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  1. 1. Oceania Creating Shared Value Report 2008 SOURCING, aGRICUlTURe aNd OUR SUpplY CHaIN WHaT We SaY: as a company which sits right across the food supply chain, Nestlé works to protect the security of its supply, the quality of raw materials available, and enhance rural development and sustainable production. WHaT We dO: Through our Supplier Code and Responsible Sourcing program, we start by ensuring that our suppliers are responsible and sustainable. We are also working with our farmers and also the broader agriculture sector through initiatives such as the Sustainable agriculture Initiative. Our activities also extend to our distribution channels to ensure our finished products get to our consumers safely and efficiently. HOW We’Re TRaCKING: Over 2008, we continued to screen all suppliers against our Supplier Code. In addition, 115 supplier audits, looking at quality, safety and the environment issues, were undertaken. With a large sales force and merchandising teams, the safety of our own employees on the road remains an issue and something we will continue to focus on.
  2. 2. Sourcing, agriculture and our Supply Chain Oceania Creating Shared Value Report 2008 John Pitcher, Senior Technology Manager, Cereal Partners Australia. program advances oats development CaSe STUdY John pitcher leads the oat breeding program for Nestlé and General Mills in australia under the banner of their 50/50 venture Cereal partners Worldwide (CpW). John has been working with Uncle Tobys for nine years. “Oats was once a grain grown largely for If we increase paddock yield and disease animals but is now tagged the ‘super grain’ resistance we actually increase farmers' and has become a mainstream dietary kilograms of oats per litre of fuel used. This ingredient for humans. This has been helps farmers reduce their carbon driven by a greater awareness of the health footprint. It’s a fringe benefit but one that’s benefits which include sustained energy becoming increasingly important. and cholesterol lowering. Our farmers are our life blood. It’s a mutual Oats is traditionally a difficult crop to grow relationship – we want Australian farmers and is vulnerable to disease and climatic to be successful so we can be successful. extremes such as drought and flooding. Since 2004, the breeding program has That’s why we are committed to helping resulted in three new breeds of oats: farmers via the oat breeding program. Possum, Mitika and Yallara. These have Working closely with the South Australian delivered improved crop yields, higher Research and Development Institute quality oats for milling, better appearance, (SARDI) and farmers, we are researching and improved nutrient properties such as and testing new varieties with the ultimate increased levels of beta glucan, a soluble goal of breeding oats which are disease fibre that is associated with lowering and drought resistant, provide better yields cholesterol”. of higher quality oats, and offer increased nutritional value for consumers. A more resilient and sustainable crop could also create greater export market opportunities. Many Australian farmers currently use oat as an ‘off’ crop to supplement their main crop such as wheat. We’d like to make oats more attractive to plant and easier for farmers to get greater returns. page 47
  3. 3. Sourcing, agriculture and our Supply Chain Oceania Creating Shared Value Report 2008 What we say What we do In Oceania, we seek as a company which sits right across the food supply chain, Nestlé works to protect OUR SUpplY CHaIN pROFIle procurement THe ReGIONal aGRICUlTURal CONTexT Current climate projections, including through the latest assessment by the Australian farmers are faced with some of the toughest conditions in the world. In to purchase locally the security of its supply, the quality of raw As you would imagine for a food and beverage Being part of a global business which relies Intergovernmental Panel on Climate 2008, around 84%# of Australian farmers wherever possible. materials available, and rural employment and development. In Oceania, we seek to business, Nestlé is a major buyer of raw materials. Given our diverse product portfolio, on a global food supply chain, means Nestlé Oceania is impacted by global Change (IPCCC), point to this drying trend continuing across Australia and New said they were experiencing adverse seasonal conditions. purchase locally wherever possible. this covers a wide range of agricultural macro-economic issues such as: the Zealand. We are likely to see water security While Australia experienced relatively products and commodities, including, for growing demand for food in countries like problems intensify, leading to potential We buy through the Global Nestlé improved conditions over 2007/2008 example: cereals and grains; cocoa; coffee; China and India because of improving impacts on the amount of produce, quality procurement structure for major (with production levels higher than in the dairy products; fruit and berries; vegetables family incomes; the growing scarcity of of produce, and the reliability of commodities such as coffee and cocoa. We previous drought-affected year) current and sugar. water globally; and the continued poverty, production across the agricultural sector. work with trading organisations to purchase performance continues to track lower than ill health and lack of purchasing power of We are also likely to see reduced cereals and grains and also work directly with distribution recent year averages. over two billion people in rural areas. precipitation and a growing risk of bush farmers and other manufacturers to ensure Our supply chain incorporates our vast fire incidences. For example, compared to 2006, the overall raw material supply and improve distribution channels, taking our products Regionally, our agricultural sector is also 2008 season° experienced a: sustainability practices. from factories all around the region through to being impacted by a range of very Farming and rural development our major customers and retail partners. This specific issues. Agriculture is