production operation management project

8/12/2019 Production Operation Management Project

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Operation Management Project

Operation Management at Nestle Juices

Submitted by:

Rizwan Ahmed

Babar Azhar

Rizwan Younas

Imran Younas


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Summary

In this project we will analyze the operation management at the Nestle Juice factory. Nestle is

the world's leading nutrition, health and wellness company today and was founded in 1866 by

Henri Nestl. It has employed around 250,000people and has factories or operations in almost

every country in the world.

Since its inception Nestle has provided quality products to its customer by providing product

and packaging innovation. Nestle juices is Pakistans number one and fastest growing food

company. The company is trying to differentiate themselves from the rest of the competition in

Pakistan by adopting latest product development techniques and processes.

In this detailed project we have covered the topics related to product development and

processes that juice production goes through. Quality management is inspected thoroughly and

supply chain management at Nestle is studied.

First of all we have gone through industry analysis, which include Porters five force analysis and

PEST analysis. Then we have completed company analysis and also given the brief introduction

of company in this section. The section of company analysis include vision statement of Nestle,

High quality standards of Nestle, vision statement of Nestle Juices, Mission of Nestle, Company

main objectives, its structure, Juice manufacturing factories, SBUs within Nestle, Brands in

Nestle, Its current Earnings and other financial stats and in the end SWOT analysis.

Then we have examined product design phases at Nestle. Process phases are examined and

value chain was examined in detail. Quality management at Nestle follows the process phases,

followed by supply chain management at Nestle. In the end we have given recommendations.


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INDUSTRY ANALYSIS

PORTERS FIVE FORCES ANALYSIS

Michael Potter's five forces framework can be used to determine whether the industry is

attractive enough to sustain a small or medium size enterprise. The five forces of Entry, Rivalry,

Substitutes, Buyers and Suppliers jointly determine the intensity of competition and profit

potential for a small and medium size firm in a given industry or market sector. The focus at this

stage is at the industry level because industry dynamics and profits of necessity dictate profits

of other firms that enter the industry.

Threat of New Entrants

The threat of new entrance means, when any company that is not operating in that product

category or the company that start it new venture see a opportunity in this field like juices, and

based on that they decided to enter in this market. So the current company that is operating in

the market has a Low threat for the new entrance. Nestle is big organization being it

competitor is not an easy task. There is some barrier for the new entrance like Economies of

Scale, Product Differentiation, Capital Requirements, Switching Costs, and Access to

Distribution Channels, Cost Disadvantages, Independent of Scale, and Government Policy.

Bargaining Power of Suppliers

The company needs raw material, labors, component and other supplies. This requirement

leads to buyers-suppliers relationships between industry and the suppliers. Suppliers, if

powerful can exert an influence on the producing industry, such as selling raw materials at high

price to capture some of the industry profits. The bargaining power is low because Nestle

doesnt rely on any supplier. They produce their own raw material. Even they have no reliance

on the distributors. They have their own factory trucks to supply the material and have their

own distribution network.

Bargaining Power of Buyers

Buyer power is the most important factor of porters fiver forces model,because buyer are the

consumers of the product. For nestle its a major impact factor because the competition is

intense & competitors have the same products that may differs in quality but are providing the

same needs. For that particular reason we can say that Nestle have high bargaining power

from buyers.


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Threats from Substitutes

Substitute products refer to products in other industries. To the economist, a threat of

substitutes exists when a product demand is affected by the price change of a substitute

product. A close substitute products constrains the ability of firms in an industry to raise prices.

Nestle have a major threat from it substitute products from other competitor due to whichthere product can lost the market share, there are many competitors so the threat from

substitutes product are high.

Competitive Rivalry

The big factors determining the strength of rivalry is how actively and aggressively are rivals

employing the various weapons of competition in jockeying for a stronger market position and

seeking bigger sales. Many local companies have entered market and there is also great threat

from established companies. Nestle also face lot of HIGH competitor rivalry.

Conclusion

We can conclude from above observation that whether the company is MNC or local it will face

the tough competition from its competitors because competitive edge is the most volatile thing

in business world now-a-days. Companies are reactive & they react to the change. We can

conclude that the FMCG industry is unfavorable for the new entrant to enter in the market.

