Strategic Process Management – Nabisco 1)Introduction Nabisco is 1 of Kraft’s billion-dollar brands which is dated back to as far as more than a century since 1898 when the United States Baking Company, the New York Biscuit Company and the American Biscuit & Manufacturing Company formed to become the National Biscuit Company. “Nabisco” first appeared on a new sugar wafer product in 1901, but the corporate name did not change from National Biscuit Company to Nabisco, Inc. until 1971. Kraft Food acquired the Nabisco business in December 2000.
Today, Nabisco’s brands include some of the best-known cookies and crackers in the world, including Oreo, Chips Ahoy! and Ritz. Nabisco’s existence over such long history in the food industry also denotes that it have advantages over competitors in the behaviours of the consumers. Nabisco rid the wave of changing together with the traditional manufacturer focus push strategy of “We made it, you buy it” to the consumers focus pull strategy of “you make it; we’ll let you know about it”. The “We” as a seller, have switched its role; from a dominating to a submissive position empowering the consumers.
In order to balance the empowerment, Nabisco knew it had to invest in its supply chain function! Only when its supply chain is in good function that it can ensure repeated business transaction continues and generates profits for the company. ————————————————- Here in this assignment, we will be looking into how Nabisco implemented Strategic Process Management to its supply chain function by analysing its business environment to reconstructive its mission and vision, what choices it made to enhance its strategy and built the company’s image and what measurements and control tools it have to sustain its success. ———————————————— 2)Nabisco Corporate Philosophy Nabisco created 1 wholesome vision which included the company, the customers and the anticipation. A vision that focused both on internal and external factors on doing things right the first time above all expectation. * Mission:To be First, Fast & Fresh One that can create a focus on customers’ needs, the internal alignment that let Nabisco work towards common goals, and executive excellence to give them speed and ability to do things right the first time, better than the competition, and better than our customers’ expectations.
In order to achieve the mission, Nabisco have to organize the company internally to achieve self-excellence through independence. Being Proactive, Nabisco promotes this proactive mindset by recognizing and rewarding its employees for demonstration of proactive qualities in the monthly town hall meeting. A simple step which encourages all employers to take ownership and dignity that they are responsible for. Next, Nabisco visualized; being with the end in mind, this meant, creating a sense of direction for the Nabisco.
Being proactive in Nabisco’s development, employees of all departments and all levels form a team to create the “Mission” for the company. The mission for Nabisco created was to get the products from Nabisco to the customers First, Fast and Fresh. Being all armed with both proactive and a sense of direction, Nabisco embarked into ‘strategic management’, decision making which leads to actions taken that will determine if a corporation is going to excel, survive only or shuts down in future. This is a strategic plan which has to be somewhat different.
This was 1 of the most important implementation in Nabisco, Strategic Management focus on and stays through a plan that is very important for Nabisco. And Nabisco started to build the framework of the plan into its operations, focusing on supply chain function. * Goal:Create Supply Chain to be Fast, Focus, Flexible and Fun. Fast; speed which also denotes for action oriented in Nabisco. Focus; taking care and understanding their customers well at the same time creating extra value for customers. Flexibility; this means ideas over procedures, loosening tight controls which generates better ideas to improve work flows or environments.
Lastly, being Fun; a passionate and enthusiastic attitude about getting the work done. ————————————————- With vision aligned, Nabisco concluded a critical decision on investing in Supply Chain. As supply chain management defines, all resources which includes finance, materials and information that flows from the supplier’s supplier ending all the way to the customer’s customer. In order to fulfill its mission, Nabisco’s supply chain will have to succeed. Supply Chain Strategic Management became the core competent that Nabisco need to achieve. ———————————————— 3)Analyzing the Business Environment In order to understand where Nabisco is in the market, SWOT Analysis & Porter’s five force models are used to evaluate Nabisco’s internal & external operating environment and market situation. Below, you will see both analyzing models being performed. a) Business & Market Analysis i) SWOT Analysis A method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture.
