SALES AND DISTRIBUTION MANAGEMENT

(PAPER CODE: MM-3201)

TOPIC: LOGISTICS AND CHANNEL MANAGEMENT

SUBMITTED TO:
DR. NILANJANA CHAKRABORTY
ASSOCIATE PROFESSOR
JAWAHARLAL NEHRU SCHOOL OF MANAGEMENT STUDIES
ASSAM UNIVERSITY

SUBMITTED BY:
BRISTI SONOWAL (Roll No.16)
KONSAM KOROWHANBA (Roll No.30)
PUJA DEBNATH (Roll No.46)
Y.LAXMI SINGHA (Roll No.61)
MBA (3RD SEM)
LOGISTICS

Logistics is the process of planning and executing the efficient transportation and storage of
goods from the point of origin to the point of consumption. The goal of logistics is to meet
customer requirements in a timely, cost-effective manner.

Logistics is used more broadly to refer to the process of coordinating and moving resources –
people, materials, inventory, and equipment – from one location to storage at the desired
destination. The term logistics originated in the military, referring to the movement of
equipment and supplies to troops in the field.

Importance of Logistics:

1. Effectively coordinated logistics leads to positive business results

2. Logistics helps businesses create value
3. Logistics helps in reducing costs and improves efficiency
4. Logistics helps delivering your product at the right place timely
5. Logistics is the key to success with supply chains
6. Keep your customers satisfied, rely on experienced logistic professionals

Functions of Logistics:

 Order processing: It is a vital undertaking in elements of Logistics tasks. The buy

arrange by a purchaser to a provider is a critical authoritative archive of the exchanges
between the two gatherings.
 Inventory control: Inventory administration is to keep enough inventories to meet
client necessities, and at the same time its conveying cost ought to be most minimal.
 Warehousing: Warehousing is the putting away of completed products until the point
when they are sold. It assumes an indispensable job in Logistics activities of a firm. The
adequacy of an association's promoting relies upon the suitable choice on warehousing.
 Transportation: For development of products from the provider to the purchaser,
transportation is the most essential and critical part of Logistics.
  Material handling and storage framework: The speed of the Inventory development
over the supply chain relies upon the material handling techniques. An ill-advised
strategy for material handling will add to the item harms and postponements in
conveyances and accidental overheads.
 Logistical packaging: Logistical or mechanical packaging is a basic component in the
physical circulation of an item, which impacts the productivity of the calculated
framework. It varies from item packaging, which depends on advertising targets.
 Information: Logistics is fundamentally a Information based action of Inventory
development over a supply chain. Consequently, a Information framework assumes an
essential job in conveying a better administration than the clients.

Modes of Transportation in Logistics:

 Transportation via Roadways: This is one of the most common modes of transportation
used by almost every logistics firm across the world. The reason behind this being the
accessibility of roadways even in the most remote and smallest of town. Usually,
transportation via roadways is done with the help of trucks and Lorries.
 Transportation via Waterways: When the amount and quantity of goods and services is
very high, companies prefer waterways for transportation. Not only you can handle cargo
from one country to another, but it is very cost effective as well because waterways is the
cheapest means of transportation.
 Transportation via Railways: Railways is yet another important mode of transportation
used in logistics. Apart from being able to handle the cargo from one place to another in a
short period of time, railways are also used for handling cargo from a specific sea port to
different parts of the country.
 Transportation via Airways: Undoubtedly, airways are the fastest means of transportation
used in linguistics. But on the other hand, it is very expensive and is used only for handling
valuable and less heavy materials.
 Other Modes of Transportation: There are yet another means of transportation used in
linguistics that includes barges and boats, and local animals.

Integrated Logistics:
Integrated Logistics is defined as “ the process of anticipating customer needs and wants;
acquiring the capital, materials, people, technologies and information necessary to meet those
needs and wants; optimizing the goods-or-service-producing a network to fulfill customer
requests; and utilizing the network to fulfill customer request in a timely way.”

