INTRODUCTION

The most important thing for most of business company is an understanding their

successful performance among the other competitors in market place. For some parties,

like shareholders, it is essential for company to make a profit and gain above-average

returns. In this assignment, we will discuss furthermore about Nestlé’s external

environment in all aspects such as their general environment, industry environment,

competitive environment, and scan the opportunities and threats of the company. And

also we are going to explain briefly about their internal environment includes their

resources, type of their resources, company’s capabilities, evaluate their core

competencies and so on.

PROFILE OF THE COMPANY

Nestlé with headquarters in Vevey, Switzerland was founded in 1866 by Henri

Nestlé and is today the world's biggest food and beverage company. Sales at the end of

2004 were CHF 87 bn, with a net profit of CHF 6.7 bn. We employ around 247,000

people and have factories or operations in almost every country in the world.

The Company's strategy is guided by several fundamental principles. Nestlé's

existing products grow through innovation and renovation while maintaining a balance in

geographic activities and product lines. Long-term potential is never sacrificed for short-

term performance. The Company's priority is to bring the best and most relevant

products to people, wherever they are, whatever their needs, throughout their lives.
Page |1
BACKGROUND

Nestle was promoted by Nestle Alimentana, Switzerland, a wholly owned

subsidiary of Nestle Holdings Ltd., Nassau, Bahama Islands. Nestle is one of the oldest

food MNC operating in India, with a presence of over a century. For a long time, Nestle

India’s operations were restricted to importing and trading of condensed milk and infant

food. Over the years, the Company expanded its product range with new products in

instant coffee, noodles, sauces, pickles, culinary aids, chocolates and confectionery,

dairy products and mineral water.

Nestle was incorporated as a limited company in 1959. In 1978, the Company

issued shares to the Indian public to reduce its foreign holdings to 40%. Its name was

changed from Foods Specialties Ltd. to the current name in 1981.The parent held 51%

stake in the company as at 2000 end. It has FIPB approval to hike stake by 10% and

has been gradually acquiring shares from the open market. Parent stake in the
Page |2
company as at 2001 end stood at 53.8%. The parent plans to continue hiking stake

through open market purchases.

NESTLÉ PHILIPPINES, INC.

The early years, although Nestlé products were already available in the

Philippines as far back as 1895, it was not until 1911 when The Nestlé and Anglo Swiss

Condensed Milk Company were established in the country, with its first sales office in

Calle Renta, Binondo.

Over a hundred years after it first started operations in the country, Nestlé

Philippines, Inc. (NPI) today is a robust and stable organization, proud of its role in

bringing the best food and beverage throughout the stages of the Filipino consumers’

lives. The Company employs 3,700 men and women all over the country, and is among

the Philippines’ top corporations. Its products are No. 1 or strong No. 2 brands in their

respective categories.

The Company was forced to suspend its operations during World War II, but

soon made a comeback after Liberation, under a new name: Filipro, Inc. It continued

to import products such as MILO, NIDO powder milk, MILKMAID and NESCAFÉ from

other countries. In the early 1950’s, Filipro encountered difficulties when the Philippine

government imposed import control. Due to lack of imported products to sell, it was

forced to become a distributor of peanut butter, napkins, fruit preserves, and patis (fish

sauce) just to keep its operations going.

Page |3
The Local Production in 1960, Nestlé S.A.and San Miguel Corporation entered into a

partnership resulting in the formation of Nutritional Products, Inc. (Nutripro). In 1962,

Nutripro’s first factory started operations in Alabang, Muntinlupa to manufacture

NESCAFÉ. In 1977, Filipro, Inc. and Nutripro Inc. merged under the name Filipro, Inc.

In 1986, Filipro, Inc. changed to its present name as Nestlé Philippines, Inc.

Nestlé now has manufacturing facilities in Cabuyao (Laguna), Cagayan de Oro, Lipa

(Batangas), Pulilan (Bulacan) and Tanauan (Batangas) to meet the growing demand for

Nestlé products in the country.

The Growth and Diversification in 1991, Nestlé pioneered the AIJV (ASEAN Industrial

Joint Venture), a regional complementation program. The Company participated in this

program with the production of breakfast cereals at the Nestlé Lipa Factory, for export

to ASEAN markets. Today, three of the Nestlé factories in the Philippines – Lipa,

Cabuyao, and Cagayan de Oro -- serve as ASEAN Supply Centers to meet the

requirements of Nestlé markets in the region.

In late 1998, Nestlé Philippines became a wholly owned subsidiary of Nestlé S.A.,

following the latter’s purchase of all of San Miguel Corporation’s equity shareholding in

the Company.

Driven by its mission to nurture generations of Filipino families, Nestlé today produces

and markets products under some of the country’s well-known brands such as

NESCAFÉ, NIDO, MILO, NESTEA, MAGGI, BEAR BRAND, NESTLÉ, and PURINA,

Page |4
among others. Its product range has expanded to include coffee, milk, beverages, non-

dairy creamer, food, infant nutrition, ice cream and chilled dairy, breakfast cereals,

confectionery, and pet-care.

MISSION STATEMENT

Nestlé is the world's leading nutrition, health and wellness company. Our mission

of "Good Food, Good Life" is to provide consumers with the best tasting, most nutritious

choices in a wide range of food and beverage categories and eating occasions, from

morning to night.

VISION AND VALUES

To be a leading, competitive, Nutrition, Health and Wellness Company delivering

improved shareholder value by being a preferred corporate citizen, preferred employer,

preferred supplier selling preferred products.

CORPORATE OBJECTIVE

Nestlé's corporate objective is to be the world's largest and best branded food

manufacturer, whilst ensuring that the Nestlé name is synonymous with products of the

highest quality. In recent years, the company has pursued a policy of expansion and

diversification through acquisition and divestment to achieve a more balanced structure

to the business.

Page |5
ORGANIZATIONAL STRUCTURE

Page |6
General Environment Analysis

The general environment is composed of aspects in broader society that influence

an industry and, indirectly, the firms within it. They group these factors into six

environmental segments such as demographic, economic, political, socio-cultural,

technological and global. These structured segments are external to the firm. The

challenge to the firm is to scan, monitor, forecast, and assess those elements in each

segment that are of the greatest importance. These efforts should result in recognition

of environmental changes, trends, opportunities and threats.

 Demographic Segment

Nestlé’s product is for everyone. People from any area, any culture, any age, and

income will drink water. It is not any luxury item which is used by a specific people.

Nearly all age from young to old people can produce Nestlé. And all six continents are

their customer. For instance, Nestlé segment into different of age. For baby, they have

Nestlé baby foods while young people can drink Milo, Nescafe or eat ice cream,

chocolate and cookies.

 Economic Segment

Although Nestlé is leading food industry, it shares its knowledge and expertise with

local small and medium companies. It helps entrepreneurs to compete in the new free

trade environment which will ultimately benefit the industry and the economy by making

the market growth. Besides that, Nestlé also collaborates with local government to

provide technical assistance to farmers in planting and harvesting crops. The farmer will

get income and Nestlé will get to purchase good and fresh raw materials to produce
Page |7
their food. By having own local productions, Nestlé should no longer needs to import

any raw materials from other country where they will save much more money. It will also

benefit the consumers whereby consumers could enjoy the local productions with low

price. More consumers will use this product and therefore Nestlé will gain more profit

from that.

 Political/Legal Segment

Political factors are important especially in food industry. The company policies are

affected and its budget is also affected. Nestlé provide food assurance to provide

assurance to the consumers that Nestlé’s products are manufactured, imported and

distributed under the strictest hygienic and sanitary condition. Besides that, to ensure

that consumers do not buy any fake products, Nestlé’s products are always come with

the seal of guarantee. By having the seal of guarantees, consumers are now more

confident and trust of Nestlé’s products. Strict quality control played a role in political

factor too. It means that Nestlé’s products quality will not be different with other

countries. Consumers are guarantees with full satisfaction of the products all over the

world.

 Socio-cultural Segment

A good diet and enough food supply, the central for promoting health and well-being

is the focus of every person even these days; whether people tend to value products

that incorporate with them healthy benefits. Obviously, these types of goods are

preferred more than that of junk foods and its relative products. Moreover, generation Y

associates, those born from 1980s-2000s, possess characteristics such as acceptance

Page |8
to change and being technologically savvy. These kinds of characteristics should

coincide to the firms’ aggressiveness of using technology especially that this is also the

tie of the entry of technology in the Philippines.

