This document provides a summary of Nestle Waters Pakistan's distribution network and inventory management practices. It discusses the company's distribution design for both its HOD (Home and Office Delivery) and PET (polyethylene terephthalate) products. For HOD, the distribution network involves reverse logistics as bottles are returned. Factors like cost, facilities locations, and transportation costs influence the design. Inventory management involves tracking physical and digital inventory using SAP software. Differences in managing inventory for HOD versus PET are also outlined. The report provides insights from interviews on trends, controls, and Nestle's relationships with suppliers.

1. LAHORE SCHOOL OF ECONOMICS
SUPPLY CHAIN MANAGEMENT
FINAL PROJECT REPORT
BSc SECTION: C GROUP NUMBER: 6
GROUP NAMES: Aisha Arshad, Ayesha Majid, Mahnoor Babar, and Zainab Mahmood
SUBMITTED TO: MS. MAHVESH MAHMUD
INDUSTRY/ORGANIZATION NAME: FMCG/ NESTLÉ WATERS
TOPIC: DISTRIBUTION & INVENTORY MANAGEMENT
DATE OF SUBMISSION: 26/05/2018
Declaration:
This is report is solely based on the original effort of the group and has not been plagiarized.
Signature(s):________________________________________________________________

2. Nestlé Waters Pakistan 1
Introduction
Nestlé is a multinational Swiss Company operating in Pakistan through its direct
subsidiary Nestlé Pakistan. It has a variety of products including confectionary, cereals, dairy
products, bottled water, and so on. Operating in 189 countries; today, Nestlé is one of the
world’s most leading company. It aims at enhancing quality of life and contributing to a
healthier future.
Operating since 1988, Nestlé Pakistan through a joint venture with MilkPak Ltd. later
took control over management in 1992. It is the leading Food and Beverages Company in
Pakistan mainly aiming at Nutrition, Health and Wellness. One of the major brands is Nestlé
Pure Life that provides safe and pure drinking water. It launched in 1998 being successful
globally. Today, it plays their role as a leading player in the bottled water market globally as
well as in Pakistan. Nestlé Pure Life is available in two basic categories, PET and HOD (Home
and Office Delivery), with the following formats:
 0.33 Liter Fit Bottle
 0.33 Liter Hero Bottle
 0.5 Liter
 1.5 Liter
 5 Liter
 12 Liter (Karachi only)
 18.9 Liter (Home and Office Delivery)
This report is focusing on the distribution network in supply chain and inventory management.

3. Nestlé Waters Pakistan 2
Distribution Network in Supply Chain
Distribution network is the flowchart of a company indicating all possible routes for
flow of inventory, information and other resources to and from different levels of supply chain
both physically and virtually. However, our study only focuses on the physical flow across the
distribution network. Supply chain management has two part planning and execution.
Distribution Network Designing is the core component of the planning stage. It covers all
aspects of supply chain from planning of inventory warehousing to inventory flow across all
levels of the supply chain. At Nestlé more than 100 different control tools are applied on the
product from water source to final bottle packaging, in order to ensure the perfect quality of
the final product (nestle.pk/…/ nestle-pure-life-detail). Thus the distribution network also
covers quality check-points along with logistics. Distribution is half of supply chain, as
mentioned by Mr. Hashim.
Factors influencing Distribution Network
Distribution network is designed on the core base of meeting the customer needs and
the cost associated with servicing them. The main factors which need to be catered by the
companies while establishing their distribution network on these two dimensions are namely,
response time, product variety, product availability in markets, customer experience, order
visibility and product or product part returnability. This translates into warehousing and
transportation expenses, information management cost and facilities costs to the company.
According to the interviewer since their customer is quality conscious and for Nestlé
customer’s value comes first the firm prioritizes quality over cost for their SKU’s. Thus they
deliver value to the customers on ground of product freshness, easy access to the products and
minimal cost to the customer. “Nestlé itself never compromises on its customers and quality”
(Refer to Appendix III, Q2). At Nestlé Waters customers also act as a key factor in distribution
network as the design has three forms based on its customers, Retail Storage with Consumer
Pickup for regular PET consumers, Distributor Storage with Delivery for its corporate PET
customers like Metro, Alfatah etc. and lastly manufacturer storage with direct delivery to
customers for its HOD products.
Designing Distribution Network at Nestlé Waters

