Ever wondered how that delicious chocolate bar ended up in your hands? That journey, my friend, is thanks to the magical, albeit sometimes messy, world of the supply chain.
What’s a supply chain?
A supply chain is essentially the journey of a product from the farm to the factory and finally to your table, involving suppliers, manufacturers, distributors, and retailers. It’s like a relay race where every runner must pass the baton smoothly to keep the race going. If one runner stumbles, the whole team can fall behind.
Now, consider Nestlé, the global food and beverage giant, as the coach of a superstar relay team. Nestlé’s supply chain management encompasses various initiatives, including direct collaboration with farmers, implementation of sustainable practices, and the use of cutting-edge technology.
These initiatives aim to improve the quality of ingredients, enhance the lives of farmers, and ensure the smooth functioning of the supply chain.
However, even the most well-conducted symphonies can hit a sour note. Nestlé has faced its share of supply chain issues. Yet, within these challenges lie valuable lessons for small business owners to improve their businesses.
A Harvard Business Review study analyzed 180 companies over 18 years and found that those with robust sustainability practices outperformed their peers financially. The research highlighted that companies prioritizing sustainability not only enhance their brand reputation but also achieve better long-term financial results.
So when you understand how Nestlé navigates and resolves its supply chain hurdles (as we will discuss), small businesses can apply these strategies to enhance their own operations, ultimately improving growth and revenue.
Challenges in Nestlé Supply Chain and How It Manages Them
Even the best teams hit a rough patch. Nestlé has faced its share of supply chain challenges but within these hiccups lie valuable lessons for solopreneurs and small business owners.
Let’s explore how understanding Nestlé’s supply chain hurdles can help your business thrive.
Ethical and Sustainability Issues
So, Nestlé found itself in a bit of a sticky situation. People started pointing fingers at them, saying they weren’t being very nice to the environment or the people who grow their stuff. It was like a bad case of the Monday morning blues, but on a global scale.
Let’s see how the company resolved some of these issues and how you can apply some of these principles to your small business to overcome your challenges as well.
Child Labor and Fair Wages:
One of the biggest headaches for Nestlé was the whole child labor thing.
Imagine finding out your favorite chocolate bar might have been made by kids who should be in school. Yikes! Turns out, some of the cocoa farms they used had kids working instead of going to class. Not cool, right?
Recent reports have highlighted the prevalence of child labor on cocoa farms in West Africa, where many suppliers source their cocoa.
To fix this, Nestlé came up with some clever plans. They wanted to make sure kids were in school, not on farms, and that the farmers were getting paid a decent amount. So, they created this thing called the “income accelerator program.” It’s like giving farmers bonus points for sending their kids to school. Pretty smart, huh?
The program offers cash incentives for activities such as enrolling all children in the household between the ages of 6 and 16.
Nestle launched an ad against Child labor and showed its ethical sourcing practices in this video on its website.
The program also offers financial incentives for the farmer’s spouse, who is typically responsible for household expenses and childcare. By dividing the payments between the farmer and the spouse, the program helps empower women and improve gender equality.
Payments to farmers are made via secure mobile transfers, ensuring traceability and timely support during critical periods like the back-to-school season.
The program was successful in Côte d’Ivoire and is being expanded to eventually reach all cocoa-farming families in Nestlé’s supply chain by 2030.
Deforestation-Free Supply Chains:
Nestlé aims to achieve deforestation-free supply chains for commodities such as meat, palm oil, and cocoa by 2025.
This includes its commitment to reforestation. The company plans to plant 200 million trees by 2030 and invest in landscape initiatives to restore degraded lands. These efforts are designed to mitigate climate change impacts and enhance biodiversity, contributing to a more sustainable sourcing model.
Regenerative agriculture practices:
Nestlé recently announced its plan to invest $1.3 billion over the next five years to support regenerative agriculture across its supply chain, aiming to improve soil health, enhance biodiversity, and increase yields.
Regenerative agriculture is a farming technique that aims to protect natural resources and restore farmland while drawing down carbon dioxide from the atmosphere and reducing greenhouse gas emissions; this is important because Agriculture accounts for nearly two-thirds of Nestlé’s total emissions.
Nestlé started this initiative by investing in its Digiorno pizza wheat supply chain. This initiative involves providing financial support and technical assistance to help wheat farmers adopt practices like planting cover crops, reducing tillage, and minimizing pesticide use.
The initiative is expected to enhance farming practices across over 40,000 hectares of farmland, which is significantly more than the land required for wheat production for Digiorno pizzas.
A 2024 report shows the company has since achieved a 13.5% reduction of its greenhouse gas emissions since 2018, from this initiative and aims for a 20% absolute reduction in greenhouse gas emissions by 2025, demonstrating a commitment to decoupling business growth from environmental impact.
Nestle GHG Emissions removal rate and percentage net reduction since 2018 [Source: Nestle]
Nestlé’s recent investments in regenerative agriculture practices within its coffee supply chain resonate with the growing consumer demand for sustainable products; this offers a valuable lesson for entrepreneurs about adapting to evolving consumer preferences.
Partnerships that matter:
To reduce its carbon emissions, Nestle implemented a “no vehicle leaves empty” policy in its logistics operations, which includes collaborative distribution in sharing transportation resources with other companies to optimize truck space and reduce empty journeys.
This collaborative initiative has led to a 63% reduction in the number of trucks on the road and a significant decrease in carbon emissions associated with transportation.
Nestlé’s partnerships with organizations like the Rainforest Alliance are integral to promoting sustainable sourcing practices and enhancing the company’s environmental and social impact in diverse ways.
