According to Supply Chain Standard, the new facility in the southern part of the country accomplishes two key roles for Nestle. For one, it makes it easier for the company to store the beans grown in the region. Bloomberg reported that Vietnam is one of the top coffee growing countries in the world, and more robusta coffee beans come from there than from anywhere else.
In addition, the warehouse will allow Nestle to target Vietnam's growing coffee-drinking population. Historically, the places responsible for growing most of the world's coffee were not also the biggest coffee consumers. According to the U.S. Department of Agriculture, while locations such as Brazil, Colombia and Indonesia grow coffee, it is consumed primarily in Europe and the United States. However, coffee culture is spreading in Vietnam, and the new warehouse will make it easier for Nestle to quickly and cheaply supply this market with coffee beans.
"By opening this factory in Vietnam, we will be closer to our consumers and better able to adapt our products to their needs and preferences," Wayne England, Nestle Indochina chairman and chief executive officer, said at a ceremony to open the factory, according to Supply Chain Standard.
Why Other Companies Should Emulate This Strategy
As the supply chains utilized by companies becomes more diverse, business leaders need to implement new strategies to best deal with the risks inherent today.
For example, companies with more globalized distribution channels have to account for rising fuel costs. According to the U.S. Energy Information Administration, diesel fuel costs approximately $3.50 a gallon today. For comparison, a gallon of diesel in July 2010 was about $2.90. As these costs rise, companies can no longer afford to ship products over large distances. By building a warehouse facility so close to the farms and to consumers, Nestle is now able to quickly get goods to market without having to worry as much about shipping-related concerns.
In addition, the new warehouse gives the company more flexibility to deal with natural disasters. Increasingly, operations and supply chain management is focused on creating new pathways and boosting market diversification. This lesson was especially driven home to companies in 2011, when flooding in Thailand crippled the supply chains of major firms such as Honda, Western Digital and Toyota. Afterward, even companies that did not have operations in Thailand realized that they could no longer put all of their eggs in one basket and thus needed to diversify its partners and supply chain optimization efforts.
By investing more in Vietnam, Nestle is embracing market diversity and helping to shield its revenue streams from localized supply chain disruptions. One new warehouse may not seem like much of a major supply chain optimization upgrade at first glance, but even this extra step at building redundancy into its global supply chain could pay major dividends for Nestle down the road.