2016
2017
2018
Nestle Three Years
Income Statement
FINAL TERM PROJECT REPORT
RABBIA IJAZ
SADIA SARFRAZ
SHANZA AHMAD
1724106004
1724106005
1724106008
BBA 4TH SEMESTER
LAHORE COLLEGE FOR WOMEN UNIVERSITY,
JHANG CAMPUS
Acknowledgement
Praise and thanks to ALLAH ALMIGHTY, the lord of universe who is either of all
knowledge and wisdom to mankind. We bow our head in gratitude o almighty Allah
who blessed us with the capability to complete our project, which was challenge for
us.
“We the group members would like to avail this opportunity to thank our course
instructor of Cost Accounting MA’AM SUMAIRA RAFEEQ for stimulating our
creative abilities by assigning this project to us and for her able guidance and useful
suggestions, which helped us in completing our project in time.
The report submitted today is a result of collective efforts. Writing this report
appeared to be a good experience for us. It added a lot to our knowledge.
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Table of contents
❖ Executive summary
❖ Introduction of the company
❖ History of Nestle
❖ Philosophy of nestle
❖ Nestle Pakistan history
Nestle Pakistan
Vision and strategy
4
5
6
10
10
10
10
❖ Business environment of nestle
Classification of business environment
✓ Internal environment
✓ External environment
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11
11
11
❖ Marketing environment of nestle
13
Perfect competition
Monopolistic
Oligopoly
Monopoly
14
14
14
14
❖ Swot analysis
❖ Nestle business strategy
15
Product development at nestle
Product life cycle of nestle
Components of nestle Pakistan
Classification of products
✓ Consumer products
✓ Industrial products
Nestle product strategy
✓ Product line
Nestle pricing strategy
✓ Discount
Nestle promotion strategy
✓ Promotion-mix
Nestle placement strategy
✓ Company network
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28
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31
31
33
33
❖ Product and support services
❖ Factories of nestle in Pakistan
❖ Mission and Vision statement
❖ Nestle three-year income statement
❖ Important costing methods
❖ Nestle costing method
❖ Recommendations
❖ Conclusion
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Executive Summary
This is an informative project in Nestle Pakistan private limited in this project we
have described how nestle came into being internationally and in Pakistan. Through
our research we found out how much nestle cares about its customers. Good food
Good life is the principal they always follow. we have described the marketing
strategies and business strategies of nestle uses and we have explained their
performance of nestle.
Nestle Pakistan limited formally known as nestle Milk Pak limited is subsidiary of
nestle a company of Swiss origin headquartered in Vevey, Switzerland. It is listed
on Karachi and Lahore stock exchanges. For 5 years in a row the company has
successfully placed itself amongst top 25 companies of KSE. Its principal activities
are to manufacture process and sell food product, Noodles baby food, and infant
formula milk and breakfast cereals in Pakistan.
Nestle is a low-cost leader with its efficient operations hence it provides its
customers with high quality products and sells them at a premium price. Therefore,
it is earning good profits. Nestle has set its manufacturing plants at in Karachi,
Lahore, Islamabad and Kabir Wala. The milk processing plant at Kabir Wala district
is the Nestle’s world largest milk processing plant.
When nestle introduced its products in Pakistan people were neither aware nor
accustomed to them. Therefore, nestle ran an extensive marketing campaign to
educate people and create need for its products.
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Introduction
Nestlé was founded in 1866 by Henri Nestlé and is today the world's biggest food
and beverage company. Sales at the end of 2005 were CHF 91 bn, with a net profit
of CHF 8 bn. Nestlé employ around 250,000 people from more than 70 countries
and have factories or operations in almost every country in the world.
The history of Nestlé began in Switzerland in 1867 when Henri Nestlé, the
pharmacist, launched his product Farine Lactée Nestlé, a nutritious gruel for
children. Henri used his surname, which means ’little nest’, in both the company
name and the logotype. The nest, which symbolizes security, family and
nourishment, still plays a central role in Nestlé’s profile.
As the years have passed, the Nestlé family has grown to include chocolates, soups,
coffee, cereals, frozen products, yoghurts, mineral water and other food products.
Beginning in the 70s, Nestlé has continued to expand its product portfolio to include
pet foods, pharmaceutical products and cosmetics too. Today, Nestlé markets a great
number of products, all with one thing in common: the high quality for which Nestlé
has become renowned throughout the world
Nestlé's existing products grow through innovation and renovation while
maintaining a balance in geographic activities and product lines. Long-term
potential is never sacrificed for short-term performance. The Company's priority is
to bring the best and most relevant products to people, wherever they are, whatever
their needs, throughout their lives.
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History of Nestlé
1866-1905
The key factor which drove the early history of the enterprise that would become
The Nestlé Company was Henri Nestlé's search for a healthy, economical alternative
to breastfeeding for mothers who could not feed their infants at the breast. Nestlé’s
first product was called Farine Lactée (“corn flour gruel” in French) Henri Nestlé.
Nestlé's first customer was a premature infant who could tolerate neither his
mother's milk nor any of the conventional substitutes and had been given up for lost
by local physicians. People quickly recognized the value of the new product, after
Nestlé's new formula saved the child's life and within a few years, Farine Lactée
Nestlé was being marketed in much of Europe. The Anglo-Swiss Condensed Milk
Company, founded in 1866 by Americans Charles and George Page, broadened its
product line in the mid-1870s to include cheese and infant formulas. The Nestlé
Company, which had been purchased from Henri Nestlé by Jules Monnerat in 1874,
responded by launching a condensed milk product of its own. The two companies
remained fierce competitors until their merger in 1905.Some other important firsts
occurred during those years. In 1875 Vevey resident Daniel Peter figured out how
to combine milk and cocoa powder to create milk chocolate. Peter, a friend and
neighbor of Henri Nestlé, started a company that quickly became the world's leading
maker of chocolate and later merged with Nestlé. In 1882 Swiss miller Julius Maggi
created a food product utilizing legumes that was quick to prepare and easy to digest.
His instant pea and bean soups helped launch Maggi & Company.
1905-1918
The Company formed by the 1905 merger was called the Nestlé and Anglo-Swiss
Milk Company. By the early 1900s, the Company was operating factories in the
United States, Britain, Germany and Spain. In 1904, Nestlé added chocolate to its
range of food products after reaching an agreement with the Swiss General
Chocolate Company. Condensed-milk exports increased rapidly as the Company
replaced sales agents with local subsidiary companies. In 1907, the Company began
full-scale manufacturing in Australia, its second-largest export market. Warehouses
were built in Singapore, Hong Kong, and Bombay to supply the rapidly growing
Asian markets. Most production facilities remained in Europe, however, and the
onset of World War I brought severe disruptions. Acquiring raw materials and
distributing products became increasingly difficult. Fresh-milk shortages
throughout Europe forced factories to sell almost all their supplies to meet the needs
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of local towns. Nevertheless, the war created tremendous new demand for dairy
products, largely in the form of government contracts. To keep up, Nestlé purchased
several existing factories in the United States. By war's end, the Company had40
factories, and its world production had more than doubled since 1914.