A market analysis which involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. Figure 3. 3: SWOT Analysis Diagram (Source: www. businessteacher. org. uk) * Strength i) Staff Strength With staff strength of 5000, it creates better approach for Nabisco in staff deployment which it leverages with retailer by putting them with directly at the store. Thus this will improve customer relationship. ii) Financially Sounded Organization
Nabisco is a $3. 6 billion financial sound organization which this enhances its position to implement strategic reforms as a corporation. iii) Direct Relationship with Consumers The strongest strength of Nabisco is its direct customer relationship. This direct contact with consumers gives Nabisco a competitive advantage because Nabisco knows exactly who are their consumers, their requirements, when consignments shall be arrival, how to display the products, pricing that consumers spent with Nabisco and etc. It is a more to a 1-1 proposition.
Moreover, Nabisco sale staff can rely on the gather information to office for market interpretation. iv) Low Inventory and Short Produce Life Cycle Nabisco has substituted information for inventories and manufactures biscuits quantity to be as accurate as possible. Key advantages are reducing low inventories and improve the quality of the products. This is a very vital point and basic want from the customer to be able to purchase a freshly made biscuits and value for purchase. The low inventory level also enables Nabisco to incorporate declining components ‘costs and pass some of the saving to customers faster than rivals. Weakness i)Lack of Market Reach Nabisco faces barrier in markets where there are existing good local competitors, consumer preferences for local brands, religious and well-entrenched distribution channels. * Opportunity i) Development of Product Range and Target Audience Nabisco has the ability to integrate the manufacturing of product with food technology. For instance, they have created a new product called “Snack-Well” which the reduced-fats products have successfully retains its tastiness. This has expanded its product range and created a healthy awareness. Threat i) Duplication of DSD Nabisco’s breakthrough of DSD was a big success that its industry competitors have duplicated/implemented the direct to customer model with varying degree of successes too. It may not be a competitive advantage in the near future. In additional, low cost competitors can easily copy Nabisco’s strategies especially those located in the developing countries. ii) Hygiene Monitoring Besides having a quick, fast moving of products to the consumers, it is vital to ensure that hygiene are closely monitoring throughout the pipeline.
One mistake can be fatal to the survival of Nabisco. ii) Porter’s Five Forces This framework draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An “unattractive” industry is one in which the combination of these five forces acts to drive down overall profitability. A business analysis that is critical for the company’s plan in going forward. Figure 3. 4: Porter’s Five Forces Analysis Diagram Source: The Free Encyclopedia, www. wikipedia. org) i) Suppliers Depending on their order quantities, this can put themselves in a good bargaining power from the suppliers and thus adding a degree of pressure to the suppliers in cost factors and speed consignment delivery. However, there is necessitating for a backward integration in the fear event of ingredient stock out. This will result the slowdown of manufacturing and cannot deliver fast enough to stores. Basically biscuits industry’s commodity is classified as a fast moving consumer’s goods (FMCG) industry.
Supplier evaluation is also vital taking the recent case of the China milk scandal case, if anyone of the biscuits ingredient (milk) is ordered from these wick suppliers. The entire manufacturing line will be stopped and reputation is greatly affected. ii) New Entrants As this is a consumer food industry, it is considered relatively difficulties to penetrate into this market. The companies are required to process the relevant food authority license, comply to their require checking at all time and a higher capital set up investment.
Nevertheless, if the new rival manages to obtain the operating license and with wide publicity, the rival can easily compete with Nabisco. Especially in this new era with the rapid growth of emerging and developing countries, any locally biscuits with sound financial ground company can expand the market share globally. Nabisco understand this possibility of new entrants as such they have direct customer interact within the store, maintain the relationship and replenish the stocks at the quicker time. iii) Buyers There are many alternatives in this biscuits industry ranging.
