Raza Saddique

Supply Chain Management

MS (Project Management)
Final Project
CMS No. 17055

INTRODUCTION OF SUPPLY CHAIN

The movement of materials as they flow from their source to the end
customer. Supply Chain includes purchasing, manufacturing, warehousing,
transportation ,customer service ,demand planning , supply planning and
Supply Chain management. It is made up of the people, activities,
information and resources involved in moving a product from its supplier to
customer. Although this Supply Chain definition sounds very simple,
effective management of a Supply Chain can be a real challenge.
EXAMPLE OF A SUPPLY CHAIN:

aw materials
Center

Manufacturer
Customer

R
Distribution

A typical Supply Chain flow of goods is shown above. In some models, the
product is shipped from the Manufacturer to the Distribution Center as soon
as it is manufactured. In other models, such as a Hub & Spoke model, the
product is held at the manufacturer once produced. It is then sent out to the
Distribution Center only when it is needed.
OBJECTIVES OF SUPPLY CHAIN MANAGEMENT:
The fundamental objective is to "add value".
That brings us to the example of the fish fingers. During the Supply Chain
Management '98 conference in the United Kingdom this fall, a participant in
a supply chain management seminar said that total time from fishing dock
through manufacturing, distribution, and final sale of frozen fish fingers for
his European grocery-products company was 150 days. Manufacturing took
a mere 43 minutes. That suggests an enormous target for supply chain
managers. During all that time, company capital is-- almost literally in this
case--frozen. What is true for fish fingers is true of most products.
Examine any extended supply chain, and it is likely to be a long one. James
Morehouse, a vice president of consulting firm A.T. Kearney, reports that the

total cycle time for corn flakes, for example, is close to a year and that the
cycle times in the pharmaceutical industry average 465 days. In fact,
Morehouse argues that if the supply chain, of what he calls an "extended
enterprise," is encompassing everything from initial supplier to final
customer fulfilment, could be cut to 30 days, that would provide not only
more inventory turns, but fresher product, an ability to customise better,
and improved customer responsiveness. "All that add value," he says. And it
provides a clear competitive advantage.

Supply Chain Management becomes a tool to help accomplish corporate

strategic objectives:
reducing working capital,
taking assets off the balance sheet,
accelerating cash-to-cash cycles,
increasing inventory turns, and so on.

SUPPLY CHAIN BENEFITS:

Experience shows that the benefits of a well designed and implemented
Supply Chain Management strategy is substantial. Successfully
implemented projects have provided benefits such as:

Reduction of Transportation, Warehousing, and Distribution Costs

Lean Processing from Supplier to customers
Reduced Direct and Indirect Labor Costs
Optimized Stock Levels
Increased Material Flow Velocity
Accurate Job Costing and Scheduling
Streamlined Purchasing Control
Increased Decision Making Speed and Responsiveness to Demand
Change
Increased Customer Service

 Increased Inventory Availability, Customer Order

Fill Rates, Accuracies and services
Reduced Operations Support Costs
Reduced Inventory Carrying Costs
Improved
Productivity
of
Procurement
Operations
Improved Quality of Products and Services

INTRODUCTION OF SUPPLY CHAIN OF MILK

IN PAKISTAN

Milk is the most perishable and fast moving customer good. The very first
and initial requirement or feed for any human being is milk. Milk is complete
diet as it contains every nutrient except iron. Fortunately Pakistan is the
fourth largest producer of milk in the entire world and its annual
production is surprisingly 45 billion liters which is very high. But
unfortunately only 27 billion liter of milk is available for human
consumption. Therefore most of the milk is lost and Pakistan cannot fulfill its
demand. Despites of these facts and figures Diary Industry is playing a very
crucial role in the Pakistan economy and contributing 14% to the countrys
overall GDP. More than 20% of the entire population of Pakistan is involved
in this sector directly or indirectly. If we talk about the Dairy Supply
chain management of Pakistan, we can divide it in to two categories:
One is Formal and second is Informal sector.

The share of formal sector is 4% whereas the rest of 96% of share is taken
by the informal sector. In the formal sector Nestle is the market leader in
Pakistan and contributing 60% of market share as per fact and figure of
2008. In formal sector, milk is collected by different milk collection centre.
Then it is taken in to the processing plant where milk is stored in cooling
towers. In the processing plant, milk is processed and packed and then it is
distributed to the retailer and finally milk is reached to the ultimate
consumer. In formal sector we can divide it in to two sectors. In first
category farm milk is collected by gawalas (milkmen) who sell the milk
directly to the consumers or the milk collectors. In second case, farm milk is
collected by different milk collectors who sell their milk to the retailers and
these retailers provide it to end consumers.

