FALL 2024

Instructor: SIR SAAD WAQAS

Course: INTRODUCTION TO BLUE

ECONOMY AND GREEN (SCM)

[
National Foods Limited’s (NFL) Supply Chain
]
“An In-Depth Analysis report examining the potential for improved performance and efficiency, the
supply chain dynamics of National Foods Limited, emphasising important strategies, supplier
relationships, and distribution effectiveness”.

Group Members:
Sahil Raza 02-111221-034
Aliza Khan 02-111221-117
 Page |1

Contents
1. Executive Summary.................................................................................................................................2
2. Introduction.............................................................................................................................................3
2.1 Company Overview...............................................................................................................................3
2.2 Scope of the Report...............................................................................................................................3
 Page |2

1. EXECUTIVE SUMMARY

National Foods Limited (NFL), established in 1970, has evolved into a global leader in the food
manufacturing industry, specializing in spices, condiments, and ready-to-eat meals. With
operations spanning over 40 countries, the company generates annual revenues exceeding PKR
20 billion, with exports accounting for 25% of its earnings. NFL’s supply chain management
(SCM) framework focuses on innovation, sustainability, and operational excellence, positioning
the company as a market leader.

Mission Statement:

To deliver premium-quality food products that enhance daily life while embracing sustainable
and innovative practices.

Vision Statement:

To become a trusted global leader in the food industry by adhering to values of excellence, trust,
and sustainability.

NFL's robust SCM framework ensures seamless operations through advanced systems like ERP
and AI-powered demand forecasting. The organization prioritizes eco-friendly initiatives,
including carbon footprint reduction and eco-labeling. This report provides an in-depth review of
NFL’s supply chain structure, procurement strategies, demand forecasting processes, and use of
technology, along with actionable recommendations for future growth.
 Page |3

2. INTRODUCTION

2.1 Company Overview

Founded in Karachi, Pakistan, National Foods Limited started as a spice producer and has grown
into a multinational corporation with a diverse product range of over 250 items. Domestically,
NFL is a household name, while internationally; the brand has a strong presence in the Middle
East, North America, and Southeast Asia. NFL collaborates with more than 500 suppliers to
maintain its competitive edge in the FMCG sector.

2.2 Scope of the Report

This report delves into NFL’s supply chain structure, sustainability initiatives, technology
integration, and alignment with the organization’s strategic goals. It also identifies areas for
improvement and opportunities for long-term growth.

3. SUPPLY CHAIN MANAGEMENT

FRAMEWORK

3.1 Supply Chain Structure

Multi-Tiered Supply Chain Using the SMDRC Model

National Foods Limited (NFL) utilizes a multi-tier supply chain strategy built around the
SMDRC framework (Source, Make, Deliver, Return, and Collaborate). This model ensures that
every phase of the supply chain is well-integrated, contributing to smooth and efficient
operations:
Page |4
 Page |5

 Source: NFL collaborates with over 500 suppliers, procuring top-quality raw materials, with
70% sourced locally and 30% imported.
 Make: The Company’s centralized production facilities guarantee consistent quality and
operational efficiency.
 Deliver: Optimized distribution channels ensure timely product delivery to both domestic
and international markets.
 Return: An effective return process addresses product issues and prioritizes customer
satisfaction.
 Collaborate: Strong relationships with distributors and logistics partners help NFL forecast
demand and ensure continuous product availability.

Centralized Manufacturing in Karachi and Lahore

NFL’s production operations are centralized in Karachi and Lahore, two major industrial centers
in Pakistan. These state-of-the-art manufacturing plants are designed to maintain high-quality
standards and optimize production efficiency. Centralization allows NFL to manage production
costs effectively while ensuring consistent product quality. Combined, these facilities can
produce over 50,000 tons annually to meet both local and international demand.

Domestic Distribution to Over 50,000 Retail Outlets

With a vast domestic distribution network, NFL ensures its products reach more than 50,000
retail outlets across Pakistan. This extensive network guarantees product availability in both
urban and rural areas, boosting customer access and satisfaction. NFL relies on third-party
logistics providers to manage efficient delivery and minimize potential supply chain disruptions.

