Controlling the sustainability of food supply

chains
The Authors
Jens Hamprecht, Kuehne-Institute for Logistics, University of St Gallen, St Gallen,
Switzerland
Daniel Corsten, Kuehne-Institute for Logistics, University of St Gallen, St Gallen,
Switzerland
Manfred Noll, Nestlé, Vevey, Switzerland
Evelyn Meier, Nestlé Suisse, SA, Wangen, Switzerland
Acknowledgements
The authors thank Dr Hans Joehr, assistant vice president Nestlé and corporate head of
agriculture as well as Professor Fritz Fahrni, ETH Zürich for The analysis of Nestlé's Swiss dairy
supply chain their support of the project. was supported by Martin Maeder and Daniel
Schmocker, Nestlé Switzerland.
Abstract
Purpose – For the food industry, the depletion of arable land and a growing world population
demand controlling the sustainability of agricultural inputs to the industry. Controlling the
sustainability of these supplies means controlling the economic, social, and environmental
performance of the supply chain. In practice, little is known about how companies can efficiently
extend their existing supply chain controls to cover these aspects. This paper tries to address this
particular gap.

Design/methodology/approach – The authors propose a method for integrating controls of

social and environmental performance in a supply chain controlling framework. This method is
illustrated with case studies on Nestlé's food supply chains.

Findings – The case studies highlight why quality controls along the whole food supply chain
are an import precondition for controlling sustainability.

