Procurement Practices in Supply Chain Management: Nestle Sa

‘’Procurement practices in Supply chain management: Nestle SA‘’

Introduction:

The supply chain management (SCM) is the science of managing (design, planning, execution, control, monitor) of the flow of materials, information, finances involving different stakeholders like suppliers, to manufacturer to wholesaler, retailer or consumer. The movement and storage of items can be raw materials, work in progress (WIP) inventory, or finished goods. In this research we look at Nestle a fast moving consumer goods firm operating globally integrated by IT to maintain supplier relationships. As a global company, Nestle’s commitment to sourcing and procurement strategy needs to have traceability of how and where the ingredients are produced by suppliers/farmers (700,000).

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Figure 1: End to end Nestle supply chain

SCM Key components:

The key functions in the SCM is consists of relationships with suppliers or vendors, who supplies materials as per specifications, quality, quantity and deadline.

The procurement is obtaining materials from outside, which involves, resource planning, supply sourcing, contract and order placement. The items are then delivered using logistics and transportation, that are carefully handled stored, with quality assurance. For Nestle, the aim is 40% of volumes in its 12 priority categories by 2016 to have documented traceability while global procurement is done.  This will affect the operations in Nestle as five major drivers of SCM are information, location, inventory, production and transportation.  It has commitment to the ethics, fair-trade, labour and political forces in each country that puts stress on time and cost.

Procurement Process in Nestle SCM:

Supply Chain Audits:

The procurement model in Nestle is key to the production quality and meet volumes of customer demand hence Nestle has  integrated the whole supply chain with the use of IT (information technology). The stakeholders to this function are the suppliers, and to understand the key metrics the volume of items moving from one point to other determined capacity per day.  Nestle initiated supplier audits to understand the fast moving and slow moving items from suppliers by studying the historical data.

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Figure 2: Nestle Supplier audits

To add neutrality Nestle engages third party independent firms like SGS to audit at manufacturing sites.

Supply chain Traceability:

The audits allowed understanding the traceability of all 12 categories however, it was IT that brought in supply chain visibility. The audits as per Nestle Supplier code, helped to identify the non compliances at the supplier side during procurement while the barcode labeling helped to reduce time of operations and error free flow of inbound items towards the different Nestle factories round the world. It also reaffirmed no child labour policy, by affiliation with Fair labour association (FLA) so that it meets the responsible sourcing strategy. Most of the items procured are agriculture based which also needed Nestle to understand implications of deforestation and define the forest stewardship. [pic 3]

Figure 3: Nestle Supplier structure

At Nestle the firm level supplier relations formed through  ‘FarmConnect’ the key factor in deciding the logistics and transportation issues where the volume, weight ratio needed more scientific approach to justify the costing that adds to the product MRP (materials resource planning). However, the challenges is to meet the  strict environmental issues have forced Nestle to emit lesser carbon, GHG (Green house gases) logistics and transport segment as well.

Procurement assessment: