Supply Chain Management: Opportunities And Challenges

Introduction

Background

Nestle is a company that was founded in 1867 by Henri Nestle in Switzerland. In 1905, Nestlé & Anglo-Swiss have more than 20 factories and have started using overseas subsidiaries to establish a sales network that spans towards Africa, Asia, Latin America, and Australia (Nestle, n.d.). In today’s modern society, Nestle is known as the world's largest food processing company with a total sales of 88,785 million Swiss F in 2015 with a total of 435 production factories operating in 35 countries with more than 15,000 products that are sold across 189 countries. Nescafe is owned by Nestle which manages the suitable supply chain which source raw materials all over the world. The supply chain of Nescafe consists of distribution centers, wholesalers and retailers. Nestle sources the basic raw materials for instance, coffee, milk and palm oil from farmers all across the world. The supply chain of Nescafe is sustainable and environmental friendly which contributes to the development of farmers across Brazil and many other regions. Today more than 5,500 cups of Nescafe instant coffee are consumed every second with different varieties that caters to different tastes and preferences around the globe (Nestle professional, 2018). The purpose of this report is to analyze and provide an explanation about the Nescafe supply chain and to investigate the opportunities and challenges of supply chain management, furthermore this report will also provide recommendations for them.

Description of supply chain

Nescafe utilizes a system known SAP (system application and products) and its own inventory control software to regulate and control its inventories. The software allows management and control of the inventories by the managers responsible for that are, while sales officers and all the other employees are holding responsible posts. The company controls its inventories and warehouses by using its highly advanced warehouse management monitors by storing of Nescafe in warehouses that are situated all round the world. This ensures timely supply of Nescafe to the markets at affordable prices (Fichtinger, Grosse & Baker, 2015). This efficient management of warehousing and inventory has led to operational sustainably and reduction of wastage. Furthermore, this also ensures timely supply of Nescafe products of various product variants in cafes, shop and other sales centers which allow the company to cater to a huge customer base.

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The efficient network of warehouses allows Nestle to effectively manage the supply chain planning and efficient performance within reduced timeframe. The company manages the orders electronically which allows it to exercise total control of the inventories and orders. The company responds to its orders within a very short time and ensures timely supply of Nescafe products to the retailers and wholesalers. The orders for Nescafe are met mostly in bulks and are packaged in the required size of packaging like boxes, jars and other methods. Nescafe is owned by Nestle and comes under the purview of Nestle environmental management system (NEMS) which aims to achieve sustainable operations (Essay, 2018). The company has made it mandatory for the suppliers to follow its NEMS policies by complying with it while working. The company is setting up new factories in places like Italy and Brazil which are capable of waste management and reducing energy consumption.

Opportunities and challenges

The supply chain issue

Even though Nestle seems to be doing a decent job in the supply chain management. There is still a potential problem that is unforeseen which poses risks that can affect the supply chain or the force majeure issues. According to the news IE Food & Beverage, (2020) reports that the CEO of global food and beverage giant Nestlé, Mark Schneider, has admitted the company has not been able to hit its 'normal' levels of production during the coronavirus pandemic. Mark has also indicated the logistics limitations now kicking in and also a lower employee presence as a result of illness or precautionary measures, which has introduced an enhanced safety protocol that we need to run at our plants. Therefore, we're not always able to give it 100% of the capacity that you would have under normal circumstance (iE Food & Beverage, 2020). In addition, while a coffee’s lifespan and popularity with roasters will depend on its quality and how it’s stored, processed, dried, and handled, it can also be hard to sell green coffee that’s been in storage for 4-5 months. What this means is that the importers who’d usually supply these roasters could be stuck with an excess in product stock that they cannot sell. This will put their coffee exporters under financial pressure, due to importers and roasters will be reducing or delaying their purchasing commitments by purchasing and reserving less coffee altogether (Kanniah, 2020).

Opportunity

One of the most typical themes in the supply chain management is the notion of sustainability and traceability. The company provides the sustainability through means of more than just turning off the lights and saving water, it also means examining the long-term viability of a given supply chain. There are a number of challenges that commodity producers face, which includes, but not limited to; a lack of control over the market price or production costs of their key commodity, changes in the climate patterns, management of pests and disease, deforestation, forced labor and limited consumer knowledge of the value chain. There is a crucial link between these factors and the ongoing sustainable livelihood of the farmer. For instance, the different intersections of the economic, environmental, and social impacts of these challenges and how they are managed in a manner that provides for an equal share of the value chain, is vital to the viability of the supply chain (Fairtrade Australia New Zealand, 2016).

Recommendation

Resilient Supply Chain Practices (RSCP)

Resilient supply chain practice refers to the set of activities undertaken in a firm to promote effective management of its supply chain risk to ensure risk mitigation and a swift return to normal operations. In the next section, this study details and categorizes resilient supply chain practice into resistance and recovery approach (Park, 2011).

