XAVIER INSTITUTE OF MANAGEMENT,

BHUBANESWAR

Global Sourcing & Lean

Material Management
Assignment
Cases: Nestle and Levis Strauss

SUBMITTED BY
Group 17

Abhimanyu Chundawat
U113061
Rosali Priyadarshani
U113083
Samyak Sabat
U113167
Stalin Mohapatra
U113223

Case 1 - Nestle: Agricultural material Sourcing within the

concept of Creating Shared Value (CSV)
1. If you were Hans Johr, how would you present the trends and
issues outlined in the case to Nestls board of directors?

Nestle as a company insists on honesty, integrity and fairness in all

aspects of its business and expects the same in its relationships. This
has earned it the trust and respect of every strata of society that it
comes in contact with. So all these trends and issues should be
addressed keeping in line with these factors. The Company has
undertaken to impact three of the worlds most urgent challenges
nutrition, water & rural development. So Hans Johr as corporate head
of agriculture should address the issues so that it should align with his
teams effort in sustainable agricultural sourcing. Few of the
issues/questions which Hans Johr will put before Nestls Board of
directors are:
How to Ensure that the raw materials used for production are safe and
of high quality and sustainably, economically and ethically produced.
How to engage with various stakeholders like suppliers, customers, etc.
Identifying current Global trends like food security and linking the same
to its business model.
Effective use of technology in each process of its supply chain.
Utilizing the limited resources available
Adapting to diverse consumer demands
Integrating Sustainable end ethical practices in its business model and
aligning these with its core philosophy

2. As Hans Johr, how do you find independent evaluators of the

potential conflicts of interest that are likely to occur when a
company involved in producing any food or beverage

ingredient, such as Nestle, takes an active role in addressing

the overall nutritional needs of the consumers?
Nestle as a company will be facing conflicts while addressing the
overall nutritional needs of the consumers. The nutritional issue is of
utmost importance as it addresses two of the most global concerns i.e.
malnutrition and obesity. Nestle has invested in creation of Nestle
Health Science S.A & Nestle Institute of Health Sciences to target new
opportunities at the intersection of food & pharma industries. These
creations are called Nutraceuticals and it focused on personalized
health science nutrition. Nestle focused not only in extending the
consumer lives but also to sustain quality of those lives. So the
concerns it had to manage in order to minimize the conflicts are the
effective and judicious use of natural resources so that sustainable
growth is achieved without jeopardizing the natural capital. Nestle
focused on creating shared value. Nestle purchases 10% of the Worlds
Coffee and Cocoa Production. Thus by this they were directly related to
the functioning of the ecosystem and committed towards healthy
environment. The issues it was facing with respect to agriculture were
climate change & Deforestation. So Hans Johr tried to handle these
issues as conflicts were arising. He initiated the SAIN program at Nestle
and Farmer connect Scheme by which they could connect with almost
all intermediaries and were directly or indirectly responsible to them.
The direct relationship allowed Nestle to require more responsible
production methods. Eg. Rainforest Alliance & SAN principles. Nestle
provided agricultural training to increase the sustainability of farmers
Production and to support those activities Nestle cocoa plan was
designed.
3. How does Nestle find independent not-for-profits active in
health, nutrition, and economic development to partner with,
without being accused of trying to gain undue influence in the
decision making process o such consumer activist groups?
Independent NGOs would help NGO to penetrate deep into the
markets and the supplier regions of Nestle. This would help Nestle to gain
control on its supplier and closely monitor them. This would help a lot in
context farming where questions are raised about the water conservation
of not only the company but also of its suppliers. To help find these
independent non-profits, Nestle could select specific locations where the
supplier is based and select NGOs whose values are aligned with that of

Nestle. Nestle could also partner with NGOs in it sustainable and giving
back to the society venture where it would be a win-win situation for both.
However, the partnership should be mutual since NGOs are not profit
oriented .For this, Nestle should set clear guidelines and visionary for
partners who would be interested to join. Moreover the policies for
performance and compliance orientation should be laid before in order to
ensure the NGOs are on track with their commitment and the partnership
continues to be mutually beneficial for both.

