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Concept Of Transportation And Distribution Management

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Question:

Discuss about the Transportation and Distribution Management.
 
 

Answer:

Introduction

The concept of transportation and distribution is defined as the movement of people, animal, raw materials and the finished goods. The business organizations with the help of distribution and transportation channel move their products from one place to another such as from warehouse to the end customers. The major modes of transportation used by the business organizations include space, road, rail, vehicles, cable, and pipeline (Su et al., 2012). Therefore, the significant features of distribution and transportation include effective management of infrastructure, organizational operations, employees and the vehicles used for distribution. The delivery of raw materials and finished goods at the accurate time to the target customers ensures successful distribution and transportation.

This report introduces the effectiveness of the distribution and transportation with respect to the goals and objectives of Nestle.

Nestle was established in 1866 in Switzerland and is one of the globally recognized Health, Wellness and Nutrition Company that promotes healthy living for the people. Nestle has made the successful international venture in countries such as Asia, United Kingdom, United States and Canada since its origin. “Good Food, Good Life” is the mission of the company due to which the company aim towards providing highly nutritious beverage and food to the target customers globally. Nestle sells a wide range of products that include confectionary, pet care food, chocolate, meals, desserts, beverages, ice creams, coffee, and wafers. In 2015, Nestle generated 9.066 billion as the annual revenue that is comparatively lower than the profit generated in 2014. In 2014, Nestle generated approximately 14.456 billion ("Nestle", 2017)

In 2013, Nestle was ranked as one of the companies in the top 10 within the cultural category. This is due to the immense popularity and admiration of the company among the target customers globally. The company has always aimed towards enhancing the quality of life of the customers by providing them with highly nutritious and healthy food. The company aim towards caring and helping the family of the customers. Thus, the principal aim of Nestle is to encourage and support people in leading a healthy life. Respect is one of the core values that Nestle follows while conducting the business. Nestle believes in respecting their customers, the surrounding business culture, environment, customers, future generation, and diversity. Mars, Danone, Cadbury and Mondelez International Inc are the potential competitors of Nestle ("Nestle", 2017).

 

Incoterms Selection Consideration

Level strategy is implemented by Nestle for appropriate conduction of planning and production. According to the concept of the approach, the company emphasizes to develop values for the target customers along with exploring the core competencies thereby, achieving the competitive advantages. The strategies and decisions used in managing the distribution and transportation aim towards establishing a strong customer relationship thereby, gaining competitive advantage. The incoterms follows the international commercial terms that is applicable for the importer and the exporter during transaction. Additionally, the incoterms monitors the action of the stakeholders in order to ensure risk management and responsibility (Zheng et al., 2014).

Keeping in mind the requirement of environment sustainability, Nestle has designed and developed their transportation and distribution process. The main features of the distribution and transportation process of Nestle include:

  • Using the available distribution networks and the operating routes of Nestle in the most effective manner
  • In order to gain the ability to handle both safety and environmental issues by training the driver extensively
  • For enhancing the transportation options, Nestle aim towards exploring the various opportunities by cleverly selecting the modes of transportation as well as using fuels that are less harmful to the environment (Moradijoz et al., 2013)

Nestle aims towards effectively using the resources of the company by decreasing the rate of empty transportation of the trucks, evaluating the distribution of strategic network and maximizing the use of vehicles for distribution and transportation. Effective management of the operations is one of the ongoing processes conducted by Nestle for optimizing distribution and transportation. Keeping in mind the significance of sustainable business approach, Nestle is emphasizing towards restricting the use of traditional modes of transportation from road to rail or short-sea freight (Cui et al., 2012). Therefore, Nestle is facilitating the use of natural gases for the transportation vehicles rather than using fossil fuels. This initiative will help Nestle in reducing the emission of greenhouse gases thereby, controlling the adverse environmental impact. For the warehouses, Nestle is emphasizing towards selecting an alternative source of renewable energy by decreasing the energy consumption rate. In order to ensure reduced the adverse environmental impact, it is important that Nestle generates and implements unique and advanced technologies for distribution and transportation channel (Tsao & Lu, 2012). 

