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2011

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SDMIMD

SUBMITTED BY:

ASEEM A KABIRPGDM NO: 11007SECTION APGDM 2011-13

SUBMITTED TO:

Dr. R. JAGADEESH

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TABLE OF CONTENTS

INTRODUCTION ....................................................................................................................................... 2

HISTORY: ............................................................................................................................................. 2PROMOTERS AND OWNERS: ............................................................................................................... 4

NESTLÉ INDIA: ..................................................................................................................................... 6

PRESENCE ACROSS INDIA: ................................................................................................................... 6

PRODUCTS IN INDIA: ........................................................................................................................... 7

PERFORMANCE: .................................................................................................................................. 7

ACHIEVEMENTS: .................................................................................................................................. 8

OPERATIONS STRATEGY ........................................................................................................................ 10

THE TEN PRINCIPLES OF BUSINESS OPERATIONS: ............................................................................ 10

SUPPLY CHAIN: .................................................................................................................................. 11

THE FOUNDATION FOR SUSTAINABILITY AND CREATING SHARED VALUE: ...................................... 12

PROBLEMS FACED & MEASURES TAKEN: .......................................................................................... 13

PRODUCTIVITY ...................................................................................................................................... 14

SECTOR TRENDS: ............................................................................................................................... 14

Industry Expectations ....................................................................................................................... 14

Analysts/market expectations : ........................................................................................................ 14

Outlook: ............................................................................................................................................ 15

COMPETITIVENESS ................................................................................................................................ 16

INDUSTRY - FOOD AND DAIRY PRODUCTS – MULTINATIONAL ........................................................ 16

Issues and Challenges: ...................................................................................................................... 16

Consistency in Ranking: .................................................................................................................... 17

FORECASTING ........................................................................................................................................ 18

NAÏVE APPROACH: ............................................................................................................................ 18

MOVING AVERAGE METHOD: ........................................................................................................... 19

WEIGHTED MOVING AVERAGE: ........................................................................................................ 19

EXPONENTIAL SMOOTHING: ............................................................................................................. 20

TRENDLINE ANALYSIS: ....................................................................................................................... 22

COMPARING THE METHODS APPLIED: ............................................................................................. 22

QUALITY CHECK OF THE REPORT .......................................................................................................... 23

REFERENCES .......................................................................................................................................... 24

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INTRODUCTION

Nestle is the world's leading Nutrition, Health and Wellness company. The mission of "Good

Food, Good Life" is to provide consumers with the best tasting, most nutritious choices in a

wide range of food and beverage categories and eating occasions, from morning to night.

Nestle believes that leadership is about behaviour, and we recognise that trust is earned

over a long period of time by consistently delivering on our promises. It is only possible to

create long-term sustainable value for our shareholders if the behaviour, strategies and

operations also create value for the communities where we operate, for the business

partners and of course, for the consumers. Nestle calls this principle as 'creating shared

value'.

The Nestlé Corporate Business Principles are at the basis of the company’s culture,

developed over 140 years, which reflects the ideas of fairness, honesty and long-term

thinking.

The Company was founded in 1866 by Henri Nestlé in Vevey, Switzerland, where the

headquarters are still located today. Nestle employs around 280 000 people and have

factories or operations in almost every country in the world. Nestlé sales for 2010 were

almost CHF 110bn.

HISTORY:

The company dates to 1867, when two separate Swiss enterprises were founded that would

later form the core of Nestlé. In the succeeding decades, the two competing enterprises

aggressively expanded their businesses throughout Europe and the United States.

In August 1867, Charles and George Page, two brothers from Lee County, Illinois, USA,

established the Anglo-Swiss Condensed Milk Company in Cham. Their first British operation

was opened at Chippenham, Wiltshire, in 1873.

In September 1867, in Vevey, Henri Nestlé developed a milk-based baby food, and soonbegan marketing it. The following year, 1868, saw Daniel Peter begin seven years of work

perfecting his invention, the milk chocolate manufacturing process; Nestlé's was the crucial

cooperation that Peter needed to solve the problem of removing all the water from the milk

added to his chocolate, and thus preventing the product from developing mildew. Henri

Nestlé retired in 1875, but the company, under new ownership, retained his name as Farine

Lactée Henri Nestlé.

In 1877, Anglo-Swiss added milk-based baby foods to its products, and in the following year

the Nestlé Company added condensed milk, so that the firms became direct and fierce

rivals.

http://www.nestle.com/CSV/CreatingSharedValueAtNestle/Pages/CreatingSharedValue.aspx


http://www.nestle.com/Common/NestleDocuments/Documents/Library/Documents/Corporate_Governance/Corporate-Business-Principles-EN.pdf

http://www.nestle.com/Common/NestleDocuments/Documents/Library/Documents/Corporate_Governance/Corporate-Business-Principles-EN.pdf



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In 1905, the companies merged to become the Nestlé and Anglo-Swiss Condensed Milk

Company, retaining that name until 1947, when the name Nestlé Alimentana SA was taken

as a result of the acquisition of Fabrique de Produits Maggi SA (founded 1884) and its

holding company, Alimentana SA of Kempttal, Switzerland. Maggi was a major manufacturer

of soup mixes and related foodstuffs. The company’s current name was adopted in 1977. Bythe early 1900s, the company was operating factories in the United States, United Kingdom,

Germany and Spain. The First World War created new demand for dairy products in the

form of government contracts, and by the end of the war, Nestlé's production had more

than doubled.