4. What is the best way for Nestle to use the latest technology in
improving the management of human, land, and water
resources across its operations and supply chain?
Nestle should use the latest technology to track the water usage of its
company as well its suppliers water footprint. This is of utmost
importance in case of context farming. It should also use the latest of
technologies to communicate the same to its stakeholders and ensure
all the rules are fair and equitable. The technology can be hugely
beneficial to instill the accountability as well instill the concept of
preservation throughout the company. For the company to be
sustainable, the collaboration across the suppliers and the company
needs to be strengthened and the latest technology will just bring
about the alignment. Nestle can use/suggest the latest of technologies
like crop intensification; distribute the drought and insect tolerant
seeds to suppliers for coffee etc. The technologies can also be used to
maintain and audit the quality of milk across the globe. Other latest
technologies like micro irrigation, organic farming will go a long way for
water and land preservation. These technologies would also enhance
the nutritional benefits of the food and ensure the health aspect that
Nestle is committed to.

5. How does Nestle position itself in the future global food

system?
6. How does taking a systemic approach impact Nestles future

strategy?

7. How does a health a wellness focus impact Nestles future

strategy?

The key issues that need to be addressed keeping Nestls future strategies
are production systems and methods, measurement of impact, people
development and maintaining competitiveness.
To have sustainable and ethical agricultural production, Nestle encouraged
good agricultural practices among its upstream producers. A major challenge
across the industry was to communicate these standards to consumers.
Companies, consumer advocacy groups, and environmental organizations
had different standards and metrics, and many had ways to signal their
commitments to the market. For Nestl, one of the key elements of
sustainability was that production needed to be environmentally sound, but
also economically viable for the producer over the long term. The economic
viability of producing Nestls materials was among the companys sourcing
concerns. Ethical production practices in agriculture were focused primarily
on fair and safe labor conditions for agricultural workers.
A fundamental quality of Nestls CSV approach is that it pursued
sustainability at multiple levels: among communities through its Farmer
Connect program, in its own operations through Responsible Sourcing and
other commitments, in its industry through pre- competitive agreements, and
in policy via public sector collaboration. Nestls cross-sectorial collaboration
reflected a growing willingness to engage in innovative partnerships and
multi stakeholder platforms to pursue systems-level change. Experts were
calling on a diverse set of private, public and civil society stakeholders to
gather around the major challenges on the horizon and devise systems-level
solutions. Issues like water scarcity, droughts risk management, and chronic
disease were not problems that could be solved with a piecemeal approach.

8. How does Nestle relate its leadership in the chocolate, dairy,

and coffee industries to the sustainability and health priorities
of the company?

Nestle was always partnering with farmers and Hans Johrs team had already
initiated the Sustainable Agricultural Initiative at Nestle (SAIN). Hans Jhrs
Farmer Connect activities were structured around Nestls highest-volume
agricultural materials: coffee, cocoa, and milk but also vegetables and grain.
The team had constructed plans, targets, and tools for more sustainable

sourcing in each of these value chains. These activities fell under several
additional corporate initiatives e.g., the Nescaf Plan, the Cocoa Plan, and the
RISE tool for dairy production.
Nestl sought to double the amount of Nescaf coffee the company bought
directly from producers, seeking to reach 170,000 farmers by 2015. Eighty
percent of these would be smallholders. The direct relationship with
producers allowed Nestl to require more responsible production methods:
the company had committed that by 2015 all coffee sourced through Farmer
Direct would meet the 4C code of conduct, a basic set of sustainability
standards. Nestl provided agricultural training, plus it distributed high-yield,
disease-resistant coffee plantlets. These Plan activities were designed to
increase the viability and sustainability of farmers production: improved
agronomic practices would increase productivity while protecting the local
ecosystem, and the plantlets replaced old, less productive trees. The
company estimated that its investments in such coffee projects would total
CHF 500 million by 2020.
The Nestl Cocoa Plan was also designed to support farmers sustainable
production practices. The Plan had three pillars: eliminating child labor in
Nestls cocoa value chain, sustaining cocoa supply into the future, and
ensuring farmers had a sustainable income. Nestl had partnered with the
Fair Labor Association to adopt a zero-tolerance policy for child labor in its
cocoa supply chain.
While Nestls dairy activities did not have a consumer-facing plan, they were
designed to protect producers and the environment with the help of a tool
called the Response-Inducing Sustainability Evaluation (RISE). RISE was a
diagnostic tool, developed and owned by the Swiss College of Agriculture, to
identify economic, social, and environmental areas for improvement on dairy
farms. it was less important that a particular source of milk be communicated
to consumers than it was to help farmers eliminate unsustainable practices.
Milk had not attracted many consumer concerns for sustainability, though its
compliance with safety regulations and quality assurance was well monitored.