First, Nestlé collaborates with the Rainforest Alliance to promote sustainable agriculture practices, particularly in the sourcing of cocoa, coffee, and tea. This involves data-powered monitoring and evaluation of field programs and training farmers in environmentally friendly farming techniques that enhance productivity while conserving biodiversity which helps improve the livelihoods of farmers by increasing yields and ensuring fair labor practices.
Secondly, products that meet the Rainforest Alliance’s rigorous environmental, social, and economic criteria receive certification. This certification signals to consumers that the products are sourced sustainably.
The certified products command a premium price, benefiting farmers and producers while also helping Nestlé build consumer trust and brand loyalty by demonstrating a commitment to sustainability.
These forms of Nestle’s collaborations offer entrepreneurs insights into building mutually beneficial partnerships with like-minded organizations that can amplify their impact and provide access to expertise and resources.
Transparency and Traceability
Nestlé, like many large corporations, has faced significant criticism over its sourcing practices.
These backlashes have been instrumental in driving the company towards greater transparency and traceability.
Palm Oil Sourcing Controversies:
Nestlé faced intense criticism from Greenpeace for its ties to Sinar Mas, a palm oil supplier linked to deforestation and habitat destruction in Southeast Asia. The backlash was fueled by a viral campaign that highlighted the environmental damage caused by palm oil production, which included graphic comparisons of consuming Kit Kat bars to harming orangutans.
In response to the backlash, Nestlé committed to a zero-deforestation policy and partnered with The Forest Trust to develop Responsible Sourcing Guidelines. This partnership aims to assess supplier performance and provide technical support to those not meeting sustainability standards.
Nestlé also suspended purchases from Sinar Mas and other suppliers implicated in deforestation, with a goal of sourcing 100% sustainable palm oil by 2015, which has since been updated to reflect ongoing progress.
Nestlé increased transparency by publicly disclosing its list of direct suppliers and palm oil mills. The company uses satellite monitoring technology and geolocation data to track land-use changes and ensure compliance with sustainability standards.
It also works with certification bodies like the Roundtable on Sustainable Palm Oil (RSPO) to ensure its palm oil is sourced sustainably and adheres to environmental and social criteria.
Water Extraction Issues:
In California, Nestlé faced protests over its water extraction practices during severe drought conditions. Activists argued that the company’s bottling operations exacerbated water scarcity, particularly as it sourced millions of gallons from public land for its bottled water brands. Concerns over water scarcity and corporate greed were raised.
To address concerns over water extraction, the company has committed to responsible water stewardship, which includes working with local communities to ensure sustainable water use by investing in projects that improve water access and quality for local communities.
Nestlé has also donated bottled water to communities facing water crises, such as Flint, Michigan, to improve its public image and demonstrate corporate responsibility.
It also publishes detailed water usage reports and participates in initiatives like the CDP Water Disclosure Project to provide transparency and accountability in its water management practices.
Infant Formula Marketing Practices:
Nestlé has been criticized for aggressive marketing of infant formula in developing countries, particularly targeting vulnerable populations; undermining breastfeeding, and contributing to infant mortality. These accusations of unethical marketing practices led to global outrage and calls for boycotts.
In response to this, the company committed to adhering to the World Health Organization’s (WHO) Code of Marketing of Breast-milk Substitutes. It also implemented stricter marketing guidelines and ethical sales practices and supported breastfeeding promotion and education programs.
This shows small business owners that delayed response to public concerns can worsen a situation. It also shows transparency in sourcing practices is crucial for building trust with consumers and stakeholders.
According to research from MSCI, companies with higher environmental, social, and governance (ESG) ratings tend to have lower costs of capital. This indicates that investors perceive these companies as less risky, which can lead to improved financial performance over time.
This shows that there is a need for entrepreneurs to ensure that their supply chains are ethical and sustainable to prevent any backlash that may tarnish the image of their small businesses.
Leveraging Technology for Transparency:
Beyond these specific issues, Nestlé has also invested in technology and data analytics to enhance supply chain visibility.
Nestlé uses digital tools like blockchain technology to improve traceability by combating issues like counterfeit products and ensuring transparency in its supply chains. This technology allows the company to track products from farm to shelf and share information with consumers.
It has partnered with OpenSC to pilot a blockchain platform that allows consumers to trace the journey of food products from farm to plate. This pilot focuses initially on dairy products sourced from New Zealand, with plans to extend the technology to track palm oil sourced from the Americas.
The use of blockchain’s immutable ledger ensures that each product is sourced ethically and that counterfeit items do not enter the supply chain. The technology allows for a transparent record of every transaction and movement within the supply chain, which is crucial for maintaining product integrity and consumer confidence.
The goal is to provide verified sourcing and sustainability information to consumers, enabling them to make informed choices about the products they purchase.
This use of technology offers entrepreneurs a real-world example of how emerging technologies can be leveraged to enhance supply chain efficiency and transparency.
Takeaways
Nestlé’s sustainability initiatives suggest that ethical and sustainable practices are not merely about compliance or corporate social responsibility; they are strategic assets that can lead to enhanced reputation, customer loyalty, and ultimately, better financial performance.
A study showed that companies like Unilever, which have integrated sustainability into their core business strategies, have not only improved their brand image but also opened up new market opportunities. This proactive approach to sustainability has driven long-term growth and reduced operational costs.
For entrepreneurs and small business owners, adopting these practices can be a pathway to sustainable success and competitive advantage in the marketplace.