Originality/value – This study is useful for the food industry in the control of sustainability of
agricultural inputs to the industry.
Article Type:
Case study
Keyword(s):
Switzerland; Food products; Supply chain management; Quality.
Journal:
Supply Chain Management: An International Journal
Volume:
10
Number:
1
Year:
2005
pp:
7-10
Copyright ©
Emerald Group Publishing Limited
ISSN:
1359-8546
Background
Nestlé is the world's largest food and beverage company. In 2003, the group employed 253,000
people and held operations in 511 factories worldwide. Financial turnover for the Swiss-based
corporation in the same year exceeded 87 billion Swiss Francs. Nestlé's CEO describes quality as
being the cornerstone of the business’ success, and greatest differentiating factor for Nestlé's
brands in the world's markets. This positioning is clearly communicated in the marketplace.
Nestlé products carry a label with the inscription “quality and trust”.
Given this differentiation, sourcing high-quality raw materials is critical to the success of the
business. Nestlé's most prominent raw materials include milk, coffee, cocoa, and cereals. These
raw materials are partly sourced direct from farmers. Milk, for instance, is sourced directly from
300,000 farmers worldwide, providing Nestlé with 2 per cent of global milk production. Other
raw materials, such as sugar and oil, are sourced through trade only.
For every agricultural supply chain, Nestlé has a broad set of controls, covering aspects like
quality, safety, cost, service level, and flexibility of supplies. The controls for these performance
aspects have become increasingly sophisticated. Controlling supply sustainability presents two
major challenges. First, the controls need to be regularly refined or extended, to ensure
consideration of new research findings. For example, the list of herbicides that can be
recommended to farmers needs to be regularly reviewed to ensure that crop protection has a
minimal impact on biodiversity. Second, controls of environmental and social performance
aspects need to be integrated with economic controls. Often, environmental and social
performance aspects are accounted for in separate control systems. However, in order to ensure
their efficient application, controls of social and environmental performance also need to be
linked closely to other controls of the food supply chain, such as quality, food safety, and costs.
Whenever possible, synergies should be created in the controlling process. Ideally, one piece of
information on a supply chain should serve multiple purposes in order to minimise time for data
collection.
This consideration motivated the joint project by Nestlé and the University of St Gallen. We
sought to investigate how controls of sustainability could be merged in a more efficient manner.
Selection of the supply chains
The project began with the selection of two of the business’ most important raw material supply
chains: fresh milk and cereals. For each of these supply chains, we conducted case studies in the
Swiss market. At the beginning of the case studies, we faced an important question: Would the
integration of economic, social, and environmental controls differ from supply chain to supply
chain? Or would there be significant commonalities we could build on? This presented a
challenge, since the nature of salient environmental and social issues in one supply chain can be
very different from those in another. To illustrate, excess inputs of nutrients can contaminate
ground water. This is a challenge that farmers in many European and North American regions
need to address. In tropic regions, however, farmers need to avoid degradation of the thin soil
due to a lack of nutrients. Hence, at the beginning of the case studies, there was a question as to
what extent the results of one case study could be generalised to other raw material supply
chains. Throughout the case studies, however, common patterns emerged.
Method
Figure 1 shows the method we developed for integrating controls of the sustainability of
supplies. First, we selected a controlling framework of the factories that could accommodate the
broad range of economic, social, and environmental performance aspects. Subsequently, we
traced the supplies of the factories’ key raw material back to agricultural production.
Once material flows and information flows were known, we followed a continuous improvement
process. We short-listed controls in the supply chain and revised these in line with the goals of
improving economic, environmental and social performance. Finally, a check for these controls
was integrated in the total quality management (TQM) framework of the factories. In the
following, we provide an example of this method.
Application of the method at Nestlé
At Nestlé, we selected an existing TQM framework as the basis for integrating supply chain
controls. The origin of the selected TQM framework dates back to 1991, when a group of 14
European businesses, including Nestlé, jointly developed the business excellence model of the
European Foundation for Quality Management (EFQM, 2004).
The EFQM model allows an assessment of both current business practices (the so-called
enablers) as well as results. Today, the EFQM model includes “partnerships” with other
businesses as an assessment criterion. A controlling of operational processes, however, has
typically been limited to firm boundaries in TQM frameworks. Usually, assessments of a
supplier's operational processes have been done separately by the responsible purchasing
managers.
We developed a supply chain-specific extension of the TQM framework for milk sourcing Nestlé
factories. This extension accommodates the controls of food safety, quality, costs, flexibility, and
sustainability of the factories’ major agricultural chain.
Following the identification of a suitable controlling framework, we traced the flow of materials.
We randomly selected a batch and traced the raw material flow from the factory gate back to
agricultural production. In addition, the process of delineating the material flows allowed us to
control traceability in the supply chain. If a supplier of an agricultural raw material had been
found unable to identify his/her own suppliers, then the first action would have been to ensure an
update of his/her traceability records. In the case studies we verified that the cereals as well as
the fresh milk supplies could be traced to agricultural production.
Figure 2 shows the chart of material flow we found for a batch of cereals delivered to a Nestlé
factory. Note that beyond the mill, we did not retrace supplies to individual farmers. Instead, we
randomly selected one of the mill's silos for wheat deliveries. From there on, we retraced the
flow of materials back to the collection points and ultimately, back to the farmers. At every stage
we short-listed the present control points for food safety and quality in the supply chain. For