Case 2- Levi Strauss & Co.: Global Sourcing (A) & (B)
1. How attractive is China as a business opportunity? As a
member of the China Policy Group what would you recommend
and why regarding (a) continued sourcing and (b) possible
direct investment in manufacturing or marketing ventures in
China?
We would recommend sourcing and contract manufacturing in China subject
to meeting the stringent terms and conditions laid down by Levis code of
ethics and supplier code of conduct (Business Partner Terms of Engagement).
China cant be ignored as far as sourcing is concerned because it offered
economies of scale. However sourcing in China may also affect the
companys brand image and consequently the demand for its product in
developed world. Therefore Levis needs to impose high standards while
selecting suitable suppliers.
Levis should however, avoid direct investment in manufacturing and
marketing in China. The reasons for this are as under

Chinas outmoded infrastructure and tariff made transportation of

goods across vast distances expensive

China did not offer a unified market. Tastes, preferences and buying
power varied across regions

The distribution systems were chaotic and inefficient

High inflation levels meant very high property prices which increased
the cost of doing business. Stationing Americans in China was expensive

Restrictions on imports and currency convertibility posed serious

challenges

The legal framework was weak and there was also a threat of political
instability

2. What is your assessment of LS&COs global sourcing

guidelines?

LS&COs global sourcing guidelines were very comprehensive and involved

multiple stakeholders both in developing and enforcing the guidelines. The
sourcing guidelines developed a set of standards to ensure that Levis

products were made in a manner consistent with its vision, mission and
ethical code of conduct. Thus it protected companys brand image. The main
features of these guidelines were
The guidelines were drawn after much deliberation. The discussions
involved multiple stakeholders (both internal and external), several cross
functional teams which deliberated on full range of sourcing issues. This
ensured that the guidelines were comprehensive and adopted a multi
stakeholder view of the sourcing process.

The guidelines addressed multiple issues involving supplier standards.

Employee exploitation, brought to light by the Saipan incident, was given
special focus.

Guidelines were developed in two parts Business partner terms of

engagement focusing on suppliers and Guidelines for county selection. These
ensured that not only introduced new criteria for supplier selection but also
introduced new standards for choosing a sourcing country.

Exploitative regimes were discouraged from exploiting workers by Levi.

The guidelines served as a guiding light for the company to withdraw from
countries which were found violating the ethical standards.

The guidelines ensured that strict supplier selection process was in

place to meet environmental, ethical, health and safety requirements.
Additionally they ensured that legal requirement and working standards
consistent with global operations were met

3. What kind of guidelines would you propose for continued

involvement in China?
Some of the proposed guidelines for continued involvement in China:

Address the human right in a very responsible manner

Taking care of the employers and the community they stay in
Providing minimum health insurance policies to the employee
Ensure child labor is not tolerated in any form
Ensure a percent of the companys investment is put into infrastructure
The company should have its the required licenses and policies compliant to
the government to prevent hassles later
Should have sufficient policies for protection of intellectual property rights
The company should clearly mention the zero tolerance policy for bribery,
corruption

4. How vulnerable is LS&CO, to the charge of moral imperialism?

As mentioned in the case earlier, LS&CO clearly thrusts importance on its
values. Since LS&CO looks to expand its business across global boundaries, its

also of paramount importance to maintain strict guidelines with its sourcing

partners and suppliers so as to preserve its values as they set to deal with
diverse cultures and backgrounds. Moreover, it also brings all the suppliers
across the world to a common platform and makes it easier for LS&CO to
evaluate all the suppliers. This will help LS&CO to take smart sourcing decisions
thereby protecting its heritage, maintaining its image across the globe and its
commercial success. It may be vulnerable to charges of moral imperialism by
its competitors but is definitely beneficial for the company in the long run.