 Technological Segment

Internet and Mobile Technology is currently growing so rapidly in the market where

almost all of the people nowadays will get contact with it. Nestlé could use this

advantage to benefit them by using technology to promote their products over those

advanced technology. Customer could get any information from their site. Nestlé’s

employees could use this internet service to connect to its industry in other country such

as Australia, Singapore, U.K and more. They did research and development by using

the technology to find more information to satisfy the local tastes and cultural flavours in

each country market. By understanding what each country asks for, Nestlé could market

difference product according to the customer demand in difference country. It is already

proven that the technology factors are important for Nestlé Company.

 Global Segment

Nestlé Company improves their operational efficiency by integrating the company’s

businesses on a global scale. They are now transitioning to become a genuinely global

food company, to behave as one. Nestlé has a dynamic global network of Nestlé R&D

centers working on scientific research and product development. They have the world’s

largest food and nutrition research organization, with about 5000 involve in R&D.

Nestlé’s global R&D is applied locally to meet different consumer needs and

preferences through over 300 Application Groups worldwide.

Page |9
VALUE CHAIN ANALYSIS OF NESTLE

The value chain analysis is a template that firms use to understand their cost

position and to identify the multiple means that might be used to facilitate

implementation of a chosen business-level strategy. A firm’s values chain is segmented

into primary and support activities. Primary activities are involved with a products

physical creation, its sale and distribution to buyers and its service after sale. Support

activities provide the assistance necessary for the primary activities to take place.

Primary Activities

 Inbound Logistics

Nestlé’s Ice Cream purchase plastic ice cream tubs with different sizes from

suppliers. Establish warehouse in different countries and setup of Ice cream plant and

disseminate inputs to their products.

 Operations

. The company knows and has approved the manufacturing for all their raw

materials and packaging materials. Nestlé Company immediately instituted a

programmed of major improvement to bring the facility on par with international

standards, introduce more efficient machinery. This has helped them speed up

production. Nestlé handle their account for exclusive sale in their regional office.

 Outbound Logistics

P a g e | 10
 Operation has been to deliver according to their customer demand, innovations in

bottled packaging and eco-efficient packaging.

 Marketing and Sales

Nestlé charge value price, product designing Nestlé produce tasty ice cream in

container tubs. That produce is place in major city of Philippines. Nestlé promote their

produce by personal marketing, TVC, sales promotion and public relation.

Support Activities

 Procurement

The key raw materials purchased by Nestlé are milk, coffee, and cocoa. These, as

well as fruit, vegetables, cereals, and potatoes are partly sourced directly from farmers.

Sugar, oil, meat, spices and other ingredients are sourced only through the trade;

Sourcing has to contribute to the sustainable and profitable development of their

company by providing the base for quality differentiation of finished products to

customer or consumer satisfaction. This requires a supply of raw materials at specified

quality, in the quantities and the timing needed, at the lowest possible system costs.

 Technological Development

Nestlé is strengthening its leadership in research and development by enlarging its

global Product Technology Centre for confectionary, based in United Kingdom. Nestlé

Product Technology Centers have two roles. The first is to develop breakthrough

P a g e | 11
technologies, building blocks that are basis of new product development. The second is

to deploy these technologies to the company’s operations.

 Human Resource Management

Human research is dedicated to their employees and ensures that they have all the

right people with the right skills. Understanding their people are the bedrock of all their

business strategies, it is their mandate to enhance their skills with cutting edge training

and provide them with world standard facilities. Their Management Trainee

Programmed aims to develop talented young men and women and help them achieve

their potential in a dynamic and enabling environment.

 Firm Infrastructure

The Nestlé Report provides a fact based analysis of how, over time, their

manufacturing plants have helped to create large, skilled labor forces in rural areas and

educate the people who supply them, as well as build an important infrastructure such

as roads and water treatment systems. Through its infrastructure, the firm strives to

effectively and consistently identify external opportunities and threats, identify their

resources and capabilities of Nestlé and support their core competencies.

P a g e | 12
CHAPTER I

INTRODUCTION TO PRODUCTION AND OPERATION MANAGEMENT

Nestle is a company that is operating in food and beverage market. In the last

decade nestle is a leading nutrition and health corporation that promise a safe and high

quality product to its customers. The company illustrates a significant profit ratio and

therefore nestle become a role model for those companies that want to be successful.

P a g e | 13
COMPANY’S OPERATIONS

First of all the company have an operation in all around the world which means

that they achieve an economy of scale. Apart from this minor information in terms of

product offering the companies are currently developing products that are requiring

similar tangible and intangible resources. As a result they are exchanging production

equipment and workers between factories. So we can easily say that nestle are also

achieving an economy of scope. In addition to this, capacities are being utilized by the

department. Apart from those economic terms their labor are being highly trained and

therefore they are highly specialized about what they are doing which also resulting in

efficiency at the operational activities. Moreover the department is frequently adapting

its latest technologies that is reducing labor input and increasing its automation and

mechanism of operations. However nestles brand express a quality and safety products

to its customers. So it is clear that the company is not reducing its cost by buying a low

quality raw materials and this means that they have integrated differentiation and low

cost leadership strategy. We can easily conclude that these departments are producing

output much more efficiently than its competitors.

P a g e | 14
CHAPTER II

COMPETITIVENESS, STRATEGY AND PRODUCTIVITY

COMPETITIVE ENVIRONMENT

Nestlé Company encounters higher levels of competition than it currently

experiences. Any increase in the competitive environment may have an adverse effect

on Nestlé’s business, earnings and growth. Through effective competitive intelligence,

the firm gains the insights needed to create a competitive advantage and to increase

the quality of the strategic decisions it makes when deciding how to compete against its

rivals. The brand image of Nestlé is one of the most important sources of competitive

advantage. Through the research and development (R&D) capabilities allow Nestlé

Company to lead the way in innovation and provides for maximum portfolio flexibility.

The extraordinarily large scope of Nestlé’s business provides for significant economic of

scale in manufacturing, marketing, and administration.

Innovation is one of Nestlé’s key competitive advantages. They have more than 140

years of research, development and scientific know-how. While there is a great deal of

pure and applied science research that takes place in their global R&D centres, Nestlé

ensures that the consumer, and the consumer benefit, remains at the core of all their

activities. To be successful in today’s food and beverage sector the cost component is

critical and economic of scale are a main cost driver for Nestlé’s Company. Between the

shelf share of multi billionaire brands and recent push of retailer driven private label

P a g e | 15
products a new entrant would be challenged into executing a successful distribution

strategy. The main threat of this company is their competitors, which is come out with

foods and beverages as well, if they go higher than price ceiling, the other competitors

will win by setting up lower price, but if they go lower than that, competitors will easily

eliminate them in market place. That is why the rate of competition is really high and

Nestlé was also facing a strong competition at the national and regional level. Nestlé

Company have strategic advantage over their competitors because their will increase

Nestlé value by ensuring long term availability of raw materials and water, more secure

supply of better quality raw materials, producing products with improved environmental

performance, profitable growth, consumer preference for their products and sustainable,

and also to continuously improving environmental performance.

CORE COMPETENCIES ANALYSIS

Nestlé’s products and brand portfolio ranges from global icons to local favorites. It is

supported by an unmatched research and development capability, with clear priorities,

focused on driving innovation and renovation that is relevant and attractive for

consumers. Nestlé Company has an unmatched geographical presence, due to the

number of countries where they are present, but also due to the depth of their roots in

those countries. They have operated in most of their locations for generations. This has

created strong relationship between their brands and their consumers as well as an

unrivalled understanding of consumers. This enables them to anticipate their needs and

P a g e | 16
improve the quality of their lives. Their people, culture, values and attitude are their

greatest strength. The Nestlé culture binds their people together all over the world with

a shared set of doing business. Their culture combines a long-term mind-set with short-

term action. It encompasses a passion for quality in products, in relationships, in

everything they do. It is focused on competitiveness, calculated risk-taking and an

unswerving determination to deliver their goals, while creating value for society as a

whole.

Nestlé Company wants to be a leader in innovation and renovation, whether of

products, systems or processes. They need to have the most efficient supply chain,

from farm to fork to ensure that they have the best raw materials, the bet processes and

the freshest products on their customer’s shelves. Nestlé Continuous Excellence is their

approach to operational efficiency, with its objectives of eliminating waste, increasing

efficiency and effectiveness, and improving quality in all operations. To make the most

innovative products in the most efficient way, they also need to ensure that their

products are available sustainably wherever, whenever and however consumers want

to buy them. Of course, they need to communicate with their consumers in a dynamic

way, both to keep them abreast of all that is new and exciting, but also to learn from

them, so that Nestlé can bring their experiences to bear on their upcoming innovation

and renovation.

