This is a second part to my article on Nespresso and the introduction to its supply chain.
A SUSTAINABLE SUPPLY CHAIN
THE IMPORTANCE OF SUSTAINABILITY AT NESPRESSO
Nestle understood early in the development of the brand that there was a growing
market for speciality coffee. The same high end market cares about the origin of the
coffee and its sustainability. Increasingly consumers require knowing the origin of the coffee (Riley, T. 2015 and Hunt, 2015). Competitors such as Starbucks or Pret-a-manger claim a traceable and fair trade coffee but are faced by activists due to their unfounded claims often called green washing (Levitt, 2015). Under a bottom-up perspective, Nespresso could and wishes to innovate positioning itself as the sustainable and quality espresso solution.
This corporate strategic position gives them a competitive benchmarking. The
aluminium pods with a single-use having a high footprint as well, it is an easy target
for anyone concerned by ecology. Following the DMAIC (Define, Measure, Analysis,
Improve, Control) cycle, Nespresso targeted a progress of the sustainable
performances of the whole supply chain on the long run, implementing changes
slowly (Sokovic, M., Pavletic, D. & Pipan, K.K., 2010). They focus their effort around
five key factors: climate change, water footprint, biodiversity, energy and human
health.
The first step was taken when Nespresso defined the tackling of this sustainability issue as a business imperative since 1991 with a collection of the used pods (Nestle-nespresso.com, n.d. (a)). In order to measure it, Nespresso has done a Life Cycle Assessment: it is a precise tool to assess carbon’s emission all over the supply network. It evaluates a very broad range of factors in order to target the footprint
reduction (Mena, C., Christopher, M. and Hoek, R., 2014 p191). In this report, Nespresso analysed the weighting of each operation’s footprint. Transport has been shown as producing 4% of the total footprint the chain and the most impact comes from coffee machines and productions of coffee (Nestle-nespresso, 2016). When assessing machines’ footprint, Nespresso took into account their production, the capsules’ life cycle, water supply and such broad factors. Improvements were made
under multiples changes brought to the supply chain thanks to those evaluations.
Nestlé’s achievements include a new machine, called Pixie, using less energy than
the previous ones and mixed transportation put in place adding the use of rail
reducing the impact by 13% between 2010 and 2013 (Nestle-nespresso, n.d (b)).
Nestlé’s The Positive Cup report on environmental performances presents a fall of
20% of a cup of Nespresso’s footprint between 2009 and 2013 (Environmental
Performance – Sustainability infographics., 2013).
This DMAIC cycle seems to be fairly effective for Nespresso while it is a long-term
project that requires deep changes within the organisation. When adding
sustainability to their business imperative, Nestle changed the culture of the
business and focussed efforts on ethic rather than profit. It seems to me to be a
thoughtful change for both the planet and the business’s prospect. Nespresso can
clearly be differentiated in the industry if they become the speciality and ethical
espresso, delighting previous customers and attracting new ones on the Kano
model. Activists are increasingly powerful and implementing changes before they
target your activity is probably wise. Implementing such a long-term plan was
hazardous. Starting in 1991, Nespresso set sustainability goals to be met in 2020.
This required dedication from the company and could have failed or been forgotten
by top management.
Compact supply chain, a win-win for its partners?
The rationalised supply chain allows Nespresso to work directly with raw material
suppliers, being coffee beans farmers and final customers, taking care of all the
operations in between creating intimate relationships (Wilbers, 2015). It empowers
communication between producers and sales, therefore, the supply chain is more
responsive to customer demands or issues due to the suppliers’ mistakes are less
prone to be encountered. They avoid the bullwhip effect: small distortion at the
beginning of the supply chain may be accentuated and lead to bigger inaccuracies at
the end of the supply chain (Slack et al, 2010). A compact supply chain also permits
reducing costs, by withdrawing the middleman – and their profits. Coffee is more likely
to be conform to the high quality standards. Another benefice of this upstream and
downstream extension is Nespresso’s ability to capture customers’ data through
CRM – thanks to the loyalty scheme “Nespresso club”. By knowing customers’ buying habits, an organisation can target more effectively its needs, improving cross-selling and such (Slack et al, 2010). As a manufacturer and retailer, Nespresso can thoughtfully use this information to enhance their organisation as a whole, up to their production and be reactive to market trends.
Nonetheless, this compressed supply chain meets some constraints: Nespresso
itself has to deal with many clusters of farmers which may lead to unpredictability or
variation in the coffee quality because of the numerous suppliers.
To tackle those issues, Nespresso built up close trustful relations to the farmers. It
sources its coffee through the Nespresso AAA Sustainable Quality Program in
partnership with the NGO Rainforest Alliance since 2003. The program should
enhance productivity, quality and sustainability within the farms or clusters. When
joining the programme, farms need to commit to a number of quality requirements
and sustainability efforts that Nespresso chose. The company aims to produce 100%
of their coffee through AAA farms in 2020 (Nespresso.com, 2016). Secondly, in
order to measure the quality of the production, Nespresso needs to receive feedback
from the producers. Rainforest Alliance put a self-assessment questionnaire for
farmers named TASQ. At the end of the supply Nespresso gives quality feedback to
the producers (Doorneweert, 2011). This seems like a win-win partnership for the
company and the farms (Macbeth and Ferguson, 1994). Nespresso gets quality
coffee through trustful partners achieving fair trade and the farmers are able to work
and live under better conditions.