DAIRY INDUSTRY CHALLENGES IN SUPPLY CHAIN

This business is unregulated and there is no as such involvement of
government therefore the middlemen often take advantage of poor farmers
and charge low prices for their milk and usually delay their payments. Large
contractors often blackmail small producers and processors. Most of the
farmers are uneducated and they are unaware of modern technology and
equipment. And again there is no as such Government involvement to train

the farmers in modern dairy practices so the famers are lacking in this area.
Average Animal of Pakistani breed gives only 1300 to 2400 kg of milk per
annum as compared to yield 6000 kg/animal/year in the modern world. As
the farmers are not educated in their practices so due to wrong milking
methods most of the cow and buffalo have expose to mastitis. Farmers have
not sufficient idea of using different types of feed available in the market so
they have no precaution to save their animals from diseases. Farmers are
not taking the facility of any veterinary doctors which leads to decrease in
the milk yield and animal is less productive for longer period of time.
Milk productivity is seasonal and it is going to be the most important issue
that milk producers are facing in this industry. In summer season, animals
do not find enough food because grass and herbs dry out quickly. Due to
higher temperature the digestive system of animal is weak and farmers
yield less quantity of milk. Milk production falls in June and increases in
December. The significant difference between the two seasons is really a
concern for the dairy sector of Pakistan.
The foremost problem dairy industry is facing is the adulteration means
adding water, fats and other harmful substance to the milk that makes the
milk unhealthy and less hygienic. This problem is difficult to control and
requires serious consideration from both public and private sectors.
Transportation, storage and processing make this product more costly. Day
by day electricity is a problem in the country therefore majority of the
milkmen use ice to keep the temperature of milk low but this method is not
optimal and quality of milk is affected. If we talk about the facts and figures
as per World Bank reports 15%of the
milk is lost at the stage of farm due
to mishandling and wrong milking
practices. While 5% gets wasted
during the transportation stage.
The buying capacity for small scale
farmers is very low they do not afford
high cost of feed for their animals
and they are lacking advantage of
economies of scale. They do not
access to formal market channels and
are often exploited by the middlemen
who offer low prices for their milk and
they enjoy the huge profit margin for
their own customer

INTRODUCTION OF NESTLE PAKISTAN LTD.

Nestle Pak works as a subsidiary of Nestle S.A. Nestle Pak started working in
Karachi since 1988 under a joint venture with Milk Pak Ltd. With its
headquarter in Lahore, Nestle Pak. has four production facilities. Two of its
factories are in the heart of Punjab province; Sheikhupura and Kabirwala
which are multi-purpose factories, one in Islamabad and the other in
Karachi, Sindh which produces bottled water. Nestle Pak is the biggest milk
collector in Pakistan. Currently, it collects milk from 190,000 farmers over
145,000 square kilo meters in Punjab and Sindh. With its 8000 brands worldwide, Nestle is the leading brand in beverages and food industry. It has a
separate department for supply chain management which was
founded in 2001. The objective behind the creation of separate
department of supply chain management is to ensure the smooth running
operations from the supply of raw materials from farms or other sources to
the supply of finished products into the markets.

NESTLE SUPPLY CHAIN VISION:

Nestles ambition is to achieve high level of customer satisfaction through

low cost, highly efficient operations driven by value creation and continuous
improvement
NESTLE SUPPLY CHAIN MISSION:
Optimize and consolidate resources and processes for a low-cost but
efficient.
Develop and manage simplified and effective supply network to
achieve a high level of service.
Create a continuous improvement culture driven by performance
measures and reward.
NESTL PRINCIPLE:
Nestl is based on the principle of decentralization, which means each
country is responsible for the efficient running of its business - including the
recruitment of its staff.
ORGANIZATIONAL STRUCTURE OF NESTLE:

NESTLE MILK PACK

We choose Nestle Milk Pack for our supply chain report among 1000
products of Nestle. Pure, rich and delicious NESTL MILKPAK
standardized UHT milk benefits from Nestls expertise in bringing
consumer the very best life has to offer and benefits from 140 years of
consumer trust. Nestls extensive milk collection system ensures that the
milk you get is of the finest quality.

Encourage your family to exercise regularly, eat a healthy, well-balanced

diet and drink pure, nutritious milk for good health. Milk is a must-drink for
your children as it is a rich source of Calcium that helps in the growth and
development of strong bones and teeth. It is equally beneficial in keeping
grown-ups bones strong. So live to the fulles and enjoy the pure, wholesome
goodness of milk with NESTL MILKPAK!
A 250 ml glass of NESTL MILKPAK fulfills your daily requirement of 2730% of Calcium, 15-18% of Protein, 31-34% of Phosphorous, 6-9% of
Vitamin A and 160-16 Kcal of energy, as Recommended Dietary Allowance
by the National Academy of Sciences, USA.