However existing firms can control these five forces & attain the edge over their competitors as

nestle is following a sound strategy.


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COMPANY ANALYSIS

Nestl is the world's leading food and beverage company, with sales of about CHF 83 billion. It

has 230,000 employees world-wide and operates 520 factories in 82 countries. Its products are

available universally, including such remote markets as North Korea, and they are sold under a

number of brands such as Nestl, Nescafe, Nestea, Maggie, Buitoni, Perrier and Friskies.Company belongs to more than 200,000 shareholders, today; Nestl is about twice the size of

its nearest competitor in the food and beverage sector. The company is in business for over 130

years.

VISION

Nestl aim is to meet the various needs of the consumer every day by marketing and selling

food of a consistently high quality.

The confidences that consumers have in our brands is a result of our companys many years of

knowledge in marketing, research and development, as well as continuity - consumers relate tothis and feel they can trust our products.

High quality and collaboration

Our objectives are to deliver the very best quality in everything we do, from primary produce,

to choice of suppliers and transport, to recipes and packaging materials.

Vision Statement of Nestle JUICES

The strategic priorities of Nestle Juices are focused on delivering shareholder value through the

achievement of sustainable, capital efficient and profitable long term growth. Improvements in

profitability will be achieved while respecting quality and safety standards at all times. Nestle

JUICES envisions to grow in the shortest possible time into the number one Beverage Company

in Pakistan with the unique ability to meet the needs of consumers of every age group through

development of a large variety of beverage categories of the highest quality.

CORPORATE MISSION

Nestls brands and products are the focus of continual innovation and renovation so that they

meet and exceed our consumers' expectations. We seek to ensure that our products are

available whenever, wherever and however our consumers want them.


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OBJECTIVES

Nestls purpose is to offer safe, tasty, convenient and nutritious foods to improve health and

well-being of consumers of all ages all over the world. To meet the needs and desires of todays

and tomorrows consumers, Nestl is strongly committed to Research and Development (R&D)

to improve existing products and develop new foods with specific health benefits.

Company Structure

Nestle head office in Pakistan is in Lahore. It also has its registered office in Lahore.

Nestle has divided the whole Pakistan in to three Zones.

Northern Zone Central Zone Southern Zone

Nestle has 8 regional offices in all over Pakistan. These offices work under their respective zonal

offices.

Factories

Nestle has two factories in Pakistan for the production of juice items.

One near Sheikhupura near Lahore (29 Kilometer on Lahore Sheikhupura road) Second in Kabirwala near Multan (Khanewal raod, Distt. Kabirwala)

Zones

Zone of Food and beverages are shown below

Zone Targeted Ares

Food And Beverage Europe Europe

AMS Food and Bevearge Amercia United States of America, Canada, Latin America and Caribbean

AOA Food and Bevearge Asia, Oceania and Africa Asia, Oceania, Africa and Middle East

Strategic Business Units (SBUs) and Marketing

Below are some SBUs of Nestle

Strategic Generating Demand Unit

Business Excellence Generating Demand

Dairy SBU

Coffee & Beverages SBU

Chocolate, Confectionery & Biscuits SBU

Ice Cream SBU

Food (Culinary and Frozen food) SBU

Pet Care SBU


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BRANDS

The main brands of Nestle are

Coffee

Nescafe, Nespresso, Tasters Choice, Ricor, Ricoffy, Bonka, Zogas, Loumidis

Water

Poland Spring, Nestl Pure Life, Arrowhead, Vittel, Deer Park, Levissima, Perrier, S.Pellegrino,

Ozarka, Contrex, Ice Mountain, Zephyrhills, Nestl Aquarel, Hpar, Acqua Panna

Other beverages

Nestea, Nesquik, Nescau, Milo, Carnation, Libbys, Caro, Nestomalt, Nestl

Dairy - Shelf stableNestl, Nido, Nespray, Ninho, Carnation, Milkmaid, La Lechera, Moa, Klim, Gloria, Svelty,

Molico, Nestl Omega Plus, Bear Brand, Coffee-Mate

Ice cream

Nestl, Antica Gelateria del Corso, Dreyer's/Edy's, Drumstick/Extrme, Maxibon/Tandem,

