Strategic Business Value/Supply Chain Analysis:
Table of Contents
Section 1 – Executive Summary
Section 2 – Introduction
Section 3 – Nestle Background
3.1 Brief History
Section 4 – Literature Review – The Value Chain
4.1 The Value Chain
4.2 Nestle and Porter’s Value Chain
Section 5 – Nestle Strategies
5.1 Creating Shared Value
5.3 International Competitive Advantage
Section 6 – Nestle Collaborations
6.1 Buy/Sell Agreements
6.1.1 Coco Plan Collaboration
Section 7 – Nestle Value Chain
7.1 Nestle as an Enterprise
7.1.2 Resource and Corporate Stakeholders
7.1.3 Relationships with Customer, Suppliers and Other Stakeholders
7.1.4 Networks, Interconnections and Subsystems
7.2 Dynamic Capability Building
7 2.1 Means of Innovation and Productivity
7.2.2 Competitive Advantage in a Global Context
7.3 Global Business Operations – Lifecycle Framework
7.3.1 Inter-organisations Across Supply Chain and Value Networks
7.3.2 Intra-organisations Across Supply Chain and Value Networks
7.4 Identified Problems for Nestle
7.4.1 Overall Recommendations
Section 8 – Conclusion
Section 9 – Appendices
Section 10 – Reference List
Section 1 – Executive Summary Nestle, a Swiss based company, operates on an international scale, providing primarily food and beverage products to consumers across the globe. This report outlines a background and brief history of Nestle as a global organisation, Nestle’s key strategies and collaborations upheld over decades, Nestle’s value chain at an organisational level, providing reference to a model developed by Michael Porter, and an analysis of Nestle as an enterprise.
In the first section of this report, a background of Nestle is provided and a brief history outlined. In the next section of this report, the concept of ‘value chain’ is defined. Porter’s value chain model analysis is briefly analysed as an accommodating depiction of Nestle’s organisational source of competitive advantage. Further, Nestle’s strategies are discussed in relation to creating shared value through competitive advantage, maintaining a sustainable work environment through core operational pillars and Nestle’s international competitive strategy based on growth drivers.
This is followed by a concise overview of Nestle’s global collaborations, specifically ‘The Coco Plan’. A further analysis is provided which examines Nestle’s value chain, highlighting the enterprise value of Nestle, dynamic capability building and global business operations including the lifecycle framework. This aids Nestle to better understand the enterprise on a national and global level, the corporate stakeholders with a vested interest in the firm, the company’s relationships with external bodies and the networks developed to sustain a strong competitive advantage.
Further discussion considers Nestle’s means of innovation and productivity to reinforce the company’s competitive advantage. Throughout this report, the reoccurring themes of sustainability, competitive advantage and global systems are conversed. This allows proposal for overall recommendation for changes to be suggested to reinforce Nestle’s core values and culture, through acknowledging visible and less visible problems Nestle has experienced. Section 2 – Introduction
Many theories and ideas have been communicated by recognisable academics in relation to the value chain. These theories demonstrate ways in which businesses operate on a domestic and an international scale, with differing perspectives for simplistic and complicated value chain management. Nestle, an internationally recognised multi-national corporation (MNCs), was founded in 1866 by Henri Nestle in Vevey, Switzerland. Nestle’s headquarters are still located today. Today, Nestle is the world’s leading Nutrition, Health and Wellness Company.
The company’s mission of “Good Food, Good Life” aims to provide consumers with the finest tasting, most nutritious choices of products in an extensive range of food and beverage classifications and eating occasions, from sunrise to sunset. International competition around the world has now looked to Nestle as a principal threat, counteracting new means of innovation and productivity established and utilised by Nestle. This report will discuss Nestle’s global background as a leading brand in the food and beverage industry.
The company’s vision of an effective and efficient value chain will be analysed and discuss, parallel with the strategies implemented to sustain global competitive advantage, Nestle’s enterprise value and recommendations for change to reinforce Nestle’s core values and business cultures.
