Nestle Pakistan Ltd.16 May, 2011

Nestle Pakistan Ltd.

Distribution Report

PREFACE

Visit at Nestle Pakistan Ltd. (Kabirwala Factory) was an attempt to seek experience of supply chain management of a successful multinational company. The idea was to understand the distribution activities, while developing skills needed to thrive, of one of the leading global multinationals whereas applying the knowledge and skills acquired during the academic career. This wonderful experience of just one day proved to be a high inclination in the graph of our personal learning.

INTRODUCTION OF THE COMPANY

NESTLS HISTORY

Nestl was founded in 1866. In the 1860s Henri Nestl, a pharmacist, developed a food for babies who were unable to be breastfed. His first success was a premature infant who could neither tolerate his own mother's milk nor any of the usual substitutes. The value of the new product was quickly recognized when his new formula saved the child's life, and soon, Farine Lacte Henri Nestl was being sold in much of Europe. In 1905 Nestl merged with the Anglo-Swiss Condensed Milk Company. By the early 1900s, the company was operating factories in the United States, United Kingdom, Germany and Spain. World War I created new demand for dairy products in the form of government contracts. By the end of the war, Nestl's production had more than doubled. The first Nestl factory to begin production in the United States was opened in Fulton, Oswego County, New York. The factory however was closed in 2001, after the company decided that the cost of restoring, and updating the factory was not worth the effort. Employees of the factory were furious, and raised the company flag upside down the day the closing was announced. MISSION STATEMENTAt Nestl, we believe that research can help us make better food so that people live a better life. Good Food is the primary source of Good Health throughout life. We strive to bring consumers foods that are safe, of high quality and provide optimal nutrition to meet physiological needs. In addition to nutrition, health and wellness, Nestl products bring consumers the vital ingredients of taste and pleasure. As consumers continue to make choices regarding foods and beverages they consume, Nestl helps provide selections for all individual taste and lifestyle preferences. Research is a key part of our heritage at Nestl and an essential element our future. We know there is still much to discover about health, wellness and the role of food in our lives, and we continue to search for answers to bring consumers Good Food for Good Life. Company Vision Vision of Nestle Milkpak is to expand business according to the increasing demand of market. As per our company vision in 2020 production capacity of all plants working in Pakistan is being increased. So extension of Kabirwala Plant is the example of our company vision.Products Bottled water Baby food Dairy products NESTLE MILKPAK UHT MILK MILKPAK BUTTER NESTLE PLAIN YOGURT MILKPAK UHT CREAM NESTLE EVERYDAY NESTLE NIDO MILO POWDER MILO RTD Breakfast cereals Nutrition Prepared food

NESTL IN PAKISTAN

Nestl has been serving Pakistani consumers since 1988, when Nestl parent company, the Switzerland-based Nestl SA, first acquired a share in Milkpak Ltd.Today Nestl is fully integrated in Pakistani life, and is recognised as producers of safe, nutritious and tasty food, and leaders in developing and uplifting the communities in which we operate. Nestl Pakistan ensures that our products are made available to consumers wherever in the country they might be. Convenience is at the heart of the Nestl philosophy, and its aim is to bring products to people's doorsteps.BRANCHES IN PAKISTAN

Nestl Pakistan has its branches in the following major cities of Pakistan:

1. Lahore2. Islamabad3. Kabirwala (factory)4. Sheikhupura (factory)5. Karachi

INTRODUCTION TO NESTLE KABIRWALA FACTORY

Kabirwala factory was established in 1983. Located in the heart of Punjab province, Kabirwala Dairy Limited (its then name) started its operations with the production of UHT milk in1984. It was taken over by Milkpak Ltd in 1990. Maggie 2 minutes noodles and milk powder plant started their productions in 1992 and 1996 respectively. In 1996 UHT production was shifted to SKP while production of Nestle Culture Butter started in 2000. Dry mixing line was installed in 2002 to produce Every Day tea whitener, while Desi Ghee line was installed in 2003. On February 7, 2005, we have made a successful GLOBE GO LIVE that shall perform as a facilitator for us to achieve long-term business growth.