1918-1938
The end of World War I brought with it a crisis for Nestlé. Government contracts
dried up following the cessation of hostilities, and civilian consumers who had
grown accustomed to condensed and powdered milk during the war switched back
to fresh milk when it became available again. In 1921, the Company recorded its
first loss. Nestlé's management responded quickly, bringing in Swiss banking expert
Louis Dapples to reorganize the Company.
1938-1944
The effects of the onset of World War II were felt immediately by Nestlé. Profits
dropped from $20 million in 1938 to $6 million in 1939.
Neutral Switzerland became increasingly isolated in a Europe at war, and the
Company transferred many of its executives to offices in Stamford, the first truly
global conflict ended forever the traditional Company structure. To overcome
distribution problems in Europe and Asia, factories were established in developing
countries, particularly in Latin America. Ironically, World War II helped speed the
introduction of the Company's newest product, Nescafé. After the United States
entered the war, Nescafé became a staple beverage of American servicemen serving
in Europe and Asia. Annual production levels reached one million cases by 1943.As
in World War I, production and sales rose in the wartime economy: Nestlé's total
sales jumped from $100 million in 1938 to $225 million in 1945. As the end of the
war approached, Nestlé executives found themselves unexpectedly heading up a
worldwide coffee concern, as well a company built upon Nestlé's more traditional
businesses.
1944-1975
The close of World War II marked the beginning of the most dynamic phase of
Nestlé's history. Throughout this period, Nestlé's growth was based on its policy of
diversifying within the food sector to meet the needs of consumers. Dozens of new
products were added as growth within the Company accelerated and outside
companies were acquired. In 1947, Nestlé merged with Alimentana S.A., the
manufacturer of Maggi seasonings and soups, becoming Nestlé Alimentana
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Company. The acquisition of Crosse & Blackwell, the British manufacturer of
preserves and canned foods, followed in 1960, as did the purchase of Findus frozen
foods (1963), Libby's fruit juices (1971) and Stouffer's frozen foods (1973).
Meanwhile, Nescafé continued its astonishing rise. From 1950 to 1959, sales of
instant coffee nearly tripled, and from 1960 to 1974, they quadrupled.
1975-1981
After the agreement with L'Oréal in 1974, Nestlé's overall position changed rapidly.
For the first time since the 1920s, the Company's economic situation deteriorated as
the price of oil rose and growth in the industrialized countries slowed. In addition,
foreign exchange rates deteriorated with the French franc, dollar, pound sterling,
and mark all losing value relative to the Swiss franc. Finally, between 1975 and
1977, the price of coffee beans quadrupled, and the price of cocoa tripled. As in
1921, the Company was forced to respond quickly to a radically changed market
place. Nestlé's rapid growth in the developing world partially offset a slowdown in
the Company's traditional markets, but it also carried with it the risks associated with
unstable political and economic conditions. To maintain a balance, Nestlé made its
second venture outside the food industry by acquiring Alcon Laboratories, NC., a
U.S. manufacturer of pharmaceutical and ophthalmic products. Taking such a step
in a time of increased competition and shrinking profit margins required boldness
and vision. Even more than the L'Oréal move, Alcon represented a leap into
unknown waters for Nestlé. But, as Group Chairman Pierre Leotard-Vogt noted,
"Today we find ourselves with a very wide range of activities, all of which have one
thing in common: they all contribute to satisfying the requirements of the human
body in various ways."
1981-1995
Under a new Chief Executive Officer, Helmut Maucher, Nestlé approached
the1980s with a renewed flexibility and determination to evolve. The Company's
strategy for this period was twofold: improve its financial situation through internal
adjustments and divestments, and continue its policy of strategic acquisitions. Thus,
between 1980 and 1984, the Company divested a number of non-strategic or
unprofitable businesses. At the same time, Nestlé managed to put an end to a serious
controversy over its marketing of infant formula in the Third World. This debate
had led to a boycott of Nestlé products by certain lay and religious organizations.
This issue is still alive in some quarters, but there is no longer any significant boycott
activity. In 1984, Nestlé's improved bottom line allowed the Company to launch a
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new round of acquisitions, including a public offer of $3 billion for the American
food
1996-2002
The first half of the 1990s proved to be a favorable time for Nestlé trade barrier
scrambled and world economic markets developed into a series of more or less
integrated trading areas. The opening of Central and Eastern Europe, as well as
China, and a general trend towards liberalization of direct foreign investment was
good news for a company with interests as far-flung and diverse as Nestlé. While
progress since then has not been as encouraging, the overall trends remain positive.
In July 2000, Nestlé launched a Group-wide initiative called GLOBE (Global
Business Excellence), aimed at harmonizing and simplifying business process
architecture; enabling Nestlé to realize the advantages of a global leader while
minimizing the drawbacks of size. There were two major acquisitions in North
America in 2002: in July, Nestlé announced that the U.S. ice cream business was to
be merged into Dreyer's, andin August, a USD 2.6bn acquisition was announced of
Chef America, Inc., a leading U.S.-based hand-held frozen food product business.
Also, in 2002, the joint venture Dairy Partners Americas was set up with Fonterra
and Laboratories innéov was set up, another joint venture, this time with L'Oréal.
2003 +
The year 2003 started well with the acquisition of Mövenpick Ice Cream enhancing
Nestlé's position as one of the world market leaders in this product category. The
years that followed saw consistent business growth through innovation and
renovation of the products. In 2006, Jenny Craig, the USA weight management
company and Uncle Toby’s were acquired as well as Delta Ice Cream. Nestlé made
three significant acquisitions in 2007. The first was Novartis Medical Nutrition
which put Nestlé in a a strong number two position globally for healthcare nutrition.
Gerber, the iconic US baby food brand was the second acquisition and the third was
the Swiss water company, Sources Minérales Henniez S.A. The end of 2007 was
marked by a strategic partnership with the Brussels-based luxury chocolate maker
Pierre Marcolini.
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Philosophy of Nestlé
Nestlé ‘s philosophy is summed up in four words:
Good Food, Good Life.
In their quest to become the world's leading health, nutrition and wellness company,
they do everything they can to help people live more fulfilling lives.
Good Food, Good Life
who make up the Nestlé family are their source of strength and energy? Realizing
this, Nestlé offer them constant professional development, and feel their cultural
diversity is one of greatest assets
Good Ingredients
Three vital ingredients lie at the heart of Nestlé and come together in their brands.
Their people, their research and development, and their commitment to quality.
The 250,000 dedicated people who make up the Nestlé family are their source of
strength and energy. Realizing this, Nestlé offer them constant professional
development, and feel their cultural diversity is one of greatest assets.
Nestlé Pakistan History
Nestlé Pakistan
Nestlé has been serving Pakistani consumers since 1988, when their parent
company, the Switzerland-based Nestlé SA, first acquired a share in Milkpak Ltd.
Today they are fully integrated in Pakistani life, and are recognized as producers of
safe, nutritious and tasty food, and leaders in developing and uplifting the
communities in which they operate.
