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Internship Report on Nestle Pakistan 2009 partner-pub-7381 FORID:1

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PREAMBLE 1
MISSION STATEMENT 3
VISION STATEMENT 4
NESTLE S.A HISTORY
COMPANY FROM FOUNDATION TILL NOW 6
NESTLE MILKPAK LIMITED PAKISTAN
THE ORGANIZATION TODAY 12
PRODUCTION 13
Sheikhupura factory 13
Kabirwala Factory 14
MILK COLLECTION 15
EXPORTS 17
CORPORATE INTERNAL AUDIT 17
HUMAN RESOURCE ACTIVITIES 18
CONTRIBUTION TO OTHER SECTOR 19
THE FUTURE 21
COMPANY DIRECTORY 22
COMPANY MANAGEMENT SYSTEM AND STYLES
MANAGERIAL HIERARCHY 24
THE MANAGEMENT TEAM 25
THE MANAGEMENT 27
MANAGERIAL STYLE 30
MANAGERIAL POLICY 31
RECRUITMENT PROCESS AT NESTLÉ 32
MANAGEMENT TRAINEES 32
SUCCESSION PLAN 33
JOB ASSESSMENT 33
PRODUCTS AND PRODUCTION FACILITIES
PRODUCTION FACILITIES 35
Sheikhupura factory 35
Kabirwala Factory 36
PRODUCTS AND BRANDS 37
DAIRY 37
CULINARY 39
INFANT DIETIC 40
BEVERAGES 41
WATER 43
CONFECTIONERY 44
QUALITY CONTROL 45
RECENT PRODUCTION HIGHLIGHTS 47
MARKETING MIX
MARKETING MIX 49
MARKETING MIX OF NESTLÉ MILKPAK LIMITED 51
NESTLÉ PURE LIFE & BULK WATER 58
CONFECTIONERY 62
CULINARY PRODUCTS 63
PEDIATRIC INFANT DIETIC GROUP 65
ULTRA HEATED TEMPERATURE (UHT) MILK 69
MILK POWDER 74
NESTLÉ YOGURT 78
MILKPAK UHT CREAM, DESI GHEE & NESTL BUTTER 81
NESCAFE' 82
BEVERAGES 85
REGIONAL SALES OFFICES 87

FINANCIAL ANALYSIS
FINANCIAL ANALYSIS OF NESTLÉ MILKPAK LIMITED 89
HORIZANTAL ANALYSIS 91
VERTICAL ANALYSIS 96
ACCOUNTING RATIOS 100
RATIO ANALYSIS OF NESTLÉ MILKPAK LIMITED PAKISTAN 105
WRAPPING UP 133
PERFORMANCE OVERVIEW 134
NESTLE AND ME
NESTLÉ AND ME 140
HIGHLIGHTS OF MY STAY AT NESTLÉ 141
FINANCE AND CONTROL 143
PROJECTS 194
CALCULATION OF THE TAX WRITTEN DOWN VALUE OF THE FIXED ASSETS (TAX
W.D.V) 194
BREAKING OF COST CENTER 196
NESTLÉ FIXED ASSETS MANAGEMENT (NEFAM) 197
VISIT TO THE SHEIKHUPURA FACTORY 206
CONCLUSION AND RECOMMENDATIONS
SWOT ANALYSIS 213
CONCLUSION 217
RECCOMENDATIONS 218

PREAMBLE

Praise be to Allah Almighty, the One testing us all at all times and making decisions about
what we don’t know and can’t know.

Today it is impossible for a common man to run the business especially in this period of
competition. This situation demands energetic, duly qualified experienced business
administrators who could meet the challenges of this age of modernization. Department of
Business Administration undertakes to produce management specialists fully aware of the ins
and outs of the business management, and capable of meeting the challenges of modern
business environment.

Gratitude

Its been so long since I learned my first word, but I promise that I still remember the first day
at school, when I was just four and very reluctantly entered my Nursery class, my teacher
gave me a pat on my back and a packet of Chips. I wonder how time passes without letting
anyone know how much it has actually passed.

When I was starting this preface portion of my report, my heart almost stopped beating and
my eyes filled, with gratitude for every single person whom I owe my bits of knowledge, and
now when I am verge of leaving my academic career, I feel that those sixteen years are never
existed in my life. This report, one of the last monuments of study career, makes me sad.

I don’t want to take any of the credit for this report; instead I want to dedicate to all those
people who have contributed to my learning at any stage.

I would not be going justice in presenting this internship report without mentioning the people
around me who have been inextricably related with the completion of this report.

People at IBA are very special to me,

Especially
• Dr. Ehsan Malik, Director IBA and Controller Exams University of the Punjab.
• Mrs. Sajida Nisar whose continuous backups and advices kept me on my way to Nestlé,
without whose confidence in me , I might have done my internship in some other place. I think
I have been in the best place among all my class fellows.
• Ms. Saadia Irfan and Ms. Koqub Bilquis HR Managers at Nestlé.
• Mr. Azhar Usman Janjua, Chief Accountant, Nestlé.
• Mr. Nadeem Ahmad, Manager GLD, Nestlé.
• Mr. Shabbier Ahmad, Assistant Manager ACP, Nestlé.
• Mr. Naeem Sheikh, Assistant Manager ACR, Nestlé.
• Mr. Hassan Taufiq, Manager Budget & Control, Nestlé.
• Mr. Khalid Hassan, Manager Income Tax, Nestlé.
• Mr. Sarmad Saleem, Manager Income Tax, Nestlé.
• Mr. Rana Mushtaq, Manager Income Tax, Nestlé.

Well this list can go onto to three four pages, but these are the people who have made
themselves very valuable to me. Two persons stand a step forward who are Mr. Kashif Ayub
and Mr. Sarmad Saleem, who has not just acted as colleagues at Nestlé but as friends, elder
brothers and best advisors.

Syed Zamin Raza Rizvi

2000-74

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 STATEMENT
We envision Nestlé Milkpak to grow in the shortest
possible time into the number one food company in
Pakistan with the unique ability to meet the needs of consumers of
every age group from infancy to old age,
for nutrition and pleasure, through development of a large
variety of food categories of the highest quality.

We envision the company to develop an extremely

motivated and professionally trained workforce, which
would drive growth through innovation and renovation.

We aspire, as a respected corporate citizen, to continue

playing our due role in the social and environmental
sectors of the country.

COMPANY FROM FOUNDATION TILL NOW

1866 Company's foundation

1905
Merger between Nestlé and Anglo-Swiss Condensed Milk Company

1929
Merger with Peter-Cailler-Kohler Chocolate Suisse's S.A.

1947
Merger with Alimentana S.A. (Maggi)

1971
Merger with Ursina-Franck (Switzerland)

1985
Acquisition of Carnation (USA)

1988
Acquisition of Buitoni-Perugina (Italy)

1988
Acquisition of Rowntree (GB)

1992
Acquisition of Perrier (France)

1995
Nestlé acquires Victor Schmidt & Söhne, Austria's oldest producer of confectionery, including
the famous 'Mozartkugeln'.

1997
Nestlé, through the Perrier Vittel Group, expands its mineral water activities with the outright
acquisition of San Pellegrino.

1998
Nestlé acquires Spillers Petfoods of the UK and strengthens position in the petfood business
which began in 1985 with the acquisition of the Carnation Friskies brand.

1999
Divestiture of Findus brand (except in Switzerland and Italy) and parts of Nestlé's frozen food
business in Europe.
Divestiture of Hills Bros, MJB and Chase & Sanborn roast and ground coffee brands (USA).

2000
Acquisition of PowerBar.

2001
Nestlé acquires Ralston Purina - Nestlé Purina PetCare Company established.

2002
Perrier Vittel Group re-named as Nestlé Waters.

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.
In the mid-1860s Nestlé, a trained pharmacist, began experimenting with various
combinations of cow's milk, wheat flour and sugar in an attempt to develop an alternative
source of infant nutrition for mothers who were unable to breast feed. His ultimate goal was to
help combat the problem of infant mortality due to malnutrition. He called the new product
Farine Lactée 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.
Henri Nestlé also showed early understanding of the power of branding. He had adopted his
own coat of arms as a trademark; in Swiss German, Nestlé means 'little nest'. One of his
agents suggested that the nest could be exchanged for the white cross of the Swiss flag. His
response was firm: "I regret that I cannot allow you to change my nest for a Swiss cross .... I
cannot have a different trademark in every country; anyone can make use of a cross, but no-
one else may use my coat of arms."
Meanwhile, 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. By the turn of the century, his company
was producing not only powdered soups, but bouillon cubes, and sauces and flavorings.