As a result of management commitment and dedicated effort and hard work of Kabirwala factory staff at all levels it got the high status in milk powders category amongst all the Nestle factories around the world in 2001. It was achieved because of continuous improvement drive and passion to become best in the World. Another contribution of KBF is its share in Target 2004+ cost saving initiative while Quality Assurance has been achieving excellence in the test ratings for the last three years. Senior management and KBF staff is fully committed to maintain its status through capacity improvements using latest technologies maintaining the quality of the products with high productivities and efficiencies at minimum possible costs. KBF is also shaping in line with Globe implementation and Nestle Pakistan 2010 Vision.

Competitive Advantage Nestle never compromises on quality. Nestles extensive milk collection system ensures that the milk you get is of the finest quality. Nestls products are available in every city and town Nestle is using the latest technology in its production units. Nestle makes milk powder of the surplus milk in winter and converts this milk powder into UHT milk in summer. DEPARTMENTS:

Nestl Kabirwala is headed by the Factory Manager of the company. Presently Mr. Marlou Constantino is performing the services of the Factory. Directly reporting to the Factory Manager are the fourteen major Departments. i.e; Finance & control Department Human Resource Department Logistics Department Safety health & Environment Department Industrial Performance Department Engineering Department IT Department Application Group Standardization Department Liquid Dairy Department Powder & Noodle Department Quality Assurance Department Technical Training Department Nestl Distribution Channel Nestle Distribution CentreThere are two distribution centers of Nestle in Pakistan:a) NDC KBFb) NDC SKPDC KBF is situated 7 km from khanewal. It deals with 50-100 SKUs. On average 50 vehicles are dispatched daily and one vehicle is of 1 M. Total area of DC is 16950 metre square. Nestle Distribution Hierarchy:Nestles distributional hierarchy has three layers and it has been divided into different divisions/Zones.

First Layer:South Asia is considered as one zone of the Asia division. This zone makes the first layer of hierarchy and it has one Managing director. Everybody else has to report to MD.Second Layer:Each distribution centre is divided into four departments: Supply chain Human Resource Department Technical production MarketingSupply Chain Department is further devided into Transportation Customer Order planning Development Procurement DISPThird layer:Third layer is headed by DC managers. DC managers are the representatives of supply chain. There are three categories in which nestle operates: Food and beverages Nutrition Nestle pure lifeFood and beverages has two DC managers while nutrition and nestle pure life has one for each.Warehouse management:DC KBF has 2 warehouses: DC 1 deals in UHT production and has a capacity of 3000 pallets DC 2 has capacity of 10500 pallets.In total both warehouses have a capacity of 13,500 pallets.In warehouses there are two types of storages bins or racking Selective racking Double deep rackingOne pallet is stored in selected deep racking where as two pallets are stored in double deep racking. Nestle is the only organization in Pakistan that uses double deep racking. This is for maximum space utilization

Bar coding and scanner:Nestle is using RF technology. Every pallet and every bin of warehouse is bar coded. When material is received from production department, it has a label that has material number and batch quantity written on it. There are labels on racks and bins as well and the particular pallet is stored in respective bin after matching the scanned results of both pallet and rack.Customer order planning department:The most common type of order taking process is through order book forms. Usually the retailers are being provided with an order book and a menu list. The retailer selects the product and then order book is being prepared. Then a demand draft is being prepared through bank.Seven days is the time period in which quality releases the stock after inspection and then it is ready for dispatch to the distributors. As soon as quality department releases the stock, the customer service department becomes active for dispatching. There are three zones of nestle South zone: Zarachi North zone: Islamabad Central zone: LahoreEach zone has one customer service executive. CSEs take orders from marketing department directly and generate it into the system through SAP. The order appears in the head office systems as well and all the three i.e. marketing department, COP department and head office schedules an order for the next day. Nestle encourages advance payments and zero credit. To big distributors nestle may give a discount of 5% but credit limit is zero.

