SUPPLY CHAIN

MANAGEMENT
REPORT
SUPPLY CHAIN
MANAGEMENT OF LOCAL
MILK SHOP (RAZA DIARY)
AND NESTLE MILK PAK.
SUBMITTED BY

Submitted to: Mahnoor syed

Kiran hussain
Mujtaba Hussain Farwah barrister
Hina zafar
Bahria Tooba butt
Mohammad Ausaf
University Muzzammil Ur Rehman
Hamza Jaffery
4/28/2016 Arsalan Ahmed
Contents
Acknowledgement .......................................................................................................................... 5
DATA GATHERING ..................................................................................................................... 6
DATA COLLECTION ................................................................................................................... 6
SOURCES....................................................................................................................................... 6
NATURE ........................................................................................................................................ 6
APPROACHES............................................................................................................................... 6
INTRODUCTION .......................................................................................................................... 6
SUPPLY CHAIN MODEL ............................................................................................................. 7
DIVISION OF WORK ................................................................................................................... 8
SUPPLY CHAIN OVERVIEW ...................................................................................................... 9
CROSS FUNCTIONAL DRIVERS: .............................................................................................. 9
INFORMATION: ........................................................................................................................... 9
PRICING: ....................................................................................................................................... 9
SOURCING: ................................................................................................................................. 10
LOGISTICAL DRIVERS ............................................................................................................. 10
FACILITIES: ................................................................................................................................ 10
INVENTORY: .............................................................................................................................. 10
TRANSPORTATION:.................................................................................................................. 11
DEMAND ANALYSIS ................................................................................................................ 11
DEMAND UNCERTAINITY ...................................................................................................... 12
CAUSES ................................................................................................................... 12
PROBLEMS ..................................................................................................... 12
DEMAND UNCERTAINTY IN RAZA DAIRY ......................................................................... 13
HOW TO MANAGE DEMAND UNCERTAINTY? .................................................................. 13
IMPLIED DEMAND UNCERTAINTY ...................................................................................... 14
LEVELS OF IMPLIED DEMAND UNCERTAINTY ................................................................ 14
IMPLIED DEMAND UNCERTAINTY IN RAZA DAIRY: ...................................................... 14
STRATEGIC FIT.......................................................................................................................... 15

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HOW STRATEGIC FIT IS ACHIEVED? ................................................................................... 15
ZONE OF STRATEGIC FIT ........................................................................................................ 15
STRATEGIC FIT IN RAZA DAIRY ........................................................................................... 15
RESPONSIVENESS SPECTRUM: ............................................................................................. 16
COMPETETITVE STRATEGY OF RAZA DAIRY: .................................................................. 17
IMPLICATION ON SUPPLY CHAIN STRATEGY: ................................................................. 17
DISCUSSION OF SUPLY CHAIN MACRO PROCESSES ....................................................... 17
BREIF INTRODUCTION: ........................................................................................................... 18
RAZA DAIRY’S MACRO PROCESSES OF SUPPLY CHAIN ................................................ 18
CUSTOMER RELATIONSHIP MANAGEMENT ..................................................................... 18
INTERNAL SUPPLY CHAIN MANAGEMENT ....................................................................... 19
• DEMAND PLANNING: ................................................................................................... 19
• SUPPLY PLANNING:...................................................................................................... 19
• FULFILLMENT: .............................................................................................................. 19
• FIELD SERVICE: ............................................................................................................ 19
INTERNAL SUPPLIER RELATIONSHIP MANAGEMENT (ISCM) ..................................... 21.
SOURCE:. ......................................................................................................................... 19
NEGOTIATE: .................................................................................................................. 20
BUY:. ................................................................................................................................. 20
SUPPLY COLLABORATION: .................................................................................. 20
SUPPLY CHAIN MANAGEMENT OF NESTLE MILK PAK .............................................. 21
History ....................................................................................................................................... 22
Introduction ............................................................................................................................... 22
Location of Office in Karachi: .................................................................................................. 22
Corporate Resident Office ..................................................................................................... 22
Supply and Demand: ................................................................................................................. 22
Livestock Population .................................................................................................................... 23
Milk Pak Milk Demand Variations: .......................................................................................... 24
Variations in supply of milk: ..................................................................................................... 24
Demand Uncertainty ................................................................................................................. 24
Supply Chain Management At Nestle. ...................................................................................... 24

