The main aim of the research is outlining of the general tools and trends, which are inherent to the current supply chain management of Nestle in China. Currently, the skillful organization of the supply chain in business is the key success factor and the tool of getting the competitive advantage in the competitive market the 21st century. In the light of the computer technologies, this factor is the heart of business activities due to the fact of the rapid technological development and the increasing demands of the customers.
The importance of the supply chain may be supported by its initial nature- it is the integration of the following systems in the organization: people, activities, resources technology and information. Its core task is moving the product or service from the supplier to the end consumer.
In order to make the supply chain effective it is important to organize its effective management. While taking in account the entire situation in Chinese logistics system, it is possible to outline the following core features: majority of markets are in the process of their development and that is why there is a variety of options for starting new business in the country. At the same time, the poor infrastructure and transportation problems make additional barriers for being successful in this country. The policy of protectionism is widely applied by the Chinese governmental structures and the integrated national logistics system cannot be created due to the fact that different parts of the logistics system are managed and governed by different governmental organizations (Fisher 2007).
Finally, it is important to make an emphasis that with the latest trends in social and economical life- the globalisation process, the availability of the alternative products in today’s markets has increased. The research would be dedicated to the investigation of the effectiveness of the supply chain of Nestle on Chinese market.
I. BRIEF DESCRIPTION OF NESTLE
First of all, in the scopes of this paper it is important to rely to the background of Nestle. It is the international company, manufacturer of the leading brands of health-related and nutritional consumer products. Its head office is located in Vevey, Switzerland. By its revenue rate, this company is considered as the largest food company around the globe. Tehfsling categories of [products are manufactured by the Nestle: breakfast cereals, baby food, bottled water, coffee, ice cream, dairy products, pet foods, confectionery and snacks. It is important to put an emphasis on the fact that the annual sales of Nestle’s 29 brands reaches approximately $ 1.1 billion. Among these brands are the following most popular ones: Nesquik, Nespresso, Vittel, Nescafe, Stouffer’s, Smarties, Maggi and KitKat.
There are 450 factories, owned by Nestle. The Company operates in 86 countries. At the moment, approximate quantity of Nestle’s employees reaches 328,000. In addition, it is important to emphasize on the fact that tie company is one of the key shareholders of the world’s leading and largest cosmetics company – L’Oreal.
The company has been formed in 1905- the by Farine Lactee Henri Nestle (founded in 1866 by Henri Nestle ) by merging the Anglo-Swiss Milk Company. In the timeframes of the First World War, the significant growth has taken its place, and after the Second World War, the production tow has been expanded to the scopes of infant formula and condensed milk products.
The set of the corporate acquisitions has been done by the company. Among them are the following: Rowntree Mackintosh (1988); Gerber in (2007); Libby’s in (1971); Findus (1963) and Crosse & Blackwell (1950).
It is important to put an emphasis on the fact that at the moment, the primary listing in SIX Swiss Exchange belongs to Nestle and inn addition, the Company is the Swiss Market Index constituent. In the Euronext listing, Nestle is the second and in the Fortune Global 500 in 20011, Nestle has been listed as No. 1 (it has been the most profitable corporation all over the world). (Nestle official web site 2012).
II. THE MAIN TRENDS IN DISTRIBUTION AND LOGISTICS IN CHINA
The companies, which are operating in China, are provided with the wide spectrum of challenges by the currently existing distribution and logistics systems of the country. As an example, it is possible to consider the fact that in 2001, the logistics spending in China have reached the level of one-fifth of the nation’s GDP, which has exceeded the quantity of monetary spending for the logistics in US for two times (Willcocks 2002).
In December 2001, according to the report of the Economist Intelligence Unit, the 90% of the entire time, required for the manufacturing process, Chinese manufacturer has been spent for the logistics, while only 10% of this time was spent for the manufacturing process itself. That is why it is possible to consider the main measure for ineffective organization of logistics as the fact when the process of logistics exceeds 90 days (Dresner 2007).
At the same time, even while taking in account the above listed weak points of the logistics system in China, it is possible to see the rapid development of this system and its growth. As an example, the situation in 2010, when the annual revenue growth of the logistics industry has reached 35percent and in 2011, this index has reached 55 percent.
