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INTRODUCTION OF SUPPLY CHAIN

The movement of materials as they flow from their source to the end customer. Supply
Chain includes purchasing, manufacturing, warehousing, transportation ,customer
service ,demand planning , supply planning and Supply Chain management. It is made
up of the people, activities, information and resources involved in moving a product from
its supplier to customer. Although this Supply Chain definition sounds very simple,
effective management of a Supply Chain can be a real challenge.

EXAMPLE OF A SUPPLY CHAIN:

aw materials
Center

Manufacturer
Customer

R
Distribution

A typical Supply Chain flow of goods is shown above. In some models, the product is
shipped from the Manufacturer to the Distribution Center as soon as it is manufactured.
In other models, such as a Hub & Spoke model, the product is held at the manufacturer
once produced. It is then sent out to the Distribution Center only when it is needed.

OBJECTIVES OF SUPPLY CHAIN MANAGEMENT:


The fundamental objective is to "add value".
That brings us to the example of the fish fingers. During the Supply Chain Management
'98 conference in the United Kingdom this fall, a participant in a supply chain
management seminar said that total time from fishing dock through manufacturing,
distribution, and final sale of frozen fish fingers for his European grocery-products
company was 150 days. Manufacturing took a mere 43 minutes. That suggests an
enormous target for supply chain managers. During all that time, company capital is-almost literally in this case--frozen. What is true for fish fingers is true of most products.
Examine any extended supply chain, and it is likely to be a long one. James Morehouse, a
vice president of consulting firm A.T. Kearney, reports that the total cycle time for corn
flakes, for example, is close to a year and that the cycle times in the pharmaceutical
industry average 465 days. In fact, Morehouse argues that if the supply chain, of what he

calls an "extended enterprise," is encompassing everything from initial supplier to final


customer fulfilment, could be cut to 30 days, that would provide not only more inventory
turns, but fresher product, an ability to customise better, and improved customer
responsiveness. "All that add value," he says. And it provides a clear competitive
advantage.

Supply Chain Management becomes a tool to help accomplish corporate strategic


objectives:
reducing working capital,
taking assets off the balance sheet,
accelerating cash-to-cash cycles,
increasing inventory turns, and so on.

SUPPLY CHAIN BENEFITS:


Experience shows that the benefits of a well designed and implemented Supply Chain
Management strategy is substantial. Successfully implemented projects have provided
benefits such as:

Reduction of Transportation, Warehousing, and Distribution Costs


Lean Processing from Supplier to customers
Reduced Direct and Indirect Labor Costs
Optimized Stock Levels
Increased Material Flow Velocity
Accurate Job Costing and Scheduling
Streamlined Purchasing Control
Increased Decision Making Speed and Responsiveness to Demand Change
Increased Customer Service
Increased Inventory Availability, Customer Order Fill Rates, Accuracies and
services
Reduced Operations Support Costs
Reduced Inventory Carrying Costs
Improved Productivity of Procurement Operations
Improved Quality of Products and Services

INTRODUCTION OF SUPPLY CHAIN OF MILK IN PAKISTAN

Milk is the most perishable and fast moving customer good. The very first and initial
requirement or feed for any human being is milk. Milk is complete diet as it contains
every nutrient except iron. Fortunately Pakistan is the fourth largest producer of
milk in the entire world and its annual production is surprisingly 45 billion
liters which is very high. But unfortunately only 27 billion liter of milk is available for
human consumption. Therefore most of the milk is lost and Pakistan cannot fulfill its
demand. Despites of these facts and figures Diary Industry is playing a very crucial role
in the Pakistan economy and contributing 14% to the countrys overall GDP. More than
20% of the entire population of Pakistan is involved in this sector directly or indirectly. If
we talk about the Dairy Supply chain management of Pakistan, we can divide it
in to two categories: One is Formal and second is Informal sector.
The share of formal sector is 4% whereas the rest of 96% of share is taken by the
informal sector. In the formal sector Nestle is the market leader in Pakistan and
contributing 60% of market share as per fact and figure of 2008. In formal sector, milk is
collected by different milk collection centre. Then it is taken in to the processing plant
where milk is stored in cooling towers. In the processing plant, milk is processed and

packed and then it is distributed to the retailer and finally milk is reached to the ultimate
consumer. In formal sector we can divide it in to two sectors. In first category farm milk is
collected by gawalas (milkmen) who sell the milk directly to the consumers or the milk
collectors. In second case, farm milk is collected by different milk collectors who sell their
milk to the retailers and these retailers provide it to end consumers.