SUPPLY CHAIN PROCESS OF NESTLE MILK PAK PAKISTAN

Nestle Pakistan has a wide range of products from nutrition to beverages, as

so we chose MILK PAK to explain the supply chain of Nestle Pakistan.

CHALLENGE:
Supply chain knowledge is becoming more and more critical to ensure
competitive supplies of goods and services, especially for large companies
dealing with a complex network of suppliers, customers, distributors and
consumers. All parties in the chain need to have a particularly good grasp of

how their individual activities work together and affect the performance of
the whole supply chain. At Nestl, Key Performance Indicators (KPIs) provide
the standard metrics for measuring supply chain performance. Nestl
launched a new initiative to communicate the value and use of KPIs to line
managers.
How do Nestle create competitive gaps in the upstream supply
chain?
With Farmer Connect, where they have direct contacts with producers to:
Ensure traceability up to farmers level
Assure quality, safety and volume growth of raw materials
Mitigate price volatility exposure
Reduce transaction costs and serving our brands guaranteeing access
to specific raw materials
Ensure safety & quality
of raw materials Secure availability of
adequate agricultural raw materials

Milk is collected from more than 2000 village milk centers and 500-600 sub
centers and then milk is transported to 25 main centers. In both stages the
temperature of the milk is kept at 4C to keep the quality of milk up to
standard. After whole process of milk collection, it is transported to the
Sheikhupura and Kabirwala factories. In the processing stage milk is passed
through different stages i.e standardization, pasteurization UHT treatment
and packaging. After processing, milk is then reached to the factory
warehouse which is near the premises of the factory. Finally milk is
transported to the south, north and central regions. Then finally distributors
of MILKPAK carry it and transport it to the super marts and retail shops so
that its available to the end consumers. Supply Chain of Nestle MILKPAK
guarantees environmental friendly practices and for this they are
continuously making their contributions in the society for keeping the
environment safe and secure. Their ultimate objective is to make sure that
the green supply chain is in practice while keeping their benefits, profits and
business activities intact.

SUPPLIERS SUPPLIER:
Improving Feed
Even before calling Nestl in, Milkpak Ltd. had tried to ensure that milk cows
were given fresh fodder during the summer.
Their teams are always prepared to offer practical advice. They have
planted a variety of fodder crops and demonstrate to farmers on field day.
They also provide training on best practices in animal husbandry. For
instance, they stress the importance of giving cattle enough water, and
train farmers in hygiene and milking.
Livestock Breeding & Health
Pakistan's vast milk production comes largely from buffaloes, despite their
small yield. Nestle agronomists have shown that with artificial insemination
they can actually triple milk production. Yet artificial insemination is still not
widely used. In 1996, their vets and agronomists independently formed an
NGO to promote artificial insemination using high quality semen.
Today, with help from Nestl and others, they have established a training
programs for inseminators, and provide high quality imported semen at low
cost to farmers Nestle Pakistan concentrate on preventative measures
against the most common diseases that afflict cattle in Pakistan. Farmers
know that they can call on our trained vets whenever necessary.
Better Equipment
Nestle agricultural services staff have drawn up technical plans for
cowsheds, which are provided free of charge. Their mechanics have also
developed prototypes of machines to cut fodder quickly an inexpensively.

Starting 2004, we went a step further and proposed a system of small loans
for farmers who wanted to make improvements to their farms, such as
building cowsheds.
Nestle drew up the sample specifications for a model farm to be presented
to the bank disbursing the loans. The Service even helps farmers fill out
applications for loans.

Nestl Pakistan collects quality milk from 190,000 farmers spread over
146,000 sq. km of Punjab and Sindh.
PARTNERSHIP WITH SUPPLIERS:
Nestle always do efforts to provide pure, high quality milk to consumers in
distant towns, Nestl entered into an unprecedented partnership with local
farmers. Today, 14 years after Nestl first entered the milk district in force,
the hard work and determination of our milk collection & technical
assistance teams and their dedication to Corporate Social Responsibility
have raised the bar for dairy concerns in Pakistan.
1000 Small Village Diaries
An agent runs the diary. It occupies a small room of about 20 to 30 m
either in the agents house or in a building that nestle rents.
The milk collected on average is two times 150 liters per day.
The agent does a quick tasting test on the milk before recording the
delivery in the farmers personal milk logbook.
The dairy is open two or three hours morning or evening.

 The agent transports the milk to one of the 972 secondary receptions
and cooling station before closing.
972 Secondary Reception And Cooling Stations

These generally occupy about 40 m, divided into two rooms.