The switching power of the buyers is high. In order to reduce the bargaining power of the customers, the manufacturer can lock in long term contracts with their customers. In additional, they can produce products to target certain audience. iv) Substitutes There are varieties of biscuits available in the markets. As a result, consumers could easily substitute their choices, especially if the products are not put correctly on shelf fast enough and cannot drew the customers’ attention. Nabisco is aware on this point and decide to put at least 4-5 sale persons at the front line to drew customers’ attention.
In additional, with careful supply chain management and good integration of the good food technology, the manufacturer can introduce good foods like “Snack well’s”. This has successfully substituted the competitors’ products. v) Industry Competitors In this biscuit industry, the competitiveness is relative higher. New innovative products are introduced to the markets any moments. Existing players must be consistently check and review the competitors’ movement. Beside that the organization has to create the right culture and structures to stay focus on their version and goal in order to supersede their rivals.
For Nabisco, they put great emphasis on team work and investing on the right people at the right time to achieve their competitive advantage. b) Nabisco’s Supply Chain Model With strong financial backup, comprehensive program like direct store delivery and investment in information technology EDI system like Distribution Requirement Planning (DRP) or point of sale have made this reform possible. Strong Competitor and demanding customers directed Nabisco in adoption of several important concepts in its supply chain to achieve its goal.
Mass merchandisers which deploying using one stop warehouse, or direct from the manufacturer to the store in a system named Direct Store Delivery (DSD), resources management and food technologies were implemented. The company is driven by advanced information technology system which does everything from the plants to managing inventory in the entire supply chain pipeline. Figure 3. 1: Traditional Supply Chain in Food Industry Figure 3. 2: Nabisco’s New Supply Chain Diagram Nabisco’s production is demand driven so that it is coordinated with end user’s demands.
It supply chain uses fast information flow mechanisms to transfer information about customer demand to the manufacturing facilities. With the strong belief of the importance of information technology, Nabisco has introduced EDI (Electronic Data Interchange) DRP to be exact, which has the capable to synchrony information. With evaluation of forecasts and actual demand, DRP is the foundation for time-phrases production scheduling which shortens the lead time and accelerated the delivery time to the customer. Reference to Figure 5. 1: Establish Integrated U. S.
Food End to End Processes in section 5, illustrates the flow of information and material in Nabisco’s supply chain. Nabisco has the ability to anticipate incoming order more accurately and subsequently, maintain its cost of inventory at minimum level. In additional, it will reduce the “bull whip” effect; smooth information flow along the supply chain pipeline. On the other hand, Nabisco’s supply chain strategic is simple in concept but very complex in execution. As its pull based strategy in final stage are only workable when the lead times of the components are short enough for its production line to react faster to the demand information.
Similarly in order respond to orders and promptly delivery timing, manufacturing lead time is vital to be shortened. ————————————————- Nabisco strongly believe that there is no real customer value without a close relationship; therefore they have positioned the sale persons to take the orders and arrange direct delivery direct from its DC to the store. Thus this will maintain a closeness direct touch with their retailer’s consumers. By doing so, they can deliver fresh products at a faster pace and less handling signify a lesser breakage of fragile products.
This is why Nabisco emphasis on its mission of First, Fast and Fresh. ————————————————- 4)Choices of Strategy Following strategic analysis, strategic choice will be the second element in the strategic management process. There are 4 strategy formulations which include societal strategy, corporate strategy, business strategy and functional strategy. Nabisco formulated on 3 strategy formulations in succeed of their business. a) Corporate Strategy The corporate strategy is tied together with the corporate vision and the direction of the organization. Nabisco’s corporate mission is to be first, fast, and fresh.
In order to achieve the goal, the top management wants to place supply chain management at the core of a comprehensive business strategy to better serve customers, build sales, profits and returns. For a good supply chain management, it is important to have a good team of people in the organization. Thus, Nabisco’s investment starts with getting and developing the right people. The company do provides a good environment for everyone to make contribution to the organization. b) Business Strategy Business strategy is another strategic choice which will attain competitive advantages over the competitors.
