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Global Supply Chain Management: Journal Of Logistics Management
0 Downloads | 14 Pages 3,448 Words | Published Date: 21/09/2017
Overview of Nestlé Company Profile
Henri Nestlé, the founder of the company, established Nestlé organization in Switzerland in late 1860s. Nestlé has been very successful throughout the years and is considered the biggest food company worldwide. Nestlé operates in more than 80 countries being an owner of total 500 factories consisting of approximately 224,000 employees, altogether. Nestlé manufactures, manages, and sells variety of products including dairy, coffee, bottled water, confectionary, juices, cereals, baby food, etc. (Nestle, 2016).
The Supply Chain Management of Nestlé is sufficiently effective and the managers strive to improve their SCM consistently in order to keep the customers satisfied by making their favourite brand available 24/7 comprising of the best quality (Nestlé, 2013).
Supply Chain Management Objectives of Nestlé
- Providing low cost to customers to achieve higher level of customer satisfaction
- Carrying out very competent operations
- Becoming leading food firm
- Optimizing and consolidating all the resources
- Developing and managing SCM Network
- Creating continuous improvement
In order to achieve these objectives, SCM needs to be effective and work seamlessly which is only possible by overcoming any existing obstacle or barrier. Before discussing the main obstacle in SCM, it is imperative to know the process of SCM in Nestlé.
Supply Chain Management Process of Nestlé
The SCM process of Nestlé is a traditional process which involves manufacturing plant where goods are produced, and then the goods are transferred to C&F Agents who are responsible to deliver the goods to the relevant and trustworthy intermediaries who ensure the availability of products to the customers. This main of the whole process is to make sure that goods are transferred from the place of their origin safely and in the best quality to the valued customers in the timely manner. The process is lengthy and consists of many stations and steps until it reaches the customer (Fair Labour Association, 2012).
Selection of One Major Obstacle
The key features of the Supply Chain Management of Nestlé include inventory management, order management, procurement, logistics, forecasting and planning, and return management. All the key features are essential part and the building blocks of a complete SCM of an organization. However, inventory management which deals with the manufacturing or production procedure involving tracking and managing the supplies of raw materials and resources required for the production of finished goods. Also, maintaining the level of resources according to the need and efficiently minimizing the storage related costs by eliminating excess waste (Michalski, 2010).
Therefore, it is imperative to control the inventory as shortage of inventory can increase the risk of falling sales and excess of inventory can lead to the burdening increased cost on the organization. Furthermore, efficient inventory can be measured through customer service, augmented sales, diminished costs, and eventually, more profitability which are the main organizational goals of Nestlé.
Hence, it is necessary to pay more attention to the inventory management in order to inhibit it to act as an obstacle in the success of distribution system which can have the impact on the overall organization’s reputation. Realizing the importance of maintaining optimum inventory level has made me select inventory management as an obstacle for this report. In the following essay, I have provided solutions and ways to tackle all the challenges that are possible to emerge or are already prevailing in the inventory management of SCM process of Nestlé.
Importance of Inventory Management in SCM of Nestlé
Nestlé is globally famous for its good quality products. Majority of the Nestlé customers claim that they are provided with premium quality goods and there is never ever any issue of availability. In order to keep the customers’ expectations from Nestlé, they have to maintain and enhance their SCM process and for that there is the great importance of inventory management. This is because all the organizations whether big or small, strive to ensure that their supply chain is efficient as well as cost-effective. Any issues arising in the Nestlé’s inventory system can have tremendous negative effects on the entire supply chain. The initial issues would be stock outs or overstock hazards or working capital issues, etc. However, there can arise several other issues also including issues in raw materials, certain ethical or boycott issues and considerations, any change in the organization’s structure, etc. converting inventory management into a severe obstacle. Therefore, it is imperative to analyse how inventory management can act as an obstacle and what measures can be taken to resolve them (Christopher, 2016).
Factors leading to issues in Inventory Management of Nestle
Nestle goods are Fast Moving Consumer Goods (FMCGs) which leads to the whole list of factors which can increase the number of issues in the inventory management making it an obstacle that must be overcome to manage that Supply Chain successfully. These factors are as follows:
- Failure to plan – when the company is not able to forecast the customers demand properly and there is a sudden increase or decrease in the customer demands.
- Failure to keep track – when the managers are not using updated technology, or are not educated or trained enough to operate the system.