The main reason for such growth is the consolidation of the enterprises. As an evident example of the statement, it is possible to outline the following situation: at the moment, there are more than 18,000 registered companies in China, which offer the logistic services and none of these companies offers the nationwide distribution services. That is why it is possible to make a conclusion that the average share of the market, commanded by a single logistics services provider does not exceed 2 percent. That is why the fact of the industry fragmentation has made inevitable the participation of the third parties in the logistics services providing (Simchi-Levi 2003).
The main force of the third-party logistics market intensifying is the competition in the market of logistics and that is why the consolidation in this area takes its place. While taking in account the fact that the foreign companies (and Nestle., in particular) have their own well-developed international network and more effective approach towards their supply chain management, they occupy the local markets and increase their share in these markets (and at the same time they do not widely apply the services, provided by the third parties).
Another trend of the supply chain in China is the fact that the local and regional distribution systems win the competition in the distribution systems, which are centrally managed (Hoover 2001).
While taking in account the statistical data of 2010, the main trend, which is expected to expand in the next five years for 25 percent implies the outsourcing of logistics and transportation. The main reason for such trend is the straightening global demand for the services, provided by the third parties. According to the statistical data, more than 90% of the multinational companies, which have their representatives in China, use the logistics services of the third parties.
In addition, there is one more trend in the logistics and distribution systems in China- the increasing of the of joint ventures (JVs) and alliances quantity. The main reason for that is the fact that the majority of the companies, which are running their business in China are tending to integrate their forces in the name of building the distribution chains, serving the particular industries, and to make these chains competitive (Alter 2005).
III. CURRENT RISKS IN THE LOGISTICS AND DISTRIBUTION SYSTEM OF CHINA FOR NESTLE
To begin this section, it is important to pay additional attention to the fact that at the moment more than 80 percent of Fortune 500 (and Nestle occupies the leading positions in this rating) companies make the investments into the economy of China while locating there their manufacturing facilities in the country. But still there are some risks for doing business in China in the light of the supply chain development and operating.
Among such risks it is possible to consider the commitment delays by World Trade Organization (WTO). It is obvious that Chinese government may delay the implementation of the WTO regulations and the competition in to the market, and in such manner it may assist the local manufacturers to get their profits and that, in turn, may be considered as the policy of protectionism.
According to the practice, many of those countries, who have joined WTO, still maintain the barriers against imported products in order to support their domestic manufacturers. As an example of such policies it is possible to consider the erecting the non-tariff barriers, which are compatible for WTO.(Govindarajan 2001).
In addition, in China there is a risk of the regulatory fragmentation. In the light of the logistics and distribution system of the country, this situation looks the following way: the entire industry consists of the different logistics service components, which are regulated by distinct subsectors and by different governmental departments. In other words, the system of logistics in the country is micro regulated.
As an evident example, it is possible to consider the situation when the land and waterway transportation are coordinated by the Ministry of Communications, international freight forwarding licenses and trading rights are regulated by the Ministry of Commerce and finally the brokerage services are controlled by the General Administration of Customs of the People’s Republic of China.
Even while talking in account the various intensions of the central government, directed to creating the integrated system for the logistics controlling in the country, there are no obvious trends for the existing system reforming and that is why all the enterprises, which are involved into the current logistic system of the country still have to obtain different licenses from the several governmental structures in order to carry out their business legally and effectively (Govindarajan 2001).
More than that, the fluctuating capacity and demand business risks are the category of risks for the logistics system of the country. While taking in account the fact that the Chinese markets are considered to be the most dynamically developed markets in the world, the mistakes in the demand planning and forecasting are more frequent in the Chinese markets in comparison with the other foreign markets, which are considered to be stable (Boalow 2000).
Currently, in majority of cities and regions of the country, there is a trend for the mass investments for the development of the distributional and logistics services, but at the same time, according to the statistical data, offered by the China Storage Association, in 2010, more than 50 percent of the logistics centers of the country are still empty.
The last risk for the logistics system development in the country for Nestle is related to the political and social aspects of the country life. All the foreign companies, which are planning to start their business in China in the form of joint ventures establishing or partnership with other companies, should take in account the factor of the visible and invisible liabilities of their potential partners due to the fact that such aspect as the local employment protecting mechanisms in the country are of the first-priority for the government of China and that is why such factor as the appropriate benefits for excess workers may be the disputable point in negotiations of the contracts (Chopra 2001).