First came infant and milk nutrition

Innovation and an entrepreneurial spirit have been Nestlé characteristics from the start.

In 1886, while the Page brothers in Cham were building Europe’s first condensed milk factory,
for the Anglo-Swiss Condensed Milk Co., Henri Nestlé, in Vevey, was developing his infant
cereal “Lactous Farina Nestlé “ launched in 1867.

The two companies merged in 1905 to become the “Nestlé & Anglo-Swiss Condensed Milk
Co.”. The former had developed a successful long-life product from fresh milk, a highly
perishable raw material, whilst Henri Nestlé had achieved international acclaim due to the
remarkable qualities of his invention. Given the highly infant mortality rate, due mainly to the
lack of an appropriate breast-milk substitute, his infant cereal respond to a real need.

His name and the Nestlé symbol (Nestlé means “little nest” in German) were guarantee of the
consistent quality of his product, the result of painstaking scientific research.

Then came product diversification

Contacts with other leading companies that have innovative ideas led to acquisitions and
diversifications.

The company expanded in 1929 through the acquisition of the,

Cailler
Peter and
Kohler chocolate companies,

followed in 1947 by the Maggi group and its culinary products.

Thus Nestlé became the heir to inventions such as Daniel Peter’s milk chocolate (1875) and
Julius Maggi’s vegetable-based soups (1884) and stock cubes (1908).

Nestlé accumulated knowledge, as well as the perseverance and competence of scientists

like Max Morenthaler, made possible the huge success of the Nescafe launch in 1938.
Subsequent acquisitions opened doors to new areas, such as

Preserves (Crosse & Blackwell 1960),

Frozen foods (Findus, 1962),
Mineral water (Vittel, 1969)
Pet care (Carnation, 1985).

Others reinforced the company’s position in established areas, for example,

Italian cuisine (Buitoni, 1988),

Chocolate and confectionery (Rowntree, 1988)
Performance foods (PowerBar, 2000).
At the same time, reseat at Nestlé resulted in the development of new products such as
Milo (1934),
Nestea (1944),
Nesquick (1948),
NAN (1962),
Yes (1979),
Nespresso (1986),
LC (1994) and
Nestlé Pure Life (1998).

Existing products such as Nescafe, Maggi culinary products or the various dairy products
have been constantly improved and adapted to current consumer life-styles.

Today and tomorrow a company that cares about consumers al around the globe

Today, Nestlé is the world’s leading food company. Its international R&D network supports
the products made in 479 factories in 81 countries.

Being a company dedicated from the start to food, Nestlé remains sensitive to culinary and
eating habits, and responds to specific nutritional problems, whilst also setting and matching
new trends such as growing out-of-home consumption.

THE ORGANIZATION TODAY

Nestlé Milkpak Limited is a food processing company currently producing 28 products,
excluding the variants.

Headquartered in Lahore, the company operates two production facilities at Sheikhupura and
Kabirwala and has recently acquired three bottle water companies in Karachi and Islamabad.
Through its effective marketing and a vast sales and distribution network throughout the
country, it ensures that its products are made available to consumers whenever, wherever
and however.

The company meets its raw milk requirements through its raw milk requirements through
direct purchases from the farmers under its self collection programmed from over 3000
villages, spread over an area of about 8000 Sq. Km. in Punjab.

Nestlé took a major participation in Milkpak Ltd in 1988. After it assumed the management of
the company in 1992, Milkpak ltd. was renamed Nestlé Milkpak Ltd.

PRODUCTION
Sheikhupura factory
Having originally begun operations in 1979, this factory of Milkpak ltd. was producing UHT
milk, butter, cream, Desi ghee and Frost by 1988. After Nestlé acquired interests in the
company. Nestlé Milkpak drew up an ambitious portfolio of expansion plans.
While reorganizing and reinforcing the existing brands, new production lines were installed.
The first to come was a milk powder plant, which began producing NIDO in 1990m. Infant
food products CERELAC, NESTUM and LACTOGEN followed this.

More product lines and product ranges were added between 1992 and 1997 which included
Everyday, MILO, POLO, ORANGE JUICE, MAGGI NOODLES AND YAKHNI, NESLAC,
NESTLÉ RICE AND WHEAT.

In 1998 three new major technologies, added, which produce NESTLÉ PURE LIFE bottled
water, Maggi sauces and high & low boiled confectionery.

5-gallon NPL in polycarbonate refillable bottles was launched in 1999. The year 2000 saw
extensive efforts in the development of new products. Self foaming exotic Frothe in single
serve sachets was launched in early 2000 followed by cold coffee under the brand name
NESCAFE Frappe, the range of which was subsequently extended with the introduction of
two new flavors” “ French Vanilla” and “Mocha”.

Several other new products were also introduced during 2000. These included Nestlé Mango
juice, Nestlé mango-Orange juice and Nestlé Plain Yogurt. Certain products namely: Desi
Ghee, ButterScotch and cream were re-launched in improved packing.

To cater for increased production levels; a National Distribution Center (NDC) was
constructed in 2000 to serve as a centralized distribution warehouse. Designed for handling
of containerized shipments, NDC has storage Capacity of 8000 pallets of finished products.
Kabirwala Factory
Kabirwala Dairy Ltd., as it was then called, was established in 1983 as a UHT milk processing
plant. Nestlé Milkpak Ltd acquired it in 1990 as a subsidiary and installed the MAGGI
NOODLES plant in 1992.

Nestlé Milkpak Ltd setup its second milk powder plant at Kabirwala in September 1996 which
produces NIDO, GLORIA AND skim milk powders.

A new evaporator was installed and commissioned in 1999, followed by a capacity increase
of milk powder production by 150%. The year 2000 also witnessed the launching of premier
quality cultured butter in 100gm. And 200 gm. Packing. In 2001 this butter was made
available for institutional sale in 10gm. packing.

This factory is now a fully owned unit of Nestlé Milkpak Ltd since April 1997 and is called
Kabirwala Factory.

MILK COLLECTION

Since 1988 Nestlé Milkpak Ltd has made great strides in establishing its own milk collection
system and a mutually beneficial partnership with farmers, that has focused on increased milk
production. A great success story, this partnership has brought property to the farmers
through an assured and growing income from sale of milk. It has also enabled Nestlé Milkpak
Ltd to collect and process the best quality milk, enabling it to produce international quality
UHT milk and other milk products.

Since Nestlé Milkpak Ltd was unable to produce high quality raw milk from the traditional
middleman, so essential to the production of quality processed milk and other products, a self
collection program was inevitable. Towards this end a large network of village milk collection
centers (VMCs)
Was created, sub and main centers equipped with chilling facilities were established and a
large tanker fleet was pressed into service. Milk brought by the farmers to the VMCs is tested
for quality and fat content before acceptance. It is then transported to the sub centers for
consolidation and chilling before being transferred to the main centers and finally dispatched
to the factories.

After a monumental effort of 12 years, Nestlé Milkpak Ltd can now rightly proud of having
pioneered an extensive and modern milk collection system that works most efficiently.

The corner stone of Nestlé Milkpak LTD’s self collection program is its strategic partnership
with the farmers. During the last 12 months alone the company has infused over billion
rupees in the rural economy by the way of milk purchase.

Soon after the launch of self collection system, Nestlé Milkpak Ltd realized that farmers
needed to be made aware of advancements in the dairy sector, particularly animal husbandry
practices, fodder cultivation, veterinary care and breed improvement.
The company addressed these issues by establishing an Extension Service and staffing it
with the qualified veterinarians. Over the last several years, this department has been
rendering extremely valuable services to farmers. Awareness among farmers has been raised
to about milk quality and animal husbandry practices through regular village meetings. They
are provided free consultation in diagnosis and treatment of their livestock and vaccination at
cost.

Realizing that improved feeding means more milk and consequently more milk and
consequently more income to the farmers, Nestlé Milkpak Ltd provides high yield imported
seeds and cuttings of nutritional fodder to the farmers at cost. They are also assisted in the
procurement of cotton seed cake and molasses as feed supplements. Farmers are also
educated in converting waste into nutritious and cost effective silage as cattle feed.