After the war, government contracts dried up, and consumers switched back to fresh milk.

However, Nestlé's management responded quickly, streamlining operations and reducing

debt. The 1920s saw Nestlé's first expansion into new products, with chocolate-

manufacture becoming the company's second most important activity.

Nestlé felt the effects of the Second World War immediately. Profits dropped from US$20

million in 1938, to US$6 million in 1939. Factories were established in developing countries,

particularly in Latin America. Ironically, the war helped with the introduction of the

company's newest product, Nescafé ("Nestlé's Coffee"), which became a staple drink of the

US military. Nestlé's production and sales rose in the wartime economy.

The end of World War II was the beginning of a dynamic phase for Nestlé. Growth

accelerated and companies were acquired. In 1947 came the merger with Maggi, a well-

known manufacturer of seasonings and soups. Crosse & Blackwell followed in 1950, as did

Findus (1963), Libby's (1971) and Stouffer's (1973). Diversification came with a shareholdingin L'Oréal in 1974. In 1977, Nestlé made its second venture outside the food industry, by

acquiring Alcon Laboratories Inc.

In 1984, Nestlé's improved bottom line allowed the company to launch a new round of

acquisitions, notably American food giant Carnation and the British confectionery company

Rowntree Mackintosh in 1988, which brought the Willy Wonka brand to Nestlé.

The first half of the 1990s proved to be favourable for Nestlé. Trade barriers crumbled, and

world markets developed into more or less integrated trading areas. Since 1996, there have

been various acquisitions, including San Pellegrino (1997), Spillers Petfoods (1998), and

Ralston Purina (2002). There were two major acquisitions in North America, both in 2002 –

in June, Nestlé merged its U.S. ice cream business into Dreyer's, and in August a US$2.6

billion acquisition was announced of Chef America, the creator of Hot Pockets. In the same

time-frame, Nestlé came close to purchasing the iconic American company Hershey's, one

of its fiercest confectionery competitors, although the deal eventually fell through. Another

recent purchase included the Jenny Craig weight-loss program, for US$600 million.

In December 2005, Nestlé bought the Greek company Delta Ice Cream for €240 million. In

January 2006, it took full ownership of Dreyer's, thus becoming the world's largest ice creammaker, with a 17.5% market share.

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In November 2006, Nestlé purchased the Medical Nutrition division of Novartis

Pharmaceutical for $2.5B, also acquiring, in 2007, the milk-flavouring product known as

Ovaltine.

In April 2007, returning to its roots, Nestlé bought US baby-food manufacturer Gerber for

$5.5 billion. In December 2007, Nestlé entered into a strategic partnership with a Belgian

chocolate maker, Pierre Marcolini. Nestlé agreed to sell its controlling stake in Alcon to

Novartis on 4 January 2010. The sale was to form part of a broader US$39.3 billion offer, by

Novartis, for full acquisition of the world’s largest eye-care company.

On March 1, 2010, Nestlé concluded the purchase of Kraft's North American frozen pizza

business for $3.7 billion. In July 2011, Nestlé SA agreed to buy 60 percent of Hsu Fu Chi

International Ltd. for about $1.7 billion.

PROMOTERS AND OWNERS:

Nestlé has a Board of Directors, led by the Chairman Peter Brabeck-Letmathe, who was the

former Nestlé CEO. There are 15 members of the Board of Directors.

NESTLÉ LEADERS: Peter Brabeck-Letmathe, left, Nestlé Chairman and Paul Bulcke, NestléChief Executive Officer (CEO).

The day to day management of the Nestlé business is taken care of by the Executive Board

members. The 13 designated Board Members manage diverse parts of the global business.

The Nestlé Group is managed by geographies (Zones Europe, Americas and

Asia/Oceania/Africa) for most of the food and beverage business, with the exceptions of

Nestlé Waters, Nestlé Nutrition, Nestlé Purina Petcare, Nespresso, Nestlé Professional and

Nestlé Health Science which are managed on a global basis - these we call the Globally

Managed Businesses. Nestle also have joint ventures such as Cereal Partners Worldwide andBeverage Partners Worldwide.