Vision and Strategy
The Nestlé global vision is to be the leading health, wellness, and
NutritionCompany in the world. Nestlé Pakistan subscribes fully to this vision. Inp
articular, they envision to:
❖ Lead a dynamic motivated and professional workforce – proud of its heritage
and bullish about the future.
❖ Nestlé brands are the preferred choice in their categories. Consumer insight
drives all aspects of their marketing and communication efforts.
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❖ Their communications to the consumer are relevant, cutting-edge, andadhere
to the highest standards of responsible communication.
❖ Nestlé Company is seen as the No. 1 career destination for talented,
motivated and ambitious professionals.
❖ Their result-oriented organizational structure ensures effective
communication and empowered self-management.
❖ Their proactive innovation and renovation culture are the key to their success
in the marketplace.
Business environment of Nestle
The business environment is the aggregate of all conditions, events, and influences
that surround and affect a business firm. Business environment generally refers to
the external factors affecting, either positively or negatively, the operation of
affirm.
Classification of Business environment
1. Internal Environment
2. External Environment
1)
Internal Environment
Environment in the organization include
1.
2.
3.
4.
Man
Machine
Material
Management
2)
External Environment
Environment Out of organization
A. Macro Environment
a) Government
b) Political factors
c) Social factors
d) Cultural factors
e) Demographic factors
f) Economic factors
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B. Micro Environment
a. Human resources to include jobs, hygiene, security
b. Company Board
c. Management structure
Political Factors:
Nestle serves in several countries. The rules and regulations set by the government
are different in different regions. Nestle should focus on these political dynamics
like taxation, import export excise duties, government permission to enter in to the
target segment and also to introduce hygiene products allowed by the regulated
bodies. Moreover, in the contemporary trends keeping in view the government
stability, nestle should consider and recognize all the related risks that could be
involved. Nestle should also consider the changing global regulations which are yet
to adopt by the company. Albeit nestle is such an organization which in real sense
promote the government health policies by maintain the quality standards and rules
and regulations.
Economic Factors:
Different countries have different level of development. Economy of countries
differs everywhere. So, nestle has to set different economic policies for different
targeted segments. The price of the product is an important decision to take while
strategizing the economic policies according the inflation rate and the buying power
of the segments. Nestle company should made an analysis report on frequent basis
to get the knowledge of the inflation rates and different income levels. Nestle is
contributing a lot in promoting the economic worth of farmers by producing the
products at a local level for the satisfaction of the consumer.
Social Factors:
The shared thoughts and beliefs of the customers influence the business operations.
The culture, life style, norms and values force Nestle to deliver the specific product
to the right segment. Nestle so far has considered the social perspective well. The
company has well understood the concept that consumers changing attitude has
immense importance. People are now very much prone to the healthy life style.
Nestle has made a good reputation of understanding and evaluating the consumers
behavior and the related dynamics. Nestle is a global brand but the product has been
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produced locally in order to sustain the quality. Adherence to the strong values and
principals has always been the priority of the company that assists in building the
trust on the consumers.
Technological Factors:
Technology gives many opportunities for the development of new products or
improvement of existing ones. New techniques of marketing such as internet and ecommerce are important to focus in this modern era. Therefore, nestle uses
technology in several business operations like to maintain the databases with the
help of software. The rampant use of social media has narrowed the gap between
the direct interaction of consumer and the company. Nestle is already using the stateof-the-art technology for the production of various products, they are meeting the
global standards by installing the contemporary plants.
Legal Factors:
Legal factors involve the legal environment of a company and its influence on the
operation to meet the demand and minimize the cost. For instance, nestle has to
follow the health and safety laws for their employees and also to produce hygiene
products for the customers. Nestle need to focus on these too while operating in
different regions of the world.
Environmental Factors:
Today the world is more conscious to have clean environment. Nestle need to focus
on these rules and regulations also to produce healthy food with environmentally
friendly operations. Several countries set different rules, so to increase the
acceptance of the products by the targeted segment the rules are significant to
follow. Nestle has also been taking into account the considerable attention towards
the social contribution. The other related concerns are the realm of recycling and the
issues pertaining to the packing.
Marketing Environment of Nestle
Vision
“Nestlé Norden’s aim is to meet the various needs of the consumer every day by
marketing and selling food of a consistently high quality.”
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To achieve this vision Nestle has two steps to follow, first is High quality and
collaboration, which is integral part of any food business to flourish and second is
Focus on e-business and websites. Nestle has started investing heavy in
development of e business and its promotion so as to capture clients in e business
sphere also.
There are mainly four type of market structure:
Perfect competition: In this type of structure products are developed by
using most efficient technique. It can be described as a market structure where
competition is at its greatest possible level. Firms are producing homogeneous
products and they have no control over the supply and prices of products in market
(Hurn, 2011). Nestle set their competitive prices in order to produce unique products
and increase their market share.
Monopolistic Competition:
In this type of market structures there are
no competitors of the organizations. According to this firms are required to increase
their prices and profits. They need to reduce supply of products.
Oligopoly: In this structure there is less competition in market. As there are few
companies in the market and they need to reduce output in market. Organizations
are only one who can make and decide their prices according to their product quality.
In this type of market firms can gain profit by making higher prices. Nestle set their
product prices according to their customers in order to get a successful business.
Monopoly: It is one of the organizations which have no competitors. It can be
described as an individual or organizations have all the control over the supply of
products. They are the only price maker and they can set the product priced
accordingly (Laborde, 2005). They can make higher profits in their market share
and achieve higher competitive advantage. NESTLE has develop its brand image
and due to this they are price maker of their products.
Nestle Brand Equity
Nestle has been serving this world for over one hundred and thirty years. Over all
these years nestle has successfully gained people’s trust, hence they are even ready
to pay premium price for nestle products, because they know that they are buying
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something valuable for their money. Nestle has differentiated itself with its highquality products, it has positioned itself as health and nutrition company and targets
health conscious people around the globe. Therefore, nestle has got a very strong
brand equity.
SWOT Analysis of Nestle
Strengths
Global food producer, located in over 100 countries. Consistently one of the world’s
largest producers of food products, Global sales in 2008 topped $101 billion. Nestlé
provides quality brands and products and line extensions that are well-known, topselling brands. Successful due in part to their unquestionable ability to keep major
brands consistently in the forefront of consumer’s minds (and in their shopping
carts) by renovating existing product lines, keeping major brands from slipping into
saturation/decline and having superior access to distribution channels.
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Weaknesses
Growth in their organic food sales division was flat in 2008, even though the
industry grew 8.9%.
Nestle Ghana lack of rural market promotion. Products are not affordable by
common people.
Opportunities
In today’s health conscious societies, they can introduce more health-based
products, and because they are a market leader, they would likely be more
successful. Provide allergen free food items, such as gluten free and peanut free.
They launched a new premium line of higher cocoa content chocolates dubbed
Nestlé Treasures Gold, in order to cash in on the “recession economy” in which
consumers cut back on luxury goods, but regularly indulge in candy and chocolate.