4. Nestlé Waters Pakistan 3
Nestlé Waters for its distribution strategy prioritizes lead time, constant availability in
markets, product quality and deliverance of premium experience to its clients (Refer to
Appendix III, Q3). As drinking water is a low innovative product there is not much variety in
the product range nor constant innovation hence, for them, lead time is more about efficient
product replenishment than successful launch of new products.
In designing their distribution route the key factor is length of distance from one point
to another and ultimately from start point to end point as the firm aims at optimizing cost and
time-to-market in its distribution phase. In order to maximize value for its customers while
geographically covering the maximum points of sale across the country.
Due to the dynamics of the categories of products of Nestlé Waters their distribution
design is not based on the product type but on the category of the product (drinking water). The
distinguishing point amongst the two categories in network design is returnablilty factor of the
product.
Since their PET Bottles (polyethylene terephthalate) are disposable bottles they never
come back to Nestlé. Though customers can recycle it. The PET category network design has
one-way product flow to the end consumer, hence is usually done through Nestlé distributors
instead of the company itself, apart from major PET category clients like Metro & Hyperstar.
For the second category; HOD (Home and Office Delivery) reverse logistics is used that is two
way flow of product, to and from the end consumer. For this category the company delivers
the product itself as the container needs to come back to the factory floor. Hence offers doorstep
delivery to its HOD consumers. The HOD category has two SKU’s of Nestlé Pure Life 12 &
18.9 liter bottles.
Design Options for a Distribution Network
Nestlé Waters is present in most distribution channels, including traditional trade,
offices, restaurant, modern trade and homes. The distribution network is designed based on the
HOD and PET rather than on the stock keeping units (SKUs). The distribution network is
basically based on the cost benefit analysis under each category (Refer to Appendix III, Q4).
The distribution network throughout the country is designed in such a way that it ensures that
Nestlé water is easily available to consumers. The company maintains strong relationship with
its customers. The distribution design is channel based, cost based and demand based. Channel
based is where the product is required, whether in the offices, shops, houses etc. The cost varies

5. Nestlé Waters Pakistan 4
under each category as it is designed according. Demand based is when the demand varies
under each SKU’s, for example, in restaurants there is no demand for 5 liter Nestlé water bottle.
The distribution network in Lahore under HOD and PET is same because of the distance.
Distribution Design Under PET
The final product flows through intermediary under PET as the final product first
reaches the distributor and then to the retailer. Under PET, restaurants are also the target
market. The restaurants demand 1.5 liter water bottle and 0.5 litter water bottle (Refer to
Appendix III, Q4). In Quetta, there is only one category that Is PET. (Refer to Appendix III,
Q5).
Distribution Design Under HOD
The distribution design varies under HOD, as the product flows from the manufacturer
to the distributer and the final retailer that includes only office and shops (Refer to Appendix
III, Q4). The distribution design varies primarily due to the cost component. HOD is the reverse
logistics which means that the water bottle returns back to the company so involves incurs extra
cost. The long distance routes are not suited under this category, for this reason the factories
are located near to the final consumers. In the interview, it was discovered that there is only
HOD requirement in Islamabad so plant line is also built. If the water is delivered and
transported through the factory that is situated in Sheikhpura, the delivery cost will be higher
and it would be very expensive for the company to operate under this category. HOD is
primarily cost driven because of return ability factor that is associated with it. In Karachi only,
there is direct selling to the final customers (Refer to Appendix III, Q5).
Direct Selling to the Customers
They only sell directly to its key customers and strong relationship is maintained with
them. The key customer includes Nestlé water are Metro, Macro and Hyper star. The company
value its key customer because they are their global customers and they purchase quantities are
also greater globally and huge amount of revenue is generated from them (Refer to Appendix
III, Q4). Only in Karachi, there is no third party distribution.
Facilities and Distribution Network
The distribution network is designed and altered according to the facilities in the supply
chain. The facilities under HOD are near to the customers because of the cost factor. Location

