Xavier institute of management, bhubaneswar

Global Sourcing & Lean Material Management Assignment

Cases: Nestle and Levis Strauss

SUBMITTED BY Group 17

Abhimanyu Chundawat U113061Rosali Priyadarshani U113083Samyak Sabat U113167Stalin Mohapatra U113223

Case 1 - Nestle: Agricultural material Sourcing within the concept of Creating Shared Value (CSV)

1. If you were Hans Johr, how would you present the trends and issues outlined in the case to Nestls board of directors?

Nestle as a company insists on honesty, integrity and fairness in all aspects of its business and expects the same in its relationships. This has earned it the trust and respect of every strata of society that it comes in contact with. So all these trends and issues should be addressed keeping in line with these factors. The Company has undertaken to impact three of the worlds most urgent challenges nutrition, water & rural development. So Hans Johr as corporate head of agriculture should address the issues so that it should align with his teams effort in sustainable agricultural sourcing. Few of the issues/questions which Hans Johr will put before Nestls Board of directors are: How to Ensure that the raw materials used for production are safe and of high quality and sustainably, economically and ethically produced. How to engage with various stakeholders like suppliers, customers, etc. Identifying current Global trends like food security and linking the same to its business model. Effective use of technology in each process of its supply chain. Utilizing the limited resources available Adapting to diverse consumer demands Integrating Sustainable end ethical practices in its business model and aligning these with its core philosophy

2. As Hans Johr, how do you find independent evaluators of the potential conflicts of interest that are likely to occur when a company involved in producing any food or beverage ingredient, such as Nestle, takes an active role in addressing the overall nutritional needs of the consumers?

Nestle as a company will be facing conflicts while addressing the overall nutritional needs of the consumers. The nutritional issue is of utmost importance as it addresses two of the most global concerns i.e. malnutrition and obesity. Nestle has invested in creation of Nestle Health Science S.A & Nestle Institute of Health Sciences to target new opportunities at the intersection of food & pharma industries. These creations are called Nutraceuticals and it focused on personalized health science nutrition. Nestle focused not only in extending the consumer lives but also to sustain quality of those lives. So the concerns it had to manage in order to minimize the conflicts are the effective and judicious use of natural resources so that sustainable growth is achieved without jeopardizing the natural capital. Nestle focused on creating shared value. Nestle purchases 10% of the Worlds Coffee and Cocoa Production. Thus by this they were directly related to the functioning of the ecosystem and committed towards healthy environment. The issues it was facing with respect to agriculture were climate change & Deforestation. So Hans Johr tried to handle these issues as conflicts were arising. He initiated the SAIN program at Nestle and Farmer connect Scheme by which they could connect with almost all intermediaries and were directly or indirectly responsible to them. The direct relationship allowed Nestle to require more responsible production methods. Eg. Rainforest Alliance & SAN principles. Nestle provided agricultural training to increase the sustainability of farmers Production and to support those activities Nestle cocoa plan was designed.

3. How does Nestle find independent not-for-profits active in health, nutrition, and economic development to partner with, without being accused of trying to gain undue influence in the decision making process o such consumer activist groups? Independent NGOs would help NGO to penetrate deep into the markets and the supplier regions of Nestle. This would help Nestle to gain control on its supplier and closely monitor them. This would help a lot in context farming where questions are raised about the water conservation of not only the company but also of its suppliers. To help find these independent non-profits, Nestle could select specific locations where the supplier is based and select NGOs whose values are aligned with that of Nestle. Nestle could also partner with NGOs in it sustainable and giving back to the society venture where it would be a win-win situation for both. However, the partnership should be mutual since NGOs are not profit oriented .For this, Nestle should set clear guidelines and visionary for partners who would be interested to join. Moreover the policies for performance and compliance orientation should be laid before in order to ensure the NGOs are on track with their commitment and the partnership continues to be mutually beneficial for both.

4. What is the best way for Nestle to use the latest technology in improving the management of human, land, and water resources across its operations and supply chain?

Nestle should use the latest technology to track the water usage of its company as well its suppliers water footprint. This is of utmost importance in case of context farming. It should also use the latest of technologies to communicate the same to its stakeholders and ensure all the rules are fair and equitable. The technology can be hugely beneficial to instill the accountability as well instill the concept of preservation throughout the company. For the company to be sustainable, the collaboration across the suppliers and the company needs to be strengthened and the latest technology will just bring about the alignment. Nestle can use/suggest the latest of technologies like crop intensification; distribute the drought and insect tolerant seeds to suppliers for coffee etc. The technologies can also be used to maintain and audit the quality of milk across the globe. Other latest technologies like micro irrigation, organic farming will go a long way for water and land preservation. These technologies would also enhance the nutritional benefits of the food and ensure the health aspect that Nestle is committed to.

5. How does Nestle position itself in the future global food system?

6. How does taking a systemic approach impact Nestles future strategy?

7. How does a health a wellness focus impact Nestles future strategy?The key issues that need to be addressed keeping Nestls future strategies are production systems and methods, measurement of impact, people development and maintaining competitiveness. To have sustainable and ethical agricultural production, Nestle encouraged good agricultural practices among its upstream producers. A major challenge across the industry was to communicate these standards to consumers. Companies, consumer advocacy groups, and environmental organizations had different standards and metrics, and many had ways to signal their commitments to the market. For Nestl, one of the key elements of sustainability was that production needed to be environmentally sound, but also economically viable for the producer over the long term. The economic viability of producing Nestls materials was among the companys sourcing concerns. Ethical production practices in agriculture were focused primarily on fair and safe labor conditions for agricultural workers. A fundamental quality of Nestls CSV approach is that it pursued sustainability at multiple levels: among communities through its Farmer Connect program, in its own operations through Responsible Sourcing and other commitments, in its industry through pre- competitive agreements, and in policy via public sector collaboration. Nestls cross-sectorial collaboration reflected a growing willingness to engage in innovative partnerships and multi stakeholder platforms to pursue systems-level change. Experts were calling on a diverse set of private, public and civil society stakeholders to gather around the major challenges on the horizon and devise systems-level solutions. Issues like water scarcity, droughts risk management, and chronic disease were not problems that could be solved with a piecemeal approach.

8. How does Nestle relate its leadership in the chocolate, dairy, and coffee industries to the sustainability and health priorities of the company?Nestle was always partnering with farmers and Hans Johrs team had already initiated the Sustainable Agricultural Initiative at Nestle (SAIN). Hans Jhrs Farmer Connect activities were structured around Nestls highest-volume agricultural materials: coffee, cocoa, and milk but also vegetables and grain. The team had constructed plans, targets, and tools for more sustainable sourcing in each of these value chains. These activities fell under several additional corporate initiatives e.g., the Nescaf Plan, the Cocoa Plan, and the RISE tool for dairy production. Nestl sought to double the amount of Nescaf coffee the company bought directly from producers, seeking to reach 170,000 farmers by 2015. Eighty percent of these would be smallholders. The direct relationship with producers allowed Nestl to require more responsible production methods: the company had committed that by 2015 all coffee sourced through Farmer Direct would meet the 4C code of conduct, a basic set of sustainability standards. Nestl provided agricultural training, plus it distributed high-yield, disease-resistant coffee plantlets. These Plan activities were designed to increase the viability and sustainability of farmers production: improved agronomic practices would increase productivity while protecting the local ecosystem, and the plantlets replaced old, less productive trees. The company estimated that its investments in such coffee projects would total CHF 500 million by 2020.The Nestl Cocoa Plan was also designed to support farmers sustainable production practices. The Plan had three pillars: eliminating child labor in Nestls cocoa value chain, sustaining cocoa supply into the future, and ensuring farmers had a sustainable income. Nestl had partnered with the Fair Labor Association to adopt a zero-tolerance policy for child labor in its cocoa supply chain.While Nestls dairy activities did not have a consumer-facing plan, they were designed to protect producers and the environment with the help of a tool called the Response-Inducing Sustainability Evaluation (RISE). RISE was a diagnostic tool, developed and owned by the Swiss College of Agriculture, to identify economic, social, and environmental areas for improvement on dairy farms. it was less important that a particular source of milk be communicated to consumers than it was to help farmers eliminate unsustainable practices. Milk had not attracted many consumer concerns for sustainability, though its compliance with safety regulations and quality assurance was well monitored.

