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Nestlé

I. History

The history of Nestlé began in Vevey, Switzerland, in1867 when founder Henri Nestlé
created one of the first infant foods in response to the need for a healthy and affordable
product to serve as an alternative for mothers who could not breastfeed their babies. He
called his product FarineLactée Henri Nestlé.Within a few years, the FarineLactée
product was marketed in Europe. Nestlé called his company SociétéFarineLactée Henri
Nestlé. In 1874, Nestlé developed its condensed milk product, to contend with the
Anglo-Swiss Condensed Milk Company,a competitor that was producing cheese, instant
formulas and had opened Europe’s first sweetened condensed milk factory in Cham,
Switzerland, to market the first condensed milk, MILKMAID.

The two companies merged in 1905, the year after Nestlé added chocolate to its line of
foods. The newly formed Nestlé and Anglo- Swiss Milk Company had factories in the
United States, Britain, Spain and Germany. Soon the company was manufacturing in
Australia with warehouses in Singapore, Hong Kong and Bombay. Most production
however still took place in Europe.

II. Challenges & Success

The start of World War I made it difficult for Nestlé to buy raw ingredients and
distribute products. Fresh milk was scarce in Europe, and factories had to sell milk for
the public need instead of using it as an ingredient in foods. Nestlé purchased several
factories in the U.S. to keep up with the increasing demand for condensed milk and
dairy products via government contracts. The company’s production doubled by the end
of the war.

When fresh milk became available again after the war, Nestlé suffered and slipped into
debt. The price of ingredients had increased, the economy had slowed and exchange
rates deteriorated because of the war. An expert banker helped Nestlé find ways to
reduce its debt. By the 1920s Nestlé was creating new chocolate and powdered beverage
products. Adding to the product line once again, Nestlé developed Nescafé in the 1930s
and Nestea followed. Nescafé, a soluble powder, revolutionized coffee drinking and
became an instant hit. With the onset of the Second World War, profits plummeted.

Switzerland was neutral in the war and became increasingly isolated in Europe.
Because of distribution problems in Europe and Asia, Nestlé opened factories in
developing countries in Latin America. Production increased dramatically after America
entered the war and Nescafé became a main beverage for the American soldiers in
Europe and Asia. Total sales increased by $125 million from 1938 to 1945.

After 1945, Nestlé continued to prosper, merging with Alimentana S.A., a company that
manufactured soups and seasonings, in 1947. In the coming years, Nestlé acquired
Cross & Blackwell, Findus frozen foods, and Libby’s fruit juices. Nescafé instant coffee
sales quadrupled from 1960 to 1974, and the new technology of freeze drying allowed
the company to create a new kind of instant coffee, which they named Taster’s Choice.

Expanding its product line outside of the food market, Nestlé became a major
stockholder in L’Oréal cosmetics in 1974. Soon after, the company suffered with
increasing oil prices and the slowing growth in industrialized countries. Foreign
exchange rates decreased, in turn reducing the value of the sterling pound, dollar and
franc. Prices of coffee beans and cocoa rose radically, presenting further problems for
Nestlé. The company decided to venture into the pharmaceutical industry by acquiring
Alcon Laboratories, Inc.

By the 1980s, in one of the largest takeovers at that time, Nestlé bought Carnation for
$3 billion. International trade barriers diminished in the 1990s, opening trade with
Eastern parts of Europe and China. In the 1990s, Nestlé acquired San Pellegrino, and
Spillers Petfoods of the UK. With the acquisition of Ralston Purina in 2002, the Nestlé
owned pet care businesses joined to form the industry leader Nestlé Purina PetCare.

In 2002, there were also two major acquisitions in North America: in July, Nestlé
merged its U.S. ice cream business into Dreyer’s, and in August, a USD 2.6bn
acquisition was announced of Chef America, Inc. The year 2003 started well with the
acquisition of Mövenpick Ice Cream, enhancing Nestlé’s position as one of the world
market leaders in this product category. In 2006, Jenny Craig and Uncle Toby’s were
added to the Nestlé portfolio. 2007 saw Novartis Medical Nutrition, Gerber and Henniez
join the Company, and in 2008, Frozen Pizza of Kraft Foods was integrated into the
Nestlé Group. With a strong view of the company’s mission in mind, focusing on long
term potential over short-term performance, Nestlé will continue to grow, introduce new
products and renovate existing ones.

III. Conclusion

This research about Nestle has definitely given us the knowledge how big the company
is. Nestle is the largest company which is in the world’s leading food manufacturer and
the market leader in both coffee and mineral water, produces a wide range of products
including prepared dishes and cooking aids, milk-based products, cereals, instant
coffee and baby foods. Nestle is an organic model of organizational design. It is flexible
and highly adaptive to the competitive external environment and also decentralized
decision authority.