P a g e | 17
CURRENT STRATEGY

Nestlé’s objectives are to be recognized as the world leader in Nutrition, Health and

Wellness, trusted by all its stakeholders, and to be the reference for financial

performance in its industry. They believe that leadership is not just about size, it is also

about their behavior. They recognize trust is earned only over a long periods of time by

consistently delivering on their promises. These objectives and behavior are

encapsulated in the simple phrase, “Good Food, Good Life”, a phrase that sums up their

corporate ambition.

The Nestlé Roadmap is intended to create alignment for their people behind a

cohesive set of strategic priorities that will accelerate the achievement of their

objectives. These objectives demand from their people a blend of long-term inspiration

needed to build for the future and short-term entrepreneurial actions, delivering the

necessary level of performance. They are seeking to achieve leadership and earn that

trust by satisfying the expectations of consumers, whose daily choices drive their

performances, of shareholders, of the communities in which they operate and of society

as a whole. They believe that it is only possible to create long-term sustainable value for

their shareholders of their behaviour, strategies and operations are also creating value

for the communities where they operate, for their business partner and also for their

consumers, and they call this Creating Shared Value. They are now investing for the

future to ensure the financial and environmental sustainability of their actions and

operations in capacity, technologies, capabilities, in people, in brands, in R&D.

P a g e | 18
Their aims to meet today’s needs without compromising the ability of the future

generations to meet their needs, and to do so in a way which will ensure profitable

growth year after year and a high level of returns for their shareholders and society at a

large over the long-term.

STRATEGY

Nestlé describes itself as a food, nutrition, health, and wellness company. They

believe strengthening their leadership in this market is the key element of their

corporate strategy. This market is characterised as one in which the consumer’s primary

motivation for a purchase is the claims made by the product based on nutritional

content. In order to reinforce their competitive advantage, Nestlé created Nutrition as an

autonomous global business unit within the organization, and charge it with the

operational and profit and loss responsibility for the claim-based business performance

by offering consumers trusted, science based nutrition products and services. The

Corporate Wellness Unit was designed to integrate nutritional value-added in their food

and beverage businesses. This unit will drive the nutrition, health and wellness

organization across all their food and beverage businesses. It encompasses a major

communication effort, both internally and externally, and strives to closely align Nestlé’s

scientific and R&D expertise with consumer benefits. This unit is responsible for

coordinating horizontal, cross-business project that address current customer concerns

as well as anticipating future consumer trends. Nestlé business-level strategy is

integrated cost leadership or differentiation with wide range of products and low cost

operators. Nestlé strategic leadership is to force the business to become more efficient,
P a g e | 19
to create a regional manufacturing network, integrate the company’s business on a

global scale and to reduce marketing expenditures by exploiting the synergies between

brands. Their strategy to develop R&D network by improving existing products and

creating tomorrow’s nourishments, two third of company’s R&D activities are dedicated

to renovating existing products, the remaining third is reserved for radical product

innovations, improve on operational level and a number of organizational changes.

PRODUCTIVITY:

Nestle Company produces various flavor of ice cream at an average price of 160

pesos per half gallon. They can produce 1000 tubs of one (1) gallon from 500 gallons of

ice cream base mixture and 500 gallons composed of other ingredients. The whole

process takes place for one and a half (1 ½) hour. The company adjusts their

operations depending on the demand. They operate for 16 hours, two (2) shifts of eight

(8) hours each with four (4) personnel assigned per shift.

Expected Output: 12 tubs / minute

Output for one day: 16 hours / 1.5 hours x 1000 tubs = 10667 tubs

Productivity: 10, 667 tubs = 667 tubs / hour

16 labor hours

Multifactor Productivity: 10, 667 tubs = 84 tubs / hour

8 workers x 16 hours

P a g e | 20
CHAPTER III

FORECASTING

In this chapter different tools or technique of forecasting and steps on how to

come up with a good forecast for is discussed. This forecasting tools and techniques

could help the managers and the company to decide on number or amount of product

they should produce on a given period.

FORECAST

Forecast is a prediction about the future or a statement about the future value of a

variable such as demand.

In every organization planning is an essential part in decision making and an

integral part of a manager’s job. It is important for a company to anticipate buyer’s

wants and to have those products available with necessary options. Forecast can help

managers to anticipate those wants and reducing some uncertainty thus allowing them

to develop more meaningful plans. The company who can accurately forecast those

buyer wants and have those product available while be likely more successful than their

competitors who guesses instead of forecasting.

P a g e | 21
 Accurate forecasting optimizes customer service, minimizes inventory overstocks

and lays the groundwork for effective marketing.

 In Nestle it is important to ensure the freshness of their product from the

production to the customer.

 They see to it that they are producing accurate amount of products through

forecasting

 Nestle used subjective method that depend mostly upon on the estimation

and appraisal of planners based on the experience they draw upon.

 Another method use by Nestle to come up with a good forecast is SAP APO’s

underlying technique, together with models from the open-source statistical

software R, integrated into APO.

 Recently Nestle demand planners decided to improve their methods of

forecasting, after some researches they come up of using the SAS that

complement the SAP APO.

Even there are many techniques, tools or method that can truly help the

company to improve their planning in terms of forecasting demand they still believe that

professional demand planners are needed being connected in the business, with high

credibility, experience and knowledge is a key to the success of every successful

production decisions and success of every organization. And it only means having

enough Nestle ice cream whenever or wherever especially during those hot summer

days.

P a g e | 22
CHAPTER IV

PRODUCT AND SERVICE DESIGN

PRODUCT DESIGN

 Focusing new generation. Nestlé’s business strategy stresses the importance

of internal growth by renovating existing products and innovating new products.

 R&D. The Nestlé research and development centres have two main tasks: to

create new products and manufacturing processes and to improve those that

already exist. These centres play a key role in product safety and quality and

also have their role in conserving resources and protecting the environment.

Environmental concerns are an integral part of any development process to

ensure that our future commercial operations meet the desired criteria.

 Consumers’ daily life. Through concentrated marketing, Nestlé achieves a

strong market position because of its greater knowledge of consumer needs. In

the niches it serves and special reputation it acquires.

 Differentiation. Nestle also selects the differentiated marketing. It offers

different product for different segments based on different age, occupation,

season and climate.

P a g e | 23
P a g e | 24
SERVICE DESIGN

Another advantage for this company is better service for its respective customers

from its competitors. They provide 24 hours hot line service. High quality checking is

maintaining for its customers. Its marketing dept. and PR (public relation) dept. are

working for finding out customer’s new demands and response toward their products.

CONSUMER SERVICES

At Nestlé, we are committed to offering consumers high-quality food products that are

safe, tasty and affordable. The Nestlé Seal of Guarantee is a symbol of this

commitment.

We also believe in maintaining regular contact with our consumers. This applies both to

how we present our products and to how we address our consumers' questions and

concerns. When Henri Nestlé prepared his first boxes of infant formula for sale, he put

his address on the packages so people would know where to go if they had questions.

Today, our Consumer Relationship Panel with the words "Talk to Nestlé" expresses the

same commitment.

P a g e | 25
This is why we have a worldwide Nestlé Consumer Services network devoted to caring

for our consumers. Our people have expertise in a wide range of areas such as

nutrition, food science, food safety and culinary expertise. They provide the prompt,

efficient and high quality service that consumers expect from Nestlé.

In addition, we teach them talk with consumers and above all, to listen. Listening helps

us to understand what people want. Nestlé uses the insights gained from relationships

with consumers to drive product development.

At Nestlé, we care for our consumers because our success depends on meeting their

needs and expectations. Through listening and understanding, we can make products

that they will want to use all through their lives.

P a g e | 26
PRODUCT COSTING

Price is defined as the value of a product that we get in return for all the effort

that was taken for its production and also for marketing of the same product. Price is the

revenue earner so it is considered as the odd one in the marketing mix. Nestle believe

that the price should be consider as an important market tool which is visible to either

customer or competitors. There are many factors like, changes in technology, effect of

suppliers, competitive pressure and the increasing price sensitivity of the customers that

may affect the price if a product. Price is also directly dependent on the demand of the

product. If the demands increase the price will also increase and vice versa.

Research shows that customers are considering price as one of the factor that

they look before buying a certain product. This enables them to analyse the

attractiveness of the product and be vigilant about the changes in price of the product,

thus enabling them to compare the prices of the product in various stores.

Pricing of the Product

In pricing their product Nestle consider many factors that affect or included in the

production process such as geographical demand and costs, market-segment

requirements, purchasing timing, order levels, delivery frequency, guarantees, service

contract, and other factors. But most of the pricing of a product mainly depends on 3

factors: cost, competitor and the market.

P a g e | 27
Cost Oriented Pricing

The most common method of pricing of a product is cost oriented pricing, in

which it is divided into full cost pricing which involves the calculating of cost of all labour

and materials and direct cost pricing which involves the calculation of only those costs

that are likely to rise as output increases.