- Buying too much – when company initiates a promotional offer and people start buying that product in bulk leading to running out of the stocks.
- Failure to monitor vendors – not keeping good relations with the suppliers or not able to the reliable one can lead to more issues that makes the inventory management an obstacle (Chen et al., 2007).
Inefficient Inventory Management - a critical obstacle in SCM
The key to profitability is efficient management of inventory. Assets are effectively turned into assets because of the inventory velocity. It is the basic demand of the customers that they receive orders complete, accurate, and at the right time. However, if the inventory is not managed well, then poor inventory management can become an obstacle due to the various issues mentioned below.
First and the foremost issue that occurs because of the improper inventory management is the unavailability of the required material at the time of need or the deficiency of stock. This is the main reason to turn away the customers who are willing to spend on your product in turn decreasing customer loyalty.
Second major issue which is almost the opposite of the above mentioned issue is the problem of overstock. There are various hazards that arise only because of the availability of excess of resources or the overstock of the manufactured products. Overstocks are the main reason of building costs and increased expenses for the organization. If the Nestlé product is not sold on time and is waiting for a longer time there are chances it will never reach the customers to be sold or company will have to put huge discounts on that product to sell it out which can again act as a loss for the company. Also, all the items of the Nestlé are perishable and edible stuff which can easily get spoilt and also cross the expiry date very soon due to the inefficient management of inventory.
Inventory management can act as obstacle for the entire organization by giving rise to working capital issues. This would involve keeping the cash of the company tied up in operations by not being able to generate money by selling the product immediately. This can be explained through an example of Nestlé’s product. Nescafe is a very popular brand of Nestlé. If the company pays ten dollars to the suppliers for an item to be used in the manufacturing of Nescafe coffee, the company would expect to earn higher amount by selling the product on-time and would also expect generating some profit in return. However, unsold product keeps sitting on the shelf and its value in monetary terms is locked up in the inventory. That is, it cannot be used elsewhere in the business (Nahmias et al., 2009).
Inefficient management of inventory can be very risky from the manufacturer’s point of view too. If the suppliers provide the manufacturers with the adulterated material, in the end, Nestle would be responsible for producing the low quality final product. The scandal which Nestlé faced in 2013 was the presence of horsemeat in its beef meat products which was due to the mismanagement at the slaughter house from where the meat was entered the supply chain of Nestlé (CEB Procurement Operations, 2016). This issue must be resolved to provide the consumers with the pure food without causing any fraud.
Furthermore, inventory location also plays an imperative role. If the warehouse location is far away or reaching the inventory consumes a lot of time for the manufacturers, it can be the reason for slowed down operations and building up of costs. Similarly, space utilization of warehouse is also as important as the location of it. In order to avoid unnecessary labour, it is vital to optimize the space in the warehouse efficiently (Nahmias et al., 2009).
Moreover, certain unexpected issues can also become the reason for making inventory management a barrier to successful and seamless Supply Chain Management. For an instance, bad weather and natural disaster can adversely affect the raw materials and stocks available in the warehouse for the production. It is possible that the warehouse and inventory are optimized, but unexpected weather conditions and inefficiency of tackling and dealing with the certain circumstances and disasters can have an overall negative impact (Beamon and Kotleba, 2006).
Very famous scandal with respect to Nestlé was about ethical considerations when it failed to follow the ethics and admitted the implementation of child labour and slave labour in its coffee supply chain (The Guardian, 2015) and sea food supply chain (TV-Novosti, 2016).
All these issues mentioned, leads to decreased cash flow and increased expenses to warehouse sur materials. Additionally, inefficient traditional inventory management can also comprise of several challenges and problems becoming an obstacle for the entire supply chain process.
The purpose of traditional inventory systems is usually to resolve the main issues of inventory management by producing improved forecast, managing adequate level of orders, and trying optimize the levels of stocks. However, these factors do not represent the majority of inventory problems. Most of the problems of inventory ascend because of the poor execution, poor communication, and as well as poor decision making. These factors are explained in details below.
Poor execution is not being able to place the product where it is required to be. This can occur at almost any stage of the supply chain and involves actions such as, being able to transfer the product to the store but the product does not reach the shelves or is somewhere way behind and not approachable instantly by the visitors of the stores. Also, it would include putting the product in the wrong transport and making it reach the wrong store, or would involve the product being late to the distribution centre. These blunders and inefficiency can affect the image of the brand immensely (Tang and Musa, 2011).