DAIRY INDUSTRY
CHALLENGES IN SUPPLY
CHAIN
This business is unregulated and there is no
as such involvement of government
therefore the middlemen often take
advantage of poor farmers and charge low
prices for their milk and usually delay their
payments.
Large
contractors
often
blackmail small producers and processors.
Most of the farmers are uneducated and
they are unaware of modern technology
and equipment. And again there is no as
such Government involvement to train the
farmers in modern dairy practices so the
famers are lacking in this area. Average
Animal of Pakistani breed gives only 1300 to
2400 kg of milk per annum as compared to
yield 6000 kg/animal/year in the modern
world. As the farmers are not educated in their practices so due to wrong milking
methods most of the cow and buffalo have expose to mastitis. Farmers have not
sufficient idea of using different types of feed available in the market so they have no
precaution to save their animals from diseases. Farmers are not taking the facility of any
veterinary doctors which leads to decrease in the milk yield and animal is less productive
for longer period of time.
Milk productivity is seasonal and it is going to be the most important issue that milk
producers are facing in this industry. In summer season, animals do not find enough food
because grass and herbs dry out quickly. Due to higher temperature the digestive
system of animal is weak and farmers yield less quantity of milk. Milk production falls in
June and increases in December. The significant difference between the two seasons is
really a concern for the dairy sector of Pakistan.

The foremost problem dairy industry is facing is the adulteration means adding water,
fats and other harmful substance to the milk that makes the milk unhealthy and less
hygienic. This problem is difficult to control and requires serious consideration from both
public and private sectors. Transportation, storage and processing make this product
more costly. Day by day electricity is a problem in the country therefore majority of the
milkmen use ice to keep the temperature of milk low but this method is not optimal and
quality of milk is affected. If we talk about the facts and figures as per World Bank
reports 15%of the milk is lost at the stage of farm due to mishandling and wrong milking
practices. While 5% gets wasted during the transportation stage.
The buying capacity for small scale farmers is very low they do not afford high cost of
feed for their animals and they are lacking advantage of economies of scale. They do not
access to formal market channels and are often exploited by the middlemen who offer
low prices for their milk and they enjoy the huge profit margin for their own customer.

INTRODUCTION OF NESTLE PAKISTAN LTD.

Nestle Pak works as a subsidiary of Nestle S.A. Nestle Pak started working in Karachi
since 1988 under a joint venture with Milk Pak Ltd. With its headquarter in Lahore, Nestle
Pak. has four production facilities. Two of its factories are in the heart of Punjab province;
Sheikhupura and Kabirwala which are multi-purpose factories, one in Islamabad and the
other in Karachi, Sindh which produces bottled water. Nestle Pak is the biggest milk
collector in Pakistan. Currently, it collects milk from 190,000 farmers over 145,000
square kilo meters in Punjab and Sindh. With its 8000 brands world-wide, Nestle is the
leading brand in beverages and food industry. It has a separate department for
supply chain management which was founded in 2001. The objective behind the
creation of separate department of supply chain management is to ensure the smooth
running operations from the supply of raw materials from farms or other sources to the
supply of finished products into the markets.

NESTLE SUPPLY CHAIN VISION:


Nestles ambition is to achieve high level of customer satisfaction through low cost,
highly efficient operations driven by value creation and continuous improvement

NESTLE SUPPLY CHAIN MISSION:

Optimize and consolidate resources and processes for a low-cost but efficient.
Develop and manage simplified and effective supply network to achieve a high
level of service.
Create a continuous improvement culture driven by performance measures and
reward.

NESTL PRINCIPLE:
Nestl is based on the principle of decentralization, which means each country is
responsible for the efficient running of its business - including the recruitment of its staff.

ORGANIZATIONAL STRUCTURE OF NESTLE:

NESTLE MILK PACK


We choose Nestle Milk Pack for our supply chain report among 1000 products of Nestle.
Pure, rich and delicious NESTL MILKPAK standardized UHT milk benefits from
Nestls expertise in bringing consumer the very best life has to offer and benefits from
140 years of consumer trust. Nestls extensive milk collection system ensures that the
milk you get is of the finest quality.
Encourage your family to exercise regularly, eat a healthy, well-balanced diet and drink
pure, nutritious milk for good health. Milk is a must-drink for your children as it is a rich

source of Calcium that helps in the growth and development of strong bones and teeth.
It is equally beneficial in keeping grown-ups bones strong. So live to the fulles and enjoy
the pure, wholesome goodness of milk with NESTL MILKPAK!
A 250 ml glass of NESTL MILKPAK fulfills your daily requirement of 27-30% of
Calcium, 15-18% of Protein, 31-34% of Phosphorous, 6-9% of Vitamin A and 160-16 Kcal
of energy, as Recommended Dietary Allowance by the National Academy of Sciences,
USA.

SUPPLY CHAIN PROCESS OF NESTLE MILK PAK PAKISTAN

Nestle Pakistan has a wide range of products from nutrition to beverages, as so we chose
MILK PAK to explain the supply chain of Nestle Pakistan.