Integrated Logistics Management:

The movement of raw materials and components to a manufacturing company must be
managed. So must the movement of finished goods from the manufacturing plant to further
processing, to the retail, or to the final consumer. The management of this movement is
called integrated logistics management.
 Cross-Functional Teamwork inside the company: is a group of people with different
functional expertise working toward a common goal. It may include people
from finance, marketing, operations, and human resources departments. Typically, it
includes employees from all levels of an organization. Members may also come from
outside an organization.
 Building Channel Partnerships
 Third Party logistics: Third-party logistics providers typically specialize in integrated
operations of warehousing and transportation services that can be scaled and customized
to customers' needs, based on market conditions, to meet the demands and delivery
service requirements for their products

Output of the Logistics System:

 Product Availability
 Percentage in stock
 Order cycle time
 Elapsed time from order placement to order receipt
 Distribution System flexibility
 Response time to special request
 Distribution system of response
 Speed, accuracy of response
 Post-sale product support
 Response time in providing product support

Channel Management
The term Channel Management is widely used in sales marketing parlance. It is defined as a
process where the company develops various marketing techniques as well as sales strategies
to reach the widest possible customer base. The channels are nothing but ways or outlets to
market and sell products. The ultimate aim of any organization is to develop a better
relationship between the customer and the product.

James R.Stock and Douglas M. Lambert(1987) define the Physical distribution is the
movement of materiel from the point of production (manufacturer or vendor) to the point of
consumption (consumer/customer). It is identified as the sub-function of supply which deals
with the handling and processing of materiel from acquisition to delivery to the ultimate
consumer -or elimination from the system. This sub-function includes the capability to
identify, classify, receive, document, store, secure, maintain in storage, care and preserve,
select, pack, package, ship, control in transit, and dispose of material.
Channel management helps in developing a program for selling and servicing customers
within a specific channel. The aim is to streamline communication between a business and
the customer. To do this, we need to segment your channels according to the characteristics
of customers: their needs, buying patterns, success factors, etc. and then customize a program
that includes goals, policies, products, sales, and marketing program. The goal of channel
management is to establish direct communication with customers in each channel. If the
company is able to effectively achieve this goal, the management will have a better idea
which marketing channel best suits that particular customer base. The techniques used in each
channel could be different, but the overall strategy must always brand the business
consistently throughout the communication. A business must determine what it wants out of
each channel and also clearly define the framework for each of those channels to produce
desired results. Identifying the segment of the population linked to each channel also helps to
determine the best products to pitch to those channels.

Roles of Channel Management

The role of distribution channel management has gained wide-spread attention in both
manufacturing and service organizations over the past twenty years. Faced with falling profit
margins in an increasingly competitive environment, organizations looked to the distribution
channel function as a principal source for reducing costs and raising return on their
investment.

Channel objectives must be related to the broader marketing mix. It is aware of the economic
and social factors which are crucial in managing the organizational relationships necessary to
facilitate the flow of products to the end customer. Types of activities to be performed in
channel management are:

1) Formulating channel strategy

The physical distribution design is complex task involving the integration of all system
components. Frank Lynn Associates (1990) states that the strategically planned physical
distribution system can provide the company with i) a better understanding of the impact
corporate strategy has on physical distribution activities, 2) increased physical distribution
responsiveness, 3) increased sensitivity to the distribution environment, and 4) increased
awareness and understanding of distribution cost reduction and service optimization
opportunities9 . The strategic planning process for a physical distribution system design
involves an evaluation of alternate physical distribution system configurations that meet
customer service requirements at the lowest total system cost (Robert E Muray1980).

2) Designing marketing channels

The first axiom of distribution design is to consider the real value of product and service that
is marketed. The designing of channel contains eight major steps; they are as follows (Louis
P. Bucklin 1978)10:
a) Examine what's being sold for value
b) End-user segment analysis: A zero-base approach
c) Distribution outlet design for end users
 d) Designing the ideal distribution system
e) Analysis of the existing system
f) Investing external and internal constraints and opportunities
g) Assessing environmental/external drivers
h) Delineating the options: gap analysis
i) External analysis of objectives/constraints
j) Confronting the constraints/ objectives
k) Reaching the optimal distribution system/preparing for implementation.