Mega, Mvenpick, Sin Parar/Sem Parar/Non Stop, Delta

Infant nutrition

Nestl, Nan, Lactogen, Beba, Nestogen, Cerelac, Nestum, Neslac, Guigoz, Good Start

HealthCare nutrition

Nutren, Clinutren, Peptamen, Modulen Bouillons, soups, seasonings, pasta, sauces

Maggi, Buitoni, Thomy, Winiary, Torchin, Osem, Totole, Haoji

Frozen foods (prepared dishes, pizzas, small meals)

Stouffers, Lean Cuisine, Hot Pockets, Buitoni, Maggi, Wagner, La Cocinera

Refrigerated products (cold meat products, dough, pasta, pizzas, sauces, snacks)

Nestl, Buitoni, Herta, Toll House, Sabra

Chocolate, confectionery and biscuits

Nestl, Crunch, Cailler, Galak/Milkybar, Kit Kat, Smarties, Butterfinger, Aero, Polo

Nestl Professional

Chef, Davigel, Minors


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EARNINGS

For 2011 the Nestl Group reported sales of CHF 83.6 billion and 7.5% organic growth on top of

good growth in recent years. The organic growth was composed of 3.9% real internal growth

and pricing of 3.6%. Foreign exchange had a negative impact of 13.4% and divestitures, net of

acquisitions, a further 4.2%, mainly Alcon. Excluding the impact of the sale of Alcon, sales weredown by 4.8%. Following are the highlights

The Group's trading operating profit was CHF 12.5 billion. The margin increased 60basis points (90 basis points in constant currencies) to 15.0%.

Nestl Continuous Excellencein all areas of the company continued to create significantsavings ahead of target, helping to partially offset major input cost pressures.

Higher input costs increased the cost of goods soldby 190 basis points. Total marketing costs were down 100 basis points, mainly the result of leveraging our

sales and marketing structures. Consumer facing marketing remained at almost the

same level after two years of double-digit increases, which allowed us to further build

our market positions in most categories. Administrative costswere down 80 basis points. Net profitwas CHF 9.5 billion, up 8.1% on a continuing basis.

Sales by activity breakdown: 27% from drinks, 26% from dairy and food products, 18% from

ready-prepared dishes and ready-cooked dishes, 12% from chocolate, 11% from pet products,

6% frompharmaceutical products.

Sales by geographic area breakdown: 32% from Europe, 31% from Americas (26% from US),

16% fromAsia,21% from rest of the world.

Full year sales and operating profit margin overview
http://en.wikipedia.org/wiki/Pharmaceuticalhttp://en.wikipedia.org/wiki/Americashttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Americashttp://en.wikipedia.org/wiki/Pharmaceutical


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MARKETING

Nestle hold strong reputation for high quality brands. In major markets, trade marketers are

frequently rated highly in customer surveys on professionalism and service. They don't believe

in 'one brand fits all' and thats their marketing strategy. They havea strong, diversified global

portfoliowell focused and definedoffers a brand for all key consumer and market sectors.

STRATEGIES ADOPTED BY NESTLE

Business principle

Nestl is committed to the following Business Principles in all countries, taking into account

local legislation, cultural and religious practices:

Nestl's business objective is to manufacture and market the Company's products insuch a way as to create value that can be sustained over the long term for shareholders,

employees, consumers, and business partners.

Nestl does not favor short-term profit at the expense of successful long-term businessdevelopment.

Nestl recognizes that its consumers have a sincere and legitimate interest in the

behavior, beliefs and actions of the Company behind brands in which they place their

trust and that without its consumers the Company would not exist.

Nestl believes that, as a general rule, legislation is the most effective safeguard ofresponsible conduct, although in certain areas, additional guidance to staff in the form

of voluntary business principles is beneficial in order to ensure that the highest

standards are met throughout the organization.

As a global food manufacturer and marketer, Nestl takes into consideration localneeds, cultural differences and consumer preferences as well as attitudes concerning

the use of ingredients derived from genetically modified crops.


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Global commitment

Nestl firmly supports the principles of the United Nations Global Compact and is committed to

reflecting these in its business principles and practices.