Logistics cost is significant in distribution and it is important to have a good distribution strategy in order to reduce the cost. Nabisco is one of the very few companies that have done well in their distribution strategy. They used different distribution methods for different type of products. For all cookies and related food products, it uses Direct Store Delivery (DSD). DSD can be expensive but it’s cost effective. It gives Nabisco tremendous leverage with retailers as it puts company in a position to be a real factor in improving their business. DSD also require less handling which lead to less breakage of fragile products.
Nabisco had applied DSD very well in their distribution which brings the company lead among the competitors. Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structure of a company for the purpose of making it more profitable, or better organized for its current needs. Nabisco have decided to go into restructuring the organization so to improve its competitive position. Its restructuring programs include re-organize corporate staff and operating company head offices and reducing low-volume product lines and sizes.
It allows Nabisco to gain higher productivity and serve customers better with lower operating cost. Nabisco’s investment is another competitive advantage to the organization. Its investment had paid off over and over for the company. It gets hold of the opportunity and combines with their good ideas, good food technology and flawless supply chain management to come out with new products. They have made their products grown big and fast which other competitors didn’t manage to. c) Functional Strategy Another strategy which spells the in-house functional capabilities will be the functional strategy.
In Nabisco, they create right culture ad structure to wrap around the right supply chain management system. The key elements of their culture will be fast, focused, flexible, and fun. Speed is one of the main concerns in food grocery industry and it see as the price of admission to any competitive field. Focused, in order to focus on customer’s need and to fulfill it, Nabisco not only just understand their customer’s business but involve being part of it. It also focuses on their business need so to create a kind of free-flowing functional excellence. Flexibility, it refers to the organization as it means more leadership and less management.
Lastly will be fun, it is important that people in the organization have the passion in getting the job done. In the industry, many organizations have made the mistake of stopping with automated billing and payment which is the fundamental contribution of EDI’s ability to link computers. As for Nabisco, it concentrates on the full range of value-adding application that brings computer links to life. Nabisco had created a new order management system which allows the salesperson to generate orders on the go. Its plant and planning are wired together and make all the information in the system are up to date.
With all the useful information in the system, the organization able to have a better monitoring and planning by generating useful reports. Wiring the organization effectively had bring Nabisco to another success in managing the company’s inventory system. ————————————————- Nabisco is doing well in new products innovation and it had awarded with the Outstanding Corporate Innovator Award based on the new product success. Nabisco is the first food company to be so honored. Over the years, Nabisco had created many new products regularly and have successfully retained the products stayed on the shelves. ———————————————— In doing so, the organization have a good team of R&D people which the company divides them into product development and research lines. Both divisions work as a team very closely and lead to the success in new products innovation. ————————————————- 5)Implementation of Strategy Strategic Management Process for Nabisco involved analysis of environment, evaluation of strategic formulations, implementation and monitoring of strategy progress. It is important to attain competitive advantage over the competitors via strategic implementation and monitoring.
After evaluating the business environment of Nabisco, through SWOT and Porter’s analysis, the corporation is well aware of its business standing in the food industry. The understanding of strategic analysis led to strategic choice, which consists of corporate strategy, business strategy and functional strategy. Subsequently, implementing and monitoring emerge to execute the final plan. These plans enable an organisation to concrete the words or planning into action and to achieve corporate objective. a) Structure Distribution Channel The distribution channel affects how a company reached out to its customers.
Nabisco deliver products to consumer through traditional grocery, as well as mass merchandisers such as convenience store, membership club and drug store. They managed to operate the distribution well, thanks to their warehouse distribution stops and DSD. Reference to Figure 3. 1 Traditional Supply Chain in Food Industry and Figure 3. 2 Nasbisco’s New Supply Chain Diagram in section 3b, illustrates the changes in Nabisco’s supply chain flow. This is uncommon for a company to operate their distribution channel in 2 ways. Nabisco puts themselves directly in touch with its retailers’ consumers and help them to reach consumers efficiently.