 

Carrier Selection Criteria

Considering the adverse impact of transportation on the environment, Nestle has opted for carrier transportation of the finished products and the raw materials. Maximizing the transportation efficiency, minimizing the transportation cost and the reducing the emission of greenhouse gases are the major factors that influenced the carrier selection process of Nestle. Therefore, the importance of the above-mentioned factors in determining the carrier selection for distribution and transportation by Nestle is stated below:

Fleet vehicles: Nestle has been using various advanced technologies in terms of freezing cabinets in the trucks that are used for distribution and transportation. The use of advanced technologies in the carriers is an initiative undertaken by Nestle to maximize the transportation efficiency (Leou, Su & Lu, 2014). Nestle has installed eutectic freezing plates in the range of trucks used by them for the purpose of transportation. The trucks remain cool overnight due to the installation of the eutectic plate while they are stationed in the distribution centers overnight. More than 1500 trucks with eutectic freezing plate are being used by Nestle for transporting, delivering and distributing Nestle products such as ice creams and pizzas to the distribution centers, retail outlets, and the target customers. Nestle has also installed Telematics in order to reduce the idling time of the trucks. The report suggests that in the past two years nearly 32% of the idling time of the trucks has been reduced due to the installation of Telematics (Amini & Islam, 2014). As a result, nearly 250,000 gallons of fuels have been saved. Nestle has also emphasized in training the drivers to enhance the efficiency of the environmental and safety programs for the drivers.

Nestle also puts 30% weight on the reliability of the carrier as the organization prefers consistent, trustworthy and quality while shipping the products. This provides an opportunity for the organization to create positive value and relationship with the customers. Nestle transports superior quality products to more than 60000 retail outlets that can be challenging if the company uses unreliable carrier resources. Additionally, unreliable carrier selection can delay the production and exportation of the Nestle products. Therefore, Nestle ensures that the carrier selected by the organization is reliable and trustworthy that will help in fast delivery of products to the customers at the right time. Reliable exportation also helps in increasing the level of customer satisfaction (Profillidis, 2014)

Nestle puts almost 20% weight age on the technical capabilities of the carrier selected. Keeping in mind technical capabilities of the carrier, Nestle emphasizes on system that has appropriate skilled personnel, safe shipment and maintenance of the quality of the product. International transportation is more prone to risks due to various factors such as pace, quality and customers satisfaction. Moreover, Nestle also abides with the environmental conservation policies and implement a sustainable carrier system in order to achieve global standards. Therefore, Nestle needs to use a transport system that has state-of-the-art communication thereby, ensuring continuous shipment follow-up (Caiazzo et al., 2013).

Nestle places 30% weight on the transit time while selecting the carrier system for distribution and transportation. The transport management of Nestle emphasizes on delivering the products in the minimum time possible in order to accomplish the core value of the fastest production. The main competitive advantage of Nestle is their capability to products hygienic product faster compared to the competitors in the market. Additionally, while shipping the products, Nestle also needs to consider the new strategies in the market within the minimum time possible. This will provide an opportunity sufficient sales time before introducing the new production batch. Nestle primarily uses air transport due to which the company has procured jets along with cargo planes. This ensured faster shipment of products for Nestle (Amini & Islam, 2014).

 

Carrier Relationship Management

Partnership with relevant stakeholders determines the success of the international transportation. It is a mutual relationship with the business and the carrier that involves a mutual agreement with the customer duty individual, freight, local distributors and the purchase insurance. The main aim of Nestle is to create positive relationship with the associated stakeholders that are involved in shipping. Therefore, the company implements all the possible methods for ensuring healthy relationships with the carriers. The company believes in maintaining healthy relationship with the carriers both imports and exports that can achieved through adequate implementation of payments and regulations. Additionally, Nestle has positive relationship with airfreights and insurers that has values in terms of customers’ satisfaction and service delivery.