3) Selecting channel members

Most channel compensation systems are stated in terms of margin of margin or discount
structures. Companies tend to adhere to them forever and to treat them as though they were
non-challengeable (Ronald D Michman and Stanley D.Sibley 1980). To select the channel
members from the supplier's point of view the factors considered are as follows (Frank Lynn
1990):
• Financial perspective of channel partner
• Sales strength
• Product lines
• Reputation
• Market coverage
• Sales performance
• Management strength
• Advertising and sales promotion programs
• Training programs
• Sales compensation programs
• Plant equipment and facilities
• Ordering and payment procedures
• After sales services
• Willingness to share ideas, cooperate programs, and commit resources
4) Motivating channel members
In order to generate rational, equitable, and motivational marketing channel compensation
systems, a basic rule of thump that should guide the process is as follows: compensation in
distribution should be given on the basis of the degree of each channel member's participation
in the marketing flows (Ronald D Michman and Stanley D.Sibley 1980)13. In other words,
channel members should be compensated for what they do rarely put to use. As Michael
Porter points out in Competitive Strategy, a shakeout in the distribution system occurs as
distributors scramble for bits and chunks of the remaining business, and eventually, only the
weak, floundering, distributors, thereby extending their territories and gaining economies of
scale and scope. As they become more and more powerful, they begin to serve as very
intractable gatekeepers to the market place, and they use their positions to extract and higher
and higher rents from their suppliers. In other words, they start bargaining away the
manufacturer's rate of return. In the case of dealer's margins have escalated very rapidly over
the years (Michael E. Porter 1980).

5) Coordinating channel strategy with channel members

The major means available to achieve the coordination and cooperation by the channel
members are among one another is the use of 64 power. Power is the ability of one channel
member to get another channel member to do what it otherwise would not have done. If
cooperation or coordination were to appear magically or were innate, ever present aspects of
human behaviour, there would be no need to use power. But power is usually required to
motivate and direct the efforts of any collectively comprised of nonclone like people
(Thomas A. Stewart1989). In distribution power must be used in implementing trade
promotions, establishing channel support roles and standards, developing operational
linkages, choosing channel partners, providing channel training, implementing joint sales
programs, coordinating after sale support programs, developing reward and compensation
arrangements.

6) Evaluating channel member performance

Performance of the channel members is usually measured in two different ways, they are
i) macro or social level perspective
ii) cost-point of view, in terms of delivering the kinds of service focus.
According to the Nirmalya Kumar(1991) social contributions gauge measuring will be on the
basis of three E's, they are

i. Effectiveness-In macro terms the ability of channels delivered the service

outputs required by the end users.
ii. Equity- Every member of the country has the equal opportunity to use and
access the marketing channel.
iii. Efficiency-The effective ways of cost handling system to a society benefit.
(7) Managing conflict.
Gaski and Nevin (1985) have found support for their observation that if sources of power are
present but application is withheld, the consequences may be much different from, perhaps
opposite, what they would be if the sources were actively exercised. For instance, the
imposition of harsh sanctions on channel members (exercised coercive sources of power)
seems certain to cause dissatisfaction and conflict, but the dormant presence of the potential
to invoke such sanctions (unexercised coercive sources) could conceivably be regard by
franchisees or dealers as benevolent restraint. Likewise, the granting of beneficial assistance
(exercised non-coercive sources) should be 69 favourably received, but withholding of such
benefits (unexercised noncoercive sources) may not be. The fact that a channel member has
power sources simply indicates that it has the potential for influence (Gary L Frazier, 1983).
When it wants to change the behaviour of another channel member, it will employ a variety
of influence strategies- the means of communication used in the application of a firm's power.

Channel Functions
Marketing channels serve many functions, including creating utility and facilitating exchange
efficiencies.

1) Information :
Middlemen have a role in providing information about the market to the manufacturer.
Developments like changes in customer demography, psychography, media habits and the
entry of a new competitor or a new brand and changes in customer preferences are some of
the information that all manufacturers want. Since these middlemen are present in the market
place and close to the customer they can provide this information at no additional cost.

2) Promotion:
Promoting the products in his territory is another function that middlemen perform. Many of
them design their own sales incentive programmes, aimed at building customers traffic at the
other outlets.

3) Financing:
Middlemen finance manufacturers’ operation by providing the necessary working capital in
the form of advance payments for goods and services. The payment is in advance even
though the manufacturer may extend credit, because it has to be made even before the
products are bought, consumed and paid for by the ultimate consumer.

4) Help in Production Function:

The producer can concentrate on the production function leaving the marketing problem to
middlemen who specialize in the profession. Their services can best utilized for selling the
product. The finance, required for organising marketing can profitably be used in production
where the rate of return would be greater.