Nestlé firmly believes that in the days to come, the initiatives it has launched could provide
the breakthrough that the economically disadvantaged class of small farmers has been
looking for.

EXPORTS

Nestlé Milkpak Ltd. entered the export market in 1993 with the export of infant Cereals to
Afghanistan. In 1994 export to Afghanistan was expanded to products to urban consumers. It
helps in arresting environmental degradation caused by the influx of cattle into towns.

The company is also committed to reducing the environmental impact of packaging, without
jeopardizing the safety and quality of the products. Special emphasis is placed on seeking
packaging solutions that lead to the lowest possible weight & volume as well as increasing
the recycleablity of its packages. Care is taken to avoid the use of substances that may
adversely impact the environment during packaging, production and disposal. As a result of
these measures Nestlé Milkpak Ltd used 325 tons less packaging material between 1994 and
1999.

Conscious of air pollution hazards due to release of obnoxious gases like carbon dioxide,
Nestlé Milkpak Ltd stringently monitors its gaseous environment and ensures proper
maintenance and operation of fuel consuming equipment at the factories.

CORPORATE INTERNAL AUDIT

The company operates its own Corporate Internal Audit department which independently
assists the general management in verifying the application of corporate standards, policies
and ethics throughout the group, and gives to the operational management the comfort that:
Internal controls are in place
Management information is reliable
Resources are used efficiently

The auditors cover all administrative and operations functions like finance, purchasing,
manufacture, quality assurance, costing, marketing, supply chain, sales etc. in all the units
such as the corporate office, factories, distribution centers and sales offices through out the
group.
HUMAN RESOURCE ACTIVITIES

In supporting the achievement of company business results the key Human Resource focus
for 2001 was: the retention and development of existing talent, and the attraction of those with
the potential to contribute to business performance i.e. to be seen as a Preferred Employer.

A compensation and benefits strategy supporting our drive for a more efficient, flatter
structure, with increased employee involvement and improved communication was
developed. This included the evaluation of 182 executive jobs to determine their relative size,
resulting in a reduction from 13 job grades to 4 job groups. In addition , position titles were
rationalized to reflect job content rather than an individual’s job grade.

Efforts continued for ensuring that the total compensation remained competitive in the
Pakistan labor market and represented value for money for the company.

Compensation and benefits practices are regularly compared with other employers to develop
the company’s compensation and bene741
Fits structure and policies. Any salary review is then based on market practices, company
and employee performance, relative job size and skill scarcity.

On the training side, while the major development tool for performance improvement
remained on the job training during 2001, other formal programs and workshops were also
conducted. This period marked the third and final year in establishing local programs
developing employee abilities to :
Manage themselves
Work with others
Lead others
854 employees participated in local training programs, 48 of them were exposed to the
overseas training and 10 of them were sent on international assignments for developing their
skills and experience.

CONTRIBUTION TO OTHER SECTOR

Economic
Nestlé Milkpak Ltd makes a significant contribution to the economic sector of Pakistan.
Through generation of tax revenue, import substitution of milk powder, export and infusion of
over 2.3 billion rupees in the rural economy through milk purchases, the company plays an
active role in promoting economic growth.

Nestlé Milkpak Ltd continues to make investments in expanding its production lines as well as
bringing in new technologies, affirming its faith and confidence in the country’s future.

Social
In the social sector, the company has created over 1200 permanent job opportunities for the
skilled, unskilled and professional manpower, apart from hundreds of contractual jobs. It has
also played a remarkable role in expansion and vitalization of the dairy and livestock sector.

Environment

Another key area where the company is proud to have made a contribution in the
environment. By making available the processed and packaged dairy.

Nestlé Milkpak has switched over its fuel supply from heavy fuel oil to gas, as gas burns
cleaner than heavy fuel oils. This drastically reduces gases such as carbon di oxide and
carbon monoxide from being emitted into the atmosphere and keeps the emissions well
below the legal limits.

Steps have also been taken to reduce raw water consumption for cleaning and other
purposes.
This positively impacts on the efficiency of our waste water treatment plant, of which BOD &
COD is continually monitored by the engineering department.

All waste packaging material is weighted and this information is sent to the management to
challenge all departments and suppliers to improve the operations. For example, engineering
& production is encouraged to improve the performance of the packaging machines and the
supplier to improve the quality of their material supply. Efforts to reduce the quantity of
packaging material used for our products, without compromising their quality of their quality,
have yielded remarkable results over the years.

Investments has also been made in a new waste incinerator in Sheikhupura factory, which is
environmental friendly and fitted with a gas burner that gives off very low gas emissions into
the atmosphere. This way tons of material is converted into ash which is safer and easier to
dispose off.

Nestlé Milkpak also monitors waste from its process continually to reduce the amount of
process waste.

THE FUTURE

Nestlé Milkpak has experienced excellent growth. For the year ending December 2002 its
turnover is expected to exceed over RS. 7.7 billion. Given the underdeveloped nature of the
food industry in Pakistan and its entry into new food categories, Nestlé Milkpak Ltd is
confident to achieve sustained growth in the years ahead.

Include MILKPAK UHT Milk, MILKPAK Cream and Frost fruit drinks, in addition to export of
infant Cereal to Bangladesh.

The independence of central Asian Republics offered new business potential enabling the
company to export infant cereals, LACTOGEN 1 & 2 and MAGGI NOODLES and
confectionery to Uzbekistan, Turkmenistan, Kyrgyzstan, Tajikistan and Azerbaijan.
Confectionery was also exported to Bangladesh and Sri Lanka. With the launch in December
1998 of the strategic water brand, NESTLÉ PURE LIFE, this premium quality water quickly
found a market in the Central Asian Republics and Nigeria in 1999. In 2000 our exports stood
at Rs.231 million.

In 2001, Nestlé Milkpak Ltd became the first Pakistani producer of the milk products to export
milk powder to African markets. This not only adds a new product to the country’s export list
but also holds a great promise as a foreign exchange earner for the future.

This year we have exported Milkpak Cream, UHT milk, infant Cereals, Lactogen, Nido,
Everyday, Gloria, Nestlé Pure Life, Maggi Noodles and Ketchup and RTD Juices. By the end
of the year we expect our export to reach over Rs. 275 million.

COMPANY DIRECTORY

Registered & Corporate Office 308 Upper Mall, Lahore

PABX : (042) 5757082-95
Fax : (042) 5711820

Factories Sheikhupura
29th Kilometer, Lahore- Sheikhupura Road
Sheikhupura, Punjab, Pakistan

Kabirwala
Khanewal – Kabirwala Road, Kabirwala
District Khanewal, Punjab, Pakistan
Phone : (06512) 411433-36
Fax : (06512) 411432

Auditors A.F. Ferguson & Co. (Chartered Accountants)

Legal Advisors Cheema & Ibrahim (Advocates)

Bankers ABN AMRO Bank

Bank of Tokyo-Mitsubishi Ltd.
Citibank N.A
Credit Agricole Indousuez
Deutsche Bank A.G.
Habib Bank Ltd.
Muslim Commercial Bank Ltd.
Standard Chartered Bank
Standard Chartered Grindlays Bank Ltd.
MANAGERIAL HIERARCHY

The following chart shows the managerial hierarchy of Nestlé Milkpak limited

Managerial Hierarchy

THE MANAGEMENT TEAM

In order to establish the Nestlé culture in the original setup of Milkpak limited, the Nestlé head
quarters at Vevey, introduced foreign management in this new venture. Even now, the top
management at Nestlé comprises of foreigners. Management of Nestlé Milkpak limited (NML)
comprises of experienced and qualified professionals. Nestlé’s expatriate staff holds the key
management positions at NML. Friedrich G. Mahler is the managing director, Rashid Aleem
Qureshi is the marketing manager, Regino Manglimot the finance and control manager and
Jan H. Sassen is the factory manager.

Summary of Management Team at Nestlé

FRIEDRICH G. MAHLER MANAGING DIRECTOR

REGINO MANGLIMOT FINANCE AND CONTROLMANAGER

RASHID ALEEM QURESHI MARKETING& SALES MANAGER

JAN H. SASSEN
TECHNICAL MANAGER

THE MANAGEMENT
Nestlé Milkpak Pakistan Limited is headed by the Chief Executive of the company. Presently
Mr. Friedrich. G. Mahler is performing the services of the Chief Executive. Directly reporting to
the Chief Executive are the six major groups:
1. Nestlé Business Excellence Group.
2. Supply Chain Group.
3. Milk Collection and Agricultural Services Group.
4. Human Resources Group.
5. Corporate Affairs Group.
6. Water Group.
Along with these, Nestl has the following divisions directly under the Chief Executive:
• Technical Operations Division.
• Finance and Control Division.
• Marketing and Sales Division.
The further sub-division of the above three, are shown in the organizational chart. A thorough
explanation of the, divisions and sub-divisions can be gathered from the pages to follow.