Opened Nestlé Café’s in major cities to feature Nestlé products. Nestle strategy in
Ghana was to ensure high awareness of its brands, widespread distribution and
quality of its products which helps trounce its competitors in the cocoa beverage
market with its theme of good health, growing up and success as closely related to
its products.
Threats
Any contamination of the food supply, especially e-coli. Raw chocolate ingredient
prices are soaring; dairy costs alone rose 50% in 2008, this cuts heavily into their
profit margins and often gets passed on to consumers, by shrinking the packaging in
a way that is almost unnoticeable-therefore the consumer is paying the same prices
for less product. They have major competitors, like Cadbury Schweppes Ghana Ltd,
NABB Brothers, Cocoa Processing Company, Allied Cocoa Products Ltd and Kings
Cocoa Processing Company Ltd (KCPCL). The external economic environment was
increasingly hostile and risky with the rapid increases in inflations; high interest
rates and the high level of currency instability were leading them to increase the
prices.
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Nestle Business Strategy
Nestle has a wide range of products across a number of markets including almost
every different type of food and beverage! We sell everything from baby food and
bottled water to cereal and healthcare nutrition products. Our biggest brands include
Nescafé, KitKat, Nespresso, Maggi, Toll House and Milo.
The definition of strategic marketing is usually divided into four
functional areas.
Marketing includes having something for people to buy, finding people who will
buy, encouraging people to buy, and providing value. Together, these objectives
form a picture of strategic marketing. To more easily remember these objectives,
marketing is often described as The Four P's:
❖ Product
❖ Place
❖ Promotion
❖ Price
Product Development at Nestle
Nestlé is probably unique in the food industry in having an integrated research and
development program that engages in applied and basic research in the fields of
human physiology, health, nutrition and raw materials. Its research and development
program give it the capacity to create new types of products that we cannot even
imagine today, especially in the critical area where preventive medicine and food
products overlap. In addition, as concern for the environment grows, research will
play an important role in overcoming environmental problems. For Nestlé, this is
particularly important in packaging. Concern for the effects of packaging on the
environment is forcing it to look for new solutions and to consider their interaction
with our biological product food.
The Nestlé research and development centers have two main tasks: to create new
products and manufacturing processes and to improve those that already exist. These
centers play a key role in product safety and quality and also have their role in
conserving resources and protecting the environment. Environmental concerns are
an integral part of any development process to ensure that our future commercial
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operations meet the desired criteria. The Nestlé Research Center provides the
scientific support needed to prevent and solve environmental problems arising in the
development groups as well as manufacturing.
Nestle Products Life-Cycles
Nestle deals in eatables whose lifecycle is as old as the humanity itself, therefore
nestle products enjoy a long life-cycle. Not only this nestle keeps on innovating new
products keeping in view the changing global needs and also renovating the existing
products, for example nestle introduced calcium fortified corn flakes and fruity
yoghurt.
Components of Nestle Pakistan
Nestle Product Classification:
Nestle deals in both type of products:
1)consumer products
2)industrial products
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Consumer Products by Nestle:
The type of consumer products in which nestle deals are basically convenience
products that consumer usually buy frequently, immediately and with a minimum
of comparison and buying effort. Nestle provide superior quality products in
Pakistani market, that is the reason they achieved a bigger market share of consumer
convenience products in a short period of time. Nestle is a market leader difficult to
compete.
Industrial Products by Nestle:
Though nestle deals in eatables only but its products are also used as industrial
products. Nestle products are used as manufactured materials in restaurants, or
example nestle juices are served at hotels like Pc, Avari and Holidayinn for
breakfast, moreover its products like cream, yoghurt, cornflakes etc. are the part of
several recipes served at restaurants. Nestle also provide vending machines like
coffee vending machine and juices vending machines at hotels, restaurant, colleges
and offices, it also provides services regarding to these machines.
Nestle Product Strategy
Nestle product mix includes processed food items and hot and cold beverages.
Nestle Product Line:
A list of nestle product lines is given below:
• Milk Dairy & Chilled Dairy:
• Nestle Milkpak
• Nestle Nesvita
• Nestle Nido
• Nestle Neslac
• Nestle Everyday
• Nestle Yogurt
• Nestle Fruit Yogurt
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• Nestle Raita
• Nestle Cream
• Beverages:
• Nescafe
• Nestle Milo
• Nestle Juices
• Nestle Instant Drinks
• Bottled Water:
• Nestle Pure Life
•Ava
• Baby Food:
• Nestle Cereal
• Prepared Meals:
• Maggi 2-Minute Noodles
• Breakfast Chocolate & Confectionary:
• Nestle KitKat And KitKat Chunky
• Polo
Details of products in Pakistani market is given below
Nestle Milk Dairy & Chilled Dairy:
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• Nestlé Milkpak
Pure, rich and delicious Nestlé Milkpak standardized UHT milk benefits from
Nestlé’s expertise in bringing you the very best life has to offer and benefits from
140 years of consumer trust. Our extensive milk collection system ensures that the
milk you get is of the finest quality. Encourage your family to exercise regularly,
eat a healthy, well-balanced diet and drink pure, nutritious milk for good health.
Milk is a must-drink for your children as it is a rich source of Calcium that helps in
the growth and development of strong bones and teeth. It is equally beneficial in
keeping grown -ups’ bones strong. So, live to the fullest and enjoy the pure,
wholesome goodness of milk with
• Nestlé Nesvita
Low Fat Hi-Calcium Milk & Yogurt Stronger Bones, Smarter You!
Did you know that your body loses a certain amount of Calcium every day that must
be replenished on a daily basis? Since your body cannot produce Calcium, you must
ensure that you get enough of it in your daily diet. If you are set for an active and
healthy lifestyle then you need to get the strength your bones. Nestlé Nesvita Milk
is available in two handy sizes: 1000mland 200ml. Nestlé Nesvita Yogurt is
available in a 450g tub packaging.
Source: Food & Nutrition Board, National Research Council Recommended Dietary
Allowances (Revised 1989) One glass is 250 ml One serving is of 125 gm.
• Nestlé Nido
Sehatmand bachay, sehatmand mustakbil!
Children grow very quickly and so do their developmental needs. That is exactly
why Nestlé has developed Nido Nutrition System that understands the nutritional
needs of your children at all stages of growth.
• Nido Nutrition System
As a part of the Nido Nutrition System, Nestlé Nido 1+, 3+, 6+ and Nido Fortified
comprise a series of Nestlé’s milk powders that address the developmental needs of
children according to their age and nutritional requirements.
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• Nestlé Neslac
Growing-up Milk for 1, 2 & 3 years of age
As a mother you want the best for your child and almost always worry about his/her
health. But are you completely sure if your child is getting sufficient nutrition for
his or her good health and development? Many of you may not be so sure. Children
between 1 to 3 years of age experience rapid growth and strong height and weight
gains making their nutritional requirements unique. That's why we have Nestlé
Neslac, growing-up milk for children 1-3 years of age. Nestlé Neslac provides the
right vitamins and minerals in the right proportions that your little one needs at this
particular age. Nestlé Neslac is available in Honey flavor and is enriched with the
right balance of Protein, Iron, Calcium and Multivitamins to help give your child a
strong and healthy foundation for life!