Search for trust:A basic reason company has grown to be the world's largest food company is that consumers

have learned to trust its brands. Additionally company introduced the Nestl Seal of Guarantee

and emphasized corporate logo. This Seal of Guarantee is a visible sign of companys corporate

responsibility for the safety and quality of every product, which leads to maintain consumer

confidence and trust in this corporation

Nestle companys Success is built on quality:

Quality is the cornerstone of companys success. Every day, millions of people all over the world

show their confidence in company by choosing Nestl products. This confidence is based on ourquality image and a reputation for high standards that has been built up over many years.

Every product on the shelf, every service and every customer contact helps to shape this image.

A Nestl brand name on a product is a promise to the customer that it is safe to consume, that

it complies with all regulations and that it meets high standards of quality.

The customer comes first:

Trade customers expect excellent service, correct information and timely delivery. Consumers

consider taste, appearance and price when they make their choice. Companys task is to

understand what customers want and respond to their expectations rapidly and effectively.All customers expect good quality at a reasonable price. Customers are central to compan ys

business and company always respects their needs and preferences.

Nestl's Position on Technology:

From its inception more than 130 years ago, Nestl has built its business on successfully

applying scientific breakthroughs and technological innovations while taking full responsibility

for the quality and the safety of its products. Nestl supports a responsible application of gene

technology for food production based on sound scientific research.

Consumer information and labeling:

Consumers confidence in the food they are buying is supported by having access to

information. Nestl's Consumer Services are well equipped to provide this access and thus are

the first source of information, including the use of ingredients, derived from genetically

modified crops, in Nestl products.


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SWOT ANALYSIS

STRENGTH

Below are areas where the strength of Nestle Lies

Its a company that does not depend on personalities. Leaders in Dairy Products. Long term experience. Innovative products. Designative packaging. Innovative planning and ideas. Wide variety of brands.

WEAKNESSES

Below are the areas where, Nestle is weak

Supply Chain Exports

OPPORTUNITIES

Below are the opportunities available for Nestle

High credibility Ability to secure more credit. Available means for expansion. Improving trends Industry leadership. Consumer preference. Fewer competitors. Dedicated workforce Untapped rural market.

THREATS

Some threats to Nestle are

Highly competitive market (multinational companies are very organized and financiallystrong).

Increasing prices of raw materials. Competitors like Opler, Shezan, Coca Cola breverages, Halla, Askari, Pure water, Nurpur

dairies, and Prime yogurt.


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PRODUCT DESIGN AND PROCESS DESIGN

Core Competency

Core competency is defined as one thing that a company can do better that its competitor.

For Nestle, the core competency lies in its quality and brand name.

Product Development

It includes phase of Planning, concept development, system level designs, design details, testing

and refinement and production ramp up.

Planning Phase

In this phase, product type is selected based on Nestles corporate strategy and market

demand. Nestle has introduced many product for specialized market and as they believe that

one product cannot serve all the customers. They believe in quality product and wellbeing of

customers. They believe in building trust of customer.

Market Demand Analysis

In this stage Nestle, research the market and develop alternate product categories. Concept are

developed related to design and features of product.

Product Ingredients

In this process Nestle defines the product architecture and composition of product. What

would be the ingredients and what would be its nutrition value is decided in this phase.

Design Detail

In this phase Nestle define the complete composition of product, its packaging and the

nutrition value it will provide to customer.

Testing and refinement

Prototype is developed and tested in market by promotional activities like distributing product

free of cost. Mostly Lahore is selected as test city and product is launched in Lahore and its

response is checked and feedback from customer is evaluated.

Product Launch

After all the testing and making necessary adjustments to taste and nutrition value, product is

launched.


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VALUE CHAIN AND PROCESSES

It is defined as chain of value creating activities. Micheal porter identified a set of interrelated

generic activities common to vide range of firms. The resulting model is known as value chain

and is depicted below

Inbound Logistics

Major raw materials of Nestle orange juices are different pulps of orange which they import

from Germany and France. Nestle company get their other raw material from local market in

Pakistan. Nestle juices raw material include ingredients such as fresh fruit, nectar of mango,apple, and pineapple, orange.

Nestle imported all machinery and formulas, which is advantage of Nestle company.