STRATEGIC MANGEMENT AT NESTLÉ MILKPAK LIMITED

There are sets of policies which are uniform for everyone and strictly enforced. The procedure
for policy formulation is transparent; where everyone is given a chance to express one's
opinion. The ultimate approval is given by the Chief Executive. Policies are formulated in the
various meetings as outlined below.
POLICY FORMULATION
Regular meetings are organized at each level of the organization to keep the company
moving in a systematic manner. The main objective behind these meetings is to bring forth
the employees at a forum, where they can discuss their problems, give suggestions for
improvement and development. Also they can share their experiences with each other.
Some meetings are held at periodic basis which are necessary to keep a check on the
progress of the company. These are:
Senior Management Meetings
Cycle Meetings
Department Wise Scheduled Meetings
SENIOR MANAGEMENT MEETINGS
Every month, the Divisional heads and the Senior Managers hold a meeting to discuss major
policy issues facing the management. The Human Resources Manager plays the role of a
guardian for establishment and development of the policies. At the Senior Management
meetings, the suggested policies are presented before the Divisional Heads and Senior
Management. The Senior Management discusses the feasibility of these policies. The
recommended policy is the one that has the approval of all members. Only after, the whole of
this exercise has been done, it is presented before the Chief Executive. He takes the ultimate
decision which is always in the best interest of the company and its employees.
CYCLE MEETINGS
Sales personnel of Nestlé Milkpak Ltd. from all over Pakistan hold a meeting or a bi-monthly
sales review. The major force behind a giant food company like Nestlé are its sales.
Therefore it is extremely necessary to keep a check upon the progress of the various brands
and their sales profitability. Information regarding the sales is required at each division of the
company. Marketing Managers need it to design methods for stabilizing and building the
sales of prosperous brands. The Finance and Control Division needs it to judge the viability of
the investments being made and the budget allocation, also for managing the supply against
the demand of various brands. Similarly, Technical Purchase Division too needs requisite
information for purchasing equipment for product innovations which is based mainly on the
sales. At this meeting the Zonal and Regional Sales Managers make presentations and
provide figures necessary to make interpretations.
DEPARTMENT WISE SCHEDULED MEETINGS
In addition to the high level meetings and sales preview; every department holds several
scheduled and non-scheduled meetings. Scheduled meetings are organized to keep all
members of the department up to date about the complete workings of the department.
Members discuss their problems; give suggestions for improvements, generate ideas for
development of their department and share experiences with each other as well the
respective bosses. This helps develop communication through all levels of the hierarchy. And
management remains aware of the work being done by the sub-ordinates. Non-scheduled
meetings can be called anytime to discuss urgent issues. These do not have any prescribed
date/day/time as compared to the scheduled meetings.

MANAGERIAL STYLE
One of the most difficult responsibilities that any manager assumes is that of managing
people even if he is responsible for managing a homogeneous group. The difficulty of this
task is magnified with the size of the organization and as diversity is introduced to the group
(cultural diversity, gender, age, beliefs, disabilities etc.). Nestlé Milkpak Limited is an example
of such an organization which is large in size and diverse in culture. The original culture of
Milkpak Limited still prevails and the key managers face a tough task of managing the people
and making them adapt to the culture the Nestlé team wants to incorporate in the company.
No formal data could be obtained on the managerial style for managers at Nestlé Milkpak, the
following detail rests on my personal observation.
The relation observed by me, of the managers at different levels with their sub ordinates was
that of an "open-door policy". The key to success in managing a diverse work group is
encouraging open, two way communication. The employees of a particular department and
the organization as a whole knew that not only are they valued, but their opinion is also
welcome. The more they feel that their input is valued, the greater the sense of ownership
they'll have in their department's mission. This was exactly the case observed at NML.
Therefore, it can be said that a "democratic style" of leadership was observed at the
organization. This style describes a leader who tends to involve sub ordinates in decision
making, delegates authority, encourages participation in deciding work methods and goals,
and uses feedback as an opportunity for coaching. The use of feedback was a very important
element observed by me during my training. Being an internee, I was also asked by one of
my department heads to give a feedback stating the good and bad points of the employees I
was working with including the Incharge himself.
Such elements, go a long way in the success of a large scale and diverse organization like
Nestlé Milkpak Limited and the appropriate management style is mandatory in the
achievement of targets for the company.

MANAGERIAL POLICY
Managerial policy guidelines are made in consultation with the senior executives of the
company. "A Policy and Procedure Forum" is held for the line managers who are responsible
to implement the policies approved in their respective departments. If any changes are made
regarding the policies or procedures, it is the responsibility of the Human Resources Manager
to convey the change to the line managers. Apart from the policies, the managerial styles
vary from person to person.
RECRUITMENT PROCESS AT NESTLÉ
According to latest count, Nestlé Milkpak Limited employs more than 1300 people. This is an
approximate figure as more hiring has been done in the recent past. Nestlé follows a set
process for hiring more employees. The major document in this connection is the
"Recruitment Requisition Form". This document is used in all three instances; such as for:
Replacement.
Filling of a near position.
Additions to the existing workforce.
A recruitment opportunity may arise either after discussing or budgeting a position on the
resignation of some employee or on an urgent need basis.
In all three situations, the department head has to obtain approval from the Managing
Director(MD). If the request is budgeted, then the Divisional Head fills up a "Recruitment and
Budgeted Form". This form contains the complete information; i.e. The following particulars:
Date of initiation
Date the employee is needed
Profile
Job description.
After receiving the document the human resource department puts up an advertisement in the
newspaper or it directly contacts placement officers at various institutes. Approximately eight
to ten best resumes are selected and presented to the divisional heads. On their
recommendation the candidates are called for interviews and the most suitable are finally
selected.
MANAGEMENT TRAINEES
The procedure for selecting fresh graduates at Nestlé Milkpak is a bit different as the trainees
cannot be short listed through their CV's. Management trainees are fresh graduates or they
have one year experience at the most. Management trainees are not called directly. They are
contacted through their placement officers. Salaries or benefits of the management trainees
do not vary with their specialization. Similarly the training period is the same, whether they
are selected for marketing or finance.
SUCCESSION PLAN
The succession plan at Nestlé is made by the department head. He chooses his own
successor. It is the duty of the departmental head to train someone for his work, so that there
is a person to takeover in case he is transferred.
JOB ASSESSMENT
There is a classified system of job assessment at Nestlé. Accountability incentives in the form
of business or facilities are provided to employees performing well. Employees form the
internal equity of the company. Therefore, equally justifying measures are taken to satisfy and
motivate the employees.

PRODUCTION FACILITIES
Sheikhupura factory

Having originally begun operations in 1979, this factory of Milkpak ltd. was producing UHT
milk, butter, cream, Desi ghee and Frost by 1988. After Nestlé acquired interests in the
company. Nestlé Milkpak drew up an ambitious portfolio of expansion plans.

While reorganizing and reinforcing the existing brands, new production lines were installed.
The first to come was a milk powder plant, which began producing NIDO in 1990m. Infant
food products CERELAC, NESTUM and LACTOGEN followed this.

More product lines and product ranges were added between 1992 and 1997 which included
Everyday, MILO, POLO, ORANGE JUICE, MAGGI NOODLES AND YAKHNI, NESLAC, and
NESTLÉ RICE AND WHEAT.

In 1998 three new major technologies, added, which produce NESTLÉ PURE LIFE bottled
water, Maggi sauces and high & low boiled confectionery.

5-gallon NPL in polycarbonate refillable bottles was launched in 1999. The year 2000 saw
extensive efforts in the development of new products. Self foaming exotic Frothe in single
serve sachets was launched in early 2000 followed by cold coffee under the brand name
NESCAFE Frappe, the range of which was subsequently extended with the introduction of
two new flavors” “ French Vanilla” and “Mocha”.

Several other new products were also introduced during 2000. These included Nestlé Mango
juice, Nestlé mango-Orange juice and Nestlé Plain Yogurt. Certain products namely: Desi
Ghee, ButterScotch and cream were re-launched in improved packing.

To cater for increased production levels; a National Distribution Center (NDC) was
constructed in 2000 to serve as a centralized distribution warehouse. Designed for handling
of containerized shipments, NDC has storage Capacity of 8000 pallets of finished products.

Kabirwala Factory

Kabirwala Dairy Ltd., as it was then called, was established in 1983 as a UHT milk processing
plant. Nestlé Milkpak Ltd acquired it in 1990 as a subsidiary and installed the MAGGI
NOODLES plant in 1992.

Nestlé Milkpak Ltd setup its second milk powder plant at Kabirwala in September 1996 which
produces NIDO, GLORIA AND skim milk powders.

A new evaporator was installed and commissioned in 1999, followed by a capacity increase
of milk powder production by 150%. The year 2000 also witnessed the launching of premier
quality cultured butter in 100gm. And 200 gm. Packing. In 2001 this butter was made
available for institutional sale in 10gm. packing.

This factory is now a fully owned unit of Nestlé Milkpak Ltd since April 1997 and is called
Kabirwala Factory.

PRODUCTS AND BRANDS

DAIRY

Nestlé Milkpak UHT Milk

Launched in 1981, it has become synonymous with quality milk. Backed by a very strong
brand name, aggressive marketing and distribution, consistent quality and all year round
availability, MILKPAK UHT milk is an extremely successful brand. In September 1999,
MILKPAK UHT milk was relaunched under the Nestlé brand, which further strengthened its
position. It is available in three pack sizes of 1000, 500 and 250ml.

Nestlé Butter

A continuous butter making machine was commissioned at Kabirwala factory in the year 2000
to produce high quality cultured butter. This new butter was an improvement upon the earlier
product and carries Nestlé branding that endorses its superior quality. It has an excellent
taste and aroma and is easy to spread.
The new NESTLÉ Butter is available in two pack sizes of 200 gm and 100 gm in new
attractive packaging.

MILKPAK UHT Cream

MILKPAK UHT Cream was introduced under the MILKPKAK brand in 1986. It is available in
200 ml pack size in an attractive slim pack. The consumer trust in the brand name and the
product has endured its dominant share in the cream category.
MILKPAK Cream was also introduced in the economical 1000 ml pack size in the year 2000
for food services to cover institutions using large quantities of fresh cream.

MILKPAK Desi Ghee

MILKPAK Desi Ghee was introduced in 1986 in tin packaging. The packaging was later
changed to Tetra Pak. However, in line with the current market trend, MILKPAK Desi Ghee
was relaunched in 870 gm tin packaging in the year 2000. The product was also introduced in
16 kg tin packaging to tap the huge potential of loose Desi ghee.

NESTLÉ NIDO

NESTLÉ NIDO has been present in the Pakistan market since the early 70’s and on account
of consumer confidence in its quality it has become a pillar of Nestlé’s success. Local
production commenced in 19990 and within a short period the brand achieved market leader
status in the full cream milk powder category. Made from very superior quality milk and with
the addition of vitamins A and D, NESTLÉ NIDO is the best quality milk for growing children.
To target all consumers effectively the brand is available in different SKUs ranging from 62
gm to 1000 gm. Due to consistent good quality, aggressive marketing activities and
distribution penetration, NESTLÉ NIDO is on its way to becoming a mega brand.
NESTLÉ EVERYDAY

To target the massive potential offered by the tea whitening segment, NESTLÉ EVERYDAY
tea whitener was launched in 1992. Supported by integrated marketing activities, focused
distribution with sampling drives and excellent consumer acceptance, the brand has shown
strong growth and holds great promise for the future.
To offer convenience to all types of customers the brand is available in a variety of SKUs
ranging from 40 gm to 1000 gm.

NESTLÉ Plain Yogurt

Launched in November 2000, NESTLÉ Plain Yogurt dominated the yogurt category in 2001.
The stay fresh seal, printed expiry date and an exclusive distribution system contributed to
the immense popularity and success of the product. After distribution expansion to the
northern and central parts of the country and the subsequent launch in Karachi, NESTLÉ
Plain Yogurt has become the first national yogurt brand in Pakistan.

NESTLÉ Fruit Yogurt

The year 2001 saw the launch of the first NESTLÉ Fruit Yogurt in 3 variant of strawberry,
mango and peach, which offered real fruit pieces. This made a pleasant difference for the
consumer, as the local market was only able to offer fruit flavored yogurt so far. NESTLÉ Fruit
Yogurt in the stirred yogurt format matches the international quality standards.

CULINARY

MAGGI 2-MINUTE NOODLES

Fast to cook, good to eat - MAGGI 2-MINUTE NOODLES were launched with local
production in 1992 and in doing so Nestlé pioneered the category of instant noodles in
Pakistan. MAGGI 2-MINUTE NOODLES have special appeal for children, are fun to eat and
offer a range of interesting flavors, namely: Chicken, Masala, Chilli and Chatkhara. Affordably
priced and backed by focused marketing activities, MAGGI 2-MINUTE NOODLES have
shown good progress in 2001, assuming market leadership position.

MAGGI Sauce

Cold sauces were launched in 1999 in three flavors: MAGGI ketchup, Maggi Khati Meethi. In
2001 MAGGI Ketchup was introduced in 4.5 Kg bulk packaging for food services.

INFANT DIETIC

LACTOGEN
LACTOGEN 1 are LACTOGEN 2 are locally produced infant and follow up formulae launched
in 1991 and are available in two sizes. The brand provides both affordability and quality.

CERELAC

Launched in 1989, CERELAC is the most dominant player in the growing branded milk based
weaning food market. Available in 6 varieties, the brand provides balanced nutrition to infants
from 6 months onwards. The variants include CERELAC Wheat 3 Fruit, CERELAC Wheat
Honey, CERELAC Wheat Banana, CERELAC Rice and CERELAC Khichri.
CERELAC Khichri was the latest variants to be added in 2000 to the CERELAC range.
Offered in 200 gm pack size, it is the first locally adapted savory recipe that enjoys vast
acceptance as a traditional food for babies and blends very well with the CERELAC brand.

NESTLÉ Rice

And affordably starter weaning cereal, NESTLÉ Rice offers the flexibility of preparation with a
variety of meals. Glutton free, the brand is available in 125 gm pack and especially suited to
the needs of infants from 6 months onwards. It was launched in 1994.

NESTLÉ Wheat

NESTLÉ Wheat is a wheat based infant cereal without milk, for infants from 6 months and
above. It was launched in 1997 and is available in packs of 125 and 250 gm.

NESLAC

NESLAC is growing up milk, formulated specially for 1 to 3 years olds. It contains just the
right balance of proteins, calcium, iron, vitamins and essential minerals in order to cater to the
nutritional needs of a growing child during this special age. The product was launched in
1994.

NAN

Locally manufactured NAN 1 and NAN 2 are infant and follow up formulae launched in 2001
and are available in 400 gm soft packs. Earlier, these were being imported in 450 gm tins.
The local production of NAN is a landmark achievement, as it brings the expertise of
producing an internationally renowned high quality infant product exclusively to Nestlé
Milkpak in this region. This also offers the great advantage of affordable pricing.

BEVERAGES

NESCAFE CLASSIC
NESCAFE, Nestlé international flagship brand, is locally packed and marketed in 2 gm and
25 gm sachet, 75 gm bottles and 500 gm soft packs. The brand enjoys a special position in
the country’s coffee consuming segment.
Recently, NESCAFE has been launched in 50 gm jar.

NESCAFE Frothe
NESCAFE Frothe (Original), a coffee pre mix in 18 gm single serve sachet, was launched in
2000. After its product profile was developed through extensive consumer research, it was
offered as a sweet, creamy and frothy coffee.

Following an extremely good consumer response to this cappuccino style coffee drink,
French Vanilla and Mocha flavors were introduced the same year to offer a wider choice and
to enhance the young and fashionable image of this mixes category.

NESCAFE Frappe

To change the consumer perception that coffee is only a winter beverage and to promote its
summer consumption, NESCAFE Frappe was launched in 2000.
This iced, creamy ready to drink coffee in 180 ml slim pack was positioned to appeal to the
youth and gain its share from the other summer beverages. The product enjoys a special
appeal among urban consumers – both young and old.