• Nestlé Everyday
Mazaidar Chai Har Bar Perfect Cup of Tea, Every Time
We love tea; our day doesn’t begin without it! When it comes to choosing the milk
for your favorite cup of tea why should you settle for any ordinary milk? Nestlé
Everyday dairy tea whiter, made from pure fresh milk gives you that perfect rich
taste that only specialized milk can, so you can enjoy the same delicious cup of tea
each time! For your convenience Nestlé Every day is available both in powder and
liquid forms:
• Nestlé Yogurt
Nestlé Yogurt is simply nutritious and delicious! It is a popular and preferred
accompaniment to our rich desi cuisines and palate! It contains the dairy goodness
and benefits of milk with live cultures that help the digestive system function
smoothly. Use Nestlé Yogurt for making chilled lassi, to refresh yourself or help
settle your stomach or just enjoy its creamy taste on its own. Moreover, use Nestlé
Yogurt to make some coleslaw, jazz up the typical boring green salad with a
spoonful or two or enjoy it straight ‘n simple as your breakfast accompaniment.
• Nestlé Fruit Yogurt
Nestlé Fruit Yogurt, a mouth-watering treat with real fruit chunks in sweet creamy
yogurt, takes the yogurt experience up a few notches! It is by far the delicious,
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healthier alternative to any other snacks – loved by kids and grown-ups alike. It is
easily digestible and a good source of Calcium too!
• Milk Pak Cream
Pour it on pure ‘n thick for that soft, rich, velvety flavor that is Milk Pak Cream. Its
silky creamy texture is ideal with strawberries or mangoes! Some prefer to give their
coffee a swirl for that creamy finishing touch or puta generous dollop on their naan
(round flatbread). Milk Pak Cream is ideal for desserts, an assortment of toppings
and to put a rich spin on whatever you fancy!
• Nestlé Raita
If you weren’t happy with the raita (local Pakistani cuisine condiment) served last
that was anything but delicious or the one you had with the chicken tikka at a dinner
party had gone sour, take heart .For reasons of health, convenience and hygiene, life
should be simpler when it can be made simpler: with Nestlé Raita you can now
indulge your taste buds with the flavor that is just right to compliment your meal.
Milk Pak Desi Ghee
Har Ghar Ki Lazeez Rewaiat!
There's nothing like the rich traditional flavor of food cooked in desi ghee. Whether
it's the finest halva, tarqa on the daal or your grandmother's delicious korma, Milk
Pak Desi Ghee adds the magnificence to your menu. With Milk Pak Desi Ghee you
can be assured of top quality. Milk Pak Desi Ghee is available in 870g packaging.
Nestle Beverages:
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• Nescafe
Jaago!Come Alive!
Stimulate your mind. Awaken your soul. Arouse your senses. Come alive with
Nescafe. Every great tasting cup of Nescafe is rich, aromatic and favorable. It is
frothy, intense and indulging; bold and satisfying…Serve it hot or icy cold; strong
black or milky, the Nescafé experiences are as diverse and unique as its many blends
and varieties.
• Nescafe Classic
Nescafe Classic kicks start your day and keeps you going and going…
• Nescafe Gold
The premium blends of coffee that gives you rich taste with an aroma to soothe your
soul.
• Nescafe 3in1
Sugar, Creamer & Coffee; all you need is love and a little hot water. Makes every
cup taste great. Easy to make, convenient to store and hassle-free usage.
• Nestlé Milo
With the new and improved Nestlé Milo, children have more reasons to be active as
it gives them the energy they need for an active and healthy lifestyle. A specific
balance of Vitamins, Minerals and Antigen E help optimize the release of energy
from Proteins, Fats and Carbohydrates.
• Nestlé Mango
Feel the burst of fruity fun and discover the flavors of Nestlé Mango &Nestlé Mango
Orange fruit drink made with the juiciest, sweetest Mangos and racy, sharp Oranges
to sass up your taste buds. Now that is a sweet deal!
• Nestle Fruitavitals
Revitalize with Pure Vitamin Burst!
You are living life in a constant overdrive and your body needs to equip itself to
fight the daily wear out. Nestle Fruit vitals™ mix fruit juice fortified with Vitamin
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A, B, C & D is a delightful combination of Orange, Apple and Guava to give you
the perfect hit of flavor and Vitamins to get you revitalized and in top gear. What’s
more it has no added sugar!
• Nestlé Instant Drinks
Nestlé Limo (Lemon) & NESTLÉ Malta (Orange) Instant Drinks provide fruit-filled
refreshment that quenches your thirst and energizes your body with an instant citrus
boost!
Nestle Bottled Water:
• Nestlé Pure Life
Pakistan’s Favorite Water
Nestlé Pure Life, is pure, safe and healthy drinking water for you and your family.
Every bottle of Nestlé Pure Life™ is produced with the Nestlé Safety System and is
carefully sealed with a proprietary seal. Purity of the highest standards is matched
by an optimal balance of essential minerals, enhancing the health and wellbeing of
your family. No wonder its Pakistan’s favorite water because more people trust it
than another brand. For your convenience.
• Ava
Be Good to Yourself
Safety, convenience and value are just what you get from Ava, your source of pure,
safe and healthy drinking water for you and your family. Ava is packed and sealed
in special sterilized bottles and caps to ensure the highest standard of quality and
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safety, keeping clean of all suspended and dissolved contamination. For your
convenience, Ava also offers different payment options that give you more value for
your money. *Only available in Karachi.
Nestle Baby Food:
• Nestlé Cerelac
Bharpoor Nashvonuma! Sehatmand Mustakbil Ka Behtrin Aghaaz!
Nestlé Cerelac infant cereals (6 months onwards) are easy to digest and grouped in
stages according to the changing nutritional needs of the growing child, with Nestlé
Cerelac providing the right nutrition at each stage.
Nestle Prepared Meals:
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• Maggi
Jub Bhook Satay MAGGI Ho Jayee!!
Open up a pack of Maggi 2-Minute Noodles and give your kids a fun, warm snack
they love to eat! Fast to cook and good to eat! Kids love ‘em! Did you know that
Maggi 2-Minute Noodles have 307 Kcal and on an average one serving meets about
35% of your 4-8 year old’s RDA* for Protein.
• Nestlé Cornflakes
Protein plays an important role in the regulation and growth of muscles, skin, hair,
eyes and other organs.
Available in three varieties, Nestlé Cornflakes (275g and 150g boxes), kids’ favorite
chocolaty Nestlé Kokokrunch (330g and 170g boxes) and Nestlé Honey STARS
(300g and 150g boxes), are delicious cereals made from wholesome grains and
packed with Vitamins, Calcium and other minerals.