Case 2- Levi Strauss & Co.: Global Sourcing (A) & (B)1. How attractive is China as a business opportunity? As a member of the China Policy Group what would you recommend and why regarding (a) continued sourcing and (b) possible direct investment in manufacturing or marketing ventures in China?We would recommend sourcing and contract manufacturing in China subject to meeting the stringent terms and conditions laid down by Levis code of ethics and supplier code of conduct (Business Partner Terms of Engagement).China cant be ignored as far as sourcing is concerned because it offered economies of scale. However sourcing in China may also affect the companys brand image and consequently the demand for its product in developed world. Therefore Levis needs to impose high standards while selecting suitable suppliers.Levis should however, avoid direct investment in manufacturing and marketing in China. The reasons for this are as under Chinas outmoded infrastructure and tariff made transportation of goods across vast distances expensiveChina did not offer a unified market. Tastes, preferences and buying power varied across regionsThe distribution systems were chaotic and inefficientHigh inflation levels meant very high property prices which increased the cost of doing business. Stationing Americans in China was expensiveRestrictions on imports and currency convertibility posed serious challengesThe legal framework was weak and there was also a threat of political instability

2. What is your assessment of LS&COs global sourcing guidelines?LS&COs global sourcing guidelines were very comprehensive and involved multiple stakeholders both in developing and enforcing the guidelines. The sourcing guidelines developed a set of standards to ensure that Levis products were made in a manner consistent with its vision, mission and ethical code of conduct. Thus it protected companys brand image. The main features of these guidelines were-The guidelines were drawn after much deliberation. The discussions involved multiple stakeholders (both internal and external), several cross functional teams which deliberated on full range of sourcing issues. This ensured that the guidelines were comprehensive and adopted a multi stakeholder view of the sourcing process.The guidelines addressed multiple issues involving supplier standards. Employee exploitation, brought to light by the Saipan incident, was given special focus.Guidelines were developed in two parts Business partner terms of engagement focusing on suppliers and Guidelines for county selection. These ensured that not only introduced new criteria for supplier selection but also introduced new standards for choosing a sourcing country.Exploitative regimes were discouraged from exploiting workers by Levi. The guidelines served as a guiding light for the company to withdraw from countries which were found violating the ethical standards.The guidelines ensured that strict supplier selection process was in place to meet environmental, ethical, health and safety requirements. Additionally they ensured that legal requirement and working standards consistent with global operations were met

3. What kind of guidelines would you propose for continued involvement in China? Some of the proposed guidelines for continued involvement in China: Address the human right in a very responsible manner Taking care of the employers and the community they stay in Providing minimum health insurance policies to the employee Ensure child labor is not tolerated in any form Ensure a percent of the companys investment is put into infrastructure The company should have its the required licenses and policies compliant to the government to prevent hassles later Should have sufficient policies for protection of intellectual property rights The company should clearly mention the zero tolerance policy for bribery, corruption

4. How vulnerable is LS&CO, to the charge of moral imperialism? As mentioned in the case earlier, LS&CO clearly thrusts importance on its values. Since LS&CO looks to expand its business across global boundaries, its also of paramount importance to maintain strict guidelines with its sourcing partners and suppliers so as to preserve its values as they set to deal with diverse cultures and backgrounds. Moreover, it also brings all the suppliers across the world to a common platform and makes it easier for LS&CO to evaluate all the suppliers. This will help LS&CO to take smart sourcing decisions thereby protecting its heritage, maintaining its image across the globe and its commercial success. It may be vulnerable to charges of moral imperialism by its competitors but is definitely beneficial for the company in the long run.

