TPT 550 Ass 1
TPT 550 Ass 1
TPT 550 Ass 1
INDIVIDUAL ASSIGNMENT:
NESTLE CASE STUDY
PREPARED FOR:
DR SHAHRIN NASIR
PREPARED BY:
GROUP:
BA2474A
SUBMISSION DATE:
20/11/2023
ANSWER
1. What is a ‘supply chain’? Who is involved in the supply chain?
In this context, the supply chain for coffee includes various steps, including
growing, processing, and distribution. It is very important for a company to understand
the importance of supply chain since it is one of crucial steps in performing external
analysis of strategic planning process. In this case study, Nestle has three steps in the
coffee supply chain: growers, intermediaries, and processors. Growers are small-scale
farmers who produce coffee plants, harvest cherries, and prepare coffee beans. Many
coffee growers also perform some basic processing on their own, such as drying or
hulling the beans. The second stage is intermediaries where they may purchase coffee
between the cherries and the green beans, handle primary processing, or gather coffee
from many growers and sometimes transporting or selling goods to a processor,
another intermediary, or a dealer. Processors are involved in the third and the last
stage. Processors are responsible for processing green coffee beans into the
completed product that is sold to consumers. Roasting, grinding, and packing the
beans were involved to finish the product before selling it to the end users. There are
various other parties involved in the coffee supply chain including government
agencies, exporters, dealers/brokers, roasters, and retailers. Each level of the supply
chain is critical in ensuring that the coffee is of good quality and meets consumer
needs.
Fair trade is a system that seeks to ensure that farmers and workers in developing
nations receive fair wages for their goods and services. Fair trade groups assist small-
scale farmers and producers in gaining market access and receiving a fair price for
their products. Consumers may contribute to promoting sustainable development and
decrease poverty in developing nations by supporting fair trade. Fair trade also
encourages social and environmental norms such as safe working conditions and
environmentally friendly farming practices. Fair trade groups and enterprises
collaborate to create markets and collaborative trade relationships between producer
organizations and businesses. Fair trade aims to provide current generations with the
ability to meet their needs without risking future generations' ability to meet their own.
There are several ways that consumers can benefit from doing fair trade based on
supply chain. For an example, consumer connection on a certified product will be more
likely to that specific product since they have been aware and educated by the existing
products, suggest a preference for businesses that promote safety, ethics, and
sustainability which indicating the value and importance of third-party certifications.
Based on the article, Nestle is also involved in fair trade among the workers.
Nestlé supports coffee producers to ensure that they receive a fair price for their
product. This ensures that farmers may continue producing coffee and invest in
increasing yield and quality, ensuring the supply of high-quality coffee that firms like
Nestlé require. Besides that, Nestlé's direct purchasing commitment extends beyond
its important position as a worldwide coffee purchaser. In accordance with fair trade
principles, the company not only connects directly with coffee growers, but also
maintains a consistent policy of offering a fair price in nations where it manufactures
for export or domestic consumption. Nestlé's method provides not just a regular supply
of high-quality coffee for its own facilities, but also adds to the well-being of the farmers
participating in the production process. This can be seen where Nestlé's direct buying
policy began in 1986 and has grown steadily, with around 15% of its green coffee
purchases in 1998 being made directly. For instance, farmers in the Philippines bring
their produce to Nestlé's centers. With that being said, fair trade products may be
interesting to consumers who appreciate cultural diversity and preservation.
3. How does Nestlé help coffee growers in the developing world? Explain five
different forms of help that Nestlé gives. How might this help create a ‘ripple
effect’ in local economies?
There are five different ways that Nestle has help the coffee growers of the developing
world which can create a ripple effect in local economic:
• Through direct purchasing- Nestlé is one of the world's leading direct coffee
purchases from producers. Nestlé has a policy of buying coffee directly from
farmers and giving a fair price to guarantee consistent supplies of guaranteed
quality for its own seeds in countries where it also manufactures for export or
local consumption. They are willing to pay a high amount for coffee from
farmers since good quality raw materials are essential to its business. Direct
purchasing creates opportunities for local coffee growers as they can increase
their coffee market price. In 1998, around 15% of Nestlé's green coffee
purchases were bought directly from coffee farmers.
• Training and education- Nestlé offers coffee growers training and education on
sustainable farming practices, quality control, and other issues that might help
them enhance the quality and yield of their products. This help not only benefits
individual farmers' livelihoods but also contributes to the overall productivity of
the local coffee sector. On May 19, 2021, where The Technical Education and
Skills Development Authority (TESDA) and Nestlé Philippines announced a
collaboration to upskill agricultural workers and trainers through the TESDA-
registered Coffee Production Level II Program and Scholarship. This
progressive Robusta coffee production training program gives prospective
entrepreneurs in agriculture, specifically smallholder farmers and indigenous
peoples, with enterprise-based competency training in coffee farming. This
helps coffee growers to manage their farming on coffee since 80% of them are
smallholders who farm three hectares or less.
By boosting the livelihoods of coffee farmers and their families, these types of
assistance can have a 'ripple effect' in local economies. Farmers can increase
their income and invest in their farms and communities when they obtain a fair
price for their coffee and are able to improve the quality and production of their
crops. This can result in more economic activity as well as better social and
environmental circumstances in the region.