MILO Powder

Ever since MILO powder was launched in 1994, it has achieved fairly consistent results.
MILO is positioned as an energy drink, both for hot and cold consumption. The product enjoys
great popularity, offers a relatively inexpensive alternate to imported products and has an
immense potential, particularly among growing children and those involved in sports activities.
It is marketed in 200 gm packs and 14 gm single serve sachet.

MILO RTD

To cater for consumer convenience, MILO RTD (ready to drink) was launched in 1995 and is
available in 180 ml slim pack. It is an ideal alternate to summer drinks and is popular with all
age groups, particularly among consumers who are nutrition conscious or have an active life
style.

FROST

A well known fruit drink brand, FROST was introduced in 1986. Positioned as a cold drink and
alternate to soft drinks, its strength lies in the convenience attached to its usage.

NESTLÉ Juices

Encouraged by the consumer response to NESTLÉ Orange Juice that was launched in 1996,
the category of NESTLÉ juices was expanded with the introduction of Mango Orange and
Mango flavors in the year 2000.
This further strengthens the position of Nestlé Milkpak as al leader in the value added and
premium drinks market. Consumer response to these new flavors has been very upbeat and
is expected to grow further.

WATER

NESTLÉ Pure Life – PET Bottles

The year 2001 saw the successful completion of three years of outstanding business for
NESTLÉ Pure Life – PET Bottles of 0.5 and 1.5 liters. The exceptional brand success was the
result of expanding national distribution and an increasingly loyal customer base. The brand
has revolutionized the Pakistani market by tapping the real consumer need for pure, healthy,
and safe water and has successfully dominated a key strategic business

NESTLÉ Pure Life – Home & Office Service

In 2000, NESTLÉ Pure Life established a successful Home and Office (H&O) delivery service
in Lahore, which has substantially grown ever since and has come to dominate the 5- gallon
market. Successful marketing and sales strategies offer greater convenience and better value
to the consumers. The brand is poised for strong growth in future.

AVA & FONTALIA

To expand its H&O water delivery business countrywide, Nestlé acquired major share
holdings in both these businesses in 2001. While AVA is an important national player in the
branded bottled water category, both in PET and H&O services, Fontalia is a strong player in
H&O services in Karachi.

These acquisitions have placed Nestlé in a strong position in the branded bottled water
business. Not only has this enabled Nestlé to benefit from the invaluable experience of these
two businesses but it has contributed to the extension of its H&O services to major cities.

CONFECTIONERY

Nestlé Milkpak successfully entered the confectionery business in 1996 with the launch of
POLO under the Allen’s umbrella. The following years saw the introduction of more promising
brands like TOFFO and SOOTHERS that are well established by now in their respective
categories.
These introductions have helped the brands to penetrate all major segments with high boil,
low boil and pressed range of products,
The year 2001 was significant as it witnessed further strengthen of the business through
product range expansion. The POLO brand image was enhanced with the launch of new
‘saunf’ variant that has been very well received in the market. Three new exciting variants:
Kulfi Magic, Mint & Mixed Fruits were introduced under the TOFFO brand, making it the only
brand of soft chews offering so much variety. Several other interesting product concepts are
also in the pipeline.
Special focus on KIT KAT has also brought excellent sales growth, complimenting Nestlé
Milkpak’s sugar business.

QUALITY CONTROL
A company like Nestlé Milkpak Ltd., which is totally food based, the only way for it to capture
and maintain a large portion of the market share, is by competing on the quality of its food
products. Quality can be defined as:
"Quality is the totality of features and characteristics of a product, service or process, which
bear on its ability to satisfy a given need, from the customer's viewpoint."
Dealing primarily in dairy products and especially infant dietaries, Nestlé has to be highly
quality conscious. They are playing a vital role for the health of people using Nestlé’s
products. For this reason an independent department for Quality Control and Management is
an integral part at each of the three production setups of Nestlé.
Nestlé Milkpak Ltd. does not follow any international standard for maintaining quality. Rather,
Nestlé Vevey has established its own quality norms. Nestlé setups the world over are
compelled to follow these standards. Nestlé officials claim that these standards are stricter
than the international standards.
STEPS FOLLOWED TO MAINTAIN QUALITY
Regular Sampling
To maintain a consistent check on the products, the products are regularly sampled through
DHL to Nestlé headquarters at Vevey. The headquarters receives samples from factories
world over and these samples are verified at the Quality Control and Management
Department.
Quality Audit
A quality audit is carried out on a half yearly basis at all production setups i.e. Sheikhupura
factory, Kabirwala factory. A team from Nestlé Vevey conducts the audit. The stay of the team
varies from four to six weeks depending upon the size of the production setup. The team
practically sees for themselves whether the production is being done according to the
samples sent regularly and the standard norms. The production setups are then awarded
grades for their respective quality performances. The Sheikhupura Factory was awarded A+
grade i.e. the top in the zone for its high quality products and maintenance of standards.
Doubtful Products
Strict quality control ranges to the extent, that even a slight doubt about any of the product is
followed by destroying the product, before sending it to the market. Again emphasis, should
be laid that Nestlé deals in most products which are vital for health of infants and adults so it
cannot take any risks on quality.
Incubation Period
Before releasing any product to the market, some samples from the lot are kept with the
Quality Assurance Department to clear all doubts. If there is any problem with the products,
the batch is not released. The specific time period, known as “incubation period” varies from
product to product.
Traceability
This is necessitated when any complaints about the product are received from either the
customers or the retailers. Traceability of the lot is assisted by the policies adopted at Nestlé.
Lot wise control is possible as a complete detail of batch numbers and expiry dates are
maintained at the production setup. To retrieve all the products of the lot, distributors can
easily be traced because of the batch numbers. Products can be called back after incubation
period also. Areas of distributors are defined and information maintained.
Safety Audit
Nestlé is conscious about the safety level also. So safety audits are conducted for every
product at Nestlé.

RECENT PRODUCTION HIGHLIGHTS

Installation of the "flexible" confectionery line in 1998, capable of producing a variety of high
and low boiled confectionery products.
To meet the increased demand for milk powder products, Weigand Evaporator of 12000 liters
per hour capacity was replaced with a larger capacity evaporator, the Niro evaporator , of
28000 liters per hour at the Kabirwala factory.
The production process followed for Nestlé Pure Life was a first for Nestlé Milkpak and in
Pakistan.
The addition of another "roller dryer" to increase sales volumes at the Sheikhupura factory in
1998.
As a part of normal expansion program for filling 400-500 gm of milk, cereal or coffee etc. ,
the third sachet filling line was added at the Kabirwala factory with equipment imported from
Germany.
To cater the increasing portfolio of products, new filling and packing equipments were
purchased in 1998 to package beverages in "Slim Packs” at Sheikhupura.
Prefabricated milk cooling tanks, in ready to build form were imported from Europe for the last
four years to meet the growing needs of the milk collection department. Currently 548 milk
cooling tanks are installed and this has increased the milk retention in the field considerably.

MARKETING MIX
The most interesting part of business administration is the marketing, this is the latter addition
of the business tools. It starts with conceiving idea of presenting a product, traditionally
producers were interested in producing those goods only which has existing pull, whereas
now because of marketing tools they are producing with the intention of pushing the product
into consumer’s hand. Marketers use numerous tools to elicit desired response from their
target markets. These tools constitute a marketing mix. Marketing Mix is the set of marketing
tools that the firm uses to pursue its marketing objectives in the target market. McCarthy
classified these tools into four broad groups that he called the four P's of marketing:
Product
Price
Place
Promotion

PRODUCT
Defining the characteristics of your product or service to meet the customers' needs.
PRICE
Deciding on a pricing strategy. Even if you decide not to charge for a service , it is useful to
realize that this is still a pricing strategy. Identifying the total cost to the user (which is likely to
be higher than the charge you make) is a part of the price element.
PLACE OR DISTRIBUTION
Looking at location (e.g. of a library) and where a service is delivered (e.g. are search results
delivered to the user's desktop, office, and pigeonhole - or do they have to collect them).

PROMOTION
This includes advertising, personal selling (e.g. attending exhibitions) , sales promotions (e.g.
special offers) , and atmospherics (creating the right impression through the working
environment). Public Relations are included within promotion by many marketing people.