5. What is your assessment of LS&COs final decision on China?

6. What is your assessment of the process used to make the decision?7. How may Haass concerns differ from CPGs concerns?In 1987, under Haass leadership, LS&CO. adopted a Mission and Aspirations Statement to communicate where we wanted to go and how we wanted to behave. Senior management defined the companys mission as responsible commercial success, which was operationalized as consistently meeting or exceeding the legal, ethical, commercial, and other expectations that society has of business. In 1991, LS&CO. introduced a values-driven, principled approach to ethics, replacing its code of ethics (described by one manager as very proscriptive rules and regulations in a big binder) with a more open-ended statement of core principles. The company also articulated its environmental philosophy and principles. As the paradigm for all of its decision-making, the company adopted the principled reasoning approach (PRA), a thorough and explicit procedure that involved six discrete steps: (1) Defining the problem, (2) Agreeing on the principles to be satisfied, (3) Identifying both high- impact and high-influence stakeholders and assessing their claims, (4) Brainstorming possible solutions, (5) Testing the consequences of chosen solutions, and (6) Developing an ethical process for implementing the solution.According to CPG, China still posed difficulties for business. Outmoded infrastructure and tariffs meant it was difficult and expensive to transport goods across its vast distances. China market was hardly unified; tastes and buying power varied greatly by region, and distribution systems were chaotic or nonexistent. The CPG learned that foreign companies operating in China were under increasing pressure to accept government-backed Communist party representation on their boards and faced intensified levels of government inspections and audits. The CPG learned that leading human rights organizations considered Chinas human rights record among the worst in the world. Chinas human rights practices fell far short of internationally accepted norms. Although guaranteed by the Chinese Constitution, freedom of expression and association were severely restricted. Some well-known dissidents were not permitted to travel abroad. The press and academic institutions were tightly controlled, and the authorities extensively monitored personal and family life.Although China had mostly ended its traditional use of massive forced labor to build public facilities, there was still some reliance on mobilized workers for security forces and public works. Moreover, imprisonment usually involved forced labor in prison or in the laogai, a network of government reeducation camps where political and other offenders were compelled to work for little or no pay in tiring and often dangerous conditions. It was difficult to estimate accurately the extent of forced-labor production.

8. How important are the values, ethics, and corporate responsibilities of any organization?It is very important for any organization to follow values, ethics and corporate responsibilities. Lets take the case of LS&CO. LS&CO.s top managers were convinced that values-based companies that honored their social responsibilities would ultimately achieve greater competitive success. Believing that a companys reputation had become increasingly important to customers, investors, employees, regulators, and other stakeholders, management reasoned that there was not generally a conflict in the long term between doing good versus doing well. Noted Toni Wilson, manager of the companys ethics initiative, LS&CO. invites the whole person to the job. Doing the right thing may cost in the short run, but in the long run it brings intangible benefits: trust, creativity, innovation. You cant buy trust, you have to earn it. Though LS&CO.s Executive Management Committee saw a strong link between good ethics and good business over the long run; they recognized that particular decisions could pose difficult dilemmas. Senior management made it clear that ethics was to be a ground rule, not just a factor in decision making, and that ethical values would take precedence over non-ethical values. Moreover, conflicts between and among ethical principles were to be resolved through an ethical process.

In September 1991, after several managers expressed misgivings about the business practices employed by some of LS&CO.s overseas contractors, top management set up a 12-person Sourcing Guidelines Working Group (SGWG) to determine what standards the company should expect of its contractors worldwide. There were also guidelines for selecting countries from where to operate or manufacture. Various business conditions, challenges, human rights constraints, legal processes, prison labor issues, etc.-many things have to be kept in mind before doing any business. If all these things go well or sync, then definitely an organization will grow as was the case of LS&CO.