Nestlé is a multinational company, not to mention Nestlé is also the largest industry in
foods and beverages, hence Nestlé has every capability to attract more consumers
compare to the local companies. On account of its high market share and high financial
power, Nestlé also has greater financial capability in altering existing products in terms
of packaging, the formula of the particular product and others or creating new
products, as well as to adapt or upgrade latest information system technology in
manufacturing, order processing and other related fields in order to sustain their
competitive advantage by delivering lower cost of goods and services than their
competitors in this dynamic environment.

Nestlé has quite an effective strategic marketing capability. For example, Nestlé Maggi
instant noodles has built a stable patent and is very well known in many countries like
in Australia, Philippines and Malaysia. This is because Maggi instant noodles is easy to
be differentiated from its competitors. Moreover, Nestlé has also developed a very strong
brand name for Maggi instant noodles because of strong advertising, which has
indoctrinated most of the people to name the other brands of instant noodles as Maggi
instant noodle instead of the brand’s original name.

Nestlé also has a strong Research and Development operations that helps the company
to achieve cross-border synergy such as packaging its global products to local
preferences. Nestlé also emphasizes on using today’s information technology, which
Nestlé believe it will present a long-term opportunity for them to smoothen the
company’s operation or to increase efficiency in packaging, among any other company’s
operations. Besides, Nestlé also has better technological capability, for instance, to
renovate the existing products to be more innovative, higher quality, and much
healthier product as Nestlé realized that consumer-centred innovation and renovation is
the most important pillar of Nestlé’s worldwide strategy, which would accelerate Nestlé
to advance from “good” to “better”. And because of Nestlé’s commitments, more people
trust on the products delivered by Nestlé because of its proper health and safety
measures.

Nestlé also has great leadership attributes. The leaders such as the top executives,
branch managers, and others are responsible in building organization capability. For
example, the Chairman and Chief Executive Officer of Nestlé S.A., Peter Brabeck,
emphasizes internal growth worldwide, which means to achieve higher volumes of sales
by adding value to the products, renovate existing products, and innovate new
products, to keep pace in the industry because of rapidly changing of consumer
expectations.

Nestlé produces hundreds of products, has a global network of suppliers, and multiple
distributions and selling channels. Hence, to anticipate and respond in this rapidly
changing in market demand condition is very difficult. When forecasting a market
demand, Nestlé will need information to detect shifts in demand early so they could
adjust for trends and send the right messages to the suppliers, shippers, and
distribution centers before they are flood with unwanted or defective goods or
shortages.

However, every company has its weakest links, so is Nestlé. The weakest links are
issues they are unable to control. Firstly, the most common problem is the sources of
supply of raw materials. This is due to a sudden and unexpected increased in demand,
which will cause extreme supply shortages for commodities that will result in major
price increases. For instance, bad weather and natural disasters have always been an
issue affecting incoming raw materials. Secondly, the inaccuracy of orders received in
inventory. No company can ever achieve the requirement of zero defects especially in
foods and beverages industry. For example, when the purchasing department of Nestlé
ordered 10,000 of mixed berries yoghurt from its dealer, but what the retailer received
was only 8,000 of mixed berries yoghurt, or on another occasion they might received
defective inventories. Another example is, when Nestlé tells its dealer that they needed
extra orders of a particular product to be shipped right away because of unexpected
increased in demand, but in fact, the supplier may already has orders from other
customers. This usually happen during special occasion such as New Year, the demand
of Nestlé Cornflakes cereal will increase because many people will buy this product to
make cookies. This will causes Nestlé to encounter a great loss because of inaccurate
order of magnitude because they could not produce the actual output needed.

Therefore, in order to solve these problems, it is crucial for Nestlé to engage with
multiple suppliers or dealers in that particular region, so they could acquire inventories
from multiple dealers, which will definitely decrease the risk of shortage due to
incontrollable situation. Besides, Nestlé should also base on their demand and
purchase planning on last couple of years of sales to forecast current year of demand
and supply. Other than that, mutual trust and strong relationship with all the dealers
are needed in order to increase the flexibility of material supply management, as well as
to enhance the bargaining power of Nestlé. However, if there is a surplus, Nestlé may
need to plan a promotion to clear their inventories, otherwise Nestlé will encounter a
great loss such as paying high material handling cost, waste of warehouse’s space, or
inventories that are not sold became defective and may need to be disposed which no
profit will earn. Therefore, when there is a big event organized, Nestlé will set up a
booth at the carnival to sell its products, which are close to the expiry date at lower
price such as Maggi products, Nescafé, Milo, yoghurt drinks, Nestlé ice creams and so
on. People often buy the products in big quantity because of the lower price than the
market price. As a result, Nestlé could clear their inventories rather fast and save some
space in the warehouses, which is a win-win situation.
Final
Requirements
In
TQM/Operman

Submitted to:
Liza Maghanoy

Submitted by:
Laynie R. Cua
Jessa Yangao