Nestle Chocolate:
• Nestlé Kitkat
Have A Break, Have A Kitkat
Chocolate is one of the most loved indulgences around the world. It is one of life's
little pleasures, which delights the senses of all ages. Nestlé™ Kitkat is by far one
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of the most popular chocolates all around the world! It’s trademark red and white
colors and the distinct Nestlé™ Kitkat logo makes it one of the most recognized
brands ever. This lighthearted treat of wafer fingers coated with delicious smooth
chocolate, can be enjoyed in the signature style of snapping one finger at a time.
Nestlé™ Kitkat Chunky is a single solid finger that is perfect for those who want
a mouthful! So have a break have a Kitkat!!!Nestlé™ Kitkat is sold in 11g, 17g and
35g finger bars and Nestlé™ Kitkat Chunky is available in 46g bar.
• Polo
Just the right sweetness, fresh and minty. That’s Polo, the all-time favorite mint with
the hole. It’s popular around the globe for its just-because moments! Polo mints are
products for all occasions, especially when you need to freshen your mouth and
breath with its cool, lingering aftertaste. Polo mints come in stick-packs of 6, 14 &
20 mints.
Price
Price is the only revenue generating element among the 4 p’s of marketing. Price
can be defined as: “The amount of money charged for a product or service or the
value exchanged or the benefits of the product or service “More broadly,
Price is the sum of all the values that customers give up in order to gain the benefits
of having or using a product or service.
It’s a very powerful tool at the disposal of an organization to differentiate its
offerings.
Nestle Pricing Strategy
Nestle pricing is an important strategic issue because it is related to product
positioning. Nestle is basically using Psychological Pricing Strategy as they are
earning huge profits, approximately 30% on their products. People believe in nestle
hence this aspect gives nestle a competitive advantage being a market leader to set
its prices high. The main thing behind the success of nestle is the keep an eye on
their customers and accordingly they change the price. People have trust in nestle
that is the reason they are willing to buy nestle products again and again. Nestle has
always tried to enter the market with the right price and then justifying it with high
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quality products and by communicating and transferring the maximum value to the
customers.
“Duniya Main Her Kemti Cheez Mehngi Nahi Hoti”
This slogan by nestle proves its pricing approach.In addition to this pricing approach
nestle focuses on vide range of SKU’s inorder to capture greater market segment
keeping in view their buying power.This way nestle ensures their consumption in
the entire segment of market. Therefore, nestle adopt “value base pricing”.
Nestle has Differentiated itself as health and nutrition company, therefore it
Targets health conscious people throughout the world. In Pakistan nestle has
Positioned its brands as something of supreme quality. Therefore, nestle has
determined its prices a bit higher than the other local brands available in Pakistan.
It targets the people belonging to the upper middleclass and above who can afford
nestle products for daily use. In Asia, Nestlé’s strategy has been to acquire local
companies in order to form a group of autonomous regional managers who know
more about the culture of the local markets than Americans or Europeans. Nestlé’s
strong cash flow and comfortable debt-equity ratio leave it with ample muscle for
takeovers. Recently, Nestlé acquired Indoor, Indonesia’s largest noodle producer.
Their focus will be primarily on expanding sales in the Indonesian market, and in
time will look to export Indonesian food products to other countries.
Nestlé has employed a wide-area strategy for Asia that involves producing different
products in each country to supply the region with a given product from one country.
For example, Nestlé produces soymilk in Indonesia, coffee creamers in Thailand,
soybean flour in Singapore, candy in Malaysia, and cereal in the Philippines, all for
regional distribution. All these strategies have helped nestle to keep its costs and
consequently its prices low, with the supreme quality products that it offers to its
customers. Nestle does not want to become either a conglomerate or a portfolio
manager. Nestle wants to operate only those businesses about which it has some
special knowledge and expertise.
• Retail and Wholesale Selling at Nestle:
Nestle brings its customers with its products through distributors. Though nestle
does not involve itself in retail selling but still it provides its customers with the free
home and office delivery facility, but mostly it only goes for the wholesale selling.
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• Discounts
Discount is the:
“A straight reduction in price on purchases during a stated period of time”
The discount rate offered to the employees in very high. The main reason behind the
success of nestle is key consider themselves as a family and then change the price.
The discount they offer to their distributors are like 12+1 offer or buy5000*24bottles
and get free dispenser. The discount they give to the customers of JUMBO rewards
for these brands that they sold directly JUMBO rewards are basically the points per
bottle earned. Right now, it is limited to the jumbo services. When you earn some
points then you can choose different things that are changed after every six months.
“The customers are very much satisfied with our brand and a product, so we don’t
waste time in thinking of discount offers, we focus to expand our brand”
Promotion
It is not enough for a business to have good products sold at attractive prices. To
generate sales and profits, the benefits of products have to be communicated to
customers. In marketing, this is commonly known as "promotion”. Promotion is a
form of corporate communication that uses various methods to reach a targeted
audience with a certain message in order to achieve specific organizational
objectives. Nearly all organizations, whether for-profit or not-for-profit, in all types
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of industries, must engage in some form of promotion. Such efforts may range from
multinational firms spending large sums on securing high-profile celebrities to serve
as corporate spokespersons to the owner of a one-person enterprise passing out
business cards at a local businessperson’s meeting.
Nestle Promotion Strategy
A business' total marketing communications program is called the “promotional
mix" and consists of a blend of advertising, personal selling, sales promotion and
public relations tools. It is helpful to define the four main elements of the
promotional mix before considering their strengths and limitations.
• Promotion:
Nestle launched every product with aberrant marketing strategies and tactics of its
products were a total new concept in our society like tea whitener, two-minute
noodles, UHT milk etc. but with so extensive marketing the products brought this
saying into life i.e., vini vici vidi (they came, they saw and the conquered). It
conducted puppet shows in schools as well as on roads creating consumer awareness
as well as brand preference. Nestle increasing sales is attributed to innovative
strategies and a sound distribution network that has proven to be par excellence.
• Advertising
Any paid form of non-personal communication of ideas or products in the "prime
media": i.e. television, newspapers, magazines, billboard posters, radio, cinematic.
Advertising is intended to persuade and to inform.
• Sales Promotion
Providing incentives to customers or to the distribution channel to stimulate demand
for a product.
• Publicity
The communication of a product, brand or business by placing information about it
in the media without paying for the time or media space directly, otherwise known
as "public relations" or PR.
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• Personal Selling
Oral communication with potential buyers of a product with the intention of making
a sale. The personal selling may focus initially on developing a relationship with the
potential buyer but will always ultimately end with an attempt to "close the sale".
Placement
Placement refers to How the Product Gets to The Customer. For example, point
of sale placement or retailing. This fourth P has also sometimes been called Place,
referring to the channel by which a product or services is sold (e.g. Online vs. retail),
which geographic region or industry, to which segment (young adults, families,
business people), etc. also referring to how the environment in which the product is
sold in can affect sales.
Nestle Placement Strategy
• Company Network
Nestle is now the world's largest food company. It is present on all five continents,
has an annual turnover of 74.7 billion Swiss francs, runs 509 factories in 83 countries
and employs about 231,000 people the world over. The Company owes its current
status to the pioneering spirit inherited from its founders which continues to inspire
it, to its concern with quality and to its constant search for new ways of satisfying
man's nutritional needs.
