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In the world of Web, companies have to be quick to survive. No one understands that better than Nestle S.A., the world's largest food company.

Today executives have come to realize their customers' satisfaction - or dissatisfaction - was linked to the performance of their supply chain. Bernard Teiling, assistant vice president of business process integration for Nestle S.A., which is based in Vevey, Switzerland, says supply chain management (SCM) is "both a source of competitive advantage and a lever for profit margin."  Even though the complexity and the cost of SCM has continually increased over the last two decades, companies must be proficient in this process. "If you are not good at SCM, someone else will be," says Teiling.

Nestle defines SCM as the two-way management of the flow of goods, services and information from suppliers to manufacturers, wholesalers, distributors, stores -- to the end user. SCM is especially critical for the food industry because of the ease of spoilage.

Teiling feels a consumer products company remains profitable only if it has the right product at the right price in the right place at the right time. However, getting these stars to line up only happens when "the entire supply chain works as one."

Seen that way, SCM becomes a branding issue. When Nestle places its logo on a product, the logo represents "a seal of quality." Protecting that quality makes Nestle responsible for its entire supply chain. Teiling says consumers don't care if a supplier or distributor had a problem. "If something goes wrong in the supply chain, it ruins things for the consumer," says the Nestle executive.

Even though Nestle feels responsible for every link in the supply chain, it outsources many of those activities. "No one company can claim to do everything from A to Z in the food industry. Today that's impossible," says Teiling. For example, Nestle does no farming. And the world's largest food company sells almost nothing directly to consumers.

With the arrival of the Internet, companies today want to manage their supply chains through "an efficient interface with an eMarketplace." Many different exchanges are developing. Teiling describes them "as a tremendous opportunity for Nestle to work effectively to create new levels of performance."

Companies have been working hard to optimize their internal processes to remain competitive in a worldwide market. But now Teiling believes "we are entering a new era because we are beginning to truly optimize an entire industry in a systematic way." He adds that participating in these eMarketplaces will be required if a company is to compete in the business world as it is evolving.

However, new challenges come with new opportunities. Teiling sees three challenges:

1. Companies have to discover the best eMarketplaces for their needs. A good guideline, he says, is the ability to develop a two-way relationship.
2. Companies have to learn how to work with more than one eMarketplace. This can be a technical challenge at the outset since no standard has yet emerged.
3. Companies have to make changes internally to take advantages of eMarketplaces. For example, Teiling says Nestle's IT infrastructure will have to change to work with these new exchanges. Companies will have to learn how to interface with these marketplaces.

One question that remains is whether Nestle will align itself with a single exchange or work with a multitude of them. While the jury is still out on that question, Teiling knows what he would prefer. If he had his way, Nestle would only work with one exchange. But he realizes he may have to work with a customer's eMarketplace if that makes sense. "Large customers may require that we work through their own proprietary portal. And we know the customer is king," says Teiling.

Also, certain unique business opportunities may only be available at a given eMarketplace. Companies that want to take advantage of these specialized services have no choice but to join these alliances.

To date there have been two major success stories for Web-based SCM. The first is eProcurement for non-traditional items on the back end. On the front end, Teiling cites collaborative sales and promotions management using extranets. Both manufacturers and distributors are able to share common data on a daily basis.

He says the automotive industry was the first out of the garage because it was relatively easy to assemble given the small number of manufacturers. "It's a lot simpler than food products" with its large number of players. Teiling predicts the evolutionary process will accelerate this year and remain ongoing as the necessary restructuring occurs.

The move to exchanges is auspicious for outsourcing suppliers. For example, Teiling predicts companies will outsource "a lot of IT and systems infrastructure."

In sum, he believes "a new paradigm is emerging with the integration of business partners and the focus on the core processes."

Lessons from the Outsourcing Primer:

• Gaining better control of the supply chain management style can provide a competitive advantage in today's Web world.
• Companies will have to join eMarketplaces to increase the efficiency of the supply chain.
• One big decision will be which eMarketplace to join.
• Companies will outsource much of the IT interfaces necessary to communicate with these exchanges.

Publish Date: March 2001

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Copyright © 2001 - Everest Partners, L.P.

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