creating competitive advantage through leveraging...
TRANSCRIPT
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Creating Competitive Advantage
Through Leveraging Performance Drivers Within The Supply Chain
A research report
presented to
The Graduate School of Business
University of Cape Town
In partial fulfilment
of the requirements for the
Masters of Business Administration Degree
By
Peter Ohanyere
10 December 2010
Supervisor: Prof Richard Chivaka
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ACKNOWLEDGEMENT
This report is not confidential. It may be used freely by the Graduate School of Business
University of Cape Town.
The author would like to thank Dr. Tony Domingo and Trevor Gascoyne of Nestlé South
Africa for allowing me to spend time interviewing the supply chain personnel at the
Randburg office of Nestlé and peruse official documents. I equally want to thank Miss
Abraham Cindy who assisted in scheduling interviews, in particular with Dr. Tony, in spite of
his very busy schedule.
I wish to thank my supervisor Professor Richard Chivaka for his invaluable contribution and
guidance towards ensuring that this research is a success.
Finally, I would want to thank my family for their support and prayers; my friends for their
support and the wonderful discussions and insights we shared on the research.
I certify that this research is my own work and all references used are accurately reported in
footnotes.
………………………
PETER OHANYERE
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ABSTRACT
This is an exploratory study, which investigates the impact of supply chain management
using performance drivers in other to create competitive advantage and organisational
profitability. The company in focus was Nestlé, one of the biggest food and packaging
companies in the world.
The focus of the research was to understand the supply chain strategies and corporate
strategies of Nestlé. The study used performance drivers (i.e. Information, Facilities,
Inventory and Transportation) to understand how the effective alignment of these drivers
creates competitive advantage and organisational profitability.
The study concludes that Nestlé‟s use of these performance drivers facilitates competitive
advantage within the South African space. It does this by leveraging on real internal growth
and organic growth, demanding planning accuracy, on shelf availability and a well-defined
distribution network that involves their extended logistics network.
The key insights to this research reiterate the notion that for organisations to create
competitive advantage; internal processes and supply chain strategies should follow the
alignment of performance driver‟s i.e. Inventory, Transportation, Facilities and Information.
An array of measurement metrics have been used to measure the viability of this claim
against the backdrop of the performance drivers with specific focus on profitability figures
year on year.
Key words: Supply chain management, Organisational profitability, Competitive advantage,
Performance drivers, and Value drivers.
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Table of contents Chapter 1……………………………………………………………………………………………..7
Research overview .............................................................................................................................. 7
1.1 Background to the research ........................................................................................................... 7
1.2 Problem to be addressed ............................................................................................................... 9
1.3 The research question.................................................................................................................. 10
1.4 Research objectives ..................................................................................................................... 10
1.5 Organisation of research report ................................................................................................... 11
Chapter 2 ........................................................................................................................................... 12
Literature review ............................................................................................................................... 12
2.1 Retailing ...................................................................................................................................... 12
2.2 Supply chain management .......................................................................................................... 12
2.3 Supply chain structures 14
2.3.1Performance drivers: Information, transportation, inventory and facilities .............................. 14
Figure 1: Source: Chopra, 1999, Supply chain management strategy, planning and operations .... 14
2.4 Organisational profitability ......................................................................................................... 16
Figure 2: Source: Gattorna & Walter, 1996: Managing the supply chain ....................................... 17
2.5 Value drivers and their direct impact on customer value creation .............................................. 17
Figure 3: Source: Christopher & Ryals, 1999: The divers of shareholders value. .......................... 18
2.5.1 Revenue growth ....................................................................................................................... 18
2.5.2 Operational cost reduction ....................................................................................................... 18
2.5.3 Fixed capital efficiency ............................................................................................................ 19
2.5.4 Working capital efficiency ....................................................................................................... 19
2.6 Competitive advantage: customer satisfaction creates value and competitive advantage. ......... 21
Figure 4: Source: Ohmae, 1983: The Mind of the strategist. ........................................................... 22
2.7 The issue of ethics in business as a value driver. ........................................................................ 22
2.8 Improving customer service and value creation (price, quality, place, service) ......................... 23
2.9 Co-value creation: alignment process together strategic importance .......................................... 25
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2.10 Competitive advantage: customer satisfaction creates value and competitive advantage. ....... 26
2.11 Conclusion ................................................................................................................................ 27
Figure 5: Source: Chen & Popovich, 2003: CRM Value drivers ..................................................... 27
Chapter 3 ........................................................................................................................................... 28
Research methodology ...................................................................................................................... 28
3.1 Research design .......................................................................................................................... 28
3.2 Data collection ............................................................................................................................ 29
3.3 Data analysis ............................................................................................................................... 31
3.4 Research limitations .................................................................................................................... 32
Chapter 4 ........................................................................................................................................... 33
Research findings, analysis and discussion ....................................................................................... 33
4.1 Introduction ................................................................................................................................. 33
4.2 Competitive Sspace in the Food Packaging Sector in South Africa. .......................................... 34
4.2.1 Tiger Brands ............................................................................................................................. 34
4.2.2 Unilever .................................................................................................................................... 34
4.2.3 Kraft ......................................................................................................................................... 34
4.2.4 Danone ..................................................................................................................................... 35
4.3 Nestlé‟s business strategy ........................................................................................................... 37
4.3.1 Consumers: Nutrition, health and wellness .............................................................................. 38
4.3.2 Consumers: Quality assurance and product safety ................................................................... 39
4.3.3 Consumers: consumer communication .................................................................................... 40
4.3.4 Human rights and labour practices: Human rights in business activities ................................. 40
4.3.5 People: Leadership and personal responsibility ....................................................................... 41
4.3.6 People: Safety and health at work ............................................................................................ 42
4.3.7 Suppliers and customers: suppliers and customer relations ..................................................... 42
4.3.8 Suppliers and customers: Agriculture and rural development ................................................. 44
4.3.9 The environment: Environmental sustainability ...................................................................... 45
4.3.10. The environment: Water ....................................................................................................... 46
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4.4 Sustainability strategy ................................................................................................................. 47
Figure 6: Source: Nestlé, 2010: The Nestlé corporate business principle. ...................................... 48
4.5 Performance drivers of Nestlé ..................................................................................................... 48
4.5.1 Transportation .......................................................................................................................... 48
4.5.2 Facilities ................................................................................................................................... 49
4.5.3 Inventory .................................................................................................................................. 49
4.5.4 Information .............................................................................................................................. 50
4.5.4.1 Real internal growth and organic growth .............................................................................. 50
Figure 7: Source: Nestlé, 2010: Sales product by segment. ............................................................. 51
Figure 8: Source: Nestlé, 2010: Sales by Operating Segment. ......................................................... 52
Figure 9: Source: Nestlé, 2010: Nine months sales overview 2010 ................................................. 53
4.5.4.2 Innovation and renovation .................................................................................................... 53
4.5.4.3 Demand planning accuracy ................................................................................................... 54
4.6 Discussions of results. ................................................................................................................. 54
Chapter 5 ........................................................................................................................................... 57
Research conclusions ........................................................................................................................ 57
5.1 Introduction ................................................................................................................................. 57
5.2 Future research and recommendations ........................................................................................ 58
Bibliography 59
Appendix A: Business Context Questionnaire .................................................................................. 65
Appendix B: Interview transcription 1a ........................................................................................... 68
Business Context Questionnaire 68
Appendix C: Interview transcription 1b ............................................................................................ 73
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Chapter 1
Research overview
1.1 Background to the research
The rise of technology has propelled businesses to seek other competitive strategies. There is
a gradual shift from strategies that bring the required competitive advantage to an inward
approach and alignment of internal processes to fit any company‟s corporate strategy. The
supply chain seeks to achieve linkage and coordination between the processes of other
entities in the pipeline, i.e. suppliers and customers, and the organisation itself (Christopher,
2005).
Organisations expecting to be leaders in the markets of the future will be those that have
achieved the twin peaks of excellence: cost leadership and service leadership. A number of
important ways in which productivity can be enhanced through logistics and supply chain
management can be explained in the opportunities for better capacity utilisation, inventory
reduction and closer integration with suppliers at a planning level (Christopher, 2005).
A supply chain is defined as a collection of suppliers, manufacturers, distributors and retailers
(supply chain stages) along with all interrelationships (Chopra & Meindl, 2003).
Supply chain management builds upon the framework that logistics are essentially the
planning orientation and framework that seek to create a single plan for the flow of product
and information through a business (Christopher, 2005).
South Africa, with a population of around 45 million people, possesses a modern
infrastructure supporting an efficient distribution of goods to major urban centres throughout
southern Africa and well-developed financial, legal, communications, energy, and transport
sectors. Although South Africa‟s economy has grown slowly and steadily in each of the past
45 quarters, the value of the Rand has fluctuated widely against world currencies. This caused
food retailers to continually update their selection of imported and locally produced items.
There are many players in the food retail industry in South Africa. On the high end South
Africa has highly sophisticated retail chain supermarkets such as Shoprite, Checkers, Pick „n
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Pay, Spar, Woolworths as mentioned earlier, wholesale outlets such as Makro, Metro, Trade
Centre, Cash & Carry; independent stores such as Biforce Group, Bargain Group, and Shield
Wholesalers. There are also convenience chain stores including forecourts (gas stations with
convenience type stores) and traditional stores which include independent stores such as
general dealers, cafés, spaza shops, street vendors, hawkers, tuck shops, and primitive street
corner stalls at the other end of the retail sector. The South African food and beverage market
is becoming increasingly sophisticated and is supplied by both local and imported products
(Helm & Ntloedibe, 2005).
This report seeks to investigate the creation of competitive advantage through leveraging
performance drivers within the supply chain in the context of the packaged food sector in
South Africa, by analysing the supply chain practices of Nestlé – one of the largest players in
the market.
Nestlé is a food packaging company based in Switzerland that has been in existence for about
a 140 years; operating in about 170 countries. Nestlé‟s core business strategy is to help
consumers have a balanced, healthier diet.
As Nestlé is a principle-based company, the Nestlé Corporate Business Principles form the
foundation of all that they do. Compliance with the Nestlé Corporate Business Principles, and
with specific policies related to each principle, is non‑negotiable for all employees and their
application is monitored and regularly audited. These principles will be extensively
highlighted in Chapter Four of this research. Creating shared value is the essential concept
behind how Nestlé does business, which states that in order to create long term value for
shareholders; they have to create value for society. However, if they fail to comply with the
business principles, they cannot maintain environmental sustainability or create shared value
for shareholders and society. At the same time, creating shared value goes beyond
compliance and sustainability. Any business that thinks long-term and follows sound business
principles creates value for shareholders, and society, through its activities. “At Nestlé, we
have analysed our value chain and determined that the areas of greatest potential for joint
value optimisation with society are Nutrition, Water and Rural Development. These activities
are core to our business strategy and vital to the welfare of the people in the countries where
we operate,” quoted in Nestle, 2009/10.
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Implementing a successful supply chain management programme might seem like a daunting
task for companies. With the emerging trend in the global market place and the extensive
influence of technology, companies might be compelled to believe that implementation with
the right technology will reduce all the unforeseen risks. Marien (2000), however, highlights
four key enablers that come into play and explains that these need to be leveraged fully to
make the promise of supply chain management a reality. The following includes the list of
supply chain management enablers:
Organisational infrastructure
Technology
Strategic alliance
Human resource management
The resulting effect of the enablers highlighted above will be considered against the drivers
of value. The measure of success under value based management is how much value a
company delivers to its shareholders. The four basic drivers of enhanced shareholder value as
explained by (Christopher & Ryals, 1999) are revenue growth, operation cost reduction, fixed
capital efficiency and working capital efficiency. All four of these drivers are directly and
indirectly affected by supply chain strategy. The selected company‟s strategy will be studied
using a these metrics.
The integration of the components of supply chain and the effective handling process of the
company will be studied to understand the co-value creation between the enablers. (Ramdas
& Spekman, 2000) Also defined six variables that reflect different approaches to measuring
supply chain performance: inventory, time, order fulfilment, quality, customer focus, and
customer satisfaction. This metrics will be applied in understanding value creation and how
this has brought about the competitive advantage for the company.
1.2 Problem to be addressed
The quest for companies to align their business strategy to their supply chain strategy stems
from a broad understanding of the social, economic and political terrain in which they
operate. Certain considerations need to be addressed for the smooth running of business
operations of companies. Accelerated advances in production, communication, information,
and transportation technologies, combined with established free-market ideology, have made
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the business environment progressively more turbulent, through more rapid and unpredictable
change, greater diversity, increased complexity, and intensified competitive pressures (Chin,
Kilduff, & Gargeya, 2009). Such companies need to adopt strategies that, by realigning their
supply chain structures, will logistically drive these strategies with an end goal of creating
competitive advantage.
1.3 The research question
This research addresses how companies create competitive advantage by leveraging on
performance drivers within the supply chain. In other words, the research tries to understand
the impact of the supply chain management by using performance drivers that create
competitive advantage and organisational profitability.
1.4 Research objectives
This research aimed to use performance drivers as supply chain strategies to explain the
creation of competitive advantage and organisational profitability in the packaged food sector
in South Africa. The successes of the supply chain strategies used within Nestlé were
analysed. Also the research tried to identify the future outlook of Nestlé in line with the
competitive environment of its supplier‟s base and its customers. A further aim was to
understand the alignment of the business environment characteristics of the company on one
hand, the supply chain structures on the other and suggested models to help the company‟s
competitive advantage within its sector.
Supply chain integration is gaining more attention among both practitioners and academics
(Haozhe, Daugherty, & Landry, 2009). This integration involves linking the major business
functions and processes within a company for effectiveness.
The research objectives addressed in discussing the research questions outlined above were:
To understand the impact of supply chain management for competitive advantage of
Nestlé in South Africa.
To identify the obstacles, if any, that are hindering the company from improving its
overall supply chain models and strategy to create competitive advantage and
organisational profitability.
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To identify the criteria for achieving profitability through an effective supply chain
model.
To identify the effective alignment of the supply chain to the corporate strategy of the
company, in other to create competitive advantage and organisational profitability.
1.5 Organisation of research report
The research report follows a synchronised arrangement of the thoughts and findings of the
researcher. Chapter Two of this research focuses on a detailed literature review of the study,
Chapter Three deals with the methodology and approach clearly highlighting the research
strategy, Chapter Four addresses the research findings, a detailed analysis thereof and
discussion of the subject matter highlighting the dependability and authenticity of the
research and finally Chapter Five introduces a conclusion with recommendations and areas of
future research.
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Chapter 2
Literature review
2.1 Retailing
Offering the right product at the right place at the right time for the right price is the retailer‟s
formula for perfection (Fisher, Raman, & McClelland, 2000). This is the „Holy grail of
retailing‟. It is achieved through collaboration of members in the supply chain using the
information pro-actively. The crucial part is to have accurate information flows (Fisher M. ,
1997).
2.2 Supply chain management
In view of the many influencing factors that contributed to the development of the modern
concepts of the supply chain and supply chain management, it is not surprising that generally
acceptable definitions of these concepts will be difficult to formulate. Firstly, supply chain
management is as yet not universally accepted as descriptive of this exciting new approach
aimed at enhancing customer service and providing a firm with a competitive advantage
through efficient management of the flow of materials and services. Secondly, exactly how
the concept of supply chain management should be defined is a further bone of contention
(Hugo, Badenhorst-Weiss, & Van Bilijon, 2004).
Supply chain management is the systems approach to managing the entire flow of
information, materials, and services from raw materials suppliers through factories and
warehouses to the end customer (Leenders & Fearon 1997:295) in (Hugo, Badenhorst-Weiss,
& Van Bilijon, 2004).
