COURSE TITLE: SUPPLY CHAIN MANAGEMENT

COURSE FACILITATOR: SIR SOHAIL MAJEED

DATE OF SUBMISSION: 5TH MAY, 2012
SUMITTED BY: MARIA BATOOL, HUDA GHULAM NABI, JAZIBA
NISAR, ASAD YASEEN, DANISH AHMED

“REPORT ON NESTLE COMPANY’S SUPPLY CHAIN

MANAGEMENT WITH EMPHASIS ON WAREHOUSE”
NESTLE PAKISTAN LIMITED

Nestle Pakistan is actually a food and beverage processing company which has an origin of
Switzerland, it had started its operations in Pakistan from 1988, they have their headquarter located in
Lahore, and have come up with a motto which is to enhance the quality of life of people. It has a
separate department for supply chain management which was founded in 2001, it enabled them to
achieve several milestones like implementation of GLOBE (Global Business Excellence) in 2005,
centralized demand and supply planning in 2003 etc. Now they are operating with a fully integrated
chain of processes to ensure the delivery of right products to the right customers at the right time and
at the right cost and quality as well. They never compromise on quality and remain focused on their
bigger goals; they do not sacrifice their long term goals for short term benefits. As a result of such
value added practices, Nestle Pakistan has now become one of the leading companies of Pakistan in
food and beverages having a clear vision of ensuring the health and wellbeing ness of people at the
same time. 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. They know that the success of a corporation
depends upon the professionalism of its employees, the recruitment of the right people for the right
job is also important and the responsible attitude while working in an atmosphere where hygiene and
quality is the top most priority. The whole operations under the banner of Nestle from processing,
manufacturing, packaging, storing, sales, import to export is well maintained and managed via an
efficient supply chain management.

What is a warehouse and why is it important?

A warehouse used to receive, distribute, store dependent and independent goods, it plays an important
role in the whole supply chain as it is an important entity in the integrated chain which plays a vital
role in the achievement of the bigger goal of an organization which is return on investment.

Nestle warehouse performs the functions of receiving, storing and distributing the finished products of
Nestle which includes:

 Nestle Beverages like Fruita vitals (guava, apple nectar, chaunsa nectar, grapes nectar, and
pineapple, orange).
 Nestle coffee like Nescafe, Nestle creamy, and Nestle original.
 Nestle Milk Products are further divided into two sub categories:
The first one comprises of powdered milk products and the second one is comprised of liquid
milk products. Powdered milk includes Everyday & Nido while liquid milk includes Nestle
Milkpak, Nestle milo, Nesvita.

They had almost all of the beverages and milk products except water.

WAREHOUSE, an important element of integrated supply chain

Warehouse is one of the most important elements in the integrated chain of supply from raw materials
to finished goods. Nestle has structured its warehouse on the basis of the following things: demand
planning, source planning, production and delivery.

First the demand is forecasted on the basis of target set by the sales department.Nestle has a separate
demand and supply planning department and the purpose of this department is to forecast what is
going to be demanded and what quantity of product should be produced such demand, the indication
of demand is forecasted on the data given by warehouses, which gives details about the products
outflows and consumption. This department plays a vital role in the success of Nestle and has a very
sensitive role to play as any wrong forecasting will result in big losses as Nestle deals with perishable
products which can not be stored for years. After the demand has been forecasted now its time to plan,
what should be produced? How it should be produced? Where it should be produced?Among all the
above questions the most important question is how it should be produced which includes what kind
of raw materials we need, what quality of raw materials we need, what process should be adopted to
manufacture the product.