CHALLENGE:
Supply chain knowledge is becoming more and more critical to ensure competitive
supplies of goods and services, especially for large companies dealing with a complex
network of suppliers, customers, distributors and consumers. All parties in the chain
need to have a particularly good grasp of how their individual activities work together
and affect the performance of the whole supply chain. At Nestl, Key Performance
Indicators (KPIs) provide the standard metrics for measuring supply chain performance.
Nestl launched a new initiative to communicate the value and use of KPIs to line
managers.

How do Nestle create competitive gaps in the upstream supply


chain?
With Farmer Connect, where they have direct contacts with producers to:
Ensure traceability up to farmers level
Assure quality, safety and volume growth of raw materials
Mitigate price volatility exposure
Reduce transaction costs and serving our brands guaranteeing access to specific
raw materials
Ensure safety & quality
of raw materials Secure availability of
adequate
agricultural raw materials

Milk is collected from more than 2000 village milk centers and 500-600 sub centers and
then milk is transported to 25 main centers. In both stages the temperature of the milk is
kept at 4C to keep the quality of milk up to standard. After whole process of milk
collection, it is transported to the Sheikhupura and Kabirwala factories. In the processing
stage milk is passed through different stages i.e standardization, pasteurization UHT
treatment and packaging. After processing, milk is then reached to the factory
warehouse which is near the premises of the factory. Finally milk is transported to the
south, north and central regions. Then finally distributors of MILKPAK carry it and
transport it to the super marts and retail shops so that its available to the end
consumers. Supply Chain of Nestle MILKPAK guarantees environmental friendly practices
and for this they are continuously making their contributions in the society for keeping
the environment safe and secure. Their ultimate objective is to make sure that the green
supply chain is in practice while keeping their benefits, profits and business activities
intact.

SUPPLIERS SUPPLIER:
Improving Feed
Even before calling Nestl in, Milkpak Ltd. had tried to ensure that milk cows were given
fresh fodder during the summer.

Their teams are always prepared to offer practical advice. They have planted a variety of
fodder crops and demonstrate to farmers on field day. They also provide training on best
practices in animal husbandry. For instance, they stress the importance of giving cattle
enough water, and train farmers in hygiene and milking.
Livestock Breeding & Health
Pakistan's vast milk production comes largely from buffaloes, despite their small yield.
Nestle agronomists have shown that with artificial insemination they can actually triple
milk production. Yet artificial insemination is still not widely used. In 1996, their vets and
agronomists independently formed an NGO to promote artificial insemination using high
quality semen.
Today, with help from Nestl and others, they have established a training programs for
inseminators, and provide high quality imported semen at low cost to farmers Nestle
Pakistan concentrate on preventative measures against the most common diseases that
afflict cattle in Pakistan. Farmers know that they can call on our trained vets whenever
necessary.
Better Equipment
Nestle agricultural services staff have drawn up technical plans for cowsheds, which are
provided free of charge. Their mechanics have also developed prototypes of machines to
cut fodder quickly an inexpensively.
Starting 2004, we went a step further and proposed a system of small loans for farmers
who wanted to make improvements to their farms, such as building cowsheds.
Nestle drew up the sample specifications for a model farm to be presented to the bank
disbursing the loans. The Service even helps farmers fill out applications for loans.

Nestl Pakistan collects quality milk from 190,000 farmers spread over 146,000 sq. km of
Punjab and Sindh.

PARTNERSHIP WITH SUPPLIERS:

Nestle always do efforts to provide pure, high quality milk to consumers in distant towns,
Nestl entered into an unprecedented partnership with local farmers. Today, 14 years
after Nestl first entered the milk district in force, the hard work and determination of
our milk collection & technical assistance teams and their dedication to Corporate Social
Responsibility have raised the bar for dairy concerns in Pakistan.
1000 Small Village Diaries
An agent runs the diary. It occupies a small room of about 20 to 30 m either in the
agents house or in a building that nestle rents.
The milk collected on average is two times 150 liters per day.
The agent does a quick tasting test on the milk before recording the delivery in the
farmers personal milk logbook.
The dairy is open two or three hours morning or evening.
The agent transports the milk to one of the 972 secondary receptions and cooling
station before closing.
972 Secondary
Stations

Reception

And

Cooling

These generally occupy about 40 m,


divided into two rooms.
One of these houses an electrically powered
milk-cooling tank with a capacity of 600 to
2500 liters.
Power cuts are frequent, so 95% of the
stations have their own generator.
An agent who also works as a milk
inspector to run quality tests runs each
secondary station.
Main Reception And Cooling Stations
These constitute the final stage in milk collection before it is delivered to factories.
It also fitted high capacity milk tanks.
8 of them are equipped with plate heat
exchangers for getting the milk re cooled
before transported to the factories.
The quality analyses run as each tanker of
milk arrives are more thorough than in the
secondary station.
The 23 main stations also stores the
laboratory supplies needed in the secondary
stations and village diaries.
Link to the two factories by telephone and
Internet, the main stations act as the
communication and administration centers for the entire collection system.