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Supply Chain Strategy at Nestle................................................................................................ 25
Measures Taken To Attain Strategic Fit ................................................................................... 25
ERP System ............................................................................................................................... 25
RAW MATERIAL PROCUREMENT ..................................................................................... 26
Sources of milk supply .............................................................................................................. 26
Direct Sources: .......................................................................................................................... 26
Contractor Based Collection: .................................................................................................... 26
Push-Pull Point .......................................................................................................................... 27
Logistics & Warehousing .......................................................................................................... 27
Integrated Logistics: .................................................................................................................. 27
Inbound Logistics: ..................................................................................................................... 27
Shelf life of Milk Pak: ............................................................................................................... 27
Return Policy Of Milk Pak Milk: .............................................................................................. 27
Outbound Logistics: .................................................................................................................. 28
Distribution Networks ............................................................................................................... 28
Distribution Process .................................................................................................................. 28
Distribution Channels:............................................................................................................... 29
Challenges ............................................................................................................................. 29
Demand Supply Imbalances .................................................................................................. 29
Low Information at Collection Centre Milk .......................................................................... 29
Quality Milk .......................................................................................................................... 30
RECOMMENDATION ......................................................................................................... 30
Which one is better? Local or Branded? ............................................................................... 30
CONCLUSION ..................................................................................................................... 31

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 ACKNOWLEDGEMENT

We would like to offer our humble gratitude to ALLAH Almighty, the most Gracious and the most
Merciful, who gave us strength and enabled us to achieve our goals.

The main purpose of the project is to know about the Practical implementation of all the concepts
we studied in the Supply Chain Management course.

All the material that has been included in this report is based on data/information gathered from
various sources and is based on certain assumptions. Although, due care and caution has been
taken to compile this report but the contained information may vary due to any change in any
of the concerned factors, and the actual results may differ substantially from the presented
information.

We are heartily thankful to our SCM teacher Mujtaba Hassain whose constant guidance and
support enabled us to develop an understanding of the subject which ultimately helped us in
making of this project.

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DATA GATHERING

DATA COLLECTION:
Firsthand information has been collected by interviewing the owner of the shop Mr. RAZA. Data
regarding the supply of milk, daily sales, demand of the product, product variety, etc have been
obtained and analysis have been based on that data collected.

SOURCES:
Information collected by means of interviewing the owner and observing the environment at the
shop has been used to interpret and define the supply chain and other concerning factors of local
milk shops.

NATURE
All data collected is of primary nature as it has been collected directly from the owner without
any interruption. There is no chance of data distraction or misrepresentation.

APPROACHES
• SHOP VISIT
Data has been collected by visiting the shop and asking a wide range of questions to the
owner to get all the information about the entire supply chain and all other concerning
factors.

• OBSERVATION
Certain information has been known by observing the environment at the shop such as
the hygiene at the shop, the way customers are served by the workers and rate of
incoming customers.

INTRODUCTION
Supply of milk is very tough job and must be done with special care and effort. It requires one to
handle it in such a way and store while transportation in containers that ensure no harm to milk.
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 As it is a necessity and is demanded extensively on daily basis, therefore any kind of
carelessness might result into heavy losses as milk is a perishable item and might lose all its
benefits if not taken care of and stored as required. Milk is mostly demanded fresh and at the
time of use and is not purchased in large quantities for storage purpose.

The supply chain of a local milk shop as compared to MILKPAK has been discussed and
analyzed in the report. The local milk shop selected is RAZA DAIRY located at Soldier Bazar.

Supply chain model of a local milk shop consist of a supplier, distributor, service provider and
customer. Milk extracted at the farm is then stored in 40KG cane which is then distributed to
various milk shops and other destinations. This process is done twice a day. The distributor is
called “Pekaar” who delivers milk at the milk shops from the farm. Mostly a single Pekaar is
committed to deliver milk at a shop. Shops in an area might have different or similar suppliers; it
depends on the terms between the two. Shops demand delivery twice a day to meet the customer
demand efficiently. The recorded demand at Raza dairy is maximum 1000 ltrs/day. Milk at the
shop is stored in chillers which have a capacity of 800ltrs; therefore supply demanded is 500ltrs
twice a day. Chillers help store milk at 10C.