Export Partnerships with DHL for Global Logistics

For international distribution, NFL partners with DHL, a global leader in logistics and supply
chain management. DHL's broad network spans more than 220 countries and regions, allowing
NFL to efficiently export products to key international markets, including the Middle East, North
America, Europe, and Southeast Asia.
 Page |6

DHL Services for NFL:

 International Freight: Ensures smooth and timely shipment of products across borders, in
compliance with global trade standards.
 Supply Chain Management: Real-time shipment tracking and efficient handling reduce
transit times and improve customer satisfaction.
 Temperature-Controlled Logistics: Essential for ensuring the quality of perishable food
items during international shipping.

NFL's collaboration with DHL strengthens its ability to expand into global markets while
upholding product quality and delivery timelines. This partnership reflects NFL’s commitment to
maintaining operational excellence and global customer satisfaction.

3.2 SCM’s Strategic Role

Hybrid Model: Push and Pull Approaches

National Foods Limited (NFL) adopts a hybrid supply chain approach, incorporating both Push
and Pull strategies to enhance operational efficiency and responsiveness:

 Push Strategy: This approach is applied to high-demand products like spices and ready-to-
eat meals, where production is driven by demand forecasts. The aim is to maintain optimal
stock levels at retail outlets, reducing the risk of stockouts for essential items frequently
purchased by consumers.

 Pull Strategy: This strategy is used for customized and export orders, where production is
based on specific customer orders. It allows NFL to cater to regional preferences and market-
specific demands while preventing overproduction.

Strategic Alignment with Business Objectives

NFL’s supply chain strategy aligns seamlessly with its core business objectives, such as cost
efficiency, maintaining product quality, and enhancing customer satisfaction.
 Page |7

By utilizing integrated ERP systems like SAP and Oracle, NFL is able to:

 Optimize resource allocation to minimize operational costs.

 Control production and sourcing to ensure consistent product quality.

 Meet customer demands on time, improving satisfaction and fostering customer loyalty.

4. DEMAND FORECASTING

4.1 Managing Seasonal Demand Fluctuations

NFL has developed strong capabilities to manage seasonal demand spikes, particularly during
Ramadan, a period that typically sees a 30% increase in sales for products like spices and ready-
to-eat meals. To efficiently handle this surge, NFL:

 Prepares production volumes in advance by utilizing predictive analytics and historical

sales data.

 Boosts inventory levels to ensure products remain available at retail outlets during the high-
demand season.

 Collaborates with distributors to streamline logistics and avoid delays in deliveries during
peak periods.

This adaptability ensures NFL meets customer demands during peak seasons while optimizing
operational efficiency and reducing associated costs.

4.2 Strategic Fit with Global and Sustainability Goals

NFL’s supply chain is strategically aligned with its global market presence and sustainability
initiatives. Continuous improvements in processes—such as dual-fuel operations and internal
production enhancements—help ensure that the company can maintain cost efficiency while
meeting customer demands effectively.
 Page |8

4.3 Role in Operations at National Foods Limited (NFL)

National Foods Limited (NFL) utilizes advanced Artificial Intelligence (AI) systems for demand
forecasting, achieving a high accuracy rate of 92%. These AI systems allow NFL to optimize its
operations by predicting future demand, leading to better inventory management, efficient
production planning, and improved distribution strategies.

Models Used for Demand Forecasting:

NFL applies different forecasting models based on the nature of the product and market demand.
The company uses the following models to match production with actual market needs:

1. Make-to-Order (MTO):

NFL employs the Make-to-Order (MTO) model primarily for custom export products. In this
approach, production occurs only when a customer places an order. MTO is ideal for custom or
specialized products with specific customer requirements, as it avoids unnecessary inventory
buildup and ensures resources are used effectively.

For tailored spice blends or custom orders from international clients, NFL relies on MTO to
match production precisely with customer orders, ensuring efficient manufacturing without the
risk of overproduction.

2. Make-to-Stock (MTS):

For products with consistent and high demand, such as spices, NFL uses the Make-to-Stock
(MTS) approach. Under MTS, products are manufactured and stocked in advance based on
anticipated demand, which is particularly suitable for goods that have predictable, steady sales
patterns.