Operation

Production Process

Process is any part of an organization that takes inputs and transforms them into output of

greater value. Fruit Juice production procedures involved in fruit drinks manufacturing depends

on type of juice unit is going to make. For purpose of this- feasibility, Nestle propose 4% tokenjuice drink of citrus fruit (Orange), Mango and pineapple.

The type of process that Nestle uses is make-to-stock as it produces standardized products. The

process is multistage as few stages are similar for all juices and few are different.

Process Type

The process for Nestle Juices is continuous flow processas juice, which is liquid, flows through

the production process.

Push or Pull strategyNestle follows push strategy as they make product, which are standardized and then push them

in to market.

Inbound

Logistics

Operation Outbound

Logistics

Marketing

& Sales

Service


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Fruit Juice- Production Process flow

Production of fruit juice is standardized process and initial processes for all fruits will be similar,

as will be the last stage of juice pasteurization section and packaging, although differences in

handling juice composition arise in certain cases due to the nature of the fruit and percentage

of vitamin involved. Basically preparation of juices involves the following steps: Boiling of Fruit Storage in Tank Ingredients mixing Juice Preparation Juice storage Tank Filling and Packaging Cooling and storage

Below is the flow chart and brief description of the various processes involved in fruit juice

production are outlined

Fruit Juice Production Process

Fruits boiled in the boiler and shifted to the plate heat exchanger. Then it is stored in the

storage tank. Then supplied to the mixing tank in the desired quantity while in mixing tanks; any

additives to the mixture is made at this stage before it is pumped to syrup storage tank.

Blended juiced is then pumped through pasteurizer; where it is heated to 90 C to inactivate

enzymes and living organism. After pasteurization the juice passes through final filtration,

before lauding it into juice tank. Juice from the tank is ready for packaging.

Packaging and Labeling

The juice is the packed in the quantities demanded by the market. Consumer packs as like

200ml and 1000ml tetra pack and then labeled as Nestle Juices. Then the final product is stored

in cool dry store.


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Process Flow Chart:

Raw Material

Reject

Production

StorageNO YES

Boiler

Plate Heat

Exchanger

Storage and

ShippingJuices Mixing

Tank

Preservatives

Juices Mixing

Tank

Syrup Storage

Tank

Pasteurizers

Juice Storage

TankBottled/

Packaged/

Labeled

Bulk

Transport

FinishedProduct in

cold storage

TransportRetailer Wholesaler


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Outbound Logistics

In Nestle Company the activities that include in outbound logistics are, They establish their sale

and distributive offices in big cities like Karachi, Lahore, Islamabad, Faisalabad, Gujranwala etc.

and also hire suitable distributors on agreed profit margins. Who buy product from Nestle

office of the cities and try to distribute to each retailers and shop keeper in the cities and ruralareas.

Services

Company established the customer center in each office in a major city and also given toll free

number as a help line number. This means that if customer feels any problem then they can

contact through their help line.

Marketing and Sale

Nestle company launch their sale promotion scheme after six months. Their last sale promotionwas for retail shop that put nestle juices billboard on their shop or sale reception table. They

could win attractive prizes in this promotional activity. By this operation they can save all the

advertisement expenses which they have to pay to the retailer or owner of the shop.

Nestle Company use advertisement channels when company has to launch new brand. So

company prefers to use Geo, ARY one world, PTV Home, 1 vision and newspaper. They contract

with the advertisement channels for 1 to 2 months repeat 2 or 3 times a day.

They hire suitable distributors in a country at agreed profit margins who bought juices in bulk

form from the distributive channels and then sell to the retailer who finally sale to the end

consumers.Nestle company has efficient market management whos main objectives for marketing their

product are.

Strong customer relationship Identify need of customer like new taste new, fruit items Maintain market leadership by maintaining the pure quality Provide juices which are fit for human body Stop brand selling and dont reduce quality Quality is Nestls guarantee


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Process Analysis

Cycle time

In a repetitive process the average time between the completions of successive units is called

cyclic time. For Nestle 90 min is batch preparation time. 60 min is the process time and 75 min

packing time. (Batch of 15000 Liters).

Bottleneck

The limiting factor or the constraint in the process is called bottleneck. In Nestle juices Batch

making is the bottle neck. What should be the size of batch? Another bottleneck is mixing plant.

It takes the largest amount of time.