“The supply chain a term increasingly used by logistic professionals encompasses every
effort involved in producing and delivering a final product from suppliers‟ supplier to the
customers‟. Four basic processes – plan, source, make, deliver broadly define these efforts,
which include managing supply and demand, sourcing raw materials and parts,
manufacturing and assembly, warehousing and inventory tracking, order entry and order
management, distribution across all channels and delivery to the customer” (Lummus &
Vokurka 1999: 11) in (Hugo, Badenhorst-Weiss, & Van Bilijon, 2004).
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A supply chain will exist whether a firm actively manages it or not (Mentzer, et al 2001). In
general the supply chain strategy of a firm influences the nature of supply chain activities, as
well as the efficiency and effectiveness of the supply chain, and the relationships with other
members within the entire supply chain. Based on the review of literature, research in supply
chain strategy issues has been largely independent of research in organisational structure and
design (Chin, Kilduff, & Gargeya, 2009).
In simple terms, supply chain management is a procurement tool that was born out of
necessity. Demands for newer and more innovative goods and services, limits on resources,
and the increasingly complex, interrelated nature of the global marketplace have each created
pressure on public managers to optimise new and innovative process methodologies to meet
procurement needs. Supply chain management strategically integrates the whole procurement
process, including the "identification, acquisition, access, positioning, and management of
resources" in a series of carefully considered steps, in order to attain stated objectives (Duffy,
2002). The key components include;
Advanced technology: Managers, staff, clients, and vendors rely heavily on information
technology to enhance activities.
Decentralisation: Supply managers share authority with staff, outside suppliers/vendors
and citizens to brainstorm about emerging technology and potential new products.
Integrated project management: Supply chain managers reach beyond the traditional
confines of an organisation to embrace the entire supply network; plan organisational
operations strategically, support mutually beneficial goals, share risks, and enhance best
practices. This may involve consolidating groups, simplifying rules, and eliminating
different layers of management.
Collaboration: Supply manager‟s partner with customers and other stakeholders to
determine how services will be provided, as well as to see the "big picture" in consumer
consumption patterns, productivity levels, satisfaction levels, and expected trends. To
achieve this, supply chain management relies heavily on symbiotic alliances between
internal and external actors through the delegation of authority, sharing of power, and
decentralised decision making.
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2.3 Supply chain structures
2.3.1 Performance drivers: Information, transportation, inventory and facilities
(Chopra & Meindl, 2007), highlight drivers of supply chain performance and a framework for
structuring drivers. For the purpose of this research the main focus was looking at four (4) of
the six (6) logistical drivers which are: facilities, inventory, transportation and information.
Figure 1:
Source: Chopra, 1999, Supply chain management strategy, planning and operations
Facilities: This has been described as places where inventory is stored, assembled, or
fabricated. It could equally be production sites and storage sites. The role of facilities in the
supply chain is that it provides the “where” of the supply chain, manufacturing or storage
(warehouses). The competitive strategy largely will be that it brings about economies of scale
(efficiency priority) and larger number of smaller facilities (responsiveness priority)
Examples provided are Toyota and Honda‟s components of facilities decisions.
Inventory raw materials: Inventories could be work in progress (WIP), finished goods
within a supply chain, or inventory policies. The inventory exists because of a mismatch
between the supply and demand source of cost and the influence on responsiveness impact on
material flow time, time elapsed between when material enters the supply chain to when it
exits the supply chain and throughput – which invariably means the rate at which sales to end
consumers occur. Inventory and throughput are “synonymous” in a supply chain.
Competitive Strategy
Supply Chain
Strategy
Efficiency Responsiveness
Facilities Inventory Transportation
Information
Supply chain structure
Cross Functional Drivers
Sourcing Pricing
Logistical Drivers
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Cycle inventory is explained as an average amount of inventory used to satisfy
demand between shipments and depends on lot size.
Safety inventory is inventory held in case demand exceeds expectations. And costs of
carrying too much inventory versus cost of losing sales.
Seasonal inventory is built up to counter predictable variability in demand. And cost
of carrying additional inventory versus cost of flexible production.
Overall trade-off between responsiveness and efficiency is more inventory greater
responsiveness but greater cost less inventory: lower cost but lower responsiveness
Transportation: Transportation involves moving inventory from point to point in a supply
chain and combinations of transportation modes and routes. Its role in the supply chain is
moving the product between stages in the supply chain, its impact on responsiveness and
efficiency is that faster transportation allows greater responsiveness but lower efficiency and
it also affects inventory and facilities. If responsiveness is a strategic competitive priority,
then faster transportation modes can provide greater responsiveness to customers who are
willing to pay for it. It can also use slower transportation modes for customers whose priority
are price (cost) and consider both inventory and transportation to find the right balance. The
component of transportation decisions depends on the mode of transportation which includes
air, truck, rail, ship, pipeline, electronic transportation and they vary in cost, speed, size of
shipment, flexibility. The route and network selection depends on the path along which a
product is shipped and the network is the collection of locations and routes.
Information data: Information data is analysis regarding inventory, transportation, facilities
throughout the supply chain, and potentially is the biggest driver of supply chain
performance. Its role basically involves the connection between the various stages in the
supply chain and allows coordination between stages. It is equally crucial to daily operation
of each stage in a supply chain e.g., production scheduling, inventory levels. Its role in
competitive strategy is that it allows supply chain to become more efficient and more
responsive at the same time (reduces the need for a trade-off). Components‟ include Push
(MRP) versus pull (demand information transmitted quickly throughout the supply chain),
coordination and information sharing, forecasting and aggregate planning and enabling
technologies which includes electronic data Interchange (EDI), Internet, enterprise resource
planning systems (ERP) and supply chain management software.
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2.4 Organisational profitability
(Billington, et al., 2003), argues that cost factors, such as material devaluation, scrap costs,
write-offs, and fire-sale discounts, have become the single biggest detriment to profitability,
sometimes eclipsing the already slender profit margins. To calculate these inventory driven
costs, they carried out a study on Hewlett Packard (HP) and explained that HP must consider
service levels, demand and supplier uncertainty, and end-to-end process times across the
entire supply chain. The stochastic nature of many of these factors makes this problem very
challenging.
(Gattorna & Walters, 1996) argues on the other hand that as with any other business activity
the purpose of the logistics function is to participate in generating revenues (and profits), but
in doing so it attracts costs. Logistics activities should add value to resources: typically the
added-value of the logistics function is to make products/services accessible to customers at
convenient times and locations. Evidently the more the effectiveness and management of the
logistics functions, the greater the impact on revenues and profits. However, it should be
recognised that there are also financial decisions that are made that can influence the ultimate
level of profitability.
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Corporate Performance Logistic Performance Variables Variable/Influence Sales revenue Customer Service Profit Cost of goods SCM (Inbound) Return on Investment (ROCE) Operating cost Order processing Management costs and handling
Capital employed Inventory SCM (outbound)
Accounts payable Optimal
Cash Asset deployment and productivity
Fixed Assets
Less
Trade Creditors
Figure 2:
Source: Gattorna & Walter, 1996: Managing the supply chain
2.5 Value drivers and their direct impact on customer value creation
Traditionally most organisations have viewed themselves as entities that exist independently
from others and indeed need to compete with themselves in order to survive. Thus value
creation was seen to be created within the company rather than between companies. This
view of the organisation as a self-contained island is now beginning to be replaced with the
recognition that companies may have to cooperate in order to compete. Behind this seemingly
paradoxical concept is the idea of supply chain integration. The supply chain is the network
of organisations that are involved, through upstream and downstream linkages, in the
different processes and activities that produce value in the form of products and services in
the hands of the ultimate consumer. (Christopher & Ryals, 1999).
They go further to explain the four basic drivers of enhanced shareholder value in Figure 3
below. They are revenue growth, operating cost reduction, fixed capital efficiency and
working capital efficiency.
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Figure 3:
Source: Christopher & Ryals, 1999: The divers of shareholders value.
2.5.1 Revenue growth
They go on to explain that critical linkage is the impact that logistics service can have on
sales volume and customer retention. While it is not generally possible to calculate the exact
correlation between service and sales there have been many studies, which have indicated a
positive causality. This statement will be tested and applicability verified on the field.
2.5.2 Operational cost reduction
The potential for operating cost reduction through logistics and supply chain management is
considerable, because a large proportion of costs in a typical business are driven by logistics
practices and the quality of supply chain relationships, it is not surprising that in the search
for enhanced margins so many companies are taking a new look at the way they manage their
supply chain. It is not just transportation, storage, handling and order processing costs within
the business that need to be considered, but rather a total pipeline view costs on a true end-to-
end basis should be taken. Often the upstream logistics costs can represent a significant
proportion of total supply chain embedded in the final product.
(Gattorna & Walters, 1996) Argues that operating costs may be reduced by the following
ways:
Revenue growth
Shareholders value Working Capital
efficiency
Fixed Capital
efficiency
Operating cost
reduction
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Minimizing inventory handling and the elimination of non-productive handling.
The removal of bottlenecks within the distribution system.
Optimizing the number of warehouses and other stock holding locations.
Eliminating activities and intermediaries which/who do not add value to the overall
activity.
Using group leverage (purchasing power) to minimize transport and other purchased
services costs.
Regarding suppliers‟ transport costs as variable with the potential for cost reduction.
Removing delays caused by documentation flows and eliminating unnecessary
document transfers.
Considering suppliers‟ (and carriers) lead times as a component of overall lead time.
Seeking to improve human and capital resource productivity increases.
Optimizing vehicle utilization to minimize deliver costs.
Eliminating errors and thereby reducing the „total‟ costs of correction.
2.5.3 Fixed capital efficiency
Logistics by its very nature tends to be fixed asset intensive. Trucks, distribution centers and
automated handling systems involve considerable investment and consequently will open
depress return on investment. In conventional multi-echelon distribution systems, it is not
unusual to find factory warehouses, regional distribution centers and local depots all of which
represent significant fixed investments. One of the main drivers behind the growth of the
third party logistics service sector has been the desire to reduce fixed asset investment. At the
same time, the trend to lease versus buy has accelerated. Decision to rationalize distribution
networks and production facilities are increasingly being driven by the realization that the
true cost of financing that capital investment is sometimes greater than the return that it
generates (Christopher & Ryals, 1999).
2.5.4 Working capital efficiency
Supply chain strategy and logistics management are fundamentally linked to the working
capital requirement within the business. Long pipelines by definition generate more
inventories. Orders fill and invoice accuracy directly impact accounts receivable and
procurement policies, also affect cash flow. Working capital requirements can be
dramatically reduced through time compression in the pipeline and subsequently reduced
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order-to-cash cycle times. Surprisingly few companies know the true length of the pipeline
for the products they sell. The cash-to-cash cycle time (i.e. the elapsed time from
procurement of materials/components through to sale of the finished products) can be six
months or longer (Christopher & Ryals, 1999)
The goal of the firm is to maximize shareholder value (Copeland et al., 1996) therefore
management should focus on value creation by exploiting the firm‟s value drivers. A value
driver is any important factor that significantly affects the value of the firm (Amit & Zott,
2001).
There are two main sorts of value drivers: financial and non-financial; which are also termed
managerial value drivers. Financial value drivers include actions such as capital structure
changes, mergers and acquisitions, public offering or dividend distribution. These financial
activities are performed by top management, and usually their impact on shareholder value
can be evaluated ex-ante as well as ex-post. Managerial value drivers include actions like
strategic changes, reducing time to market, increasing throughput, or improving logistics,
operations and supply chain management. While most firms devote their main efforts to
exploit financial value drivers, not enough attention is being paid to managerial value drivers,
although they have a much greater potential for value creation (Ronen, Lieber, & Geri, 2007).
The financial approach which is most identified with value creation is value based
management (VBM) (Copeland et al., 1996). Value focused management (VFM), as a
methodology for enhancing the organisation value by identifying its value drivers,
quantifying their estimated contribution, and prioritising them according to their relative
value creation potential and difficulty of implementation. Value Based Management is a
management approach for measuring and managing businesses with the explicit objective of
creating superior long-term value for shareholders (Ittner & Larcker, 2001). VBM‟s leading
principle is that all the decisions at all organisational levels should be made according to their
impact on value (Copeland et al., 1996). VBM provides managers with two principal tools:
the first is discounted cash flow (DCF) valuation and the second is value driver analysis
which helps managers focus on the key drivers of corporate value.
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2.6 Competitive advantage: customer satisfaction creates value and competitive
advantage
(Christorpher, 2005) One way to define competitive advantage is simply that the successful
companies will generally be those that deliver more customer value than their competitors. In
other words, their ratio of benefits to costs is superior to other players in that market or
segment.
Customer value = Quality x Service
Cost x Time
Each of the four constituent elements can briefly be defined as follows:
Quality: The functionality, performance and technical specification of the offer.
Service: The availability, support and commitment provided to the customer.
Cost: The customer‟s transaction costs including price and life cycle costs.
Time: The time taken to respond to customer requirements, e.g. delivery lead times.
Each of these four elements requires a continuous programme of improvement, innovation
and investment to ensure continued competitive advantage. The source of competitive
advantage is found first in the ability of the organisation to differentiate itself, in the eyes of
the customer, from its competition and secondly by operating at a lower cost and hence at
greater profit. Seeking a sustainable and defensible competitive advantage has become the
concern of every manager who is alert to the realities of the marketplace. It is no longer
acceptable to assume that good products will sell themselves, neither is it advisable to
imagine that success today will carry forward into tomorrow. The bases for success in the
marketplace are numerous, but a simple model is based around the triangular linkage of the
company, its customers and its competitors – the “Three C‟s”. The “three C‟s in question are:
the customer, the competition and the company.
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Customers
Company
Competitor
Figure 4:
Source: Ohmae, 1983: The Mind of the strategist
(Hugo, Badenhorst-Weiss, & Van Bilijon, 2004) It must be emphasised that delivering
customer service is certainly not the only area of value creation in the supply chain; nor is
optimising customer service its sole responsibility. Delivering customer service is perhaps the
most important interface between marketing and supply chain management and, typical of all
supply chain processes, delivering customer service is an example of the integrated supply
chain process, which crosses traditional functional borders in order to create value. Customer
relationship management (CRM) is currently one of the areas in marketing that is receiving
most attention and it is in this area that supply chain management, in promoting customers
service, can play a major role.
2.7 The issue of ethics in business as a value driver
Businesses are now adopting strategies that take into account the environment in which they
operate, hence the creation and adoption of strategies that address corporate social
responsibility. Carroll explains that corporate social responsibility (CSR) centres on the idea
that a corporation may be held socially and ethically accountable by an expansive array of
stakeholders such as customers, employees, governments, communities, NGOs, investors,
supply chain members, unions, regulators, and media. CSR research has evolved over the last
50 years (Carroll, 1999). As the foundation Carol further integrated various streams of CSR
Needs seeking benefits at
acceptable prices
Value
Value
Assets & Utilisation
Assets & Utilisation Cost
differentials
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research to define a model that extended corporate performance beyond traditional economic
and legal considerations to include ethical and discretionary responsibilities.
Companies pursue CSR for a variety of reasons. Based on organisational values, some
business leaders have embraced the concept and seek to provide leadership in the area
(Maignan et al., 2002). Additionally, (Spar & Mure, 2003) indicated that corporations may
react from threats to transaction costs, brand, and competitive positioning. CSR motivations
may also include marketing, publicity, and innovation (Maignan et al., 2002). (Swindley,
1990) pointed out that firms may regard CSR as cost of doing business though other firms
may find CSR self-beneficial. (Panapanaan, Linnanen, Karvonen, & Phan, 2003) indicated
that globalisation, regulation, and sustainable development have fuelled expansion of CSR,
and there have also been examples of investment companies exerting power to drive social
responsibility among corporations (Spector, 2003).
A corporation's supply chain may be generally defined as the series of companies, including
suppliers, customers, and logistics providers that work together to deliver a value package of
goods and services to the end customer (Simchi-Levi, Kaminsky, & Simchi-Levi, 2002).