Distribution Operations Management:

It gets a schedule from customer order planning that this quantity is required till tomorrow; the schedule is received by NDC at 4.30pm every day.Transportation Management:Along with customer order planning, the transportation department gets active. Nestle has four contractors for transportation i.e. Chaydhry Brothers, Rahat carriers etc. Transportation receives an order along with distribution operations from COP, that they have to provide this many vehicles to DC KBF.Every morning at 7 o clock, transporters brings their documents with them, which have a order number. This order number is matched with the order schedule, received by the DC. System generates a pick slip, on the basis of FEFO. Each bin or rack is assigned an isle number, the pick slip has mentioned a respective isle number on it and there are 5 such location in DCs premises. If an isle number of 5th location is mentioned on the pick slip, the respective person will move directly to that location and will pick the required pallets. There are five levels of racks or bins from A to E so; every pick slip has isle number, pallet number and level mentioned on it. This makes it very easy to locate any inventory. 0502A: this refers to the 2nd pallet, in A bin, present in isle number 5.

Stacker is a machine used for picking pallets from bins. The stacker operator has a scanner and a pick slip. He scans the location and pallet number through this with the bar coding label on each bin and pallet and this location becomes empty from system as well as for the next production storage. A copy of pick slip is handed to the lifter operator and one to the loading captain. Lifter operator has to confirm the material number and other information present on the pick slip and loading captain again verifies that whether he has received the desired pallet for the order or not.The pick slips are then given to the department for invoicing after being signed by the loading captain.The invoicing person generates a billing document or invoice.Pick slips are also called transfer orders.Activities up to this level come under warehouse management.

There are some terms and conditions signed by the transporters and transportation department. For example, if vehicle stays in nestle for more than 8 hours due to inefficiency of DC, nestle pays a penalty of Rs.2000. if the vehicle is late due to inefficiency of transporter, he pays a penalty as well. The efficiency of transporter is maintained as KPIs .Transporter Selection:The transporters are selected by bidding, whoever submits the lowest cost, wins the bid. They are selected for one year usually.RoutesNestle has its own pre specified routes for the distribution of the products which are used by manufacturer who transport finish goods to the handling Agent and handling agents also specified routes for the distribution till retailers.Shipment size50-60 tons for Liquid Products like Milkpak, Nesvita and Juices5000 Cartons for powder Products like Nido, Everyday and CerelacTransportation Cost per shipment will be Rs.10/Carton from manufacturer to customer.Design of Transportation Network:The transportation network which Nestle is using is Shipping via Distribution Centre. The logistics usually take 1 day to arrive at Nestls warehouses in Multan from their manufacturing factories at Kabirwala. Minimum one or two nestle Milkpak trucks daily being arrived at each ware house from the Kabirwala factory, and is distributed in the same amount to the retailers all over the city. Similar is the case with other areas where different sub distribution centers are there from where products are distributed to retailers. Why NESTLE doesnt transport itself?The reason for this is that there are two seasonsPeak Season and Lean season. Peak season lasts four months..from January to April and fresh milk is available in abundant quantities during this period i.e. up to 2700 tons/day of all Nestle regions. In lean season, the milk available is 1100 tons per day.The daily dispatch from the factory is high in peak and low in lean season. Due to this fluctuation in demand, Nestle prefers to outsource transportation.Vehicles and equipment: It has 20ft and 40ft containers 6 wheels open bodies

Equipment includes: Stackers (operate up to 6th level) Double deep (operate up to D level) Battery jack (takes pallets from production to stackers) Lifter (puts stock on trucks)DC operators:It includes two types of operations Inbound outbound

DISTRIBUTION Multinational companies have different channels. Nestle has divided whole Pakistan into 8 regions. There are two types of distributers one is handling agent and then are sub distributers. E.g. in Multan there is one handling agent Pak National Distributors (PND) and two sub distributors. In Multan there are currently thirty three sub-distributors and the counts totals to twenty one in the Bahawalpur region. The retailers being served by PND in Multan region; range to about four thousand. DISTRIBUTION NETWORK DESIGN:Nestle distribution network is highly responsive and efficient because customer orders are fulfilled in timely manner. Distribution network of NESTLE is distributor storage with carrier delivery. In this option, Inventory is held with the Nestle in warehouses which is located in the distribution centre. The raw material that comes from supplier is kept in factory warehouse and process along the manufacturing as per order of the customer. Customer orders are delivered through trucks from the Distribution centre. The customer needs that are met influence NESTLE revenues, which along with cost decide the profitability of the delivery network. Although customer service consists of many components, we focus on these measures that are influenced by the structure of distribution network which is distributor storage with carrier delivery. Service And Cost Factors Are:

RESPONSE TIME The response time is fast. Same day delivery is made to the retailers when requested. PRODUCT VARIETYAlmost all the variants of Nestle KBF are available at the DC. PRODUCT AVAILABILITYAs Nestle is distributing its product through different distributors so all the products are made readily available at their DC within a minimum possible time; even ensuring same day providence of stocks.

