The importance of Integration of the supply chain

1. FERRERO GROUP
Logistics and Supply Chain Management

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Case synopsis
● The Ferrero Group, has a history of success through
three generations.
● The company termed itself as “glocal,”
● Pietro Ferrero founded the company in 1946 in Alba,
northern Italy, an area rich in hazelnut plantations.
● It's under the 2nd generation Michele Ferrero,
Pietro’s son, that the company developed some of
the iconic products that made the company
internationally famous.
● Since 1956, the company had expanded, first with a
plant in Germany, and then with the commercial
network in the rest of Europe, and Nutella product
was launched in 1964,

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● Until 1980s, the company was present in all the continents. In 1990, the line
of Fresh Kinder products was launched and distributed to some countries to
overcome the seasonality of chocolate shelf life.
● In 1997, third generation Pietro and Giovanni Ferrero, sons of Michele,
became joint CEOs. After Pietro’s death, Giovanni became the sole CEO in
2011.
● Under Michele’s leadership, the company moved from a regional to a global
confectionery company.
● He was careful about the secrecy of the recipes, market trends and kept
customer satisfaction at his heart.
● The Ferrero Group is now one of the world's largest sweet-packaged food
companies, with over 35 popular brands like Kinder, Nutella, Ferrero
Rocher, and Tic Tac, sold in over 170 countries.
● The group was internationally recognized as a company of choice with a
strong social commitment from the raw materials from suppliers to the
quality products delivered to end customers,
continue…..

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To satisfy customer needs through
its shared values: high quality,
product freshness, careful selection
of raw materials, and respect for
the customers.
To become the leader in the
chocolate manufacturing sector,
while keeping the customer’s
satisfaction in mind.
● Its value Includes loyalty toward customers,
● Mutual trust within the group and among stakeholders,
● Respect toward the employees, responsibility for other
stakeholders and natural resources,
● Integrity and sobriety in communication and
● Passion for quality of the raw materials and products.

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Problems
Dependence on a single source for key ingredients:
● Ferrero acquired Oltan group, the world's leading
hazelnut supplier, in 2014.
● This move ensured control over a major raw material,
but it also created a dependency on a single source.
● Any disruption at Oltan could significantly impact
Ferrero's production and profitability.
Increased costs due to vertical integration:
● Integrating hazelnut production through Oltan's group
acquisition could lead to increased costs.
● Managing the entire supply chain, from raw material
sourcing to finished product distribution, can be
complex and expensive.

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Raw materials fluctuations in price and availability.
● Raw materials such as hazelnuts and cocoa, was significantly
affected by weather and pets making the prices volatility.
Competition in the chocolate industry.
● Because of large number of players, from global giants to small
artisanal producers including The Hershey Company and Mars in
U.S.
● Low barriers to entry make it easier for new companies to enter,
intensifying competition and driving down prices.
● Consumers are price-sensitive, often switching brands or products
based on price alone, putting pressure on companies to keep their
prices competitive and innovative.
continue….. Competitors….
● Cadbury - Bournville based, 1824
founded, Acquired company.
● The Hershey Company - Hershey
based, 1894 founded, Public company.
● Sawade - Berlin based, 1880 founded,
Acquired company.
● Der Zuckerbacker - Heilbronn based,
2014 founded, Funding Raised
company

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Case
Analysis

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Ferrero Group and the Market
33,219
EMPLOYEES
78
Worldwide
Subsidiaries
22
Manufacturing
Plants
Operating in
53 Countries
Products Sold in 160
Countries
3
Social Enterprises
7,502
External Collaborators

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Ferrero’s Supply Chain Activities

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Competitive Advantage in Confectionery Industry
🡪 Cost reduction
🡪 Quality control
Everyone is doing…
Market is very conscious of sustainable products 🡪 convince them the product and its supply
chain are green compliant
FACTS framework (Ferrero Agricultural Commitment to Sustainability) three pillars:
development of projects and partnerships, adoption of certifications and standards, and
institutional and collective engagement
🡪 Sustainable products
🡪 Innovation
BUT
In confectionery Industry…

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Cocoa Supply Chain
Ferrero Farming Values Code
🡪 Sustainable farming
🡪 Farmers’ livelihood
🡪 Ecosystem
🡪 Eliminate Child labour
Field Initiatives
🡪 Collaborate with farmers’
groups & NGOs train and educate
farmers
Supply Sustainability
West Africa
🡪 Cote-d-Ivory (33%)
🡪 Ghana
🡪 Cameroon
🡪 Nigeria
Supply
Price volatility 🡪 politics, climate
& pests 🡪 low bargaining power
Unfair trade 🡪 poor revenue
Knowledge gap 🡪 poor farming
practices
Child Labour 🡪 Violating human
rights
Challenges
Affect the 100%
Sustainability goal
Steps towards 100%
Sustainability by 2020
Grow in sensitive climatic
conditions

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Palm Oil Supply Chain
Sustainability
🡪 endangered species,
workers rights, & corruption
Certified by the Roundtable on
Sustainable Palm Oil. Recognized by
Greenpeace International
Traceability
🡪 affects the goal of quality
and sustainability
Include all its suppliers in the
Ferrero Palm Oil Charter
Environment concern
🡪 Land prep result in
deforestation & emission
The Forest Trust to improve the
supply chain to benefit people and
nature
Indonesia
Malaysia

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Hazelnuts Supply Chain
Traceability
🡪 affects the goal of quality
and sustainability
Ferrero Farming Values Hazelnut
(FFVH) 🡪 Scientific Certification
System, Inc., supervisor
Supply Chain Risk
Supply shocks 🡪 supplier
switching to competitors
Acquired Stelliferi processing co.
Acquired Oltan which was the
world’s largest producer
Price volatility
🡪 2014 frost damaged ½ of
crop, crippling supply
New Plantations in Georgia, Serbia,
Chile, South Africa, Argentina, and
Australia
Turkey (70%)
Italy, Spain, USA,
Greece