Competitor Oriented Pricing

The approach to pricing which only depends on the competitor rather than costs

when framing a business is called competitor oriented pricing. Every consumer will

judge the price of a product by comparing it with a similar product in the same range

which is produced by their competitor.

Market Oriented Pricing

Market oriented pricing is one of the important area which depends on

competiveness of a product in the market. For a new product the positioning strategy

controls the pricing and for an existing product price will depend on the strategic

objectives.

Price-Quality Relationships

Price is directly dependent on the quality of the product. As the quality of a

product increases the price also goes up. Nestle is a quality focused company and

hence to compete with current market it need to carry out the pricing process of the

P a g e | 28
product very carefully. Nestle is a very successful company and all its products are at

affordable prices.

Product Line Pricing

Most of the companies usually develop product lines rather than single products.

In product line pricing the management must decide on the pricing steps to set between

various products in a line (Kotler, Armstrong, Saunders and Wong 2001). In product line

pricing, cost difference between the product in the line, evaluation of customers and

also the competitor's products with small price difference is also taken into account.

P a g e | 29
CHAPTER V

STRATEGIC CAPACITY PLANNING FOR PRODUCTS AND SERVICES

Capacity is the maximum rate of output for a facility. The operations manager must

provide the capacity to meet current and future demands; otherwise the organization will

miss the opportunities for growth and profits.

Providing the capability to satisfy current and future demand is a fundamental

responsibility of operations management. An appropriate balance between capacity and

demand can generate high profits and satisfied customers, whereas getting the balance

'wrong' can be potentially disastrous. Yet although planning for, and controlling capacity

is a major responsibility of operations managers, it should also involve other functional

managers. There are three reasons for this:

 Capacity decisions have a company-wide impact.

 All the other functions provide vital inputs to the planning process.

 Each business function will usually have to plan and control the capacity of its

own 'micro operations' to match that of the main operations function.

P a g e | 30
STEPS FOR CAPACITY PLANNING

 Estimate future capacity requirements

 Evaluate existing capacity

 Identify alternatives

 Conduct financial analysis

 Assess key qualitative issues

 Select one alternative

 Implement alternative chosen

NESTLE CAPACITY PLAN

Nestle is a company that uses various capacity plans at a time in order to deal

with fluctuations of demand. When demand is high it usually hires extra staff to help in

the packaging but however it cannot influence the technological process of ice cream

preparation. When demand is lower the company tends to produce more products

having in mind though the shelf-life and quality of products. It also organizes additional

product promotions and discounts to stimulate purchases in off-the-season time. Much

is stressed on the last technique quoted in the case study. Tradeoffs are a type of

cumulative representations of measuring the outcome of a given capacity plan.

Producing the product takes time (despite the fact that packaging goes fast with

extra staff) and thus (especially in peak seasons) waiting time is high but the product

utilization is at its maximum quality. The question ahead of Nestle is should it invest into

a faster technology, hire extra staff for chocolate production or rush the process and

P a g e | 31
produce consequent less quality products and thus cheat on its principles? According to

us it is better to consider the trade-off but at the same time not rush the process and

spoil the ice cream. The company should stick to its current planning of capacity and

demand – using various capacity plans to best suit the situation.

Aggregate demand is best measured through possible predictions of fluctuations, past

data or output. The alternative capacity plans include:

 Level Capacity Plan

This mechanism involves same level of capacity all period through regardless of

the demand. It leads to stable employment, low unit cost and high process

utilization, but however it evokes production for storage and inventory rather than

for immediate sale. Therefore, the “shelf-life” factor has to be considered very

carefully (as production exceeds demand) especially when dealing with non-

durable goods – food products.

 Chase Demand Plan

This mechanism is exactly the opposite of level capacity plan. It mainly deals with

products that cannot be stored and sold later on (food products). Therefore,

products have to be produced in numbers corresponding to the demand required.

Thus in order to deal with the picks and falls of demand at a given period of time

chase demand plan involves the following measures:

1. reduce/extend working day

2. hire/lay off extra staff

3. part time recruitment

P a g e | 32
  Demand Management

Managing demand is another mechanism of dealing with fluctuations. It leads to

reducing costs, improving services, better utilization of resources and capacity,

increase in profits. The process involves transferring demand of customers from

more dense periods to more relaxed times. This is done usually through devising

alternative products/services, discounts, new outputs, etc. One good example is

setting lower prices of ski equipment during the summer season in order to

increase customer demand and purchase power of this product at that time of the

year and thus sell the stored products.

In managing fluctuations in demand it is fair enough to adopt a certain a capacity

plan. Despite the fact that there are methods of evaluating each plan (and then decide

whether it is successful to apply for a given situation), practice as well as Nestlé’s

management and philosophy proves that a combination of several plans is best to

apply. Capacity planning should be flexible enough to suit any seasonal change

especially when regarding a giant brand food producer as the yummy Nestle ice cream.

P a g e | 33
CHAPTER VI

PROCESS SELECTION AND FACILITY LAYOUT

The chapter explains the Nestles process selection and facility layout. Under

these topics are what type of process do they apply, product and service profile, what

facility layout they have and how they arrange workers and/or machines in the

sequence that operations need to be performed through the use of line balancing.

Process selection refers to deciding on the way production of goods or services

will be organized. Nestle Ice cream uses Batch Processing. In Batch Processing

moderate volume of goods or services are desired and it can handle a moderate variety

in product or services. Product or service profiling can be used to avoid any

inconsistencies by identifying key product or service dimensions and then selecting

appropriate process.

Layout refers to the configuration of departments, work centers, and equipment,

with particular emphasis on movement of work through the system. Product layout is the

type of facility layout that Nestle Ice Cream have. This layout is used in order to achieve

a smooth and rapid flow of large volumes of goods or customers. The process of

assigning tasks to workstations is referred to as line balancing. This minimizes the idle

time along the line and results in a high utilization of labor and equipment. Lines that are

perfectly balanced will have a smooth flow of work as activities along the lines are

synchronized to achieve maximum utilization of labor and equipment.

P a g e | 34
TRANSFORMATION REQUIREMENTS:

INPUT PROCESSING OUTPUT

Raw Mixture Ingredients, Aging, N

 Pasteurized Milk, Mixing, E

 Sugar, Freezing, S

 Food Colors, Compressing, T

 Flavoring Filling, L

 Nuts & Marshmallow Tabbing, E

 Chocolate Bits, Lidding,

 Ripples Inspecting, I

Plastic Container Tubs, Coding, C

Labor, Buildings, Labeling, E

Machines & Equipment: Packing,

Sorting, C
 Freezer
Palletizing R
 Mixer
E
 Compressor
A
 Freezing Barrels
M
 Conveyor

 Metal Detector

 Pumps

 Feeders

P a g e | 35
FACILITY LOCATION

The factor by which the management calculate formulas to locate their facility.

 Heavy manufacturing facility

 Light industry Facility

 Retail and Services facility

 Benefits

 Location Incentives

FACILITY LAYOUT

Warehouse 1

(Raw Materials,

Ingredients)
Bulk 1 Bulk 2 Bulk 3

(Ageing Tank, Freezing (Ageing Tank, Freezing (Ageing Tank, Freezing

Barrel, Air Compressor, Barrel, Air Compressor, Barrel, Air Compressor,

Refrigerant, Conveyor) Warehouse

Refrigerant, 2
Conveyor) Refrigerant, Conveyor)

(Metal Detectors, Coder

Printer)
Warehouse 3

(Loading Dock, Delivery

truck)
P a g e | 36
PROCESS TYPE

The Nestle Company uses batch processing for their production for the reason

that the volume and variety of the product they need to produce is moderate that

requires low skill level workers to perform the operation.

Batch processing has these benefits:

 It can shift the time of job processing to when the computing resources are

less busy.

 It avoids idling the computing resources with minute-by-minute manual

intervention and supervision.

 By keeping high overall rate of utilization, it amortizes the computer,

especially an expensive one.

 It allows the system to use different priorities for interactive and non-

interactive work.

 Rather than running one program multiple times to process one transaction

each time, batch processes will run the program only once for many

transactions, reducing system overhead.

P a g e | 37
PRODUCTION PROCESS

STEP 1:

Preparing the ice cream base using appropriate proportion of ingredients to aid the

rest of the process. While there are a lot of variations, some recommended typical

balanced proportions for the base would be around 60 % water (including the water

you’ll find in milk and cream), about 15 % sugar, about 10 % non-fat milk content, and

somewhere between 10-20 % milk-fat content.

Roughly speaking, quality ice creams tend to contain more fat and less infused air,

making for a denser, richer ice cream. Cheaper industrial ice creams, on the contrary,

tend to go for less fat, more stabilizers and sometimes up to 100 % infused air, making

for a fluffier end-product.

