Nestle Corporation: Transportation & Distribution Management

Key Information on Nestle Corporation

Discuss about the Transportation and Distribution Management for Nestle Corporation.
 

Transport and distribution are defined as the movement of goods (raw and finished), people and animals from one place to another using mode of transport such as rail, road, air, water, pipeline, cable, and space. Transportation and distribution involve the management of people, infrastructure, operations/ logistics and vehicles (Nestle Company, 2016). Logistics, as a superset of transportation, is defined as the art and science of obtaining raw materials, production and distribution of products and materials at the right time, using proper methods, and in proper qualities and quantities. With the industrial context, transport and distribution refer to delivery of materials and products to businesses, consumers, and government officers. Transporting and distribution entail coordination of trained workers, distribution management, and warehousing. This paper will examine how effective is transportation and distribution management is in fulfilling the company's goals: A case of Nestle Corporation (Nestle Company, 2016).

Nestle is a globally known Nutrition, Health, and Wellness company. Nestle Company established in 1866 in Switzerland has expanded into global markets such as the United States, Canada, and the United Kingdom. The company's mission is as simple as, "Good Food, Good Life"; Nestle offers its consumers with nutritious choices, best tastes in a variety of beverage and food categories (Nestle Company, 2016). Some of the well-known brands by Nestle are chocolate, confectionery, coffee, beverages, frozen desserts, ice creams, meals, and Nestle Purina PetCare and Nestle Waters. In 2015, Nestlé's annual profit was 9.066 billion which showed a decline from 14.456 was in 2014 (Nestle Company, 2016).

In 2013, Nestle was voted among the top ten most recognized and admired corporations within the cultural category. The company has always strived to improve the lives of its customer by providing health and nutritious solutions during the entire period of their lives. Nestle helps customers by caring for them and their families. The company's goal is to support people in leading healthier lives. The company's core values have been formed on respect: Respect for the customers, for the future generation, for the environment and the culture and global diversity. However, Nestle faces fierce competition from Danone, Cadbury, Mondelez International, Inc., and Mars, Inc (Nestle Company, 2016). 

On a daily basis, Nestle transports over 140,000 tons of products to the consumer markets from over 1600 warehouses globally (Nestle Company, 2016). The transport and distribution of the company's products are majorly done through a partnership with the third-party logistic service providers who travel approximately 270 times around the world on a daily basis (Nestle Company, 2016). The products are mainly transported from the factories to the distribution centres and lastly to end users (Ballou, 2013).

Incoterms Selection Considerations: Effectiveness of Transport Capability of Nestle

Through the logistic service providers, Nestle can evaluate its environmental performance and improve its network's efficiency by reducing fuel consumption, mileage, and emissions of greenhouse gas, congestion, and noise.

The company's transport and distribution approach are based on environmental sustainability. The approach focuses on:

1. Optimization of the distributions routes and networks planning in all operations;
2. Exploring opportunities for improving its transportation options by switching to other transport modes and identifying less harmful fuels; and
3. Expanding the drivers' training to handle both environmental and safety issues efficiently (Ballou, 2013).

Moreover, as one way of optimizing the company's performance, the transport and logistic manager focuses on the reduction of empty transportation journeys, increase vehicle utilization, and reviewing the strategic distribution network from time to time. For its fleet operations, optimizing the route planning is an ongoing process (McKinnon, 2015). The company is moving from the traditional mode of transports like road transport to short-sea freight or rail. Likewise switching fossil fuels to trucks using natural gasses with the focus on reducing the environmental effect resulting from transportation. In the warehouses, Nestle in concentrating on reducing its energy consumption as well as switching to alternative renewable energy. Lastly, the company is investing in new transportation and distribution technologies that offer innovativeness in efficiency and environmental improvements (Bookbinder, 2013).

Through the collaboration with its customers and suppliers, the company has identified opportunities on how to co-operate and avoid empty trucks on transit after goods and products have been delivered (Emmett, 2012). For example, one truck has been assigned to collect raw materials from Craigavon and Dungannon in North Ireland and deliver them to the factory located in Wisbech in Cambridgeshire. The same vehicle collects finished products from the factory and takes them to the distribution centers in Warwickshire (Hams Hall). Conversely, before leaving the distribution centers, the vehicle is loaded with products to be delivered to homes and offices. The entire process is used to ensure that the journeys are efficient, and the capacity of the trucks have been maximized (Frazelle, 2012).  