One of these houses an electrically powered milk-cooling tank with a
capacity of 600 to 2500 liters.
Power cuts are frequent, so 95% of the stations have their own
generator.
An agent who also works as a milk inspector to run quality tests runs
each secondary station.
Main Reception And Cooling Stations
These constitute the final stage in milk
collection before it is delivered to
factories.
It also fitted high capacity milk tanks.
8 of them are equipped with plate heat
exchangers for getting the milk re
cooled before transported to the
factories.
The quality analyses run as each tanker
of milk arrives are more thorough than
in the secondary station.
The 23 main stations also stores the laboratory supplies needed in the
secondary stations and village diaries.
Link to the two factories by telephone and Internet, the main stations act
as the communication and administration centers for the entire collection
system.
Maintenance
Service

And

Breakdown

Looking after more than 1000

generators with the same number
of water pumps
and ancillary equipments demands
a systematic approach.

 Each of the 23 main stations employs full time mechanics/electricians.

For more complex problem mechanic/electrician can immediately calls
one of the five Nestle maintenance service station located in five of the
main reception stations.
The Nestle repair service was originally based in Shaikhupura factory.
But over the period of time it was transferred to the fresh milkpurchasing department.

Number of farmers selling their milk to Nestle (Figures got from

Google)
Year
1994
1996
1998
2000
2002
2004
2006

Number of farmers
39,205
53,693
65,568
68.277
89,394
121,259
137,784

MILK COOLING:
Milk pack set up reception centers with cooling facilities where farmers and
dodhies, small-time milk merchants, could bring their wares.
It was a simple solution, but difficult in practice: importing the stainless
steel chilled containers required was prohibitively expensive. By 1988, the
company purchased 120 tons of milk a day from 26,000 farmers.
After acquiring a share in Milkpak Ltd in 1988, Nestl immediately began
investing in milk cooling tanks. Between 1988 and 1992, 100 milk tanks
were installed.
1992 onwards, with full support from the Nestl headquarters in
Switzerland, reorganization of the milk collection operation and the
provision of agricultural technical assistance became top priorities.
The investment paid off. Within a decade, Nestl's purchase of fresh milk
had quadrupled, and the number of small farmers selling milk to Nestl
tripled.
MILK COLLECTION SYSTEM
Follow the story of Nestl's dairy products, from humble beginnings on tiny
farms in Sheikhupura district, all the way to your table!
Step 1
A small farmer in rural Sheikhupura district milks his buffalo twice a day and
takes about 4 liters to one of Nestl's 500 Village Milk Collection Centers.
Step 2
At the Village Milk Collection Centre the farmer's milk is poured into
aluminum churns.
The agent checks the milk's freshness and purity, and enters the quantity
into the farmer's logbook. He takes it to one of Nestl's 1308 Secondary
Reception and Cooling Stations, about 2-4 kilometers away.
Step 3
The Secondary Reception Station has a large electrically powered cooling
tank. A milk inspector measures the fat content, the non-fat solids content,
and the milk's acidity. Once satisfied, he takes the milk to one of 27 Main
Reception and Cooling Stations.
Step 4

At the Main Reception and Cooling Stations the milk is poured into huge
tanks and is thoroughly checked for quality. The milk is dispatched to the
factories.
Step 5
At the Sheikhupura and Kabirwala factories, the milk is processed and
packed into the familiar Nestl cartons you can find in your grocery store. It
is checked for quality thrice before being released for sale. Some is
processed into yoghurt, powdered milk, or other dairy products.

INBOUND LOGISTIC:
Inbound logistics used for milk collection from different milk collection
centre is centrally owned by nestle Pakistan limited. In Pakistan, logistics
has always been a problem especially for sensitive product like milk in the
hot weather. Initially the supplier who supplied there milk

NESTLE FACTORIES:
Our products are manufactured in five facilities scattered around the
country, from
Islamabad in the north, to Karachi in the south.
Two state-of-the-art multipurpose factories are located in the agricultural
heartland of the
Punjab, and the remaining three are dedicated to producing our trusted
brands of bottled
water.
As citizens of Pakistan, we consider it our duty to make sure that our
manufacturing processes are clean, hygienic and safe. We are constantly
working to reduce emissions at our factories, reducing and treating
wastewater, and making our packaging environmentally friendly. Regular
audits have confirmed that our factories' environmental management meets
the Nestl international standard.
Sheikhupura Factory
The factory commenced operations as part of Milkpak Ltd in 1981. At the
time it produced only UHT milk, but by 1988 had expanded to produce
butter, cream and ghee, as well as fruit drinks. Milk filling machine TBA-22
(most modern and efficient and high speed equipment available in dairy

