Insight from industry

Controlling the sustainability of food supply

chains
Jens Hamprecht and Daniel Corsten
Kuehne-Institute for Logistics, University of St Gallen, St Gallen, Switzerland
Manfred Noll
Nestlé, Vevey, Switzerland, and
Evelyn Meier
Nestlé Suisse, SA, Wangen, Switzerland

Abstract
Purpose – For the food industry, the depletion of arable land and a growing world population demand controlling the sustainability of agricultural
inputs to the industry. Controlling the sustainability of these supplies means controlling the economic, social, and environmental performance of the
supply chain. In practice, little is known about how companies can efficiently extend their existing supply chain controls to cover these aspects. This
paper tries to address this particular gap.
Design/methodology/approach – The authors propose a method for integrating controls of social and environmental performance in a supply chain
controlling framework. This method is illustrated with case studies on Nestlé’s food supply chains.
Findings – The case studies highlight why quality controls along the whole food supply chain are an import precondition for controlling sustainability.
Originality/value – This study is useful for the food industry in the control of sustainability of agricultural inputs to the industry.

Keywords Switzerland, Food products, Supply chain management, Quality

Paper type Case study

Background 300,000 farmers worldwide, providing Nestlé with 2 per cent

Nestlé is the world’s largest food and beverage company. In
2003, the group employed 253,000 people and held
operations in 511 factories worldwide. Financial turnover
for the Swiss-based corporation in the same year exceeded 87
billion Swiss Francs. Nestlé’s CEO describes quality as being
the cornerstone of the business’ success, and greatest
differentiating factor for Nestlé’s brands in the world’s
markets. This positioning is clearly communicated in the
marketplace. Nestlé products carry a label with the inscription
“quality and trust”.
Given this differentiation, sourcing high-quality raw
materials is critical to the success of the business. Nestlé’s
most prominent raw materials include milk, coffee, cocoa,
and cereals. These raw materials are partly sourced direct
from farmers. Milk, for instance, is sourced directly from
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of global milk production. Other raw materials, such as sugar
and oil, are sourced through trade only.
For every agricultural supply chain, Nestlé has a broad set
of controls, covering aspects like quality, safety, cost, service
level, and flexibility of supplies. The controls for these
performance aspects have become increasingly sophisticated.
Controlling supply sustainability presents two major
challenges. First, the controls need to be regularly refined or
extended, to ensure consideration of new research findings.
For example, the list of herbicides that can be recommended
to farmers needs to be regularly reviewed to ensure that crop
protection has a minimal impact on biodiversity. Second,
controls of environmental and social performance aspects
need to be integrated with economic controls. Often,
environmental and social performance aspects are accounted
for in separate control systems. However, in order to ensure
their efficient application, controls of social and
environmental performance also need to be linked closely to
other controls of the food supply chain, such as quality, food
safety, and costs. Whenever possible, synergies should be
created in the controlling process. Ideally, one piece of

Supply Chain Management: An International Journal
10/1 (2005) 7–10
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/13598540510578315]
The authors thank Dr Hans Joehr, assistant vice president Nestlé and
corporate head of agriculture as well as Professor Fritz Fahrni, ETH
Zürich for their support of the project.
The analysis of Nestlé’s Swiss dairy supply chain was supported by
Martin Maeder and Daniel Schmocker, Nestlé Switzerland.