Despite the history of CSR, applications of CSR to the supply chain have only emerged in the
last 15 years. (Poist, 1989) Provided early consideration of social responsibility in the supply
chain, suggesting a total responsibility approach that adds societal issues to traditional
economic drivers of the supply chain. (Murphy & Poist, 2002) Contends that although supply
chain practitioners have been slow to adopt CSR considerations, social responsibility
concepts in the supply chain are increasing in importance. (Carter & Jennings, 2004),
established the importance of CSR in supply chain decision making with case study and
survey research.
2.8 Improving customer service and value creation (price, quality, place, service)
(Gattorna & Walters, 1996), explain that effective service strategies are those based upon
researched customer needs which are matched against company resource capabilities.
Clearly, if customers‟ expectations are likely to extend the capability of the resources to
maintain a consistent level of service, then either resources must be increased or,
alternatively, a lower level of service should be explored within the context of customers
responses.
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(Christorpher, 2005) It has been suggested that the role of customer service is to provide
„time and place utility‟ in the transfer of goods and services between buyer and seller. Put
another way, there is no value in the product or service until it is in the hands of the customer
or consumer. It follows that making the product or service „available‟ is what, in essence, the
distribution function of the business is all about. „Availability‟ is in itself a complex concept,
impacted upon by a galaxy of factors which together constitute customer service. These
factors might include delivery frequency and reliability, stock levels and order cycle time.
Indeed it could be said that ultimately customer service is determined by the interaction of all
those factors that affect the process of making products and services available to the buyer.
(Hugo, Badenhorst-Weiss, & Van Bilijon, 2004) The integrated supply chain is often called a
value delivery system. In order to explain the supply chain more fully it is therefore essential
to clarify some value concepts and explore how the supply chain may contribute to the
objective of enhancing customer value.
(Dumond, 1996) States that the definition of value that is perhaps the most useful in supply
chain management concept is that value equals “customer benefits minus customer
sacrifices”. A clear association between value and the supply may be seen in the definition of
value by (Melnyk & Denzler, 1996) which refers to the following equation:
Value = Performance
Cost
(Hugo, Badenhorst-Weiss, & Van Bilijon, 2004) The authors explain this equation by stating
that performance has three components: quality, how well the products or services meet the
expectations of the customer; speed refers to the time needed to deliver the goods or services
to the customer and flexibility indicates how easily products or services may be adapted or
changed to meet the changing customer demands. The cost element of the equation refers to
the total cost of acquisition, ownership and use (total cost of ownership – TOC) of a product
or service. It is evident that the processes and activities of the supply chain impact heavily on
all the variables in the above equation. In addition to managing each of the variables in the
equation, the task of the supply chain manager is also to find the optimum balance between
the elements, which will ensure that value, is at a maximum.
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(Anton, 1996), characterises CRM as an integrated approach to managing customer
relationships with re-engineering of customer value through better service recovery and
competitive positioning of the offer.
(Hugo, Badenhorst-Weiss, & Van Bilijon, 2004), in the global marketplace a competitive
advantage can be created by understanding that customer value no longer means just
providing an outstanding product or service. The value the customer perceives is the entire
relationship with the supplying firm. In this regard (Simchi-Levi, Kaminsky, & Simchi-Levi,
2002) identify the following elements of customer value.
Conformance to requirements: The ability to offer what the customer wants and
needs.
Product selection: The ease of selecting a suitable product or the configuration of
product characteristics according to customer wishes.
Price and brand: Price will always be an essential part of customer value but, by
emphasising brands, some perceptions of product value can be changed and higher
prices obtained in the market.
Relationship and experiences: Experience is an offering distinct from customer
service.
2.9 Co-value creation: alignment process together strategic importance
Value is a complex phenomenon of study for many reasons. One of the most obvious is that
the phenomenon is dynamic to its nature the understanding of value is dependent on time,
actors and context. The following is an attempt to establish how value should be understood
in this study. (Forsström & Törnroos, 2005).
Both supply chain management (SCM) and marketing in general have been moving from
models and purposes narrowly focused on goods to more general models and purposes
associated with partnerships, value networks, service provision, and value creation. Some of
these movements have been captured in what has become known as service dominant service
dominant logic (S–D) logic. While S–D logic focuses on intangible resources, goods and
tangible resources are not ignored; instead S–D logic sees goods as tools or appliances in the
customer‟s service provision “supply chain.” More broadly, the role of supply chains is to
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support the customer‟s value creating processes with service offerings, either directly or
through goods. In S–D logic, then, the strategic mandate for a supplier is to find innovative
ways to integrate the resources necessary for service provision (Ballantyne & Varey, 2008).
These applied resources may reside in the organisation but also may be outsourced to other
members of the value network. Supply chain management research and practices fit naturally
with this service-centred view because it implies that supply chain management is concerned
with developing and integrating resources to create competitively compelling value
propositions. In the discussion that follows, we will show that information technology (IT)
can support this service-centred view through distributing information and business processes
throughout the value network; as a result IT is an increasingly important and essential
resource in managing business processes (Ballantyne & Varey, 2008).
2.10 Competitive advantage: customer satisfaction creates value and competitive
advantage
The ability to target the most profitable customers is best served by understanding the balance
between expenditures designed to acquire and maintain customers over their lifetime and the
expected gross margin associated with each relationship (Richards & Jones, 2008).
Customer service functions are on the frontline of an organisation, providing an important
source of contact with customers.
CRM initiatives designed to provide support for customer service personnel should improve
the knowledge available to these representatives and reduce the time required to resolve
disputes (Chen & Popovich, 2003; Park & Kim, 2003; Sabri, 2003). Figure 5 below
highlights drivers of customer relationship management. The building blocks for the
realisation of customer equity is addressed and the steps for actualisation explained. The
essence of CRM within the supply chain is a verification of the alignment of internal
processes and the strategies thereof that churn out products to consumers. The firm
understanding of CRM drivers reiterates the need to verify supply chain structures that aids
the delivery of products to consumers.
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2.11 Conclusion
The shift of business strategy to the alignment of internal processes of organisations has
given rise to the effective alignment of supply chain structures. The aim of businesses is to
look inwardly to develop an approach and building blocks that will enable the business
operations of the company achieve the strategic imperative of creating value for consumers.
This research looked at a specific supply chain performance framework for structuring
drivers that companies can leverage on which will create competitive advantage and
organisational profitability.
Figure 5:
Source: Chen & Popovich, 2003: CRM Value drivers
TARGET PROFITABLE
CUSTOMERS
INTEGRATE OFFERINGS ACROSS
CHANNELS
IMPROVE SALES FORCE EFFICIENCY
AND EFFECTIVENESS
IMPROVE PRICING
CUSTOMIZE PRODUCTS AND
SERVICES
IMPROVE CUSTOMER SERVICE
EFFICIENCY AND EFFECTIVENESS
INDIVIDUALIZE MARKETING MESSAGES
CRM VALUE DRIVERS
VALUE EQUITY
BRAND EQUITY
RELATIONSHIP
EQUITY
CUSTOMER
EQUITY
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Chapter 3
Research methodology
3.1 Research design
(Gill & Johnson, 2002), highlight two methodologies a researcher can adopt when conducting
a research: inductive and deductive. They explain that deductive research method entails the
development of a conceptual and theoretical structure prior to its testing through empirical
observation. Inductive is the reverse of deduction as it involves moving from the „plane‟ of
observation of the empirical world to the construction of explanations and theories about
what has been observed.
This research‟s followed Gill & Johnson, 2002‟s deductive reasoning of developing a
theoretical structure which was reviewed by empirical observation at Nestlé. And the
theoretical structure followed was the concept of the drivers of supply chain performance and
the framework for the structuring of drivers. The testing of this concept was done
qualitatively by semi-structured interviews with a guided business context questionnaire.
(Leedy & Ormrod, 2010) Explain that deductive logic begins with one or more premises.
These premises are statements or assumptions that the researcher initially takes to be true.
Reasoning then proceeds logically from these premises toward conclusions that, if the
premises are indeed true, must also be true. They on the other hand explain that inductive
reasoning begins not with a pre-established truth or assumption but instead with an
observation. In inductive reasoning people use specific instances or occurrences to draw
conclusions about entire classes of objects or events. In other words, they observe a sample
and the draw conclusions about the population from which the sample has been taken.
The deductive logic approach adopted in this research again follows Leedy & Ormrod, 2010
view. The premises of statements or assumptions of the research were that structuring drivers
within organizations by following Chopra & Meindl‟s framework brings about competitive
advantage.
(Saunders, Lewis, & Thornhill, 2003) Defines the inductive approach as methodology where
theory follows data, while the deductive approach theory or hypotheses are formulated for
testing.
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Again the deductive approach adopted in this research follows Saunders et al, 2003‟s view
that theory or hypotheses are formulated for testing. In this case the theory developed was the
framework by Chopra & Meindl, 2007 on structures of drivers of supply chain performance.
The purpose of adopting the deductive approach for this study was to enable the researcher
test the viability of the framework given the limited amount of time for the research. Also
there was an array of literature available on supply chain management which allows the
researcher to make sound propositions for testing. It was equally a herculean task getting to
interview and set up meetings with the executives of Nestlé and as such it was impossible for
the research to adopt other research design i.e. case study and so on. The appropriate method
adopted allowed for testing given the time available.
Exploratory studies try to gain clarity of understanding by asking questions that lead to new
insights into a phenomenon, hence the adoption of the technique and as stated earlier. The
researcher conducted a series of interviews with the key players of the company in a bid to
gather information and understanding of the entire supply chain process of the company. As
(Leedy & Ormrod, 2010) explain that more often than not qualitative researchers are
intentionally non-random in their selection of data sources. Instead their sampling is
purposeful; they select those individuals that will yield the most information about the topic
under investigation.
3.2 Data collection
A business context questionnaire was sent out to the respondents before the interview in a bid
to give the respondents the opportunity to think about the questions in other to get precise
information. The questionnaire covered a high level overview of questions about the
competitive environment of Nestlé, the business vision, mission and strategy of the company.
The questionnaire equally had questions bothering on the overall business model of Nestlé,
supply chain strategies for execution, key issues the business is facing and how they are
dealing with these issues.
(Leedy & Ormrod, 2010), explain that qualitative researchers often use multiple forms of data
in any single study. They might use observations, interviews, objects, written documents,
audiovisuals materials; electronic documents (e.g. e-mail messages, Internet websites), and
anything else that can help them answer the research question. Furthermore, many qualitative
studies are characterized by an emerging design: Data collected early in the investigation
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often influences the kinds of data that the researcher subsequently gathers. Regardless of the
kinds of data involved, data collection in a qualitative study takes a great deal of time. The
researcher should record any potentially useful data thoroughly, accurately, and
systematically, using field notes, audio tapes, sketches, photographs, or some combination of
these. As they collect data, many qualitative researchers also begin jotting notes (sometimes
called memos) about their initial interpretations of what they are seeing and hearing.
In the light of this statement the research used Dictaphones to record interview sessions and
transcriptions of these interviews were done to generate raw form of data for analysis.
The primary mode of data collection for this research was semi-structured interviews as
stated earlier. The interviews were conducted on a one-to-one basis telephonically with the
Director of Supply Chain, the customer facing supply chain manager, and supply chain
consultants from Nestlé. To enable clarity of opinions by respondents some of the structured
questions were left open-ended. The interviews lasted up to one hour at a time. The reason
was that it was difficult to schedule interviews and the cost associated to physical visits to the
company was high.
(Hofstee, 2006), puts forward that if you are not able to source all the primary data you need
and often you won‟t be able to, you need to collect your own data. Often collection is actually
part of your dissertation requirements. This may mean measuring something, setting up an
experiment, interviewing people, doing archival research, looking into company records, or
any one of a host of other ways of collecting primary data. The mode of data collection for
this research was done in line with this reasoning.
The researcher collected his own form of data for analysis and an extensive research was
done by doing archival research and particularly looking into the company records of Nestlé
to collect figures on real internal growth rate and organic growth. The reason for this was to
get a base line for measurement of profitability year on year against the back drop of the
growth trajectory of Nestlé. It must be reiterated that the reason for this is to get a clear
picture of the organizational profitability.
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3.3 Data analysis
An adoption of the principles of content analysis was used to critically analyze the data that
was collected from the field. As (Leedy & Ormrod, 2010) explains that content analysis is a
detailed and systematic examination of the contents of a particular body of material for the
purpose of identifying patterns, themes, or biases.
The information gathered on the field as supply chain drivers of Nestlé were real internal
growth, organic growth, demand planning accuracy, on shelf availability, distribution
network. Each of these drivers have been explained in chapter four and support the
framework of the research that speaks to the effective structuring of drivers in a bid to
creating competitive advantage for organizations.
Leedy & Ormrod (2010) go on to explain that content analyses are typically performed on
forms of human communication, including books, newspapers, films, television, art, music,
videotapes of human interactions, transcripts of conversations, and internet blog and bulletin
board entries. The transcription of conversations was the raw data and reference point during
the analysis of the data.
(Hofstee, 2006), puts forward that after you have discussed how you obtained your data, you
need to discuss that data. It is nearly always desirable to have more data, or to have more
accurate data. Nobody expects the data that you used to be perfect, but they do expect that
you discuss the strengths and weaknesses of it, and you convince them that it is of sufficient
quantity and quality to allow you to draw reasonably reliable conclusions after you have
analyzed it. Once you have your data, of whatever nature, you have to do something with it in
order to turn it into evidence. To turn it into information you have to analyze it. You may
apply statistical analysis techniques or do some form of textual analysis, or a combination of
the two.
Chapter Four of this research forms the discussion part of the analysis of the data. The
research incorporated archival materials found, company documents and the transcription of
interviews to draw conclusions about the framework that has been tested.
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3.4 Research limitations
This research has the following limitations;
Time constraint has been the most obvious limitation. The period allocated for
deadline for this research has hampered to a very large extent the need to travel as
often as required to conduct series of interviews at Nestlé office in Johannesburg.
It was equally a herculean task scheduling interviews with the Nestlé staff as a good
number of the key stakeholders where often involved in trainings and had to always
travel for assignments etc.
The costs associated with travelling for interviews were high and the researcher had to
resolve to telephonic interviews and teleconference interviews which limited levels of
conversation.
As a result of the telephonic interviews the researcher was forced to rely heavily on
word of mouth information. Measurement of the performance drivers also were done
subjectively with the reliance of data from Nestlé website.
The scope of the research was to understand how Nestlé has created competitive advantage
by leveraging on performance drives within the supply chain and the objectives of the
research was to identify obstacles if any that has hindered Nestlé from improving its overall
supply chain models and strategy, equally to identify the criteria for achieving profitability
through an effective supply chain model.
Access to data hampered measurement of certain drivers discovered in Nestlé, and as a result
the research failed to carry out an extensive analysis of data to verify viability of the concept
under study. The research intended to carry out an extensive analysis of average net trading
working capital of Nestlé and a comparison of industry averages to verify where Nestlé
stands in a bid to access and compare the company with other organisations in the sector.
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Chapter 4
Research findings, analysis and discussion
4.1 Introduction
The post-1994 new South Africa established a firm platform for economic growth, the
development of a larger and stronger middle class and a higher demand for household goods
and services. This enabled significant growth opportunities in the retail industry as reflected
in the good business results of most listed retailers on the JSE since 1994 up to 2008. A
number of retailers utilised this period to embark on aggressive and successful growth
strategies, based on long-term predictions of sustainable GDP growth while keeping an eye
on exogenous events like the emerging markets currency crisis of 1998, which caused interest
rates and inflation to rise to unsustainable levels (Greeff & Mfuni, 2010).
The South African retail market consists of a few major supermarkets chains, convenience
chains, and some independent stores. Currently 54% of retail sales occur in major
supermarkets chains: Shoprite, Pick „n Pay, Spar and Woolworths. It is predicted that these
figures will reach 60% in 2008, which is in line with the global trends. Increased growth in
all corporate stores is predicted; as well as an increased growth in franchise and voluntary
groups. The awarding to South Africa of the 2010 Soccer World Cup is expected to result in
$350 million in improvements and investment projects. These will result in further growth in
the food and beverage sector (Helm & Ntloedibe, 2005).
The retail sector in South Africa acts as a channel in which Nestlé actually brings its products
to consumers. Nestlé is a supplier to Woolworths, ShopRite, and so on, of packaged foods.
The informal retail market in South Africa is an important player, with an estimated turnover
of R34 billion – the equivalent $5 billion. The informal sector is acknowledged as an
important delivery channel of goods to customers. However, the view is held that this sector
may have peaked; as more formal shopping centres are being developed in disadvantaged
areas. Currently, more stores are trading seven days a week, creating a greater opportunity to
reach shoppers. Allied to this, Sunday trading is becoming increasingly important as the trend
towards convenience continues. Month-end shopping remains extremely significant (Helm &
Ntloedibe, 2005).
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This chapter looks at the results of the sample interviews conducted at Nestlé. The chapter
begins by understanding the competitive space in which Nestlé operates and a high level
overview of the activities of its competitors will be explained. An extensive business
overview of the activities of Nestlé will be explained in a bid to understand the economic,
social, political and environmental atmosphere in which Nestlé operates. The aim of this
outlook is to bring to bear the nature of the terrain in which food packaging companies
operate which generally informs their overall business strategy and in turn supply chain
strategies.
4.2 Competitive space in the Food Packaging Sector in South Africa
The main players within the food packaging sector in South Africa as discovered in my
research that compete with Nestlé are Tiger Brands, Unilever, Kraft and Danone.
4.2.1 Tiger Brands
Tiger Brands Limited is a South African packaged goods company. In addition to the
company's South African operations, Tiger Brands also has direct and indirect interests in
international food businesses in Chile, Zimbabwe, Kenya and Cameroon. Tiger Brands is
believed to be South Africa's largest food company (Tigerbrands, 2010).
4.2.2 Unilever
Unilever South Africa (Pty Ltd), a subsidiary of Unilever PLC, is believed to be one of the
largest FMCG companies in the South Africa. The company is over a hundred years old, with
brands that are household names throughout the country. Unilever‟s power lies in their brands
which helps to improve the quality of people‟s lives and in doing the right thing (Unilever,
2010).
4.2.3 Kraft
“Kraft foods South Africa are in the business of making delicious foods that can make people
feel good. Whether watching your weight or preparing to celebrate, grabbing a quick bite or
sitting down to family night, Kraft foods pours out its hearts into creating foods that are
wholesome and delicious. Kraft foods make a delicious difference, everywhere
and are constantly looking for fresh ideas to improve their workplace, partnerships,
communities and world.” (Kraftsfoods, 2009)
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4.2.4 Danone
Danone is the world‟s leading producer in volume of fresh dairy products, selling a total of
5.1 million tons in 2009. The division accounts for roughly 60% of the group‟s sales and
posted growth of 4.6% in volumes in 2009. It has a global market share of some 27% and is
present in forty countries. In 2009, the Fresh Dairy Products division posted sales turnover
amounting to €8.6 billion (Danone, 2010).
Porter highlights the structural analysis of industries and reckons that competitive strategy
must grow out of a sophisticated understanding of the structure of the industry and how it is
changing. He goes on to explain that in any industry, whether domestic or international, the
nature of competition is embodied in five competitive forces; namely:
The threat of new entrants.
The threat of substitute products or services.
The bargaining power of suppliers.
The bargaining power of buyers and
The rivalry among the existing competitors. (Porter, 1990)
Furthermore Porter postulates that the five forces vary from industry to industry and
determine long term industry profitability.
The categorization of the competitive forces highlighted above was broken down into
economic, political, environmental and social factors in a bid to understand the terrain in
which Nestlé operates in South Africa.
Nestlé‟s approach to competition within the food and packaging industry has been tackled by
its acquisition of competitor intelligence. (Cornish, 1997) defines market intelligence (MI) as
the overall process of acquiring information about markets.
(Mahin, 1991) Explains that producers require three types of external information namely:
the environment, competition, and the market. Information about the business environment is
essential to long-term strategic planning and may concern political, technological, economic,
or social trends that affect marketplace condition.
This informs the approach adopted to solicit information based on the business environment
to foster long term strategic planning, political terrain, economic and social trends.
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The economic strategic intent of Nestlé culminates in its ability to handle direct rivalry from
competitors by applying strategic initiatives that helps delivery and speed of getting its
products to market. Again in mitigating one of the competitive forces Porter pointed out as
bargaining power of buyers. Nestlé has been able to diversify sources of its supply (local and
international) for raw and packaging materials and has equally been able to create long term
medium partnership agreements with its suppliers. The bargaining power of buyers has been
handled strategically by ensuring that growth is driven with smaller customers and the
creation of alternate channels in a bid to get to its customers.
Government policies have a crucial role in the success of most multinational organisations.
The government policy that has huge constraints to Nestlé is on publicity and communication
for nutritional quotients and the benefits associated to infants in South Africa. Nestlé has a
wide range of products for babies and the governmental policies hindering publications has a
significant impact on sales and the strategy thereof, impacting directly on end consumers.
The nutrition sector is important for any country‟s sustainable growth and, given the
consequences of malnutrition in the face of the development challenges in the world, the
1990 World Summit for Children set the goal of reducing the prevalence of malnutrition by
one third by the year 2000. The same goal has been reiterated at other global forums such as
the World Health Assembly (1991), the International Conference for Nutrition (1992) and the
World Summit for Nutrition (1996). This objective is an integral part of the millennium
development goals. At the regional level, the African Union, NEPAD, SADC and other
intergovernmental organisations, have adopted resolutions and recommendations aimed at
fighting malnutrition and poverty (Ministry of Health, 2005).
It is paramount that products should be accessible and affordable to the masses, taking into
consideration the levels of poverty in the country. The strategic intent of Nestlé to make
products available and affordable is to drive low cost country sourcing to deliver competitive
and affordable products. The segmentation of the consumer market is crucial and enhances
the ability to measure progression of penetration of products, enhance ease of communication
and distribution channels.
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(Carter & Jennings, 2004) Indicated that CSR not only is synonymous with business ethics
but also encompasses dimensions including philanthropy, community, workplace diversity,
safety, human rights, and environment
Nestlé has a focus on community development. In the light of this statement, it supports
infant organic development pre- and post-birth, focusing extensively also on farming and
agricultural developments. Equally in terms of the awareness of reducing the amount of
carbon foot print in their activities Nestlé is in the process of developing a sustainability
strategy with a clear implementation agenda from 2011 onwards.
4.3 Nestlé’s business strategy
Business strategy is concerned with how businesses achieve competitive advantage. Miles &
Snow (1978) and Porter (1980) typologies have emerged as the two dominant frameworks of
business strategy. (Miles & Snow, 1978) Developed a comprehensive framework that
addresses the alternative ways in which organisations define and approach their product
market domains (the entrepreneurial problem) and construct structures and processes (the
administrative and technical problems) to achieve success in those domains. They identified
four archetypes of how firms address these issues.
Prospectors continuously seek to locate and exploit new product and market opportunities
while defenders attempt to seal off a portion of the total market to create a stable set of
products and customers. Analysers occupy an intermediate position between the two
extremes by combining the strengths of both the prospector and defender to cautiously follow
prospectors into new product-market domains while protecting a stable set of products and
customers. A fourth type, the reactor, does not have a consistent response to the
entrepreneurial problem (Miles & Snow, 1978).
Nestlé‟s business strategy constantly seeks to locate and exploit new products and market
opportunities, hence diversifying into their various categories the product offerings.
Porter (1980), on the other hand, proposed that the entrepreneurial problem should be viewed
as a product of how the firm creates value (i.e. differentiation or low cost) and how it defines
its scope of market coverage i.e. focused or market-wide.
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The business objectives and strategy of Nestlé involves nourishing the African societies,
consumers, governments, communities and delivering sustainable profitable growth. The
model of Nestlé basically is based on the aspirations of being the preferred suppliers by their
customers and vice versa. Equally it is based on the aspiration of being the company of
choice for community development and delivering a corporate citizenship. This is delivered
through the globally integrated operating model of Nestlé, to drive sustainable profitable
growth, with nutrition health wellness product categories.
The overall business objective of Nestlé is a people driven model that involves nourishing
Africa. Africa arguably has high levels of malnutrition, HIV and AIDS. It is expected that in
response to the high levels of poverty, malnutrition, the aging population, HIV and AIDS
Nestlé has come up with a model that will help provide nutritious health and wellness related
products and merchandises to consumers but its nutritious health and wellness strategy has
now become the foundation of its business in order words the products.
Nestlé equally has an all-encompassing principle on its business operations that addresses
various facets of life that affects the social, economic, political and environment of
consumers and as stated earlier in Chapter One these principles will be analysed extensively.
The principles have been categorised into consumers, human rights and labour practices, its
staff and suppliers/customers.
4.3.1 Consumers: Nutrition, health and wellness
Creating nutritious products, improving the health and wellness of consumers is at the heart
of the principle of the business operation of Nestlé. The core aim, as discovered in the
research, is to enhance the quality of lives of consumers. This particularly is evidenced in the
array of products offering churned out by Nestlé particularly on enhancing the lives of
consumers in the grassroots. This strategy is evidenced in the corporate proposition of Nestlé
which is “Good Food, Good Life”. Nestlé‟s guided commitment to nutrition, health and
wellness expresses the reason they work to increase the nutritional value of their products
while also improving taste and enjoyment for consumers. Nestlé also has developed a brand
communication and information system that encourages and empowers consumers to make
informed choices about their diet (Nestle, 2010).
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4.3.2 Consumers: Quality assurance and product safety
Brand name and quality is at the very heart of strategic objectives particularly for companies
in the food and packaging sector. Companies in this sector need to have a commitment to
consumers that their product is of high quality and safe for consumption. Nestlé‟s
commitment is never to compromise on the safety of any product. The quality policy
summarises the essentials of Nestlé‟s passion for excellence which are:
• To build trust by offering products and services that match consumer expectation and
preference.
• To comply with all internal and external food safety, regulatory and quality
requirements.
The policy further explains that quality is everybody‟s commitment, and I quote, “We
continuously challenge ourselves in order to constantly improve and achieve the highest
levels of quality. We maintain the same high food safety standards in all countries in which
we operate. We ensure the delivery of high quality products through our Quality Management
System”. (Nestle, 2010).
The essence of quality assurance and product safety particularly in the food and packaged
sector cannot be over emphasised. Crespi and Marette reckon that there is little debate that
food safety is an important issue. In the United States alone, annual illnesses caused by seven
of the most commonly ingested pathogens have been estimated to be from 3.3 to 12.3 million
with 1900 to 3900 of these resulting in death (Crespi & Marette, 2001). Honesty and high
level of product safety is essential and, as Nelson explains, economic man is usually assumed
to be honest. However, economic man pursues his self-interest, and dishonesty and
misrepresentation will frequently result in personal gain. He goes on to say that as a
consequence it is more consistent with the spirit of economic theory to assume that behaviour
will be honest only when it is profitable. His idea is that consumers might conceivably avoid
most misrepresentation simply by obtaining information on product quality. (Nelson, 1976).
His concluding statement reiterates the need for quality assurance and product safety which
forms one of the business principles of Nestlé: “The generally accepted view has been that
where producers are identified by trademark, high product quality and high industry
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competitiveness are quite compatible. However, the validity of this view depends on the
dynamics of spread of product quality information after introduction of a new product”.
4.3.3 Consumers: consumer communication
Nestlé‟s commitment to consumer communication emphasises the initial view on constraints
on the advertisement of nutritional quotients of baby products. Thus Nestlé is committed to
responsible, reliable consumer communication that empowers consumers to exercise their
right to informed choice and promotes healthier diets. Consumer privacy is very much
respected and the core of the business strategy of Nestlé is built around helping consumers to
have a balanced, healthier diet (Nestle, 2010).
The business principle document of Nestlé explains that the Nestlé consumer communication
principles contain mandatory rules on marketing communication to all consumers, including
accurate representation and portrayal of foods in a way that does not encourage over
consumption. In addition it explains that specific principles guide the communication to
children including no advertising or marketing activity to children less than 6 years of age.
“Advertising to children from 6 to 12 years is restricted to products that meet pre-determined
nutritional profiling criteria, including clear limits on energy and health sensitive ingredients
such as sugars, salt, saturated fat and Trans fatty acids. The children‟s communication
principles of Nestlé are specifically aimed at protecting children by ensuring that the
advertising is not misleading, does not undermine parental authority or generate unrealistic
expectations of success, create a sense of urgency or allude to a sense of low price,” (Nestle,
2010). This explains the political constraints on communication and publicity for the
nutritional quotients and benefits associated with the infant products of Nestlé.
4.3.4 Human rights and labour practices: Human rights in business activities
Nestlé strictly adheres and supports the United Nations Global Compact‟s (UNGC) guiding
principles on human rights and labour and aims to provide an example of good human rights
and labour practices throughout their business activities.
Below is an exhaustive list of the practices:
Support and respect the protection of international human rights within their sphere of
influence (UNGC Principle 1);
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Make sure that they are not complicit in human rights abuses (UNGC Principle 2);
Are against all forms of exploitation of children;
Recognise privacy as a human right;
Expect each of their companies to respect and follow the local laws and regulations
concerning human rights practices. Where their own principles and regulations are
stricter than local legislation, the higher standard applies;
Recognise the responsibility of companies to respect human rights irrespective of the
fact that governments are ultimately responsible for the establishment of a legal
framework for protecting human rights within their jurisdictions.
And also upholding;
The freedom of association and the effective recognition of the right to collective
bargaining (UNGC Principle 3);
The elimination of all forms of forced and compulsory labour (UNGC Principle 4);
The effective abolition of child labour (UNGC Principle 5);
The elimination of discrimination in respect of employment occupation (UNGC
Principle 6). (Nestle, 2010).
Equally as a matter of fact Nestlé fully adheres to the eight fundamental Conventions of the
International Labour Organisation (ILO), in particular Convention 87, Freedom of
Association and Protection of the Right to Organise (1948), as well as Convention 138,
Minimum Age for Employment, and Convention 182, Worst Forms of Child Labour, which
are based on the United Nations Convention of the Rights of the Child (Article 32).
Furthermore they adhere to the Tripartite Declaration of Principles concerning Multinational
Enterprises and Social Policy (ILO) of March 2006 and the OECD Guidelines for
Multinational Enterprises of June 2000. This gives a clear indication of an organisation that
understands the intricacies of doing business globally.
4.3.5 People: Leadership and personal responsibility
Galunic and Anderson believe that the resource based literature has stressed that only firm
specific human capital is likely to generate organisational rents, since those assets are more
likely to be inimitable, rare, and therefore a better basis for sustained competitive advantage.
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Generalised investments in human capital (i.e., investments in capabilities that people can
transfer and deploy to other firms or settings) are to be avoided. However, observing lessons
from the literature on psychological contracts and organisational commitment they argue that
generalised investments may have value for the firm through their effects on worker
commitment to the firm. (Galunic & Anderson, 2000).
Nestlé‟s commitment to people stems from a variety of components that involves the fact that
people treat each other within the company with a sense of respect and dignity and expects
that this will promote a sense of personal responsibility in the execution of the duties and
functions of staff. Nestlé has a commitment in this light to recruit competent and motivated
people who respect the company‟s values. Also there is that commitment to provide equal
opportunities for their development and advancement by protecting their privacy and not
tolerating any form of harassment or discrimination.
