NORTHERN CARIBBEAN UNIVERSITY DEPARTMENT OF PROFESSIONAL & CONTINUING EDUCATION Kingston Campus Presented in Partial Fulfillment of the Requirement of the course MGMT 475 OPERATIONS MANAGEMENT GROUP CASE STUDY

Facilitator: Mr. Ranford Gordon Group Members Petagaye Sang Jonelle Morris-Dawkins Francine Coleman Richard Thompson Danille Stewart Id# 31080319 Id# 31063184 Id# 31090625 Id# 31075196 Id# 11050163

January 18, 2012

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Nestl: Global Operational Strategies

Henri Nestl (1814 - 1890)

Good Food, Good Life

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TABLE OF CONTENTSPage

Background..................................................................................................... Nestle Today.................................................................................................... Mission Statement........................................................................................... Vision............................................................................................................... Global Operational Strategy in Action............................................................. Corporate Strategies......................................................................................... Business Strategies........................................................................................... Functional Strategies........................................................................................ Pricing Strategies Marketing Strategies Critical Success Factors................................................................................... Process Design................................................................................................. SWOT Analysis.............................................................................................. Use of OM operational strategies to gain competitve edge............................ Appecdicies Appendix 1- Nestle roadmap for corporate strategy success......................... Appendix 2- Nestls Organization Chart...................................................... Appendix 3- Four criteria for targeted innovation......................................... Bibliography...................................................................................................

4 4-5 5 5 5-6 6 6-7 7 7 8 8-9 9 10-11 11-13 14 15 16 17

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Background Nestle has been in operation for over one hundred and thirty years. It has differentiated itself through its high quality product mix and positioned itself as health and Nutrition Company while targeting the health conscious people throughout the world. Nestle started it operation in Pakistan back in 1988, by acquiring a diary company, when people actually needed it. Nestl Company began with a single man's idea, and developed into a giant corporation. In 1866 Henri Nestl, a pharmacist, developed a milk food formula for infants who were unable to tolerate their mother milk (Nestle.com). His product became a success, and it created a demand throughout Europe. As Nestls popularity grew more businesses wanted to merge and become partners with Henri Nestl's business. From 1866 to 1947 the Nestl Company had gone through several name changes. Finally, the last name change that the company would endure was in 1977, where it adopted the name Nestl S.A. Along the way Nestls company remain successful, which allowed them expand to new region and territories throughout the world, making them the worlds biggest food and beverage company. Nestle Today Nestl today is the worlds leading food company, with a 135-year history and operations in virtually every country in the world. Nestls principal assets are not office buildings, factories, or even brands. Rather, it is the fact that they are a global organization comprised of many nationalities, religions, and ethnic backgrounds all working together in one single unifying corporate culture. Today, the firm is characterized by 500 companies, workforce of 247,000 employees, Switzerlands largest industrial company and worlds leading food company. In Nestls business strategy they encourage product growth through innovation and renovation (Nestle.com). This strategy has allowed Nestl to develop many different products in the various fields: like beverages (coffee and water), milk products, ice cream, nutrition, culinary products (soups, seasoning, pastas), chocolate, biscuits, food services, professional products, pet products, pharmaceutical and Cosmetics Company, joint ventures and associate company. Being global, Nestle adapted business principles such as equal creation of value to stakeholders, emphasizing long-term success, adaptation to culture and legislation of the host countries and 4|Page

employee excellence (Nestle Homepage 2004). The company owes its current status to the pioneering spirit inherited from its founders which continues to inspire it, to its constant search for new ways of satisfying man's mutational needs. Mission Statement Nestl strives to be a leader in nutrition, health and wellness, with the belief that good food is central to health and wellness. At the Nestl Research Center, nutrition research meets food innovation to bring consumers of all ages and stages of life, foods and beverages that contribute to health and wellness, while offering remarkable taste and convenience. Vision At Nestl, we believe that research can help us make better food so that people live a better life. Good Food is the primary source of Good Health throughout life. We strive to bring consumers foods that are safe, of high quality and provide optimal nutrition to meet physiological needs. In addition to Nutrition, Health and Wellness, Nestl products bring consumers the vital ingredients of taste and pleasure. As consumers continue to make choices regarding foods and beverages they consume, Nestl helps provide selections for all individual taste and lifestyle preferences. Research is a key part of our heritage at Nestl and an essential element of our future. We know there is still much to discover about health, wellness and the role of food in our lives, and we continue to search for answers to bring consumers Good Food for Good Life. Global Operational Strategy in Action Nestle, the world's largest food company, grew through acquisition, purchasing Perrier, Carnation, Stouffer and other food businesses. The firm use to pursue a multi domestic strategy, relying on resources dispersed throughout the various countries where the firm does business, decision-making authority is pushed down to the local level, and each business unit is allowed to customize product and market offerings to specific needs. The corporation as a whole foregoes the benefits that could be derived from centralization and coordination of diverse activities. However, during the 1990s Nestle moved to a global matrix structure, decentralizing authority to managers in charge of seven global product groups-coffee, candy, and so on. Then it grouped all 5|Page

the divisions within a country into one business. This allowed the firm to pursue a transnational strategy, leading to lower costs and improved differentiation from global learning. This transnational strategy combined the benefits of global-scale efficiencies with the benefits of local responsiveness. For example, regional Strategic Business Unit (SBU) managers spend considerable time in Vevey with product-group executives discussing ways to take advantage of transferring and sharing the resources of the company on a global basis and inside each product group. The matrix structure facilitated sharing information within countries; but Nestle wished to share more information across countries. To accomplish this, the firm used leading-edge information technology to share data across the globe. Today, the company is using IT to standardize computer system and business practices around the world. Information technology such as teleconferencing, e-mail and global intranets, is facilitating strong global cultures and easing the difficulties of worldwide coordination performance. Corporate Strategies Nestls corporate strategies lies in its objectives to be recognised as the world leader in Nutrition, Health and Wellness, trusted by all its stakeholders, and to be the reference for financial performance in its industry. They believe that leadership is not just about size; it is also about behaviour and trust; and they recognise that trust is earned only over a long period of time by consistently delivering on their promises. These objectives and behaviours are encapsulated in the simple phrase, Good Food, Good Life, a phrase that sums up their corporate ambition. Nestle intention is to create alignment for their people behind a cohesive set of strategic priorities that will accelerate the achievement of their objectives. These objectives demand from their people a blend of long-term inspiration needed to build for the future and short-term entrepreneurial actions, delivering the necessary level of performance. See Appendix 1 for Nestle roadmap for corporate strategy success.

Business Strategies Nestls Business strategies are embedded into what they term their Ambition. This outline shows steps to be taken to ensure Nestl remains the leading Nutrition, Health and Wellness Company. They will continue to enhance lives by offering tastier and healthier food and beverage 6|Page

choices at all stages of life and at any time of the day, helping consumers care for themselves and their families. It is their firm belief that, for a company to be successful over time and create value for its shareholders, it must also create value for society-Creating Shared Value. Ensuring that they have built strong foundations of compliance and sustainable business practices. This strategy also includes Creating Shared Value goals, improving Performance, Commitment and systems, uphold Human rights and labour practices, ensure Environmental sustainability and Anti-Corruption among others. Functional Strategies Nestls Functional Strategy is the final level of strategy developed by the major functional departments. They achieve the business strategies of the organization through the departments such as:- Operations, Finance & Control, Strategic Business Units-Marketing & Sales, Innovation Technology and Research & Development along with Nestl Water, Nutrition and Professional. (See Appendix 2 for Nestls Organization Chart). These departments harness the activities, skills and resources available, by coordinating and ensuring that each area upholds and contributes to individual business level strategy and to the overall corporate level strategy. By coordinating the various functions and operations needed to design, manufacture, delivery and support the product or service of each business within the organization. These strategies integrate activities with functional area such as coordinating advertising, promotion, and marketing resources, or purchasing, inventory control, and shipping in productions and operations.

Pricing Strategies Nestl has continued to evolve over the years and yet have managed to keep their consumers engaged and benefit from repeat business. They have managed to do so by incorporating a combination of pricing strategies, such as product line pricing which is a pricing strategy that uses one product with various class distinctions, this pricing process is evaluated through consumer value perception, production costs of upgrades, and other cost and demand factors, economy pricing the cost of marketing and manufacture are kept at a minimum and occasion penetration pricing the price charged for products and services is set artificially low in order to gain market share, once this is achieved, the price is increased. These three pricing strategies and 7|Page

Nestl's committment to offering products with higher nutritional value at affordable prices that appeal to consumers have significantly contribute to their continued success. Marketing Strategies Nestl knows how to tailor products to local niches while leveraging its size. They have initiated the Brand Building the Nestl Way; this connects the global Nestl Brand Building Community to share experience and expertise in delighting consumers and building great brands. The basis for their success begins with them knowing their consumer deeply. They have used a combination of marketing strategies such as Product, Promotion, Distribution and Pricing. Nestl prides their self on making their products visible. See Appendix 3 the four criteria for targeted innovation to fulfill marketing strategies being successful. Critical Success Factors 1. Localization and globalization Successfully achieving localization in the increasingly globalized food industry Product planning, production, marketing and services form a strategy of successful localization of a global company Nestle has 2 organizations that focused on leveraging its global reach to achieve operational efficiencies: GLOBE and GNBS (Global Nestl Business Services -Switzerland) provide the process, organization and technology infrastructure to allow Nestl to leverage its global size. GNBS enable Nestl to leverage its scale to increase the efficiency and effectiveness of its "back office" whilst enabling the markets and businesses to focus on demand generation and profitable growth . 2. Global brand strategy Nestle has products that resonate all over the world under a unified brand These brands are unified under the Nestle banner, which delivered a value and reputation of a global food company. The global corporate brand was the brand platform for delivering localized products and brands Nestle has built global brands such as Nescafe, Nesquik, Nestea, Tasters Choice, Haagen-Dazs and other global brands. 8|Page