Maintenance And Breakdown Service


Looking after more than 1000 generators with the same number of water pumps
and ancillary equipments demands a systematic approach.
Each of the 23 main stations employs full time mechanics/electricians.
For more complex problem mechanic/electrician can immediately calls one of the
five Nestle maintenance service station located in five of the main reception
stations.
The Nestle repair service was originally based in Shaikhupura factory. But over the
period of time it was transferred to the fresh milk-purchasing department.

Number of farmers selling their milk to Nestle


Year
1994
1996
1998
2000
2002
2004
2006

Number of farmers
39,205
53,693
65,568
68.277
89,394
121,259
137,784

MILK COOLING:
Milk pack set up reception centers with cooling facilities where farmers and dodhies,
small-time milk merchants, could bring their wares.
It was a simple solution, but difficult in practice: importing the stainless steel chilled
containers required was prohibitively expensive. By 1988, the company purchased 120
tons of milk a day from 26,000 farmers.
After acquiring a share in Milkpak Ltd in 1988, Nestl immediately began investing in
milk cooling tanks. Between 1988 and 1992, 100 milk tanks were installed.
1992 onwards, with full support from the Nestl headquarters in Switzerland,
reorganization of the milk collection operation and the provision of agricultural technical
assistance became top priorities.
The investment paid off. Within a decade, Nestl's purchase of fresh milk had
quadrupled, and the number of small farmers selling milk to Nestl tripled.

MILK COLLECTION SYSTEM


Follow the story of Nestl's dairy products, from humble beginnings on tiny farms in
Sheikhupura district, all the way to your table!
Step 1
A small farmer in rural Sheikhupura district milks his buffalo twice a day and takes about
4 liters to one of Nestl's 500 Village Milk Collection Centers.
Step 2
At the Village Milk Collection Centre the farmer's milk is poured into aluminum churns.
The agent checks the milk's freshness and purity, and enters the quantity into the
farmer's logbook. He takes it to one of Nestl's 1308 Secondary Reception and Cooling
Stations, about 2-4 kilometers away.
Step 3
The Secondary Reception Station has a large electrically powered cooling tank. A milk
inspector measures the fat content, the non-fat solids content, and the milk's acidity.
Once satisfied, he takes the milk to one of 27 Main Reception and Cooling Stations.
Step 4
At the Main Reception and Cooling Stations the milk is poured into huge tanks and is
thoroughly checked for quality. The milk is dispatched to the factories.
Step 5
At the Sheikhupura and Kabirwala factories, the milk is processed and packed into the
familiar Nestl cartons you can find in your grocery store. It is checked for quality thrice
before being released for sale. Some is processed into yoghurt, powdered milk, or other
dairy products.

INBOUND LOGISTIC:
Inbound logistics used for milk collection from different milk collection centre is centrally
owned by nestle Pakistan limited. In Pakistan, logistics has always been a problem
especially for sensitive product like milk in the hot weather. Initially the supplier who
supplied there milk

NESTLE FACTORIES:
Our products are manufactured in five facilities scattered around the country, from
Islamabad in the north, to Karachi in the south.
Two state-of-the-art multipurpose factories are located in the agricultural heartland of the
Punjab, and the remaining three are dedicated to producing our trusted brands of bottled
water.
As citizens of Pakistan, we consider it our duty to make sure that our manufacturing
processes are clean, hygienic and safe. We are constantly working to reduce emissions at
our factories, reducing and treating wastewater, and making our packaging
environmentally friendly. Regular audits have confirmed that our factories' environmental
management meets the Nestl international standard.
Sheikhupura Factory
The factory commenced operations as part of Milkpak Ltd in 1981. At the time it
produced only UHT milk, but by 1988 had expanded to produce butter, cream and ghee,
as well as fruit drinks. Milk filling machine TBA-22 (most modern and efficient and high
speed equipment available in dairy industry) National distribution centre was also
constructed in 2000 with capacity to store
8300 pallets.
Kabirwala Factory
In 1990, Nestl Milkpak acquired the Kabirwala factory, located in Khanewal district of
the Punjab, as a subsidiary. By 1997 it was a fully owned unit of Nestl Pakistan Ltd. 2006
has seen the commencement of Kabirwala Extension Project that would be completed in
April 2007 at a cost of about Rs. 4.0 billion. The project has seen expansion of milk
processing capacity to triple its current size, both for powder and liquid.In 2005 Fresh
milk capacity was increased from 676 to 800 tons per day. In 2007 an additional raw and
packing and semi finished product stored and a bigger distribution. Centre, a stick pack
filling machine and 1000 gr. Powder filling machine will be added.
Islamabad factory:
AVA water factory Islamabad was acquired by Nestle Pakistan in 2001 and was
subsequently merged with it. Thereby becoming a fully owned unit of Nestle Pakistan in
2003.The production capacity of the factory is approximately 8000 bottles per day.