6. Nestlé Waters Pakistan 5
of factories are planned and located near to the customers to avoid long distance routes.
Locating near to customers ensures freshness, availability and minimizes cost. Facilities
decision has an impact on the transportation and delivery costs (Refer to Appendix III, Q6).
Transportation and Distribution Network
Transportation costs are directly proportional to the location of the factories. If the
water is transported from Karachi to Islamabad, the delivery and transportation cost would be
higher. In the long distance routes product might get damaged and affects the quality (Refer to
Appendix III, Q7). If there is no HOD production line in Islamabad, it would be expensive for
company to meet the demand through transportation form other cities.
Inventory Management
Inventory Management includes process that assure availability of products while
lowering investment costs. There are mainly two types of inventory, physical that includes
tangible materials needed to make the final product like caps, bottles, and logical inventory that
includes databases, use of SAP in this case.
Factors Affecting Inventory Management
It is firstly important to learn that keeping low inventory is the ultimate goal as
inventory is money, and too much or idle inventory is like blocked money. Had this money
been invested elsewhere, one could make profit out of it (Refer to Appendix III, Q18).
According to the interview, forecasting customer demands, studying the market dynamics,
looking at past trends is very important. They also place importance to planning since preparing
for the demand to be catered and ensuring required funds must be there. If this is not done it
leads to another important factor that is, cost. There are three types of cost; raw material cost,
processing cost, and inventory holding cost and one has to make sure these costs do not increase
when too much inventory is tied up (Refer to Appendix III, Q18).
Trends in Inventory Control
It was learnt that Vendor Managed Inventory (VMI) and Customer Managed Inventory
(CMI) were two major phenomenon being used at Nestlé Waters. In VMI, the vendor keeps a
check on the raw material and replenishes inventory as soon as it went below the set level. In
case of bulk even, the vendor takes care of the inventory level, production or purchases. While
in the case of CMI, they keep a check on the inventory in the case of HOD and make sure that

7. Nestlé Waters Pakistan 6
the required stock level and quota system set is being followed. Eventhough sufficient stock is
kept but if stock levels are about to drop, stock is replenished. In the case of their distribution
centers, Nestlé Waters keeps a check on it and no one influences this control, (Refer to
Appendix III, Q9).
Inventory Management Control
Inventory management is surely an incumbent part of a company. At Nestlé Waters,
SAP is engraved within the companies’ operations to ensure complete control and well-
integrated processes. SAP can be customized to a particular customer’s needs. At Nestlé
Waters, SAP has been designed a very advanced way. Rather than tallying inventory 2 times
in a week, weekly or on a monthly basis, they have a daily physical check where the inventory
is counted in the morning. High emphasis is put upon tallying physical and logical inventory
(Refer to Appendix III, Q10). It has been designed in their own way to make sure almost
everyone is using SAP at Nestlé Waters, just that every person carrying a different activity,
like placing orders, how much load to transfer in a truck, and so on (Refer to Appendix III,
Q12).
According to Mr. Hashim, the company used to have local software before the use of
SAP. Adding on, Mr. Ali mentioned they worked more on Excel which was extremely time-
consuming until 2004 when SAP was adopted that saved time and was user-friendly. This
change occurred as automation, controls like traceabiliy, maintaining files, communication,
and information flow have all grown stronger and were not possible with the local software
(Refer to Appendix III, Q14). An example of better control being, if for instance, stock has to
be picked, and 500 cases are reported in SAP, while 50 are to be delivered, SAP will record
450 in it. Now if 100 are delivered, SAP will still have 450 in its system but physically 100
will not be there. Hence, tallying physical and logical inventory is extremely important to
Nestlé Waters.
Not only this, but ease and guidance is also provided by SAP (Refer to Appendix III,
Q11). Mr. Ali mentioned that every palette has an identification number, and SAP knows all
these identification numbers. Adding on he told if they are 1000 palettes from which 50 are to
be delivered and the physical operator delivers 55 instead, SAP will have 50 while 55 have
been delivered, thus a difference of 5 will exist. When the delivery is to be picked, SAP will
tell where the particular delivery is and when it will see that 5 is missing it will give a message
of “Does not exist”. The person picking up the delivery would know that SAP would not let

8. Nestlé Waters Pakistan 7
this happen as those extra 5 are missing. It knows where every palette comes from, where it is
delivered, its location, and so on. Thus, this system also serves better control in the form of
traceability. This is especially helpful in the case of HOD as the concept of reverse logistics
apply and Nestlé Waters needs to know how many bottles are located around Pakistan. Every
palette and location had a barcode but with time there was less use of barcodes but SAP
knowing all identification numbers of all units (Refer to Appendix III, Q11).
Differences in HOD and PET
As mentioned earlier Nestlé has two main categories/businesses in their Pure Life
brand, namely HOD and PET. There are different SKU’s that come under these categories. So,
Nestlé has to cater to both these categories differently, and has to manage inventory differently
for both. HOD is very much different from PET because its bottles are returned to Nestlé so
there is a two way cost incurred in its case, whereas in case of PET once the bottle is out of the
factory it is gone and Nestlé is no longer responsible for it. In HOD’s case Nestlé has to cater
for its reverse logistics as well meaning, that is the inbound inventory for Nestlé. For this Nestlé
looks at the amount of bottles present in the market, how many are there nationwide, how many
are with the distributors and how many are with them. In this way they can analyze how many
more they might need to produce and the inventory they inventory they would need buy for
that. HOD bottles are also very expensive and its production cost is extremely high as compared
to PET. For that reason Nestlé has to make sure that it is not stocking on HOD’s inventory and
is keeping its inventory as low as possible. They also make sure that they only produce that
amount which is needed in that moment.
Inventory management in PET is very different from HOD. This is because it is much
cheaper to produce so Nestlé might stock up on it in advance to fulfill the demand. Also, as
mentioned earlier it is not returned to Nestlé so once the bottles are handed over to the
distributers and once they go out of the factory they are gone and Nestlé is no longer responsible
for it or its management. So, there is a great differences in their costs and also in their logistics.
(Refer to Appendix III, Q16)
Nestlé and its Suppliers
Nestlé has very good relationships with its suppliers as it makes sure that it creates a
win win situation for both parties i.e. it makes sure that whatever is agreed upon benefits Nestlé
as well as the suppliers. This is because Nestlé says that its suppliers are its partners and in