3. Successful International Merger & Acquisition (M&A) Nestle has grown thru organic growth but really thru successful M&A Nestle has acquired to enter both emerging and developed markets, and new product categories Clear strategic focus: Food & Beverages, Nutrition, Health & Wellness, adjacencies to existing core businesses. Within these strategic focuses, 12 of their brands represent 70% of sales, most are #1 or #2 in Market Share (4 of these brands are billion dollar brands). Clear criteria for transactions: Enhancing key metrics, strong market positions, brands, capabilities, ease of integration (culture) . Global scope but focus on bolt-ons: both emerging and developed markets M&A drives profitable growth thru competitive advantages, growth drivers, and operational pillars like innovation & renovation ,wherever, whenever, however ,consumer communication and operational efficiency areas that creates the company as being consumer-centric, and will accelerate their performance in all key areas and achieve excellence in execution. Process Design Behind every one of Nestls products is a team of scientists, product developers, designers, nutritionists, consumer service representatives and regulatory affairs specialists and each contribute to the workflow of getting a product out to the consumer. See below:

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SWOT Analysis

SWOT ANALYSISLOCATION OF FACTORGlobal food consumer located in over 100 countries

STRENGTHS

WEAKNESSES

Insufficient consumer research in someregions

Ability to leverage household brand name to generate sales

Similar competing products Mature markets Complex supply chain management Recalls hampering brand equity

Customized products for local market conditions

Quality top selling brands and products Diversified revenue base Product development and innovation. Market leadership position Achievable internal growth targets Multiple critical resources Research and development capabilities Identification and adherence of critical success factors

INTERNAL

Low cost operators and low cost products

OPPORTUNITES

THREATS

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Adding value to existing products. EXTERNA L Innovating new products. Expanding product folio Improvements to research and development. Improved market share. Introduction of more health based products Establish global export hub Focus on emerging and developing economies

Intense competition The emergence of new companiesoffering similar products.

International policy changes WorldTrade Organization and European Union.

Strict government regulations andcompliance issues.

Allegations of unethical businessactivities

Contaminants in imported raw materials Changing consumer trends

Nestle use of OM key operational strategies to gain competitive edge Nestls creation of a unique advantage over competitors may be leveraged by competing on two of the three key operational strategies: differentiation and response. Over the years, Nestle has effectively competed on cost via a low-cost strategy. The company has achieved maximum value and it is encouraged that this strategy be maintained. Competing on Differentiation Findings gleaned from the SWOT analysis signals the need for the company to explore mechanisms for creating uniqueness; in a marketplace that is highly characterized by intense competition. To compete on differentiation, Nestle should seek to combine physical characteristics and service attributes for added value. Against this background, it is recommended that the company employ: Pointed marketing campaign highlighting the key features and utility of the products which makes its superior to that of its competitors; while maintaining low prices. 11 | P a g e

Explore creative and innovative partnerships for distribution of products based on varying markets. o School feeding programme (Nesquick, Milo) o Wellness and Fitness Centres (Carnation Breakfast essentials and Powerbar, Nestle Waters) o Animal Shelters

Appoint Nestle ambassadors specific to each product Marrying unpopular products with a product in high demand in order to drive sales. Penetrate markets where a new product line may be developed. Competing on Response Nestle should place emphasis on timely product development and delivery as well as reliable scheduling and flexible performance in order to compete on response. It is therefore recommended that the company: Continuously upgrade technological platforms in order to ensure that they are always in a position to deliver products for a constantly changing marketplace Maintain automated systems to store and manipulate consumer profiles to track changes in demand. Equip research and development team with the requisite tools and resources to undertake functions. Train and retrain market researchers in new technology. Changes in product design and costs Maintaining automated scheduling systems that allows for customer interaction 12 | P a g e

Establishing systems for work teams specific to design, production and delivery that emphasizes quickness.

Establish an independent service center or an after-sales department with its own marketing and sales organization dedicated to after-sales solutions.

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Appendix 1 Nestle roadmap for corporate strategy success

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Appendix 2 Nestls Organization Chart

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Appendix 3 The four criteria for targeted innovation 16 | P a g e

Bibliography Casteler Articles.(2005).Nestle LC. Background. Retrieved January 15, 2012, from http://articles.castelarhost.com/nestle_background.htm 17 | P a g e

Blurtit.What is Nestle's Vision and Mission Statement. Retrieved January 15, 2012 from http://www.blurtit.com/q4289961.html Nestle. Strategy-Nestle Roadmap to Good Food, Good Life. Retrieved January 15, 2012 from http://www.nestle.com/ABOUTUS/STRATEGY/Pages/Strategy.aspx Nestle. Quick-facts. Retrieved January 15, 2012 from http://www.nestle.com/ABOUTUS/Pages/AboutUs.aspx Nestle. AboutUs. Retrieved January 15, 2012 from http://www.nestle.com/AboutUs/Management/Pages/Management-landing.aspx Marketingteacher. Product line,economy & penetration pricing. Retrieved January 15, 2012 from http://marketingteacher.com/lesson-store/lesson-pricing.html Oppapers. Key Success Factors. Retrieved January 15, 2012 from http://www.oppapers.com/essays/Nestle-s-3-Key-Success-Factors/436484

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