a key sector for both the We start by ensuring that our suppliers are, at • 24% drop in barley production. covers effective demand and supply planning, Australian and New Zealand economies, the outset, responsible and ethical, including Climate change, drought and warehousing and transportation and generating up to AUD 36 billion† and working closely with the farmers who provide water scarcity • 8% drop in oats production. customer service. NZD 7 billion‡ respectively in gross value us with raw materials and extending right Agriculture is highly vulnerable to climate each year. through to getting our finished products to our impacts. Most of Australia suffered through • 45% drop in wheat production. Our distribution channels include: millions of consumers efficiently and safely. a disastrous ‘one in one thousand year’ In Australia, the sector directly supports drought throughout 2006, with many some 150,000 businesses and is indirectly A general drying trend also brings with it an The issues which affect our farmers and our • Some 2,500 individual product lines. regions experiencing prolonged part of the lifeblood of regional towns all increased prevalence of plant disease suppliers intrinsically affect us as well. By dry periods. around Australia. Farming covers some which affects a number of our key crops, working alongside our primary producers, not • Major warehousing and distribution centres in 55% of Australia’s total land area. Cropping including wheat and oats. only are we able to influence better Arndell Park, NSW; Altona, Victoria; directly accounts for 3% of this. environmental practices, for example, but we Waygunyah, Victoria; and Auckland, Away from the paddock, farmers face a are also able to secure access to high quality New Zealand. range of broader challenges such as and continuous raw materials. commercial management issues (including • Some 15,600 retail partners and customers, enterprise management and farm Along with water and nutrition, rural including major retailers such as Woolworths, planning) and broader societal issues such development is one of our key Creating Shared Coles and Metcash. as succession planning. Value focus areas globally. † Australian Farming in Brief (Australian Bureau of Statistics, 2008). ‡ Agricultural Economies of Australia and New Zealand (ABARE and MAF, 2006). # Principal Agricultural Commodities (Australian Bureau of Statistics, 2008). ° Principal Agricultural Commodities (Australian Bureau of Statistics, 2008). page 49
  4. 4. Sourcing, agriculture and our Supply Chain Oceania Creating Shared Value Report 2008 ReSpONSIBle SOURCING: SeleCTING THe VeRY BeST SUpplIeRS Responsible Sourcing program In a new initiative, our Responsible Quality, food safety and environment We audit our suppliers regularly to ensure pROdUCTION aNd aGRICUlTURe Being inextricably linked to the food supply Working with farmers and managing supply – oats The overarching aim of Globally, we expect our suppliers to Sourcing Program puts the Nestlé Supplier our food safety, quality and environmental chain, means that we must work extremely Nestlé is one of the largest buyers of oats in the Oat Strategy is to conform to the same rigorous ethical, social and environmental standards that Code into practice and aims to improve the social and environmental performance requirements are being adhered to and consistently met. High risk suppliers, closely with buyers, traders and in some cases, directly with our farmers and our region. Being a major player in the oats market presents our business with a range establish long-term we hold ourselves to. of our suppliers. It also seeks to eliminate particularly those that supply raw materials primary producers if we are to achieve of challenges: relationships with a loyal Our new Nestlé Supplier Code, released in any potential risks associated with our suppliers’ non-compliance with our own to Nestlé, are audited every two years. sustainable production. Continuity of supply – seasonal network of growers, and April 2008, builds on out Corporate Code, other social and environmental The supplier assessment covers a range of issues, including food safety, specific This is particularly relevant when we look at the emerging sustainable production conditions continue to affect output, and, in times of challenging conditions, growers encourage farmers to Business Principles and sets out certain non-negotiable minimum standards and norms and local legislation. issues such as GMO (genetically modified agenda. Issues such as fair trade, food tend to shift towards more reliable grains. grow oats for Nestlé. what we expect from our suppliers, their Suppliers operating in ‘high risk’ countries organism) and allergens management, safety and quality, climate change, and Quality – oat quality is extremely employees, agents and subcontractors on will now be required to demonstrate their manufacturing practices, environmental water scarcity can only be truly addressed important for Nestlé’s products and areas such as: compliance with the Nestlé Supplier Code and waste management, and, more through effective partnerships all the way manufacturing processes. through a third party audit. These audits broadly, whether the supplier has the along the food supply chain from ‘farm • Business integrity. allow Nestlé to identify any potential gaps appropriate policies, certification and to fork’. Nutrition – Nestlé seeks additional in our suppliers' operations and work management systems in place. nutritional advantages in oat procurement. Sustainable agriculture Initiative • Sustainable production. closely with suppliers to develop corrective In 2008, 115 supplier audits were Building on the global Sustainable domestic supply – we look to source our actions to fill these gaps. In line with the conducted which is around 14% of the Agriculture Initiative (SAI), co-founded in oats domestically, this is particularly • Labour standards, including child labour, Supplier Code, the audit looks at labour supplier base. 2002 by Nestlé, Danone and Unilever, important in meeting ‘Australian made’ discrimination and working