The next step is the source planning. There is a manager appointed to plan the sources from where the
raw materials should be acquired. A tender is passed to all suppliers which then gave their proposals
and then negotiations are held and purchase orders are issued. After receiving raw materials from the
supplier, there is a quality assurance department which ensures the quality of product which should be
according to the standards, for example in the case of milk once the farmers delivers the goods to the
manufacturing plants, its quantity of fats is being checked and if the fats are not according to the
required standards it is rejected immediately. Once the raw materials enters the manufacturing unit it
is processed with intense care to maintain the name and quality which Nestle creates and maintains
throughout their existing period. Once raw materials have been converted into finished goods, it is
then properly packed according to the international standards and then it is delivered to their assigned
zones. They have two national distribution centers in Pakistan at Kabeerwala and Shekhupura and
distribution operations have divided sales zones into central zone (Multan, Faisalabad, and Lahore),
south zone (Karachi, Hyderabad) and north zone (Islamabad, Rawalpindi) of Pakistan. After reaching
the desired destination Nestle keeps their products in warehouses from where it is delivered to
distributers and airlines like Shaheen International, hotels and motels like Pearl Continental and
Sheraton etc. In Pakistan, Nestle Company do not supply to direct customers. The discounts are given
to the out of home customers not to the key accounts.. For delivering, they have outsourced their
logistics to Agility, BasheerSiddiq, united linkers, Choudhry brothers, Majeed goods etc. The reason
for their outsourcing is that Nestle had its own logistics but due to some political issues, their lots of
trucks and containers were burnt which causes them big losses and Nestle Pakistan had a set back so
they decided to outbound their logistics.

Being under the banner of Nestle, they keep their practices under the ethical laws and cares for the
environment. They believe in environmental friendly practices that are why they do not locate their
warehouses in residential areas instead they go for industrial areas for warehouse’s site selection.

How to manage a warehouse?

LOCATION OF WAREHOUSE

Nestle warehouse is located in Karachi at Korangi Industrial area near Brookes round about. Nestle
has located its warehouse in Karachi as it is a port city and a hub for business activities.

Employee hierarchy of warehouse:

The warehouse is not much densely populated. There was a supervisor, one assistant, 4 pickers, 2
loaders and 2 gates.
SITE SELECTION

The reason behind the selection of this site is safety and security which is the top most priority for
Nestle a multinational company of Switzerland, even if there are severe circumstances in other areas
of city still this site remains calm and clear. Another reason behind the site selection is that Korangi is
not in commercial area, it is an industrial area where many multinationals are operating already and
no hazards to residential areas could be an issue. The other reason is the cheaper rates of rented
buildings there because to purchase a site for building warehouse would be an added cost along with
construction expenses. Cost of utilities and services along with transportation of goods from
warehouse can be easily managed.

CENTRE OF GRAVITY

It is a centre location for receiving the company’s goods which are further distributed from here to
bigger distributers like FDM, retail outlets, super marts and hotels.

DESIGN CRITERIA OF WAREHOUSE

The warehouse of Nestle located in Korangi is an open one where no racking or shelving and stocks
are kept on pallets having information tags on every carton units and also information plates were
placed on the top most units of every pallet.

The height of the warehouse was 17 feet ceiling above the floor where ample place was available to
stock large number of units of goods.

The warehouse building was divided into two sections, one section carries lighter weight products and
the other one carries heavy weight products. There were two gates, one for the receiving of the goods
and one for the distribution of the goods, in this way time can be saved when receiving and
distribution of goods can be done at a time, provided the availability of two gates. Just outside the
warehouse and inside the main gate, there was a room for guards and workers to keep a check that is
coming and going out of the warehouse and also to ensure safety and security.

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.