4. Explain why intermediaries in the process of distribution help to both lower and
increase the final price of goods.
Intermediaries in the distribution process may lower and increase the final selling price
of products. Intermediaries can assist in lowering the final price of goods by providing
services such as transporting goods, storage, and processing, which can help
producers cut expenses. Intermediaries, for example, can help to aggregate coffee
from many farmers, lowering transportation expenses. They can also offer processing
services, like roasting and packing, in order to add value to the product and make it
more appealing to consumers. However, intermediaries can also increase the final
price of goods by adding their own markups to the price of the product. This can
happen when intermediaries buy things at a cheap price from producers and then sell
them at a higher price to retailers or consumers to earn a profit. Supply and demand
components can also influence the final price of commodities.
5. What do you understand by the concept of ‘value’? What aspects of the coffee
supply chain enhance the ‘value’ that the customer receives in making
purchases?
There are various factors in the coffee supply chain that might increase the
value that the consumer receives when making purchases. The quality of coffee beans,
for example, can have significant effects on how people think of the product.
Customers are more likely to pay more for high-quality coffee that has a rich flavor and
aroma. Furthermore, the process in which the coffee is prepared, packaged, and
marketed can increase its worth. Customers may be willing to pay extra for coffee that
is sustainably sourced, organic, or fair trade, for example, because they believe it to
be more socially responsible. Besides that, the availability of product information,
including its origin, flavor profile, and brewing suggestions. Furthermore, the simple
nature of acquiring the coffee, such as the availability of online ordering and home
delivery, might add to its value.
6. How might growers in the developing world benefit from selling direct to Nestlé?
Growers in the developing world can benefit from selling direct to Nestlé in several
ways. To begin with, by selling directly to Nestlé, growers may obtain a fair price for
their coffee beans, allowing them to improve their livelihoods and support their families.
Nestlé is known for paying farmers a fair price, which can assist to secure consistent
supplies of high-quality coffee beans for its operations.
Direct sales to Nestlé can also help ease the supply chain by reducing the
involvement of intermediaries. The elimination of intermediaries not only reduces
expenses but also improves overall efficiency. This simplified approach is especially
beneficial for small-scale farmers who may struggle to navigate the complexities of the
supply chain on their own.
Finally, selling directly to Nestlé can help growers achieve greater stability and
security by ensuring a consistent market for their coffee beans. This can help reduce
the risks associated with market price and demand variations. This can be proven by
the fact that the coffee-growing industry is labor-intensive, and an estimated 60 million
people make all or part of their living from it, accounting for 1% of the world's
population.
Overall, selling direct to Nestlé might be a good alternative for producers in the
developing countries since it can help them get better prices, more efficiency, and more
market stability.
7. Why might it be impractical for Nestlé to make all of its purchases of coffee direct
from growers?
It might be impractical for Nestle to make a direct purchase of coffee through coffee
growers. First and foremost, it will affect the quantity and the consistency of the coffee.
This can be proven by Nespresso in their quality and sustainability section where it
shows the one of the factors that manufacturers of agricultural goods resource faced
off is the difficulty in presenting a consistent finished product year after year. This
difficulty becomes worse for food and beverage manufacturers by the subjective nature
of consumers' senses of taste and scent. Poverty, labor shortages, high input costs,
climate change, and development make it impossible for these farmers to plan for and
invest in the future.
Second, there are other ways to trade coffee that have their own advantages,
such as selling to government organizations or traditional supply chain intermediaries.
These strategies can help farmers gain market stability and security while also lowering
expenses and increasing efficiency. Thus, while direct purchase may be appealing to
farmers, it is simply one of many options available, and it may not always be fair
compared to other business strategies.
Although Nestlé has made major efforts to acquire coffee directly from growers,
it is not practical for the company to do so for all of its purchases, and other ways of
trading will continue to play an important role in the coffee supply chain.
8. How is the price of coffee determined on international markets? How does Nestlé
contribute to keeping this price up?
The price of coffee is determined on the relationship between supply and demand,
which is the amount of coffee to be sold and the amount that consumers are willing to
purchase. As such, coffee prices are decided on a daily basis on the global commodity
markets in London and New York. Coffee prices will drop if there is more available than
consumers wish to buy at current prices. In the opposite situation, if there is more
demand than supply, the price will rise. Weather conditions, political instability, and
changes in customer tastes are all variables that can influence coffee prices. Nestle
contributes to coffee price stability by paying growers a fair wage. Nestlé was a pioneer
in buying coffee directly from growers, paying them a fair price to maintain consistent
supplies of high-quality coffee beans for its factories. Nestlé may be helping to stabilize
the market and keep prices from getting too low by offering a fair price. Finally, by
trying to improve coffee farmers' livelihoods, Nestlé may be helping to ensure the
coffee industry's long-term viability. Nestlé pays farmers a fair price and tries to assure
a consistent supply of high-quality coffee beans. Nestlé may be assisting in the
creation of a more stable and sustainable coffee market, which may help to keep prices
consistent over time.