing the best foods to people throughout their day, throughout their
lives throughout the world. Nestles vision is to advance their Corporate Social
Responsibility in order to create long-term value for their shareholders. This is known as
creating shared value (CSV). It is the basic way Nestle engages in business, it states that
in order to create long-term value for shareholders they have to create value for
shareholders, Nestle needs to create the value for society. The supply chain for coffee is
often complex and varies from country to country


Nestl is Switzerland's biggest company, founded by Henri Nestl in 1867.
Today it is capitalized at over 59 billion and is also the world's largest consumer food
company, employing 253,000 people worldwide in the production of more than 15,000
different products. It manufactures and markets some of the best-known international
FMCG food and beverage brands in the world - Nescaf, KitKat, Quality Street, Buitoni,
Cheerios and Shredded Wheat to name just a few.
Nestle has several factory locations across Canada. The factory being focused on
in this document will be the location in North York, Ontario. The factories produce
cereals, repackaged milk, soups, beverages, coffee and infant nutrition products. Nestle
Canada is strongly positioned and aims to continuously grow through its policies.
Nescafe in particular has a plan; they have begun a global initiative that brings together
the commitments of Nescafe that support responsible farming, production and
consumption. Nescafe prides themselves on focusing on more than just a great quality
cup of coffee.

Literature Review
Nestls initial supply chain involved establishing the flows of product with the
remaining business streams and modeling the costs of alternative warehouses and
transportation options. Nestle Canada operated by combining confectionary and
beverages through two vehicle fleets and two distribution hubs. This helped maintain the
cost base and run significantly smaller delivery volumes frequently without increasing


any costs. The challenge is ensuring that the right goods arrive at the right UK
wholesalers and retail outlets at the right time.1
Nestle is aiming to make its factories more efficient and reduce its packaging.
They plan on investing 350 million into sustainable coffee farming. The Nestle team
discovered that farmers in Hama (produces the Arabica coffee beans) were using old
equipment to strip the pulp off coffee beans, which resulted in wasting plenty of water
and polluting rivers with the pulp. Nestle has been able to reduce its packaging by
making small changes. They have implemented mostly glass jars and single serve
packages and they continue to reduce packaging weight and volume while using more
recycled and renewable content.2

Analysis
For Nescafe products, Nestle Canadas procurement cycle involves collecting raw
material from South and Central America, Africa and Asia. Nestle imports coffee in bulk.
Nestle also imports finished Nescafe products such as the Nescafe Classic Jar. There are
two main types of commercially grown coffee, Arabica and Robusta. Currently, Nestle
uses coffee beans from a variety of countries but the majority comes from Brazil and
Thailand. They mostly purchase directly from the supplier to avoid a longer, more
complicated supply chain. After reviewing Nestles current supply chain strategy, it can
be identified as effective. Nescafe collects raw materials directly from the suppliers who
can guarantee the quality of each bean. The products are kept in inventory at the

1 Total Logistics. "Supply Chain Analysis: Nestl." Supply Chain Analysis &
Nestle Supply Chain. N.p., n.d. Web. 15 Feb. 2016. <http://www.totallogistics.com/logistics-clients/logistics-case-studies/nestle-supplychain2 Nescaf Targets Coffee Sustainability." GreenBiz. N.p., 2 Sept. 2012. Web. 15
Feb. 2016. <http://www.greenbiz.com/news/2010/09/02/nescafe-targetscoffee-sustainability-350m-investment>


distribution warehouse. Whenever the products are finished at a retail store, they are
replenished from the distribution warehouse.

Conclusions & Recommendations

Nescafe would determine demand planning and forecasting by analyzing the total
number of sales for a specific item in the last 4-5 months, and predict sales for the next 5
months. Following this, Nescafe would stock the product in advance in order for it to be
available to consumers. I recommend that Nescafe implement the SAP software (system
application and products) in order to keep track of current product status, condition of
products, shortages, and excess and total number of products. This will help prevent any
product shortage from occurring because they have a full inventory of their products and
will be able to forecast and plan for future demand.
In terms of procurement, supplier and vendor relationships are a vital part of
successful procurement strategies. The main objective of the procurement process is to
purchase goods and services at the best price, which may not always be the lowest
price per unit at the vendor source. Nescafes initiative to advance their social corporate
responsibility is a step in the right direction for procurement. By investing more into
providing better salaries for their suppliers of coffee beans, Nestle will be able to build
lasting, healthy relationships, further encouraging more farmers to begin farming coffee
beans for Nescafe in particular. Overall, I believe these small changes can help improve
the supply chain strategies for Nescafe. Nestle has been part of the market for decades. In
order to remain a household staple, Nestle can make small, socially responsible decisions
to keep current consumers loyal as well as attract new segments.
References


Nescaf Targets Coffee Sustainability." GreenBiz. N.p., 2 Sept. 2012. Web. 15
Feb. 2016. <http://www.greenbiz.com/news/2010/09/02/nescafe-targets-coffeesustainability-350m-investment>
Total Logistics. "Supply Chain Analysis: Nestl." Supply Chain Analysis & Nestle
Supply Chain. N.p., n.d. Web. 15 Feb. 2016. <http://www.total-logistics.com/logisticsclients/logistics-case-studies/nestle-supplychain-rebalancing.html>