PLANNING:
The successful execution of a planning strategy demands that the analysis has been
performed with:
Confidence in the accuracy of the information provided;
Clarity in the way the information is presented;
Completeness of the information to be considered.
Planning must also address the resources and expertise that will be needed to
implement the chosen purchasing strategy. The trend to outsource both the initial
conversion of raw
materials, the manufacture of certain semi-finished or finished products and some
services, requires that the original expertise in purchasing these materials and services
is now needed to
manage suppliers fulfilling a higher added-value process. In addition, consideration must
be given to decide the specific value drivers of the subcontracting initiative for which
Nestl needs to control either the sourcing or pricing (or both).
The realization of the importance of the S&IM spend categories will result in Purchasing
allocating more attention to them. The task of planning a S&IM purchasing initiative may
well
require a different skill set and knowledge base to that traditionally expected of a
Strategic Buyer.

MANUFACTURING:
Manufacturing is very important part of supply chain. In our factories, the objective is to
maximize eco-efficiency that is to maximize the production of goods, while at the same
time, minimizing of consumption of resources and reduce wastage and emissions. The
factories are equipped with complete testing and monitoring facilities for wastage and
emission enables them to stringently monitor the gaseous environments and ensure that
these are in accordance with environmental standards (NEQS).

MILK PROCESSING:
Milk Reception
The Milk Reception Unit receives milk and liquid milk products for a milk processing
plant. The unit measures and pumps the product for buffering or further treatment.
Mixing
Tetra performs in-line mixing for a wide range of powders and liquids for dairy
applications such as reconstituted and recombined milk, yoghurt milk, flavored milk,
evaporated milk, recombined concentrated milk, ice cream mix, chocolate slurries, dairy
desse ghee.
Heating and Cooling
Heating and cooling are basic processes within dairy processing and take place in plate
or tubular heat exchangers. Tetra Pak heat exchangers have high thermal efficiency for
low energy consumption.
Standardization
Automatic direct in-line standardization of milk and cream. Accurate control of fat,
fat/solids and non-fat ratio gives better utilization and control of the production
parameters
Pasteurization
Along with correct cooling, pasteurization is one of the most important processes in the
treatment of milk. If carried out correctly, these processes will supply milk with longer
shelf life.
Temperature and pasteurization time are very important factors which must be specified
precisely in relation to the quality of the milk and its shelf life requirements etc. The
pasteurization temperature for homogenized, HTST pasteurized, regular-grade milk is
usually 72-75 C for 15-20 seconds.

UHT treatment
UHT treatment is a thermal process for preserving liquid milk. UHT stands for Ultra High
Temperature and by heating to 137 140 C for a very short time (2-10 s) the microorganisms are inactivated. If the milk is packaged under aseptic conditions it can be
stored at room temperature for months.

Packaging Materials
Nestl is committed to reducing the environmental impact of packaging, without
jeopardizing the safety, quality or consumer acceptance of its products.
As far as milk is concern packaging is very important, it is perishable item which requires
special packaging to preserve it for few months. To meet this objective Nestle
Milkpak use tetra Pak to deliver fresh milk to its customer without sacrificing in health
measures. Nestle have following objectives in mind regarding packaging:
Result in the lowest possible weight and volume of packages whilst still maintaining
pack integrity;
Take into account new packaging materials and processes that reduce the impact on
the environment of unnecessary transportation;
Avoid the use of substances that can adversely impact the environment during
packaging production and disposal;
Decrease packaging waste at all stages in the supply chain, including package
manufacturing, utilization and disposal;
Increase the use of recycled materials wherever possible, and increase the recyclables
and compatibility of packages with existing waste management schemes.

FACTORY WAREHOUSE OF NESTLE:


The finished tetra pack is sent to the factory ware house which is 4 km away from the
processing plant. Factory ware house is located near the plant to reduce the
transportation cost. At Factory warehouse temperature is controlled to ensure the
condition of the milk is fresh when it reaches the consumers. Milk is a very perishable
item; therefore it requires very effective storage conditions at warehouses to preserve
milk in its real condition.
For this Nestle milkpak warehouses contains very suitable temperature that should not
increase from 38C in order to keep preserved milk in its fresh condition.