IV. PLACE AND ROLE OF THE SUPPLY CHAIN OF CHINA IN THE GLOBAL SUPPLY CHAIN OF NESTLE
While taking in account the fact that following the core trends of globalisation in economy, majority of Chinese companies extend their business activities while entering the new foreign markets. That is why China has become a significant part of the supply chain for the many multinational organizations and for Nestle in particular. It is evident that in order to have the rapid economical development, the constant assistance should be made for the operational issues, related to the growth of the Chinese supply chain.
Due to the fact of the economical globalisation and the successful activity of the global companies in different cultures, environments and continents, it is possible to consider the supply chain as the heart and the key success factor of an effective business in the global scales in particular (Betz 2001).
While discussing the core characteristics of the Nestle global supply chain, it is important to make an emphasis that the manufacturing of the multiple set of products in different geographies is the example of the varying capabilities of the diverse manufacturing locations. In addition, greater complexities in the business models lead to more effective manufacturing and distribution processes. One more characteristic of the global supply chain implies the wide range of products which meets the demands of different markets. And the last characteristic of the global supply chain implies the variable customers’ expectations, which are hard to predict (Lavassani 2009).
All the above listed characteristics may be considered as the factors, which directly influence the profitability of the Nestle. In addition, they make impact in the working capital and on the customer service quality due to the fact that all the above listed complicities are managed by the global organisations within their supply chain network.
Role of the visibility across the supply chain
It is obvious that the lasting value of the supply chain of Nestle may be achieved only in the case if there is a visibility across the entire supply chain. The initial nature of the supply chain implies the integration of the multiple manufacturing and distribution processes and that is why in the case is the additional attention is paid to every process, there is a possibility of getting additional benefits for such organisation of the supply chain and its control.
That is why the core task for the executives of Nestle distribution network and entire supply chain in such case is the defining the single version of the supply chain true performance and making the main focus on the information, which is related to the summarized performance of the supply chain. Such information covers the visibility of the working capital processes and true costs of the manufacturing process and only in such case it is possible to evaluate whether the capital has been managed effectively or not and in the case if there are some deviations from the planned strategy- to correct them in the shortest period of time (Findlay 2002).
To conclude this section, it is important to pay additional attention to the fact that it is not possible to evaluate the effectiveness of the supply chain at in the bubble. There is a need of remaining relevant to the current needs of the particular market and to the demand of the customers.
The customer care should be carried out in all stages of the manufacturing process and the additional attention of the manufacturer should be paid to the availability and effectiveness of the after sale services, which adds the competitive advantage for the particular manufacturer – in the process of choosing the product from the variety of options, presented in the market.
The role of technological support in the supply chain organisation
In order to achieve the level when the right people are provided with meaningful information, the effective practical application of the technological means is required. In other words, there is an axiom that the technological means are the key success factor for the informational needs support in the light of the technological development of the 21st century. The main requirements to the effective informational support should be developed in accordance with the sort of information, needed for the leader for the effective decision making process. That is why the informational system of the enterprise should be developed individually in each case.
It is obvious that the technological requirements to the informational system may demand serious capital investments and that is why the informational needs of the people, who are the participants of the particular business, should be also taken in account in order to reach the maximal effectiveness of the system and of the entire busies activity (Kouvelis 2006).
The role of capability in the supply chain
While taking in account the fact that the trends, which are mainly applied by the foreign participants of the Chinese markets are new for the local executives in the light of demand and expectations, the top management of the foreign companies should take in account the fact that the development of the storing capability on the particular market is required. For this purpose it is important to use the existing experience of operation in the particular market. In order to organize the effective supply chain and to manage it, the real insight into all its levels- from the suppliers to the customers is required.
One more requirement for the executives is taking in account the flexibility and scalability of the supply chain in the terms of meeting the plans of the business activity extending and in the light of constant changes in the business environment. Meeting this requirement is very important for Nestle for being successful due to the fact that in the case if the supply chain involves network of vendors and suppliers, the risk management should take in account the impact of the local and global recessions, natural disasters and other factors, which may have their negative impact on the participants of the supply chain (Krajewski 2002).