The management of Nabisco evaluate the company’s supply chain from the top to shipping and distribution of final products. They understood the strategy accurately and ensure that all the departments are work and function efficiently in order to meet their goals. The effective strategies that Nabisco has adopted led them to meet their customers’ desire. Customer perceptions are important to guide the company in meeting quality standards and customer retention. Nabisco gives customer what they want, how and when they want it at an agreed upon price that they are happy to pay.
On top of that, Nabisco cultivated a right culture to create the right supply chain management system. Both are typically interrelated in nurture a successful supply chain management. Nabisco’s effort for change in distribution channel worked so well that it won them competitive advantages in providing an expanded customer base more than their competitors. System Nabisco needed to develop 2 major supply chain systems—a new sales forecasting tool and a DRP (Distribution Requirements Planning) system. After 2 years of research and planning, it implemented the DRP and forecasting systems in late 1990.
This also enhanced its order management and inventory management systems to be more robust and to take advantage of the new components to the supply chain. Nabisco defined supply chain management as “a business practice that begins with the customer, integrating systems and business processes from forecasting through demand planning, resulting in an effective integration of purchasing, order management, manufacturing and transportation to the customer. ” Such implementation meets its objective of being the low cost supplier, not just manufacturer, to the customers.
The business process begins with a forecast. Representatives from production planning, sales, operations, marketing, finance, plant management, and logistics formally meet monthly to ensure that agreement exists with regard to the forecast plan. The focus here is on aligning the availability of materials/packaging supplies and production capability. The team studies the promotional calendar and any changes in timing to identify potential trouble spots such as line conflicts, availability of ingredients, and machine capacity.
The logistics group has complete control, however, to determine the forecast that is sent over to the Distribution Requirements Planning (DRP) system, and becomes the foundation for production scheduling and deployment to the distribution center network. Weekly operational meetings take place where key participants jointly resolve variations that might exist between the recommended production schedule and manufacturing capabilities. The team understands that unexpected problems can occur and that these issues must be immediately communicated so that an alternative plan can be agreed upon.
Common goals and objectives drive the incentive system, ensuring all participants do not operate with conflicting measurement systems. Nabisco have a strong technology foundation that provides end-to-end, common integrated systems and functionality. Our technology foundation is built on common, integrated systems and metrics. All key supply chain participants have access to real (or near real) time data that influences the performance of the supply chain. This is critical if we are to measure our performance as one supply chain, driven from a common data source, with fully linked performance indicators.
This gives us the ability to perform enterprise-wide supply chain modeling as illustrated above. Figure 5. 1: Establish Integrated U. S. Food End to End Processes (Source: www. bsu. edu) Today, through new item introductions and a general proliferation of products, Nabisco manage many more individual stock keeping units (SKUs) than in the past. In fact it has moved from 1,600 SKUs just 5years ago to more than 2,100 today. Although manufacturing capacities have been improved, there has not been a corresponding increase in the manufacturing flexibility due to the capital investment that would be required.
Many of its manufacturing facilities operate with high speed equipment that was intended for long runs, with few changeovers. Additionally, through initiatives like Efficient Consumer Response and others, progressive companies are operating with fewer inventories than in the past. They have altered their buying cycles and are presenting manufacturers with smaller orders requiring more frequent deliveries. This requires planning to become more intense and time constrained, with a true customer and lowest landed cost focus.
Nabisco must focus its supply chain to respond to customers ordering more items in smaller quantities with less lead-time. b) Processes Nabisco also invested on resource planning and flexibility within organisation. It is important to build a comfortable working environment for the employee to work efficiently and make contribution to the company. Nabisco motivate and reward their employee by enhancing the development and promotion system. With a right incentive system and management appraisal, Nabisco could see the result from the company’s profit as well as return.
In addition, Nabisco understand that the key driver for the business is consumer’s demand. Thus, they are putting the right people in critical positions, to serve customer fast, first and fresh. For example, they have a team of 5,000 people calling on stores in United States. With the efficient of distribution and management, Nabisco reach customers at maximum speed and accuracy. To become a lowest cost food manufacturer and excel their competitors in the market besides pricing, Nabisco needs to provide continuous and lifelong self improvement programmes to the employee.