industry) National distribution centre was also constructed in 2000 with

capacity to store
8300 pallets.
Kabirwala Factory
In 1990, Nestl Milkpak acquired the Kabirwala factory, located in Khanewal
district of the Punjab, as a subsidiary. By 1997 it was a fully owned unit of
Nestl Pakistan Ltd. 2006 has seen the commencement of Kabirwala
Extension Project that would be completed in April 2007 at a cost of about
Rs. 4.0 billion. The project has seen expansion of milk processing capacity to
triple its current size, both for powder and liquid.In 2005 Fresh milk capacity
was increased from 676 to 800 tons per day. In 2007 an additional raw and
packing and semi finished product stored and a bigger distribution. Centre,
a stick pack filling machine and 1000 gr. Powder filling machine will be
added.
Islamabad factory:
AVA water factory Islamabad was acquired by Nestle Pakistan in 2001 and
was
subsequently merged with it. Thereby becoming a fully owned unit of Nestle
Pakistan in
2003.The production capacity of the factory is approximately 8000 bottles
per day.

PLANNING:
The successful execution of a planning strategy demands that the analysis
has been performed with:
Confidence in the accuracy of the information provided;
Clarity in the way the information is presented;
Completeness of the information to be considered.
Planning must also address the resources and expertise that will be needed
to implement the chosen purchasing strategy. The trend to outsource both
the initial conversion of raw

materials, the manufacture of certain semi-finished or finished products and

some services, requires that the original expertise in purchasing these
materials and services is now needed to
manage suppliers fulfilling a higher added-value process. In addition,
consideration must be given to decide the specific value drivers of the
subcontracting initiative for which Nestl needs to control either the
sourcing or pricing (or both).
The realization of the importance of the S&IM spend categories will result in
Purchasing allocating more attention to them. The task of planning a S&IM
purchasing initiative may well
require a different skill set and knowledge base to that traditionally
expected of a Strategic Buyer.

MANUFACTURING:
Manufacturing is very important part of supply chain. In our factories, the
objective is to maximize eco-efficiency that is to maximize the production
of goods, while at the same time, minimizing of consumption of resources
and reduce wastage and emissions. The factories are equipped with
complete testing and monitoring facilities for wastage and emission enables
them to stringently monitor the gaseous environments and ensure that
these are in accordance with environmental standards (NEQS).

MILK PROCESSING:
Milk Reception
The Milk Reception Unit receives milk and liquid milk products for a milk
processing plant. The unit measures and pumps the product for buffering or
further treatment.
Mixing

Tetra performs in-line mixing for a wide range of powders and liquids for
dairy applications such as reconstituted and recombined milk, yoghurt milk,
flavored milk, evaporated milk, recombined concentrated milk, ice cream
mix, chocolate slurries, dairy desse ghee.
Heating and Cooling
Heating and cooling are basic processes within dairy processing and take
place in plate or tubular heat exchangers. Tetra Pak heat exchangers have
high thermal efficiency for low energy consumption.
Standardization
Automatic direct in-line standardization of milk and cream. Accurate control
of fat, fat/solids and non-fat ratio gives better utilization and control of the
production parameters
Pasteurization
Along with correct cooling, pasteurization is one of the most important
processes in the treatment of milk. If carried out correctly, these processes
will supply milk with longer shelf life.
Temperature and pasteurization time are very important factors which must
be specified precisely in relation to the quality of the milk and its shelf life
requirements etc. The pasteurization temperature for homogenized, HTST
pasteurized, regular-grade milk is
usually 72-75 C for 15-20 seconds.

UHT treatment
UHT treatment is a thermal process for preserving liquid milk. UHT stands
for Ultra High Temperature and by heating to 137 140 C for a very short
time (2-10 s) the micro-organisms are inactivated. If the milk is packaged
under aseptic conditions it can be stored at room temperature for months

 Packaging Materials
Nestl is committed to reducing the
environmental impact of packaging, without
jeopardizing the safety, quality or consumer
acceptance of its products.
As far as milk is concern packaging is very
important, it is perishable item which
requires special packaging to preserve it for few months. To meet this
objective Nestle
Milkpak use tetra Pak to deliver fresh milk to its customer without sacrificing
in health measures. Nestle have following objectives in mind regarding
packaging:
Result in the lowest possible weight and volume of packages whilst still
maintaining pack integrity;
Take into account new packaging materials and processes that reduce the
impact on the environment of unnecessary transportation;
Avoid the use of substances that can adversely impact the environment
during packaging production and disposal;
Decrease packaging waste at all stages in the supply chain, including
package manufacturing, utilization and disposal;
Increase the use of recycled materials wherever possible, and increase
the recyclables and compatibility of packages with existing waste
management schemes.