Lay out of the warehouse


This warehouse has no shelving or racking system instead the goods are kept on pallets.
Information tags are placed on every carton as well as on the top of the pallets. The
warehouses height is about 17 feet. The building is divided into two sections; one for
carrying heavy weights products and the other for carrying lighter ones. There are two
gates; one for receiving the goods and the other for distribution. In this way, receiving
and dispatching of goods can be done at the same time which is a time saver. There is a
room used as check post to ensure the safety and security along with keeping track of
what goes in and out of the warehouse. The whole warehouse was divided into individual
lanes; the lanes were designed in such a way that it creates a U shaped flow of goods
which makes easier for the pickers to carry the goods to the trolleys using safe lifting and
reduces the time and motion wastage.
Inventory Management in the warehouse
The inventory is managed by software called SAP (System Applications and Products).
Another method for managing the inventory is Manual Counts that is done by the
inventory clerk on daily basis, who is specially hired for this purpose. The counted
stocks are recorded on a whiteboard thats placed inside the warehouse. It contains not

just the information about the name and no. of products but also in which lane they are
and in what volume they are in. The whiteboard information is updated every time a
picker picks the order and also when the goods are loaded on a truck for delivery.
For further verification, Barcodes are also placed to scan the cartons of the products
every time they enter or exit the warehouse.
Every batch of goods has a batch code like this 2 043 1382 1 Z
Which tells the following information:
The year in which that product was Manufactured
The day of the year in which it was Packed
A plant code in which it was Manufactured
The no. of times a good goes through the machine
A machine code
How the goods are picked in the warehouse?
There are five pickers in the warehouse. The supervisor assigns 4 of them to pick
products by a list. The list contains information about the product batch number,
quantity, lane number and the pallet number. Two of them pick the goods, the third one
gives instruction and the fourth person rechecks it. The FIFO method is adopted in the
warehouse because Nestle is a FMCG company and most of its goods are perishable and
have limited time span. So what first goes into the warehouse should be dispatched first.
How the goods are ordered?
The goods are ordered on the basis of LIFO method. Orders are received from distributors
across the country. LIFO is used because it takes transportation cost, time to record and
place an order along with the delivery process. As for Nestle MilkPak, it has an expiry of
6months,
so it needs to be delivered first.

How goods are delivered from the warehouse?


There is a gate in the warehouse from where the goods are delivered, once the picker
picks up the goods, the process of delivery from warehouse begins. The supervisor of the
warehouse rechecks the goods are picked in the right quantity, packed in the right way
and loaded in the right truck.
Capacity Of Trucks
Nestle milkpak has trucks which have the following capacity. The data is on the basis of
cartons per truck.
Size of item

No. Of cartons

1 liter
250ml
1.5 liter
500ml

1092
1815
1040
1750

LOADING, UNLOADING, HANDLING AND TRANSPORTATION CONDITIONS


ACCEPTANCE LETTER
Acceptance letter is the conformance letter that ensures that the warehouse accepts or
receives the inventory, it includes:

Invoice number
Whom to sold
Whom to ship
Dispatch date
From whom
Product description
Unit price
MAJOR ITEMS SALE

1 liter of Nestle milkpak has the major 55% of total sales.


250 ml of Nestle milkpak has 25% of sales
1.5 liter of Nestle milkpak has 10% of sales
500 ml pf Nestle milkpak has 10% of sales
NUMBER OF ITEMS PER CARTON
Type of carton

No. Of item units

1 liter
250ml
1.5 liter
500ml

12
27
8
12

OUTBOUND LOGISTICS:
Outbound logistics concerns finished milk movement from factory to different
warehouses located in different cities.
The logistics usually take 3 days to arrive at Nestls warehouses in Karachi from their
manufacturing factories at Lahore, kabirwala and shaikhupura
Size of item

No. Of cartons

1 liter
250ml
1.5 liter
500ml

1092
1815
1040
1750

DISTRIBUTION:
According to the distribution, Pakistan is divided into three geographical zones and then
in further Regional Sales Offices.

North Zone:
Islamabad and north outstations
Peshawar
Jhelum

Central Zone:
Lahore
Faisalabad
Gujranwala
Multan
Sahiwal

South Zone:
Karachi
Hyderabad
Quetta
Sukker

Selection of Distributors
The Criteria followed are:
1Capital Investment
Depends on both present and future capital investments by distributors
Amount vary from Area-wise to marketwise
2.Relevant experience
Prior experience in FMCG sector is preferred to save on training expenses
Distributor should not be dealing in Competitors product
Should handle entire range of Nestle products (Both fast and slow moving SKUs)
3.Infrastructure
Godowns / Storage space with appropriate refrigeration as per product needs
Delivery vehicles
Salesmen

4.Companys discretion based on markets served

Distribution process
The distributors have sales force to collect orders. There are two methods for distribution
of goods:

ORDER BOOKING
(Where sales force first books

SPOT SELLING
(Where sales force is given a

van
orders from the shops or retailers
and then delivers the goods)

full of Nestle goods to sell)