every control point, we reported relevant information such as the “critical limits” of the controls.
A complete set of control points in the supply chain was considered highly important. It emerged
that especially those control points at the hand-over from one party to another can serve several
tasks. Traditionally, these control points have been used for controlling food safety and quality of
the product. However, these control points can be enhanced to account for the sustainability of
agricultural production.
The first extensions of these control points cover environmental performance aspects. To
illustrate, in Switzerland Nestlé now requires that dairy farmers calculate the nutrition demands
of their soils annually. Any over-fertilisation is forbidden. Compliance with this regulation will
be controlled by an independent body. The transport provider will only accept and collect fresh
milk from farms complying with the scheme. Consequently, existing food safety and quality
controls are complemented with an environmental performance aspect.
Similarly, social performance aspects such as a controlling of labour standards can be integrated
in existing supply chain controls. At the first hand-over in the supply chain, the buyer can ensure
that the farmer complies with certain standards. With the help of the following hand-over
documents in the supply chain, this information can be passed downstream to the gates of the
food-processing factory. Figure 2 illustrates the hand-over points that are used to pass on
information in the cereals supply chain. If the food manufacturer can trace his/her supplies back
to agricultural production, he/she is in a position to verify compliance with these standards.
In summary, the procedures which had originally been designed for the purpose of quality and
food safety assurance can provide a basis for ensuring sustainable practices. In the Swiss fresh
milk supply chain, the focus has been placed on improving the environmental performance of the
farms. However, the efforts of the farmers are rewarded. If a farmer improves the quality of
his/her fresh milk production, he/she receives a financial bonus from Nestlé. In addition, the state
supports improved environmental performance of farming operations financially.
Collaboration is essential
However, there is an important difference between the different supply chains that we studied. In
the case of fresh milk supplies, the farmers sell their entire production to Nestlé. This means that
a continuous improvement of supply chain controls, as shown in Figure 1, can be achieved on a
business-to-business level. However, in the cereals supply chain, Nestlé is only one of many
customers of the mill. Today, the mill depicted in Figure 2 processes wheat for three different
“eco-labels”. These “eco-labels” guarantee the consumer that the cereals originate from a
particular environmentally-friendly production. Each of the three customers of the mill has
established slightly different standards on what constitutes “environmentally-friendly”
production. As a consequence, the mill now maintains separate storage containers for every
label. During transport, wheat flour of one eco-label may not be mixed with wheat flour of the
other two eco-labels. Clearly, system costs in this supply chain are higher than they would be in
a supply chain without such a multitude of labels. Furthermore, had the three businesses jointly
designed a sourcing standard, they might have achieved a leverage effect in the market. For
additional customers of the mill it would have been easier to join a common initiative rather than
adopting a label proprietary to one business.
Based on this consideration, Danone, Unilever and Nestlé founded the SAI Platform, the
“Sustainable Agriculture Initiative” of the food industry in 2002. The initiative jointly develops
standards on the sustainable practices of agricultural production. Today, it enjoys active
participation of food operators such as McDonalds, Sara Lee and Kraft. Jointly, these businesses
develop social, environmental and economic standards that they can communicate to commodity
traders and the farming community more effectively than any single business could.
Currently the Sustainable Agriculture Initiative runs pilot projects on a number of commodities,
including cereals (SAI, 2004). Once the sourcing guidelines are completed, continuous
improvement efforts in the commodity supply chains can be achieved in a more efficient manner.
As an outcome of this project, we have developed an extension for the TQM frameworks of
factories sourcing fresh milk. This extension allows us to evaluate quality, safety, cost, flexibility
and sustainability of suppliers’ processes as an integral part of the factory's TQM framework.
The same approach can be followed for factories sourcing commodities such as cereals once the
industry initiative has finalised its guidelines on sustainable sourcing.
Conclusion
We conclude that the effective control of sustainable practices in a supply chain does not build
on an entirely “new” set of skills. Instead, efforts to create more sustainable practices contribute
to the continuous improvement capabilities of a business (Sharma and Vredenburg, 1998). In this
context, the completion of controls as shown in Figure 1 should not be viewed as a one-off
approach. Developing and fine-tuning controls for the supply chain is more of a continuous
improvement process, building on both past experiences and new research findings.
In the case studies described here, we focused on one pillar in the creation of sustainable supply
chains: quality management. In the food industry, the creation of the Sustainable Agriculture
Initiative points to the enabling role that horizontal alliances can play. In other sectors such as
the electricity or the automotive industry, equally important initiatives have emerged (WBCSD,
2004). We encourage studies that investigate the role of these horizontal alliances in various
industries. Alliances as well as quality management skills and a commitment to achieving change
could prove vital in creating sustainable supply chains.

Figure 1Method for implementing the controls of sustainability

Figure 2Tracing a batch of cereals from food manufacturer back to agricultural production
References
EFQM (2004), “European Foundation for Quality Management”, available at: www.efqm.org, .
[Manual request] [Infotrieve]
SAI (2004), “Sustainable Agriculture Initiative”, available at: www.saiplatform.org, .
[Manual request] [Infotrieve]

Sharma, S., Vredenburg, H. (1998), "Proactive corporate environmental strategy and the
development of competitively valuable organisational capabilities", Strategic Management
Journal, Vol. 19 No.8, pp.729-53.

[Manual request] [Infotrieve]

WBCSD (2004), “World Business Council for Sustainable Development”, available at:
www.wbcsd.ch, .
[Manual request] [Infotrieve]