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 Controlling the sustainability of food supply chains
Jens Hamprecht et al.
information on a supply chain should serve multiple purposes
in order to minimise time for data collection.
This consideration motivated the joint project by Nestlé
and the University of St Gallen. We sought to investigate how
controls of sustainability could be merged in a more efficient
manner.
Selection of the supply chains
The project began with the selection of two of the business’
most important raw material supply chains: fresh milk and
cereals. For each of these supply chains, we conducted case
studies in the Swiss market. At the beginning of the case
studies, we faced an important question: Would the
integration of economic, social, and environmental controls
differ from supply chain to supply chain? Or would there be
significant commonalities we could build on? This presented a
challenge, since the nature of salient environmental and social
issues in one supply chain can be very different from those in
another. To illustrate, excess inputs of nutrients can
contaminate ground water. This is a challenge that farmers
in many European and North American regions need to
address. In tropic regions, however, farmers need to avoid
degradation of the thin soil due to a lack of nutrients. Hence,
at the beginning of the case studies, there was a question as to
what extent the results of one case study could be generalised
to other raw material supply chains. Throughout the case
studies, however, common patterns emerged.
Method
Figure 1 shows the method we developed for integrating
controls of the sustainability of supplies. First, we selected a
controlling framework of the factories that could
accommodate the broad range of economic, social, and
environmental performance aspects. Subsequently, we traced
the supplies of the factories’ key raw material back to
agricultural production.
Once material flows and information flows were known, we
followed a continuous improvement process. We short-listed
controls in the supply chain and revised these in line with the
goals of improving economic, environmental and social
performance. Finally, a check for these controls was
Figure 1 Method for implementing the controls of sustainability
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integrated in the total quality management (TQM)
framework of the factories. In the following, we provide an
example of this method.
Application of the method at Nestlé
At Nestlé, we selected an existing TQM framework as the
basis for integrating supply chain controls. The origin of the
selected TQM framework dates back to 1991, when a group
of 14 European businesses, including Nestlé, jointly
developed the business excellence model of the European
Foundation for Quality Management (EFQM, 2004).
The EFQM model allows an assessment of both current
business practices (the so-called enablers) as well as results.
Today, the EFQM model includes “partnerships” with other
businesses as an assessment criterion. A controlling of
operational processes, however, has typically been limited to
firm boundaries in TQM frameworks. Usually, assessments of
a supplier’s operational processes have been done separately
by the responsible purchasing managers.
We developed a supply chain-specific extension of the
TQM framework for milk sourcing Nestlé factories. This
extension accommodates the controls of food safety, quality,
costs, flexibility, and sustainability of the factories’ major
agricultural chain.
Following the identification of a suitable controlling
framework, we traced the flow of materials. We randomly
selected a batch and traced the raw material flow from the
factory gate back to agricultural production. In addition, the
process of delineating the material flows allowed us to control
traceability in the supply chain. If a supplier of an agricultural
raw material had been found unable to identify his/her own
suppliers, then the first action would have been to ensure an
update of his/her traceability records. In the case studies we
verified that the cereals as well as the fresh milk supplies could
be traced to agricultural production.
Figure 2 shows the chart of material flow we found for a
batch of cereals delivered to a Nestlé factory. Note that
beyond the mill, we did not retrace supplies to individual
farmers. Instead, we randomly selected one of the mill’s silos
for wheat deliveries. From there on, we retraced the flow of
materials back to the collection points and ultimately, back to
the farmers. At every stage we short-listed the present control
 Controlling the sustainability of food supply chains
Jens Hamprecht et al.
Figure 2 Tracing a batch of cereals from food manufacturer back to agricultural production
points for food safety and quality in the supply chain. For
every control point, we reported relevant information such as
the “critical limits” of the controls. A complete set of control
points in the supply chain was considered highly important. It
emerged that especially those control points at the hand-over
from one party to another can serve several tasks.
Traditionally, these control points have been used for
controlling food safety and quality of the product. However,
these control points can be enhanced to account for the
sustainability of agricultural production.
The first extensions of these control points cover
environmental performance aspects. To illustrate, in
Switzerland Nestlé now requires that dairy farmers calculate
the nutrition demands of their soils annually. Any over-
fertilisation is forbidden. Compliance with this regulation will
be controlled by an independent body. The transport provider
will only accept and collect fresh milk from farms complying
with the scheme. Consequently, existing food safety and