Apart from careless actions, poor communication can also affect the inventory management and eventually the entire process of transferring the goods from the point of production by the factory to the point of consumption by the consumer, that is, the whole supply chain. Poor communication can be internal of external with respect to the supply chain operations. All the managers including analysts, sales managers, supply chain staff, etc. have their own segment of operations and work for different departments. Any barrier in the communication between them can make the collaborations challenging and difficult to produce a shared result for the data analysed (Carr and Kaynak, 2007).
Moreover, incompetent decision making which is owing to poor execution and poor communication collectively can exist in all the parts of the supply chain having an impact on the entire process. Usually, the reason behind making wrong decisions is being unaware of the areas that require more attention. Existing are several distribution channels, various locations, and innumerable stores having so many distinct stock keeping units (SKU) which makes the supply chain managers to pursue shortcuts which eventually give rise to more problems and sometimes leads to the newer ones.
All these problems mentioned were in the form of brief explanations and indicated how the inventory management can become an obstacle if not adequately managed. The next section of the report involves the appropriate solutions to the discussed problems in order to implement an effective inventory management to efficiently manage operate the entire supply chain.
Ways to overcome the Inventory Management issues
Overcoming the issues of the inventory management and constructing an efficient system is imperative to elevate revenues, lower down the handling and holding costs, and most importantly to improve cash flows. In short, better inventory management can lead to effective cash management.
Beginning this section with the solution to the first three issues discussed. To manage the stock levels, company must install an efficient inventory control system utilizing the latest information technology which would track the quantity of the stocks and also inform the operators by forecasting the length of time within which a material is required on the basis of the on-going activity of production and sales. This would not only keep record of what is coming in and going out but also will help in managing the working capital by not tying up the cash inside the inventory by supervising the purchases and procurement procedure. Smooth and seamless management of inventory stocks utilizing the technology can prove to be very positive for the overall business. Nestlé already tries to keep the technology updated, however, it is imperative for the operators to get trained with latest technology and know how to use the systems efficiently (Waters, 2011).
Now let’s comes the discussion about resolving and overcoming the traditional inventory management issues such as poor execution of the product, communication barriers between the managers and accountable personnel, and/or incompetent decision making. These issues can be resolved by implementing a virtuous cycle model of Inventory Management. This cycle basically focusses on implementing “pinpoint”, “prioritize”, and “prevent” paradigm. It operates by pinpointing or highlighting the service-level exceptions in the procedure, then aids in prioritizing that which requires immediate attention, and thirdly preventing the error from repeating again in the future. In order to make this approach effective, a complete system is installed which works by alerting the operators to focus their attention on the right things and also enable them to instantly resolve any prevailing issues (Wild, 2007).
Furthermore, there are several ways to tackle the unexpected issues and natural disasters to overcome the obstacles in inventory management.
If the unexpected demand of the customers rises or there is inaccurate levels of orders received, company must have multiple relationships with other suppliers to cater the immediate need. If there any natural disaster occurs, organization can import inventories from other destinations as it is unlikely that those destinations are also affected by the weather change or natural disaster equally. Managers must install Data Management Software (DMS) to maintain the strong relationship between the dealer and the customer (Muller, 2011).
These were the direct solutions to the problems mentioned before. However, there are more possible ways and recommendations that can be followed by Nestlé to make the inventory management an efficient process and not the obstacle. These recommendations are as follows.
Recommendations for efficient Inventory Management
Appropriate process, people and technology are required to manage the inventories adequately and effectively. The main aim of the Nestlé’s entire supply chain process should be integrated management of the supply chain from the suppliers’ gate to the customers’ door. Inventory must move out and not stay back in the warehouses. The first and foremost thing the managers of Nestlé must do to effectively manage the inventory is to formulate a plan. Firstly, plan sales by figuring out the demand of the products and analysing the sales of the previous three years at least. For this, they can incorporate suitable software that would aid them in generating a forecast and reasonable plan for the future. Nestlé is a tremendously large organization, hence, its sales plan can be further divided into sub-categories, styles or vendors. However, developing a strategic or long-term plan is important; there is also an equal need to develop daily plans. These plans are reactive models. In order to meet the urgent demand, proactive inventory plan is required, especially in today’s fast-paced market (Stadtler, 2005).