5) Matching Demand and Supply:

The chief function of intermediaries is to assemble the goods from many producers in such a
manner that a customer can affect purchases with ease. The goal of marketing is the matching
of segments of supply and demand.

6) Price Stability:
Maintaining price stability in the market is another function a middleman performs. Many a
time the middlemen absorb an increase in the price of the products and continue to charge the
customer the same old price. This is because of the intra-middlemen competition. The
middleman also maintains price stability by keeping his overheads low.

7) Pricing:
In pricing a product, the producer should invite the suggestions from the middlemen who are
very close to the ultimate users and know what they can pay for the product. Pricing may be
different for different markets or products depending upon the channel of distribution.

Channel Levels

Channel level refers to the intermediary in marketing distribution channel between the
producer/manufacturer and the end consumer. Every channel level plays a role in making the
good available to the end consumer. The number of channel levels between the producer and
consumer could be 0,1,2,3 or more.
1) A zero level channel is a direct marketing channel where there is no intermediary and the
producer sells directly to the consumer. For example – direct mails, telemarketing etc
2) A one level channel has one intermediary, typically a retailer between a manufacturer and
consumer.
3) A two level channel and a 3 level channel have 2 and 3 intermediaries respectively.
An example of various channel levels is illustrated as below:

CHANNEL MARKETING SYSTEM

Vertical Marketing Systems

• Vertical marketing systems (VMS) provide channel leadership and consist of

producers, wholesalers, and retailers acting as a unified system and consist of:
– Corporate vertical marketing system integrates successive stages of
production and distribution under single ownership.
– Contractual vertical marketing system consists of independent firms at
different levels of production and distribution who join together through
contracts to obtain more economies or sales impact than each could achieve
alone. Most common form is the franchise organization
– Administered vertical marketing system has a few dominant channel
members without common ownership. Leadership comes from size and power.

Horizontal Marketing Systems

• Horizontal marketing systems include two or more companies at one level that join
together to follow a new marketing opportunity.
• Companies combine financial, production, or marketing resources to accomplish more
than any one company could alone.

Multichannel Distribution Systems

• Hybrid marketing channels exist when a single firm sets up two or more marketing
channels to reach one or more customer segments.
Channel Management Decisions

Selecting Channel Members

• Selecting channel members involves determining the characteristics that distinguish

the better ones by evaluating channel members
– Years in business
– Lines carried
– Profit record
• Selecting intermediaries that are sales agents involves evaluating
– Number and character of other lines carried
– Size and quality of sales force
• Selecting intermediates that are retail stores that want exclusive or selective
distribution involves evaluating
– Store’s customers
– Store locations
– Growth potential

Managing and Motivating Channel Members

• Partner relationship management (PRM) and supply chain management (SCM)

software are used to
• Forge long-term partnerships with channel members
• Recruit, train, organize, manage, motivate, and evaluate channel members
• The company must sell not only through the intermediaries but also to and with them
• Methods to motivate channel partners are:
- Develop a cooperative/collaborative and balanced relationship with the partner
- Understand the partner’s customers – their needs, wants, and demands
- Understand the partner’s business – operationally and financially and what’s
really important to them
- Look at the partner’s needs in terms of customer support, technical support,
and training
- Establish clear and agreed upon expectations and goals
- Develop recognition programs focusing on the partner’s contributions
- Build internal support systems and dedicate resources to the partner

Supply Chain Management

Supply chain management is the management of the flow of goods and services and includes
all processes that transform raw materials into final products. It involves the active
streamlining of a business's supply-side activities to maximize customer value and gain a
competitive advantage in the marketplace.
SCM represents an effort by suppliers to develop and implement supply chains that are as
efficient and economical as possible. Supply chains cover everything from production to
product development to the information systems needed to direct these undertakings.

The Eight components of Supply chain management are:

1. Planning
This is one of the most important stages. Before the beginning of the entire supply chain, it is
essential to finalise the strategies and put them into place. Checking the demand for the
product or service, checking the viability, costing, profit, and manpower etc., are vital.
Without a proper plan or strategy in place, it will be well-nigh impossible for the business to
achieve effective and long term benefits. Therefore, enough time has to be devoted to this
phase. Only after the finalisation of the plans and consideration of all pros and cons, can one
proceed further. Every business needs a plan or blueprint or a roadmap based on which the
strategies are made. Planning helps to identify the demand and supply trends in the market
and this, in turn, helps to create a successful supply chain management system.

