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Nestlé’s Outsourcing Issues Descriptive Essay

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Updated: Feb 12th, 2020

Contemporary global markets obligate companies seek the best available services to enable them retain and have competitive advantages through effective customer service. Organizations are nowadays forced to compete internationally with the severe competition in interlinked markets, which have resulted in a convergence of customer demands. Consequently, Nestle SA, a Swiss based intercontinental corporation, has managed its diverse global operations by effectively outsourcing most of its core activities.

Founded in the 1860s by Henri Nestle to manufacture milk products, the firm is currently a global leader in food, beverage, nutrition, and health products employing over 250,000 employees in 500 subsidiaries worldwide (Prenhall.com, 2006). Due to demands for higher wages and mounting production costs, large firms have opted to outsource production units to offshore centres in India, Philippines, China and Malaysia that have educated and technically savvy workforce at lower labour costs (Tan, n.d).

Nestle thus outsources its supply chain logistics, raw material and equipment to minimize expenses, adapt more rapidly locally, and ensure corporate social responsibility (CSR) is sustained by engaging the local communities. The success of Nestlé’s business management approach has been rewarded with the company emerging as most admired in America in 2008 (CNNmoney.com, 2009).

Control of the outsourcing centres is however sometimes programmatic. In North America, Nestle faced challenges on its water bottling subsidiaries violating environmental and local communities’ water sources while not employing them contradicting its global branding claims (Clifton, 2007).

In China, the milk scandal adversely affected the corporation after melamine, an industrial compound was found in Chinese powder milk products thus highlighting the problems with outsourcing in poorly regulated regions (Einhorn, 2008). Nestlé has subsequently improved its quality and CSR approaches to counter this setbacks and elsewhere.

To reduce problems with outsourcing and have better control of their international operations and quality standards, Nestle have integrated web platforms like EProcurement, an online eMarketplace portal to expand their supply chain network (Rosenthal, 2001).

In Latin America, Nestle uses Cirqit a web platform enabling the firm keep abreast of their operations (Whippany, 2003). Similar software has been utilised in other regions to enhance supply chains networks while an overall monitoring unit (Global) for all the international branches is upheld in VEVEY, Switzerland (Steinert-Threlkeld, 2006).

Another major issues arising from outsourcing production and logistics is the unfair advantage exerted on contracted firms, generally wholly subjugated by Nestle. Due to its massive operations and financial muscle, Nestle is able to optimise its pricing while demanding utmost quality hence greatly reducing the margins of the contracted firms using its purchasing power (Steinert-Threlkeld, 2006). Nevertheless, the firm is able to settle these issues amicably with the suppliers thus ensuring continued profitable operations.

Contracting or outsourcing raw material production by Nestle has also spawned labour issues including employment of underage children, forced labour, and general poor pay in addition to lack of adequate sanitary conditions (MSNBC.com, 2006). Although urged to apply Fair Trade protocols, Nestle has been accused of failing to label their products hence not conforming to required international standards despite being the world’s leading food producer.

In its defence, Nestle claims that it is working within the confines of the International Cocoa Initiative (ICI) and the World Cocoa Foundation, which has comparable objectives as exemplified in the numerous pilot schemes, started in Ghana and Cote d’Ivoire the two biggest cocoa producers (Phdinparenting.com, 2009).

Nestle has thus aptly utilised outsourcing to enhance its competitive advantage and profitability globally while appropriately dealing with issues arising from the approaches effectively. Thus for Nestle outsourcing is ideal for its continued operations internationally. Outsourcing though profitable to international corporations still invokes ethical and integrity issues with local communities and suppliers adversely exploited by conglomerates.

List of References

Clifton, E. (2007). Nestlé Bottling Operations Court Controversy. Ipsnews. Web.

CNNmoney.com. (2009). America’s Most Admired Companies. CNN money. Web.

Einhorn, B. (2008). China Milk Scandal Update: Nestle Hits Back. Businessweek.com. Web.

MSNBC.com. (2006). Nestle Reports 14 Percent Rise in Sales. MSNBC. Web.

Phdinparenting.com. (2009). Nestle Answers: Outsourcing Accountability in the Chocolate Industry. Phdinparenting. Web.

Prenhall.com. (2006). Managing Global Systems: Nestlé Tries for an All-for-One Global Strategy Case Study. Prenhall. Web.

Rosenthal, B. E. (2001). Nestle is Quick to Adopt EProcurement. Outsourcing-center.com. Web.

Steinert-Threlkeld, T. (2006). . Baselinemag. Web.

Tan, J.-S. . Encyclopedia of Business. Web.

Whippany, N. (2003). Nestle Selects Cirqit’s Procurement Outsourcing Service for the Management of Print Spend. AllBusiness. Web.

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