NFL forecasts demand for essential products like salt, spices, and sauces, ensuring that sufficient
quantities are available to meet continuous consumer demand. The MTS model minimizes the
risk of running out of stock and allows the company to efficiently manage production schedules.
 Page |9

3. Assemble-to-Order (ATO):

The Assemble-to-Order (ATO) model is used for seasonal and promotional product bundles
Components for these products are produced in advance, and the final assembly happens when
the order is placed. This strategy works well for limited-time offers or seasonal promotions, such
as during festive periods.

For limited-time product bundles, like Ramadan special offers, NFL uses ATO to assemble
items like spices, sauces, or rice into promotional packages based on customer demand. This
method allows NFL to respond quickly to increased demand without overproducing components.

4.4 Forecasting the Surge in Ramadan Sales

NFL’s AI system successfully predicted a 30% increase in demand during the Ramadan period.
The company anticipated the seasonal spike and took proactive steps to ensure the necessary
inventory was available.

Actions Taken:

Accurate Demand Prediction: Using historical data, seasonal patterns, and market trends, NFL
forecasted a significant uptick in sales during Ramadan.

Inventory Preparation: Based on the forecast, NFL ensured sufficient inventory was in place
by increasing production, acquiring additional raw materials, and pre-packing products for quick
assembly and distribution.

Efficient Distribution: NFL also coordinated logistics to make sure products reached retailers
and consumers on time, avoiding delays and stock outs.

Thanks to the accurate prediction, NFL was able to meet the demand effectively and capitalize
on the sales opportunities during Ramadan.
 P a g e | 10

4.5 Benefits of AI in Demand Forecasting:

High Forecast Accuracy: The 92% accuracy rate in predicting demand enables NFL to
minimize errors in inventory management; ensuring products are available when needed without
surplus stock.

Cost Savings: The ability to forecast demand accurately helps NFL manage inventory costs by
preventing overproduction and reducing storage expenses.

Customer Satisfaction: By ensuring the availability of products during key demand periods,
such as Ramadan, NFL strengthens customer satisfaction and loyalty.

Operational Flexibility: AI-driven forecasting enables NFL to quickly adjust production and
distribution strategies based on shifts in market conditions or consumer preferences.
 P a g e | 11

5. PROCUREMENT PROCESSES AT NFL

Procurement is a critical function within National Foods Limited (NFL), responsible for
acquiring the right materials at the best possible prices while maintaining high quality and
ensuring smooth production and distribution. Below is an in-depth explanation of NFL’s
procurement processes, including the various key practices and their applications.

5.1 Key Procurement Practices

NFL’s procurement practices are designed to ensure that raw materials, packaging, and other
necessary goods are sourced efficiently and at the most competitive prices, while also
considering factors like quality, delivery times, and cost control.

Spending Structure:

NFL’s spending structure is a key aspect of its procurement process:

 Raw Materials: The largest portion of NFL’s procurement budget, approximately 80%, is
allocated to raw materials. These materials form the backbone of NFL’s product offerings,
including spices, grains, and other essential ingredients.

 Indirect Costs: The remaining 20% of expenditures are allocated to indirect costs, such as
packaging materials (e.g., bottles, boxes, bags), utilities (water, electricity), and other
overheads that support the production and distribution processes.

This structure highlights NFL’s emphasis on ensuring a stable and cost-effective supply of raw
materials to meet both production needs and quality standards.

Local vs. Imports:

 70% Local Sourcing: NFL sources 70% of its raw materials locally. This decision reduces
reliance on international markets, mitigates risks related to foreign exchange fluctuations,
 P a g e | 12

and supports the local economy. Local sourcing allows NFL to maintain closer relationships
with suppliers, ensuring quality control and shorter lead times.

 30% Imported Sourcing: NFL imports 30% of its raw materials from international suppliers.
While these materials might offer unique qualities or be unavailable locally, international
procurement brings certain challenges like currency fluctuations and extended lead times. To
manage this, NFL uses Incoterms (International Commercial Terms) to clarify roles and
responsibilities in shipping and customs processes.