Section 3 – Nestle Background
3.1 Brief History
Nestle, an international corporation, is the world’s leading Nutrition, Health and Wellness Company. The 1905 merger, termed the Nestle and Anglo-Swiss Milk Company, marked the beginning of the global company Nestle’s stance.
Today, Nestle is one of the world’s largest suppliers of food and nutrition products, operating in 86 countries with factories in nearly every country worldwide, and employing approximately 280,000 people. Originally focusing on condensed milk and infant formula as an economical, healthy alternative to breastfeeding, the company has extended its product offerings to include 6000 brands of varying products from coffee to health care nutrition and pet food. Figure 1 History of Nestle Section 4 – Literature Review – The Value Chain
4.1 Value Chain
The value chain analysis defines the value-adding activities an organisation performs and the relationship to the organisations competitive position and strength (Recklies, D. 2001, p.1).
Each activity is arranged into systems and evaluated in terms of contribution to the organisations products or service. Nestle’s value chain is based on value proposition, creating shared value and the supply chain, which create enterprise value for the organisation (figure 2). Nestle attributes its value creation to self-assessment, measuring and monitoring all aspects that optimise and enhance the value delivered the final consumer (appendix 1).
The company evaluates these activities that add ‘value’, eliminating other less beneficial activities and thereby allowing resources to be utilised and optimised for other value-adding activities. Figure 2 Nestle’s Value Chain Management
4.2 Nestle and Porters Value Chain Analysis An analysis of Porters value chain can be adapted to Nestle as a business. This allows the support and primary activities to be identified that create value for the company (refer to appendix 2). Figure 3 Porter’s Value Chain Analysis Model Source: Dagmar Recklies, The Value Chain 2001
Section 5 – Strategies at Nestle
Nestle’s basis for strategy reflects the company’s competitive advantage in creating shared value, operational pillars in maintaining a sustainable business and growth drivers through implementing an international competitive strategy (figure 4 and refer to appendix 3). Figure 4 Nestle Strategies Source: Nestle 2011, Strategy – Nestle Roadmap to Good Food, Good Life
Creating Shared Value Creating Shared Value is a fundamental part of Nestle’s success as a corporation. A focus is placed on the core business activities – namely water, nutrition, and rural development – where value can be optimised for both society and shareholders.
To ensure long-term value for shareholders, Nestle seeks to create value for society as well as for the company (figure 5). To successfully achieve this strategy, compliance with national laws, relevant conventions and internal business regulations are necessary procedures.
Figure 5 A Framework for Creating Shared Value Source: The Nestle concept of creating shared value 2006, p. 6
For example, Nestle supports the Universal Declaration for Human Rights (UDHR), which stands at the basis of the UN Global Compact’s Human Rights Principles (Nestle 2011).
Compliance with the Universal Declaration of Human Rights is illustrated through internal regulations against child labour outlined in the Nestle Corporate Business Principles and related policy documents. Nestle also creates shared value through emphasising a link between nutrition and rural development (Susan Steinhagen, 2011). Nestle provides nutritious food that contributes to rural development through the 4860 locally adapted products provided at affordable prices. This approach improves nutrition for consumers and further creates value for other stakeholders by providing local employment opportunities.
Through creating shared value Nestle is able to establish a competitive advantage through unmatched product and brand portfolio, unmatched R capability, unmatched geographic presence and the global culture present in the Nestle workplace. Each of these attributes each ensures shareholders favour Nestle products to other leading competitors.
Nestle aims to ensure the company’s “actions today do not compromise the needs of tomorrow” (Nestle Management Report 2008, p. 14). This is achieved by operating parallel to the goals of sustainable development.
Furthermore, this simultaneously generates value for society whilst creating value for Nestle’s shareholders. Sustainability has become a key business strategy at Nestle, focusing on preserving the environment for future generations. Sustainable development to Nestle emphasises the “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland Commission). By striving to continuously improve operation efficiency and environmental performance, Nestle is able to assess the impacts of operations along the value chain from the base up.