SUPPLY CHAIN MODEL

SUPPLIER DISTRIBUTOR SERVICE CUSTOMER

PROVIDER
Farm owner pekaar
RAZA DAIRY

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DIVISION OF WORK

FARWAH BARRISTOR
• INTRODUCTION
• DATA GATHERING

HINA ZAFAR
• COMPETITIVE STRATEGIES
• DISTRIBUTION PROCESS

TOOBA BUTT
• COMPARISON
• DISTRIBUTION CHANNEL

KIRAN HUSSAIN
• DRIVERS
• DEMAND ANALYSIS

MAHANOOR
• MACRO PROCESSES
• PREFERENCE BETWEEN THE TWO

AUSAF
• HISTORY AND INTRODUCTION OF NESTLE MILPAK
• CONCLUSION

ARSALAN
• SUPPLY CHAIN PROCESS
• DISTRIBUTION

MUZZAMMIL AND HAMZA ANWER

• DEMAND AND SUPPLY
• DEMAND UNCERTAINTY
• STRATEGIC FIT

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SUPPLY CHAIN OVERVIEW

CROSS FUNCTIONAL DRIVERS:

• INFORMATION
• PRICING
• SOURCING

INFORMATION:
Information connects various supply chain partners and allows them to coordinate activities.
Information is crucial to the daily operations at each stage of the supply chain. An
information system can enable a firm to get a high variety of customized products to
customers rapidly and to understand the changing customer’s tastes and preferences.

In local supply chain of milk all the activities of the supply chain is connected by pekaar.
Basically Pekaar is a distributor. The information is the source from which a supplier
identifies the needs of the customers, is able to forecast the demand, create variety for the
customers etc.

PRICING:
Pricing involves determining the charges for the goods or services offered by the
manufacturers. The price of the product affects the buying patterns of the customers thus
affecting the supply chain performance.

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 Our local supply chain of Raza dairy have different prices which varies according to the
season because the manufacturer of Raza dairy changes their pricing which bring changes in
supply chain and customer buying patterns. Like in summer manufacturer delivers the milk
for Rs.70 per liter so Raza dairy sales it at Rs. 85 per liter. But in winters manufacturers
delivers the milk at Rs.56 per liter so Raza dairy also gives benefit to its customers and sales
it at Rs.65 per liter.

SOURCING:
Sourcing is the process of purchasing the materials required for the production of the final
products. Components of the sourcing decisions are the evaluation and the selection of the
suppliers, in house or outsourcing.

Pekaar is a distributor who brings the milk to Raza dairy. Basically Raza dairy is getting the
milk through outsourcing.

LOGISTICAL DRIVERS
• FACILITIES
• INVENTORY
• TRANSPORTATION

FACILITIES:
Facilities are the physical locations where the products stored or assembled. The major types of
facilities are production sites and the storage sites. Economies of scales are used in centralization
of facilities to increase supply chain efficiency.

Raza dairy have their own chillers in their shops. There’s a kind of a machine which brings the
temperature of the milk from 30 to 10. The capacity of the machine is 800 liters.

INVENTORY:
Inventory consists of the raw materials, work in progress and the finished goods. Changing
inventory policies can largely affect the efficiency and the responsiveness of the supply chain. 3
basic decisions to be taken by the business regarding inventory are, cycle, safety and the seasonal
inventory decisions.

Raza dairy stores their milk in their containers. They receive their supply two times a day, 500
liter each time and their daily sales are about 800 to 1000 liters.

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TRANSPORTATION:
Transportation refers to the modes and routes for moving inventory throughout the supply chain.
Faster transportation ensures more responsiveness but less efficiency of supply chain.
Transportation supports a firm's competitive strategy. The different ways of transportation
includes rail, road, sea water, pope lines and the air ways. Electronic transport is the fastest and
the efficient mode of transportation. Transportation decisions includes mode, routes and in house
or outsourcing the transportation.

The milk is transported through trucks. As mentioned above, supply is received 2 times a day,
500 liter at a time.

DEMAND ANALYSIS
Demand of Raza dairy is estimated by the daily sales of the shop. The demand of the milk
depends upon the seasons, festivals etc. In general Raza dairy has estimated the demand of 1000
liter per day. So it receives it supply two times a day. 500 liter at a time and approximately 800
liters are sold per day and rest is stored in containers for next day. The sales of Raza dairy
depend upon the seasonal demand.