Nestle Milkpak goes for indirect channel of distribution, that means there is a chain of
intermediaries through which a product moves through additional steps as it moves from
manufacturing business via distributors to wholesalers and then to retail stores or super
marts.
The distribution strategy of Nestle MilkPak is intensive as it is covering wide market.
There are regional headquarters of the company in all big cities of Pakistan. In this report
we have covered distribution channel of Nestle MilkPak in Karachi. In order to reach
remote areas the company is linked with the main distributor and sub-distributors. The
company is directly linked with the main distributors; they provide the products
inventory to the main distributor that is further dispatched to retailers and subdistributors. The targets differ from area to area and set on the basis of history of the
area sale and also from the monthly forecasting.

Distribution Channels:
Nestle employs different distributors for different areas. Distributors employ their own
sales force and vans, which deliver Milk Pak to the doorstep of the retailers. Every
distributer has three territories per area. In the A territory, the distributors vans visit
the outlets every alternate day. In the B territory, the vans visit the retailers at least
twice a week, while in the C territory; the vans visit once a week.

Distributors sales target:


It is interesting to note that the distributors are given sales targets, which are then
communicated by the distributors to their sales team. The targets are usually like 15%
annual growth in sales. The distributors achieve this by selling more units to the existing
clientele (outlets in their region). In some cases the clients themselves ask for more
stock. In other cases they have to be persuaded to buy more. The norm usually is that if
a retail client asks for 12 pack the distributors sales team sells him 15. The reason is to
leave no space available for the competitors.

Daily Incoming And Outgoing Logistics

Minimum one or two nestle milkpak trucks daily being arrived at each ware house from
the sheikhupura and kabirwala factories, and is distributed in the same amount to the
retailers all over the city.
The logistics usually take 3 days to arrive at Nestls warehouses in Karachi from their
manufacturing factories at Lahore, kabirwala and shaikhupura.Nestle milkpak has their
owned and outsourced trucks.

SHELF LIFE OF NESTLE MILKPAK


Nestle milkpak has 3 months of shelf life.

Objectives Of Nestles Distribution Centers Or Warehouses


There are three main objectives of Nestls distribution centers.
Meeting the targets
Distribution at Right time
At Right place

DEMAND FLUCTUATION OF NESTLE MILKPAK:


The demand of Nestle milkpak usually increases in the festivity season or any event such
as.
Eid
Ramazan and
Moharram
There is a shortage of supply of milk during the pregnancy season of cows.

RETURN POLICY OF NESTLE MILKPAK:

Nestle milkpak has an efficient return policy for inventory in case of any defect.
Every carton and item has assigned a certain batch number.
If any defect has found in item or carton then the batch number of that item or
carton is noted and disposes the defected item right on there.

GLOBE (GLOBAL BUSINESS EXCELLENCE)


In the year 2005 the successful launch of GLOBE remained probably the most significant
achievement for Nestle Pakistan. It was recognized locally as well as in the Nestle world
as the most successful implementation of GLOBE.
GLOBE is a worldwide program/project designed to align Nestle Pakistan with other
Nestle companies around the world and to learn and benefit from each others
experience.
The project has three main objectives;

Creation and adoption of common business practices across all countries where
Nestle operates.
Standardization of data and,
Standardization of information technology system.
Migration to an ERP
The final phase of the project entails migration of Nestle Pakistan to an ERP (Enterprise
Resource Planning) called SAP (System Application Products), which is one of the most
integrated business application software in the world. Nestle Pakistan achieved this final
migration on February 7, 2005. On that date all Nestle sites including the head office, all
factories, distribution centers and three zonal offices went live on the new application.
Information system and Purchasing
Purchasing task will be greatly facilitated by standard IS/IT infrastructure, common
business applications and best practices, Visibility of standardized, real-time purchasing
data/information will permit aggregated spend category analysis. This will help identify
opportunities and define more effective purchasing strategies with the objective of
achieving lower total cost.

Over View of Supply Chain of Milk Pack

So what makes our supply chain so special?


Well, for a start, we're the leading nutrition, health and wellness company in the world
and possess one of the most sophisticated supply chains in the world - putting the
customer at the heart of everything we do. As a result, every success (and, by definition,
every failure) we experience is multiplied to the nth degree. And for the right type of
person, that should be an exhilarating prospect.
Each element of the supply chain relies heavily on strong relationships with other areas,
and that creates a community of like-minded people; a real team ethos where everyone
goes out of their way to help each other deliver.
It's the passion, dedication and energy from our people that drives our winning culture.
You'll quickly come to appreciate this diverse environment, regardless of which role you
find yourself in.

CREATING SHARED VALUE ALONG THE SUPPLY CHAIN :


Supply chain activities transform natural resources and raw materials into finished
products which are delivered to the end consumer. Each stage of the process adds value
to the overall end product.