9. Nestlé Waters Pakistan 8
order to succeed both have to walk side by side. As Nestlé is an ethically driven company it
also makes sure that it invests in its suppliers for their development especially when they are
local small time suppliers. This helps such suppliers to grow and in turn benefits Nestlé as well.
Nestlé did this for their bottle suppliers SPEL and Mehran as well. As Nestlé is such a big
company many suppliers, especially local suppliers are always very keen to work with Nestlé,
so they also make sure to maintain good relations with them. Such suppliers also take some
measures to make sure they maintain the good relations with Nestlé and also gain more business
from them, these measures include them willing to keep inventory with them for, for example
20 days so that Nestlé does not have to worry about it.
To make sure that Nestlé manages its inventory smoothly and without any hindrances,
it makes sure that it picks such suppliers that are close to it and which provide lesser lead time,
best quality products, at best rates. Overall, Nestlé works with the best suppliers as it cannot
afford a supplier that will fulfill the order once but will not be able to do so the next time
around. Nestlé does not compromise on its quality, availability, or freshness of product. (Refer
to Appendix III, Q15)
Also, Nestlé and its suppliers work together as partners to make sure that the demand
is met and fluctuations in the demand is forecasted beforehand so no mistakes are made. Nestlé
has warehouses in which inventory is kept, so in case of off season, which is January and
February when demand is low Nestlé covers for 40 days of inventory and in those days the
warehouse is full. In peak season that is May and June the demand is very high and the suppliers
also know that so they also prepare for it in advance and make sure that raw material is ready
for Nestlé to use so the demand is met. It does vary from situation to situation though, in some
cases the inventory is carried by the suppliers and sometimes Nestlé carries all of its own
inventory. Nestlé has a procurement department that makes a sourcing strategy for each of its
materials. (Refer to Appendix III, Q17)
Nestle, Efficient or Responsive?
Nestlé makes sure that it focuses on both responsiveness and efficiency. It believes that
their number one priority is their customer, so they need to keep the customer happy and meet
the demand. They cannot afford to for example lose their customer to another brand just
because their product was not available in a shop. So, to maintain the product’s quality and
make it easily available for the customer is Nestlé main focus. To achieve this responsiveness
is extremely important in their operations. Nestlé is in business because of its customers and it

10. Nestlé Waters Pakistan 9
can only talk about maintaining efficiency as long as it is in business. Efficiency is also very
important for Nestlé in their different processes. They focus on making themselves more
efficient while maintaining responsiveness. If they had to choose they would go for
responsiveness over efficiency. (Refer to Appendix III, Q20)
Conclusion
It has been learnt that there are various factors that influence distribution network and
inventory management where transportation, costs, facilities, information influenced the
former while costs, planning, forecasting influence the latter. Both of these two being
extremely important. As we know now that all planning is done based on the two categories of
Nestlé Waters; HOD and PET. The distribution design and some system controls for inventory
management varies for the two in some aspects while remaining the same on others like HOD
is the one being delivered to customers making its distribution design different from that of
PET. The difference also exists that HOD follows a reverse logistic concept while PET are
never returned. On the other hand, inventory management has been well-integrated amongst
the organization with the help and use of VMI, CMI and SAP. It has an outstanding relation
with its suppliers and key customers that are the major customers that Nestlé Waters cannot
afford to lose. As Nestlé’s number one priority is its customers so it focuses on responsiveness
as it helps it achieve its goal of meeting the demand while maintaining quality and ease of
availability of product to the customers. All in all value provided to the customers and quality
are the two most important factors that Nestlé Waters would never compromise on as the trust
in the brand is based on quality and according to Nestlé Waters customer is the BOSS!