STEP 2:

Pasteurization – heating the ice cream base so that dangerous bacteria are destroyed.

It is essential for commercial ice cream production and an important part of any

preparation of raw eggs in custard-based ice cream. Usually, the base is heated and

stirred hereafter; the base should be chilled rather quickly.

STEP 3:

Homogenization – essentially the breaking up of, and better dispersing of, fat droplets

in order to enhance the emulsion of fat into the ice cream base (thereby avoiding that
P a g e | 38
the water and the fat in the ice cream separate). This is usually done by churning the

base at heightened temperatures. More evenly distributed fat molecules will give a

thinner base, which in turn will be able to capture air better. The improved capacity to

hold onto air will add to the body and make the ice cream both more stable and

smoother. In industrial production, the mixture of water and fat is typically forced

through a narrow slit at high pressure, breaking up the fat droplets and dispersing them

in a size of less than one thousandth of a millimeter.

STEP 4:

Ageing / Maturing - having gone through the previous steps and having cooled down

to fridge-temperatures, the ice cream base is given time to age and mature before

freezing.

While ageing, the chemical ingredients of the base (mainly the proteins, the emulsifiers

and the fat molecules, along with any flavors already put into the base) “settle”, which

will greatly improve the texture, smoothness and stability of the final ice cream.

Scientifically speaking, the ageing allows the myriads of individual fat droplets to

partially solidify and have their surface coated by the proteins. Several commentators

recommend an ageing period between 4-24 hours, with many considering that ripening

overnight is the best. In commercial production, the ice cream base is typically cooled

down very quickly to about +5 degrees Celsius, and then kept at this temperature for a

few hours.

P a g e | 39
STEP 5:

Freezing – If you have an ice cream maker, this is the stage where you will use it.

During the churning, the base is being frozen whilst air simultaneously is whipped into it

by the dasher and “trapped”, and certain flavoring solids are added (such as cookie

crumbles or chips of chocolate, for example). Read more about ice cream machines.

Commercial ice cream freezers generally operate in a similar way. The ice cream base

is pumped into a metal barrel, surrounded by a very cold refrigerant. Simultaneously, a

stream of air is introduced into the barrel. Inside the barrel, a high speed dasher churns

the mixture. Modern fully automated freezers can produce thousands of ice cream tubs

per hour.

STEP 6:

Hardening – After the freezing, you have created ice cream! However, fresh out of the

churning-step, ice cream is actually only about half-frozen and may need some further

time in a freezer to gain more stability. Some consider final temperatures between – 10

and -12 degrees C to be ideal, with the ice cream now being firm enough to scoop well

and yet still smooth.

P a g e | 40
CHAPTER VII

DESIGN OF WORK SYSTEM

RECRUITMENT PROCESS AT NESTLE

 The recruitment process at Nestle is clearly defined. People with qualities like

dynamism, realism, pragmatism, hard work, honesty and trustworthiness.

 Match between candidate’s values & company’s culture.

Recruitment for management levels takes place in the head office and all others at the

branch level. The existing employees are promoted to higher posts as per the

requirements. There are no lateral recruitments. Another source of recruitment is

campus placements and human resource consultancies.

PAY STRUCTURE AT NESTLE

 Nestle strives to offer fair remuneration. Remuneration level is above the average

in industry.

 The variable component of the salary is comparatively big to reward individual

performance.

In case of higher management level, the variable part is linked to individual &

team target achievements

P a g e | 41
PEOPLE MANAGEMENT POLICIES, BASIC VALUES & PRINCIPLES

 Nestle management & leadership principles- The Nestlé Management and

Leadership Principles describe the management style and the corporate values

of the Nestlé Group, specifically in the area of interpersonal relations.

 Nestle human resources policy- the policies designed for the Nestlé’s human

resources are well defined to the employees with proper guidance’s and

guidelines given to them so that they can operate in the right manner and be

more effective and efficient.

 Nestle people development review-this policy throws light on Nestle’s culture and

core values, different training programs and life of employees after work.

PEOPLE MANAGEMENT IN NESTLE ICE CREAM FACTORY

Nestle ensures the maintenance of manufacturing high quality products by

selecting qualified employees initially upon hiring, through conducting series of activities

such as written examinations, interviews, and medical examinations. After successfully

accomplishing these batteries of test, Orientation about the company’s profile, basic

salary, benefits, and incentives shall follow. Upon completion of the orientation,

Seminars shall take place in order to provide detailed information and impart certain

ideas that concerns the safety and proper production protocols and rules of the

company.

P a g e | 42
 In addition to these activities depending on some instances, the company

initiates follow up seminars and training sessions that focus on the company’s core

values, safety precautions and other related topics which must be elaborated, discussed

and clarified.

PERSONNEL ASSIGNED IN EACH FLAVOUR BATCH ARE:

 Operator -- He is assigned as the forerunner of the Production Bulk where in a

certain flavor batch is procured.

 Server -- The personnel who is assigned to stack and organize the ice cream

container tubs which will be filled by ice cream.

 Filler -- This person is responsible to fill the container tubs with ice cream.

 Lidder -- The personnel who place and seal the cover lid of the ice cream.

JOB DESIGN

 Selection-Combination of written test, GD & interview (Interviews for top

management posts).

 The company incorporates practices like Job Enrichment and Job Enlargement,

to motivate employees and to break the monotony of their job tasks. The

correspondent herself works in both sales and brand management departments,

which is an example of job enlargement

P a g e | 43
TRAINING PROGRAMME IN NESTLE

From the factory floor to the top management, training at Nestlé is continuous.

And because it is mainly given by Nestlé people, it is always relevant to the professional

life. Throughout the world, each country runs its own training programmes (e-Learning,

classroom courses, external courses), and it has five training centers in France, UK,

Spain, Mexico and Brazil.

P a g e | 44
CHAPTER VIII

LOCATION PLANNING AND ANALYSIS

PLACE STRATEGIES

The major factors to be considered while formulating a place strategy are

Channels, Coverage, Assortments, Locations, Inventory, Transportation, and Logistics.

Channel distribution strategies deal with the decisions on making the products

available to the target customers in usable condition. A channel of distribution is the

combination of institutions through which a seller markets the products to the user or

ultimate consumer. As the time and finances required for setting up a channel of

distribution are comparatively high, the place strategies are often critical for the success

of a firm.

The channels of distribution can be of two different types on the basis of the targeted

consumer. It may differ when the end user of the product is a consumer or an

organization, the Consumer Marketing Channel and the Business Marketing Channel.

CONSUMER MARKETING CHANNEL

Nestle adopts the consumer marketing channel where the products from the

producer reaches the consumer through the wholesalers or retailers. Nestle has e-

marketing for some of its products where the products reach the consumers directly

from the producer.

P a g e | 45
BUSINESS MARKETING CHANNEL

The channel of distribution strategic decisions is determined on the basis of the

following factors:

 Distribution coverage required

 Degree of control desired

 Total distribution cost

 Channel flexibility

Distribution coverage may vary based on the features of the product, the market and

the target customers. The company may opt for intensive distribution, selective

distribution or exclusive distribution.

In the case of intensive distribution, the company tries to sell the product through the

maximum number of retailers and wholesalers. In selective distribution, the company

may limit the number of wholesalers and retailers which are the best in that market

while in the case of exclusive distribution; the manufacturing company may provide

exclusive rights for distributing the product to only one or a few distributors.

Nestle has adopted intensive distribution strategy in order to make its products

available to a large customer base. Nestle products are available through a large

number of retail outlets.

P a g e | 46
CHAPTER IX

MANAGEMENT OF QUALITY

Total Quality Management (TQM) is a quality management process that change

the whole organization based on customer oriented quality, continuous improvement,

organizational involvement in processes and solving a problem in a team. This will

fulfilled the customer requirement by producing the product and service, which exceeds

the customer needs.

In total quality management, the customer determines the quality of output. The

output with the high quality will meet the requirement and expectation of customer.

From managing outcomes to managing and improving processes there are shifting in

focus: from what to do to how to do the processes better. Quality performance expands

to include how well the relationship of each part to the process and each part of the

process works. Also, process improvement focuses on continuously achieving the

greatest potential benefit for our customers.

QUALITY IS THE CORNERSTONE OF NESTLÉ SUCCESS

Every product on the shelf, every service and every customer contact helps to

shape this image. A Nestlé 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. Customers expect us to keep this promise every time.