Nestle prefers in maintaining a honest and continuous communication with transport and distribution partners thereby, helping in mitigating the possibility of misunderstandings and maximizing trust and reliability. With the recent technological advancements, Nestle shares important and crucial information with the partners that includes freight data and evaluation of the shipment. This provides an opportunity for Nestle to recognize the possibility of cost cutting and transport intelligence within a given time duration. Nestle also implements and follows full web-based communication system due to which the carriers are able to access relevant data such as freight bill, airway bill and loading bill easily (Hirsch, 2013).

Nestle believes in respecting the objectives of the transport and distribution partners and ensures that they do not underestimate their goals or limit their opportunities. Nestle believes in upholding the satisfaction level of the distribution and transport partners just like their customers (Lee, Thomas & Brown, 2013). Additionally, Nestle has an expert team that are solely responsible for communicating, negotiating and maintaining positive relationship with their transport and distribution partners. On the other hand, the selection of the appropriate carrier also determines the carrier relationship management. This is because the nature and objectives of the partners also determines the success of the business. Considering this, Nestle selects carriers by keeping in mind the goals and objectives of their transport partners (Arnas, Holmstrom & Kalantari, 2013).

Recommended Incoterms used by Nestle

Keeping in mind the various kinds of customers Nestle has, the selection of incoterms will vary accordingly. Therefore, based on the type of the customers, the incoterms for shipping the Nestle products are selected. The retail store customers are considered as one of type of customers. Thus, Nestle spends shipment cost for the respective stores and is suggested to use Delivery Duty Paid in the case. Under DDP, Nestle will responsible for the delivery costs in the retail outlets. Additionally, more money needs to be paid to the customs from import and export facilities along with considering the risk of loss until the product reaches the retail outlet (Ruiz, 2012).

Nestle must consider using Free on Board as it shall enable the company to deliver the goods on board the vessel as per the nominations of the buyer at the specific port of shipment or procures the goods already so delivered. In this situation, the risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards (Bowker et al., 2015). Therefore, it is recommended that Nestle must continue using Free on Board incoterm in order to save costs and reduce the risk involved.

 


Another incoterm recommended for Nestle is EXW (Ex Works). In this case, the buyer is required to pay for everything. The buyer hires a forwarder for the airfreight and destination services. In this case, the buyer also pays for the transportation from the supplier’s warehouse to the port, customs clearance, handling charges, and other costs that may occur. This incoterm provides the buyer additional control over the shipping but also involves extra costs in tracking the activities at the origin.

The Cost and Freight (CFR) incoterm is also recommended for Nestle considering because of their online customers. According to CFR, Nestle will be solely responsible for cleaning the products for export along with delivering the product for railway shipment port and paying the required charges. The implementation of this incoterm will enable Nestle to ensure that the delivery is free of obligation. This will provide an opportunity for Nestle to establish effective relationship with the online customers and ensure brand awareness. However, on the contrary, this incoterm places the associated risks on the buyer.

Cost, Insurance and Freight (CIF) incoterms can also be used by Nestle. According to this approach, the seller or the exporter is solely responsible for delivering the goods onto the vessels along with clearing the customs in the country. In this case, Nestle will be responsible for buying the insurance in collaboration with the importer that act as the beneficiary. The risk is transferred to the buyer once the products are shipped on to the carrier. The use of this incoterm is recommended for Nestle, as the risk is transferred to the importer thereby, compensating with the financial loss.

It is also recommended that Nestle use incoterms such as Delivered At Frontier (2000), Delivered Ex Ship (DES) and Carriage Paid To (CPT). This is because the use of the aforementioned incoterms will allow Nestle to deliver goods to other countries with the help of importers and saving the risk of distribution and transportation.