As in Eid the demand of the milk increases a lot and can be sold 1000 liters in few hours which
are the daily demand of Raza dairy in normal days. So before ordering from the suppliers it is
very important for retailers to do demand analysis.

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DEMAND UNCERTAINITY

Demand uncertainty means your business has difficulty accurately projecting customer demand
in the future. This poses a significant challenge because it makes inventory hard to control and
manage. Using technology to monitor sales over time can help offset demand that fluctuates
from one period to the next.

CAUSES:
Uncertain demand results for a variety of reasons. With more seasonal merchandise
where demand fluctuates over time, spikes and dips vary in strength. Changes in customer
interests and needs, technology development and the number of competitors you face can all
impact your demand as well. These factors may lead to increases in buying relative to
expectations or declines in buying relative to your forecasts.

PROBLEMS
Demand uncertainty creates a burden for your business. Goals of inventory
management usually include minimizing stock-outs while avoiding the high cost of holding
excess inventory. When you can't accurately predict demand, you run risks of one of these
happening. You may over-buy inventory to protect against running out. This leads to the need to
store extra products, offer discounts or throw out excess. If you buy less to prevent waste, high
demand can lead to stock-outs and upset customers.

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DEMAND UNCERTAINTY IN RAZA DAIRY
Milk is a product which demand is uncertain. It varies according to the seasons and festivals.
The demand uncertainty depends upon the nature of the product example; the demand of sugar,
salt, rice etc is certain. These items are demanded all over the year without any seasonal
restrictions.
On the other hand, the demand of milk is uncertain. It is demanded all over the year but yes it
demand varies according to the seasons like in Ramzan, Eid, Summers the demand increases and
in winters demand decreases but its whole demand can never decrease because it is required in
many items.

HOW TO MANAGE DEMAND UNCERTAINTY?

When the demand will suddenly increase or decrease the company will have to manage this
uncertainty in such a way that their customers should not suffer and company should not face
any loss.
In Raza dairy when demand increases due to seasonal effects so they hire one or two more
pekaar who brings more amount of milk to Raza dairy so that he should not face stock out
situation.
When the demand decreases in Raza dairy, where he use to order 1000 liter per day , he
decreases his supplies and order 500 liter per day so that at the end of the day he should not face
any kind of loss.

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IMPLIED DEMAND UNCERTAINTY
Implied demand uncertainty: resulting uncertainty for. the supply chain given the portion of
the demand the. Supply chain must handle and attributes the customer.

LEVELS OF IMPLIED DEMAND UNCERTAINTY

IMPLIED DEMAND UNCERTAINTY IN RAZA DAIRY:

In Raza dairy demand of milk is uncertain so due to this uncertainty there will be huge effect on
supply chain. All the channel members will get disturbed because of uncertainty so what Raza
dairy did was, When the demand of a milk increases due to Eid or any other occasion so Raza
dairy may face stock out situation so they will increase their pekaar(distributor) to get more
supply of milk.
When the demand will decrease so the retailer will stop ordering more quantity so that it may not
face any loss but this disturb the whole supply chain.

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STRATEGIC FIT

Strategic fit expresses the degree to which an organization is matching its resources and
capabilities with the opportunities in the external environment. The matching takes place
through strategy and it is therefore vital that the company has the actual resources and
capabilities to execute and support the strategy.

HOW STRATEGIC FIT IS ACHIEVED?

• Understanding the customer and supply chain uncertainty
• Understanding the supply chain
• Achieving strategic fit

ZONE OF STRATEGIC FIT

15
STRATEGIC FIT IN RAZA DAIRY
Raza dairy achieve its strategic fit by analyzing its resources and capabilities. Like Raza have the
resources to provide milk. It has different items other than milk like eggs bread yogurt etc so
when the demand of milk is uncertain so he focuses on other items so that he should not face any
loss.

Whenever the demand of any product is uncertain so the company has to be responsive so Raza
dairy becomes very responsive in winters or in Eid seasons because he knows that the demand of
milk is uncertain

On the other hand, the demand of eggs bread butter etc is certain so he works efficiently at that
point because he knows that demand is certain and all he needs to do is to work on his efficiency
to attract more and more customers.

RESPONSIVENESS SPECTRUM:
This is a spectrum which shows the relationship of demand uncertainty with responsiveness and
demand certainty with efficiency.