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• Transportation
Nestle uses all types of transportation. Usually Shehzore is used for transportation.
Home delivery service is also provided with the same transportation. Tracks are used
for long transportation to minimize the cost. Three-wheelers are used to transport
precious water to backward areas.
• Retail and Wholesale Selling
Nestle brings its customers with its products through distributors. Though nestle
does not involve itself in retail selling but still it provides its customers with the free
home and office delivery facility as direct marketing channel. Nestle products are
sold at all types of retail stores which are:
1) Specialty Store
2) Department Store
3) Supermarket
4) Convenience Store
5) Super Store
6) Chain Stores.
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Product and Support Services
“Only by listening to what people say can we understand what they want and need.
Only by understanding their needs can we serve our consumers to the fullest”. Nestle
is the first ever company in Pakistan which introduced the customer services
tradition. Nestle listens to its customers carefully and try to rectify the product
related problems as soon as possible.
At present, the world faces daunting questions about its ability to provide enough
wholesome food for everyone. Malnutrition and poor eating habits are still serious
problems in many developing countries. By 2100, the world's population will
double. Will it be possible to feed a world with so many inhabitants? At Nestlé, the
big picture is all about feeding the world and providing food and nutrition for an
ever-growing population. Our response to this situation is to intensify research,
strive for innovations and improve quality.
Factories in Pakistan
• Sheikhupura
29th Kilometer, Lahore - Sheikhupura Road Sheikhupura, Punjab, Pakistan.
Pakistan Phone :(042) 6369321-6 ET 7228300, Fax :(042) 6368710
Nestle Milkpak Uht milk, Nestle Nesvita products, NESTLEPURE LIFE™ water,
Nestle Cerelac and yogurt. Milkpak UHT milk, produce butter, cream and ghee
Nestle Nido milk powder Nestle Pure life™ Fruit yogurt, tea whitener, cream and
raita, Nestle Nesvita
• Kabirwala
Khanewal - Kabirwala Road, Kabirwala District Khanewal, Punjab,
Pakistan Phone (06512) 411433-36
Fax (06512) 411432
Nestle Milkpak MAGGI noodles NESTLE EVERYDAY tea whitening powder
• Islamabad
AVA water factory in Islamabad
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Provides our consumers with their favorite brands of bottled water in convenient
package sizes.
Mission Statement
“Nestlé is dedicated to providing the best foods to people throughout their day,
throughout their lives, throughout the world. With our unique experience of
anticipating consumers’ needs and creating solutions, Nestlé contributes to your
well-being and enhances your quality of life.”
Vision
“The Nestlé global vision is to be the leading health, wellness, And Nutrition
Company in the world. Nestlé Pakistan to this vision. In particular, we envision to:
Lead a dynamic motivated and professional workforce proud of its heritage and
bullish about the future. Deliver shareholder value through profitable long-term
growth, while continuing to play a significant and responsible role in the social,
economic and environmental sectors of the country.”
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Nestle Three Years Income Statement
In millions of CHF
Sales
Other revenue
Cost of goods sold
Distribution expenses
Marketing and Administrative
expenses
Research and Development cost
Other trading income
Other trading expenses
Trading Operating Profit
Other operating income
Other operating expenses
Operating Profit
Financial income
Financial expense
2016
2017
2018
89,469
89,590
91,439
317
332
311
(44,923)
(45,571)
(46,070)
(8,059)
(8,023)
(8,469)
(21,485)
(19,818)
(20,003)
(1,736)
(1,739)
(1,687)
99
112
37
(713)
(1,606)
(1,769)
13,693
13,277
13,786
354
379
2,535
(884)
(3,500)
(2,572)
13,163
10,156
13,752
121
152
247
(758)
(848)
(1,008)
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Profit before taxes
Taxes
Income from associate and joint
ventures
Profit for the year
Of which attributable to
non-controlling interests
12,526
9,460
12,991
(4,413)
(2,773)
(3,439)
770
824
916
8,883
7,511
10,468
352
355
333
7,156
10,135
15.3%
14.8%
15.1%
9.5%
8.0%
11.1%
2.76
2.31
3.36
2.76
2.31
3.36
Of which attributable to
8,531
shareholders to shareholders to
the parent (Net Profit)
As percentage of sales
Trading operating profit
Profit for the year shareholders
to parent (Net Profit)
Earnings per shares (in CHF)
Basic earnings per share
Diluted earnings per share
Page 38 of 46
Costing Methods & Important Cost Terms
Costs can be simply defined as the money or resources associated with a purchase
business transaction or any other activity. Different industries adopt different
methods of ascertaining costs of their products depending on the nature of the
production and the type of output.
Cost sheet is the statement that shows various components of total cost of a product.
It indicates per unit cost in addition to total cost. Cost sheet is prepared on the basis
of historical cost and estimated cost.
Terms Associated with Costing:
1. Fixed cost:
Fixed costs are those costs that do not vary with respect to changes in output and
would accrue even if no output was produced. E.g. Rent, interest payments, property
taxes and employee salaries. However, fixed costs are restricted to specific time
frame, since over the long run fixed costs can vary. For example, a manufacturer
may decide to expand capacity in tandem to the increase in demand for its product,
requiring a higher level of expenditure on plant and equipment.
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2. Variable Cost:
Variable cost changes proportionately to the level of output. For manufacturers, the
key variable cost is the cost of materials.
3. Total Cost:
It is defined as the sum of fixed, variable and semi variable costs.
4. Direct and Indirect cost:
Direct costs typically include the major components for manufacturing goods and
the labor directly required to produce those goods. Direct costs are also referred to
as prime costs. On the other hand, indirect costs include plant-wide costs such as
those resulting from the use of energy and fixed capital. Indirect costs are also
referred to as overhead.
5. Incremental cost:
It is mainly the extra cost associated with manufacturing one additional unit of
production. It is also referred to as differential cost.
6. Opportunity Cost:
It is defined as the cost of an alternative that is forgone (benefit, profit, value given
up) in order to pursue a certain action.
7. Sunk Cost:
It is the cost that is already incurred and cannot be recovered.
Types of Costing:
A. Marginal Costing:
Through this method only the variable cost is allocated i.e. direct materials, direct
expenses, direct labor and variable overheads to production. It does not include the
fixed cost of production.
B. Absorption Costing:
It is the technique to absorb the fixed and variable costs to production. In this
method, full costs i.e. fixed and variable costs are absorbed to the production.
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C. Standard Costing:
When the costs are predetermined on certain standards in a given set of operating
conditions, it is called standard costing.
D. Historical Costing:
In this method the costs are determined in terms of actual costs and not
predetermined standard costs. Costs are determined only after it is incurred. Almost
all organizations adopt this method of costing.
Important Methods of Costing:
I.
Unit costing:
It is also called the single output costing. It is used in costing of products that are
expressed in identical units and suitable for products that are manufactured by
continuous activity. Example: Cement manufacturing, Dairy, Mining etc.
II.
Job costing:
Under this method, costs are ascertained for each work order separately as each has
its own specification and scope. Tailor made products also get covered by this type
of costing. Example: Repair of buildings, Painting etc.