To managing talent, attracting and motivating is the key to retain the best people. A good investment in people is a global practice that could help the organisation to concentrate on core competencies in business. c) Behaviour Organisation behaviour does constitute to strategic implementation. The people, leadership and information system is crucial in optimising effectiveness of organisation strategy. Nabisco is a food manufacturing company that exercised action oriented and entrepreneurial. They are learning a new lesson from the risk they faced in the past.
Also, good communication between functional departments aids to drop the superfluous processes in product manufacturing and distribution. The sales people of Nabisco visiting the stores few times a week. Every time they visit, they will take the order, arrange stock delivery, and display the products on the selves. By doing so, they are able to reach consumers need in fastest way. Moreover, they could adjust the supply of the products in the stores according to market demand. ————————————————-
Technology supports the service; product support promise; quality support customer value and focus. Nabisco created a new product Snack well and introduced to market. They received overwhelming demand from the consumers in a short period. This successful launching shows that the effort of good idea, technology and people management is important to thrive in strategy implementation. ————————————————- 6) Control of Strategy Control simply means to monitor and improved on. Monitoring of organisation strategy is to measuring actual performance of the organisation against planned performance.
It helps to identify the gaps and deviations of an organisation before they could take corrective action. Strategic control is vital as its focuses on actions implement by organisation to achieve organisation objective. It is important to obtain customer feedback in the process of strategic control. With a good channel of communication with consumers, it facilitates in creating manufacturing flexibility to meet company’s structure. In Nabisco, the management and employees were able to maintain inventory cost and carrying cost low and provide customers excellence service in unison.
In order to achieve higher market share and profit in the industry, Nabisco continue to reduce the cost of inventory for raw material and packaging cost for finished goods. Indexes like Inventory turn and customer satisfaction are implemented to keep track upon. Nabisco also measures the company performance by finance indicator, Return on Equity (ROE). They constantly improve customer service by increase the orders fulfilment and invoicing accuracy as well as timely delivery. Because they are doing business efficiently, revenue and profits increase.
On the other hand, proper inventory management further enhance the company’s ROE. Eventually, business runs better and dynamic with appropriate monitoring approaches adopted by Nabisco. ————————————————- In summary, an organisation needs to set reasonable target and focus on core business while defending the corporate values at the same time. The leadership from the top management play crucial role in the strategy implementation and monitoring. They support research and development of an organisation, also control the capital spending tightly.
Beside, Nabisco retain capable employees by reward them generously. Low employee turnover do aids in the strategy implementing and monitoring. ————————————————- 7)Conclusion Supply chain management (SCM) does not totally described the complex challenges faced in providing the customer with value-added products and services while concurrently meeting a company’s vision and mission. However, given all of the elements involved— technology, communications, corporate cultures, internal goals, customer requirements—the dynamics of SCM can be many and complex.
Nabisco made an excellent strategic decision by focusing and investing in its supply chain function! It actually took 2 years for Nabisco take on that challenge with much determination. It was not an easy decision, much consideration and analysis and picking the right strategy to meet its goal. This Strategic decision for implementation proved success. It enhanced Nabisco’s order management and inventory management systems to be more robust and to take advantage of the new components to the supply chain. Nabisco received many other benefits from the supply chain efforts.
Inventory turns improved by about 15% while it added complexity in the form of additional stock keep units competing for manufacturing time. Additionally, Nabisco’s customer service improved as case fill rose to nearly 99% and they were able to respond quicker to the rapidly changing marketplace demand. Its forecast error was reduced to 39% (stock keep units/location level) again, while the number of items managed increased substantially. The logistics cost as a percentage of sales dropped to just over 6%, a reduction of 15%. ————————————————-
Nabisco continued to improve upon its efficiencies as our programs take advantage of tighter linkages and improved technologies with which to plan. Finally, with much improvements and going forward,