MBA252 Value Chain Management and Analysis Summer 2008

A Reaction Paper Supply Chain Management at Nestle’ Conrado M. Diaz Jr.

Submitted by: Anthony Raymond S. Ochoa

Submitted to: Prof. Avelino Belleza Ph.D.


(2) Distribution Resource management. Importantly. (7) Master Data Unit. as head of the supply chain management (SCM) division of Nestle’. Planning and strategy was the focus of 2005. These are the (1) Demand and Supply planning. Nestles’ is no different from any leading FMCG company that aims to improve the efficiency of its Supply Chain and further increase the company’s margins. 2 . this includes product positioning and stock availability on the retail level.”1 The SCM plans strategically target the linkages between procurement of raw materials. conversion. Vallender mentioned 7 units of his SCM division that will spear head his operations. providers. and customers. Making this extensive flow work is the challenge for Robert Vallender since February 2005. Diaz Jr. Diaz Jr. He pointed out the concern that supply chain extends to the retail operations level. 2 Page D-2 Supply Chain Management at Nestle’ from by Conrado M. The company continues to maintain more than 700 SKUs (Stock Keeping Units) in which every single SKU runs through its own supply chain process or works in combination with other SKU’s supply chain processes. (3) Transport Unit.2 The Nestle’ SCM plan is to condense 39 warehouses to 4 major warehouses. outbound logistics and Sales and marketing operations until it reaches the customer. The Global Council of Supply Chain Management Professionals had a very direct and precise definition that basically depicts a very ideal and efficient relationship with the Internal and External customers. the SCM plans are now 1 SCM meaning given by Global Council on Supply Chain Management Professionals from the article page D1 ‘ Supply Chain Management at Nestle’’ by Conrado M.Summary In the business of FMCG (Fast Moving Consumer Goods) there is a need to innovate systems to tailor to the changing economic times. Presently. Vallender’s concerns are concentrated in improving the retail sector by basically aligning their operations in conjunction with the value chain system of Nestle’. supply chain management integrates supply and demand management within and across companies. and all logistics management activities. The attention to detail is essential. which can be suppliers. This is a major planning undertaking for outbound logistics activity. improving production efficiency. it also includes coordination and collaboration with channel partners. In essence. To completely assimilate all activities of supply and demand management states and idea of involving “encompasses the planning and management of all activities involved in sourcing and procurement. (6) Finance Unit. (4) Customer Service unit. (5) Inter-market customer service.

I believe that an addendum should be added regarding Nestles’ SWOT plans to undertake on 3 Page D-2 Robert Vallender statement . The initiative to raise the bar on quality service was very much emphasized in Vallender’s direction of making sure that SCM goes beyond the delivery of goods to the retail outlet. As asserted on the last statement of Vallender that clearly states “We intend to turn the assets of the company over as many times per year as possible.gearing to develop the transport and customer service system links that are believed to improve cash flow and perk up the working capital according to Vallender. basically narrated specific SCM plans of Vallender being the new SCM manager for Nestle’. Diaz Jr. The author gave reference to the focus of Supply Chain as a very intricate network of links of activities from farm to panty and a products journey into the supermarket shelves. SCM extends up to proper product positioning on the supermarket shelf. we improve on our bottom line. It was mentioned that Vallender and his team have been focused on Planning and Strategy for 2005. The author describes Vallender’s next steps in implementation of his new SCM plans. Critique Conrado M. 3 . However. Diaz Jr. Given the responsibility to align and improve the SCM for Nestle’ is a very analytical and tedious process.”3 Diaz has given due respect to Robert Vallender’s allencompassing international experience in supply chain management. This is indeed a process that should be well designed to fit the growing FMCG market. The author was able to give focus on the capabilities of Vallender. considering that more than 700 products are being produced and marketed by the company. the goal was mainly to improve Nestlé’s Supply chain Management. In closing Vallender aims to utilized the resources of the company and role them over yearly to increase its margins.Supply Chain Management at Nestle’ by Conrado M. In the way. An overview of the developmental plans and strategic changes Vallender aiming to achieve in terms of outbound logistics. Having stated that the author gives much concern for the SCM to affirm his visions for his division. Giving the manager the freedom to capitalize on his tactical SCM plans. The author gave a brief insight into the vast logistics required for the operations. The article ends with an open ended foresight of expected operational changes in Nestles’ Supply chain management.

