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Nestle, one of the largest packaged food company has been unanimously declared a leader in its field. Founded and located in Vevey, Switzerland, it was established in 1905 and from then on it started its journey of delivering quality food products to consumers worldwide (About Nestle, 2008). Any firm, regardless of its size, national or multinational relies heavily on its purchasing department and supply management to add value to the firms operations. f a firm compromises on its purchasing standards it will suffer losses in its manufacturing process and ultimately in sales.
For any manufacturing firm, purchasing and supply management are the first step which are directly linked to all consequent stages of the manufacturing process ,thereby it is extremely important to start of the entire process with an efficient and effective purchasing procedure so that it is reflected in the final product (Stilson & Bachman, Sep. 2009).
The globalization of Nestle as well as the accelerating competition in the food sector emphasizes on the need for regular assessments of their purchasing strategies and supply management system.
The purchasing system at Nestle functions as part of the supply chain management rather than an independent function and aims to achieve cost minimization and profit optimization (Swerdlick, Summer 2008).
At Nestle there are a few basic purchasing objectives:
• Efficient and timely delivery of goods, materials and services.
• Continuous assessment of the performance and reliability of suppliers.
• Adding value to the company functions and contributing to the growth and profitability of the company.
• Availing benefits offered by suppliers and encouraging competition among suppliers which tends to create a healthy working environment (Swerdlick, Summer 2008).
At Nestle there are two basic purchasing roles which take into consideration the strategic and operational activities taking place within the company:
• Strategic buyers along with the expert opinions of other professionals are responsible for performing market analysis, screening suppliers and selecting the most appropriate ones, negotiations and contract management. Amongst the many responsibilities the most important ones that strategic buyers are faced with is the safeguarding of quality standards, adding to product development and channelling supplier technology to add value to the company products.
• Operational buyers, on the other hand are responsible for the operational part of the purchasing process i.e. sending purchase orders, receiving delivery for them etc. these functions can be performed by any department in the organization which requires any goods or services (Czerwonka, Summer 2008).
Planning and strategy determination are extremely crucial factors involved in the purchasing process, since they are the basic steps towards the achievement of growth and profitability objectives of the company. although the basic aim that is kept in mind while determining the strategy is cost minimization but at the same time equal importance is given to the issue of supplier commitment to work with Nestle. At the same time ,strategy determination also takes into account factors of business sector objectives and value addition opportunities. These objectives eventually form the basis of a sustainable and unique market advantage (Stilson & Bachman, Sep. 2008).
The next step is then to come to an agreement with suppliers to impose few standardized specifications which would not only result in an efficient supply chain management but also lead to lower costs and greater price leverage (Weiss, Summer 2008).
At Nestle it is strongly emphasized that purchasing is not just restricted to just one specific department rather it’s a cross functional team effort where everyone has a say in the operational activities of the purchasing process (The Keys to Success, Summer 2008). A good supplier selection is extremely important since in the long run it is the supplier who adds value to the company’s operations and contributes to its growth and success relative to its competitors. And it is for this reason that Nestle strongly believes in maintaining amiable relations with suppliers based on mutual trust and understanding.
It believes that suppliers are a vital part of the company’s development process where they have a big role in identifying niche opportunities in the market, providing new product ideas and adding their innovativeness and creativity to the overall business operations. Therefore, Nestle has set a standard criteria based on which it selects the most ideal suppliers who will prove to be beneficial to both the companies (The Keys to Success (AN 32186182), Summer 2008). The criterion is:
• Level of innovativeness that the supplier believes in implementing in his company.
• Financial position and reputation in the market.
• Organizational structure and mode of operations in the company.
• Ability and willingness to adapt to the working practices and ethics followed by Nestle (About Nestle, 2008).
Since Nestle is involved in food manufacturing, quality management is a crucial issue because lack of quality in food products is not only a risk to consumer health but is also a serious criminal offense in certain countries. To maintain quality standards, Nestle is highly dependent on its suppliers to assure Nestle of the delivery of top quality products and services. For this it is absolutely necessary for the suppliers to be aware of Nestlé’s quality policy as well as its safety and quality control standards (Czerwonka, Summer 2008).
To further ensure that quality standards are maintained, suppliers of raw materials and packaging materials undergo an audit process where the quality of goods and services provided by any given supplier are properly assessed and inspected (Margarella, Aug. 2003). Nestle requires from its supplier that defective and faulty goods are replaced or rectified within a reasonable time period. Each supplier that gets a chance to work with Nestle undergoes intense scrutiny before it gets an approval because Nestle cannot afford to compromise on its years of excellence in delivering hygienic, nutritional, safe and high quality food products to its consumers.
To ensure that the competitive advantage of quality is maintained, Nestle evaluates the ethics and business conduct, competence, sustainable environmental practices and process controls before giving its final approval to any supplier.
Purchasing is not just a one-time process rather it’s an on-going process for a huge company like Nestle which is generating revenue in millions (Principles of Purchasing, 2008). For this reason it has employed a computerized information system that maintains inventory management, list of suppliers, quality issues pertaining to certain goods or suppliers, variation in prices in the market, forecasted prices etc.This system allows for timely and better decision making since real time data comprehensive data is available at all times and also the management can be immediately informed of any discrepancies in the purchasing procedure or any unexpected problems that may arise (Stilson & Bachman, Sep. 2009).
Nestle uses an internal web based tool (Purchasing intranet) which is extremely effective in communicating with the internal purchasing community about quantities being supplied, price variations or any such matters (Principles of Purchasing, 2008). In this age of information technology, Nestle has realized the importance of integrating technology into their day to day operations for better efficiency, cost benefits and enhancement in services to customers and it is for this reason that Nestle is also currently involved in e-procurement which has seemed to cut down on considerable costs for the company.
Nestle is a strict disciplinary when it comes to following legal obligations and requirements. Purchasing is a business process which involves the entering into an agreement with a third party to purchase and facilitate the delivery of goods and services. For this reason it is extremely important to have written agreements where the terms are clearly defined and are precise thereby eliminating any chances of potential misunderstanding between both the parties (Principles of Purchasing, 2008).
Nestle feels that there is a strong link between efficient purchasing and supply management and the quality of personnel employed in the company (Principles of Purchasing, 2008). The professionalism, competence entrepreneurial qualities and pro-activeness are factors that need be there in the human resources to avail maximum benefits while procuring goods and services from suppliers (The Keys to Success (AN 32186182), Summer 2008). A motivated and dedicated purchasing team will provide and effective function and may represent a competitive advantage for the company. To avail this advantage the human resources at Nestle are trained, motivated and encouraged to create new challenges and expand knowledge while keeping in view the company objectives and policies.