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PRODUCTS AND SERVICES OFFERED WORLDWIDE:

Nestlé has some 6,000 brands, with a wide range of products across a number of markets,

including coffee (Nescafé, Nespresso, etc.), bottled water (Buxton, Perrier, etc.), milkshakes

and other beverages (Nesquik, Milo, Carnation, etc.), chocolate (Milky Bar, After Eight, and

many others), ice cream (Häagen-Dazs, Skinny Cow, etc.), breakfast cereals (Cheerios,

Golden Nuggets, Shreddies, etc.), infant foods (now including Gerber products),

performance and healthcare nutrition (Nesvita, PowerBar, etc.), seasonings, soups and

sauces (Maggi, Buitoni, etc.), frozen and refrigerated foods (Findus, Lean Cuisine, etc.),

confectionery (Rowntree products, Caramac, Wonka products, etc.), and pet food (Winalot,

Felix, etc.).

Baby Foods - Cerelac, Gerber, Gerber Graduates, NaturNes, Nestum..

Bottled Water - Nestlé Pure Life, Perrier, Poland Spring, S.Pellegrino

Cereals - Chocapic, Cini Minis, Cookie Crisp, Estrelitas, Fitness, Nesquik

Chocolates & Confectionery - Aero, Butterfinger, Cailler, Crunch, Kit Kat.

Coffee - Nescafé 3 in 1, Wonka, Nescafé, Nescafé Classic, Nescafé Decaff, Nescafé Dolce

Gusto, Nescafé Gold, Nespresso.

Culinary, Chilled & Frozen Food - Buitoni, Herta, Hot Pockets, Lean Cuisine, Maggi,

Stouffer's, Thomy.

Diary - Carnation, Coffee-mate, La Laitiere, Nido

Drinks - Juicy Juice, Milo, Nesquik, Nestea

Food Service - Chef, Chef-mate, Lean Cuisine, Minor's, Sjora, Stouffer's

Healthcare Nutrition - Boost, Nutren Junior, Peptamen, Resource.

IceCream - Dreyer's, Extreme, Haagen-Dazs, Movenpick, Nestle icecream.

Petcare - Alpo, Bakers Complete, Beneful, Cat Chow, Chef Michael’s Canine Creations,

DogChow,Fancy Feast, Friskies, Gourmet, Purina, Purina ONE, Purina Pro Plan

Sports nutrition - PowerBar

Weight Management - Jenny Craig

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GLOBAL PRESENCE:

Nestlé's unmatched geographic presence is one of its competitive advantages. From Swiss

beginnings, the company grew to establish a presence in almost every country in the world.

Today, Nestlé's presence in most markets, including emerging markets, dates back many

generations, and in some cases more than a century.

This has created very close relationships between the brands and consumers, as well as a

deep understanding of local needs and trends wherever Nestlé operates. Local management

teams, manufacturing, R&D have all been developed, as well as long-term relationships with

farmers and other suppliers.

NESTLÉ INDIA:

Nestlé India is a subsidiary of Nestlé S.A. of Switzerland. With seven factories and a largenumber of co-packers, Nestlé India is a vibrant Company that provides consumers in India

with products of global standards and is committed to long-term sustainable growth and

shareholder satisfaction.

The Company insists on honesty, integrity and fairness in all aspects of its business and

expects the same in its relationships. This has earned it the trust and respect of every strata

of society that it comes in contact with and is acknowledged amongst India's 'Most

Respected Companies' and amongst the 'Top Wealth Creators of India'.

PRESENCE ACROSS INDIA:

After nearly a century-old association with the country, today, Nestlé India has presence

across India with 7 manufacturing facilities and 4 branch offices spread across the region.

With an employee-strength of over 3000 and turnover of US$ 497 million in 2003, Nestle

India is one of the leading companies in the FMCG space in India. The company is

acknowledged amongst India’s ‘Most Respected Companies’ and amongst the ‘Top Wealth

Creators of India’.

Nestlé India’s first production facility, set up in 1961 at Moga (Punjab), was followed soon

after by its second plant, set up at Choladi (Tamil Nadu), in 1967. Consequently, Nestlé India

set up factories in Nanjangud (Karnataka), in 1989, and Samalkha (Haryana), in 1993. This

was succeeded by the commissioning of two more factories - at Ponda and Bicholim, Goa, in

1995 and 1997 respectively. The seventh factory was set up at Pantnagar, Uttarakhand, in

2006.

The 4 branch offices in the country help facilitate the sales and marketing of its products.

They are in Delhi, Mumbai, Chennai and Kolkata. The Nestlé India head office is located in

Gurgaon, Haryana.

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During the first half 2004, the company registered a total income of US$ 257.8 million and

net profit of US$ 23.73 million. Nestlé India is a 61.85 per cent subsidiary of Ne s t l e S .A.

Switzerland and was incorporated as a limited company in 1959. It produces a wide range of

products including beverages, prepared dishes and cooking aids, milk products and

nutrition, chocolate and confectionery. Milk products and nutrition account for around 45per cent of Nestlé India’s total revenues. The company’s beverage products generate 22 per

cent of the company’s total revenues, while prepared dishes and cooking aids generate 18

per cent, and chocolate and confectionery 15 per cent.