Conclusion

In this report, it can be concluded that distribution and transportation is a significant function in international trade, as it involves various types of regulations, partnerships and costs. A global company like Nestle has to make decisions that sticks to their core business values along with maintaining with the international standards and customer demands. Nestle implements international commercial terms or incotems for delivering their raw materials and finished products to more than 600 outlets in various countries internationally. Therefore, while shipping their products to the international markets, Nestle uses Delivery Duty Paid (DDP), Cost, Insurance and Freight (CIF) and Cost and Freight (CFR). Appropriate transit time, reliability and speed are the primary goals that Nestle considers while selecting the carrier for transportation and distribution. However, geographical locations and technical capabilities are also considered by Nestle while selecting the carrier. Air carrier is primarily used by Nestle for transportation and distribution. Nestle aim towards managing the relationship with their carrier partners. Nestle uses ethical negotiation standards as the main approach for managing carrier relationships thereby, upholding accountability, integrity, transparency and respect. Nestle also ensures that constant communication with the transportation and distribution partners are maintained by using latest technologies.

 

References

Amini, M. H., & Islam, A. (2014, February). Allocation of electric vehicles' parking lots in distribution network. In Innovative Smart Grid Technologies Conference (ISGT), 2014 IEEE PES (pp. 1-5). IEEE.

Arnäs, P. O., Holmström, J., & Kalantari, J. (2013). In-transit services and hybrid shipment control: The use of smart goods in transportation networks. Transportation Research Part C: Emerging Technologies, 36, 231-244.

Bowker, J. A., Townsend, N. C., Tan, M., & Shenoi, R. A. (2015, May). Experimental study of a wave energy scavenging system onboard autonomous surface vessels (ASVs). In OCEANS 2015-Genova (pp. 1-9). IEEE.

Caiazzo, F., Ashok, A., Waitz, I. A., Yim, S. H., & Barrett, S. R. (2013). Air pollution and early deaths in the United States. Part I: Quantifying the impact of major sectors in 2005. Atmospheric Environment, 79, 198-208.

Cui, X., Kim, H. K., Liu, C., Kao, S. C., & Bhaduri, B. L. (2012). Simulating the household plug-in hybrid electric vehicle distribution and its electric distribution network impacts. Transportation Research Part D: Transport and Environment, 17(7), 548-554.

Hirsch, P. (2013). Minimizing empty truck loads in round timber transport with tabu search strategies. In Management Innovations for Intelligent Supply Chains (pp. 97-122). IGI Global.

Lee, D. Y., Thomas, V. M., & Brown, M. A. (2013). Electric urban delivery trucks: Energy use, greenhouse gas emissions, and cost-effectiveness. Environmental science & technology, 47(14), 8022-8030.

Leou, R. C., Su, C. L., & Lu, C. N. (2014). Stochastic analyses of electric vehicle charging impacts on distribution network. IEEE Transactions on Power Systems, 29(3), 1055-1063.

Moradijoz, M., Moghaddam, M. P., Haghifam, M. R., & Alishahi, E. (2013). A multi-objective optimization problem for allocating parking lots in a distribution network. International Journal of Electrical Power & Energy Systems, 46, 115-122.

Nestle. (2017). Nestle.com. Retrieved 10 November 2017, from https://www.nestle.com/aboutus

Nestle. (2017). Nestle.com. Retrieved 10 November 2017, from https://www.nestle.com/stories#/category/featured-stories/1

Profillidis, V. A. (2014). Railway management and engineering. Ashgate Publishing, Ltd..

Ruiz, V. (2012). Analysis of existing refrigeration plants onboard fishing vessels and improvement possibilities. In Second International Symposium on fishing vessel Energy Efficiency.

Su, W., Eichi, H., Zeng, W., & Chow, M. Y. (2012). A survey on the electrification of transportation in a smart grid environment. IEEE Transactions on Industrial Informatics, 8(1), 1-10.

Tsao, Y. C., & Lu, J. C. (2012). A supply chain network design considering transportation cost discounts. Transportation Research Part E: Logistics and Transportation Review, 48(2), 401-414.

Zheng, Y., Dong, Z. Y., Xu, Y., Meng, K., Zhao, J. H., & Qiu, J. (2014). Electric vehicle battery charging/swap stations in distribution systems: comparison study and optimal planning. IEEE Transactions on Power Systems, 29(1), 221-229.

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