Nestle Harvard Case Solution & Analysis

Nestle Case Solution

BACKGROUND OF THE CASE

This case highlights the supply chain management of Nestle group, particularly Coffee which is coined as "Nescafe." This case further entails the participants which the supply chain must have and the participants that are already present in the supply chain of Nestle.

Moreover , the term " ripple effect " has been introduced, which means the continuing or spreading result of an event that particularly increases in each step of the supply chain.

This case is about the supply chain and how effectively Nestle is managing its supply chain when it comes to coffee" Nescafe". Nestle had always been the pioneer to research and identify the next coming trends of consumers. Similarly, Nestle identified the ever growing need for the coffee and set up the plan and strategy, as well as how to get the best coffee to the factories. Apparently, it might seem easy but in actual, it is complicated.

Coffee is the second largest traded commodity (after oil) (nestle.com).Nestle started operating in this business long ago with continuous improvements in tastes, flavors, and the aroma. The success it has achieved in the effective distribution of the coffee is an example of a well-established supply chain. Nestle always believed to keep the grower or the farmers as close as possible and hence, to accomplish this strategy of keeping the farmers, growers nearer, the company established a direct buying policy in 1986.In 1998, the direct buying ratio increased by 15% of the total buying by Nestle.

Nestle has direct buying in Mexico, Philippines, and even in China. The advantage of direct buying is that it eradicates the extra cost that each participant incurs in the supply chain process thus increasing the price of the coffee.The other benefit of being near to the clients is that it reduces the probability of the artificial demand created by the "Ripple effect".

PROBLEM STATEMENT

The problem in this case is regarding the maintenance of the benchmark set by Nestle and the maintenance of its quality through different parts of the world.

 ANALYSIS

The supply chain is a chain of distribution of commodity to the end user by involving different participants at different stages of distribution. Moreover,it is a network between the company and the suppliers to produce and distribute a particular product. The participants involved in the supply chain process are

 Most of the time, companies like Nestle and other bigger companies contact the producer and make a fair trade agreement, which is between the company and the producer. The advantage of fair-trade agreement is:

1.      It improves the living conditions of the producers who are in underdeveloped countries.

2.      It provides a chance to producers to market their product at a good price.

3.      The fair trade agreement gives exposure to the under-developing farmers to earn good for the product. On the other hand, a company like Nestle pays premium to the producers for their quality products in order to maintain a healthy long-term relationship with them.

4.      The free trade agreement allows the producer to get finances that are required for the production.

5.      It helps both the company and the producer to work collaboratively to achieve the desired goals.

Now the question is how it benefits the end consumer? If we analyze the situation in depth, then we can understand that every company has the aim to get the raw materials for their products as cheap as possible and they try to cut the cost that they may find excessive. To achieve this goal, the company finds those producers that can offer raw material at low cost and pay them good price against that. This is because the farmers in underdeveloped countries are not paid well or most of the time they do not have proper markets to sell such products. The company in such a case can take advantage of this situation and thus, both the supplier and company would work in the best interest of each other...................

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