hours. conditions, business integrity, occupational Nestlé Australia was a key initiator of an claims for example. health and safety and environmental Australian chapter, SAI Platform Australia, • Safety and health, including the quality performance. Against this backdrop and to formulate our in 2007. The membership of the Australian and safety of supplied products. long-term approach to oat procurement, Nestlé is also a founding member of an Chapter now comprises 11 of the leading Nestlé’s Procurement Team has industry initiative dedicated to making the agricultural, food and beverage processing • Environmental management. developed a comprehensive Oat Strategy. supplier evaluation process effective and and input supply corporations in Australia. In developing our Oat Strategy in 2008, we efficient. To avoid ‘survey fatigue’, given our The Code also extends to any farmers or With an overarching objective to advance met with a number of oat growers in suppliers are increasingly being asked primary producers which the particular sustainable agriculture, SAI Australia has Western Australia (Kojonup), NSW (Wagga, these questions by other companies, supplier relies on. established seven working groups: Griffith, Wangaratta) and various grain suppliers can utilise SEDEX ('Supplier traders in Victoria and South Australia. The Nestlé Supplier Code is referenced in Ethical Data Exchange'), a web-based data 1. Livestock and Livestock Products These meetings allowed us to understand all Oceania contracts and purchase orders. management platform, to share 2. Climate Change conditions, grower motivations, oat Building on this, we formally assess questionnaires and audit reports with varieties and also provided an opportunity suppliers against a range of explicit many of their key customers. This aims 3. Water to discuss a range of environmental financial and non-financial factors through to avoid multiple assessments 4. Horticulture sustainability issues such as crop rotations our supplier selection process, including and duplication. and tree planting. our Oceania Request For Proposal. This 5. Grains includes issues such as innovation, risk 6. Biofuels management and environmental sustainability. 7. Customer Demand These groups were formally established and began work on a range of initiatives throughout 2008. To better leverage best practice and innovation, the member companies also began sharing experiences, lessons learned and key sustainability initiatives with each other. page 51
  5. 5. Sourcing, agriculture and our Supply Chain dISTRIBUTION – Throughout 2008, we also developed a Nestlé Oceania sits on the Operational TRaNSpORTaTION aNd SaFeTY number of initiatives to make our employees Committee of the RLSC and has also had Spanning the entire Oceania region, our more aware of safe driving practices as well as involvement in the development of products are transported to some 21,000 our policies and requirements. This included principles for ‘time slotting and queuing’ at individual delivery locations. In this process the development of internal videos, a focused dispatch and receipt locations. This brings of getting our products from our factories to campaign around the festive season and also together a common understanding and our customers, the safety of our employees engagement of the senior management team framework on issues such as realistic and contractors is paramount. With our through a comprehensive driving training scheduling and driver fatigue. employees and contractors travelling some program. Over 150 of our Pacific Island WaR ON WaSTe 60 million kilometres each year, road safety employees also undertook driver training in Fiji, Our ‘War on Waste’ initiative seeks to is a particular concern of ours. Papua New Guinea and New Caledonia. reduce all forms of waste across our Improving our safety performance Retail logistics Supply Chain business. This includes reducing wastage We have developed comprehensive Key Code of Conduct and bad goods from our manufacturing Performance Indicators to measure and Nestlé is working with the broader industry and distribution activities. Further improve our safe driving performance. This to promote a safe and efficient transport information can be found in the tracks the total number of accidents (with sector. This has included the development Environment section. or without injuries), total kilometres driven of the Retail Logistics Supply Chain (RLSC) and our Vehicle Accident Frequency Rate Code of Conduct, a voluntary code which (VAFR) which measures the number of prescribes minimum levels of operational accidents against the total number of behaviour to dramatically improve safety kilometres driven. This covers both our across the distribution and supply chain. own employees and also our contractors. This covers a range of issues such as scheduling and transit times, safe loading, Through this improved measurement and driver fatigue, speed compliance, and tracking of road safety issues, we’ve been vehicle safety. The code is made up of able to highlight an area where focus is four components: needed: the road safety of our own employees. The VAFR for our own • The 10-point policy document which is employees (whilst covering a broader endorsed by signatory companies. range – including minor and incidental incidents) remains high at 25.73†. • A guideline document, which sets out the We have now stepped up our focus on this operational and administrative guidelines. issue through a range of policy mechanisms and broader awareness and education • A responsibility matrix, which details the initiatives. To provide oversight and responsibilities of each of the supply leadership of our strategy, we’ve established chain partners. a Safe Driving Committee. Our safe driving policy and standard sets out a range of • An audit tool which identifies non- requirements, including measures such as: conformances and assists in safe driving behaviour; driver training; safety development of corrective actions. of vehicles; journey planning; and reporting of accidents and injuries. † Vehicle Accident Frequency Rate per million km driven.