Efficiency

It is the ratio of actual output of a process relative to some standard input. Packing machine at100 % efficiency produces 7000 packs in 1 hour. At Nestle the packing machine efficiency is

95%.

Run time

It is the time required to produce a batch of parts. This is calculated by multiplying the time

required to produce each unit by the batch size. If the machine produces 7000 packs in 60 mins,

then it takes 0.514 sec to produce one pack. So the batch will be completed in 3855 secs, if

packed on two similar machines. This will make in total 15000 packs.

Setup time

It is the time required to prepare a machine to make a particular item. For Nestle Juices, 3.5 hrs.

is the setup time. (Sum of CIP and sterilization processes)

Operation time

It is the sum of the setup time and run time for a batch of parts that are run on a machine. For

Nestle it is 210 + 75 = 285 min

Through put time

It includes the time that the unit spends actually being worked on together with the time spent

waiting in a queue. For Nestle Juices it is 90 mins (Batch making time) + 60 mins ( process time)

+ 75 mins (filling time) = 225 mins


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QUALITY MANAGEMENT

Quality assurance (QA) refers to the planned and systematic activities implemented in a quality

system so that quality requirements for a product or service will be fulfilled. It is the systematic

measurement, comparison with a standard, monitoring of processes and an associated

feedback loop that confers error prevention. This can be contrasted with quality control, whichis focused on process outputs.

Two principles included in QA are: "Fit for purpose", the product should be suitable for the

intended purpose; and "Right first time", mistakes should be eliminated. QA includes

management of the quality of raw materials, assemblies, products and components, services

related to production, and management, production and inspection processes.

Following the similar functional steps the Nestle Pakistan has a great focus on the quality of its

products. To ensure the consistency of its Juice and to get it free from any foreign

contamination HACCP is applied at the plant. HACCP is a system which comes under the food

safety programme and in this system such points or process steps in the system are determinedwhich can lead to the deterioration of the product quality. Once these steps are finalized then

the controls are applied on these steps. Similarly controls are applied from End to end product

process i.e. form receipt of raw materials to the finished goods. All the Raw materials are

checked before being given to production and their conformance with the agreed specifications

with suppliers are verified. Similarly the function of QC is also to check in line parameters of

product manufacturing process. In juice plant the sugar percentage and brix is checked and

after that taste testing is also done by a panel of people which is certified by the company.

Similarly this QA function also gets involved in the start of the project to do the design HACCP

of the equipment so that the equipment being procured is well worth and is not prone to any ofthe potential problems regarding food safety.

Fig: PROCESS APPROACH TO MANAGEMENT FOR QUALITY & PRODUCTIVITY


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SUPPLY CHAIN MANAGEMENT

Nestl Pakistan's supply chain makes sure that Nestl products are available, no matter where

you are in Pakistan. We integrate processes from the farm to markets, and ensure products are

delivered to you at the right time, the right cost and in the right quantities. In the first quarter

of 2006 alone, we delivered an astonishing 136 million kg of Nestl products in Pakistan. Supplychain was established as a separate department in 2001. Since then, we've achieved a number

of milestones, including a cold-chain in 2002, centralized demand and supply planning in 2003,

and implementation of GLOBE in 2005.

Our mission is to:

Optimize and consolidate resources and processes for a low- cost but efficient execution Develop and manage simplified and effective supply network to achieve a high level of

service

Create a continuous improvement culture driven by performance measures and rewardNestle has own fleet of trucks and through them they distribute to retailers and wholesalers.But their own fleets of truck, they have also faced problems, because their expertise are not in

distribution.


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RECOMMENDATIONS

According to the analysis we did nestle only have few problem otherwise company is doing

their best in the industry so far. They have attained the highest market share for their brands.

The only problem they can face is from limited Distribution Channel and the bottleneck of

mixer.Nestls problem can be eliminated by strategically thinking &implementing some strategies

which can be effective in terms of both profit& growth. Solutions to the problems which have

been discussed before is that, they should go joint ventures with their distributors cut short

their own tensions &make others to their job as Pepsi co. have Riaz bottlers for their

distribution which eventually gave them an edge. So if they go forward integration then they

might be able to have more market share & demand for the product can be increased & more

market can be taped. They can increase throughput of the mixer by having an added mixing

plant.

production operation management project

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