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Ferrero’s Strategies
Organic Growth CSR & Sustainability
People, Planet & Profit
Green Products
Acquisitive growth
Vertical 🡪 Oltan Group
Horizontal 🡪 Thorntons Plc
Materiality matrix used to determine key CSR initiatives to focus on

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Evaluation of Strategies
a. Was the acquisition the best strategy?
b. Would the company’s pursuit of sustainability through its CSR programs bring the company
to its financial goal of growing revenue to $20 billion by 2026?
Challenges including
🡪 Integration risks,
🡪 Regulatory risks,
🡪 Dilution of core competencies
🡪 The bigger it goes the complex it
become
• Full control of the supply chain
• Complementary businesses
• Expanding its product portfolio,
• Expand its geographic footprint,
• Strengthen its position in key markets.
🡪 Commitment to sustainability
🡪 Traceability plans for key ingredients,
including cocoa, palm oil, and sugar
🡪 Aim to achieve 100% sustainable
materials and empowering farmers
🡪 Investing in cleaner energy
🡪 Sustainability certifications
Industry's growing awareness of ethical
branding and the increasing demand for
sustainable products

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Obstacles on Supply Chain Integration
Control and traceability 🡪 cross-functional
collaborations for sustainability
01 Silo Mentality
They have established traceability plans 🡪
Palm oil, hazelnuts and milk. Partnered
with Alloy for real-time tracking
02 SC Visibility
Build partnerships with suppliers and
other stakeholders 🡪 supply chain
collaboration
03 Lack of Trust
Employee empowerment and Farmers
Education and Training on sustainable
practices
04 Knowledge Gap

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Supplier Risks and Security Management
1. Supplier risk management and due diligence.
2. Supply chain visibility.
3. Standards and certifications.
4. Mitigation programmes for higher-risk categories
Ferrero’s Four Step Approach
🡪 Cost of raw materials
🡪 Fluctuation of foreign
exchange rates
🡪 Supplier failure/switching
🡪 Sustainable sourcing

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Lessons Learned
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1. Collaboration: Ferrero Group recognized the
importance of collaboration with suppliers,
farmers, and other stakeholders to achieve
sustainable practices. Through active engagement
and partnerships, they were able to implement
sustainable sourcing practices and improve the
overall supply chain.
2. . Transparency: The case study emphasizes the
significance of transparency in supply chain operations.
Ferrero Group implemented a traceability system that
allowed them to monitor and verify the origin of raw
materials, ensuring they were sourced sustainably and
ethically.
The case study on Ferrero Group highlights the lessons learned from
their efforts to achieve sustainability through supply chain integration.
Here are some key takeaways:
3. Risk Management: Ferrero Group understood the
potential risks associated with their supply chain, such
as climate change and social issues. By identifying and
addressing these risks, they were able to mitigate
negative impacts on their business and enhance long-
term sustainability.
4. Continuous Improvement: The case study highlights
Ferrero Group's commitment to continuous improvement
in sustainability practices. They established a dedicated
CSR team and implemented regular audits to monitor and
assess their supply chain performance. This constant
evaluation allowed them to identify areas for
improvement and implement necessary changes.

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Recommendations
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❖ Set clear sustainability goals: Establish clear and
measurable sustainability goals that align with the
company's values and objectives. These goals should
cover various aspects, such as responsible sourcing,
waste reduction, energy efficiency, and carbon
footprint reduction.
.
❖ Engage suppliers and stakeholders: Actively engage
with suppliers and other stakeholders to promote
sustainability practices throughout the supply chain.
Encourage collaboration, transparency, and
knowledge sharing to drive positive change
collectively.
Based on the case study on Ferrero Group's sustainability through
supply chain integration, here are some recommendations:
❖ Prioritize responsible sourcing: Emphasize
responsible sourcing of raw materials by working
closely with suppliers. Implement mechanisms to
ensure traceability, fair labor practices, and
environmental protection throughout the supply
chain.
❖ Invest in innovation: Foster a culture of innovation
and invest in research and development to find
innovative solutions that improve sustainability in the
supply chain. This could include adopting new
technologies, exploring alternative materials, or
optimizing production processes.

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❖ Monitor and measure performance: Implement robust
monitoring and measurement systems to track
progress towards sustainability goals. Regularly assess
key performance indicators (KPIs) and share the
results with stakeholders to demonstrate
accountability and identify areas for improvement.
.
❖ Continuous improvement: Foster a culture of
continuous improvement by regularly reviewing and
updating sustainability practices. Stay informed
about emerging trends, best practices, and industry
standards to ensure that the supply chain remains
sustainable and resilient in the long run.

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Conclusion
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● The case study emphasizes the importance of risk
management in ensuring long-term sustainability.
By identifying and addressing potential risks
associated with the supply chain, such as climate
change and social issues, Ferrero Group has been
able to mitigate negative impacts on its business.
● Engaging consumers in sustainability initiatives is also
crucial, and Ferrero Group has actively communicated
its sustainability efforts to increase awareness among
consumers. This engagement has influenced
consumer purchasing decisions and further supported
the company's sustainability goals.
● Continuous improvement is another key aspect
highlighted in the case study. Ferrero Group has
established a dedicated CSR team and regularly
conducts audits to monitor and assess supply chain
performance. This commitment to ongoing evaluation
and improvement has allowed the company to identify
areas for enhancement and implement necessary
changes.

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Thank
You
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