in the store but not in the correct location’6 Having mentioned the statistical data Robert Vallender gave his own analysis regarding the out of stock issue that reiterates the absence or lack of attention to retail merchandising details. Stock outs cost about $7 to $12 billion of sales in the US supermarkets alone4. profitable. And detail includes correct product positioning and effective merchandising planograms. Diaz Jr.. ‘8. page D-2 Supply Chain Management at Nestle’ by Conrado M. Unilever Food Philippines and the like. Diaz Jr. Paragraph 2. especially issues of stock outs and product positioning. in fact. Diaz Jr. 5 6 7 8 4 . Diaz stated in the article that. Diaz Jr. productive. it is not surprising that the sales opportunities lost are of this magnitude.from the lowly sari-sari store to the multinationals need to adapt to become more efficient.. page D-2 Supply Chain Management at Nestle’ by Conrado M. ‘it was estimated that 33 percent of out-of-stock items are. Paragraph 5. Vallender stated that ‘.in fact the product is available in the back store or is placed on the wrong shelf’. Vallender understands this issue and goes on stating that “ SCM is evolution that businesses. As mentioned in the article. page D-2 Supply Chain Management at Nestle’ by Conrado M. page D-2 Supply Chain Management at Nestle’ by Conrado M. Paragraph 4. Paragraph 3. page D-2 Supply Chain Management at Nestle’ by Conrado M.competition activities that would show how Nestles’ matches with other FMCG companies such as Universal Robina. Considering the enormous number of retailers and customers in the US compared to the Philippines.”8 The author wants the readers to understand that was is happening in other well developed countries such as the United States of America are the same issues happening in the competitive Philippine retail market only of a 4 Paragraph 2.7 The author gave comparisons to the US market to give stress the point that benchmarking with the US retail market will give the readers a comparative picture of the effects of stock outs in the industry.2 percent of the items being asked for by the customers on a typical afternoon are out of stock and this number is nearly doubled for items that are advertised. Retailers in the Philippines have always looked for better and innovative ways to address the issues of retail.’5 The Retail is about Detail. Meaning Stock outs on the supermarket shelf have a cost factor that affects the sales of supermarkets in the US markets. Diaz Jr. and hence. In the article.

His experience was very much reflected in his statements and especially with the last statement regarding the bottom line. On the other hand. the worth of the losses of $7 to $12 billion to stock outs are not at all surprising considering the scale of the industry in the US. I admire the dedication of Robert Vallender and his objectives of raising the bar on SCM at Nestle’. Supply chain management is still a relatively new concept here in the local market as stated in the article but US companies have been cultivating their operations to innovate change in the primary activities of the value chain process. Reaction I like the article because I relates well with my experience in the retail industry. The theme regarding stock outs concludes with Vallender’s quote that “Every link in this value chain is critical to the whole process. The increase in Margins of a Nestle’ in the future would be best gauge of the effectiveness of his SCM system. SCM managers and retailers in general to read. Diaz also wanted to highlight Vallender’s talents and international experience on Supply chain management. providing the linkage toward improving the way a company finds the raw components it needs to make a product or service and deliver it to customers. Here in the Philippines I believe supply chain management is not at yet established as a separate division in all companies but similar operational frameworks are products of systems management. page D-2 Supply Chain Management at Nestle’ by Conrado M. I am more surprise on the glitches that still prevail in the US retail industry when it comes to the attention to detail in retail especially in stock outs and product positioning issues. Paragraph 6 page D-2 Supply Chain Management at Nestle’ by Conrado M. Although. Systems are created to monitor the flow of the business and thus monitoring the effect on the margins.less degree considering that the process and factors involved within the supply chain is very much similar.”10 Diaz underscored Vallender’s dedicated beliefs on solid SCM foundations that he has set off to accomplish. Diaz Jr. 10 5 . This in 9 Paragraph 5. I was very much impressed on his plans to reduce 39 warehouses to only 4.”9 Diaz further continues to emphasize Vallender’s professional viewpoint on SCM. Diaz Jr. He states that “SCM deals with a combination of art and science. This is a good article for all retail managers. I liked the article because of the pertinent data that was stated regarding Stock out effects on the sales in the US market.

