Nestle Waters Pakistan: Supply Chain Analysis

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Nestle Waters Pakistan: Supply Chain Analysis #0 Nestle Waters Pakistan: Supply Chain Analysis #1 Nestle Waters Pakistan: Supply Chain Analysis #2 Nestle Waters Pakistan: Supply Chain Analysis #3 Nestle Waters Pakistan: Supply Chain Analysis #4 Nestle Waters Pakistan: Supply Chain Analysis #5 Nestle Waters Pakistan: Supply Chain Analysis #6 Nestle Waters Pakistan: Supply Chain Analysis #7 Nestle Waters Pakistan: Supply Chain Analysis #8 Nestle Waters Pakistan: Supply Chain Analysis #9


LAHORE SCHOOL OF ECONOMICS SUPPLY CHAIN MANAGEMENT FINAL PROJECT REPORT BSc SECTION: C GROUP NUMBER: 6 GROUP NAMES: Aisha Arshad, Ayesha Majid, Mahnoor Babar, and Zainab Mahmood SUBMITTED TO: MS. MAHVESH MAHMUD INDUSTRY/ORGANIZATION NAME: FMCG/ NESTLÉ WATERS TOPIC: DISTRIBUTION & INVENTORY MANAGEMENT DATE OF SUBMISSION: 26/05/2018 Declaration: This is report is solely based on the original effort of the group and has not been plagiarized. Signature(s):________________________________________________________________ Nestlé Waters Pakistan 1 Introduction Nestlé is a multinational Swiss Company operating in Pakistan through its direct subsidiary Nestlé Pakistan. It has a variety of products including confectionary, cereals, dairy products, bottled water, and so on. Operating in 189 countries; today, Nestlé is one of the world’s most leading company. It aims at enhancing quality of life and contributing to a healthier future. Operating since 1988, Nestlé Pakistan through a joint venture with MilkPak Ltd. later took control over management in 1992. It is the leading Food and Beverages Company in Pakistan mainly aiming at Nutrition, Health and Wellness. One of the major brands is Nestlé Pure Life that provides safe and pure drinking water. It launched in 1998 being successful globally. Today, it plays their role as a leading player in the bottled water market globally as well as in Pakistan. Nestlé Pure Life is available in two basic categories, PET and HOD (Home and Office Delivery), with the following formats:  0.33 Liter Fit Bottle  0.33 Liter Hero Bottle  0.5 Liter  1.5 Liter  5 Liter  12 Liter (Karachi only)  18.9 Liter (Home and Office Delivery) This report is focusing on the distribution network in supply chain and inventory management. Nestlé Waters Pakistan 2 Distribution Network in Supply Chain Distribution network is the flowchart of a company indicating all possible routes for flow of inventory, information and other resources to and from different levels of supply chain both physically and virtually. However, our study only focuses on the physical flow across the distribution network. Supply chain management has two part planning and execution. Distribution Network Designing is the core component of the planning stage. It covers all aspects of supply chain from planning of inventory warehousing to inventory flow across all levels of the supply chain. At Nestlé more than 100 different control tools are applied on the product from water source to final bottle packaging, in order to ensure the perfect quality of the final product (…/ nestle-pure-life-detail). Thus the distribution network also covers quality check-points along with logistics. Distribution is half of supply chain, as mentioned by Mr. Hashim. Factors influencing Distribution Network Distribution network is designed on the core base of meeting the customer needs and the cost associated with servicing them. The main factors which need to be catered by the companies while establishing their distribution network on these two dimensions are namely, response time, product variety, product availability in markets, customer experience, order visibility and product or product part returnability. This translates into warehousing and transportation expenses, information management cost and facilities costs to the company. According to the interviewer since their customer is quality conscious and for Nestlé customer’s value comes first the firm prioritizes quality over cost for their SKU’s. Thus they deliver value to the customers on ground of product freshness, easy access to the products and minimal cost to the customer. “Nestlé itself never compromises on its customers and quality” (Refer to Appendix III, Q2). At Nestlé Waters customers also act as a key factor in distribution network as the design has three forms based on its customers, Retail Storage with Consumer Pickup for regular PET consumers, Distributor Storage with Delivery for its corporate PET customers like Metro, Alfatah etc. and lastly manufacturer storage with direct delivery to customers for its HOD products. Designing Distribution Network at Nestlé Waters Nestlé Waters Pakistan 3 Nestlé Waters for its distribution strategy prioritizes lead time, constant availability in markets, product quality and deliverance of premium experience to its clients (Refer to Appendix III, Q3). As drinking water is a low innovative product there is not much variety in the product range nor constant innovation hence, for them, lead time is more about efficient product replenishment than successful launch of new products. In designing their distribution route the key factor is length of distance from one point to another and ultimately from start point to end point as the firm aims at optimizing cost and time-to-market in its distribution phase. In order to maximize value for its customers while geographically covering the maximum points of sale across the country. Due to the dynamics of the categories of products of Nestlé Waters their distribution design is not based on the product type but on the category of the product (drinking water). The distinguishing point amongst the two categories in network design is returnablilty factor of the product. Since their PET Bottles (polyethylene terephthalate) are disposable bottles they never come back to Nestlé. Though customers can recycle it. The PET category network design has one-way product flow to the end consumer, hence is usually done through Nestlé distributors instead of the company itself, apart from major PET category clients like Metro & Hyperstar. For the second category; HOD (Home and Office Delivery) reverse logistics is used that is two way flow of product, to and from the end consumer. For this category the company delivers the product itself as the container needs to come back to the factory floor. Hence offers doorstep delivery to its HOD consumers. The HOD category has two SKU’s of Nestlé Pure Life 12 & 18.9 liter bottles. Design Options for a Distribution Network Nestlé Waters is present in most distribution channels, including traditional trade, offices, restaurant, modern trade and homes. The distribution network is designed based on the HOD and PET rather than on the stock keeping units (SKUs). The distribution network is basically based on the cost benefit analysis under each category (Refer to Appendix III, Q4). The distribution network throughout the country is designed in such a way that it ensures that Nestlé water is easily available to consumers. The company maintains strong relationship with its customers. The distribution design is channel based, cost based and demand based. Channel based is where the product is required, whether in the offices, shops, houses etc. The cost varies Nestlé Waters Pakistan 4 under each category as it is designed according. Demand based is when the demand varies under each SKU’s, for example, in restaurants there is no demand for 5 liter Nestlé water bottle. The distribution network in Lahore under HOD and PET is same because of the distance. Distribution Design Under PET The final product flows through intermediary under PET as the final product first reaches the distributor and then to the retailer. Under PET, restaurants are also the target market. The restaurants demand 1.5 liter water bottle and 0.5 litter water bottle (Refer to Appendix III, Q4). In Quetta, there is only one category that Is PET. (Refer to Appendix III, Q5). Distribution Design Under HOD The distribution design varies under HOD, as the product flows from the manufacturer to the distributer and the final retailer that includes only office and shops (Refer to Appendix III, Q4). The distribution design varies primarily due to the cost component. HOD is the rev