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COMPETETITVE STRATEGY OF RAZA DAIRY:
By taking an in-depth look at your dairy products and the process that goes into producing them,
your product's advantages will become clear. Look at how the product is created, whether you
produce, milk, butter, cheese or any other dairy product. The cows used by raza dairy are fed only
natural, hormone-free feed, and are mostly cows and avoid buffalos as cows give more pure and
thick milk as compare to buffalo. Other local milk shops use buffalos that are cheaper for them as
well not of good quality.

Other competitive edge that Raza dairy implements is more seasonal strategy that is being
implemented in winter season. What they are doing is giving their customers an ease in prices
because they are getting lower prices from the suppliers of the milk keeping their profit apart they
tend to lower their prices that differentiates them from other sellers of milk because others in the
same area are not likely to do so.

Moreover Raza dairy indulge itself in advertising by putting banners all over the area and sending
pamphlets to all the houses within that area.

Variety plays an important role in competitive strategy so does raza dairy by having not only pure
and thick milk but also products like almond milk bottle, pistachu milk bottle, heavy cream milk,
Flavored lassi, pure butter and fresh yogurt.

If all these products are delivered by unhygienic means makes your quality as well sales low in
that case raza dairy has all his hands on it, they not only put their eyes on providing the clean and
fresh milk but try to prevent themselves from germs by wearing gloves 24/7. And everytime a
order of yogurt or milk comes they change their gloves for every customer to provide germ free
milk or yogurt.

IMPLICATION ON SUPPLY CHAIN STRATEGY:

In order to make their supply chain stronger and effective they make sure that what they offer as
their competitive edge they are able to meet it. Raza dairy claims that they provide milk all day at
every hour so they make sure that their supply chain is strong enough to meet their requirement
every day that too twice.

Moreover in summers there are high chances that the milk that is being transported from one place
to another can get sour. So the means of transport they use should be well maintained and in fair
conditions so they are no chances of getting the vehicles broken down that could lead to delay.

Furthermore, there chillers are working properly and should be kept at the temperature according
to the weather variations.

DISCUSSION OF SUPLY CHAIN MACRO PROCESSES

17
BREIF INTRODUCTION:
The Macro process is the extension of supply chain management (ESCM) which has broadened
the scope of decision-making for supply chain professionals. It has expanded from trying to
optimize performance within the division or business unit, then throughout the enterprise, and now
across the entire supply chain, which includes both upstream and downstream activities. All
extended supply chain management processes can be categorized into three main areas:

We use this classification to define the three macro 3 processes as follows:

• Customer Relationship Management (CRM): Processes that focus on downstream interactions

between the enterprise and its customers.

•Internal Supply Chain Management (ISCM): Processes that focus on internal operations within
the enterprise. Note that we are adopting the software industry’s definition of supply chain
management, which generally refers to operations conducted within the enterprise. This is in
contrast to our definition of extended SCM (ESCM), which encompasses the entire supply chain
and includes all three macro processes (CRM, SCM, and SRM).

• Supplier Relationship Management (SRM): Processes that focus on upstream interactions

between the enterprise and its suppliers.

RAZA DAIRY’S MACRO PROCESSES OF SUPPLY CHAIN

CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

• MARKETING: Just like food water and shelter, milk has also become one of our necessities
these days. People cannot stop buying milk. So Raza diary runs in highly perfect competitive
market where Prices do fluctuate season to season. They attract their customers through different
marketing strategies where they are setting a competitive edge for themselves. They have
introduced different product lines including bottle milk, freshly made butter.

• SELL: Normally people who are involved in executing the sale are provided with the information
about how to execute the sale. They are informed about the prices and the milk packets (of different
liters) which are already available on the counter.

18
• ORDER MANAGEMENT: Normally in large firms orders are managed in different
professional software such as ERP but this local milk shop doesn’t have a proper system. They
order fixed liters of milk which 1000 liter per day and sell minimum 800 liters a day or 1000 liters
maximum.

• CALL/SERVICE CENTER: A call/service center is often the primary point of contact between
a company and its customers. They don’t have a proper call centre but they have a helpline number
through which they help customers to place orders (delivery system), suggest products, solve
problems, and provide information on order status.