I feel that Vallender’s team has also calculated the effects of reducing warehouses. They may not have mentioned that their aim is also to maximize the manpower involved in operations. The data presented by the author regarding the US supermarket Sales losses just because of stock outs. They may want to have a smaller but effect team to handle the primary activities of the Value chain. To examine this in detail. The innovation in Supply Chain management removes much burden for managers to resort to trial and error systems of management. A very good example that is related to the article is issue of Stock outs shelves and proper product positioning on the supermarket. There are mixes of behaviors in the way people buy and usually there is hesitation in the asking questions on the location of certain items. Although. I do foresee human resource issues in the changes.itself will change the bottom line considering the cost of maintenance and operations of maintaining 39 warehouses compared to 4. Primary activities of the value chain starting form inbound logistics to after sales services should be well calculated and have creativity built into the process. Monitoring the links of the value chain can be very tedious endeavor. A supermarket or any retail outlet (mini markets or groceries and sari-sari stores included) that categorizes products incorrectly and changes product positions every 2 or 3 months in my opinion also create confusion for the customer. Personally. a regular customer that is used to buy a certain brand of item is basically inclined habitually to identify the location of the item in the same store that he/she is conveniently located. As a retail manager I know this 6 . The challenge in supply chain management is to combine art and science as stated by Robert Vallender in the article. Some customers that I have met usually tell me that they get use to the location of a fast moving item such as coffee or sugar and they usually do not understand the prerogatives of the retail outlet when they implement a new merchandising planogram or improved cross merchandising structures. Manufacturing. Being in the operations in numerous retail stores in the Philippines and abroad I can attest to the collective behavior of customers in the retail industry. Application I am a retail manager by profession. having had more than 15 years of experience in the industry. This is commonly related to the use of effective merchandising planograms in supermarkets and category analysis of SKUs (Stock Keeping Units) in every department. I correlate with the material and with the sentiments of Robert Vallender. Sales and Retail are very dynamic and challenging industries.

Saudi Arabia and Papua New Guinea. when it fact the product is available in the store or is placed on the wrong shelf. Value for the hard work that the manufacturer produces. the responsibility of monitoring availability are handed down to the category managers and supervisors. 7 . Value for the retailers operations and Value for the customer’s money. The margins that the retailer losses because of improper implementation of merchandising plans and stock monitoring systems that are directly apart of the supply chain link in services. sometime this is not even enough because I myself in my own capacity as a retail manager still do spot checks or system checks on my department managers and supervisors and I always find glitches in details in availability on the shelves. I agree with Vallender’s statement that ‘the store may be out of stock of a product. The key word in Supply Value Chain management is Value. retailer and the customer. in the supermarkets that I have been associated with there were no quantitative data done regarding the effects of stock outs and wrong product positioning. I believe that an effective and efficient SCM is a correlation between the manufacturer. However. A good supply chain is a system that integrates Value to the chain. effects the manufacturers profits as well.happens in supermarkets in the Philippines. When an item is easy to locate. page D-2 Supply chain management at Nestle’ by Conrado M. There is also smooth flow in the cash flow of the retailer and the manufacturer.’11 Incredible revelation but a very common in retail outlets in the Philippines and in the other countries. identify and available there is a smooth flow to the satisfaction of the customer. 11 Paragraph 4. As a retail manager. Although. Diaz Jr.