Challenges and Mitigation:

 Import Delays: One of the significant challenges NFL faces is import delays, especially
due to issues related to Letters of Credit (LCs). LCs are documents issued by banks to
guarantee payment in international transactions. Delays in LC processing can impact the
timely arrival of imported materials, which in turn affects production schedules.

 Mitigation Strategy: NFL has effectively mitigated these delays by strengthening

relationships with local suppliers. By increasing local sourcing and negotiating with
trusted local suppliers, NFL can avoid potential delays related to international trade and
shipping.

Incoterms:

NFL uses CIF (Cost, Insurance, and Freight) terms when sourcing imports. The CIF Incoterm
means that the seller (the supplier) is responsible for the costs, insurance, and freight required to
bring the goods to the port of destination. This practice helps NFL manage logistics costs and
ensure timely deliveries, as the seller is accountable for a portion of the shipping process until
the goods reach the destination port.

By opting for CIF terms, NFL effectively controls a significant part of the logistics process,
reducing the risk of unforeseen charges or delays during international shipments.
 P a g e | 13

5.2 Role of Procurement at NFL

Procurement at NFL is a strategic and multi-dimensional function that not only focuses on
sourcing but also plays a key role in controlling costs, ensuring high product quality, and
maintaining operational efficiency. Below are the core roles and applications of NFL’s
procurement processes:

Purchase Spend (Direct and Indirect):

 Direct Spend: A majority of NFL’s procurement budget is spent on direct materials, which
include raw ingredients and packaging materials. This direct spend is critical for production
and directly impacts the cost of goods sold (COGS). NFL continuously works with suppliers
to negotiate prices, ensure quality, and maintain competitive lead times.

 Indirect Spend: While indirect spending is only 20% of the total budget, it is still vital to
maintaining NFL’s operational efficiency. Indirect procurement includes sourcing utilities,
services, and equipment that support the production process.

Direct and Indirect Procurement:

 NFL manages both direct and indirect procurement effectively, ensuring that the goods
required for product manufacturing are procured at the best prices, while also securing
necessary indirect items (such as machinery or packaging) that help run operations smoothly.

Centralized vs. Decentralized Procurement:

 Centralized Procurement: NFL’s procurement process is largely centralized. This means
that decisions regarding sourcing and procurement policies are made from a central location,
typically the corporate headquarters. Centralization allows NFL to standardize procurement
procedures, negotiate better bulk deals, and ensure uniform quality across all manufacturing
facilities.

 Decentralized Procurement: Though procurement is centralized, NFL does allow flexibility

in certain regions or plant locations where local needs may require faster decision-making.
However, the centralized strategy helps keep costs down and ensures that the company’s
procurement practices remain consistent.
 P a g e | 14

Importance of Procurement:
Procurement is a cornerstone of NFL’s operations, impacting everything from production quality
to cost efficiency. The procurement team works closely with manufacturing, logistics, and
finance departments to ensure that the company has the materials it needs, at the right price, in
the right quantity, and delivered at the right time.

Procurement ensures that NFL can maintain its competitive edge in both local and international
markets. By building strong relationships with suppliers and diversifying sourcing strategies,
NFL minimizes risks and maximizes value from its procurement activities.

5.3 Application of Procurement Practices:

1. Vendor Management: NFL’s procurement team works to ensure that it has a strong
portfolio of suppliers, including local and international vendors, to meet its diverse needs.
Vendor management is essential to maintaining long-term relationships, negotiating
favorable terms, and managing risks such as quality fluctuations or delivery delays.

2. Cost Control: By managing both direct and indirect procurement expenditures effectively,
NFL ensures that it can maintain profitability while still delivering high-quality products to
consumers. The careful balance between local and international sourcing helps optimize costs
while minimizing potential disruptions from external factors.

3. Risk Mitigation: Procurement at NFL also focuses on risk management. By diversifying its
supplier base and implementing strategies such as CIF Incoterms, NFL can mitigate risks
related to currency fluctuations, delayed shipments, and other external factors. Strengthening
local supplier relationships also reduces reliance on imports, which helps the company
manage the risks associated with international procurement.

4. Technology Integration: NFL employs procurement technologies and platforms to

streamline the sourcing process, track supplier performance, and automate aspects of the
purchasing cycle. This leads to better decision-making and enhances overall supply chain
visibility.