Under no circumstances will we compromise on the safety of a product and every effort
P a g e | 47
must be made to avoid hazards to health. Likewise, compliance with all relevant laws

and regulations is a must and is not negotiable. People, equipment and instruments are

made available to ensure safety and conformity of Nestlé products at all times. The

effort is worth it. Companies with huge quality standards make fewer mistakes, waste

less time and money and are more productive. They also make higher profits. Quality is

their most successful product. It is the key to their success, today and tomorrow.

THE CUSTOMER COMES FIRST

Nestle want to win and keep customers: distributors, supermarkets, hotels,

shopkeepers and the final consumers. They have very different requirements. Trade

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

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

understand what customers want and respond to their expectations rapidly and

effectively. We serve various groups of consumers and there is demand for products at

different levels of perceived quality and price. All customers, however, expect value for

their money – good quality at a reasonable price.

When offering quality to customers we also mean environmental quality. Nestlé

shares society’s concern for the environment and is committed to environmentally

sound business practices throughout the world.

Customers are central to their business and they always respect their needs and

preferences.

P a g e | 48
QUALITY IS A COMPETITIVE ADVANTAGE

We live in a competitive world and must never forget that their customers have a

choice. If they are not satisfied with a Nestlé product, they will switch to another brand.

Their goal, therefore, is to provide superior value in every product category and market

sector in which we compete. The pursuit of highest quality at any price is no guarantee

for success, nor is a single-minded cost-cutting approach. Lasting competitive

advantage is gained from a balanced search for optimal value to customers, by

simultaneous improvement of quality and reduction cost. Success can never be taken

for granted. We must watch and learn from our competitors. If they do something better,

we must improve our own performance. We can achieve competitive advantage through

Quality.

QUALITY IS A JOINT EFFORT

Operating companies are fully responsible for maintaining agreed quality

standards. Not only Production units, but also Marketing, Purchasing, Distribution and

Sales have a vital role to play in providing quality to customers. This implies a thorough

knowledge of the products and services we offer.

Quality units at different levels of the organization provide specific support, promote

quality awareness, assume guardianship and audit the system. Quality departments

monitor operations against agreed standards and must intervene in case of non-

conformity. Quality policy and principles, the mandatory standards and the

recommended tools for implementation are laid down in the Nestlé Quality System
P a g e | 49
which is applicable throughout the group. Further directions are given through

instructions, norms and guidelines, often specific to a product.

Our business products, such as raw material producers, packaging suppliers, contract

manufacturers and distributors are expected to share our concern for Quality. They too

must set up an adequate quality system, so as to meet our requirements consistently.

The quality efforts must be shared by every function and department in the company as

well as our business partners.

QUALITY IS MADE BY PEOPLE

Adequate equipment, procedures and systems are needed to make Quality; so

are involved and dedicated people. Each and every Nestlé employee must do his best

to provide quality products and services. Training and teamwork are crucial to the

successful implementation of high quality standards. Continuous training ensures that

everyone understands his tasks and has the necessary skills to carry them out.

Teamwork allows us to achieve results that are greater than the sum of individual

efforts. We motivate employees by demonstrating management commitment to Quality,

by setting challenging goals and by giving them responsibility and recognition. It is

through employee involvement that goals and targets can be achieved in the shortest

time. Quality must be a way of life for everyone in the company.

P a g e | 50
QUALITY IS ACTION

Quality is the result of deliberate action. It is the responsibility of senior managers

to communicate the quality objectives and to provide the resources necessary for their

implementation. It is then up to all employees to make Quality happen throughout the

company. Progress is followed by listening to our customers and by measuring our

performance. Shortcomings and mistakes must be analyzed and corrected. Problems

must be anticipated and prevented before they occur. We also must identify and take

advantage of opportunities.To stand still is to fall behind. So we must strive for

continuous improvement in every area. It is through many small improvements as well

as through major breakthroughs that we will achieve excellence. At Nestlé, Quality is

our first priority. Let us practice it every day.

P a g e | 51
CHAPTER X

QUALITY CONTROL

Every day, millions of people all over the world show their confidence in us by

choosing Nestlé ice cream. This confidence is based on our quality image and a

reputation for high standards that has been built up over many years.

QUALITY AND SAFETY

Nestlé’s commitment to consumers:

 Quality and Safety for our consumers is Nestlé’s top priority. This applies to our

entire portfolio, from foods and beverages to all our systems and services.

 Quality assurance and product safety is one of Nestlé’s 10 Corporate Business

Principles, which form the foundation of all we do.

NESTLÉ QUALITY POLICY

Our actions to ensure quality and food safety are guided by the company’s Quality

Policy which describes our commitment to

 Build trust by offering products and services that match consumer expectation

and preference

 Comply with all internal and external food safety, regulatory and quality

requirements

 Gain a zero-defect, no-waste attitude by everyone in our company

 Make quality a group-wide objective

P a g e | 52
NESTLÉ QUALITY MANAGEMENT SYSTEM

Our Quality Management System is the platform that we use globally to

guarantee food safety, compliance with quality standards and to create value for

consumers. Our internal Quality Management System is audited and verified by

independent certification bodies to prove conformity to internal standards, ISO norms,

laws and regulatory requirements.

FROM FARM TO FORK

Our Quality Management System starts on farms. We have a long history of

working together with farmers in rural communities to help them improve the quality of

their produce and adopt environmentally sustainable farming practices.

The Quality Management System not only ensures our ongoing access to high

quality raw materials. It also enables farmers to protect or even increase their income.

Often the standard of living of entire rural communities is raised as a result. The system

helps address key global environmental and social issues.

QUALITY BY DESIGN

Quality is built in during product development according to the requirements of

the consumers and following all food safety and regulatory requirements. Nestlé’s R&D

network applies in this “Quality by design” to all of our products.

P a g e | 53
GOOD MANUFACTURING PRACTICES

We apply internationally recognized Good Manufacturing Practices (GMP) to

ensure quality and food safety. GMP covers all aspects of manufacturing, including

standard operating procedures, people management and training, equipment

maintenance, and handling of materials.

HAZARD ANALYSIS AND CRITICAL CONTROL POINTS

We apply the internationally recognized HACCP(Hazard Analysis and Critical

Control Point) system to ensure food safety. This preventive and science based system

identifies, evaluates, and controls hazards that are significant for food safety. It covers

the entire food production process from raw materials to distribution and consumption.

CONSUMER USE

Our products carry information to ensure that they are used safely with the

highest level of quality for the consumer.

P a g e | 54
CHAPTER XI

AGGREGATE PLANNING AND MASTER SCHEDULING

Aggregate plan details the aggregate production rate decisions, work force

decisions, and inventory scheduling decisions over an intermediate planning horizon.

The aggregate plan is an intermediate range plan that typically spans one full year so

that it can react to all the seasonal swings in the demand.

AGGREGATE PLAN UNITS

At this level of planning, there is not a lot of detail. Individual end product identity

is typically not present. Instead, planning is performed for a composite or average unit

of product in a particular family of similar products. Decisions are typically aggregated

into monthly time periods. Weekly or daily detail is not needed at this level of decision

making. Eventually that finer detail will surface after the aggregate plan is further broken

down (disaggregated)

AGGREGATE PLANNING PROCESS IN NESTLE

 Sales forecast for each product: the quantities to be sold in each time period

(weeks, months, or quarters) over the planning horizon (6 -18 months).

 Total all the individual product or service forecasts into one aggregate demand.

P a g e | 55
PRODUCTION PLANNING PROCEDURES IN NESTLE can be divided in three parts:

 Routing means determination of path or route over which each piece is to travel

in being transformed from raw-material into finished product. The advantages of

routing are efficient use of resources and reduction in manufacturing.

 Scheduling means a description of when & where each operation is to be

executed and establishment of timetable at which to begin or complete each

operation.

Objectives of scheduling in Nestle

 Items are delivered on due date

 Production cost is minimum

 To minimize idle time of machines

 To prevent unbalanced allocation of time among various departments

 Loading means the work required are loaded against the selected machine or

workstation. The total time required to perform the operation is computed by

multiplying the unit operation times given on the standard process sheet by the

number of parts to be processed. This total time is then added to the work

already planned for the workstation.

P a g e | 56
MASTER PRODUCTION SCHEDULE (MPS)

Things change over time (orders get cancelled, new orders are placed, items in

inventory get damaged, quality problems cause us to scrap a batch of items, etc.).

Circumstances like these impact our projections for MPS quantities. Sometimes these

circumstances suggest that we must change the MPS to reflect these new conditions.

Not all portions of the MPS are readily changeable; what changes we can make depend

upon how far out into the future they are.

P a g e | 57
CHAPTER XII

MRP AND ERP

Materials requirement planning (MRP) is a computer-based operations

management system that uses sales forecasts to make sure needed parts and

materials are available at the right time and place.