PRODUCTS IN INDIA:

Milk Products & Nutrition:

NESTLÉ EVERYDAY Dairy Whitener, EVERYDAY Ghee, Milk, Slim Milk, Dahi,Slim

Dahi,Bhuna Jeera Raita,NESVITA Dahi,Real Fruit Yoghurts, Creamy Vanilla,MILKMAID,NESLAC, ACTIPLUS, NESTLÉ Start Healthy Stay Healthy.

Beverages:

Nescafé Classic, Nescafé Sunrise Premium, Nescafé Sunrise Special, Nescafé Cappuccino,

Nestea Iced Tea With Green Tea, Nestea Iced Tea, Nestea Instant Hot Tea Mixes, Nescafé

3in1.

Prepared Dishes & Cooking Aids:

Maggi 2-Minute Noodles, Maggi Vegetable Atta, Maggi Noodles, Maggi Cuppa Mania, Maggi

Healthy Soups, Maggi Masala-ae-Magic, Maggi Sauces, Maggi Pichkoo, Maggi Pizza

Mazza, Maggi Magic Cubes, Maggi Vegetable Multigrainz Noodles, Maggi Bhuna Masala,

Maggi Coconut Milk Powder, Maggi Pazzta, Maggi Sanjeevni Cup Soup, Maggi Imli Pichkoo,

Maggi Noodletz.

Chocolates & Confectionery:

Nestlé Kit Kat, Nestlé Munch, Nestlé Munch Pop Choc, Nestlé Milkybar,Nestlé Milkybar

Choo, Nestlé Bar-One, Nestlé Milk Chocolate, Polo, Nestlé Eclairs, Nestlé Milkybar Eclairs,Nestlé Milkybar Crispy Wafer, Polo - Hole New Fashion, Nestlé Dark Chocolate.

PERFORMANCE:

The net sales has increased by 20% to Rs 1768.06 crore. Net domestic sales increased by

21% to Rs 1643.48 crore on back of volume and selling price growth. The export sales

inclined by 11% to Rs 119.57 crore. Export growth has been adversely impacted by the ban

on export of milk powder.

The OPM has declined by 40 basis points to 19.4% due to rise in other expenditure by 80basis points to 23% and employee expenses by 50 basis points to 7.7% of adjusted net sales.

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However, raw material cost saw dip by 140 basis points to 48.1% of adjusted net sales. The

higher commodity prices, mainly Milk Solids, Green Coffee and Oils/Fats, were partially

offset by an improved product/channel mix and operational efficiencies. The operating

profit has increased by 18% to Rs 343.7 crore.

Other income has declined by 46% to Rs 2.97 crore as there was a positive impact due to

maturity of discounted treasury instruments last year. Interest amount increased by 57% to

Rs 0.58 crore. Depreciation has increased by 21% to Rs 36.67 crore. The profit before tax has

increased by 16% to Rs 309.42 crore.

Total tax outgo has increased by 33% to Rs 95.59 crore due to rise in effective tax rate at

31% from 27%. The increase in Tax Expense is due to the end of the first 5 years of Income

Tax holiday @ 100% of the profits of Pantnagar factory. For the next 5 years, the Tax Holiday

will continue @ 30% of the profits of Pantnagar factory. The net profit has increased by 10%

to Rs 213.83 crore due to rise in tax rate.

ACHIEVEMENTS:

While your Company's products continued to be trusted for their high Quality, yourCompany has increasingly emphasised better consumer engagement. The success is

reflecting in the awards and recognitions that your brands received during the year. They

are also a strong indication of the hard work and sustainable in natives being Implemented

to delight consumers Some of the key awards and recognitions:

Conferred 'Marketing Company of the Year' award al PITCH India's Top 50 Marketers

Awards 2010 to recognise excellence in Marketing.

Pitch Magazine recognised MAGGI amongst the top 3 ‘Ageless Brands’ and adjudged

MAGGI Masala-ae-Magic amongst the top 3 for innovative work at the 'Bottom of

the Pyramid'.

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NESTEA Voted 'Product of the Year' in the powdered beverages category by Nielsen's

Consumer Survey of product innovation 2010.

KIT KAT adjudged 'Master Brand' by the World Brand Congress.

MAGGi Masala-ae-Magic recognised amongst 'The Chartbusters' of 2010 by The

Economic Times. 'NESCAFE Know Your Neighbours' campaign amongst Top 5 'Most Liked' Digital

Campaigns of 2010 listing by AFAQS.

MAGGI again rated the No. 1 Food Brand in India by an ICMR consumer study.

'Me and Meri MAGGI' campaign recognised by Campaign India Digital Media

Awards-Silver for Best Website' (FVCG) and Bronze for Best Loyalty Campaign'.