4.3.6 People: Safety and health at work
Huang et al reckon that to reduce the risk of injury and promote job safety many
organisations have attempted to establish safety policies. Also they believe that to reduce the
risk of occupational injuries and illnesses and promote job safety, government agencies such
as the Occupational Safety and Health Administration (1989) issued safety guidelines on
which organisational safety policies are based (Haung, Chen, Krauss, & Rogers, 2004).
Nestlé has a commitment to preventing accidents, injuries and illness related to work, and to
protect employees, contractors and others involved along the value chain. The company‟s
policy on safety and health at work establishes safety as a non-negotiable priority of its
culture. Nestlé equally recognises and requires that its staff globally play an active role in
providing a safe and healthy environment and promote awareness and knowledge of safety
and health to its employees, contractors and other people related to or impacted by its
business activities by setting high standards. The monitoring system in place that measures
performance is done through the Nestlé Occupational Safety and Health Management System
that assures a safe and healthy workplace (Nestle, 2010).
4.3.7 Suppliers and customers: suppliers and customer relations
The principle on business operations concerning suppliers and customers and the relationship
thereof requires high levels of demonstration of honesty, integrity and fairness. There is an
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expectation from Nestlé to its suppliers to adhere to the non-negotiable standards of the
company. In the same way Nestlé is committed to its own customers. The Nestlé Supplier
Code specifies minimum standards that Nestlé asks its suppliers, agents, subcontractors and
employees to respect and adhere to. The supplier code includes requirements such as business
integrity, sustainable operating and agricultural practices, labour standards, safety, health and
environmental practices. To ensure that the supplier code is put in practice, Nestlé reserves
the right to verify the supplier‟s compliance with the code on a regular basis.
(Lin & Lin, 2006) Postulate that there is a long standing discussion on the positive
interactions between enterprise value creation and business competitiveness. They believe
that the corporate value can be seen as being created from three major sources within the
cycle: from employees, from processes, and from customers or investors through
reinvestment. They believe that for companies to achieve competitive advantages the firm
must create more value than its competitors in the industry. Emphasising that, firms should
explore the positive drivers of customer value creation, allowing for a true value creation that
will lead to increments in competitiveness. They reckon that in reality, however, there are
also barriers that hinder customer value creation.
(MacDonald & Ryall, 2001) provide a definition for value creation, competition, and value
appropriation, and in their research they show that by highlighting the following points: there
is a minimal level of value creation that is required if competition is to allow a firm to
appropriate value; there is a higher level of value creation guaranteeing that competition will
result in value appropriation; there is a measure of scarcity, which we call minimum value,
with the feature that competition implies a firm surely appropriates value if and only if the
firm's minimum value is positive; and if an agent is to appropriate value, a particular structure
of competition is required.
In summary Saloner et al (2001) finalise that a firm's ability to appropriate some or all of the
value it creates is determined by the features of the value creation process somehow
interacting with competition among firms (Saloner, Shepard, & Podolny, 2001).
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Research has shown that there is immense creation of value, competitive advantage for
organisations in having an established relationship with customers. Likewise there is an
ethical consideration of value creation in this process. The established and existing
relationship of Nestlé with its suppliers and customers reiterates the achievements of the
competitive advantage currently attained by the company in the food and packaging sector in
South Africa.
4.3.8 Suppliers and customers: Agriculture and rural development
Nestlé has a commitment to optimise the use of local sourcing as a key strategy from 2011
onwards. The business principle affecting agriculture and rural development resonate in the
contributions made by Nestlé to improvements in agricultural production, which are expected
to affect the social and economic status of farmers, more in rural communities and equally in
the production of systems that make them environmentally sustainable.
This transcends further the strategy of ensuring that the Nestlé factories obtain raw materials
competitively and at the required quality and safety specifications. Engaging in developing
sustainable agricultural practices and systems that help contribute to long term production of
efficiencies and in turn create viable income for farmers and the transfer of agricultural
knowledge to its suppliers.
Nestlé equally supports the application of new technologies and advances in agricultural
science, leveraging on its extensive scientific capabilities. The opportunities offered by
bioscience are expected to achieve a positive return and effect on food safety, the
environment, agricultural practices and production efficiencies which will be scientifically
confirmed and accepted by consumers in the long run.
The Sustainable Agriculture Initiative Nestlé (SAIN) guides its engagement in farming
systems to support agricultural practices, rural development, sourcing processes and practices
that are sustainable over the long term (Nestle, 2010).
Hughes empowerment strategy supports the intent of Nestlé in supporting agricultural
practices, and particularly rural development, by explaining that the compensatory model
suggests empowerment as the strategy for providing help. Therefore, it is important to
examine the empowerment process in more detail. He believes that the term "empowerment"
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has been used by many authors to capture ideas about helping (Hughes, 1987). Empowerment
is generally agreed to be the attempt to "enhance the possibilities for people to control their
own lives" (Rappaport, 1981).
(Vanderslice, 1984) Broadens this idea to include the ability to "influence those people and
organisations that affect their lives and the lives of those they care about". (Hughes, 1987)
Further explained that the empowerment strategy rests on several assumptions. He postulates
that both (Cochran, 1986b.) (Rappaport, 1981) Note that empowerment is based on a non-
deficit model that is, the assumption that all individuals, families, and communities have
some strengths and/or competencies and as recipients of help are not totally dysfunctional.
One way in which services can provide help that implies an assumption of strengths is by not
having eligibility requirements that necessitate persons demonstrating that they have some
type of weakness or problem in order to get help.
The second related assumption (Vanderslice, 1984) expressed from Rappaport and Cochran is
that people have valid and valuable knowledge of their own needs, values, and goals that can
be put into action. This assumption suggests that "experts" are not the only source of ideas for
changing or improving a situation, and that those helpers should respect this knowledge by
assuming the role of collaborators rather than experts. In his example he explained that the
collaborative helper asks, "What can we do together to address this problem?" or "How can I
help?" The helper promotes mutual respect and creates opportunities for others to develop
their capabilities (Cochran, 1986b.) (Rappaport, 1981).
4.3.9 The environment: Environmental sustainability
Environmentally sustainable business practices are becoming the major focus of businesses in
the 21st century. Companies are gradually moving away from the conventional way of doing
business to adopting sustainable strategies in a bid to compete. Nestlé strives at all stages of
their product life cycle to use natural resources efficiently favouring the use of sustainably
managed renewable resources and a target of zero waste in production. There is an immense
array of efforts in investing continuously to improve environmental performance. The
application of a product life cycle approach involves partnering from farm to consumer in
order to minimise the environmental impact of products and activities. Nestlé‟s four priority
areas are: water, agricultural raw materials, manufacturing and distribution of their
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products, and packaging. They implement the policy through the Nestlé Environmental
Management System. Nestlé believes that environmental performance is a shared
responsibility and requires the cooperation of all parts of society.
4.3.10 The environment: Water
A UNESCO report indicates that the world is in a midst of a water crisis that has many faces.
Whether concerning issues of health or sanitation, environment or cities, food, industry or
energy production, the twenty first century is the century in which the overriding problem is
one of water quality and management. The UNESCO report further explains that water
management has evolved, but in 2003 some 25,000 people were still dying every day from
malnutrition and 6,000 people, mostly children under the age of five, were dying from water
related diseases. “It is a real world crisis that numbers alone can dehumanise. The months of
writing this text have seen headlines of millions facing malnutrition in southern Africa,”
(Unesco, 2009).
This explains the commitment of Nestlé in the South African context to be committed to the
sustainable use of water and continuous improvement in water management. Nestlé
recognises that the world faces a growing water challenge and that responsible management
of the world‟s resources by all water users is an absolute necessity. Water is a particular area
of focus for Nestlé. The Nestlé commitment on water has set out priorities and objectives on
responsible water usage. These are to continue in its efforts to reduce the amount of water
used in their operations, ensure that activities respect local water resources, ensure that the
water Nestlé discharges into the environment is clean, engage with suppliers to promote
water conservation, especially among farmers, and reach out to others on water conservation
and access (Nestle, 2010).
Nestlé is a founding signatory of the United Nations Global Compact CEO Water Mandate
and they monitor and improve water efficiency through their water resources management
specialists and in its factories with their environmental specialists in line with the Nestlé
Environmental Management System. Nestlé recognises the right of all people to have access
to clean water to meet their basic needs.
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The in depth analysis of all the principles of business operations gives a firm understanding
of Nestlé‟s overall commitment to its consumers. These principles equally give a base line for
understanding the underlining strategy of Nestlé‟s supply chain and how the alignment will
work with the business strategy on one hand and the business operations on the other.
4.4 Sustainability strategy
(Van Marrewijk & Were, 2003) explain the concept of corporate sustainability and also CSR.
They refer to it as a company's activities voluntary by definition demonstrating the inclusion
of social and environmental concerns in business operations and in interactions with
stakeholders. This is the broad definition that some would say is a "vague" definition of
corporate sustainability. (Van Marrewijk & Were, 2003). Organisations are constantly
seeking ways of doing business and having the environmental implications of their business
activities at the back of their minds. Nestlé‟s sustainability strategy involves set of activities
aimed at reducing carbon emission. There has equally been an introduction of set of
collaboration exercises with customers in a bid to drive a much better extensionalised
transport network for the distribution of goods from Nestlé factories to their distribution
centres and so on.
The introduction of joint farming exercises with suppliers is in response to strategic sourcing
and procurement. It is expected that this will drive costs down dramatically. Equally,
compliance with the Corporate Business Principles of Nestlé, and with specific policies
related to each principle, is non-negotiable for all employees and their application is
monitored and regularly audited. The diagram below shows that compliance with Nestlé
Corporate Business Principles is the foundation for the company‟s commitment to be
environmentally sustainable and to create shared value (Nestle, 2010).
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Figure 6:
Source: Nestlé, 2010: The Nestlé corporate business principle.
4.5 Performance drivers of Nestlé
The aim and objective of this research highlights the need to use performance drivers as
supply chain strategies to explain the creation of competitive advantage and organisational
profitability in the packaged food sector in South Africa, looking particularly at Nestlé. The
performance drivers include: Transportation, Facilities, Inventory and Information. The
interpretation below highlights an analysis of how Nestlé has used the performance drivers to
create competitive advantage. The analysis highlights the business operations of Nestlé using
the drivers in light with Chopra and Meindl‟s supply chain performance and framework for
structuring drivers.
4.5.1 Transportation
The strategic intent of an extended logistics network in the supply chain is its potential of
reducing operating cost because large proportion of costs in a typical business are driven by
logistics practices and the quality of supply chain relationships, it is not surprising that in the
search for enhanced margins so many companies are taking a new look at the way they
manage their supply chain (Christopher & Ryals, 1999).
As this research indicated earlier transportation involves moving inventory from point to
point in a supply chain and combinations of transportation modes and routes. Its role in the
Creating Shared ValueNutrition, water and rural
development
SustainabilityProtect the future
Compliance with Nestles's corporate business
principles, Laws, Codes of conduct
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supply chain is moving the product between stages in the supply chain. Notably faster
transportation allows greater responsiveness and efficiency and this has strategic competitive
priority and advantage for organisations.
The ability to provide and make products available on the shelf for shoppers and consumers
is a major strategic imperative for Nestlé, and they have an extensive distribution platform
that makes movement of goods from its factories to its distribution centers, from its factories
to customer‟s stores, and from its factories to distribution centers of its customers easy. The
reconfiguration and refinement of its distribution platform has created an edge and aided the
timely availability of products on shelves round the country for consumers.
4.5.2 Facilities
Facilities look at places where inventory is stored, assembled, or fabricated. It could equally
be production sites and storage sites. Again this speaks to the combination of warehouses,
factories and packaging centers in use by Nestlé. The role of facilities in the supply chain is
that it provides the “where” of the supply chain manufacturing or storage (warehouses).The
competitive strategy largely will be that it brings about economies of scale (efficiency
priority) and larger number of smaller facilities (responsiveness priority).
(Christopher & Ryals, 1999) Explain one of the main drivers behind the growth of the third
party logistics service sector has been the desire to reduce fixed asset investment. At the same
time, the trend to lease versus buy has accelerated. Decision to rationalise distribution
networks and production facilities are increasingly being driven by the realization that the
true cost of financing that capital investment is sometimes greater than the return that it
generates.
4.5.3 Inventory
Inventory as a performance driver speaks to inventories that could be Work In Progress
(WIP), finished goods within a supply chain, or inventory policies. Inventory exists because
of a mismatch between supply and demand source of cost and influence on responsiveness
impact on material flow time, time elapsed between when material enters the supply chain to
when it exits the supply chain and throughput which invariably means the rate at which sales
to end consumers occur. Inventory and throughput are “synonymous” in a supply chain.
Nestlé has an effective mechanism in place that efficiently monitors its inventory. The driver
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used is the average net trading working capital which looks at days cover, how much
inventory is available in terms of Rand value, account payables and receivable which speaks
to the cash-to-cash cycle time (i.e. the elapsed time from procurement of
materials/components through to sale of the finished products) which can be six months or
longer (Christopher & Ryals, 1999).
4.5.4 Information
Information gathering regarding inventory, transportation, facilities throughout the supply
chain is the biggest driver of supply chain performance. Its role essentially involves the
connection between the various stages in the supply chain and allows coordination between
the stages.
Nestlé‟s approach to information gathering within its supply chain involves a number of
strategic intents that have been adopted. The explanations below highlight the strategic
intents.
4.5.4.1 Real internal growth and organic growth
Real internal growth measures and estimates the volume intended to be pushed out by Nestlé.
It is a measure used to obtain the highest level of growth businesses can achieve. Organic
growth, however, is a key performance indicator (KPI) that looks at draft spending. Organic
growth explicitly is used to draft changes within the margin and it looks at increased
processes.
Real internal growth, i.e. the increase in quantities sold at last year's prices, excluding
exchange rate effects and the impact of acquisitions and divestitures, improved and stands at
3.8 percent for the first three months. It was 3.6 percent for the full year 1999 (Nestlé, 2010).
The constant increases in the real internal growth of Nestlé looking at the figures from 1999
till date depicts increases in profitability year on year.
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Sales by product Segment
Jan-Sept 2009 sales in CHF Millions
Jan-Sept 2009 Organic Growth
(%)
Jan-Sept 2009 Real Internal Growth
(%)
Real Internal Growth (bps) Jan - Sept 2009 Vs Jan - June 2009
Powdered and Liquid Beverages 13 952 9.80% 5.30% 60
Water 7 224 -1.90% -2.30% 140
Milk products and ice cream 14 883 0.70% -0.20% 110
Nutrition 7 481 2.00% -1.50% 90
Prepared dishes and cooking aids 12 379 0.0% -0.50% -50
Confectionery 8 177 4.00% -1.60% -30
Pet Care 9 613 8.80% 3.20% 50
Total Food & Beverages 73 709 3.50% 0.70% 60
Pharmaceutical products 5 838 5.90% 5.50% 40
Group Total 79 547 3.60% 1.00% 50
Figure 7:
Source: Nestlé, 2010: Sales product by segment.
The table above shows the sales by product segment of Nestlé within the various categories.
The period in observation is January – September 2009. For powdered and liquid beverages
the table shows a 9.8% return on RIG, a slight decline of -1.9% in water and so on. The
essence of looking at the real internal growth figures is to have an indication of the
correlation between service and sales growth trajectory of organizations, particularly Nestlé.
Measurement of performance variables/drivers gives an indication of the growth trajectory of
organisations and baseline in other to measure organizational profitability. The tables below
will try to give a summary of the growth part and constant increases in the real internal
growth and organic growth of Nestlé year on year.