III.
Contract costing:
In this method costing is done for jobs that involve heavy expenditure and stretches
over long period and across different sites. It is also called as terminal costing.
Example: Construction of roads and bridges, buildings etc.
IV.
Batch costing:
Through this method the costing is done for units that are produced in batches that
are uniform in nature and design. Example: Pharmaceuticals
V.
Process costing:
It is used for the products which go through different processes. Like in the process
of manufacturing cloth, different processes are involved namely spinning, weaving
and finished product. Each process gives an output that is a finished product in itself
and can be sold. That is why; process costing is used to ascertain the cost of each
stage of production.
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VI.
Service or operating costing:
It is the method used for the costing of operating a service such as Public Bus,
Railways, Nursing home. It is used to ascertain the cost of a particular service.
VII.
Multiple costing:
When the output comprises, different assembled parts like in televisions, cars or
electronic gadgets, cost has to be ascertained for the component as well as the
finished product. Such costing may involve different / multiple methods of costing.
VIII.
Product Costing:
Product costing methods are used to assign cost to a manufactured product. The
main costing methods available are process costing, job costing and direct costing.
Each of these methods apply to different production and decision environments.
The main product costing methods are:
•
Job costing: This is the assignment of costs to a specific manufacturing job.
This method is used when individual products or batches of products are
unique, and especially when jobs are being billed directly to customers or are
likely to be audited by customers.
•
Process costing: This is the accumulation of labor, material and overhead
costs across departments or entities, with the total production cost then being
allocated to individual units. Process costing is used when large quantities of
the same product are manufactured, usually in long production runs.
Inventory Costing:
Different inventory costing methods are best suited to different situations and
financial goals.
•
First In, First Out
Under the First In, First Out (FIFO) method, the oldest costs are assigned to
inventory items sold, regardless of whether the sold items were actually purchased
at that cost. When the number of inventory items purchased at the oldest cost is sold,
the next oldest cost is assigned to sales.
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•
Last In, First Out
The last in, first out method (LIFO) is the exact opposite of the FIFO method,
assigning the most recent inventory costs to items sold
•
Average Cost Method
The average cost method assigns inventory costs by calculating a moving average
of all inventory purchase costs.
•
Specific Identification Method
The specific identification method perfectly matches inventory costs with units sold,
assigning the exact cost of each sold inventory item when the specific item is sold.
Costing Methods for Manufacturing:
Traditional Methods: Process and Job-Order Costing:
There are two conventional costing approaches used in manufacturing, namely
process and job order costing. Process costing method analyzes the net cost of a
manufacturing process. Since most manufacturing processes involve more than one
step, calculation is made for each step to arrive at a unit cost average for the entire
production system.
The second major costing method, job-order costing, involves costing based on an
individual product basis. This is useful where each unit of production is customized
or where there are very few units produced. Under this method, the exact costs
incurred in the production of a particular unit are calculated and are not necessarily
averaged with those of any other unit, since every unit may be different.
Activity-Based Costing:
Activity-based costing (ABC) is a secondary / somewhat complementary method to
the two traditional costing techniques.
While traditional methods classify costs into categories like direct materials, labor
and other overheads, ABC considers all the costs associated with a single
manufacturing task, regardless of whether they fall under the headings of labor or
materials
or
something
else.
The benefit of this method is that management can keep track of tasks that cost the
most versus which add the most value; indicating any disproportionate amount of
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money being spent on low-value activities, thereby indicating the need for process
change.
Steps for Performing ABC:
1. Analyze the Activities
2. Gather all the Costs
3. Trace Costs to the Activities
4. Set up Output Measures
5. Analyze the Costs
Features of ABC:
•
Indicates High Cost activities
•
Helps in establishing and monitoring performance measures
•
Is useful for forecasting financial baselines
•
Captures the current cost of performing any activity
Conclusion:
With the increasing changes in the industries and complexities of businesses, costing
becomes important for managements to take appropriate decisions, planning and
control and having effective cost management measures in place.
Costing Method of Nestle
Nestle’ is using standard costing as a base for input measurement. Standard costs
are usually associated with a company's costs of direct material, direct labor, and
manufacturing overhead. Rather than assigning the actual costs of direct material,
direct labor, and manufacturing overhead to a product, nestle’ like many
manufacturers assigns the expected or standard cost. This means that its inventories
and cost of goods sold will begin with amounts reflecting the standard costs, not the
actual costs, of a product. Nestle’, of course, still has to pay the actual costs. As a
result, there are almost always differences between the actual costs and the standard
costs, and those differences are known as variances.
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Nestlé is currently using Standard costing method because the related variances are
valuable management tool. If a variance arises, management becomes aware that
manufacturing costs have differed from the standard (planned, expected) costs.
➢ If actual costs are greater than standard costs the variance is unfavorable. An
unfavorable variance tells nestle’ management that if everything else stays
constant the company's actual profit will be less than planned.
➢ If actual costs are less than standard costs the variance is favorable. A
favorable variance tells management that if everything else stays constant the
actual profit will likely exceed the planned profit. The sooner that the
accounting system reports a variance, the sooner that Nestle management can
direct its attention to the difference from the planned amounts.
➢ Direct Materials Usage Variance Under a standard costing system, production
and inventories are reported at the standard cost—including the standard
quantity of direct materials that should have been used to make the products.
If the manufacturer actually uses more direct materials than the standard
quantity of materials for the products actually manufactured, the company will
have an unfavorable direct materials usage variance. If the quantity of direct
materials actually used is less than the standard quantity for the products
produced, the company will have a favorable usage variance.
Conclusion
Nestle is international organization, being a multinational is always great because it
is always backed up by the parent company but however Nestle Pakistan is doing
best in this region because of the static demand & less portfolio.
Nestle management is key success factor of the company they are
highly committed & they do not compromise on their tasks.
Quality&sustainability is another factor that is giving nestle an edge against its
competitors & Nestle Pakistan is at top because of high demand & promising
quality they provide.
Recommendations
Though nestle is an industry giant and doing a successful business around the world,
but still certain measures it should take in Pakistani market are recommended below:
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1) It should sell better quality products in Pakistani market also just like it sells
in first world countries because consumer in Pakistan is much aware today
than it was a decade ago. It would help to rectify the feelings of discontent that
prevail among the Pakistani consumers against nestle.
2) Nestle should bring other flavors in breakfast cereals like fruit and nuts corn
flakes to Pakistan since consumers are becoming more demanding day by day.
3) Nestle should introduce its other chocolates like lion and butter finger in
Pakistan, moreover it should also introduce Libby’s ketchup branding Pakistan
since ketchup brands available in Pakistan are not of good quality.
4) Nestle should increase the promotional campaigns magnitude since strong
competitors are taking over the industry especially in dairy products.
5) NPL should diversify its product portfolio & introduce ice cream & some
other products which can cut the competition of the major players in Pakistan.
Dog items should be back up by the cash generated by cash cows & renovate
them. Nestle should increase the distribution Network & diversified their
portfolio
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