2. Information
The world today is dominated by a continuous flow of information. In order to be successful,
it is essential that a business stays abreast with all the latest information about the various
aspects of its production. The market trends of supply and demand for a particular product
can be best understood if the information is properly and timely disseminated through the
many levels of the business. Information is crucial in a knowledge-based world economy, and
ignorance about any aspect of business may actually spell doom for the prospects of the
business.

3. Source
Suppliers play a very crucial role in supply chain management systems. Products and services
sold to the end user are created with the help of different sets of raw materials. It is therefore
necessary that suitable quality raw materials are procured at cost effective rates. If a supplier
is unable to supply on time, and within the stipulated budget, the business is bound to suffer
losses and gain a negative reputation.
It is crucial that a company procures good quality resources so it can create good quality
products and maintain its reputation in the market. This necessitates a strong role for
suppliers in the supply chain management system.

4. Inventory
For a highly effective supply chain management system it is essential that an inventory is
kept and thoroughly maintained. An inventory means the ready list of items, raw materials
and other essentials required for the product or service. This list has to be regularly updated
to demarcate available stock and required stock. Inventory management is critical to the
function of supply chain management, because without proper inventory management the
production, as well as sale of the product, is not possible. Businesses have now started to pay
more attention to this component simply because of its impact on the supply chain.
5. Production
Production is one among the most important aspects of this system. It is only possible when
all the other components of the supply chain are in tandem with each other. For the process of
production to start it is essential that proper planning and supply of goods, as well as the
inventory, are well maintained. The production of goods is followed by testing, packaging
and the final preparation for delivery of the finished product.

6. Location
Any business, that wants to survive as well as flourish, needs a location which is profitable
for the business. Take for example, a carbonated drink factory is set up in an area where
water supply is scarce. Water is a basic necessity of such business. The lack of water could
hamper the production as well as affect the goodwill of the company. A business cannot
survive if it has to share an already scarce raw material with the community. Hence, a
suitable location, which is well connected, and very close to the source of essential resources
for production is vital to a business’ prosperity. The requirement and availability of
manpower must also be considered while setting up a business unit.

7. Transportation
Transportation is vital in terms of carrying raw materials to the manufacturing unit and
delivering the final product to the market. At each stage, timely transportation of goods is
mandatory to sustain a smooth business process. Any business which pays attention to this
component, and takes good care of it, will benefit from the production and transportation of
its goods on time.
It is essential that a company works towards a safe and secure transportation process. Be it in-
house or a third-party vendor, the transportation management system must ensure zero
damage and minimal loss in transit. A well-managed logistics system along with flawless
invoicing are the two pillars of secure transportation.

8. Return of goods
Among the various components that create a strong supply chain is the facility for the return
of faulty/malfunctioning goods, along with a highly responsive consumer grievance redress
unit.
No one is infallible. Even a machine may malfunction once in a million times if not more. As
a part of a strong business process, one may expect the return of goods under various
circumstances. Even the best quality control processes may have unavoidable momentary
lapses. In the case of such lapses, inevitably followed by consumer complaints, a business
must, instinctively, recall the product/s and issue an apology. This not only creates a good
customer bonding, but also maintains goodwill in the long run.
The eight components discussed here are interdependent and ensure a smooth supply chain
management system. It ensures the success and reputation of a business. A business must
focus on all these components in order to create a flawless supply chain.
Businesses that have a strong supply chain management system in place always put great
emphasis on all the components listed, and also ensure that management, as well as the teams
at various levels, play by the rules. Profit is the bottom line and to make sure that the business
achieves it, it is essential that the supply chain does not have any gaps. Any snag should be
dealt with immediately and the weak links repaired or removed.
Demand and supply are two of the most important aspects of a business. For any business to
be successful, trends, with respect to demand and supply, need to be studied carefully while
implementing an effective plan of execution. A supply chain management system is required
not just for the timely manufacture of goods; it is also a very critical system for ensuring that
consumer requirements are met effectively.

How Supply Chain Management Works

Typically, SCM attempts to centrally control or link the production, shipment, and
distribution of a product. By managing the supply chain, companies are able to cut excess
costs and deliver products to the consumer faster. This is done by keeping tighter control of
internal inventories, internal production, distribution, sales, and the inventories of company
vendors.