In the year 2010, Nestle invested CHF 175 million in environmental sustainability programs. This aided Nestle to identify and reduce water usage, non-renewable energy and natural resources such as emissions of greenhouse gases. This resulted in an overall elimination of waste, improving the global corporations environmental performance. Through acting in a sustainable manner, Nestle is able to excel at each of the four inter-related core competencies – innovation and renovation, ‘whenever, wherever, however’, consumer communication and operational efficiency.
Each of these competencies, key to Nestle’s operational strategy, contributes to improving sustainability whilst encouraging employees to work towards a more sustainable global business environment.
5.3 International Competitive
Advantage Nestle ensures international expansionary strategies are adopted within the company as a key driver for industry growth. These growth drivers include ‘nutrition, health and wellness’, emerging markets and PPP, out-of-home leadership and premiumisation. Nestle has approached the international market through foreign direct investment (FDI), particularly within the dairy industry.
Through FDI, Nestle has been able to expand operations to less developed economies, and thus utilise the advancing technologies to control manufacturing to harmonise with local conditions (Castelarhost, 2005). Through exploiting cheaper labour in these less developed economies, Nestle achieves economies of scale, reducing overall costs and thus gaining a competitive advantage. Another successful strategy utilised by Nestle has been its ability to take complete advantage of strategic partnerships with other large corporations.
For example, in 1990 Nestle entered into a strategic alliance with Coca-Cola, gaining advantage of Coco-Cola’s dominance in the beverage and effectively contributing to Nestle’s growth on a global scale.
Section 6 – Nestle Collaborations
6.1 Buy/Sell Agreements
As the world’s leading nutrition, health and wellness firm, Nestle collaborates with countless companies in different industries. This enables the company to build a global supply chain, as well as generate buy and sell agreements through collaborations with the local communities in the countries where the company operates. .
1. 1 Coco Plan Collaboration Nestle’s Cocoa production has grown to become one of the most significant production lines the company has established. Cocoa is used in many of the products produced by Nestle and has thus become a key focus for the company. Last year Nestle purchased 380 000 tonnes of cocoa – 10% of the worlds supply, of which 70% has come from West Africa (figure 6). Figure 6 World Production of Cocoa at Nestle Source: Nestle 2011 Nestle, a major buyer of cocoa, contributes significantly to the future of cocoa supply.
In 2009 The Cocoa Plan was developed to provide long-term focus to secure, supply and build farm productivity. The Plan involves incentives to encourage cocoa farmers, their family and communities to build a better future measured by increasing profitability and accordingly improving their quality of life (The Cocoa Plan, 2011). To implement this plan, Nestle has invested CHF 60 million to improve the organisations sustainability, particularly cocoa farming in COte d’lvoire, West Africa (figure 6).
Furthermore, an additional investment of CHF 110 million is forecasted to be injected into the cocoa farming industry within the next ten years to further implement and improve Nestle’s strategy (The Cocoa Plan, 2011). Several non-government organisations, government organisations and private companies, such as World Cocoa Foundation (WCF) and Sustainable Tree Crops Programme (STCP), participated in this plan to build a better future for the cocoa farming industry. Nestle has implemented its own strategy to achieve the company’s vision to aid cocoa farmers to manage profitable farms, respect the environment and improve education systems.
Nestle has focused on a key area of farmer training. This aims to encourage adoption of better farming practices, investing in plant research by buying from cooperatives and creating better social conditions by combating child labour and improving education opportunities. Through applying this strategy, Nestle are able to sustain a more intimate relationship with farmers and reduce the complexity of the supply chain by eliminating unnecessary intermediaries (table 7 overleaf). Table 7 Cocoa Plan impacts – Cote d’Ivoire and Ecuador
Source: Nestle, 2011 6. 1. 2 Sub-Collaborations Over the last decade, Nestle s global supply chain has undergone major changes, such as the move towards outsourcing of production and entering into collaborations. Nestle has since been able to direct management focus towards marketing the product to the end consumer. Nestle has participated in countless collaborations, between the top companies in other fields, to enable improvement of the company’s production line and subsequently the overall product delivered to the final consumer.
