Nestle Operation Management (final) 1gy5r

DETAILS OF PRODUCTION PROCESS1 Introduction THE

NESTLE STORY

Nestle S.A. the present Switzerland based international food group, originally consisted of two companies and two products: Henri Nestle and his baby food in Vevey, and the Anglo-Swiss Condensed Milk company and its condensed Milk Company and its condensed milk in Cham, both in Switzerland. In 1866 the Page Brothers form the United States set up a new industry in Cham, making condensed milk from a raw material that was available in abundance in the region. In 1867 Henri Nestle a chemist in Vevey, created a milk and cereal based food for babies. The companies competed vigorously until 1905, when they merged and became the starting point of the present food group. DYNAMIC EXPANSION The history of Nestle include the development of many different products as well as acquisitions, mergers and the purchasing of shares in companies, mainly abroad, over the course of the tears, this enabled it to broaden its range of products and diversify its operations, while at the same time strengthening the economic foundations of the company. Amongst the most important acquisitions were Carnation in Los Angeles (milk products and pet foods) and more recently Rowntree Mackintosh in York (chocolate and confectionery), Buitoni in Perugia (pasa) as well as Perrier in (mineral water). Nestle which does 98% of its business outside Switzerland, also has interests in non-food sectors, in cosmetics (a large share holding in L’Oreal) and ophthalmic products (acquisition of Alcon laboratories Inc.) while continuing to give priority to food products. NESTLE TODAY Nestle is now the world’s largest food company. It is present on five continents, has an annual turnover 70 billion Swiss francs, runs 522 factories in 81 countries, 200operating companies, 1 basic research center and 20 technological development group and more than 231,000 employees the world over.

DETAILS OF PRODUCTION PROCESS2 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. Wherever possible, it sets up factories locally, employees personnel from the country concerned and relies on indigenous raw materials. Its agricultural services provide assistance to improve the quality and yield of the raw materials it uses. Much attention is devoted to professional training and to the integration of the company in its economics and social environment. Nestle Milkpak Ltd. As a consequence of t venture arrangement between Nestle S.A. of Switzerland and Milkpak Ltd. In 1988, the existing production facility of Milkpak in Sheikhupura became a part of Nestle Milkpak. The Milkpak Sheikhupura factory had commenced operations in 1981 as a producer of UHT milk. By 1988, it had expanded its operation and was also producing butter, cream, Desi ghee – all under the brand name of MILKPAK and juice drinks under the brand name FROST. Conscious of the large food market that Pakistan offered, Nestle Milkpak drew up ambitious expansion plans. While re-organizing and re-enforcing the production of existing brands, it lost no time in giving shape to new production lines. The first to come was a milk powder plant, which not only began producing NIDO in 1990 but was also critical to the production of several milk-based products in the future. With the installation of the roller dryer in 1990, the first such product to come was CERELAC – an internationally recognized brand on infant cereal, followed by LACTOGEN 1 & 2 in 1991. The year 1992 saw the introduction of tea whitener EVERYDAY and milk powder in bulk packing named GLORIA. MILO and NESLAC came under production in 1994 and MILO RTD, In 1995. Local packing of coffee mixes under the name of NESCAFE 3 in 1 commenced the same year. In 1996, Nestle Milkpak Ltd. first confectionery plant of POLO Mint was installed and the line of NESTL’E PURE ORANGE JUICE was also added. Packaging of

DETAILS OF PRODUCTION PROCESS3 coffee under the brand name NESCAFE CLASSIC was undertaken the same year. In 1997 NESTL’E WHEAT and two variants of POLO viz. strawberry and Orange were introduced. 1998 has been, by far, the most outstanding year for Nestle Milkpak. As a result of the timely implementation of major expansion plans, involving a substantial capital outlay, no less than 17 products were launched during the year. Significantly, the factory now houses three new flavors of POLO in addition to two flavors of POLO, namely Blackcurrent and Strong Mint brought the number of POLO variants to five. A new variant Lemony was added to the range of popular FROST fruit drink flavors and a new 1-liter packing of FROST was introduced. Three flavored milk – Vanilla, Strawberry and Mango, under the brand FRESH & FRUITY, came under production on the new Tetra Filling Machine equipped with the modern “slim” format. MILO RTD and UHT Cream were also shifted over to this new format. A flexible confectionery line for the manufacture of a wide range of high and low boiled sweets and toffees was commissioned, with TOFFO and two variants of SOOTHERS – Menthol Eucalyptus and Honey Lemon, being the maiden products. Nestle Milkpak also contracted to supply dairy mixes to McDonald’s, for its popular soft serves and milk shakes. And to top it all, the most prestigious project, NESTLE PURE LIFE was also commissioned in December 1998. based on the latest water treatment and bottling technology, this marked the entry of Nestle Milkpak in the Pakistan water market. In the past, Indus Fruit Products Ltd. has been co-processing fruit pulping for Nestle Milkpak. In view of the growing needs of fruit pulp for its products as well as for exports, Nestle Milkpak entered into a 5-year lease agreement with the management enables Nestle Milkpak to put in place its own systems to ensure better product quality and capacity utilization. The new cold sauces production line has been established at this plant.

DETAILS OF PRODUCTION PROCESS4 ESTABLISHMENT OF NESTLE MILKPAK, KABIRWALA FACTORY In 1986 Milkpak Ltd. acquired the services of Kabirwala Dairy Ltd. For co packing of UHT milk under the brand name MILKPAK. Nestle Milkpak acquired KDL in 1990 as a subsidiary and began installation on a MAGGI NOODLES plant in 1991. this production line became operational in 1992 with two flavors: Chicken and Masala. This second milk powder plant was commissioned in September 1996. the plant produces NIDO, GLORIA and skim milk powder. The UHT line was discontinued in June 1996 and the same year witnessed the launching of the MAGGI YAKHNI line with 3 flavors: Chicken, Masala and Chatpata. With the merger of this factory with Nestle Milkpak in April 1997, Kabirwala Factory, as it is now called, is a fully owned unit of Nestle Milkpak Ltd. In February 1999 the newly installed evaporator came on stream in Kabirwala Factory, doubling the output of the spray dryer. Alongside, the warehouse capacity at Kabirwala to handle the increased volumes of finished products was proportionately increased. 1999 also saw the installation of a pouch-filling machine, making Kabirwala Factory independent from Sheikhupura for the filling of full cream milk powder.

DETAILS OF PRODUCTION PROCESS5 CORPORATE STRUCTURE Head Office The ed and corporate office of Nestle Milkpak Ltd. is in Lahore. 308 – Upper Mall Lahore PABX:

5757082-95

Fax:

5711820

Factories There are two factories of Nestle Milkpak Ltd. For dairy products. Sheikhupura: 29th km, Lahore - Sheikhupura Road, Sheikhupura, Punjab, Pakistan. Kabirwala: Khanewal – Kabirwala Road, Kabirwala District Khanewal, Punjab, Pakistan. There are two plants for Mineral Water situated in: Islamabad : Karachi: REGIONAL OFFICES Company has ten regional sales offices in following cities of Pakistan:

DETAILS OF PRODUCTION PROCESS6 • Karachi • Hyderabad • Sukkhar • Lahore • Multan • Faisalabad • Gujanwala • Quetta • Islamabad • Peshawar

MILK COLLECTION CENTERS The core raw material of Nestle Milkpak is milk. Over the last thirteen years the company prime concern has been to improve the quality and volume of milk for UHT processing and for other milk base products. So the company has twenty-five milk collection centers in Pakistan.

DETAILS OF PRODUCTION PROCESS7 DIVISIONS OF NESTLE MILKPAK LTD. Production Division

Marketing Division

Milk Collection Division

Quality Assurance. Depet

Customer Relation Department

Brand Wise Production Departments

Distribution Department

Agricultural Services Department

Research & Development

HR Division

Finance Division

Personnel Department

Treasury Department

Logistic Department

Products

DETAILS OF PRODUCTION PROCESS8 Year

Product Name

1981

UHT Milk

1983

Butter

1986

Milk Pak Cream Desi Ghee Frost Juice Milk Pak UHT Milk

1990

Nido Cerelac

1991

Nestum Lectogen

1992

Everyday Tea Whitener Gloria Maggis Noodles

1994

Milo Neslac

1995

Millo RTD Nescafe 3 in 1

1996

Every day UHT Milk Nestle Orange Juice

DETAILS OF PRODUCTION PROCESS9 Nestea Polo Nescafe Classic Maggi Yakhni 1997

Nestle Wheat

1998

Toffo Soothers Nestle Pure Life

1999

Maggi Sauces Fruit Drops Butter Skotch

2001

Nescafe Creamy Flavors

DETAILS OF PRODUCTION PROCESS10 Role of Nestle Milkpak Ltd. in Industry Nestle Milkpak Ltd. is the market leader in food and beverage industry. They are producing high quality well known brands. There no is such competitor that can compete Nestle Milkpak Ltd. in its total product mix. There are a few local competitors of the company in different product item. These competitors are: Rafhan: Rafhan is competing Nestle in infant and follow up cereals. Shezan and Bambino: Shezan and Bambino are competing Nestle Milkpak’s local brand “Frost”. CDL and Adar-e-kisan: These two competitors are competing in milk and milk powder products. In spite of this competition, Nestle Milkpak Ltd. is enjoying about 70-75% market share in Pakistan. Selected Products

In order to satisfy the prime objective of this report, we have selected following to product lines of Nestle Milkpak Ltd.

DETAILS OF PRODUCTION PROCESS11 1. Condensed Milk

Mission “Wherever you live, only Nestle can provide the best and most relevant food and beverage products to meet your needs throughout your day, throughout your life. The Nestle Network icon will take you on the journey of discovery through our world of food.”

DETAILS OF PRODUCTION PROCESS12 OBJECTIVES OF NESTLE MILKPAK LTD. Nestle Milkpak believes in following objectives: The major objective of the company is to sell high quality, innovative and superior products which satisfy needs and wants of consumers. Nestle not maximize profit through high market share but use maximize customer’s satisfaction. Nestle earn profit through satisfaction of consumer. The health of consumer and employees is at primary priorities. To ensure consumer’s health, Nestle provide quality products and for employee health. Nestle provide the pollution free environment and provide the medical facilities. Nestle establish policies, programs and practices to conduct operation in an environmentally sound manner. Nestle operate to achieve highest standard of ethical conduct, which acquire company’s activities and relationship world-wide in each business sector. Nestle aim to deal only with reputable suppliers who willing to apply Nestle Quality Standard. Nestle has been committed to environmentally sound business practices throughout the world.

DETAILS OF PRODUCTION PROCESS13 CORPORATE STRATEGY Corporate strategy defines the direction of the organization over the long term and determines the goals that must be achieved for the firm to be successful. EXTERNAL ENVIRONMENT The top management of Nestle MilkPak continuously carries on environmental scanning and within the environmental trends. Opportunities & opportunities they carry on required adjustments in their organization to remain variable and to survice in the face of competition. CORE COMPETENCIES Nestle Milk Pak has the following core competencies. WORK FORCE Nestle Milk Pak has a small work force as their most of the operations are automated. They have a very skillful and trained workforce. FACILITIES The NM’s facilities i.e. offices stores and plants are very well located and have the requisite capabilities, which is a big competitive advantage for them.

SYSTEM AND TECHNOLOGY NM is an organization which heavily depends upon new systems and technologies to excel in the market. The organization is well

DETAILS OF PRODUCTION PROCESS14 equipped with new developed especially n their operations.

systems

and

technologies

COMPETITIVE PRIORITIES Following are the competitive priorities of NM. i.

Consistent quality

ii.

Development speed

iii.

Volume flexibility

QUALITY Quality is the cone competitive priority of NM. They take quality in two ways. High performance design and consistent quality. CONSISTENT QUALITY NM pays special attention for maintaining consistent quality. They have special sort of equipments and process which facilitates in maintaining a consistent quality. So the each and every unit of its product equally satisfies its customers. DEVELOPMENT SPEED As for as develop speed is concerned NM is the industry leader not only in Pakistan but all over the world. They have a team of very innovative people which consistently focus on the development of new products and to improve the already existing products. VOLUME FLEXIBILITY Volume flexibility is one of the competitive priority of NM. When the availability of Milk is high in winter season they increase their production as the milk cannot be stored for longer period of time. In season when there is shortage of milk their production rates

DETAILS OF PRODUCTION PROCESS15 dropped. So they can adjust their volume of production according to their requirements. FLOW STRATEGY Flow strategy is one of the primary element of operations strategy. Based on competitive priorities a flow strategy is selected. It specifies has the operations system to be organized and handled. For different set of products different flow strategies can be implemented. LINE FLOW STRATEGY NM has adopted the line flow strategy here the system is organized around the product. In this strategy all products follow linear pattern in facility. NM has high volume production with highly automated facility and huge capital investment is there and the standardized products they produce. So they follow the line strategy. STRATEGIES BASED ON FLOW Following are the flow based strategies adopted by NM. MAKE TO STOCK STRATEGY NM follows the make to stock strategy. They have high volume production and the demand for their products can be forecasted quite well, there exist repetition of work and a consistent quality is maintained old these priorities lead to make to stock strategy. STANDARDIZED SERVICE STRATEGY The products which are provided by NM are standardized. Therefore the standardized service strategy also exist in NM Ltd. They have standardized and consistent quality products.

DETAILS OF PRODUCTION PROCESS16

PRODUCTION PROCESS Milk Collection & Reception

Cooling

Storing

Spray Drying Evaporation

Standardization

Pasteurization

Packing

De-Creaming

DETAILS OF PRODUCTION PROCESS17 PRODUCTION PROCESS MILK COLLECTION Milk collection system of Nestle Milk Pak is excellent. According to this system milk is collected from area of about 72,000 km . Village Milk centers

2273

Sub centers

583

Main Centers

23

On milk centers price of milk is paid according to percentage of fats. If the quality of fat is less than required (6%) than price will be paid accordingly. At milk collection centers, gerber test is performed for determination of fat. In milk collection centers temperature of milk is kept at 4 oC. Nestle purchase milk directly few frames, there is no middle man. Collection Areas are in all over Punjab Nestle Milk Pak divide the areas in following Categories: A.

Sahiwal, Burewala, Okara etc.

B.

Pindi Bhattian, Chaniot, Sarghoda

C.

Kabir Wala, Mian Channu, Shorkot, Kahane wal, Kachah Khu

D.

Bahawalpur , Bahawalnagar, Chistian, Ahmadpur

There are Area collection managers, Milk collection Co coordinators and Milk Collection Supervisors in each Area for collection of specific amount of Milk in specific time. RECEPTION From milk collection centers milk is collected and delivered to factory daily seal of tankers are properly decided. Receiving capacity of milk is 60,000 liters. At reception following tests are performed before storing milk to assure the quality of milk. 1- Alcohol precipitation test

DETAILS OF PRODUCTION PROCESS18 2- Clot an boiling 3- Fat (5.8% - 6%) 4- SNF (Solid non fat) (8.5-8.9) 5- PH test (6.8 – 6.9) 6- Adulteration test (only on doubt) Up to reception temp of milk is about 8-10 rejection on temperature basis.

o

C, there is no

Trollers are not preferred to stay more than 1.75 Hrs. in factory so that they can in time collect milk for next day. STORING OF MILK Milk is stored in storage tanks called Silos. The capacity to store milk is 596 tons. There are 5 Silos of100 tons each, 2 Silos of 10 tons each, 1 Silo of 70 tons. Milk can be stored for 36 Hours in Silos. STANDARDIZATION All the animals have different composition of fats in their milk in different seasons. Standardize milk according to the recipe milk is given temperature of 72 oC for 15 seconds to reduce bacterias in milk, this process in called thermization life of milk is increased by this process and in standardization composition of fats and SNF are standardized. DECREAMING In this process dirt particles, SNF and cream is separated, milk is given temp of 60 oC and 60,000 rpm in de-creamer. So that dirt particles cream can be separated. Cream is send to butter section. Dirt is drained after 30 seconds milk is send for further processes.

DETAILS OF PRODUCTION PROCESS19 PASTEURIZATION In This Process milk is heated at 92 oC for 5 seconds to remove remaining bacterias. Milk powder process activities After pasterization milk to treated for canveersion into powder, following activities are performed to milk: Evaporation (a) Low heat treatment Milk is heated at high pressure of 889 milli bar so that it start boiling at about 70 oC . (b) 4-effect falling film Milk is evaporated in 4 effect system. Milk is evaporated about 56%, 62%, 67% and 75% after 1st 2nd 3rd and 4th effect respectively. After 3rd effect Homogenansization is done which uneven composition of fats and SNF is homogenized Spray drying In this process there are 5 lateral high pressure nozels which exert high pressure on milk after that there which exert high pressure on milk after that there are about 50% water and 50% solids are remained in milk. After this step about 320 oC hot air is thrown on milk, it is very quick process in which powder settle in base and moisture evaporate in forms of vapors. Central lecithination: Lecithinate is sprayed on powder so that it is converted into highly dissolvable powder. That way Nestle Milk Pak say “ Nido is instant Milk” (easily dissolvable in hot ad cold water). Drying After all these procuress still powder has 5.5 % moisture in it, Powder is dried through x- Egran System to reduce moisture level up to 3.1%

DETAILS OF PRODUCTION PROCESS20 Cooling After drying there is a cooling process, in which powder is cooled before storing. Storing of powder Powder is stored in bins there are 40 bins , with capacity of --------each. Packing Milk is packed in different packing according to the weight required, form tote tilting station from bins. Capacity Capacity is the maximum rate of out put for a facility. The operations manager must provide the capacity to meet current and future demands; otherwise the organization will miss the opportunities for growth & profits. Nestle Milk Pak, Kabir Wala has installed new evaporate, doubling the Sout put of spray dryer in 1999. Along said the were house capacity at Kabir Wala to handle increased volumes of finished products was proportionately increased. They also installed pouch filling machine, making Kabir Wala factory independent from Sheikhu Pura for filling of full cream Milk powder. Capacity for receiving milk is 60,000 Liter/Hours. Milk is stored in storage tanks called Silos. The capacity to store milk is 596 tons. There are 5 Silos of100 tons each, 2 Silos of 10 tons each, 1 Silo of 70 tons. Milk can be stored maximum for 36 Hours in Silos. Capacity planning is duty of top management and it is long term. In flush season when milk is abundantly available they utilize capacity 100% as cleaning time is just 4 hours daily and 20 hours

DETAILS OF PRODUCTION PROCESS21 of working. Installed capacity is NIDO plant is 560 tons, it produces 4 tons / Hours & in 20 working hrs it can produce 80 tons per day. In summer when availability of milk is lower they have their annual shut down (June). They have training session for employees and vacations in that time. There are certain standards for labor utilization. Efficiency of employees is calculated daily. LOCATION Facility location is the process of determining a geographic site for a firm’s operations. Nestle Pack has located one of its factories at Kabirwala.

REASONS FOR SELECTING THIS LOCATION PROXIMITY TO SUPPLIERS AND RESOURCES This factory has been located in this area because here the supply of milk is more than the requirement of the local area. This factory location is immensely surrounded by Argicultrual farms, villages and small towns. The people o f thess areas have their own Animals and the feudals of the region have their own live stock farms. So there is abundant milk available. Furthermore, by locating one factor y at Sheikhupura and the other at Kabirwala the Nestl MilkPak can cover the geographic area of milk collection very well, especially the area of whole Punjab. REPUTATION OF THE LOCATION Placing of the factory at Kabirwala is also advantageous in this way that at the current place there was actually the factory in the name of Kabirwala Dairies Ltd. (KDL). So the place has the reputation of having a milk factory. The suppliers of milk are already oriented with this location. PROXIMITY TO NATIONAL HIGHWAY

DETAILS OF PRODUCTION PROCESS22 Kabirwala factory is quite closer to National Highways so the transportation of Raw Material and Finished Goods is also easier. In the end we can say that the most important and critical factor for locating the facility at this place is the availability of the milk in this area. SUPPLY CHAIN MANAGEMENT Supply Chain |Management seeks to synchronize a firms fun ctions and those of its suppliers to match the flow of materials , services and information with customer demand. A basic purpose of supply Chain management is to control inventory by managing the flows of materials. TYPES OF INVENTORIES Following types of inventories are kept by Nestle Milkpak Kabirwala: RAW MATERIALS Raw Material inventory of Nestle MilkPak consists of milk. Their Raw Material is kept in Silos. Silos are the big tanks, which are used to store the milk. Inventories of their raw materials cannot be maintained in bulk quality and for a longer period of time. The factory can store the milk up to 596000 liters. They have five silos for storing the milk all have different capacities. The milk can remain there for the period of 36 hours without loosing quality. WORK IN PROCESS INVENTORIES Work in process inventories are not to huge. Whatever they put into production they stop production after its completion if there is no unusual break down. The unpacked goods inventory can be considered as the WIP inventory. The condensed milk is stored in Bins. Bins are the big boxes in which the milk powder is stored before packing it.

DETAILS OF PRODUCTION PROCESS23 Then through an automatic plant the milk is packed. The butter is stored in huge tubs. From where that is packed through the automatic. FINISHED GOODS INVENTORY Inventories of packaging material can also be included in WIP inventories. The packing material is purchase externally. The supplier of packing material is packages private limited Pakistan. Nestle Milk Pak maintains huge amounts of F.G. inventories. There is a huge warehouse within the factory. In the warehouse they store the finished goods. Especially when the availability of milk is high then the L.M. is produced and stock in this warehouse and the same is released when the Milk availability is lesser and the production is also low. Normally it’s the FG inventory the NM has RM & WIP inventories not that huge. MATERIALS MANAGEMENT There is a separate department in the factory which is responsible for purchasing the materials and managers its supply. There is a centralized system of material management. The whole operations of which are looked after by the operations managers. There is also a stores officer which also looks after the materials management. SUPPLIER RELATIONS The nature of relations maintained with suppliers can affect the quality, timeliness and price of a firm’s products and senior. There are two types of supplier relation competitive orientation. COOPERATIVE ORIENTATION. Nm’S SUPPLIERS RELATIONS NM follows the cooperative orientation. They have very friendly and cooperative relations with their supplier’s one hand and

DETAILS OF PRODUCTION PROCESS24 there are the suppliers of Milk and on the other hand the suppliers of packing NM have cooperative relations with both of its suppliers. RELATION WITH MILK SUPPLIERS NM has very cooperative relations with its milk suppliers. NM’s people themselves look after the animals of the former who provide them milk and give them useful tips. NM provides various facilities to its milk suppliers. NM also provides or facility to its suppliers. It also provides them consultancy facilities consultations s provided for improving the milk quality looking after the health of the animals. PROGRESSIVE FARMERS The progressive farmers are the farmers having lots of animals and supply milk to NM. These are farmers which wish to further grow. NM provides them loans for improving their farms and for the purchase of animals. NM provides medical facilities to the animals. The NM provides loans to these farmers for expanding their farms. So that the milk requirements of NM can be filled. In turn the supplier of milk also cooperate with NM PACKAGING MATERIAL SUPPLIERS The packaging material is supplied to NM by the packages (Pvt) Ltd. Pak NM have very cooperative orientation with packages and they cooperate a lot with NM for maintaining high quality of final product. Sole sourcing P is the only supplier who provides are the packing material. So NM use sole sourcing. So NM has very cooperative orientation with its suppliers. INVENTORY CONTROL SYSTEMS For controlling inventory the NM use Continuous Review Continuous Review

DETAILS OF PRODUCTION PROCESS25 NM use continuous review system. They have the whole computerized system. How much stock is in the stone room how much stock has been further put into warehouse and how much stock has been drawn from the stores? In this way they keep a continuous control over their inventory. The stores officer not only maintains records but also makes visits at the warehouses to see the actual situation of materials. The officer can review the inventory at any time. Operations manager and the auditing people also check the inventory and its records so that the risks of loss or manipulation may be minimized. DISTRIBUTION Distribution is the management of the flow of materials from manufacturer to customer and from ware house to retailers. Involving the storage and transportation of goods. PLACEMENT OF FINISHED GOODS INVENTORY The fundamentals decision is where to stock an inventory of finished goods there can be two alternates. i.