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Sales by Operating Segment
Jan-Sept 2009 Sales in CHF millions
Jan-Sept 2009 Organic Growth
(%)
Jan-Sept 2009 Real Internal Growth (%)
Real Internal Growth (bps) Jan - Sept 2009 Vs. Jan - June 2009
Food & Beverages
Zone Americas 23 393 6.40% 2.30% 40
Zone Europe 16 514 0.0% -1.50% 0
Zone Asia, Oceania, Africa 11 713 5.80% 3.00% 80
Nestlé Waters 7 220 -1.80% -2.30% 140
Nestlé Nutrition 7 479 2.00% -1.50% 90
Other Food & Beverages 7 390 6.20% 2.80% 40
Total Food & Beverages 73 709 3.50% 0.70% 60
Pharma 5 838 5.90% 5.50% 40
Group Total 79 547 3.60% 1.00% +
Figure 8:
Source: Nestlé, 2010: Sales by Operating Segment.
The table above gives an indication of sales by operating segment for January – September
2009 of Nestlé. The essence of the table is to give us an indication of the trajectory for the
year 2009. The table below shows comparison of figures year on year. The figures of the real
internal growth for January – September 2009 is 2.7% and the organic growth of 3.6%
(Nestlé, 2010) compared to the first half of 2010, Nestlé group‟s organic growth was 6.1%,
including real internal growth of 4.6% by operating segments (Nestle, Half yearly report
January - June, 2010). In measuring this trajectory it is evident that there is constant increase
it terms of volumes being pushed out by Nestlé.
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9 months Sales overview for 2010
Jan - Sept 2010 Sales in CHF
Millions
Jan - Sept 2009 Sales in CHF
Millions
Jan - Sept 2010 Sales Organic Growth (%)
Jan - Sept 2009 Sales
Real Internal Growth
By Operating Segment
Food and beverages Zone
Americas 24‟985 23‟393 5.7 2.7
Zone Europe 15‟946 16‟514 2 1.3
Zone Asia, Oceania,
Africa 12‟941 11‟713 9.2 7.7
Nestlé waters 7‟274 7‟220 4.3 4.6
Nestlé nutrition 7‟842 7‟479 6.8 5.9
Other Food & Beverage 8‟034 7‟390 9.5 8.3
Nestlé Food & Beverage 77‟022 73‟709 5.7 4.2
Pharma (Incl Alcon) 5‟748 5‟838 10.6 8.9
Total Group 82‟770 79‟547 6.1 4.5
By Product
Powdered and liquid
beverage 15‟006 13‟952 8 6.3
Water 7‟280 7‟224 4.3 4.6
Milk products and ice
cream 15‟531 14‟883 6.1 3.8
Nutrition 7‟844 7‟481 6.8 5.9
Prepared dishes and
cooking aids 13‟162 12‟379 3.5 2.9
Confectionary 8‟535 8‟177 7.4 3.7
Pet Care 9‟664 9‟613 4 2.6
Pharmaceutical Products 5‟748 5‟838 10.6 8.9
Total Group 82‟770 79‟547 6.1 4.5
Figure 9:
Source: Nestlé, 2010: Nine months sales overview 2010
4.5.4.2 Innovation and renovation
Nestlé‟s approach to innovation and renovation as an information metric drives growth in the
sense that it is an approach that measures brand new products that are churned out into the
market. Renovation on the other hand looks at existing products that are been fine-tuned and
changed to satisfy customer needs. Measurement for growth for this variable is done by
looking at the percentage of turnover in a bid to get what is coming out in terms of products
from innovated and renovated products.
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4.5.4.3 Demand planning accuracy
Again this variable looks at projection and measurement of sales for periods. The projection
looks at trying to verify what sales will look like in 3, 6 or 18 months. The essence of doing
this basically is to format and reconfigure if necessary facilities available, transportation
system for handling volume in periods of high demand, levels of inventory to better manage
working capital etc. „Demand planning accuracy‟ means to inform resource utilisation in the
supply chain with particular reference to the utilisation and effective alignment of the
performance drivers. Demand planning accuracy also enhances capacity utilisation of
transportation and facilities. It aids better production and factory line utilisation. Nestlé‟s
approach to demand planning accuracy optimises what they do and how they handle
effectiveness and efficiency in the way they do it.
4.6 Discussions of results.
Spanos et al (2004) reckon that one of the major goals in current strategic management
research is to identify the sources and determinants of profitability differences among firms.
The effective utilisation of the drivers discovered in Nestlé speaks to this assertion. Previous
research conducted by Spanos et al (2004) mainly within the industrial organisation (IO)
tradition, has examined the role of industry effects, such as those involving market
concentration, entry barriers, and growth, providing results that largely support the notion of
that industry (Spanos, Zaralis, & Lioukas, 2004).
The growth trajectory highlighted in Nestlé i.e. real internal growth and organic growth is a
determinant of profitability for Nestlé within the food packaging sector in South Africa.
Porter (1991)‟s strategy represents a consistent array or configuration of activities, aiming at
creating a specific form of competitive advantage for which there exist two fundamental
types: low cost or differentiation. These in turn, together with the scope of operations, define
the notion of generic strategies. Within this framework, strategy choice is the product of (and
response to) a sophisticated understanding industry structure (Porter M. , 1991).
Nestlé‟s differentiation is in its array of product segmentation; including food and beverages,
pet care, confectionary, pharmaceuticals and more. This represents an array of the
configuration of activities which have brought differentiation and competitive advantage in
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the industry. The extended scope of business operations highlighted defines the generic
strategy that has been adopted for implementation.
(Porter, 1991)‟s notion speaks to the consistence of (Chopra & Meindl, 2007)‟s framework
for structuring drivers which forms the basis of the theory for testing in this research.
Businesses that seek to compete in our fast paced world seek strategies that are different to
conventional means. Supply chain management is gradually becoming that tool within
organisations that seek competitive advantage. There is a growing need to understand the role
of coherent supply chain strategy in achieving competitive advantage. The supply chain
model of Nestlé has been built to incorporate strategies that will help achieve consumer and
customer satisfaction.
Injazz et al describe customer relationship management (CRM) as a combination of people
processes and technology that seeks to understand a company‟s customers. They go on to
explain that it is an integrated approach to managing relationships by focusing on customer
retention and relationship development. CRM has evolved from advances in information
technology and organisational changes in customer centric processes. Companies that
successfully implement CRM will reap the rewards in customer loyalty and long run
profitability (Injazz, Popovich, & Popovich, 2003).
The research discovered that this approach amongst many is one of the factors that help
Nestlé in driving its competitive advantages and an incorporation of a supply chain strategy
that excels in compliance. Equally driving end to end integration and collaboration both
internal and external have aided an effective alignment of the supply chain model. In addition
to this is a responsive supply chain that will help deliver cost effectiveness and availability of
goods and products.
The deployment of lean supply chain operations, a secure competitive strategic sourcing
option, and black economic empowerment (BEE) are all strategies that help drive the supply
chain model of Nestlé.
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The key insights to this research reiterate the notion that for organisations to create
competitive advantage; internal processes and supply chain strategies should follow the
alignment of performance driver‟s i.e. Inventory, Transportation, Facilities and Information.
The study found out that Nestlé also adopts a variety of performance drivers that are
measured periodically and are monitored to understand levels of profitability year on year.
This supports the framework for supply chain performance and the structuring of the drivers.
The findings suggest that Nestlé uses performance drives to measure and monitor their
competitive advantage and organisational profitability.
The categorisation of the findings of other drivers notably equally falls under the four (4)
performance drivers listed as supply chain performance drivers. The link between creating
competitive advantage and organisational profitability can be found in the effective alignment
of supply chain strategies to the business strategies in organisations. Organisations seemingly
need to move away from conventional strategies and adopt supply chain strategies to compete
in our fast paced business environment.
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Chapter 5
Research conclusions
5.1 Introduction
This research was broadly about understanding how to create competitive advantage by
leveraging performance drivers i.e. information, inventory, facilities and transportation within
the supply chain. The scope of the research was to look at the food and packaging sector in
South Africa with specific reference to Nestlé, one of the leading food and packaging
companies in the world.
The research looked at the business strategy of Nestlé in a bid to understand the
environmental, political, social and economic space Nestlé operates in. The essence was to
get a broad understanding of what the competitive terrain looks like and to understand the
strategy that has been adopted to compete.
The focus of the research was to also look at the supply chain structure and strategy of Nestlé
using the performance drivers mentioned above as a yard stick for the creation of
performance and its management in a bid to see how competitive advantage and
organisational profitability are created.
The research objective was to understand the impact of supply chain management on
competitive advantage of Nestlé in South Africa, to identify obstacles (if any) that are
hindering Nestlé from improving its overall supply chain models and strategy to create
competitive advantage and organisational profitability, to identify the criteria for achieving
profitability through an effective supply chain model and, finally, to identify the effective
alignment of supply chain to the corporate strategy of the company in other to create
competitive advantage and organisational profitability.
The creation of the competitive advantage of Nestle is as a result of the extended supply
chain strategy with specific focus to the utilization of performance drivers with strategic
focus on real internal growth, organic growth, demand planning accuracy, on shelf
availability and the extensive distribution network of Nestle.
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The research did not identify existing obstacles that has hindered Nestle from improving its
overall supply chain model, the only hindering factor however is the policy on tariffs, quotas,
export incentives government trade in South Africa which has had an impact on benefits on
export incentives and constrained import quotas on certain raw materials from Asia and Latin
America.
The research discovered the effective alignment of the business strategy of Nestle in line with
the company‟s business corporate principles and how the supply chain strategies has been
developed from these principles.
Specific reference should be placed in the context of the company with extreme caution in the
interpretation of the research results. The research however has brought to the fore a number
of viewpoints from previous researches and findings. These findings show a very close
correlation to certain characteristics and associations linked to effective supply chain
management for organisations trying to create competitive advantage and organisational
profitability.
5.2 Future research and recommendations
This research has dealt with a number of characteristics in effective supply chain structures
and their performance. The study has raised the concept for the creation of competitive
advantage and organizational profitability for companies by aligning their supply chain in a
certain structure.
However, the research has failed to apply the concept across sectors and the measurement of
some of the drivers has not been done accordingly. The study agrees with the framework for
creating supply chain performance and the structuring of performance drivers, but reckons
that studies should be conducted in a variety of business in the South African context to
ascertain viability of the framework and concept.
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Appendix A: Business Context Questionnaire
The essence of the business context questionnaire is basically to provide me guidance on how
to obtain an overview of Nestlé‟s business process. The deliverable is a document which will
provide me with a high level overview of Nestlé. I hope to get a broad understanding on the
following;
The competitive environment of Nestlé.
Nestlé‟s business vision and strategy.
Nestlé‟s overall business model.
The key issues the business is facing and how they are dealing with these issues.
The key company risks and the controls in place to manage these risks.
I intend doing this by way of interviewing high level company executive/s utilizing the
questions in the template as guideline. In this case the director of Supply Chain at Nestlé,
Information technology manager, Operation manager etc.
Question Notes / Comments
Business Overview
1. Who are your main competitors and
what is their focus?
2. What are the opportunities in your
market?
3. What are the threats in your market?
4. What do you see as your strengths?
5. What do you see as your weaknesses?
6. Who are your main supplier / customers
/ business partners – now and in the
future?
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Question Notes / Comments
Economic
7. How does Nestlé handle rivalry amongst
direct competitors in a bid to make
money?
8. How do you handle the bargaining
power of input of suppliers?
9. How is the bargaining power of buyers
handled?
Political
10. What government policies constrain
your conducts at Nestlé?
11. What Industry policies impedes Nestlé
in terms of product innovation, new
market entry etc.
12. What government trade policies in terms
of tariffs, quotas, export incentives
affects Nestlé in South Africa and
Southern Africa.
Social
13. What measures have been adopted for
pricing of products taking into
consideration poverty and low income
levels in South Africa?
Environment
14. What is Nestlé‟s overall Corporate
Social Responsibility (CSR) approach in
South Africa?
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Question Notes / Comments
15. How much awareness is placed by
Nestlé in its activities in terms of
reducing carbon footprint?
16. How are suppliers sourced in light of
this in a bid to reducing carbon
footprint?
Business Strategy
17. What are the main business objectives
and strategies of Nestlé?
18. What does your high level business
model look like?
Supply Chain Strategy
19. What is Nestlé‟s overall Supply Chain
model?
20. What strategies have been adopted in
order to create an effective alignment of
the model?
Performance drivers
21. What do you think are your
performance drivers in your supply chain
model?
Value drivers
21. How has Nestlé been able to manage its
value drivers?
22. And what are these value drivers?
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Appendix B: Interview transcription 1a
Business Context Questionnaire
The essence of the business context questionnaire is basically to provide me guidance on how
to obtain an overview of Nestlé‟s business process. The deliverable is a document which will
provide me with a high level overview of Nestlé. I hope to get a broad understanding on the
following;
The competitive environment of Nestlé.
Nestlé‟s business vision and strategy.
Nestlé‟s overall business model.
The key issues the business is facing and how they are dealing with these issues.
The key company risks and the controls in place to manage these risks.
I intend doing this by way of interviewing high level company executive/s utilizing the
questions in the template as guideline. In this case the director of Supply Chain at Nestlé,
Information technology manager, Operation manager etc.
Question Notes / Comments
Business Overview
1. Who are your main competitors and
what is their focus? Key competitors include: Tiger Brands,
Kraft, Unilever & Danone
Specifically focussing in foods
manufacturing
2. What are the opportunities in your
market? Growth in nutrition, health and wellness
products from consumers & shoppers;
Extended route to market in terms of
distribution network.
3. What are the threats in your market? Anti competitive behaviours with
competitors;
Affordability by consumers;
Water shortage;
Electricity capacity;
Shortage of scarce skills
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Question Notes / Comments
4. What do you see as your strengths? Technological capacity;
Scientific infrastructure;
Consumer insights;
Robust supply chain infrastructure.
5. What do you see as your
weaknesses? Production capacity in line with customer
& consumer demands;
Lack of scares skills;
Waste throughout the value chain.
6. Who are your main supplier /
customers / business partners – now
and in the future?
Key suppliers include: Tongaat; Nampak;
Key existing customers include: Pick n
Pay; Spar; Woolworths; Shoprite;
Massmart
Key future customers include: Wal-Mart &
Tesco
Economic
7. How does Nestlé handle rivalry
amongst direct competitors in a bid
to make money?
Acquisition of competitor intelligence
Consistently enhancing our speed to market
8. How do you handle the bargaining
power of input of suppliers? Diversification of sources of supply (local
& international) for raw & packaging
materials
Creation of medium to long term
partnership agreements
9. How is the bargaining power of
buyers handled? Drive growth with the smaller customers
Create new channels to reach customers
Reduction of our reliance on bigger
customers, whilst establishing well aligned
win-win partnerships to dilute power
Political
10. What government policies constrain
your conducts at Nestlé? Constraints on publicity & communication
for the nutritional quotients and benefits
associated to our infant products
11. What Industry policies impedes
Nestlé in terms of product
innovation, new market entry etc.
n/a
12. What government trade policies in
terms of tariffs, quotas, export Free trade within the Southern Africa
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Question Notes / Comments
incentives affects Nestlé in South
Africa and Southern Africa. Limited benefits on export incentives
Constraints on import quotas imposed on
certain raw materials from Asia & LATAM
Social
13. What measures have been adopted
for pricing of products taking into
consideration poverty and low
income levels in South Africa?
Drive low cost country sourcing to deliver
competitively affordable products
Segmentation of the consumer market
Development of products categories for
each market segments
Change in formulation & recipe to satisfy
specific market segments as per the market
consumer research
Environment
14. What is Nestlé‟s overall Corporate
Social Responsibility (CSR)
approach in South Africa?
Focus on community development
Support infant organic development, pre &
post birth
Focus on farming & agricultural
development
15. How much awareness is placed by
Nestlé in its activities in terms of
reducing carbon footprint?