In May 2003, Nestle Mexico signed an agreement with Petra Foods Limited in which Nestle decided to sell its factory and equipment used for production of cocoa butter, liquor and powder. Additionally, in May 2008, Nestle and General Electric Company announced collaboration in body composition, metabolic status and life styles. This presented Nestle with the opportunity to use “cutting-edge diagnostic tools to increase our understanding of how nutrition and lifestyle choices impact body composition and metabolic health” (Professor Peter Van Bladeren 2008).
Section 7 – Nestle Value Chain
7.1 Nestle as an Enterprise
7.1.1 Enterprise Value
Nestle is a global leader in the food and beverage industry, offering over 6000 brands. When considering the concept of value creation, Nestle aims to present a broader context by looking beyond maximising growth and profits. The firm understands the importance of sustainable business practices, continuous operational improvements and ensuring long-term success that can be observed through recognising such considerations.
The firm has implemented ten global business principles, taking into account local religious, cultural and legal concerns. The Nestle Corporate Business Principals are as follows:
1. Nutrition, Health and Wellness
2. Quality Assurance and product safety
3. Consumer Communication
4. Human rights in our business activities
5. Leadership and personal responsibility
6. Safety and health at work
7. Supplier and customer relations
8. Agriculture and rural development
9. Environmental sustainability
10. Sustainable use of water
Nestle proposes that these principles will lead to “Creating Shared Value”. Overtime the principles will continue to evolve and adapt to a changing world, reflecting the basic ideas of fairness, honesty, and a general concern for society (Nestle Corporate Business Principles 2010).
7.1.2 Resource and Corporate Stakeholders Nestle as a global company has a vast range of corporate stakeholders (figure 8). Figure 8 Nestle’s Corporate Stakeholders Each of these stakeholders have varying interests in Nestle and subsequently are affected by the actions and plans in which the firm undertakes.
Nestle’s stakeholders are interconnected, even though interests can, and do vary from country to country. This is a key reason why the company invests in the notion of “Creating Shared Value.
7.1.3 Relationships with Customers, Suppliers and Other Stakeholders Nestle’s belief in “Creating Shared Value” is prevalent throughout the firm’s culture. According to Nestle’s Chairman and CEO, Peter Brabeck-Letmathe, “it is our firm belief that, for a company to be successful over time and create value for its shareholders, it must also create value for society”.
The main concepts and levels of value integration are integral to Nestle’s creation of shared value (figure 9). Figure 9 Creating Shared Value for Nestle Source: Creating Shared Value for Nestle, 2011 Compliance, at the base of the pyramid, encompasses taking into account relevant local laws, conventions and regulations. Exceeding compliance is sustainability, which demonstrates Nestle’s adoption and maintenance of business processes that are environmentally responsible, allowing for development that does not negatively impact on future generations.
At the apex of the pyramid is the notion of “Creating Shared Value”. This consists of three main elements – nutrition, water and rural development. Nestle believes that a company should identify areas of focus where shareholders’ and society’s interests conflict, and where value creation is optimised for both stakeholders (Brabeck-Letmathe 2011). Each of these areas determines the greatest potential for joint value optimisation. In addition to this, Nestle realises that the business world is dynamic and continues to invest in research and development.
This allows the company to continually update their operations and processes offering the finest results for stakeholders.
7.1.4 Networks, Interconnections and Subsystems In order for Nestle to achieve their goals with respect to “Creating Shared Value”, many linkages and systems have been developed and implemented. This can be demonstrated with respect to the three main areas previously identified (table 10). Table 10 Networks for Nutrition, Water and Rural Development In order to make sure the firm is synchronised with current trends and global variances, Nestle remains open to new ideas from outside stakeholders.
