Company Background
Modern slavery is a significant issue affecting countries responsible for resource production and manufacturing in several industries. A significant part of forced labor and child exploitation exists in the food segment, where raw resources are collected by children and people forced to work in unfair conditions without the ability to quit. Nestlé is among the companies with a long history of forced and child labor in their supply chain. Currently, the efforts made by the company to eliminate modern slavery in its processes are widely criticized. Nestlé needs to consider new ways of approaching the issue of forced labor and restructure its supply system to eradicate the problem.
Problem Statement
The strategic issue that Nestlé encounters is forced labor in the step of cocoa production. The company sources cocoa for its chocolate products from several thousand suppliers in the Ivory Coast, and the current supply chain system is highly complex. As a result, Nestlé’s efforts to curb the rates of child and adult slavery are ineffective. Furthermore, the multi-step system also has many intermediaries, which makes the process of vetting suppliers difficult.
Nestlé’s several success factors determine the outcomes of the business. First, the quality of resources and their origin are vital for the product’s suitability for the market. Second, the firm’s operations play a significant role in the brand’s image and in acquiring resources efficiently.
As the news demonstrates, Nestlé heavily relies on the quality and source of its raw materials, as they determine not only the taste of the goods but also the view of Nestlé among consumers. Thus, the key challenge for Nestlé is to reimagine its supply chain to eliminate modern slavery. Additional issues are the lack of transparency among suppliers, the growing preference for ethical products, and increasing consumer awareness.
Company Analysis
Porter’s five forces is the selected analysis that helps examine the company’s current position. This approach allows one to see the roles of suppliers, customers, and competitors in the decision-making process. First, there is an intense competitive rivalry between the food industry and the chocolate and cocoa products industry. Nestlé occupies a significant market segment and is one of the largest manufacturers globally. Nevertheless, it has many competitors with a wide variety of products.
Second, the threat of new entrants is low in the food market. While small businesses that produce local foods may exist, established manufacturers of cocoa goods dominate the market and have excellent customer loyalty. Furthermore, reaching the size of companies such as Nestlé is tough, as their influence is strong.
At the same time, the suppliers’ bargaining power is also relatively low. Nestlé is one of the largest buyers of cocoa products – approximately 10% of all cocoa produced worldwide is used by this business. Therefore, the company can dictate its rules to suppliers and offer great financial incentives to change their operations. This factor is critical to the company’s key challenge, as it shows that Nestlé has the power to influence its supply chain.
Finally, the last two forces in the analysis are the buyer’s bargaining power and the threat of substitutes. Both factors are high – consumers have many alternatives to Nestlé’sNestlé’s products and can switch easily. As the competition in the market is significant, the choice of alternative products is broad, which increases the threat of losing customers.
Moreover, one can see that Nestlé’s past scandals led to many people boycotting the company. Customers hold power in this relationship because the switching cost is incredibly low. These factors demonstrate that Nestlé’s brand image can significantly affect its business, highlighting the need to review its forced labor policies.
Alternatives
The key challenge for Nestlé is the presence of modern slavery in the supply chain, especially in cocoa production. To combat this issue, the company can implement several solutions. The first option is a review of its current suppliers and a higher emphasis on long-term contracts with several supplier businesses.
This alternative can benefit the company by increasing transparency and putting more responsibility on suppliers. However, it also limits the company’s potential cocoa sources. Second, the company may use financial incentives by paying better-performing farmers more and penalizing producers who are ineffective in eliminating forced labor.
The outcomes may be positive if suppliers assume more responsibility and improve. Nevertheless, forced labor is easy to conceal, which may lead to Nestlé collaborating with fraudulent suppliers. The final option is to invest more resources in training and technological development to increase awareness in the supply chain. This option can improve suppliers’ understanding of labor laws, but does not necessarily incentivize them to improve the system.
Final Recommendation
Based on the company analysis, the proposed recommendation is to review its current supplier relationship and support strong farmers through long-term contracts. This option leads to shared responsibility and offers Nestlé a more transparent method of tracking its raw materials production. The risks of using a smaller number of suppliers and a rigid contract are the increased power of material producers and potential supply chain disruptions. If a major supplier experiences problems with product yield, such as a natural disaster or similar circumstances, Nestlé may have lower cocoa supplies for its business.
The company can implement new long-term contracts by reviewing its current suppliers. Analyzing the existing relationships and determining which farmers are the most reliable and ethical is a priority. Nestlé may need to enlist the help of third-party analysts to investigate the presence of modern slavery in the supply chain. Then, chosen suppliers should be contacted to discuss the contract and their obligations to maintain the absence of child and forced labor.