Forward Placement

ii.

Backward placement.

FORWARD PLACEMENT In forward placement finished goods are stored closer to customer .NM use forward placement as they use to keep the stock of finished goods in their regional offices and distribution centers. From the distribution centers the goods are further sent to the retailers. BACKWARD PLACEMENT In backward placement finished goods are stored at the manufacturing plant where they keep goods stocked. So in this way they use backward placement also. So for inventory placement NM uses a mix of forward placement and backward placement in order to provide goods to the market on time.

DETAILS OF PRODUCTION PROCESS26 DISTRIBUTION STRATEGIES OF NESTLE MILK PAK LTD. Distribution plays important role in success and failure of any organization. The organization may fail, if its distribution networks are not efficient and unable to provide the necessary items at required place and at reasonable time. Distribution system of Nestle is one of major source of competitive edge over its existing rivals. Nestle has its own distribution networks equipped with all necessary transportation facilities. They transport their products at major ten regional sales offices, which are situated at different cities of Pakistan. These sales office (distribution centers) have their own vans with sales people who sell and transport goods to the small retailers. In general Nestle followed following sequence for distribution of its products. Company

Distribution Center

Retailers

Customers

This figure indicates Nestle never sell directly is ultimate customers but follow above sequence. In general, Nestle has following two distribution strategies: Selective distribution strategy Extensive distribution strategy For some products, Nestle adopt “selective strategy” in which firm distribute its products on few selective retail outlets while for some products, Nestle people go for “extensive strategy” in which they distribute their goods on all possible retail outlets. SELECTION OF TRANSPORTATION MODE For transportation of goods to the regional offices NM has it own vans and other vehicles. For further distribution to retailer the distributor of each area uses its own vehicles. For the milk collection the NM has their own tankers, which are made of special material to maintain the quality of milk. FORE CASTING

DETAILS OF PRODUCTION PROCESS27 Fore cast is a prediction of future events used for planning purposes. Forecasts are needed to aid in determining what presences are needed, scheduling existing resources and acquiring additional resources. Accurate for casts allow schedules to use machine capacity efficiently, reduce productions times and cut inventories. Forecasts are needed to anticipate changes in prices or costs or prepare for new laws or regulations, competitors, resource shortage or technologies. Forecasting methods may be based on mathematical models using historical data available, qualitative methods drawing on managerial experience or a combination of both. Nestle Milk Pak forecast the demand of products on annually basis with mutual understanding between planning and selling departments on the basis of historical data and sales forecast estimates. They conduct monthly meetings and fine tune the forecast on monthly basis. As in summer when availability of milk is scarce and demand is high, they have stock in winter to meet this demand. They produce more in peak season (Jan, Feb, and March) to meet the demand of lean seasons (June, July, August). AGGREGATE PLANNING Aggregate plan is a statement of production rates, work force levels, and inventory holdings based on customer requirements and capacity limitations.

PRODUCTION PLAN A manufacturing firm aggregate plan is called as the production plan which generally focuses on inventory holdings and production rates. NM has its production plan which is generally developed by the planning department.