Enterprise resource planning (ERP), a newer version of MRP, combines the

computerized functions of all the divisions and subsidiaries of the firm—such as finance,

human resources, and order fulfilment—into a single integrated software program that

uses a single database. The result is shorter time between orders and payment, less

staff needed to do ordering and order processing, reduced inventories, and better

customer service.

NESTLÉ’S JOURNEY WITH ERP AND ENTERPRISE APPLICATIONS

In year 2001, Nestle had started its most ambitious ERP and Enterprise

implementation programme GLOBE (Global Business Excellence). This the largest

Nestle has ever initiated, and it is the largest ever SAP implementation project in the

world. By the middle of 2006, Globe covered over half of Nestlé’s Food and Beverage

Business with overall coverage of 90,000 users, 300 factories and 350 distributions

centres.

P a g e | 58
 GLOBE seek to improve the performance and operational efficiency of its

businesses, worldwide.in the process, GLOBE revisited all aspects of business

practices with the goal to run Nestlé’s business in different ways for the future. The

objective of the programme included a fully documented, standardized group-wide

busuness process architecture and master data with the help of mySAP business suite.

PROJECT’S MISSION

 Leveraging its size as a strength in a rapidly changing environment

 Uniting and aligning Nestle internally to become more globally competitive.

 Enabling Nestle to manage complexity with operational efficiency

PROJECT’S OBJECTIVES

 Implementation of harmonized Nestle Business Best Practices.

 Implementation of Data Standards and Data Management.

 Implementation of standardized information system and technology.

PROJECT’S HIGHLIGHTS

The programme began with a high-level strategy phase. Then began the

development of the GLOBE Template in February, 2001, with over 200 specialists and

managers from 40 Nestle markets around the world; 150 IBM consultants as well as 50

consultants from form SAP AG, in what is known now as the GLOBE Business
P a g e | 59
Technology Center (BTC). Their mission was to map and translate Nestlé’s needs into

detailed processes within the GLOBE Template and thus develop a Nestle solution on

the SAP platform. This template was then successively implemented in all significant

Nestle markets supported by regional GLOBE organizations include 3000+ people.

PROJECT’S SCOPE

The scope of GLOBE is across the complete Nestle organizational entities. It

covers most process areas if Nestles including:

 Supply (procure-to-pay, materials handling, demand and supply planning,

transportation and customer service)

 Finance and Controlling

 Demand (marketing and sales)

 Technical and Production (manufacturing, quality, PLM, plant maintenance)

 Human Resource including payroll

P a g e | 60
CHAPTER XIII

INVENTORY MANAGEMENT

The Nestlé Group is in principle not directly involved in primary production of raw

materials and other food ingredients. In general we use locally available raw materials

and purchase them either directly from producers or through existing trade channels.

Raw materials have to meet clearly established quality criteria and are checked

for possible contaminants including environmental contaminants. Our purchasing

specifications comply not only with legal requirements but go further to ensure highest

safety and wholesomeness of our products.

Whenever possible we give preference to those goods for which environmental

aspects have been taken into consideration. In those cases where the required

agricultural raw materials are not available locally, but the natural production conditions

exist, we encourage local production and provide assistance for cultivation and dairy

farm management.

We support plant growing and livestock husbandry methods which:

 Preserve and improve natural soil productivity and economize and protect water

resources

 Allow the lowest, most appropriate and safe use of agro-chemicals

 Use the least energy.

P a g e | 61
CHAPTER XIV

JIT AND LEAN OPERATIONS

Just-in-time (JIT) is lean production technique. It focuses on timings during the

production process. Both storing and waiting for materials can increase costs.

Waiting for materials will waste employees’ time and could also delay production. JIT

involves ensuring materials arrive just as they are needed. Similarly for outputs,

transport must arrive to take finished products away just-in-time, without any waiting

or storage costs.

JIT focuses on continuous improvement but only works as part of an overall lean

strategy. It can improve the efficiency of processes. It can lead to a better return on

investment through improving productivity. JIT also allows for fewer materials to be

held at any one point which can reduce working capital needs as less finance is

needed for stock, leading to better financial performance. This can lead to better

returns to stakeholders such as investors, as any finance invested is yielding a direct

return.

STOCK CONTROL

Through JIT Nestlé was able to make the most efficient use of storage and time

at the new factory. Whilst the old site had to use limited storage and outsourced

warehouse space off-site, the new factory eliminated these additional transport

needs. At the old site stock had to be requested and then took time to arrive.

P a g e | 62
Enough inputs had to be stored on-site to provide for production over the weekend,

adding to storage costs and wasting space. Finished pallets of ice creams had to be

held until trucks arrived to transport them. However, at the new site, transport and

waiting times have been significantly reduced through raw materials being stored

adjacent to the finished goods warehouse. This greatly improved stock control.

Shorter flows for raw material and the collection of waste from the production line

also help make sure materials are in the right place at the right time, thus improving

efficiency. JIT helps make big efficiency gains for Nestlé. This requires excellent

relationships with suppliers and distributors. Suppliers must deliver quality resources

on time and distributors must ensure bottles are picked up immediately when they

are ready. This aspect required a lot of planning but has delivered great benefits.

NESTLE LEAN MANUFACTURING OPERATIONS

Nestle is recognized with Processor of the Year for its operational excellence and

shared values. The company has changed its manufacturing footprint and sees lean

manufacturing as a foundation to continue its improvement journey.

BENEFITS OF LEAN PRODUCTION

Nestlé uses lean production techniques to bring benefits other than gains to

efficiency and quality. It also helps to create social and environmental benefits.

Social benefits are those shared by the communities in which Nestlé operates. As

part of Nestlé Creating Shared Value it has worked with the local community on

projects including its on-the-go recycling program.

P a g e | 63
 A further benefit is employment, not just directly at the site, but as a result of

building the new site. When building the new factory Nestlé sourced the majority of

its materials and labour from within a 50 mile radius of the site. This had a positive

impact on the local economy whilst decreasing the amount of transport required for

materials, reducing the site’s carbon footprint. The new factory has also increased

the number of apprenticeships and graduate roles that Nestlé can offer. Whilst the

old site used agency and temporary workers, the new site employs over 100 full-time

staff, drawn from the local workforce.

SUSTAINABILITY AND NESTLÉ IN SOCIETY

These are at the heart of everything that Nestlé does. Every aspect of the new

site was carefully planned to ensure maximum efficiency and sustainability. Waste

can have an impact on many areas of operations. It can have negative financial,

environmental and social implications.

With help from experts in lean production, Nestlé was able to critically audit the

old site to establish where improvements could be made. From this audit strategic

plans were created for the design of the new site. As well as creating efficiencies to

financially benefit the company, Nestlé focused on the societal benefit too, by

building with careful design and technologies for the environmental benefits that the

new factory could create. This included improvements to the local community and

sustainability of the site.

P a g e | 64
CHAPTER XV

SUPPLY CHAIN MANAGEMENT

Supply chain is a system of suppliers, manufacturers, distributors, retailers and

customers where material, financial and information flows connect participants in both

directions. In every organization, the supply chain consists of a multitude of functions

that deal with receiving and fulfilling the consumer's requests. These functions include,

but are not limited to, new product development, marketing, operations, distribution,

finance, and customer service. the interconnected set of linkages between suppliers of

materials and services that spans the transformation of raw materials into products and

services and delivers them to a firm’s customers is known as supply chains. An

important part of this process is provision of the information needed for planning and

managing the supply chain. An essential task is to co-ordinate process linkages.

Supply chain management is the combination of art and science that goes into

improving the way a company finds:

• The raw components it needs to make a product or service

• Manufactures that product or service and delivers it to customers

P a g e | 65
The most basic supply chain consists of the following parties:

 Producers or manufacturers are the organizations who are responsible for

making a product. This includes the companies that are producers of raw

materials and companies that are producers of finished goods.

 Distributors take inventory in bulk from producers and deliver a bundle of

related product lines to customers. Distributors buffer the producers from

fluctuations in product demand by stocking inventory and doing much of the

sales work to find and service customers. For the customer, distributors meet up

the time and place utility. They deliver products when and where the customer

wants them. A distributor is typically takes the ownership of significant inventories

of products that they buy from producers and sell to consumers. In addition to

product promotion and sales, distributor performs some other functions like-

inventory management, warehouse operations, and product transportation as

well as customer support and post-sales service. Without taking the ownership, a

distributor as an organization brokers a product between the producer and the

customer. This kind of distributor performs mainly the functions of product

promotion and sales. As the needs of customers evolve and the range of

available products changes in both of the cases, the distributor as an agent

continually tracks customer needs and matches them with products those are

available.