We‟ve made insignificant progress on this
We are in the process of developing our
sustainability strategy with a clear
implementation agenda from 2011 onwards
16. How are suppliers sourced in light
of this in a bid to reducing carbon
footprint?
As per comments on question 15
We will also focus on responsible sourcing
to drive sustainability through procurement
Business Strategy
17. What are the main business
objectives and strategies of Nestlé? Nourishing the African societies,
consumers, governments & communities
Delivering sustainable profitable growth
18. What does your high level business
model look like?
Our model is based on the aspirations of being:
The preferred suppliers by our customers,
The preferred customer by our suppliers;
Preferred employer by employees
Company of choice for community
development, delivering a corporate
citizenship
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Question Notes / Comments
This is delivered through the globally
integrated operating model, to drive sustainable
profitable growth, with nutrition-health-
wellness product categories.
Supply Chain Strategy
19. What is Nestlé‟s overall Supply
Chain model?
The supply chain model is designed to drive
the delivery of:
Delighting consumers & customers
Driving competitive advantages
Excelling in compliance
20. What strategies have been adopted
in order to create an effective
alignment of the model?
Drive end to end integration &
collaboration (internal & external)
Responsive supply chain to deliver cost
effective availability
Deployment of Lean supply chain
operations
Black Economic Empowerment
Intensify electronic trading
Secure competitive strategic sourcing
Maximise performance driven culture
Performance drivers
21. . What do you think are your
performance drivers in your supply
chain model?
Real internal growth through volume
Organic growth
Lean operations
On shelf availability
Innovation & renovation
Organisational capability building &
development
Nutrition-health-wellness brand
development
Consumer intelligence
Distribution network
Average net trade working capital
Demand planning accuracy
Value drivers
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Question Notes / Comments
22. How has Nestlé been able to manage
its value drivers? Through the deployment of integrated &
aligned strategies & value chains
Flawless execution
Compliance & governance
23. And what are these value drivers? These are aligned to those in question 21
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Appendix C: Interview transcription 1b
INTERVIEWER QUESTION - Having gone through the business context questionnaire I
sent to you I have been able to see that you highlighted a number of points based on the my
findings in terms of what the impact basically is on supply chain management using some of
the performance (Interviewee… yes) drivers in order to basically create what I believe is
competitive advantage and organisational profitability in most organisations. Now the context
I tried to do was to see a situation where by I would verify what Nestlé is doing in the food
packaging industry in South Africa, to verify what some of the trends are in terms of
economic, political, and then social outlook of what the entire terrain is to see how we can be
able to verify how we can incorporate a lot of the organisational strategies of Nestlé and
the(interviewee…ok) see how we can then align what the supply chain strategy is in order to
create that competitive advantage within the space. But one of the issues, things that stuck up
for me was from the questionnaire you highlighted in terms of what the sustainability strategy
is. I am just curious to know if the outlook you have for 2011 in terms of what the
sustainability strategy will be. If we say we are going to bring about a certain sustainability
strategy. Do you think it will affect what the existing supply chain strategy is? If not, do you
think you will be able to bring in a certain sustainability strategy to be able to align it to what
your existing supply chain strategy is?
INTERVIEWEE RESPONSE – Emm… Yes I do believe that the sustainability strategy is
that we are now developing for implementation in 2011 is will certainly have an impact into
the existing supply chain strategy. Now the impact that I am really looking at is which I
believe is a lot more positive from a supply chain perspective. I would start from the elements
that are related to carbon emission for example. The amount of kilometres that I will make in
the past two years or three years is that I will have to make less than that in the few years.
The extent of my collaboration with our customers by making sure that we drive a much
better refined extensionalised transport network that matters will mean that I will consume
less litres of diesel, will mean that cover less kilometres, will mean that I create less carbon
emission, will mean that the impact I will have on the environment is much less now that‟s
just on one hand and on the other hand if I look at the plans that I have with reference to
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sustainability next year I am looking at the element like joint farming with some of my
suppliers is now in a context of strategic sourcing and procurement where by farming
development is and will become a critical element of our supply chain strategy in fact with
specific focus to procurement so again in this context for me it informs to our sustainability
as a strategy. In terms of cost performance I really believe that the closer I get to farming
environment the more cost effective I will be able to supply some of the raw materials (words
missing.......) now again talking about stock the closer I get to my retailers the more I
centralise my distribution the more I get into partnership with my customers such as retailers
the more I refine (words repeated) my distribution network the better cost optimisation I will
have. So so whether from an availability perspective, whether from a farming perspective,
whether from a environmental carbon emission effect perspective yes I definitely need to I
definitely ......... my supply chain will be impacted that is more on a positive side so it will be
a more positive impact as opposed to a negative impact.
INTERVIEWER QUESTION – okay so the reason why I have asked is that a lot of
businesses these days are going green and if you are looking at an outlook of another five to
ten years to see how a lot of businesses will be able to align some of those strategies thinking
ahead. I have equally been able to understand looking at some of the answers you gave back
to me in terms of the business model of Nestlé. I have been able to understand that to a large
extent there has been (interjection) nourishing for African societies, consumers, government
communities based on the response that you gave me. I would just want to basically clarify
this business objective in terms of what the actual model looks like, based on your response
in terms of the aspirations of being the preferred suppliers by customers, equally the preferred
customers by supplier, and then looking at what your employer versus employee status is. At
that point I just need to verify how Nestlé is going about the actual, in actually achieving
some of the aspirations in terms of the supplier base on one hand and then the customers on
the other.
INTERVIEWEE RESPONSE – (Pause) you know the key foundation of our business has
become and more and more is becoming (pause) or perhaps is driven by the society at large.
Now if I look at Africa as a whole or if I look at the world as a whole you got a huge amount
of infant mortalities, you have got a huge amount of (long pause) you know the life span of
people becoming shorter and shorter and shorter. Now you got a severe a severe extreme
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level of malnutrition. Now as Nestlé and as a corporate citizen we have now deployed and
adopted a different much more and enhanced people driven strategy that looks at nourishing
this (words missing) nourishing Africa as a continent. Now when you look at Africa as a
continent, how do we respond to malnutrition, how do we respond to HIV and AIDS, how do
we respond to the aging population, how do we respond to poverty? Now on the context the
model is just around looking at how been able to provide nutritious healthy and wellness
related products and merchandises. But it‟s nutritious health and wellness is now has now
become its foundation of our business in order words the products that we advertise be it in
water, be it in ice cream, be it in confectionery, be it in coffee, be it in beverages, be it in
instant formulas, or infant cereals, or in our ...... products or in our dairy produces for
example. Or in our food produce. Every single one of these categories we‟ve got to make sure
that we enhance the element of our nutritional quotient, we enhance the element of wellness,
we enhance the element of health in these products that we deliver and in that context we
should be able to see over a number of years the contribution that we are making as a
corporate citizen in a context of decreasing malnutrition, in a context of reducing infant
mortality, in a context of extending the life cycle of the aging population....So our model is
around this specific elements and this is what we say the one word that we call it in essence
nourishing Africa or nourishing the African continent.
INTERVIEWER QUESTION – Okay there was a particular issue you mentioned on
nutritional quotient (pause) looking at the political terrain particularly in South Africa. I see
that you highlighted one of the constraints in terms of publicity and then communication on
the nutritional quotient, particularly as a benefit associated to infants in terms of the products
you have for infants, But i will like you to verify or just clarify what those constraints are in
terms of those publicity and then communication of the nutritional quotients of the products
you have for infants. I want to verify if there is a particular government policy that is
constraining Nestlé from actually doing certain publication and communication on it.
INTERVIEWER RESPONSE – Again it is a very valid question in fact worldwide we have
got a commitment with the world trade organisation, world health organisation, with United
Nations, with UNICEF and so forth. And the commitment basically is that there is no single
country where babies are been born and we will not be there. (Words missing) having said
that over the last decade or so there has been many studies that we as Nestlé have done and
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other NGO‟s including the United Nations themselves have done and these studies have
clearly proven that if I look at infants as a specific segment or a specific target market, infant
being the specific target market it is very clear that the mother‟s breast milk as an example is
always better than formulas(missing words) So if that specific we are fully behind this we
have to make sure that we encourage that babies should be feed with the mothers breast milk.
Having said that at the same time we as Nestlé that are supporting the mother‟s breast milk
we are at the same time producing certain substitutes for the mother‟s breast milk. So what
that then means is from a corporate citizens perspective we cannot come out and have two
conflicting messages that will supporting the mothers breast milk but at the same time we are
selling a substitute to the mother‟s breast milk. So the agreement that we have and this has
now been posed by law that any government worldwide that infant formulas or infant milk
cannot be promoted cannot be published cannot be advertised. And the reason is that if we do
that then we are in a sense preventing or eliminating the use of the mother‟s breast milk
which is better than formulas. So this has now been adopted through the world health
organisation and it has been employed worldwide every single country through the
department of health through the ministry of health they will not allow us to advertise or to
promote the use of infant formulas so this is just the example that I am giving you with
reference to the constraint on publicity and communication on the relevant nutritional
element of that are part and parcel of our infant formula purely because if you look at the
milk that the babies are feed we have agreed that the milk the baby is fed is better hence the
constraint on publicity and communication and advertising and promotion and so forth.
INTERVIEWER QUESTION - But I believe the end goal of most products is for it to come
across to the consumer in terms of (words missing). Looking at some of those governmental
policies has there been any strategy Nestlé has been to adopt not to fault on the rules and
regulations from the world health organisation and the ministry of health here in South Africa
to bring the product across to the consumer as a substitute for breast milk. I don‟t know if
there has been any strategy that Nestlé has equally adopted to counter that and bring it across
to the consumer.
INTERVIEWER RESPONSE - Well the strategy that we have adopted really is
availability. The strategy is availability, we have done many studies and analysis and these
studies have clearly given us an indication that again if we have to stick to infant products,
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when babies are born for the first sixty days or for the first ninety days the babies are
(missing words).In fact the first thirty days the baby is basically 100% fed the mom‟s milk or
the breast milk if the mother is healthy enough to give the breast milk. And in a sense if the
infant or baby gets to the age of four months we notice that the consumption of the mother‟s
breast milk begins to decrease and there is a penetration of our infant formula. Now generally
speaking when the bay gets to the age of six months many mother begin to go to work and
even for those mothers that don‟t go to work they begin to have a 50/50 level of milk
consumption, a 50 % Nestlé milk and 50% the mother‟s milk. And as the baby gets to a much
older age to seven months or eight months you know the taste basically becomes different. In
other words you find yourself at 90% infant formulas, Nestlé milk being consumed and 20%
over time the infant basically becomes 100% dependent on the Nestlé formula. Now this is
naturally what happens in many instances whether it is in the main cities or in the villages
this is what happens. Having that intelligence (2ce) in our portfolio the subsequent strategy
we have to adopt is to make sure that we are always available on the shelf irrespective of the
location within the country. It does not matter where the strategy is to drive on shelf
availability.
INTERVIEWER QUESTION - Talking about this on shelf availability I have seen that you
highlighted it as one of your performance drivers that is if we are going to what the supply
chain strategies are. In my thesis I am looking at Information, transportation, Inventory and
then facilities as my performance drivers. I am trying to say that if these are performance
drivers basically in organisations and they are aligned effectively in the supply chain
invariably I am trying to say that they should provide competitive advantage and then in turn
organisational profitability for companies. I have looked at, you have highlighted couple of
the performance drivers I have seen real internal growth in volume, organic growth and the
rest of it. Then looking at doing operations also to a large extent if you probably align your
lean operations effectively then you can create or have the end goal of actually making sure
that your products to a large extent get to the shelves on time, but the question I have is if we
have been able to align a good number of these performance drivers measuring at the end of
time, how do we, how does Nestlé measure each of those performance drivers by quarter to
say it actually worked for us in a certain quarter. I don‟t know if there is any measurement
metric that has increased to measure the actual performance drivers in line with the internal
processes in Nestlé.
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INTERVIEWER RESPONSE – Yes most of these (stammers) drivers have got specific
measurement. If I look at real internal growth, if I look at organic growth, I look at
availability; I look at innovation and renovation, I look at any other element yes we got (2ce)
specific measurement now if I just look at the real internal growth these in a sense in a critical
must this is in sense a (missing words) so we tell ourselves that how much volume do we
want to push (stammers) this year or next year. So yes you‟ve got specific targets, and if I
look at it the real internal growth target for 2010, (stammers) if I remember correctly the
target was about 3% and we are performing at about (missing words) if I look at it the target
of organic growth again is in sense a KPI that looks at the manner in which we manage draft
spending. So organic growth explicitly is drafting changes within the margin so to what
extent have we used increased our process, to what extent have we increased our process and
how do we manage that. What is the impact on real internal growth, what is the impact on
(missing words) and so on? One element that poses a challenge is on shelf availability. On
shelf availability today is more of a theoretical measure whereby we all do accurate data
every single month. So if I get to ShopRite sand ton, and I get into ShopRite east gate, and I
get into ShopRite menley am I seeing all my SCU‟s on the shelf? What is the level of stock
pressure? What is the level of stock visibility? What is the level of our presence at shelf
level? Now across a number of categories, across a number of SKU‟s. So in that context with
then need to drive different exchanges, different behaviours to understand how we are
performing at when on shelf availability is concerned. But from the end of this quarter
onward we are now creating an infrastructure where we can have a scientific marketing
measure of on shelf availability. Now you may say why have we not done this before? Why
didn‟t we have a scientific platform to start measuring real on shelf availability from a
scientific perspective? The reason we have not done that is because of the maturity level of
our retailers because we are heavily relied on our retailers but we have now and have now
created a platform within a number of key customers or key retailers in that from 20 this
quarter onwards through selected number of stores as well as selected number of SKU‟s in
particular we are now developing a clear methodology that we will use to measure on shelf
availability and that in a sense is on a particular (missing words) when is the level of our
availability on a daily basis, on a weekly basis, on a month basis. SQ levels by stores so we
are now moving in that era. If you look at innovation and renovation and by innovation what
I really mean is that what are the brand new products that we bring into the market and in
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terms of renovation what are the existing products that we are fine tuning existing products
that we are changing to satisfy consumer needs and that‟s why we call it innovation and
renovation and by that the way in which we measure it is percentage of turnover that is
coming out of innovated and renovated products that is a specific KPI. Yeah... Percentage of
our turnover coming out of innovated and renovated products. If you look at specific
elements such as distribution network it is really about our distribution platform in other
words from our factories place to our DC‟s from our factories directly to our customer‟s
stores, from our factories directly to our customers DC‟s. It is really about the reconfiguration
and the refinement of the distribution network that we look at. So this is more qualitative as
opposed to quantitative. You have also got what is called DPA or what I call demand
planning accuracy. By that now from a branding perspective, from a consumer management
perspective, from a shopper‟s perspective, from a customer‟s perspective. To what extent are
we able to determine the accuracy of what the sales will look like between now and the next
three months, between now and the next six months, between now and the next eighteen
months? So what extent are we accurately projecting what we believe we are going to sale to
our customers, to our shoppers and to our consumers between now and the next eighteen
months. So if we say that the next month December for example sale is going to be “X”
amount of tonnages for SKU 123 and (missing words) December we count and measure and
say well a month ago or two months ago we told ourselves that December we are going to
sell 10,000 of Nescafe plus SKU 123 now it is the end of December have we really sold
10,000 or we sold 12,000 or we sold 8,000. So that is for us to measure the Demand Planning
Accuracy, because at the end of the day if we believe that if we get our demand plan accurate
or correct for us it means we have better resources utilisation, it means we have better
capacity utilisation, it means we have better production and factory line utilisation, it means
that we will be on the shelf more and more when our consumers or shoppers need us. It
means that we will have optimal processes. So it is absolutely critical that we look at the
demand planning accuracy as a key driver to optimise what we do and how we do it. And the
last bit that I really want to talk about as far as the performance drivers are concerned is really
got to do with the working capital or what we call average net work capital and in this really
it‟s got to do with how much stock finished goods, finished products we are holding in our
warehouse, and what are the debt covers and what do they mean in terms of rand value but
not only that what are the levels of raw materials that we are holding at factories, what is the
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level of days covers, what is the level of rand of value that we are specifically holding. It is
basically the cash, unproductive cash that we are keeping through raw materials and thirdly
what about packaging materials, how much packaging materials are we keeping, what‟s the
value, what‟s the days cover and again when you convert that in terms of days cover it means
something, when you convert that in terms of rand value it means instead of us restocking our
cash as quickly as we possibly can we done because we are holding it in raw materials,
because we are holding it in packaging materials, because we are holding cash to finished
goods or to finished stock through our warehouses and so forth. So the average net work
capital is part and parcel of strategy to look at in raw materials, packaging and finished goods
but over and above this three specific statements we also look at days outstanding sale or
sales outstanding in terms of our accounts payable, in terms of our accounts receivable. Are
we paying our suppliers quicker or more quickly before we get cheques from our customers
or both. Are we paying our suppliers later in order words we get paid first from our customers
and we only pay our suppliers much later. So it really about the accounts, looking at our
account payables and account receivables, looking at working capital in the context of days
covered (missing words) days covered in raw materials, days covered for packaging materials
as well as the amount of values, values that has been basically blocked in raw materials,
values that are blocked in packaging materials, as well as amount of values that are blocked
in replenishing of stock that are within our facility. So all this are part and parcel of the
average net work capital, so these are for me key value drivers and they are directly linked to
specific KPI‟s and we measure them on the quarterly basis, on a measure them on a monthly
basis.