As it can be clearly seen in Figure 2 it displays an alternate view of supply chain resilience. For instance, in the graph below it categorizes resilience into specific different categories and areas for resistance and recovery. The graph also provides an indication for the differential respective phases for each category which are: avoidance, containment, stabilization, and return. By categorizing each area into its specific category this would allow firms you choose and select a higher capacity rather than a low capacity for both resistance and recovery, however it is also more likely that the firms will have a mixed selection of these qualities. However, in particular, with the given resource constraints and competitive factors, firms may need to choose other alternative areas that is best for them to invest limited resources (Melnyk, Closs, Griffis, Zobel & Macdonald, 2015).

An example of a hardy supply chain would be General Motors (GM). According to reports, GM frequently monitors its supply chain in order to minimize the effects of disruptions and, and allows them, to facilitate for recovery. An example of this case would be the Thailand floods that occured 2011. Despite having plants and suppliers in the area, GM experienced limited disruptions to the flow of materials because it was able to resist the onset of problems better than its competitors. When disruptions became unavoidable, GM was robust enough to quickly work through them and make a swift recovery (Melnyk, Closs, Griffis, Zobel & Macdonald, 2015).

Sustainable Supply Chain Management (SSCM)

Sustainability is defined and known as the capability to meet current demands without the need for compromising the abilities of future generations to meet their needs. This is done by linking sustainability and the supply chain through the means of management which allows the management to handle and manage a complete supply chain lifecycle. For instance, the cycle can usually begin from product design and consumption than return and disposal, with the explicit considerations of sustainable development factors such as economic, environmental, and social elements. Certified coffees are usually defined as where one of the aspects of that are considered which includes sustainability, and farming in a good-quality environment, while providing economically viable for farmers, and promoting social equity among farmers and workers. Furthermore, the Sustainable Supply Chain Management can help stakeholders within coffee supply chain network to preserve the environment, which also appreciates human and social rights, and offer customers traceable and high-quality products (Nguyen, Tinh, Sarker & Tapan, 2017).

Professional knowledge

It can be seen that Nestle controls the supply chain and inventories of Nescafe efficiently and sustainably. For instance, the strong-handed and sustainable control of the company over all the areas spanning from manufacturing to selling has allowed Nescafe to acquire its high market position. However, with the unforeseen problem it is still bothering Nestlé’s supply chain operation. Therefore, the recommendation for Nescafe is to utilize resilient supply chain practices to cope with any uncontrollable issues. In today’s modern society with the development of technology, the resilient strategy can be reinforced by The Internet of things (IoT). The IoT is integrated through RFID technology, video recognition technology, infrared sensing, global positioning system, laser scanners, and other information sensing equipment. Furthermore, in order to achieve the interconnection of the network there must be connection of items interconnection, information exchange, and communication to achieve intelligent identification, an artificial intelligence network system for positioning, tracking, and monitoring (Byrne, 2018).

Conclusion

In conclusion, Nescafe is a decent global brand to served instant coffee under Nestlé’s mature supply chain management. However, there is not a perfect supply chain system that can operate all the time since any disaster occurs would disrupt everything in the supply chain. Therefore, the alternative plan such as a resilient supply chain strategy needs to be set up to cope with any emergencies that happen at any time.

Reference

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3. Fichtinger, J., Ries, J. M., Grosse, E. H., & Baker, P. (2015). Assessing the environmental impact of integrated inventory and warehouse management. International Journal of Production Economics, 170, 717-729.
4. Fairtrade Australia New Zealand (2016) SUSTAINABLE SUPPLY CHAIN, Fairtrade Australia New Zealand, Retrieved from https://www.fairtrade.com.au/en-au/for-business/sustainability-in-your- supply-chain
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6. Melnyk S.A, Closs D.J, Griffis S.E, Zobel C.W, & Macdonald J.R. (2015) Understanding Supply Chain Resilience, Supply Chain 247, Retrieved from http://www.supplychain247.com/article/understanding_supply_chain_resilience/
7. Nguyen, Tinh G.N., Sarker & Tapan (2017) Sustainable Coffee Supply Chain Management: A Case Study In Buon Me Thuot City, Daklak, Vietnam, Griffith University, Retrieved from https://research- repository.griffith.edu.au/handle/10072/354927
8. iE Food & Beverage (2020). Nestlé Boss Admits Covid-19 Is Creating Production Problems. iE Food & Beverage. Retrieved from https://industryeurope.com/sectors/food-beverage/nestle-boss-admits- covid-19-is-creating-production-problems/
9. Park, K. (2011). Flexible and redundant supply chain practices to build strategic supply chain resilience: contingent and resource-based perspectives, University of Toledo.
10. Tchibo (2017). For future-proof coffee farming: Continued support for the trans­for­mation process, Tchibo. Retrieved from http://www.tchibo- sustainability.com/servlet/content/1252792/-/home/coffee-vc/strategy- management.html
11. Nestle (n.d.). The Nestlé company history. Nestle Good Food, Good Life. https://www.nestle.com/aboutus/history/nestle-company-history
12. Nestle professional (2018) A Brief History of NESCAFÉ coffee. Nestle professional Making more possible. https://www.nestleprofessional.com.au/training/brief-history-nescafe- coffee