MAGGI rated amongst India's Top 10 Buzziest Brands by AFAQS Survey 2010.

'Me and Meri MAGGI' advertising campaign received Silver and Bronze Awards at

2010 ABBV'S.

Coffee Board Awards for Best Exporter of Coffee to Russia and CIS, and Second Best

Exporter of instant Coffee, (2009-2010). In a survey by Business Today and indicus Analytics to understand external

perceptions Nestle India amongst the section toppers for FMCG on Best Companies

to Work for 2010.

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Nestle is committed to preventing accidents, injuries and illness related to work, and to

protect employees, contractors and others involved along the value chain.

SUPPLIERS AND CUSTOMERS

7. Supplier and customer relations

We require our suppliers, agents, subcontractors and their employees to demonstrate

honesty, integrity and fairness, and to adhere to our non-negotiable standards. In the

same way, we are committed to our own customers.

8. Agriculture and rural development

Nestle contributes to improvements in agricultural production, the social and economic

status of farmers, rural communities and in production systems to make them more

environmentally sustainable.

9. Environmental sustainability

Nestle commits themselves to environmentally sustainable business practices. At all

stages of the product life cycle Nestle strives to use natural resources efficiently, favour

the use of sustainably-managed renewable resources, and target zero waste.

10. Water

We are committed to the sustainable use of water and continuous improvement in

water management. We recognise that the world faces a growing water challenge and

that responsible management of the world’s resources by all water users is an absolute

necessity.

SUPPLY CHAIN:

The current volatile and complex economic environment requires efficient and cost

effective processes. During 2010 your Company has ensured timely and efficient supply of

materials to run the factories, accelerating the development of local suppliers. Thedistribution of finished goods to consumers across the country continues to be cost

effective and more environmental friendly with increasing share of rail deliveries.

During the year, the Company also delivered sustainable coat optimisation initiatives

as part of Nestle Continuous Excellence (NCE) to eliminate waste and manage input costs.

This year the NCE programme will be expanded further to cover all supply chain

processes and select distribution centres.

In line with the philosophy of Creating Shared value, Nestle India rolled out its Responsible

Sourcing programme in 2010. All the key vendors were engaged on this Initiative through

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procurement led vendor meets at the Company's Head office and factories Vendors wore

supported through a pre-assessment process, consultant visits, dedicated help desk and

continuous engagement and education All vendors were registered on the SEDEX platform

and independent Audits by internationally approved agencies were conducted on the key

vendors shortlisted All these vendors were found compliant with minor gaps for which roadmaps have been agreed mutually.

THE FOUNDATION FOR SUSTAINABILITY AND CREATING SHARED VALUE:

As Nestlé is a principle-based company, the Nestlé Corporate Business Principles form the

foundation of all we do. Compliance with Nestlé Corporate Business Principles, and with

specific policies related to each principle, is non-negotiable for all employees and their

application is monitored and regularly audited.

As shown in the diagram below, compliance with Nestlé Corporate Business Principles is thefoundation for the Company’s commitment to be environmentally sustainable and to create

shared value.

Creating Shared Value is the basic way the business is done, which states that in order to

create long-term value for shareholders; we have to create value for society. But it cannot

be either environmentally sustainable or create shared value for shareholders and society if

it fails to comply with the Business Principles.

At the same time, Creating Shared Value goes beyond compliance and sustainability. Any

business that thinks long-term and follows sound business principles creates value forshareholders and for society through its activities, e.g. in terms of jobs for workers, taxes to

support public services, and economic activity in general.

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But Creating Shared Value goes one step further. A company consciously identifies areas of

focus, where: a) shareholders’ interest and society’s strongly intersect, and b) where value

creation can be optimised for both. As a result, the company invests resources, both in

terms of talent and capital, in those areas where the potential for joint value creation is the

greatest, and seeks collaborative action with relevant stakeholders in society.

Nestlé have analysed the value chain and determined that the areas of greatest potential for

joint value optimisation with society are Nutrition, Water and Rural Development. These

activities are core to the business strategy and vital to the welfare of the people in the

countries where it operates.

Nestle actively seek engagement and partnerships with outside stakeholders that optimise

positive impact in these areas of focus. However, Creating Shared Value is not about

philanthropy. It is about leveraging core activities and partnerships for the joint benefit of

the people in the countries where we operate.

In doing so, Nestlé maintains a very long-term perspective on business development and

welcomes dialogue with external stakeholders who are committed to principled behaviour

and constructive engagement. This includes government and regulatory authorities,

intergovernmental organisations, non-governmental organisations, academic and

professional bodies, and local communities.

PROBLEMS FACED & MEASURES TAKEN:

Battle for market share starts eating into revenues and margins of Nestle. As there isintense competition in the FMCG sector, companies are battling for market shares.