GOOD WAREHOUSE PRACTICES

The good warehouse practices of Nestle are found to be,

 Nestle warehouse gates were made in such a way that it does not left any space for the reptiles
or other animals like cats, mouse, lizards to enter the warehouse because if they will enter
they will destroy the packaging and quality of the stock. Moreover as they have food items so
there are more chances of stock getting damaged? As Karachi is a city where chances or
robberies and dacoitees tend to be a bit more so a well packed gate also minimizes the
probability of pilferage cases.
 For more protection, mouse traps were also placed throughout the warehouse which was
regularly maintained. There were 20 mousetraps in the warehouse of Nestle.
 According to the international standards the warehouse should not have washrooms within the
premises. Nestle a well known multinational also follows the international practices and there
were no washrooms within the warehouse, they had separate building for offices and within
those offices they have washrooms. According to the interviewee, the reason behind this
measure is to ensure the hygiene of personals and products within the warehouse as they have
fast moving consumption items, the leakage and damage of sewerage or water supply
pipelines will seriously harm the stored products.
 Another measure which Nestle took was of safety shoes. Shoes were made with leather
having hard plastic covering on the upper side to protect back and upper feet both. The shoes
were designed in such a way that it ensures the safety of the feet of warehouse workers in
case of incidents like if heavy cartons falls during moving inside the warehouse or outside to
the delivery trucks their feet may get injured if safety shoes are not worn. Another reason for
safety shoes is that it should be worn when you enter warehouse so that no dust or other
garbage material from outside the warehouse can not be enter in, it will keep the warehouse
neat and clean.
 To maintain the quality of the stock, Nestle warehouse contains the temperature indicator
which shows the temperature and humidity. The reason behind this security measure was to
ensure that the milk which contains the more probability of getting perished can be saved
from wastage. Nestle maintains the temperature up to maximum 37 degree Celsius, if
temperature rise above 37 degree they have exhaust fans to maintain it within the specified
limits suitable for milk and other products kept in the warehouse.
 There was a separate guard room at the entrance of the warehouse and they are trained to keep
record of the visitors and workers as they come in and go out of the warehouse. Pilferage has
always been a major concern for warehouses, in order to stop pilferage and keep the security
intact, hired guards play a vital role, Nestle being a multinational firm has certain standards
for maintaining safety and security, and for pilferage stoppage as well.
 Environmental friendly practices has always been one of the top most priorities of Nestle a
well reputed company , known for its contributions by keeping the environment safe and
secure, their objective is to ensure the green environment while keeping their profits and
business activities intact.

STOCK KEEPING METHODS UTILIZED BY NESTLE WAREHOUSE

Stock keeping of nestle is maintained by a software SAP( Systems Application and Products data
processing), it is an independent software and its applications used for managing financial, asset,
cost accounting, production operations and materials, management of inventory, personnel, plants
and archived documents. They have recently come up with advanced applications under their
existing e-businesses which are customer relationship management and supply chain
management. The benefits sought while using it in warehouse are:

 Easily accessible
 Efficient management of inventory
 Accuracy in recording and managing information
 Independent software and easy to operate
 Provide integration among various operations through its software applications
 Time saving and reduced costs
 Good user interface and needs no training for the end user
 Another method which is used by Nestle for maintaining its stocks practiced manually at this vary
warehouse, for this particular purpose the stocks are counted by the “inventory clerk” which is
specifically hired for the inventory counting and checking on daily basis. Then the stocks which are
counted are recorded on the whiteboard which are placed inside the warehouse, it gives whole
information about the inventory which is based upon the numbers of products in lanes, the names of
products, volumes of products and salvage stocks. Further more, the white boards are updated every
time the picker picks up the goods for the incoming inventory and in the same way it is also being
updated as soon as some inventory is loaded on trucks for exit.

For further verification and information about the stocks, barcodes are placed on the cartons of the
various products, these barcodes are scanned at the time when the goods are carried into the
warehouse and also when units from inventory are carried out of the warehouse.

Every batch of goods contains a specific batch code which gives information about the year in which
that particular product was manufactured, the day of the year in which it was packed, a plant code in
which it was manufactured as every product is manufactured in different plants, the number of times
the goods go through to the machine e.g. ; if a good is processed without any interruptions when it is
cycled through the machine without any failure caused due to either running out of raw materials or
break down of machine, the goods are said to be completed in a single run. At the last batch code
contains a machine code which gives information about the machine in which goods are processed
which is allocated by the manufacturing department of the Nestle company which increases the
efficiency of product maintenance to help them to avoid losses in future in case of any product
damage which could be a reason of the failure or inefficiency of the machine in which it was
manufactured. The machine code is also a helpful tool in case of any product failure, as the
traceability of a product through this code is quite easily accessed information about the machine in
which it was manufactured. An example of a batch code is illustrated as follows:

2 060 1581 1 U
Year 2011 Plant code Machine code

Day of year it
Run of machine
was packed

20

220
GOODS PICKING, ORDERING AND DELIVERING PROCESS

Goods picking:

There were 5 pickers in the warehouse for picking up the goods according to the orders given by the
supervisor. The supervisor issues a list to a picker which contains the quantity of products, name of
the products, the batch number, lane number and the pallet number. Then the pickers comprises of 4
men went to the specified location for the collection, 2 pickers involve in lifting the products, one
passes instructions and the other rechecks if the goods are properly picked or not. The picking list
contains the products which has a relatively a longer life span in warehouse as they follow the method
of FIFO (First in, First out) which means that the goods which enters first in the warehouse should be
dispatched first and the goods which are newly entered into the warehouse shouldbe dispatched later.
The reason behind the adoption of this method is that Nestle deals with FMCG (Fast Moving
Consumer Goods) which have a limited life or expiry date so the goods which manufactured first
should be consumed first. So in this way the wastage of goods can be reduced which will result in cost
minimization and one of the purposes of warehouse which is to minimize the wastage, can be
achieved.