INTERNAL SUPPLY CHAIN MANAGEMENT (ISCM)

• STRATEGIC PLANNING: the facility is located at soldier bazaar and the Memon farmhouse
which is their basic supplier of milk is located at Gulshan e iqbal. The chiller which is present in
raza diary has the capacity to store 1000 liter milk for a day only.

• DEMAND PLANNING: they initially forecast the demand and order up to 1000 liter per day.
The order is split into 500 liters in the morning and 500 liters in evening.

• SUPPLY PLANNING: The supply planning process takes as input the demand forecasts
generated by demand planning and the resources made available by strategic planning. Now they
sell minimum 800 liters in a day or 1000 liters leaving behind no extra milk.

• FULFILLMENT: order is delivered to Raza diary through a delivery bus which carries up to
13 milk cans and each of them carries 40 liters. This order is supplied twice in a day

• FIELD SERVICE: they make sure that after the customer receives the order they keep their
satisfaction in consideration. Not only this, but also handled the demand fluctuations if any
uncertainty arises.

SUPPLIER RELATIONSHIP MANAGEMENT (SRM)

.

• SOURCE: Raza diary has only one fixed supplier who brings fresh milk from their poultry
farm. They selected their supplier on number of factors which are quality, price, reliability
etc.

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 • NEGOTIATE: They have only supplier that’s why no proper documentation was done for
the selection purpose but yes certain criterias were put into considerations such as price,
reliability, quality.

• BUY: they buy 1000 liter of milk in a day from the poultry farm at a fixed cost of 90rs per
liter.

• SUPPLY COLLABORATION: Once an agreement for supply is established, the diary

shop and supplier improve supply chain performance by collaborating on forecasts or any
uncertainty in future.

As the performance of a firm becomes more closely linked to the performance of its supply chain,
companies or local shops need to intensify their focus on these macro processes. While improving
internal processes is important, it’s not enough. The goal should be to increase the total profitability
of the supply chain, which can also be referred to as the supply chain surplus. Extended supply
chain management is not a zero sum game wherein one player in the supply chain increases profits
at the expense of another. Rather, it’s a positive sum game where supply chain partners can
increase their overall level of profitability by working together.

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 SUPPLY CHAIN
MANAGEMENT OF
NESTLE MILK PAK

21
HISTORY
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 of Punjab 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.

INTRODUCTION
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.

Location of Office in Karachi:

Corporate Resident Office
Nestle Pakistan Limited
8th Floor, Clifton Diamond Plot # BC-10, Clifton Block-4 Karachi.

SUPPLY AND DEMAND:

• As a food item, all milk (both milk and milk equivalents) is second only to cereals in
level of per capita consumption in Pakistan.
• The annual per capita consumption level at the national level is 190 liters.
• Due to rising inflation and high poverty levels, the majority of Pakistani consumers are
price conscious. Therefore, demand for open, raw milk is high compared to processed
milk.

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 • Hence, raw milk is the primary dairy product marketed in the country.
• The supply of milk to meet domestic demand has usually lagged. To meet this gap,
powdered milk is imported every year.

Livestock Population

Tag Line:

The unique selling proposition for Milk Pak is “Q kaykhalis he sub kuch hay” the tag line have a
very positive impact on Milk Pak image because of their direct emotional positioning & relation
with its customers

Total Supply Chain Cost of Milk Pak:

• Product Cost: 75%

• Others: 25%
• Out of 25 %, 4 % is business waste

Lead Time of Milk Pak:

The logistics usually take 3 days to arrive at Nestle’s warehouses in Karachi from their
manufacturing factories at Lahore, kabirwala and shaikhupura Order placement to order
fulfillment: 12-18 hrs.

Safety Stock

For Milk Pak hardly 6-7 days safety stock is kept because of its low shelf life. Time to time
forecasting is done in short intervals to meet the level of demand.

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PULL BASED INVENTORY SYSTEM:

Milk Pak management using the pull based inventory system. They draw inventory into the
stocking locations by their own will and having the more control on the inventory.

Milk Pak Milk Demand Variations:

The demand of Milk Pak milk usually increases in the festivity season or any event such as.

• Eid
• Ramazan and
• Moharram

Variations in supply of milk:

In Pakistan there are mostly three season of milk which are as under:

• Flush Season: (1st Jan to 15th April): During this season there is maximum production of
milk in the country.
• Lean Season (16th April to 30th July): Minimum production of milk in the country due to
high environmental temperature, less green fodder availability and natural reproduction
cycle of animals.
• Semi-flush season (1st Aug to 31st Dec): In this season about 70-80 % milk production in
the country.