However, Doorneweert (2011) assessed the relationship through a SWOT analysis.
Overall, the flexibility of the relationship benefits the giant because farms need to
meet their own criteria inspired from Rainforest Alliance’s. The coffee company is
very powerful in the partnership. It can research diversity of coffee further into
remote AAA plantations without minding the barrier that could represent meeting
their standards. At the same time, they are able to pressure clusters of farm by
fluctuating their demand. It is likely that Nespresso lowering its demand would result
in farms selling off coffee at lower price to an other actor. Nespresso’s efforts to use
a sustainable and transparent supply network attract stakeholders that are presented
on the website commitments to fair trade or a reducing of capsules’ footprint. This is
a clever move as it may attract investors or clients while entering the fruitful market
of fair trade products (Weber, 2011).
NESPRESSO’S SUSTAINABILITY IMPROVEMENTS
Nespresso implements sustainability in every operational level impacting the
footprint of the production, the life of farmers, the land, its fauna and flora.
Sometimes Nespresso finds partners in the adventure benefiting from their
knowledge in the sector.
Firstly, for their coffee beans through AAA sustainability plan. In coffee plantation
they minded replanting many trees. It brings two benefits: making better coffee
thanks to shading and helping the environment. Trees give shelter to insects and
respect water’s cycle by retention of the water (Purprojet.com, 2016). Nespresso
uses 90 to 95% of Arabica Coffee plantation coffea Arabica which doesn’t have a
high genetic diversity due to its origin in Sudan and Ethiopia, harsh and unique
environment. The specie is therefore very sensitive and unable to adapt a different
environment (Lashermes, et al., 1999). Minding its environment is minding the coffee
beans’ quality, the future of the region and the industry as a whole. Progress has
been done regarding the present and future of workers by improving their working
conditions and the future of the land – that is their heirs’ future. Technoserve is NGO
working with Nespresso. They build and train community in East Africa. It helps
Nespresso’s supply chain in term of capacity and consistence of their production as
well as offering a better income and retirement funds to local communities. This is a
major concern: producers’ average age is 54. Younger generation leave rural areas
and its poverty (Riley, T. 2015). Supporting workers is supporting their wages
allowing next generations to be able to live decently when producing our coffee and
ourselves to drink coffee. They claim to pay 10 to 15% above the market price for
quality coffee and provide funds (IFC) for technical support allowing farmers to
modernise their tools (Doorneweert, 2011). Nespresso improved the manufacturing
stage as well. The last built roasting factory, starting to produce in 2015, uses the
coffee’s renewable roasting heat to heat up the building (Nestle.com, 2012). At the
end of the supply chain, Nespresso added a supply chain back. Capsules are
recycled in public recycling facilities (in 500 towns in France), Nespresso or partner
shops (Nespresso.com, 2016). Afterward, they are dried to separate used coffee and
aluminium. The coffee is reused as a fertiliser to preserve the ecosystem of their
plantation, benefitting both their coffee beans and the land. They collaborate with
Phytorestore, a company specialised in reusing coffee as an agricultural fertiliser.
The aluminium starts a second life. For instance, 3000 tonnes of pods are recycled
in Rungis’ recycling centre (France).
Evaluation of Nespresso performances
The very own system used by Nespresso machines is hard to reconcile with low
footprint “the result [of disposable pods] is enough rubbish to circle the planet more
than ten times” wrote Vogt (2015). Other companies such as Lavazza released
biodegradable coffee pods or bags for Keurig (Vogt, 2015). Overall, Nespresso
engagement concerning sustainability show genuine efficient progress. They
implemented changes very methodically working on every operation within the
supply chain. Although many actors entered the “high-end professional coffee
market” with home or cafe solutions since Nespresso debuted, most of them do not
perform well regarding the sustainability of their chain. This aspect could set them
apart from their competitors, achieving a profitable competitive benchmarking and
staying in a niche market. With those performances, Nestle closed any value-mission
gap within the organisation.
Nespresso supply chain was designed by the giant food company Nestle. After
redesigning the business model, Nespresso succeed in its market. The hybrid supply
chain is efficient in bringing quality, Nespresso’s core value, with the right timing
avoiding image-value gaps. The mix between agile downstream and lean upstream
allows the organisation to minimise cost and waste while adapting the market and
being responsive to changes. Thanks to the compact aspect of the supply chain,
Nespresso developed useful partnerships based on trust with its partners, reduced
cost and empowered its reactivity. Operations deliver what marketing promised with
consistency. While this supply chain seems well-thought and polished, constant
improvements are needed as the company evolves in a fast-growing innovative
environment. New threats rose such as the expiration of some patents that enabled
Nespresso to have a monopoly on capsules used with their machines thus luxurious margins. Other companies start developing capsules often being easily recyclable playing on Nespresso’s weakness. However, the latter reacted efficiently to sustainability issues planning 30 year-long of improvement of supply chain’s sustainability.
In the future, Nestle could apply Pareto principle: 80% of the sustainability issue are
due to 20% of the supply chain operations. They would be able to focus on a vital
issue, solve it and improve drastically their performances.
The references are in the previous post.
Unwrapping the Supply Chain 