CUSTOMER EXPERIENCE Customer satisfaction and maintenance of quality standards that has sometimes made the company go beyond the imagined levels; resulting in huge setbacks to their profitability index has created a customer experience level which is unmatched. Prime focus is placed on ensuring that if customer is facing any problem he is catered as soon as possible with all levels of company hierarchy willing to facilitate him. TIME TO MARKET As new product innovation is being made they immediately bring in to the Market and make promotions accordingly. ORDER VISIBILITYThe usage of Oracle based ERP has ensured that order tracking is possible from order placement to delivery. This also provides assurance to the retailers that the order they have placed will be accurately processed in the required quantity, at the right time and any discrepancy can be cross checked with the data entry made in the system. RETURN ABILITYThe Sub distribution centers of Nestle like Pakistan Nestle Distribution in Multan Disrict, provide a very responsive reverse logistic capability on behalf of Nestle. If the retailer has any complain regarding the product he can send it back to PND and then from here Nestle is informed about the issue. The company looks into the matter and resolves the retailers concerns as soon as possible. Inventory Inventory cost is increasing as supply chain involves more number of intermediaries between them. They have to bear the cost of warehouse facility located in each region. Cost of handling safety inventory also very high. Transportation Same like inventory; transportation cost also increases to some extent. They use full truck load for the delivery of products till distribution centre to save the cost but they also use less than truck load for the delivery of goods to the retailers. Facilities and HandlingThese costs are also increasing because company is using their distribution center for the distribution of products and they need extra labor for loading and unloading the products InformationCompany is using very efficient information system so it also increases the costs.Directions from company There are certain directions any distributer is meant to follow so as to maintain the level of quality. These directions are as follows: Precaution 1 There is a specific temperature for special products e.g. milk, yogurt etc

Precaution 2 the products should be placed under the shades so as to protect them from heat and external environment.

Precaution 3 There is specific height for the products to be placed also the company directs the distributors not to place too much products in short place.

Forecasting of the demandDemand is forecasted through coordination with the manufacturer and the retailer:By knowing about the demand of the product (coordination with the retailer) and through the past history of the retailers their market repute and by their bill payment record The promotions and offers made by the company (coordination made with the manufacturer)Summing up, the forecasting is done using following criteria History of sales Seasonal or abnormal events e.g. during Bisakhi mela in DG khan, the demand is raised immediately.

Pricing:Nestle takes the money as the delivery is made but the retailer gives the payment to the Nestle as per decided by the parties, usually it is 7-10 days.Price is decided and described by Nestle. For Example:Cost of milk pack: xMargin taken by Nestle (price shown to distributor): x+1Margin allowed to be taken by PND (price shown to retailer): x+2Margin allowed to be taken by the retailer (price shown to the consumer): x+3Selection criteria of a retailer:The retailer is been chosen on following criterias

Business background Resources Financial soundness Reputation Average sales in the store Physical & infrastructure etc

Bad goods warehouse:There are three bad goods warehouse i.e. in south, north and LahoreIf there is any material that has quality issues, then distributor reports the complaint about it to the sales person, which transfers it to the marketing personnel. He then launches a complaint number from the system. That complaint number is then forwarded to the quality department that verifies the complaint by checking the sample that they have kept with them (sample of every dispatch is kept in the warehouse for the verification of complaints). If the complaint is right then this whole lot is called back and kept in bad goods warehouses.Initiatives taken in 2011: Pallet label scanning (internal shifting) Paper saving (1 copy of pick slip) Keyboard scanners Increased storage capacity by using double deep method and increased level i.e. A to F Energy saving Improved BBS Improved labor productivity Improved loading process Two shift outbound operations Changed pallet label size

Conclusion Nestle and its distribution and sub distribution centers have developed strong ties over the years which have resulted in the supply chain activities being planned and implemented in a very efficient manner. This close coordination and the ability to understand the need for collaboration has made Nestle a top class company which not only gives competitors a hard time but also set industry wide standards to achieve supply chain efficiency! Recommendations