Goods ordering:

The warehouse in charge after receiving orders from different distributers and customers, place order
to their main warehouses which are also known as national distribution centers located in Sheikhupura
and Kabeerwala on the basis of LIFO ( Last in, First out) as they want the latest manufactured product
because the product will also take transportation time and also took time to be recorded, placed and
then further delivered to the market as all the products they deal with, are of perishable nature which
contains an expiry date of a relatively smaller time period. For example milk which should be
consumed within 6 months from the date of manufacturing so the warehouse in Karachi requires latest
product from the main warehouse.

Delivering process:

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 is initiated. The supervisor of the warehouse rechecks
the goods which were picked to ensure the necessary confirmation about the quality of products, their
packaging which is based on packing of cartons and in the last the loading of goods to the required
truck.

CONCLUSION:
Warehousing plays a vital role in the whole integrated supply chain of the Nestle. It is warehouse who
sends information to sales departments which then plans for demand and supply of the products of
nestle. After planning the manufacturing starts and then after manufacturing it is shifted to warehouse
from where it is transferred to distributers and consumers

Ware house of nestle is located in KORANGI INDUSTRIAL AREA. It is an open warehouse where
there is only one floor and two gates are there one for inbound and other for out bound. The
warehouse of nestle have to be maintained with intense care as it contains the products of perishable
nature which can be damage easily. So they have to be kept in proper temperature in order to keep
them save from any kind of wastage as if the milk or juices are not kept in proper temperature they
will not be able to consume and it will results in damage. To avoid such damage they placed a
temperature meter in each portions for temperature indications and .further more nestle warehouse
also maintain the high level of security by maintain proper gates and security plan. For the safety of
stock the gates were fully packed and it as made of such kinds that no reptiles and other animals can
enter the warehouse. For more security mouse traps is also placed through out the warehouse. Ware
house was divided into various lanes where goods are kept on the pallets according to batch and lot
numbers and a u shaped path was made for the picking and placing of the goods which decrease the
motion and time wastage. Stock is maintained by computerized and by physical way. They follow the
method of first in first out to maintain the stock as these products have limited expiry periods. There
are four pickers of good two for lifting one for giving instruction and one for checking the picking if it
is properly picked or not. The whole warehouse is leaded by the one supervisor and one assistant.

RECOMMENDATIONS FOR THE BETTERMENT OF A WAREHOUSE

The warehouse of Nestle Pakistan was good however further steps and measures can be taken
to improve its operations, some of the recommendations are as follows:

 More and more automated system should be implemented to reduce the costs and the
chances of errors and it will also allow the more concentrated work on other important
factors of the warehouses such as receiving, supplying, maintaining quality and
storing goods with less consumption of time.
 Operational costs can also be decreased by improving the overall warehouse layout in
a way that inbound and outbound flows become even more smoother.
 There is an ample space to form shelves as Nestle warehouse has a ceiling height of
17 feet still they have not utilized this space by making shelves there, if they do
shelving it will allow the storage of goods in segregation of allocated sections for a
variety of goods.
 Try to minimize the hand touches can also minimize the cost of fulfilling an order, it
means the lesser the handling involve while shipping an order by adopting operations
in which quick supply is ensured will reduce the costs. For this purpose, cross docking
can be a good option.
 Manual checking and noting down the units quantity on whiteboards is outdated kind
of a thing now, automated systems and effective warehouse management system
should be adopted to reduce time wastage.
 Although the costs of installation of voice picking technology is a bit more still its use
will pay in future a lot, using this technology will definitely decrease the lead times,
improve efficiency and reduced costs.