The second recommendation would be having qualified employees to manage the inventory. Companies must bear in mind that inventory management is a professional skill that requires education and training. If the inventory is managed by uneducated individuals, there are higher chances of inventory getting piled up affecting the working capital of the organization. Also, Nestlé must provide the formal training to the staff and also provide professional peer interaction and workshops to make the employees efficiently utilize the latest technology and software to manage the inventory properly (Muller, 2011).
Thirdly, organizations must strive to eliminate all the communication barriers, especially when it comes to managers and executive members. Surely, they are responsible for their own distinct department, but it is necessary to have the awareness and basic know-how of what’s going on in other departments to keep the track and work as a proficient team.
Also, apart from communicating within the premises of the organization, it is imperative to communicate with the customers and stakeholders across the company. Supplier inventory planners must visit and communicate to the customers to gain the required feedback and suggestions provided by them to improve the process accordingly as matching the expectations of the customers is one of the main objectives of the organization (Carr and Kaynak, 2007).
These are the few recommendations, which Nestlé as well as other organizations can implement to avoid making their inventory management an obstacle, rather making it an efficient system that would have positive impact on the other domains of the supply chain network.
Beamon, B.M. and Kotleba, S.A. (2006) ‘Inventory management support systems for emergency humanitarian relief operations in South Sudan’, The International Journal of Logistics Management, 17(2), pp. 187–212. Doi: 10.1108/09574090610689952.
Carr, A.S. and Kaynak, H. (2007) ‘Communication methods, information sharing, supplier development and performance’, International Journal of Operations & Production Management, 27(4), pp. 346–370. Doi: 10.1108/01443570710736958.
CEB Procurement Operations (2016) Supply chain lessons from the horsemeat scandal. Available at: https://www.cebglobal.com/blogs/supply-chain-lessons-from-the-horsemeat-scandal-2/ (Accessed: 26 July 2016).
Chen, X., Sim, M., Simchi-Levi, D. and Sun, P. (2007) ‘Risk aversion in inventory management’, Operations Research, 55(5), pp. 828–842. Doi: 10.1287/opre.1070.0429.
Christopher, M. (2016). Logistics and supply chain management (6th Ed.). Harlow, England: Financial Times Prentice Hall.
Fair Labour Association (2012) Improving workers’ lives worldwide sustainable management of Nestlé’s cocoa supply chain in the Ivory Coast—Focus on labour standards executive summary. Available at: http://www.fairlabor.org/sites/default/files/documents/reports/cocoa-report-final_0 (Accessed: 25 July 2016).
The Guardian (2015) Nestlé admits to forced labour in its seafood supply chain in Thailand. Available at: https://www.theguardian.com/global-development/2015/nov/24/nestle-admits-forced-labour-in-seafood-supply-chain (Accessed: 26 July 2016).
Michalski, G. (2010). Inventory management optimization as part of operational risk management by Grzegorz Michalski: SSRN. Economic Computation and Economic Cybernetics Studies and Research.
Muller, M. (2011) Essentials of inventory management. Ohio: US. Wiley Publishers
Nahmias, S., Ridge, B.B., Dubuque, I., Madison, I., New, W., San, Y., St, F., Louis, B., Bogota, C., Kuala, L., Lisbon, L., Madrid, M., City, M., Montreal, N., Delhi, S., Seoul, S., Sydney, T. and Toronto (2009) Production and operations analysis (6th Ed.). New York: NY. McGraw-Hill
Nestle (2016) Nestle. Available at: http://www.nestle.com/aboutus (Accessed: 25 July 2016).
Nestlé (2013) Nestle csr full report 2012. Available at: http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-csv-full-report-2012-en (Accessed: 25 July 2016).
Stadtler, H. (2005) ‘Supply chain management and advanced planning––basics, overview and challenges’, European Journal of Operational Research, 163(3), pp. 575–588. Doi: 10.1016/j.ejor.2004.03.001.
Tang, O. and Musa, N.S. (2011) ‘Identifying risk issues and research advancements in supply chain risk management’, International Journal of Production Economics, 133(1), pp. 25–34. Doi: 10.1016/j.ijpe.2010.06.013.
TV-Novosti (2016) Nestle admits possibility of slave labour in its coffee supply chain. Available at: https://www.rt.com/business/334424-nestle-jacobs-production-slavery/ (Accessed: 26 July 2016).
Waters, D. (2011) Supply chain risk management: Vulnerability and resilience in logistics. San Francisco. McGraw-Hill
Wild, T. (2007) Best practice in inventory management. London. Pearson Education
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