DEMAND UNCERTAINTY
The demand for Milk Pak milk reduces in winters and increases in summers. Furthermore its
demand also increases when Ramadan arrives because people use milk to make different juices
or simply for drinking it in sehri and Aftari.

SUPPLY CHAIN MANAGEMENT AT NESTLE.

• Inbound Logistics: the receiving and warehousing of raw materials and their distribution
to manufacturing as they are required.
• Operations: the processes of transforming inputs into finished products and services.
• Outbound Logistics: the warehousing and distribution of finished goods

24
SUPPLY CHAIN STRATEGY AT NESTLE
The supply chain strategy is obviously in line with the objective for supply chain management
which in turn is in line with the overall mission and values of the organization.

The basic approach towards a competitive advantage over the competitors, some established
other newer entrants is a combination of low cost and rapid and flexible response. As this report
shall unravel most of the details regarding this claim, right now it would suffice to state that an
example of low cost strategy would be the location of the plants near the abundant sources of
supply, farms and farmers so as to reduce the transportation cost and cost of milk deterioration
and subsequent losses. An example of response would be the use of third party logistics to ensure
that

These primary activities at Nestle are supported by:

• The infrastructure of Nestle: organizational structure, control systems, company culture,

etc.
• Human resource management: employee recruiting, hiring, training, development, and
compensation.
• Technology development: technologies to support value-creating activities.

Measures Taken To Attain Strategic Fit

The supply chain team in its quest for establishing trust and harmony with the dhodhis, has to
accept milk throughout the year. Thus in order to ensure that all year around supply well Nestle
Milk Pakactually converts the excess supply into powdered milk, which is much easier to store
and much more resistant to deterioration over time as compared to liquefied milk. Hence, this is
a challenge that is attempting to meet to the best of its resources and capabilities.

ERP System
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

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RAW MATERIAL PROCUREMENT
Raw material procurement plays the most integral part in the success of any supply chain. The
reason being, that it is the elementary level activity and if there are flaws in it, the effectiveness
emphasis on the quality of the raw materials obtained and at the same time establishing and
maintaining long term relationship with their suppliers

Raw Material:

The various kinds of raw materials required for the milk and cream production at Nestle Milk
Pakinclude:

• Raw Milk
• Other ingredients like fats
• Packaging material

SOURCES OF MILK SUPPLY

At Nestle Milk Pakthe supply of raw milk that is the way milk collection is done can be divided
into:

• Direct Sources
• Contactor based collection

Direct Sources:
The method of milk collection through direct sources can be defined as milk collection done
through various dairy farmers residing in different villages
The method of milk collection from direct sources is the most preferred one by Nestle Milk
Pakmainly because of the low probability of adulteration of the milk by dairy farmers. The
reason accounting for this is that it is easier to identify adulteration in low volumes of milk as
opposed to high volume provided by the other method. However, the overall quantity of milk
collected through this method is very limited.

Nestle Milk Pak maintains a full-fledged Milk Collection Department to manage milk collection
through direct sources. The main objective of Milk Collection Centre is to deal with small
quantities of milk provided by the village dairy farmers.
Contractor Based Collection:
The contractor based milk collection involves collecting milk from approved suppliers who are
aware of the quality standards adopted by the firm. The contractors are responsible for milk
collection from a large area and can bring about ten thousand liters of milk a day from dairy

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farmers. This method of contractor based collection contributes the most to the overall quantity
of milk collection.

PUSH-PULL POINT
Every supply chain is almost always a combination of both push and pull, where the interface
between the push-based stages & so upstream is push based while downstream relies on pull based
systems.

LOGISTICS & WAREHOUSING

Integrated Logistics:
Nestle Milk Pak Pakistan makes sure that their product namely Milk Pak is available, no matter
where you are in Pakistan.

We integrate processes from the farm to markets, and ensure products are delivered to you at the
right time, at the right place and in the right quantity. Logistics network is thus completely
outsourced.

Nestle do have their own distribution network but transportation services are all outsourced.

Inbound Logistics:
For inbound logistics dedicated long vehicles are used. Inbound logistics concerns raw milk
transportation to the plant.
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

Shelf life of Milk Pak:

Nestle milkpak has 3 months of shelf life.