This has resulted in the reduction of shares of the companies.

The year 2011 saw some near term challenges like inflation and irregular monsoon,

which impacted its margin and profitability harder. The rise in raw material costs

took a toll on the operating margins across companies. The increasing competition

among players also resulted in greater Advertising & Promotion (A&P) expenses of

majority FMCG companies barring a few. To tackle the input cost pressure, the have

already taken price hikes or are planning to rise prices to protect margins from

erosion. Fast Moving Consumer goods has a tough time in calendar 2011. The slowdown in

the economy has led to shrinking disposable incomes, leading to degrowth in various

segments of the industry. As a result, the industry is bogged down by down trading,

wherein users move to low priced inferior products, to satisfy their basic needs

within their shrinking budget.

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PRODUCTIVITY

SECTOR TRENDS:

The FMCG sector saw new launches, re-launches and acquisitions in 2010 contributing to

the sector's phenomenal top-line growth of 15% led largely by volumes. But the year also

saw some near term challenges like inflation and irregular monsoon, which impacted its

margin and profitability harder. The rise in raw material costs took a toll on the operating

margins across companies, with margins contracting by approx. 200 bps to 500 bps. The

increasing competition among players also resulted in greater Advertising & Promotion

(A&P) expenses of majority FMCG companies barring a few. To tackle the input cost

pressure, the have already taken price hikes or are planning to rise prices to protect margins

from erosion. FMCG sector also saw lots of acquisitions in other emerging as well as

developed markets, which would also be earnings accretive in the long run. The sector islikely to perform in medium to long term as favourable demand scenario.

Industry Expectations

Focus on the rural areas to continue. Sustained focus on agriculture growth. Direct

subsidy to farmers to be reviewed.

Continued thrust and higher allocations to social and developmental programs –

especially MGNREGA.

Increase in tax slabs for personal income tax

No change in Cenvat rate, considering the high inflation and rising input prices

No increase in excise duties for cigarettes, given strong increase last year.

Full exemption from excise duty for packaged water from current 8% and biscuit,

which has currently 4% duty. Also full exemption on sanitary napkin from 10% level.

Reduction in excise duty on sugar confectionary from 10% to 4% and condensed milk

from 10% to 4% - 8%.

Increase in service tax from 10% to 12%

Reduction of MAT rate – currently applicable at 18%

Reduction in dividend distribution tax from currently 15% (1.66% surcharge +

education cess) to 10%. Roadmap for FDI in retail sector

Roadmap for implementation of DTC and GST

Analysts/market expectations :

Higher allocations to social and development programs targeted for rural India – like

Indira Gandhi Vikas Yojana, NREGA, Bharat Nirman, Indira Awas Yojana and Krishi

Vikas Yojana

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We believe the excise duty on cigarettes may remain unchanged or may be

marginally rise in this Budget after a 15% increase in the effective excise rate in the

last Budget.

Cenvat rate to increase from 10% to 12% - full rollback of fiscal stimulus granted in

FY09-10. MAT increase may happen as it could be a step towards direct tax code.

Outlook:

The Indian fast moving consumer goods (FMCG) sector with a market size of Rs 130000

crore is the fourth largest sector in the Indian economy. The sector has grown at a CAGR of

11% over the last decade and is expected to sustain the strong growth on the back of strong

domestic consumption in the long run. Robust GDP growth estimated at 8.75% in FY11,

increased income in rural areas, growing urbanisation and changing lifestyle of consumers

would be key growth drivers for companies. However, the high food inflation and thesurging input cost are likely to affect its growth in the near term. Hence, we expect the

government to provide some support to the sector in the upcoming budget.

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COMPETITIVENESS

INDUSTRY - FOOD AND DAIRY PRODUCTS – MULTINATIONAL

India is the world's second largest producer of food next to China, and has the potential of

being the biggest with the food and agricultural sector. The total food production in India is

likely to double in the next ten years and there is an opportunity for large investments in

food and food processing technologies, skills and equipment, especially in areas of Canning,

Dairy and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and

Thermo Processing. Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry,

Packaged/Convenience Foods, Alcoholic Beverages & Soft Drinks and Grains are important

sub-sectors of the food processing industry.

Nestle India is ranked No. 1 in the Indian food and dairy products industry. The competitors

of Nestle in India are Britannia Industries, Cadbury India, GlaxoSmith C H L, Perfetti Van Mel,

Heinz India and Jubilant foods.

The table shows the total sales of each companies during the financial year 2010-11.

Food And Dairy Products -Multinational

Sales (incr.)

NetProfit (in

cr.)

Nestle India 6,254.74 824.34

Britannia Industries 4,213.71 129.65

Cadbury India 2,503.24 211.45

GlaxoSmith C H L 2,306.12 298.16

Perfetti Van Mel 834.56 49.66

Heinz India 720.65 73.53

Jubilant Food. 678.07 72.4

TOTAL 17614.83 1631.56

Nestle has sales of Rs. 6,254.74 crores during the financial year 2010-11 and registered a

profit of Rs. 824.34 crores. Nestle is the market leader in food and dairy products industry in

India.