SCM is based on the idea that nearly every product that comes to market results from the
efforts of various organizations that make up a supply chain. Although supply chains have
existed for ages, most companies have only recently paid attention to them as a value-add to
their operations.

In SCM, the supply chain manager coordinates the logistics of all aspects of the supply chain
which consists of five parts:

 The plan or strategy

 The source (of raw materials or services)
 Manufacturing (focused on productivity and efficiency)
 Delivery and logistics
 The return system (for defective or unwanted products)

The supply chain manager tries to minimize shortages and keep costs down. The job is not
only about logistics and purchasing inventory. According to Salary.com, supply chain
managers, “make recommendations to improve productivity, quality, and efficiency of
operations.”

Improvements in productivity and efficiency go straight to the bottom line of a company and
have a real and lasting impact. Good supply chain management keeps companies out of the
headlines and away from expensive recalls and lawsuits.
 Logistics and Channel Management of Nescafe in India – A Study
Objective of the study:
 The objective of the study is based on the strategy adopted by Nestle India Ltd. for
managing supply chain processes of Nescafe.
 The study focuses upon:
 Process views of Supply Chain.
 Social welfare programs for sustainability of Supply Chain.
 Major issues and challenges with coffee supply chain.

Introduction
• The collection of all producers, suppliers, distributors, retailers and transportation,
information and other logistics providers that are involved in providing goods to end
consumers. A supply chain includes both the internal and external participants for the firm. -
Chow & Heaver (1999)
• Since around 1990, companies across a wide variety of industries have become increasingly
interested in exploring the opportunities for competitive advantage that can be gained by
leveraging the core competence and innovative capabilities to be found among network of
business partners.

Channel Management of FMCG Sector in Indian Context

• Proper channel management provides capabilities to overcome the disadvantages of
logistic infrastructure in short run while enabling the businesses to develop
competitive advantages in long run.
• Technology in supply chain has been upgraded over time enabling FMCG firms like
Nestle to monitor customer Take-Offs in a better way.
• The agri-business sector’s supply chain, has witnessed significant changes with
increase in investment for cold-chains across the country.
• Warehousing is generally provided by third party which have lack proper facilities
due to lack of investment and infrastructure.

Overview of channel management of coffee Industry

• Coffee is one of the world’s most valuable agricultural commodities and is widely
traded across the globe.
• Corporate firms face challenge of operating global supply chain profitably and CSR
plays important part to ensure it.
• The market and demand for differentiated coffees is still growing. So to ensure
healthy and sustainable producer-buyer relationship, speciality coffee trade requites
short global value chains (GVC)
• The supply chain of coffee is complex and generally involves many stakeholders :
– Growers
– Intermediaries
– Processors
– Government agencies
– Exporters
– Brokers/ Dealers
– Roasters
– Retailers
The NESCAFÉ Plan
• Nestlé launched the NESCAFÉ Plan in India in the year 2012.
• By working closely with Indian coffee farmers for training and development and
ensuring competitive prices, transparency and traceability, Nestle India Ltd. is seeking
to ensure coffee supply chain sustainably.
• Setting up Coffee demonstration farm.
• Farmers are given high-yielding, disease resistant plantlets suitable for Indian
conditions.
• Suppliers of coffee bean are mentioned below :
– Trade International Ltd.
– Karnataka Plantation
– Best of Coorg
– Prabhath coffee Works.
• Primary operations that are coffee are carried out by farmers and smallholders are
discussed below.
• Growing: Coffee plant grows best in a humid, warm climate with a relatively stable
temperature around 27ºC all year round.
• Processing : Coffee cherries picked from the plant goes through many processes to
end as the saleable product - the green coffee bean:
– Picking
– Drying and hulling
– Sorting, grading and packing
• At Nanjangud Factory, four more operations are carried out on coffee beans before
they are ready for being used in production of various coffee products.
– Blending: Coffee blending is done by experts. Quality and taste of each and
every variety of coffee mix has to be same and as per standards.
– Roasting: Green beans are roasted under controlled environment. Roasted
beans are brown in colour and have characteristic aroma of coffee.
– Grinding: Coffee beans are ground to convert coffee in powder form
– Evaporation and spray drying: It is done to eliminate extra moisture from the
grinded coffee beans.
– Bulking
– All these steps are carried out by the suppliers according to the desired
standards and requirement of Nestle.