Return Policy Of Milk Pak Milk:

Nestle milk pak 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.

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Outbound Logistics:
Outbound logistics concerns finished milk movement from factory to differentwarehouses located
in different cities.
The logistics usually take 3 days to arrive at Nestle’s warehouses in Karachi from their
Manufacturing factories at Lahore, kabirwala and shaikhupura

DISTRIBUTION NETWORKS

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
➢ Sukkhur

Distribution Process

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 sub- distributors. The targets differ from area to area and set on the basis of history
of the area sale and also from the monthly forecasting.

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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 distributor’s 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.

• Daily Incoming And Outgoing Logistics

Minimum one or two nestle milk pak 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 Nestle’s warehouses in Karachi from their
manufacturing factories at Lahore, kabirwala and shaikhupura. Nestle milk pak has their owned
and outsourced trucks.

CHALLENGES
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 Nestle key Performance Indicators (KPIs) provide the standard metrics for
measuring supply chain performance. Nestle launched a new initiative to communicate the value
and use of KPIs to line managers.

Demand Supply Imbalances

The first challenge that Nestle Milk Pak has to deal with is the reconciliation between demand
and supply, where the two are following different patterns throughout the year while demand
reduces during the winters and increases during the summer. In order to ensure that the all year
round supply is utilized well, Nestle Milk Pak actually converts the excess supply into powdered
milk, which is much easier to store and much more resistant to deterioration over time as
compared to liquefied milk. Hence, this is a challenge that Nestle is attempting to meet to the
best of its resources and capabilities.

Low Information at Collection Centre Milk

Milk Pak has been facing a problem of low information at the collection center from gwalas
(milk men). They have been facing a problem of unbalanced demand and supply due to low
information at the collection centre.

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Quality Milk
Nestle is not having its own dairy farms it largely collects loose milk from farmers &gwalas
through its 40 milk collection centers, which sometimes is of low quality and impure because
they add vegetable oil to milk to get higher prices.

RECOMMENDATION
• Information should be continuous and it only be achieved through company oriented
systems.
• Quality should have better parameters
• Nestle Pakistan can establish their own dairy farms near their factory.

• 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.
• Nestle should introduce vertical shelf system in the warehouse
• Nestle should install Voice Picking technology in warehouses.
• Milk Pak should enhance their plant to meet the demand in more efficient way.

Which one is better? Local or Brand?

Well, certain people have certain choices. According to our observation people normally prefer
local milk more as they have low prices to offer and are fresh while the branded milk packets are
deemed to have chemicals in it which is not considered fresh ultimately. But if we talk in terms
of quality of packaging and ease of use then milk pak comes on first.

COMPARISION BETWEEN LOCAL MILK SHOP AND MILK PAK:

The local milk shop’s supply chain is different as compare to Milk pak supply chain both have
limitations at their end. Local milk shop has supplier within Karachi whereas Milkpak have
supplier from all across Pakistan.. The supply chain transportation cost is high and more reliable
in Milkpak as compare to local milk shop. The transportation is done through specialized vehicles.
As we know the transportation of local milk shop is not that modified and up to the marks as
Milkpak. The price of local milk shop has been set up by government through price lists given to
them according to their estimates. There is a huge difference in their environment as local milk
shop even if they try cannot attain the level of hygiene that is comparable to Milk pak that is germ
free equipments and environment with trained employees. Local milk shop supply their milk to
specific areas and limited houses where as Milk pak supplies their milk to all over the pakistan.
Milk pak has a brand name and have more customers as compare to local milk pak. Attaining
brand name is difficult but milk pak is playing an important role to retain their customers. On the
other hand local milk shops cannot do much to retain its customers as the number of shops are
greater in number therefore the competition is high and profit margins are low.

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 CONCLUSION
In the end, we would like to conclude that Nestle Pakistan is the leader in FMCG industry.
Nestle keeps track of its goods by maintaining its supply chain all over the country. From
Nestle’s manufacturing system to its Distribution channels, everything is properly managed.
They have a strong relationship not only with their customers but also with their suppliers,
distributors and retailers. 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 MilkPak’s manufacturing plant.
We learnt a lot about Nestlé’s Supply Chain from the manufacturing department to distribution,
everything is done perfectly

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