Date: 16/11/2023

Program/Term/Group: Supply Chain

Management – Term 1

Nescafé is a globally renowned coffee brand owned by the Nestlé company, introduced in
Switzerland before the Second World War. Its popularity has led to its presence in over 180
countries worldwide.

Due to Nestlé's numerous factories around the world, its coffee beans are sourced from
the world's coffee capitals, such as Brazil, Vietnam, Colombia, Indonesia, and Ethiopia, where
coffee thrives under ideal growing conditions. Through long-term contracts with farmers, Nestlé
ensures a stable supply of its most crucial raw material. Additionally, the company categorizes its
suppliers into three major groups—raw material, packaging, and services and indirect materials.
The selection process varies based on the group, and once suppliers are chosen, Nestlé
implements the Nescafé plan to trace the origins of its coffee beans.
 2. Nestlé, to identify suppliers that can meet its performance variables, gives priority to
those with the following certifications and characteristics in their processes:

Sourcing Responsibly: Involves conducting a thorough analysis to verify that suppliers

meet specific standards in key areas such as labor conditions, health and safety, environmental
management, and ethical practices in their business operations. The underlying objective of this
activity is to meet consumer expectations by providing transparency about the origin of raw
materials and manufacturing processes, with a particular focus on sustainable practices. This
encompasses not only the origin of products but also how they are produced, ensuring adherence
to sustainable and ethical criteria.

GLOBAL FOOD SAFETY INITIATIVE (GFSI): Aims to assess and compare food safety
management systems to mitigate risks in the supply chain and ensure the quality of materials,
while also providing flexibility in the procurement process.

Commercial and Financial Evaluation: Enables the identification of risks and opportunities
among suppliers, generating joint action plans to address findings from the evaluation.

3. Nestlé's procurement strategy is crucial for the success and sustainability of the
company, standing out for several key reasons:
 Quality Assurance and Food Safety: Given Nestlé's leadership in the food industry, the
quality and safety of its products are critical priorities. The procurement strategy focuses on
ensuring that ingredients and raw materials come from reliable sources, adhering to the highest
standards in terms of quality and food safety.

Nestlé's sourcing strategy aligns with its sustainability and corporate social responsibility
goals. The company strives to ensure that its sourcing practices are ethical, socially responsible
and environmentally friendly. An example of this is the strategy it has for soil care because healthy
soil results in healthier coffee beans. By establishing a collaboration with OFI (Olam Food
Ingredients), the "4C" approach is being adopted: the application of the Right nutrients, in the
Right amount, at the Right time and in the Right place.

Operational Efficiency: Operational efficiency is driven by an effective procurement

strategy. Nestlé aims to optimize its supply chain for efficient and profitable production, positively
impacting costs and the ability to offer products at competitive prices.

Innovation and Differentiation: In a highly competitive market, the procurement strategy

influences Nestlé's ability to innovate and stand out by introducing new products or enhancing
existing ones. The careful selection of raw materials and suppliers plays a key role in product
innovation.
 4. Nestle uses performance measurement indicators for its suppliers to monitor their
service levels, which include:

Compliance with Nestle audits: Conducting audits and closing corrective actions in a timely
manner.

 GFSI Certification: Sharing certificates and audit reports in a timely manner.

 Number of Quality Notifications and timely closure.
 Number of quality complaints related to food safety/foreign bodies.
 Quality alerts for defects that may involve multiple plants and/or markets.
 Compliance with QMS Quality Inspections.

In addition to the above, suppliers must comply with the Supplier Code, which specifies
and supports the continuous implementation of Corporate Principles through the definition of
non-negotiable minimum standards.

5. Having multiple suppliers is crucial for various benefits:

Risk Diversification: Relying on a single supplier poses risks, as any disruption in the supply
chain (such as production issues, changes in trade policies, or natural disasters) could severely
impact product availability. Having multiple suppliers allows the company to reduce the risk
associated with depending solely on one source.

Price Negotiation: Multiple suppliers enable the company to negotiate more favorable
conditions and prices with each of them. Competition among suppliers can lead to competitive
rates, resulting in cost benefits for the company.

Quality Improvement: Collaborating with different suppliers provides the opportunity to

compare the quality of products supplied by each. This encourages continuous improvement and
allows the company to select suppliers offering the highest quality products.

Flexibility and Responsiveness: If one supplier struggles to meet demand, other suppliers
can contribute to filling the gap and ensuring a continuous supply. This is especially useful in high-
demand situations or unforeseen interruptions.
 Innovation: Working with various suppliers provides access to different technological
approaches, product varieties, or production methods. This can foster innovation and allow the
company to stay updated with the latest market trends and advancements.

Crisis Resilience: During crises, such as the COVID-19 pandemic, suppliers may face
operational challenges. Having multiple suppliers can help mitigate negative impacts and ensure a
more robust operational continuity.

Nestle, with over 200 suppliers, conducts awards to keep them motivated and consistently
implementing continuous improvement. This is evident in the recognition given to suppliers for
their initiatives in sustainability.
 References

HostelVending. (2022, August 30). Nestlé premia a sus proveedores por sus iniciativas en materia

de sostenibilidad. Hostelvending.com.

https://www.hostelvending.com/noticias-vending/nestle-premia-a-sus-proveedores-por-sus-

iniciativas-en-materia-de-sostenibilidad

Nescafe - COR. (2021, September 22). Made With Nestle. https://www.madewithnestle.ca/nescaf

%C3%A9/cupofrespect

Progress against our commitments. (n.d.). Nestlé.

https://www.nestle-cwa.com/en/csv/performance/kpi-summary#:~:text=Nestl%C3%A9's

%20key%20performance%20indicators%20(KPIs,United%20Nations%20Global

%20Compact%20Principles.

Suppliers. (n.d.). Nestlé Global. https://www.nestle.com/info/suppliers

What is Nestlé doing to ensure palm oil is sourced sustainably? (n.d.). Nestlé Global.

https://www.nestle.com/ask-nestle/sustainable-sourcing/answers/palm-oil-sourcing