The Nestle Creating Shared Value Advisory Board, comprised of global experts in nutrition, water and rural development, has provided Nestle invaluable outside perspectives and challenged the company to do better where possible (Brabeck-Letmathe 2011).
7.2 Dynamic Capability Building
7.2.1 Means of Innovation and Productivity Nestle currently utilises a combination of SAP and Powersim to create a simulation of operations to assist managers and staff in learning how to organise and improve on supply chain management. In 2005 Nestle moved towards a unified system based on MySAP. om, making Nestle the first company to utilise a shared business system in the over a hundred countries it operates in (Steinert-Threlkeld, 2006). Nestle, are also focused on innovative research in areas such as Nutrition, Water and Rural Development. These activities not only improve the efficiency of Nestle’s manufacturing processes, they also help support the suppliers on whom Nestle relies for raw materials and produce.
7.2.2 Competitive Advantage in a Global Context Nestle currently achieves a global competitive advantage through a combination of core competencies and cost leadership in a diversified market.
Market share is expanded through product differentiation and by tailoring products to the differing tastes and cultural expectations of each region. This not only regards packaging and advertising, but also the taste and composition of food items. Despite having slight variations in product offerings between regions, Nestle has made attempts to offer a standardised product worldwide as a result of improved communication between Nestle’s separate regional offices. This has been permissible because of the global MySAP. com system. Research and development (R) is another key competitive advantage for Nestle.
R has enabled Nestle to become the food industry leader in nutrition, health and wellness through the organisation’s capability to form Innovation Partnerships at each stage of the product development process. Nestle s ability to bring together all of its global R resources enables the organisation to provide high quality, efficient innovative products whilst ensuring complete regulatory compliance. Nestle’s driving efficiencies include cost and productivity, safety, the environment and the supply chain (figure 11). Each of these core factors enables Nestle to develop and transcend a more effective value chain.
Figure 11 Driving Efficiencies and Effectiveness Source: Nestle 2010, Full Year Results European Roadshow, p. 63
7.3 Global Business Operations – Lifecycle Framework
7.3.1 Inter-organisations Across Supply Chain and Value Networks Nestle outsources to numerous organisations as part of its global supply chain and value network to achieve lower costs. Each step in the supply chain creates value for Nestle’s stakeholders through outsourcing specialised tasks. Nestle choice to source produce local to the area in which they operate processing plant and factories.
This results in lowered transportation costs, essentially leading to carried-on lower prices and larger profit margins, thus increasing value for consumers and shareholders. Through employing a company that specialises in shipping, Nestle is able to leverage a specialised company’s core competencies to reduce stock transfer times, improve the reliability of deliveries and further lower costs. Supermarkets are used as a front-end to meet consumer demand, as they reduce the necessary overheads Nestle would face if they opened their own retail utlets, such as store rental, hiring and training additional staff and advertising the stores. This reduces the cost of products to end consumers, thus providing greater value and increased demand, resulting in positive increases in value for stakeholders.
7.3.2 Intra-organisations Across Supply Chain and Value Networks Nestle performs a wide variety of its own business functions in order to create value within the global supply chain. Nestle achieves this by retaining many of their own factories in each of the regions they supply to, resulting in cheaper, fresher produce due to the removal of shipping constraints.
This also allows Nestle to create additional value during the manufacturing process through including charts on product packaging to convey nutritional information to the consumer. As Nestle manages many of its own factories, flexibility in the creation of product offerings can create region-specific offerings, able to quickly adapt to health and nutrition legislation in any region they operate.
7.4 Identified Problems for Nestle Throughout our research, we are able to highlight problem areas affecting Nestle’s organisation, value chain and networks (table 12). .
Table 12 Problems, Strategic Implications and Recommendations For Nestle .