DETAILS OF PRODUCTION PROCESS28 AGGREGATION NM aggregate their plan on the basis of total milk collection, total milk requirements, total production etc. TIME The planning horizons of NM are of two types one is the long term planning horizon which covers the period of ten years. The other is the shorter planning horizon normally or one year. LONG TERM PLANNING HORIZON In long term planning horizon NM plans for about ten years. They plan how much production capacity to be achieved. How much production rates will be required what will be the customer demand how will they collect the milk. From where they will collect the milk. How many number of animals would be there is a particular area and from there how much milk we will be collecting. They got all the information and plan for a longer period of time. SHORTER PLANNING HORIZON In shorter planning horizon they plan usually for one year and then further decompose that in seasonal plan. How much to produce in a year. How much milk to be collected in one year what is the deficiency or surplus. How much inventories we will be holding. This yearly plan is further divided into four quarters. Targets are set for each quarter and the efforts are made to achieve the targets. QUALITY Quality has no proper definition its vary from person to person. In general sense quality may be defined as meeting or exceeding the expectations of customers. In general business’s success depends on the accuracy of its perception of customer’s expectations and its ability to bridge the gaps between those expectations and operating abilities. Good quality can also pay off in high profits. High quality products and services can be priced higher then comparable low quality once. And yields a greater return for the same sales dollars. Poor

DETAILS OF PRODUCTION PROCESS29 quality erodes firm’s ability to compete in market place and increase the costs of producing the product or service. Nestle Milk Pak has quality as its top competitive priorities along with availability of its products all over. In quality they want to achieve consistent quality and even to improve it continuously. In this regard the stress on customer satisfaction, continuous improvement and employee involvement. There is strict quality control by computerized system in control room, quality of product are assured at each stage. Customer satisfaction Nestle take their customer on top of its hierarchical chart. Its top priority is to satisfy the customer. They design the product in such a way that they confirm their speciation, fit for use and give to the company image. Employee involvement Nestle milk pak involves their employees in making decisions and changing in organization. They have idea boxes in factories and offices, employees are encourages to give ideas about improvement. They conduct weekly meetings and discuss the ideas; good ideas are rewarded to motivate employee’s involvement. There are formal training sessions for employees to train them and enhance their capabilities. Employees are given rewards and incentives to involve them more in organization. Continuous improvement Nestle Milk Pak try to improve the quality of products continuously they conduct continuous improvement meetings to improvement the quality. They train the employees for improving quality tools, build team work, employee involvement and develop sense of operator ownership. Improving quality through TQM

DETAILS OF PRODUCTION PROCESS30 Programs for employee involvement and continuous improvement are aimed at improving quality in general sense. However, TQM often focuses on benchmarking, product and process design. BENCHMARKING Benchmarking is a continuous systematic procedure that measures a firm’s product and process against industry leaders. As NESTLE is industry leader in food products, each factory has its benchmark to improve quality. Nestle Milk Pak Kabirwala takes Nestle Tambula factory Australia as bench mark, which is the best Nestle factory in all over the world. Nestle Milk Pak Kabirwala is at 2nd number. PRODUCT & PROCESS DESIGN Nestle Milk Pak design the produce according to the customer’s satisfaction and process is designed in such a way to maintain purity and nutrition’s of the products. QUALITY CERTIFICATION Nestle Milk Pak has its own quality standard certification which has much higher standards as compared to ISO, called Nestle Quality Standards. Nestle Milk Pak Kabirwala is approved by Nestle Quality Standards. In which quality is maintained right from the purchase of raw material to the distribution of the products to the ultimate consumers. Quality of Materials Quality of Process Distribution Continuous improvement Customer satisfaction Employee involvement

DETAILS OF PRODUCTION PROCESS31 DETAILS OF PRODUCTION PROCESS Milk Collection Milk Collection system of Industry is excellent. According to this system the companies’ trucks reach 140000 milkmen and collect milk daily. The milkmen provide milk on contract basis. Prices of milk vary in case of self-collection and contract basis. On milk center price of milks is paid at

Rs. 5.80 per liter at 6% Fats. If

the quality of fat is less than required 6% then price will be paid less proportionately. Percentage of FAT in Various Kinds of Milk. Buffalo

6% Fat

Cow

3.5%

Goat

3%

Sheep

6%

Human

3.5%

At milk collection centers, Gerber Test in done for the determination of Fat. Companies are bounded to maintain 3.5% Fats under pure Food Laws. It is legal requirement throughout the world.