5. What is your assessment of LS&COs final decision on China?

6. What is your assessment of the process used to make the
decision?
7. How may Haass concerns differ from CPGs concerns?

In 1987, under Haass leadership, LS&CO. adopted a Mission and Aspirations

Statement to communicate where we wanted to go and how we wanted to
behave. Senior management defined the companys mission as responsible
commercial success, which was operationalized as consistently meeting or
exceeding the legal, ethical, commercial, and other expectations that society
has of business.

In 1991, LS&CO. introduced a values-driven, principled

approach to ethics, replacing its code of ethics (described by one manager as

very proscriptive rules and regulations in a big binder) with a more openended statement of core principles. The company also articulated its
environmental philosophy and principles. As the paradigm for all of its
decision-making, the company adopted the principled reasoning approach
(PRA), a thorough and explicit procedure that involved six discrete steps:
(1) Defining the problem,
(2) Agreeing on the principles to be satisfied,
(3) Identifying both high- impact and high-influence stakeholders and
assessing their claims,
(4) Brainstorming possible solutions,
(5) Testing the consequences of chosen solutions, and
(6) Developing an ethical process for implementing the solution.
According to CPG, China still posed difficulties for business. Outmoded
infrastructure and tariffs meant it was difficult and expensive to transport
goods across its vast distances. China market was hardly unified; tastes and
buying power varied greatly by region, and distribution systems were chaotic

or nonexistent. The CPG learned that foreign companies operating in China

were under increasing pressure to accept government-backed Communist
party representation on their boards and faced intensified levels of
government inspections and audits.
The CPG learned that leading human rights organizations considered Chinas
human rights record among the worst in the world. Chinas human rights
practices fell far short of internationally accepted norms.
Although guaranteed by the Chinese Constitution, freedom of expression and
association were severely restricted. Some well-known dissidents were not
permitted to travel abroad. The press and academic institutions were tightly
controlled, and the authorities extensively monitored personal and family life.
Although China had mostly ended its traditional use of massive forced labor
to build public facilities, there was still some reliance on mobilized workers
for security forces and public works. Moreover, imprisonment usually involved
forced labor in prison or in the laogai, a network of government reeducation
camps where political and other offenders were compelled to work for little or
no pay in tiring and often dangerous conditions. It was difficult to estimate
accurately the extent of forced-labor production.

8. How important are the values, ethics, and corporate

responsibilities of any organization?
It is very important for any organization to follow values, ethics and corporate
responsibilities. Lets take the case of LS&CO.
LS&CO.s top managers were convinced that values-based companies that honored
their social responsibilities would ultimately achieve greater competitive success.
Believing that a companys reputation had become increasingly important to
customers, investors, employees, regulators, and other stakeholders, management
reasoned that there was not generally a conflict in the long term between doing
good versus doing well. Noted Toni Wilson, manager of the companys ethics
initiative, LS&CO. invites the whole person to the job. Doing the right thing may
cost in the short run, but in the long run it brings intangible benefits: trust,
creativity, innovation. You cant buy trust, you have to earn it.
Though LS&CO.s Executive Management Committee saw a strong link between
good ethics and good business over the long run; they recognized that particular

decisions could pose difficult dilemmas. Senior management made it clear that
ethics was to be a ground rule, not just a factor in decision making, and that ethical
values would take precedence over non-ethical values. Moreover, conflicts between
and among ethical principles were to be resolved through an ethical process.

In September 1991, after several managers expressed misgivings about the

business practices employed by some of LS&CO.s overseas contractors, top
management set up a 12-person Sourcing Guidelines Working Group (SGWG) to
determine what standards the company should expect of its contractors worldwide.
There were also guidelines for selecting countries from where to operate or
manufacture.
Various business conditions, challenges, human rights constraints, legal processes,
prison labor issues, etc.-many things have to be kept in mind before doing any
business. If all these things go well or sync, then definitely an organization will grow
as was the case of LS&CO.