Overall? What are the issues and challenges? How consistent is the company in its ranking?

Do their products enjoy monopoly?

Issues and Challenges:

Nestle is facing intense competition from other players in the industry.

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Other players are utilising the different possibilities prevalent in the market and

registering good growth.

Even Indian diary players like AMUL are giving good competition to Nestle in the

diary sector.

Nestle has to launch innovative products in the market to maintain its market leaderposition.

Also, Nestle can consider more diversification in the Indian industry.

Consistency in Ranking:

Nestle is consistently the market leader for the past few years in India. Nestle has improved

productivity and operations to maintain its market leader position throughout in the

industry. Nestle has undergone many changes in its production and operations to maintain

its position. Also, Nestle has made many product changes and modifications to maintain itsposition.

Nestle products like Nescafe, Maggi, Milkybar, etc. are having major share in their own

segment. Maggi has almost a monopoly in the market.

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FORECASTING

Forecasting is the process of making statements about events whose actual outcomes

(typically) have not yet been observed. A commonplace example might be estimation for

some variable of interest at some specified future date.

Qualitative forecasting techniques are subjective, based on the opinion and judgment of

consumers, experts; appropriate when past data is not available. It is usually applied to

intermediate-long range decisions.

Quantitative forecasting models are used to estimate future demands as a function of past

data; appropriate when past data is available. It is usually applied to short-intermediate

range decisions.

Example of Quantitative forecasting methods:

NAÏVE APPROACH:

Naive approach looks at no data past the present

Forecast for the next period is the same for the last period

Does not work with data that is trended or has a clear pattern

In Naïve Approach, forecasting is done considering the data for the last period only.

YearNetSales

2001 1820.48

2002 1935.822003 2140.56

2004 2229.072005 2475.01

2006 2819.16

2007 3500.652008 4327.672009 5129.38

2010 6254.74Forecast for year2011 6254.74

The Net Sales Forecast for the year 2011 using moving average method is Rs. 6254.74

crores.

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MOVING AVERAGE METHOD:

This simplest forecasting method is the moving average forecast. The method simply

averages of the last m observations. It is useful for time series with a slowly changing mean.

Applying moving average method to forecast the Net Sales of Nestle India in 2011:

Year Net Sales 3 yr. M A Error Abs . Dev Sqr. Error APE

2001 1820.48

2002 1935.82

2003 2140.56

2004 2229.07 1965.62 263.45 263.45 69405.903 0.118188

2005 2475.01 2101.816667 373.1933 373.19333 139273.26 0.150785

2006 2819.16 2281.546667 537.6133 537.61333 289028.1 0.1907

2007 3500.65 2507.746667 992.9033 992.90333 985857.03 0.283634

2008 4327.67 2931.606667 1396.063 1396.0633 1948992.8 0.32259

2009 5129.38 3549.16 1580.22 1580.22 2497095.2 0.308072

2010 6254.74 4319.233333 1935.507 1935.5067 3746186.1 0.309446Forecast for year2011 5237.263333 7078.95 7078.95 9675838.4 1.683415

The Net Sales Forecast for the year 2011 using moving average method is Rs. 5237.263

crores.

The error calculation in this forecast is given below:

Error Values

CFE 7078.95

Mean Error 1011.279

MAD 1011.279Mean squareerror 1382263

MAPE 24.04879

WEIGHTED MOVING AVERAGE:

Weighted moving average is a moving average where each historical demand may be

weighted differently.

Average: At = W1 Dt + W2 Dt-1 + W3 Dt-2 + ... + WN Dt-N+1

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where:

N = total number of periods in the average

Wt = weight applied to period t's demand

Sum of all the weights = 1

forecast: Ft+1 = At = forecast for period t+1

Applying weighted moving average method to forecast the Net Sales of Nestle India in 2011:

Year Net Sales3 Yr.WMA Error

Abs .Dev Sqr. Error APE

2001 1820.482002 1935.82

2003 2140.56

2004 2229.07 2015.122 213.948 213.948 45773.7467 0.095981

2005 2475.01 2143.867 331.143 331.143 109655.6864 0.133795

2006 2819.16 2334.338 484.822 484.822 235052.3717 0.171974

2007 3500.65 2597.897 902.753 902.753 814962.979 0.257882

2008 4327.67 3091.075 1236.595 1236.595 1529167.194 0.285742

2009 5129.38 3777.862 1351.518 1351.518 1826600.904 0.263486

2010 6254.74 4563.121 1691.619 1691.619 2861574.841 0.270454

Forecast for year2011 5531.718 6212.398 6212.398 38593888.91 1.479312

The Net Sales Forecast for the year 2011 using weighted moving average method is Rs.