FACTORY WAREHOUSE OF NESTLE:

The finished tetra pack is sent to the factory ware house which is 4 km away
from the processing plant. Factory ware house is located near the plant to
reduce the transportation cost. At Factory warehouse temperature is
controlled to ensure the condition of the milk is fresh when it reaches the
consumers. Milk is a very perishable item; therefore it requires very
effective storage conditions at warehouses to preserve milk in its real
condition.
For this Nestle milkpak warehouses contains very suitable temperature that
should not increase from 38C in order to keep preserved milk in its fresh
condition.

 Lay out of the warehouse

This warehouse has no shelving or racking system instead the goods are
kept on pallets. Information tags are placed on every carton as well as on
the top of the pallets. The warehouses height is about 17 feet. The building
is divided into two sections; one for carrying heavy weights products and
the other for carrying lighter ones. There are two gates; one for receiving
the goods and the other for distribution. In this way, receiving and
dispatching of goods can be done at the same time which is a time saver.
There is a room used as check post to ensure the safety and security along
with keeping track of what goes in and out of the warehouse. The whole
warehouse was divided into individual lanes; the lanes were designed in
such a way that it creates a U shaped flow of goods which makes easier
for the pickers to carry the goods to the trolleys using safe lifting and
reduces the time and motion wastage.
Inventory Management in the warehouse
The inventory is managed by software called SAP (System Applications and
Products). Another method for managing the inventory is Manual Counts
that is done by the inventory clerk on daily basis, who is specially hired for
this purpose. The counted stocks are recorded on a whiteboard thats placed
inside the warehouse. It contains not just the information about the name
and no. of products but also in which lane they are and in what volume they
are in. The whiteboard information is updated every time a picker picks the
order and also when the goods are loaded on a truck for delivery.
For further verification, Barcodes are also placed to scan the cartons of the
products every time they enter or exit the warehouse.

Every batch of goods has a batch code like this 2 043 1382 1 Z
Which tells the following information:
The year in which that product was Manufactured
The day of the year in which it was Packed
A plant code in which it was Manufactured
The no. of times a good goes through the machine
A machine code
How the goods are picked in the warehouse?
There are five pickers in the warehouse. The supervisor assigns 4 of them to
pick products by a list. The list contains information about the product batch
number, quantity, lane number and the pallet number. Two of them pick the
goods, the third one gives instruction and the fourth person rechecks it. The
FIFO method is adopted in the warehouse because Nestle is a FMCG
company and most of its goods are perishable and have limited time span.
So what first goes into the warehouse should be dispatched first.
How the goods are ordered?
The goods are ordered on the basis of LIFO method. Orders are received
from distributors across the country. LIFO is used because it takes
transportation cost, time to record and place an order along with the
delivery process. As for Nestle MilkPak, it has an expiry of 6months,
so it needs to be delivered first.

How goods are delivered from the warehouse?

There is a gate in the warehouse from where the goods are delivered, once
the picker picks up the goods, the process of delivery from warehouse
begins. The supervisor of the warehouse rechecks the goods are picked in
the right quantity, packed in the right way and loaded in the right truck.
Capacity Of Trucks
Nestle milkpak has trucks which have the following capacity. The data is on
the basis of
cartons per truck.
Size of item

No. Of cartons

1 liter

1092

250ml
1.5 liter
500ml

1815
1040
1750

LOADING, UNLOADING, HANDLING AND TRANSPORTATION

CONDITIONS
ACCEPTANCE LETTER
Acceptance letter is the conformance letter that ensures that the warehouse
accepts or
receives the inventory, it includes:

Invoice number
Whom to sold
Whom to ship
Dispatch date
From whom
Product description
Unit price
MAJOR ITEMS SALE

1 liter of Nestle milkpak has the major 55% of total sales.

250 ml of Nestle milkpak has 25% of sales
1.5 liter of Nestle milkpak has 10% of sales
500 ml pf Nestle milkpak has 10% of sales
NUMBER OF ITEMS PER CARTON
Type of carton

No. Of item units

1 liter
250ml
1.5 liter
500ml

12
27
8
12
OUTBOUND LOGISTICS:

Outbound logistics concerns finished milk movement from factory to

different

warehouses located in different cities.

The logistics usually take 3 days to arrive at Nestls warehouses in Karachi
from their
manufacturing factories at Lahore, kabirwala and shaikhupura
Size of item

No. Of cartons

1 liter
250ml
1.5 liter
500ml

1092
1815
1040
1750

DISTRIBUTION:
According to the distribution, Pakistan is divided into three geographical
zones and then
in further Regional Sales Offices.