P a g e | 66
  Retailers preserve the inventory and sell it to the general public in smaller

quantities. This organization also closely monitors and analyzes the preferences

and demands of the customers that it sells to. It advertises to its customers and

often uses some combination of price, product selection, service and

convenience as the primary draw to attract customers for the products it sells.

Discount department stores attract customers using price and wide product

selection.

 Customers or consumers are any organization that purchases and uses a

product. A customer organization may purchase a product in order to incorporate

it into another product that they in turn sell to other customers. Or a customer

may be the final end user of a product who buys the product in order to consume

it.

Responsibility of Supply Chain Manager

 To buy raw material as an input.

 To use raw material in economical way.

 To supply all of the materials to the customers.

P a g e | 67
CURRENT SUPPLY CHAIN STRATEGIES IN NESTLE

The organization has remarkable production facilities in the country and they

have also enjoyed the healthy market share for last few decades. One of the reasons of

the success of the organization is their vendor management and the intelligent

distribution system.

The market is mostly dependent upon the distribution network and same has

been managed by the organization in recent years by having excellent relationship with

their channel members and logistics. Their distribution network makes sure that every

product is distributed in the required areas at the required time and the demand and

supply does not have any gap. Their distribution setup is synced with their production

system therefore they do not have to manage the inventory of the product for the longer

period of time. This strategy has saved the organization on financial side moreover they

have been able to provide the product to the market at demand.

The second side of their supply chain management is their vendor management,

they have applied the just in time management concept in their raw material

procurement and vendors are very well synced with the procurement and procurement

is synced with the production and other support departments. This just in time

management has also saved the organization the inventory management cost of the

raw material and they are able to maintain a very low level of the inventory. Their

vendors are also required to make sure that their raw material reaches to the

organization on time.

P a g e | 68
CHAPTER XIV

SCHEDULING

Better planning and scheduling decisions are one of the keys to operational

excellence. Nestle Scheduling System is a multi-level finite capacity scheduling system

which optimizes sequencing, production line allocations, and MRP calculations, and

which is transparent to the average production planner - making it easily to understand

and interact with the system. This enables Nestle to perform continuous rapid

rescheduling, including crew reassignment in the event of last minute changes in

demand and production problems. The net result for Nestle is improved operational

excellence.

Nestle Scheduling System ensures complete optimization and synchronization of

production in a dynamic, multi-criteria, multi-resource environment. Optimized

schedules are created in support of criteria chosen by the user to support any variety of

complex scheduling strategies. Its real-time simulations enable schedulers to quickly

evaluate performance to stated objectives, ensuring the most advantageous balancing

of materials, plant productivity, and customer service.

P a g e | 69
NESTLÉ SCHEDULING SYSTEM

 Used to prioritise and schedule production across manufacturing processes,

machine capacity and labors resources.

 Automates clerical tasks and enables timely and consistent production scheduling.

 Enables forecasting and planning of manufacturing resource requirements and

capacity utilization. This is to conserve resources, boost productivity and minimize

production costs.

 Enables planning and tracking of manufacturing orders across multiple areas of

processing.

 Priorities for production scheduling are assigned for each processing area on each

shift. This is to boost customer service.

 Enables different areas of the enterprise to centralize production scheduling

information. Information can then be shared across the enterprise and with

customers and suppliers.

P a g e | 70
CHAPTER XVII

PROJECT MANAGEMENT

Project Management is the application of knowledge, skills, tools and

techniques to a broad range of activities in order to meet the requirements of the

particular project. A project is a temporary endeavor undertaken to achieve a particular

aim. Project management knowledge and practices are best described in terms of their

component processes. These processes can be placed into five phases: Initiating,

Planning, Executing, Controlling and Closing. – And nine Knowledge Areas that are:

P a g e | 71
FIVE BASIC PHASES OF PROJECT MANAGEMENT

1. Project conception and initiation

An idea for a project will be carefully examined to determine whether or not it benefits

the organization. During this phase, a decision making team will identify if the project

can realistically be completed.

2. Project definition and planning

A project plan, project charter and/or project scope may be put in writing, outlining the

work to be performed. During this phase, a team should prioritize the project, calculate a

budget and schedule, and determine what resources are needed.

3. Project launch or execution

Resources' tasks are distributed and teams are informed of responsibilities. This is a

good time to bring up important project related information.

4. Project performance and control

Project managers will compare project status and progress to the actual plan, as

resources perform the scheduled work. During this phase, project managers may need

to adjust schedules or do what is necessary to keep the project on track.

P a g e | 72
5. Project close

After project tasks are completed and the client has approved the outcome, an

evaluation is necessary to highlight project success and/or learn from project history.

Projects and project management processes vary from industry to industry; however,

these are more traditional elements of a project. The overarching goal is typically to

offer a product, change a process or to solve a problem in order to benefit the

organization.

P a g e | 73
CHAPTER XVIII

MANAGEMENT OF WAITING LINES

The waiting line is a list of customers who remains waiting for getting certain

goods or services from service center. Understanding waiting lines or queues and

learning how to manage them is one of the most important areas in operation

management. In organizations there are examples of processes which generates

waiting lines or queues. Such waiting lines occur because the current services facility is

insufficient to provide service at that instance.

The goal of queuing is essentially to minimize total costs. There are two basic

categories of cost in a queuing situation:

 Cost of customer waiting for service

The cost of customer waiting include the Salaries paid to employees while they

wait for services (machines waiting for tools, the driver of truck waiting to unload);

any loss of business due to customer refusing to wait and possibly going elsewhere

in future and the cost of space for waiting (fuel consumed by planes waiting to land).

 Cost of service capacity.

The cost of service capacity includes, the no of checkouts at a supermarkets, the

no of repair people to handle equipment to breakdowns etc can be defined as the

costs of maintaining the ability to produce service.

P a g e | 74
WAITING-LINE PSYCHOLOGY

 Unexplained waits seem longer than explained waits.

 Preprocesses waits seem longer than in-processed waits.

 Anxiety producing waits seem longer.

 Unoccupied waits seem longer.

 The more valuable the product or service, the more willing the customer to wait.

NESTLE ATTEMPTS TO OVERHAUL RETAIL SECTOR

Research from Nestlé International Travel Retail (NITR) found that the average

shopper spends between 90 seconds and two minutes queuing in line. The research is

part of NITR's Perfect Store Initiative, which aims to address issues of penetration and

conversion in the retail market. The company found 15 percent of shoppers don't notice

the confectionary category in-store, while just 17 percent of the retail shoppers make a

candy purchase. Better engagement and interaction with the customer can double the

conversion figures in this area. NITR, working with a major global retailer, recently

tested a new layout system by changing the range, signage and displays while altering

prices to the retailer's typical profile. As a result, shopper interaction, conversion, and

overall confectionary sales increased, and the average transaction value doubled during

the test period.

P a g e | 75
Problem

Nestle Ice Cream Department is a highly sophisticated part of the Nestle

Corporation which is known for their specialization on the aspects that regards with the

process involved from procurement of their raw materials, production, and distribution.

Although the company performs well, there are still some instances that equates to

negative outputs.

One of such situation is that of their Downtime interval and Change-Over.

Downtime pertains to the sanitary maintenance while Change-Over refers to the

switching of workers due to the assigned working shift.

The problem arises when the Downtime Interval is not executed accordingly to

the standard time allotted. Increase in the time span of the Sanitary Maintenance is a

result of the following circumstances such as; the dumping of the Ice Cream mix is not

properly done. Because of the improper transferring of the Ice cream mix, the residue of

that particular batch is not blended well. The mix should be dumped in the center part of

the ageing tank.

How can Nestle Ice Cream production management reduce their Downtime

Interval so that changeover may not be affected the production time?

P a g e | 76
SWOT ANALYSIS

Strengths

 Have a very long history over 140 years

 Operated factories in 77 countries in all six continents, a truly global company

 Considered the innovation leader in the global food and nutrition sector with 3500

scientists in company R&D network

 Offering thousands of local products, research and development capabilities.

 Have a very strong workforce.

Weaknesses

 Less consumer research in few areas.

 Increasing instances of product recalls hampering brand equity

 Entering into markets that are already mature and can give a tough competition to

new entrants.

Opportunities

 Well-known company and strong brand name

 Health based on products are becoming more popular in the world, including United

States

 Ranked first in nearly all the product segments in which it operated (market leader)

 High credibility

P a g e | 77
  Potential to expand to smaller towns

 Improving trends

 Industry leadership

 Increase the partnership

 Product diversity and offerings

Threats

 Some markets they are entering are already mature

 Global competitors

 Increasing prices of raw materials

 Highly competitive market, multinational companies are very organized and

financially strong

 Highly competitive market

 Strong rival like Selecta

 Threat of substitute products

 Bargaining power of buyers

P a g e | 78