4.1 Overall Recommendations It is inevitable that Nestle will continue to confront problems in the future as the company is extensive and the business world is dynamic. Nestle can help to minimise these problems through effective research and development, monitoring and controlling practices, and reacting quickly and efficiently to respond and adapt to upcoming issues.
Section 8 – Conclusion Nestle, a global company, operates a successful supply chain that utilises its strong competitive advantage of value adding opportunities. As highlighted previously, problems within the value chain can be depicted.
However, a number of minor changes can be applied to further the success of the company. Nestle has employed a number of strategies that all contribute to the value adding process of the firm. Yet, it can be concluded that, at Nestle, the most important strategy is ‘creating shared value. ’ Nestle has implemented a number of techniques ultimately aiming to establish value for stakeholder needs and for society on a global scale. Section 9 – Appendices Appendix 1
Figure 13 Nestle Value Stream Source: Nestle 2010, Full Year Results European Roadshow, p. 61 Appendix 2 Table 14 Porter’s Value Chain Analysis – Nestle
Support Activities| Infrastructure| The organisational structure and control systems of the firm itself. Nestle has adopted a decentralised business structure signifying the distribution of power across districts within the business. This includes the dispersion of power from global headquarters formulating strategic decisions, local management teams determining the day-to-day operations and local governments. This allows Nestle’s subordinates to have a high level of autonomy. | | Human Resource Management | Is primarily concerned with employment, recruitment and training within the firm.
Nestle focuses on a global training system, The International Marketing and Sales Trainee Program. This two-year program aims to prepare motivated graduates to take up leadership positions throughout the company. | | Technology Development | An important element of the value chain, supporting the value creating activities. Nestle has recently implemented a combination of SAP and Powersim to create a simulation of operations. This assists managers and employees to develop learning and organisational strategies, to optimise supply and value chain management.
More recently, Nestle has directed the company’s global business system to become an integrated system based on MySAP. com. | | Procurement | The process of purchasing inputs such as materials, supplies and equipment. Raw materials at Nestle are purchased through trade and directly from farmers where possible; however Nestle does not own any commercial farming activities. An important procurement issue faced by multi-national companies (MNCs), such as Nestle, is the increasing concerns of corporate social responsibility (CSR).
Nestle encourages sustainable agriculture through sourcing its key raw materials, which include milk, coffee and cocoa, from local suppliers and farmers?. It is important to provide guidelines and generate contracts for significant suppliers to achieve greater control and insure sustainable practices. | Primary Activities| Inbound logistics | The warehousing of raw materials and then distribution to manufacturers. Nestle does not have one specific method of distribution of raw materials.
By focusing on adapting a number of methods to suit the local environment Nestle is able to satisfy the interests of the local communities where raw materials are farmed, therefore creating shared value for all necessary stakeholders. | | Operations| The process of transferring the inputs into finished products that can be sold to the consumer. Nestle’s cocoa plan illustrates a specific supply chain from the primary source of cocoa beans to the final delivery to the consumer. This chain creates value not only for the consumer, but also local farmers and society. This is further explained in section five. | Outbound logistics | The process of warehousing and distributing final goods. Nestle, as a global company, owns subsidiaries across the world, allowing imports and exports to be sourced and distributed to the required warehousing destination. From the warehousing of products to the retail outlets, quick and efficient transport methods are utilised, specifically by road. | | Marketing and Sales| Is focused on identifying customer needs and essentially generating better sales. Nestle aims to respond to constantly changing consumer preferences through continually monitoring customer attitudes and requirements.
This is achieved through market research in the form of qualitative and quantitative research. Nestle’s Research and Development Team work with product developers, food scientists and technologists to design products that meet customer needs | | Service | Is provided through supporting customers after the product has been sold to them. As Nestle is concerned with the food and beverage industry, after sale service is not a vast concern due to the absence of support needed once the consumer has consumed the product. | Appendix 3 Figure 15 Nestle Strategies
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