MARKETING MIX OF
NESTLÉ MILKPAK LIMITED
Nestlé Milkpak Limited, as evident from the above discussions, is engaged in the production
of a variety of products. Although, its prime and only concern is food products, but due to the
diversity in their nature each product has its own peculiar characteristics. Due to this reason
Nestlé cannot implement a single set of policies for all its products.
The pricing structure differs with the nature of the product depending upon factors like the
availability of raw materials, labor engaged in the production, costs of utilities, packaging,
advertisements and a very important factor of the imports concerned with the product.
Therefore, the pricing of the product has to be different when all the above factors are taken
into account.
Promotional policies also vary from product to product. Being food products, seasonal
variations also have to be kept in mind. Major products like UHT Milk, powder milk,
beverages, coffee etc. employ all modes of advertisements like the print, media, and outdoor
promotions. On the contrast, other products like culinary and confectionery, do not get a wide
splash on the media networks focusing more on outdoor and print. The choice of the medium
is also based on the analysis of the profit each product generates for the company. Also the
cost benefit analysis is taken into account. Demand of the customers also plays a vital role for
the organization to make the choice of advertisement medium for its wide range of products.
Distribution networks again differ for all the products. For some of the products, like UHT Milk
Nestlé has integrated backward in its supply chains and relies on its own transportation for
acquiring the raw material. Separate distribution policies are formed for each product for their
delivery to the retailers. To meet the high demands and to keep control on the production a
National Distribution Center has been setup at the Sheikhupura Factory which coordinates
activities with the distribution channels.
All this discussion leads us to conclude, that for such a MNC like Nestlé producing so many
diverse products it is difficult to consolidate all the information regarding the marketing mix of
all products under separate heads of product, price, place and promotion. This would not only
make it boring but also tedious for the reader to comprehend and relate the information.
Therefore, I have classified the various products under their separate brand groups and
detailed the varying details about each product's pricing, placement and promotion
separately. I would like to mention here that all this information was gathered by making
several visits to the marketing section. Concerned Group Brand Managers or Brand
managers were contacted to gather first hand information. Once again, I would like to thank
all the people who helped arrange these visits and those who took out time from their busy
schedules to provide all the details.

This chart reflects the hierarchical structure of the marketing department at Nestlé. As it is
evident from the chart, the products have been categorized in various groups according to
their similar characteristics.
The Marketing Manager or more popularly known as MM at Nestlé heads this division.
After him, follow the Group Brand Managers. Each Group Brand Manager is responsible for a
variety of products.
Group Brand Managers are assigned Brand Managers for each single brand of product.
This kind of setup, has been arranged so that there is no extra burden on any person.
ACTIVITIES OF THE BRAND MANAGERS
The Brand Managers look after their brands and are directly responsible for making all
arrangements for their product. These include, setting up sales targets, getting the budgets
released for their product, advertising their brands, and regularly informing the supply chain
department about the minimum levels required for the product.
Brand Managers are also responsible to keep a check on the varying market trends and to
choose their target markets. Environmental Scanning is an essential part of their job. They
are the ones who have to make their brand grow. They have to pick up niches in the market
for their specific brand. Target markets are chosen keeping in view the nature of their brand
whether it would appeal to the younger generation, the elite or mothers. Accordingly, they ask
the Human Resource Department for Internees whenever they are about to carry out some
innovation in their product and there is a need to study the market trend. Based on this
research they plan their advertisement budgets. Nestlé deals with two advertising agencies
Orient Ericcson and R Lintas for their advertising strategies. It is again the duty of the Brand
Managers to explain their requirements to these advertising agencies. These requirements
can be seasonal in nature and also vary with the research conducted for the brands.
Getting budgets allocated for their brands and giving a good reasoning to the top
management for the increase in budgets also lies with the brand manager. Only, if he is able
to convince his Group Brand Manager, he has a chance with the top management. In this
respect, it is necessary to mention that all personnel of marketing department have to be in
close touch with the Finance and Control Division. Finance Division handles their budgets so
they have to plan their activities in accordance with the figures provided by the division.
ACTIVITIES OF GROUP BRAND MANAGERS
Group Brand Managers are not liable for a single brand rather they have to look after the
interests of a variety of brands. They are supervising the Brand Managers. They have had
enough experience in their previous tenure as a Brand Manager that the company finds them
capable enough to handle a range of products.
Their basic objective is to set out targets for the Brand managers. They are directly reporting
to the Marketing Manager, and they need to prove that their group is functioning well. Also,
they have the task of motivating their brand managers to achieve the desired results. As they
themselves have handled brands so they have complete knowledge about the activities of
brand managers. The brand managers can easily walk up to them with their problems.
Brand managers set up the strategies but the final power of approving those remains with the
Group Brand Managers. They take their decisions after listening to the arguments presented
by their sub ordinates and taking into account their budget allocations.
They are also closely in touch with their outside environment and constantly in search for
market loops to suggest to their brand managers to take advantage of. It is a very sensitive
position because in a company like Nestlé where its prosperity depends upon the progress of
its products, the marketing officials play a pivotal role.
ACTIVITIES OF THE MARKETING MANAGER
The Marketing Manager is the head of the Marketing Division. This is one of the most
important positions among the top managers. He is the one directly reporting to the Chairman
and the Board of Directors of Nestlé Milkpak Limited Pakistan. Also he has to keep in close
touch with the Nestlé Headquarters at Vevey, Switzerland.
Vevey issues special instructions for the marketing divisions in all regions. The basic format
suggested by the Headquarters has to be kept in mind before marketing a product. All setups
of Nestlé in various countries must adhere to these instructions and it is the duty of the
Marketing Manager to ensure this.
Marketing policies laid down by the Marketing Manager must be strong enough to hold and
build the market share of the company. Profitability of all the products and in turn the
organization depends upon the control established by the marketing head over his employees
and brands. He must be a dynamic and innovative person. Also he should be engaged in a
thorough judgment of the market to discover new modes of marketing and to increase the
demand of the products.
The Marketing Manager keeps a close contact with all the Group Brand Managers and Brand
Managers to have first hand knowledge pertaining to all products. He approves all major
decisions. For instance, when the group brand managers put up a request for a budget
greater than the amount allocated to them already.
Hence, we can say that this is one of the most important posts in a product based company
like Nestlé which demands a lot of creativity and professional skill.
ATMOSPHERE OF THE MARKETING DIVISION AT NESTLÉ
I made a number of visits to the Marketing Division at Nestlé to gather the necessary
information and to know how products are marketed in a Multinational like Nestlé. Traveling
down from the Finance division to the Marketing Division was an experience in itself. One
immediately feels the difference between the place of creativity and a place of concentration.
Whereas, in the Finance Division everyone carries out quiet conversations and people are
glued to their computers or calculators working on figures, the marketing department presents
a completely different picture.
The walls are splashed with posters and colorful buntings and there is a constant buzz going
on. Everyone is talking aloud. Discussing ideas with each other and frequently the Board
Room is booked with different brand managers discussing their ideas with each other. One
can feel the creativity flooding in this division.
The best aspect is that one sees young people every where. They are the ones holding great
responsibilities like handling a major brand. There is an open-door policy at all levels. Any
brand manager feels free enough to walk into the room of his supervisor and there are no
formalities. There is an easy access for everyone.
The degree of decentralization creates a bonding between each employee and the specific
brand that he is handling. This sense of affiliation makes them work in the best interest of
their brand and the organization. All this would not have been possible had a grim
environment been prevalent in the division. There is enough room for the brains behind the
brands to carry out their ideas and to try out innovations. They do not have apprehension
about their superiors for rejecting their ideas. They feel free enough to openly discuss their
point of views.
Every employee who was visited in this section and asked about the degree of satisfaction
concerning his work always gave a very positive answer. Although their pay scales may not
be very high but job satisfaction soars at high levels. One of the major reasons is the freedom
and authority every one enjoys and the prevailing lively environment in this Section.