Nestl operates within complex supply chains. Its milk supply chain goes from farms to
facility.
. Nestl sources materials from thousands of farms, many of them small farmers in
poorer rural regions of the world. In many rural communities, a lack of investment in
infrastructure has a serious impact on the quality and quantity of raw materials that
Nestl and other companies rely on. Nestl provides training in order to encourage
sustainable production, protect the supply and quality of its raw materials and have a
positive, long-term impact on the local economy and farmers standards of living.
Around two-thirds of Nestls worldwide expenditure is on raw materials. Nearly 40% of
this goes on three main ingredients: milk, coffee and cocoa. It is a prime example of
Nestls Creating Shared Value approach to business The initiative aims to help farmers
to run profitable farms, respect the environment, have a good quality of life and give
their children a better education.
So what does Nestle do in order to stay successful in its supply chain management?
There are multiple innovative strategies that Nestle employs time-to-time on a global
level.
To conclude:
Sustainability, Compliance, Farmers Connect sourcing model contribute to

Replicable and consistent quality and food safety


Predictable timing and volume
Increased price stability
Sustainable production
Farmer loyalty

RECOMMENDATIONS

1. Nestle Pakistan can establish their own dairy farms near their factory.
Benefits
a. Transportation cost that incurs from the collection centres to the factories will be
minimized.
b. Less dependency upon local farmers.
c. These dairy farms will act as Crisis Management point in dynamic conditions as we
have recently faced in the form of worst floods in all over Pakistan.
d. More employment opportunities for local people around that region.
e. As milk is collected twice a day so there will be less repetition of work; if Nestle
establishes its own dairy farm near its factory.
2. Nestle can also establish a few of their own retail outlets or franchises in

major cities of Pakistan to fill the demand and supply gap more efficiently
just like Millac (Pvt) Ltd.
Benefits
a. These outlets will save the repute of the company from stock outs in peak seasons like
Ramazan, Eids, & Moharram.

b. These retail outlets will align with Nestles production planning with the demand of
customers.
c. There will be less occurrence of bullwhip effect.
d. These outlets will serve as a competitive advantage for Nestle in their marketing
strategy.
e. Nestle will also be less dependent on other retailers.
3. Nestle should introduce vertical shelf system in the warehouse
Benefits
a. As Nestles warehouse has a ceiling of 17 feet, it should use the ample space above
the lower shelves.
b. This system will allow the storage of goods in segregation.
4. Nestle should install Voice Picking technology in warehouses.
Benefits
a. Although its a bit expensive, but use of this technology will benefit Nestle in future as
it reduces the time and human error and increases efficiency.

CONCLUSION
In the end, we would like to conclude that Nestle
Pakistan is the leader in FMCG industry. They
maintain a proper Corporate Social Responsibility
by training their local farmers about milking and
feeding of their animals. In 2004, Nestle
proposed a system of small loans for farmers
who wanted to make improvements to their
farms, such as building cowsheds. They drew up
the sample specifications for a model farm to be
presented to the banks disbursing the loans. The
Service even helps farmers fill out applications for loans. In short, Nestle takes care of its
inside and outside customers. The manufacturing plant of Nestle is the strength and
serves as a competitive advantage for Nestle because of its perfect system. The hygiene,
safety and security control is done under Nestle MilkPaks manufacturing plant. We learnt
a lot about Nestles Supply Chain; from the manufacturing department to distribution,
everything is done perfectly.

BIBLIOGRAPHY:
To collection information we have considered following source in order to gather
authentic data:
http://www.supplychaindefinitions.com/
http://scm.ncsu.edu/scm-articles/scm-terms
http://www.investopedia.com/terms/s/supplychain.asp
http://www.adi.pt/docs/innoregio_supp_management.pdf
Logistics and Supply Chain Management : Strategies for Reducing Cost and
Improving Service (Financial Times Management) -- Christopher Martin;
Introduction to Supply Chain Management -- Robert B. Handfield, Ernest L. Jr. Nichols
http://prezi.com/1qfek0tjvy4h/supply-chain-management/
http://www.nestle.pk/assetlibrary/documents/financial_reports/nestle_annual_report_2010_en.pdf
http://www.slideshare.net/neelamasad1/nestle-in-pakistan-16381502
http://www.nestle.pk/assetlibrary/documents/financial_reports/nestle_annual_report_2010_en.pdf
www.nestle.pk
www.nestle.com
www.tetrapak.com
www.cia.gov.com
www.smeda.com
www.wekipdia.com
Books concerned:
Nestle management report 2005
Nestle management report 2006
SEMIDA report 2005 for milk production and distribution
Economic survey of Pakistan 2006
Personnel concerned:
Mr Shakeel Mirza
Reigional Sales Manager

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