Sourcing of Chicory
• Chicory is an important ingredient for various coffee drinks. (For example, Nescafe
Sunrise has 30% chicory content)
• In 2001 Nestle started developing new areas to cultivate chicory. Support was given
to Paras Spices in 2005 to diversify into chicory roasting and to start cultivation with
local farmers.
• The suppliers were trained on sowing, drying and roasting of chicory.
• Currently Nestle is connected to more than 7500 farmers and 7 suppliers for
procurement of chicory.
Packaging:

• Packaging protects food products from damage due to external environment and
keeps them safe till consumption by customer.
• Coffee is packaged by Nescafe in attractive jars and sachet of various sizes.
• Nescafe sources jars and sachet from third party suppliers.
• Air tight foiling is done for keeping the coffee fresh for long time.
• After packaging, labelling of jars is done.

Process Views:
• Cycle view
 • Push/Pull process: Nestle follows push based supply system. Pull System is only
prevalent at penultimate node of supply chain i.e. retailers.

Downstream Supply Chain of Nestle India:

• Nescafe does not have exclusive downstream supply chain, that is, Nescafe reaches its
consumer in the same way as other products of nestle.

• Nescafe is manufactured at Nanjangud Factory of Nestle India Ltd. Supply chain is

relatively new function at Nestle India. It was formed in 1998.

The channel is divided into 6 sub-functions:

• Category Demand Planner: It is responsible for demand forecasting of each
category of products. Over there are 7 CDP at head office. CDP of Beverages looks
after Nescafe. Demand is forecasted SKU wise for each distribution centre.
• Customer Service and distribution: It looks after key customer accounts and
facilitates distribution operation for them.
• MIS Officer: It is responsible for handling SAP system and coordination with IT
department. Responsibility of MIS officer is generating various reports and Analytics.
 • Distribution Resource Planner: DRP is responsible for allocation of unskilled
labour, Distribution Centre Staffing, DC layout, equipment and machinery purchase
planning.
• Logistics and Budgeting: It is responsible for handling 3PLs.
• Warehouse Manager: It is responsible for maintenance of warehouse facility.
Storage of products as per norms, maintaining FIFO, Implementation of stacking
rules, Safety standards for staff (Safe by Choice principles). Order processing and
billing for every State DC is done by OMC. OMC generates orders based upon
NORMS. Norms are prepared automatically based mainly upon sales of every cash
distributor.
• OMC-DC-CD co-ordination: It is ensured by Supply chain management department.
Timely delivery of order after invoicing is critical. It is also responsible for physical
loading stock to vehicles. It replenishes stock information (logical and automated
process). DC supply stocks to every CD. Timely and exact delivery of ordered stock
is very essential, it is ensured by CSP. CSP (customer service plan) is planning of
next 18 days in advance. Order consignment is delivered at CD point from DC
godown on next day of invoicing.
• Norms: Minimum quantity of stocks which needs to be there at CD pt. on the day of
Invoicing. It is affected by factors such as LY, TY, Sales Plan, Festival, Season, etc
Generated Order = Norms – physical holding – In-transit

Analysis of the CM at Nestle:

• Nestle has adopted the policy of “Creating Shared value” (CSV) for development of
Supply chain partners.

• Nestlé India ltd is determined and willing to pay fair price for coffee produce to
farmers as good quality raw material is essential for business.
• Nestle promotes better agricultural practices, support rural development in line with
local priorities, and address supply chain issues from gender inequality to
deforestation.
• The Lean Supply Chain of Nescafe is ensured by NCE.
Issues and Challenges
– Overproduction
– Lead Time management
– Quality Maintenance throughout the SC
– Excess Inventory
– Seasonality

Finding of the study

• Nescafe channel is well coordinated alignment between its supply chain partners.
• Coffee business is thriving because of strong distribution network, through which
Nescafe available in every part of our country.
• But the channel management of Nescafe in India is still in developing stages as
compared to that in developed Countries. This is mainly due to lack of investment of
other supply chain partners and poor infrastructure.
• Complexity of managing supply chain partners is increasing.
• Although Creating Shared Values principal is fruitful in long run but it also requires
huge capital investment.
• CSV for coffee is still in initial stages as compared to other businesses of nestle.