The Nestle Corporation uses the Free Onboard Vessel to transit its products to respective destinations. According to the International Chamber of Commerce (ICC), FOB is defined as… “Free Onboard Vessel is sort of a hybrid, where the seller is obligated to bring the goods all the way to the port, clear the goods for export, AND see that they are loaded onto the ship nominated by the buyer. Once the goods clear the railing of the vessel the buyer assumes the risk. FOB is often followed by the named loading port thus: FOB Long Beach, meaning the seller delivers the goods, pays the port fees, and sees the goods loaded onto the ship docked (in this case) at the port of Long Beach.”

Nestlé's Transport and Distribution Approach

Nestle delivers its products to be cleared for transportation or export, the products are then loaded to the vessel chosen by the buyer. Once the products have been loaded to the means of transport, all the risks and costs are transferred to the buyer.

The selection of the carrier used in the transportation of Nestle products is based on three main factors namely:

• Reduction of greenhouse emissions
• Cost reduction; and
• Increasing efficiency

The importance of these factors in selecting an appropriate carrier is as discussed below.

1. Modal shifts

The company is focused on establishing the most sustainable modes of transport that reduce gas emissions. Nestle is shifting from long distance transportation via roads into using sea and rails where possible. The modal shift helps in cutting costs, avoiding traffic congestions, reducing greenhouse gas (GHG) emissions and increasing efficiency ( Lowe & Pidgeon, 2015).

Through the project known as the EU Marco Polo project, Nestle looks forward to shifting over 360,000 tons of water, cereal products, and petcare from road to rail transportation by the year 2016. The modal shift is likely to withdraw approximately 5000 trucks per annum by taking advantage of the rail systems between France, Italy, U.S, Slovakia and Germany. If the strategy is effectively executed, the company will save up to £2.8 million over the next three years (Nestle Company, 2016), (Poirier, 2016).

The latest transportation project to be launched is known as the Green Alpes which has enabled the distribution of Nestle raw materials and products between France and Italy via train. Through the partnership with the local train companies, the CPW Italy, NPPIT and Nestle Water France, approximately 2800 trucks would be off the road by the end of 201. The project would ensure that GHG emissions are reduced by 2.3 million per year while saving of £750,000 per annum (Keller, 2013).

The Nestle Water relies on rail network for efficient transportation of its products over long distances. In 2014, 30% of the total Nestle transportation was through the rail system, which includes 43% transportation of water products in the United Kingdom, and 33% in Italy (Nestle Company, 2016). After the shifting into rail transport system from road transport, the efficiency of the distribution system has improved by 10% while the GHG emission has been reduced by 23% (Nestle Company, 2016).

In Japan, Nestle has partnered with the logistics and shippers services providers to facilitate the shifting into the rail transport. The organization started to use rail transport system in its outbound logistic since 2010. The modal shifting was implemented on a full scale in 2011 (Richards & Grinsted, 2013).

1. Fleet Vehicles

Incoterms used by Nestle Corporation

Currently, Nestle has around 2000 fleet of trucks that distribute and deliver pizza and ice creams to the customers. Several technological options are used in the freezer cabinets. The newer trucks have eutectic freezer plates which cool down overnight when the trucks are stationed at the distribution centers. Telematics like GPS systems has been rolled-out on the trucks to reduce the vehicles' idling time. Nestle has managed to reduce the trucks' idling time by 32% of the last two years. Leading to saving at least 250,000 gallons of fuel (Nestle Company, 2016). The company has also maintained the expansion of its environmental and safety efficiency programs for its drivers (Rushton & Croucher, 2012). 