North Zone:
Islamabad and north outstations
Peshawar
Jhelum

Central Zone:
Lahore
Faisalabad
Gujranwala
Multan
Sahiwal

South Zone:
Karachi
Hyderabad

 Quetta
Sukker
Selection of Distributors
The Criteria followed are:
1Capital Investment
Depends on both present and future capital investments by distributors
Amount vary from Area-wise to marketwise
2.Relevant experience
Prior experience in FMCG sector is preferred to save on training
expenses
Distributor should not be dealing in Competitors product
Should handle entire range of Nestle products (Both fast and slow
moving SKUs)
3.Infrastructure
Godowns / Storage space with appropriate refrigeration as per product
needs
Delivery vehicles
Salesmen
4.Companys discretion based on markets served
Distribution process
The distributors have sales force to collect orders. There are two methods
for distribution of goods:

ORDER BOOKING

(Where sales force first books

force is given a van
orders from the shops or retailers
goods to sell)
and then delivers the goods)

SPOT SELLING

(Where sales
full of Nestle

Nestle Milkpak goes for indirect channel of distribution, that means there is
a chain of intermediaries through which a product moves through additional
steps as it moves from manufacturing business via distributors to
wholesalers and then to retail stores or super marts.

The distribution strategy of Nestle MilkPak is intensive as it is covering wide

market. There are regional headquarters of the company in all big cities of
Pakistan. In this report we have covered distribution channel of Nestle
MilkPak in Karachi. In order to reach remote areas the company is linked
with the main distributor and sub-distributors. The company is directly
linked with the main distributors; they provide the products inventory to the
main distributor that is further dispatched to retailers and sub- distributors.
The targets differ from area to area and set on the basis of history of the
area sale and also from the monthly forecasting.
Distribution Channels:
Nestle employs different distributors for different areas. Distributors employ

their own sales force and vans, which deliver Milk Pak to the doorstep of the
retailers. Every distributer has three territories per area. In the A territory,
the distributors vans visit the outlets every alternate day. In the B
territory, the vans visit the retailers at least twice a week, while in the C
territory; the vans visit once a week.
Distributors sales target:
It is interesting to note that the distributors are given sales targets, which
are then communicated by the distributors to their sales team. The targets
are usually like 15% annual growth in sales. The distributors achieve this by
selling more units to the existing clientele (outlets in their region). In some
cases the clients themselves ask for more stock. In other cases they have to
be persuaded to buy more. The norm usually is that if a retail client asks for
12 pack the distributors sales team sells him 15. The reason is to leave no
space available for the competitors.
Daily Incoming And Outgoing Logistics
Minimum one or two nestle milkpak trucks daily being arrived at each ware
house from the sheikhupura and kabirwala factories, and is distributed in
the same amount to the retailers all over the city.
The logistics usually take 3 days to arrive at Nestls warehouses in Karachi
from
their
manufacturing
factories
at
Lahore,
kabirwala
and
shaikhupura.Nestle milkpak has their owned and outsourced trucks.
SHELF LIFE OF NESTLE MILKPAK
Nestle milkpak has 3 months of shelf life.

Objectives Of Nestles Distribution Centers Or Warehouses

There are three main objectives of Nestls distribution centers.
Meeting the targets
Distribution at Right time
At Right place

DEMAND FLUCTUATION OF NESTLE MILKPAK:

The demand of Nestle milkpak usually increases in the festivity season or
any event such as.
Eid
Ramazan and
Moharram
There is a shortage of supply of milk during the pregnancy season of cows.

RETURN POLICY OF NESTLE MILKPAK:

Nestle milkpak has an efficient return policy for inventory in case of any
defect.
Every carton and item has assigned a certain batch number.
If any defect has found in item or carton then the batch number of that
item or
carton is noted and disposes the defected item right on there.

GLOBE (GLOBAL BUSINESS EXCELLENCE)

In the year 2005 the successful launch of GLOBE remained probably the
most significant achievement for Nestle Pakistan. It was recognized locally
as well as in the Nestle world as the most successful implementation of
GLOBE.
GLOBE is a worldwide program/project designed to align Nestle Pakistan
with other Nestle companies around the world and to learn and benefit from
each others experience.
The project has three main objectives;
Creation and adoption of common business practices across all countries
where Nestle operates.
Standardization of data and,
Standardization of information technology system.
Migration to an ERP
The final phase of the project entails migration of Nestle Pakistan to an ERP
(Enterprise Resource Planning) called SAP (System Application Products),
which is one of the most integrated business application software in the
world. Nestle Pakistan achieved this final migration on February 7, 2005. On
that date all Nestle sites including the head office, all factories, distribution
centers and three zonal offices went live on the new application.
Information system and Purchasing
Purchasing task will be greatly facilitated by standard IS/IT infrastructure,
common business applications and best practices, Visibility of standardized,
real-time purchasing data/information will permit aggregated spend
category analysis. This will help identify opportunities and define more
effective purchasing strategies with the objective of achieving lower total
cost.