5531.718 crores.


Error Values

CFE 6212.398

Mean Error 887.4854

MAD 887.4854Mean squareerror 5513413

MAPE 21.13303

EXPONENTIAL SMOOTHING:

This method considers the entire past in its forecast, but weighs recent experience more

heavily than less recent. The computations are simple because only the estimate of the

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previous period and the current data determine the new estimate. The method is useful for

time series with a slowly changing mean.

YearNetSales

Exp.Smoothing Error Abs . Dev Sqr. Error APE

2001 1820.48 1878.15 -57.67 57.673325.828

9 -0.03168

2002 1935.82 1860.849 74.971 74.9715620.650

8 0.038728

2003 2140.56 1883.3403 257.2197 257.219766161.97

4 0.120165

2004 2229.07 1960.50621 268.5638 268.5637972126.50

9 0.120482

2005 2475.01 2041.075347 433.9347 433.93465188299.2

8 0.175326

2006 2819.16 2171.255743 647.9043 647.90426419779.9

3 0.229822

2007 3500.65 2365.62702 1135.023 1135.0231288277.

2 0.324232

2008 4327.67 2706.133914 1621.536 1621.53612629379.

3 0.37469

2009 5129.38 3192.59474 1936.785 1936.78533751137.

1 0.377587

2010 6254.74 3773.630318 2481.11 2481.10976155905.

3 0.396677

Forecast for year 2011 4517.9632238799.37

78799.377

4 774290432.12603

1

The Net Sales Forecast for the year 2011 using exponential smoothing is Rs. 4517.963223

crores.


Error Values

CFE 8799.377

Mean Error 879.9377

MAD 891.4717

Mean squareerror 1458001

MAPE 21.26031

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TRENDLINE ANALYSIS:

Sales forecast for the year 2011 is given as:

= 468.83*11+684.66

= Rs. 5841.79 crores

COMPARING THE METHODS APPLIED:

The forecasting is done using Naïve Approach, Moving Average Method, Weighted

Moving Average Method, Exponential Smoothing Method and Trendline Analysis.

The forecasting method in which the forecasted values are closer to the actual value

is the Weighted Moving Average Method. The error is less in Exponential Smoothing method. The Weighted Moving Average

Method also has less error.

Considering the forecasted value and the error measurement, the Weighted Moving

Average Method is the best suited method for forecasting in this case.

y = 468.83x + 684.66R² = 0.8797

0

1000

2000

3000

4000

5000

6000

7000

1 2 3 4 5 6 7 8 9 10

Year

Net Sales

Linear (Net Sales)

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QUALITY CHECK OF THE REPORT

All data collected for the report are from reliable sources and utmost care is taken

while framing the report.

The operations management concepts are applied to the best of my knowledge in

the report.

All important details are included in the report.

The details included in the report are:

o History of the company, Promoters and owners, Segment or sector, Products

and services offered, Location and capital structure, Performance, Significant

achievements – awards, milestones.o Operations Strategy - The Ten Principles of Business Operations, Supply

Chain, The Foundation for Sustainability and Creating Shared Value, Problems

Faced & Measures taken.

o Productivity - Sector Trends, Industry Expectations, Analysts/market

expectations, Outlook.

o Competitiveness -Industry-Food and Dairy Products Multinational, Issues and

Challenges, Consistency in Ranking, Forecasting.

o Forecasting Techniques - Naïve Approach, Moving Average Method,

Weighted Moving Average, Exponential Smoothing, Trendline Analysis,Comparing the Methods Applied.

The operations management of the company is discussed in detail in the report

including the forecasting techniques which can be applied.

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REFERENCES

http://www.nestle.com/Pages/Nestle.aspx

http://nestle.in/nestle_india_landing.aspx

Lee J, Krajewski and Larry P Ritzman. Operations Mangement: Strategy and Analysis ,

6th Edition. - New Delhi: Pearson Education Asia.xxv. 882p.

Lee J, Krajewski and Larry P Ritzman, Manoj K Malhotra., Operations Management:Processes and Supply Chains, 9th Edition. - New Delhi: Pearson Education Asia.

http://web.ebscohost.com/ehost/results?sid=2f98c8b2-a0be-4722-96ea-

804d1aac4969%40sessionmgr10&vid=3&hid=8&bquery=(nestle)&bdata=JmRiPWJza

CZkYj1id2gmZGI9bHhoJmRiPThnaCZ0eXBlPTAmc2l0ZT1laG9zdC1saXZl



http://web.ebscohost.com/ehost/results?sid=2f98c8b2-a0be-4722-96ea-804d1aac4969%40sessionmgr10&vid=3&hid=8&bquery=(nestle)&bdata=JmRiPWJzaCZkYj1id2gmZGI9bHhoJmRiPThnaCZ0eXBlPTAmc2l0ZT1laG9zdC1saXZl