INTERVIEWER QUESTION – Distribution network and then logistics. Considering the
fact that I have worked in operations in a country that is a little bit different from South
Africa, I understand what the problems are in terms of infrastructure looking at the everyday
issues we have in terms of your logistics and problems. Having studied here I will understand
that to a large extent some of the infrastructure we have here in South Africa is a little bit
better than what we have where I am from, but I don‟t know if you have specific problems
you have in terms of distribution network because I know that to a very large extent logistics
in terms of supply chain is a major issue particularly in emerging economies like South
Africa also. In all of the commercial activities of Nestlé do you think that there are major
difficulties most times in terms of distribution of your products in the South Africa space?
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And if yes, what do you think are some of the strategies you can adopt to effectively align the
supply chain looking at an outlook of another 5 – 10 years.
INTERVIEWEE RESPONSE - Ok you talked about challenges, and the strategies for
logistics and distribution networks. Yes South Africa is challenging as far as distribution
network is concerned and you are partly and highly correct that the challenges are to a large
extent not comparable to the challenges that we face in other many African countries. But if I
look at the South African context before I go across the bother or for the southern African
context for that matter I will start with our customers. If you look at our top customers our
key customers Massmart, Woolworths, Pick and Pay, ShopRite, spar and so forth. All these
guys have created their own distribution networks; they have also created their own
distribution centres. Now bearing in mind that the distribution centre is part and parcel of
distribution network now the strategy there is that if I look at Pick and Pay inland for
Gauteng today they have got their own distribution centre which is equivalent to mine or one
of my inland distribution centres. So where I used to go to (missing words) I am not doing
that anymore. I am going to one specific DC and they bring down there stock and they
consolidate with other suppliers goods and they deliver to their own store. Now what that
means is that if Nestlé should ask the question what do I do with my distribution network.
The strategy, that‟s where the strategy comes in, so the challenge is that what do I do about
my own warehousing and distribution centres? What do I do about my own (missing words)
and taste of fleets that I have because I am no longer going to 400 stores for Pick and Pay in
Gauteng I am only going to one third. These are the challenges, the solutions for the strategy
there is in a sense this is what we have done. We have had to reconfigure our distribution
network by driving more and more access delivery from our factories directly to the Pick and
Pay DC‟s as one set of strategy. The other strategy really is to relook my own set of fleet and
reconfigure my fleet for my distribution strategy in such a way that I don‟t seat with a huge
fixed cost which is already been carried or should have been carried already by Pick and Pay.
So these are the strategies that we have had to adopt. The other strategy we are looking at
now on bulky product is, how do we extend our transport use but also look at railway. Now
today you will possibly agree that in terms of road freight the South African or southern
African community is not bad. You can easily leave or commute between an (missing words)
in Cape town, (missing words) in Durban, Swaziland, Lesotho, Namibia, Botswana, and
Mozambique there are no issues with roads. But the challenge is where we have railway how
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do we use that because of its cost effective. The reason why we don‟t focus on using it is
because of the inefficiencies that exist. So again as one of the challenges the ever increasing
cost of road use or the use of our road network in that you have got ever increasing operating
cost for these roads. So the solution there now is to take a look at railway. How do we
optimise, or how do we begin to use the railway infrastructure given the existing challenges.
So that is the question one, question two is how do make sure we work with qaunet or
Transnet to improve their own inefficiencies as far as the railway is concerned. So this is just
in a context of the South African environment. If I have to go up to Africa, I look at our
operations up in Angola, I look at our operations in Zambia, Malawi and as I go further and
further up in Africa you will see that it is a completely different road infrastructure including
DRC. These are countries that are extremely difficult to operate in, but every day despite this
lack of road infrastructure which is a massive major challenge we are ask ourselves the
question how do we minimise the utilisation of road infrastructure and optimise the utilisation
of sea freight, of air freight that is a cost effective rate. Alternatively how do we use, or how
do we optimise the existing network that is already working in Angola despite the challenges
of making sure that we are still on the ground. So these poses significant challenge for us but
one of the strategies really we are adopting is around the development and creation of
capacity locally. So we are looking at the investment in Northern Mozambique, we are
looking at investment in Malawi, we are looking at investment in Angola, we are looking at
investment in Tanzania, in Cameroun and Ghana and so on and so forth. Really significant
expansion of factory investment and that‟s is the strategy to deplete the issues and challenges
we face today as far as moving goods from southern Africa into these countries or from
European countries or American countries into these African countries at a high cost which is
may not be competitive but by creating a local infrastructure it then creates the right
capabilities and capacities for us to accelerate the deployment of our services. So these is the
mixture of challenges and issues that and they are our (missing words) response as strategic
measures to respond to these challenges.
INTERVIEWER QUESTION – But if are looking at actually enhancing local
Infrastructure, am also assuming that it will also mean raw materials. Now am also looking at
the quality of products of Nestlé. Don‟t you think to a large extent that some of the raw
materials and infrastructure are actually sourced by some of those companies? Would it not
affect the to a large extent the some of the products Nestlé has, for example in terms of cocoa
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as a raw material. And I know that a lot of food packaging companies actually compete on
the quality of products. Is there anything to mitigate the quality of raw materials sourced
locally?
INTERVIEWEE RESPONSE - One of our key strategy for 2010, 2011 and going forward
is optimise the use of local sourcing. Local sourcing in the context of raw materials in respect
and where we know that the local source is somehow at risk then we tend to leverage the risk
by dual sourcing on the same commodity. So we have got local sourcing for the same
commodity but also international sourcing. And it could also be 80-20, 50-50, 70 – 30, 40 –
60 it does not matter between local and international and that is to leverage the risk. So the
strategy is to absolutely to drive and intensify local sourcing on specific commodities without
compromising on the quality specification. So yes that is definitely one of our focuses, now if
I extend that to the different levels Peter if I look at Cassava as a special raw material. Right
up in Africa in fact the rest of Africa you talk to the population at large the use of cassava
leaves as (missing words)so the question we ask ourselves is how can we integrate cassava or
cassava leaves as a raw material into some of our products as part and parcel of driving
solutions to nursing mothers because we know how healthy cassava and cassava leave is, we
know how nutritious cassava and cassava leave is. So if we have to move into Ghana or
Cameroun. I will use Cameroun Douala as an example, Douala is a city I visited a couple of
months back. We telling ourselves that by developing a plant stage and by developing a
specific product category how do we make sure that we begin to use the local production of
cassava for this product and brew them for across Africa. So to answer your question, yes
these are specific areas that we are looking at as far as local sourcing of raw materials is
concerned.
INTERVIEWER QUESTION – Ok so looking at competing then with Kraft, Unilever and
the rest. What particular angle will you say that Nestlé has above all other competitors on one
hand and then secondly with the arrival of Wal-Mart I don‟t know if there will be particular
strategies or constraints on the food and packaging sector will experience because of the
arrival of Wal-Mart. So then using your Supply Chain strategy where then does Nestlé
compete within the sector and market?
INTERVIEWEE RESPONSE – Ok you spoke about our competitive response to the guys
at Kraft and so forth and you talked about the Wal-Mart impact and respective strategic
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responses from the supply chain perspective. If I start with the competitive environment in
which we are operating and the areas in which we are more competitive, of course there are
couple of areas. The first example is consolidation if you look at Nestlé, Nestlé is a virtual
company within Nestlé you have cad buries because within Nestlé you have a division that is
called confectionary that we manufacture Kit Kat, Bar One etc. So we manufacture chocolate
and that division is basically competing against Cadbury so if you look at our manual cereals
for example the Nestlé cereals that is other division that is in its sense competing with
(missing words). So if you look at Nestlé, Nestlé is a virtual company and within Nestlé you
have Kellogg‟s, you have Kraft, you have Cadbury‟s and so forth. And now from a Kraft
perspective you could have Coffee, now in Nestlé you have a division that talks about Coffee
that looks at many features coffee Ray-coffee, Nescafe – coffee, alsareka, Colonde, espresso
all these categories are part and parcel of the business unit we call Coffee and this coffee
division is in sense in completion with Kraft. So I get what am saying is that as a virtual
company we as Nestlé are only competing with Kellogg‟s on the cereal business, we are only
competing with Kraft on the coffee business, we are only competing with Kellogg on the
chocolate business. So we have a huge competitive advantage based on our critical mass
derived from our consolidation strategy. So you have got a consolidated strategy or a
consolidated business which gives a more bargaining power to leverage our capability cost
amount so that sufficient. The second is Nestlé as a brand, if you just look at it from a
consumer perspective you have got a brand that is called Kit Kat from a confectionary
perspective and you have a brand that is called lunch bar from a Cadbury‟s perspective. So if
you really look at it yes they are called chocolate but the name that is widely known is Kit
Kat. Now am talking as if I am not a Nestlé employee but that in a sense is what is helping
our brand. So they are called Chocolate although many people think we as Nestlé are a
chocolate company, not a coffee company and so on but the name that is really known out
there is Kit Kat and might just be another name as opposed to lunch bar with the chocolate
brand and Cadbury. I will give you another branding example if you look at Coffee. Kraft has
got a brand that is called Jacobs and Nestlé has got a brand that is called Nescafe so Nescafe
is known as a brand worldwide and Jacobs you will always think twice what Jacobs is? Is it a
drink, what is it? So what am trying to say here that from a branding perspective we have a
well known globally leveraged brand name and the brand name of Nestlé to a large extent is
linked to a product. So brand is the second competitive advantage we have. The third
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advantage that we have is our technological capability. We are seating in Vevey Switzerland
and our research centre has about 700 scientists and out of these 700 at least 500 of these
scientists have got PHD‟s. There is not a single company in the world, let me talk about food
company in the world that has got such an infrastructure. 700 scientists and approximately
500 of these 700 have got PHD‟s in food science. I don‟t know of a single food company in
the world that has got such a scientific capability and infrastructure worldwide. So that is a
huge competitive advantage for us. In the third one is around technology which is linked to
our research centre (missing words) in that we have got many technological centres that are
used for product development, product testing and so forth and this to a large extent is
something that any companies don‟t have, so this is the fourth advantage. Now the fifth
advantage that I really believe that many food companies don‟t have is we are diverse. We
are in health care you know that we own a huge portion L‟Oreal, we are in (missing words) in
the US; we are in pharmaceuticals in Europe and so forth. So not just the fact that we are
focused on food environment but we are absolutely diverse – healthcare, beauty, pet care
Nestlé pet care etc. So the other advantage that we have got is global diversity across a
number of categories and these for me in my mind is really puts us in a position were by we
are steps ahead of any competition. So this just to give you a flavour of around our strategic
response when it come to our competitiveness when one compares us to the Kellogg‟s, Kraft
and Unilever‟s of this world. If I have to go to Wal-Mart you asked me about the impact of
Wal-Mart? What is the supply chain strategy on Wal-Mart? Well the strategy is in a couple of
areas; number one we as Nestlé are a global giant. Wal-Mart is not new to us; we have dealt
with Wal-Mart in the past six years or so across the world in Europe, in the USA, in the Far
East. To a large extent I have indirectly dealt with Wal-Mart through my supply chain
colleagues across the world so that is a huge advantage we have but in terms of strategic
response, how am I responding to this I have already got a team that I am putting together a
structure that will look at Wal-Mart. Now I already know how Wal-Mart operates worldwide,
so I am not going to be caught by surprise compared to my South Africa competitors because
I know and have already dealt with Wal-Mart in other parts of the world. And the next
strategy is next month I am in the USA and I am going to see my supply chain colleagues in
the USA and we will spend a good number of days with Wal-Mart to know where they are?
What are they doing? What are their expectations? To get a better understanding of how they
operate and that is a huge competitive advantage that the guys like Tiger or AVI of the South
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Africa of this world don‟t have. So the strategy in the context of customer management
would not catch because the existing infrastructure is that I have a robust structure and
strategy that deals with Massmart, that deals with Woolworths, that deals with Pick and Pay,
ShopRite and so forth. So then by Wal-Mart coming in it‟s an extension of the existing
customer strategy that we already on Wal-Mart that obviously customises it based on what I
know as specific references to specific techniques or perhaps strategies that Wal-Mart uses in
other parts of the world and how will we as Nestlé work with Wal-Mart in other parts of the
world. So I guess what I‟m saying here is leveraging on global capabilities and customising
certain areas of that capability to adapt my local marketing strategy to look after Wal-Mart so
that‟s my strategy. I don‟t for see greater challenges as far as Nestlé and Wal-Mart South
Africa is concerned. But I see Wal-Mart changing the retail arena across the board not for
Wal-Mart and Nestlé or for Massmart and Nestlé but for the whole South African retail
environment. So that will obviously lead to more maturity of the South African retailers,
more capabilities in different ways of for the South African retailers and I am quiet convinced
that these changes will be for the better as far as our retail environment is concerned
INTERVIEWER QUESTION - Ok finally we are looking at Africa as an emerging
economy and the influx of a whole lot of technological know-how and then infrastructure
equally in Africa. Am just curious where do you see Nestlé, not sure if you can answer for
Nestlé operations outside of South Africa but where do you think you see Nestlé in the South
African context, western, central in 5-10 years.
INTERVIEWEE RESPONSE – Within the South African context, within the southern
African context, within the East African, West Africa, North east and North West African
context as well as the overall equatorial African context. I see Nestlé extending its footprint
quiet aggressively within the African continent so that‟s one in terms of physical presence.
By the way there is not a single country where we are not in Africa, so every single country
you find us in Africa but with various different operating models so that‟s the first one you
see an extended foot print. The second one is greater investment been made in creating
infrastructural capability within the African continent with specific focus to our production
facilities, our technological investments within Africa as a strategy to get room. I also see
thirdly and lastly an extended focus to leverage our global skills within the Nestlé
environment from Europe, from the East, from Latin America, from North America into
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Africa because Africa is going to be the next continent for extended growth with southern
Africa being the platform to take Africa to a different world. So these are the three specific
elements that I see coming through now and within the next three to four years.
INTERVIEWER QUESTION – Acknowledgments and salutations. End