Over View of Supply Chain of Milk

Pack
So what makes our supply chain so special?
Well, for a start, we're the leading nutrition,
health and wellness company in the world and
possess one of the most sophisticated supply

chains in the world - putting the customer at the heart of everything we do.
As a result, every success (and, by definition, every failure) we experience is
multiplied to the nth degree. And for the right type of person, that should be
an exhilarating prospect.
Each element of the supply chain relies heavily on strong relationships with
other areas, and that creates a community of like-minded people; a real
team ethos where everyone goes out of their way to help each other deliver.
It's the passion, dedication and energy from our people that drives our
winning culture. You'll quickly come to appreciate this diverse environment,
regardless of which role you find yourself in.

CREATING SHARED VALUE ALONG THE SUPPLY CHAIN :

Supply chain activities transform natural resources and raw materials into
finished products which are delivered to the end consumer. Each stage of
the process adds value to the overall end product.
Nestl operates within complex supply chains. Its milk supply chain goes
from farms to facility.
. Nestl sources materials from thousands of farms, many of them small
farmers in poorer rural regions of the world. In many rural communities, a
lack of investment in infrastructure has a serious impact on the quality and
quantity of raw materials that Nestl and other companies rely on. Nestl
provides training in order to encourage sustainable production, protect the
supply and quality of its raw materials and have a positive, long-term
impact on the local economy and farmers standards of living.
Around two-thirds of Nestls worldwide expenditure is on raw materials.
Nearly 40% of this goes on three main ingredients: milk, coffee and cocoa. It
is a prime example of Nestls Creating Shared Value approach to business
The initiative aims to help farmers to run profitable farms, respect the
environment, have a good quality of life and give their children a better
education.
So what does Nestle do in order to stay successful in its supply chain
management? There are multiple innovative strategies that Nestle employs
time-to-time on a global level.
To conclude:
Sustainability, Compliance, Farmers Connect sourcing model contribute
to
Replicable and consistent quality and food safety

Predictable timing and volume

Increased price stability
Sustainable production
Farmer loyalty

RECOMMENDATIONS

1. Nestle Pakistan can establish their own dairy farms near their
factory.
Benefits
a. Transportation cost that incurs from the collection centres to the factories
will be minimized.
b. Less dependency upon local farmers.
c. These dairy farms will act as Crisis Management point in dynamic
conditions as we have recently faced in the form of worst floods in all over
Pakistan.

d. More employment opportunities for local people around that region.

e. As milk is collected twice a day so there will be less repetition of work; if
Nestle establishes its own dairy farm near its factory.
2. Nestle can also establish a few of their own retail outlets or
franchises in major cities of Pakistan to fill the demand and
supply gap more efficiently just like Millac (Pvt) Ltd.
Benefits
a. These outlets will save the repute of the company from stock outs in peak
seasons like Ramazan, Eids, & Moharram.
b. These retail outlets will align with Nestles production planning with the
demand of customers.
c. There will be less occurrence of bullwhip effect.
d. These outlets will serve as a competitive advantage for Nestle in their
marketing strategy.
e. Nestle will also be less dependent on other retailers.
3. Nestle should introduce vertical shelf system in the warehouse
Benefits
a. As Nestles warehouse has a ceiling of 17 feet, it should use the ample
space above the lower shelves.
b. This system will allow the storage of goods in segregation.
4. Nestle should install Voice Picking technology in warehouses.
Benefits
a. Although its a bit expensive, but use of this technology will benefit Nestle
in future as it reduces the time and human error and increases efficiency.

CONCLUSION
In the end, we would like to conclude that Nestle Pakistan is the leader in
FMCG industry. Nestle keeps track of its goods by maintaining its supply
chain all over the country. From Nestls manufacturing system to its
Distribution channels, everything is properly managed. They have a strong
relationship not only with their customers but also with their suppliers,
distributors and retailers. They maintain a proper Corporate Social
Responsibility by training their local farmers about milking and feeding of
their animals. In 2004, Nestle proposed a system of small loans for farmers
who wanted to make improvements to their farms, such as building
cowsheds. They drew up the sample specifications for a model farm to be
presented to the banks disbursing the loans. The Service even helps farmers

fill out applications for loans. In short, Nestle takes care of its inside and
outside customers. The manufacturing plant of Nestle is the strength and
serves as a competitive advantage for Nestle because of its perfect system.
The hygiene, safety and security control is done under Nestle MilkPaks
manufacturing plant. We learnt a lot about Nestles Supply Chain; from the
manufacturing department to distribution, everything is done perfectly