To conclude this chapter, it is important to make an emphasis on the fact that Nestle is confronting complicities in all operations, which are involved into the activity of their supply chains. These complicities may be represented in the form of lower cost economies sourcing, inbounding freight, and storage, process of delivery etc.
According to the key approaches towards business organisation, the complicities may be also considered as the source of competitive advantage of the particular business but only in the case when there are effective tools of managing these complicities with the help of supply chain system and risk management evaluation. In addition, it is important to make an emphasis that China with its wide spectrum of opportunities for business development and for the logistics system improvement is still considered as one of the most attractive countries for the foreign investments and for starting business.
While taking in account the supply chain in Nestle, it is important emphasize on the fact that customers do not need excuses, but they do need the delivery of the high quality product into the proper palace and time. That is why the core success factor for the supply chain development and management is meeting the tree core requirements: visibility of the entire system, technical support of the major processes and correct interpretation and practical implementation of the available information.
RECOMMENDATIONS FOR THE IMPROVEMENT OF THE LOGISTICS SYSTEM AND THE ORGANISATION SUPPLY CHAIN OF NESTLE IN CHINA
According to the experience of the successful companies, operating is different markets and industries of China, it is possible to draw a conclusion that there is a possibility of being successful in the Chinese markets, while following the set of rules, regulations s and tips for the foreign newcomers.
First of all, the effective organisation of the entire process of logistics and distribution for Nestle, even with the help of several companies, providing these services, is the core success factor for the market share achieving and increasing the profitability of the enterprise in China.
In order to be successful in the burgeoning China market, the experience, knowledge and due diligence approach towards business organisation are required. The first step for being successful is the deep market investigation and evaluating its core individual features. Even while talking in account the opinion of some scholars, who consider that the swiftness, which is applied by the shoppers for the own sales and distribution channels development, cannot be limited by the cost and time concerns, such limitations still take their place in the practice due to the fact that China follows t its WTO commitments, concerning the distribution services.
Those participants of the market, who are tending to enhance the capabilities of the PRC distributors, would have the significant share of the particular market. In order to reach this goal, it is important for the top management of Nestle to pay the additional attention to the core trends, applied by the local particulars and to take in account the intense emphasis, which is made by the Chinese partners for the business relationships and communication process. Such practical application of the business ethics may assist in development strong and effective partnership and achieving the fruitful collaboration with the local partners.
In addition, it is important to take in account the fact that in every region and city of the country, there is a local specific of attracting the foreign investors while choosing the region for the business entity establishing. As an example, it is possible to consider the local tax incentives, lower utility fees or land leasing, provided in some trade zones of the country. There are some organisations, which assist in finding the most appropriate location for the business entity establishment- such as American Chamber of Commerce or U.S.-China Business Council. In addition, it is very important to find the local partner- a well-connected and trustworthy one.
The second strategy for being successful in running business in China for Nestle is the focusing on the value. In other words, Nestle should not start the collaboration with the ineffective partners – parties and middlemen, and that, in turn, would assist in streamlining distribution chains and in removing the layers of bureaucracy. While taking in account the food industry, where Nestle operates, currently such trend is widely applied.
The next important factor, which should be taken in account, is the streamline distribution and logistics imperative. That means that the business entities should be tending to the integration of the logistics system all operations, which take their place in the supply chain. In the scopes of the supply chain, the long term goal should be represented in the form of sharing of the supply chain across different business units. That, in turn, means involving several companies for the distributional and supply network forming, while establishing the alliances and with the local partners and with providers of the distributional services.
In the case when the companies are focusing on the flows improvement, they should base their distributional and logistics systems on the reliable and urgent information transmission rather than on the physical movement of the goods. In order to achieve this aim, the latest technological trends should be practically implemented into their logistics systems of Nestle.
The development of the entire logistics system in the country would straighten the requirements to the particular supply chains in the following aspects: planning, achieving the visibility of the product and integration of the end-to-end supply chain.
To conclude it is possible to say that the inherent feature of Chinese style of business is the contrast- between local and national regulations, modern and antiquated approaches towards the business ethics and old and new system approaches. That is why it is possible to make a conclusion that in China there is a high level of risk combined with the wide spectrum of the business opportunities for Nestle.