quality controls are complemented with an environmental
performance aspect.
Similarly, social performance aspects such as a controlling
of labour standards can be integrated in existing supply chain
controls. At the first hand-over in the supply chain, the buyer
can ensure that the farmer complies with certain standards.
With the help of the following hand-over documents in the
supply chain, this information can be passed downstream to
the gates of the food-processing factory. Figure 2 illustrates
the hand-over points that are used to pass on information in
the cereals supply chain. If the food manufacturer can trace
his/her supplies back to agricultural production, he/she is in a
position to verify compliance with these standards.
In summary, the procedures which had originally been
designed for the purpose of quality and food safety assurance
can provide a basis for ensuring sustainable practices. In the
Swiss fresh milk supply chain, the focus has been placed on
improving the environmental performance of the farms.
However, the efforts of the farmers are rewarded. If a farmer
improves the quality of his/her fresh milk production, he/she
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receives a financial bonus from Nestlé. In addition, the state
supports improved environmental performance of farming
operations financially.
Collaboration is essential
However, there is an important difference between the
different supply chains that we studied. In the case of fresh
milk supplies, the farmers sell their entire production to
Nestlé. This means that a continuous improvement of supply
chain controls, as shown in Figure 1, can be achieved on a
business-to-business level. However, in the cereals supply
chain, Nestlé is only one of many customers of the mill.
Today, the mill depicted in Figure 2 processes wheat for three
different “eco-labels”. These “eco-labels” guarantee the
consumer that the cereals originate from a particular
environmentally-friendly production. Each of the three
customers of the mill has established slightly different
standards on what constitutes “environmentally-friendly”
production. As a consequence, the mill now maintains
separate storage containers for every label. During transport,
wheat flour of one eco-label may not be mixed with wheat
flour of the other two eco-labels. Clearly, system costs in this
supply chain are higher than they would be in a supply chain
without such a multitude of labels. Furthermore, had the
three businesses jointly designed a sourcing standard, they
might have achieved a leverage effect in the market. For
additional customers of the mill it would have been easier to
join a common initiative rather than adopting a label
proprietary to one business.
Based on this consideration, Danone, Unilever and Nestlé
founded the SAI Platform, the “Sustainable Agriculture
Initiative” of the food industry in 2002. The initiative jointly
develops standards on the sustainable practices of agricultural
production. Today, it enjoys active participation of food
operators such as McDonalds, Sara Lee and Kraft. Jointly,
these businesses develop social, environmental and economic
standards that they can communicate to commodity traders
 Controlling the sustainability of food supply chains
Jens Hamprecht et al.
and the farming community more effectively than any single
business could.
Currently the Sustainable Agriculture Initiative runs pilot
projects on a number of commodities, including cereals (SAI,
2004). Once the sourcing guidelines are completed,
continuous improvement efforts in the commodity supply
chains can be achieved in a more efficient manner.
As an outcome of this project, we have developed an
extension for the TQM frameworks of factories sourcing fresh
milk. This extension allows us to evaluate quality, safety, cost,
flexibility and sustainability of suppliers’ processes as an
integral part of the factory’s TQM framework. The same
approach can be followed for factories sourcing commodities
such as cereals once the industry initiative has finalised its
guidelines on sustainable sourcing.
Conclusion
We conclude that the effective control of sustainable practices
in a supply chain does not build on an entirely “new” set of
skills. Instead, efforts to create more sustainable practices
contribute to the continuous improvement capabilities of a
business (Sharma and Vredenburg, 1998). In this context, the
completion of controls as shown in Figure 1 should not be
viewed as a one-off approach. Developing and fine-tuning
controls for the supply chain is more of a continuous
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improvement process, building on both past experiences and
new research findings.
In the case studies described here, we focused on one pillar
in the creation of sustainable supply chains: quality
management. In the food industry, the creation of the
Sustainable Agriculture Initiative points to the enabling role
that horizontal alliances can play. In other sectors such as the
electricity or the automotive industry, equally important
initiatives have emerged (WBCSD, 2004). We encourage
studies that investigate the role of these horizontal alliances in
various industries. Alliances as well as quality management
skills and a commitment to achieving change could prove vital
in creating sustainable supply chains.
References
EFQM (2004), “European Foundation for Quality
Management”, available at: www.efqm.org
SAI (2004), “Sustainable Agriculture Initiative”, available at:
www.saiplatform.org
Sharma, S. and Vredenburg, H. (1998), “Proactive corporate
environmental strategy and the development of
competitively valuable organisational capabilities”,
Strategic Management Journal, Vol. 19 No. 8, pp. 729-53.
WBCSD (2004), “World Business Council for Sustainable
Development”, available at: www.wbcsd.ch