1. Use of alternative fuels

As part of efforts of reducing the emission of GHG emissions, the company has continuously explored other viable means of obtaining and using environment- friendly fuels. For example:

• The Nestlé's water segment in North America is currently using 28 trucks which are powered using gas. There is an ongoing plan to increase the number of propane-propelled trucks to at least 200 by the end of 2016 (Bing, 2011).
• In Italy, Nestle Waters have agreed with its carriers to invest in 15 trucks that use liquefied natural gas in transporting the products by the company; and
• The same segment in Thailand has invested in a project to increase the number of trucks that use natural gas from 4 to 50 by the end of 2016 (Richards, 2014). 

1. Carrier Relationship Management

1. Optimizing utilization of vehicle capacity

Empty delivery vehicles or those carrying limited loads are costly and inefficient. The company always make an effort to utilize the vehicles' capacity. Although the maximum load carried by a container or truck at any given time is limited by maximum volume or weight, even a single percent of load maximization help in reducing the transportation and distribution cost by approximately US $5 million and 29,000 tons of Carbon dioxide emission per annum  (Nestle Company, 2016), (McKinnon, 2015).

The approach on "no vehicle leaves empty is one way of reducing environmental pollution from the transportation process. The transportation and distribution management have continually optimized route and loads planning as well as combining both the inbound and outbound trucks in maximizing backhauling. The company also works with its partners such as retailers, manufacturers, and suppliers to share transportation facilities where necessary (Emmett, 2013).

A pilot test conducted in 2014 showed that the company had several opportunities of improving the utilization of the available transportation capacity. Nestle is rolling out a standardized monitoring system that would help in tracking how effective are the vehicles being utilized by the end of the year 2016 (Poirier, 2016).

1. Cutting cost and environmental pollution by eliminating empty trucks

Nestle cooperate with its customers and suppliers on the effective utilization of the delivery vehicles. The approach helps in ensuring that the trucks do not travel empty after delivering the products (Emmett, 2012). The effective installation of transport control centres offers the visibility of identifying the transportation circuits to avoid traveling of empty trucks after products have been utilized. The circuits have been installed globally to maximize truck and container utilization (Ballou, 2013).

• Distribution networks

Carrier Selection Consideration

In 2015, Nestle redesigned 10 of its distribution channels globally as a way of improving transport and distribution efficiency. For example, in the Middle East the company has combined export/ import warehouses, the distribution centres and the packaging and raw materials into one (Nestle Company, 2016). The approach is to ensure that the empty trips have been reduced, and transportation has been synergized. The redesigning on transportation networks is likely to reduce the emission of carbon dioxide by 2000 tons annually. 

In Italy, the company merged two of its distribution centers into one to significantly reduce its distribution costs and avoid unnecessary routines. The initiative is aimed at reducing carbon emission by approximately 1400 tons per year (Nestle Company, 2016). Conversely, in China, the distance covered during the distribution of Nestle water has been reduced by 32% (i.e. 303 km down from 447 km) between 2010 and 2014. Nestle aims at further reducing the distance to 250 km in the next four years (Keller, 2013).

1. Optimization of route planning

The biggest fleet owned by Nestle is located in the United States. The company transports and distributes water and frozen products directly to homes, offices and stores. The direct store delivery services for ice cream and pizza in the U.S. has been revised for the purpose of optimization. The approach is focused on identifying new routing and distributing concepts, saving the fuel consumed by 3.7 million litres per annum and optimization of the delivery distance (Christopher, 2011). 

Conclusion

As stated in the paper, transport and distribution refer to delivery of materials and products to businesses, consumers, and government officers. Transporting and distribution entail coordination of trained workers, distribution management, and warehousing. It is a system that involves several stakeholders such as planners, transport managers, trained employees, and carriers among others. The transportation and distribution system used by the Nestle Corporation as proved to be as efficient and effective as possible (Nestle Company, About Us, 2016).

Nestle has invested in several projects and programs in the attempt to improve the standards of its transport system by reducing the operating costs, reduction of carbon dioxide emission and increase efficiency (Nestle Company, Transport and distribution, 2016). To improve the effectiveness of its transportation and distribution systems, Nestle has taken the following initiatives; first, optimized the utilization of vehicle capacity, other, cut on its cost and environmental pollution by eliminating empty trucks, Third, improved on its distribution networks, and Last, it has optimized on its route planning.

References

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