Water Group
Confectionery Products
Culinary Products
Dietic & Infant Products
UHT Milks & Dairy Products
Coffee & Beverages

NESTLÉ PURE LIFE & BULK WATER

The launch of Nestlé Pure life in December 1998 was a truly historic event. This marks Nestlé
Milkpak's entry into the country's fastest growing water market. At the same time Pakistan
became the first country where Nestlé launched this new worldwide brand. It has been
launched in 11 markets internationally with its lead and best performing market being in
Pakistan. The reporting of Nestlé Pure life is not directly under the Nestlé headquarters at
Vevey, Switzerland. Rather all the water brands at Nestlé have to report to Perrier Vittel, the
pioneer and lead French Brand in the water market. Other than that, all the research
concerning the contents is carried out at the Research Center at Vevey.
Mr. Babar Khan, Brand manager for bulk water provided the following information:
PRODUCT
Nestlé Pure Life is distilled water and not mineral water as most of the water brands claim to
be. Mineral water can be taken out only from its source and no tampering can be done. In
contrast, the water for Nestlé Pure Life is taken out directly from a 500 ft. deep well at
Sheikhupura and a six step purification process is followed to make it distilled.
Nestlé Pure Life is a prestigious project both for Pakistan and for Nestlé internationally. It was
the first water brand to be named with Nestlé. The unique procurement process of water,
enables it to be taken out from any part of the world. The premium standard water can be
produced by sticking to the same patent process. This in turn, results in cost efficiency and
lower distribution costs.
It is due to this reason, that the name quoted on the bottle is not mineral water but "Premium
Drinking Water".
Production Process
Based on state-of-the-art technology, the process involves purification of raw water through
distillation, followed by the addition of essential minerals. The water is then filled and packed
through a high speed filling and packing line. This concept of packing and filling is also a first
for Nestlé Milkpak. The equipment makes pre-forms from PVC granules, which are then
shaped into bottles through heating and high pressure compressed air system. These bottles
are then rinsed, filled, capped and sealed automatically in an extremely controlled and
hygienic environment. To better utilize the factory floor space, an existing building was totally
redesigned and refurbished to install the new equipment.
The dedicated efforts of the local engineering team enabled them to master and install this
difficult technology successfully and on time, with technical support from Perrier Vittel.
Nestlé Pure Life is available in two convenient sizes of 1.5 liters and 0.5 liters. Encouraged by
the overwhelming consumer response to Nestlé Pure Life, 5-gallon home and office Jumbo
Service was launched in Lahore in June 2000.
MARKETING
The marketing for Nestlé Pure Life was done at a large scale. It was the due to the dedicated
efforts of the marketing team that Nestlé Pure Life captured 60% of the market in the first six
months after its launch. The distribution network used for UHT and powder milk was used as
a model, for the water brands to market their products.
The target market for Nestlé Pure Life is virtually everybody. Nestlé claims that it is a safe and
healthy product which anyone can have.
The first series of media burst, at the time of launching the product, focused on the whole
family.
A healthy and happy family, with Nestlé Pure Life a part of their intake. Even, the bottles of
NPL carry the embossed shapes of a man, a woman and a child. This further emphasizes
their stand point on the importance of purified water for a happy family life.
The second series of media burst which followed this, again focused on the community as a
whole, by segregating it into four categories. It showed a cricketer, an engineer, a family and
children. There were four target segments this time each representing a major part of the
population.
The third series of media campaign was basically an extension of the second one. Its slogan
"Piyo Aur Jiyo" was splashed widely on point of sale material and billboards. This campaign
was mainly followed in the outdoors promotional activities and less coverage was given on
the network as compared to the previous two media bursts.
Apart from that. Nestlé Pure Life was the exclusive official water for the home cricket series
between England and Pakistan. Providing 10,000 bottles during the series, from dressing
rooms to drink trolleys, NPL was everywhere with its umbrellas and fluttering banners and
was extensively covered by the local and foreign media.
Nestlé Pure Life had the distinction of being the official water in Shandur, at 12,500 ft near
Gilgit, the highest Polo Ground in the world. It was the biggest event of the season and was
witnessed by a large cheering crowd.
BULK WATER
One and a half year after the launch of Nestlé Pure life, it was realized by the Nestlé team
that Nestlé Pure Life was being consumed at a very high ratio and had completely overtaken
the market. But that consumption was being done out of homes mainly due to the cost
constraints. To develop further, it was thought to launch the 5 gallon format at a much lower
price to cannibalize the other market. The Jumbo service of Nestlé Pure life 19- liter bottle
was launched on June 27, 2000 in Lahore. The new service offers the consumers the much
needed supply of safe and quality water for home and office use, which is very economical,
compared to bottled water for out-of-home consumption. The water market for Nestlé Pure
Life grew at a high pace because of the launch. It was originally launched only in Lahore, and
the extension to other major towns followed in due course.
The launch was preceded by intensive training of the sales team. A teaser campaign was
initiated prior to the launch, attracting great attention.
A separate distribution channel was established to follow proceedings for bulk water. In
contrast to the smaller formats, which are disposed off after consumption, bulk water has to
be refilled once a week by the household consumers and two or three times a week by
offices.
Bulk water does not go into retail. All activities are controlled at one central office of NPL bulk
water situated at 36 C Gulberg Lahore. The motive behind this strategy, is to generate
consumer pull from consumers and not by offering higher retailer margins to the retailers.
The profitability of Bulk Water depends upon the number of bottle rotations. After
consumption, the bottle is taken back by the distributor who sends it to the factory for refilling.
If the company is not able to generate rotations it would kill the operating profits. Presently,
Bulk Water is being served to 3100 customers.
The buyer-seller relation, in the case of bulk water is very vital, as this is not a product of
impulse buy rather it is a long term decision. Therefore, the head of the family, the decision
maker is targeted, and encouraged to provide his family with premium drinking water.
Sales associates of bulk water travel from house to house and offices to market their
products. All this has helped Nestlé. Pure Life's market to flourish.
As a step, to launch Bulk Water, at other major towns, Nestlé Milkpak Limited acquired two
water brands in the starting six months of the year 2001.
FONTALIA, an under license French brand was acquired in March 2001, serving the city of
Karachi.
AVA, nationally the second biggest competitor of NPL was acquired in May 2001, serving the
cities of Islamabad and Karachi.
This strategy gave speed to the market for branded water at Nestlé. Efforts are being made,
to upgrade the water quality of these brands. The logo of Nestlé cannot be displayed on the
product till the quality comes upto the Nestlé standards. Also, a large amount of royalty has to
be paid to Vevey, for the use of the brand name of Nestlé.

CONFECTIONERY
With the launch of POLO in 1996, Nestlé Milkpak successfully entered the confectionery
business in Pakistan. Ever since, a number of different sweets and toffees have been
introduced under the Allen's umbrella brand including:
Toffo
Soothers
Fruit Drops
Butter Skotch
All these are produced on the state-of-art flexible process.
The confectionery line, which was installed in 1998, is called "flexible" as the technology
employed is capable of producing a variety of high and low boiled confectionery products. To
complete the installation work and begin timely production, a tremendous effort was put in by
the engineering team to meet the deadlines.
The year 2000 saw the launch of three new products and variants. First came Butter Skotch
in two pack formats. Then it was Polo Tutti Frutti , an addition to the Polo family of pressed
"sweets with the hole", and Soothers Wild Cherry that has enriched the brand range with
another delicious flavor. In addition to the introduction of new and exciting products, the
company continues to improve the existing confectionery range, an example being the re-
launch of the bigger and better Toffo at the same price.

CULINARY PRODUCTS
Culinary products group consists of two product lines:
Maggi 2-Minute Noodles
Maggi Cold Sauces

MAGGI 2-MINUTE NOODLES

Fast to cook and good to eat Maggi 2-Minute Noodles were launched with local production in
1992 and in doing so Nestlé pioneered the category of instant noodles in Pakistan. Maggi 2-
Miute Noodles have special appeal for children, are fun to eat and offer a range of interesting
flavors, namely: Chicken, Masala, Chilli and Chatkhara. Affordably priced and backed by
focused marketing activities, Maggi Noodles have shown good progress over the years.
At the time of launching the product, free sampling was carried out at a large scale throughout
the country. Special painted branded Maggi trucks would be parked in rush areas and festive
places to develop the taste for instant noodles.
Promotional activities now follow a steady pattern with equal distribution of budgets for Point
of Sale promotions, television and radio advertisements and price discounts.
Maggi noodles have a fast growing market in Pakistan and Nestlé is building its market share
by introducing new flavors regularly.

MAGGI COLD SAUCES

Nestlé entered the Cold Sauces category in 1999 with the launch of Maggi Ketchup, Maggi
Mirch Maza and Maggi Khatti Meethi, the first Imli sauce in Pakistan. The innovative taste of
Khatti Meethi together with the more traditional tastes of Ketchup and Mirch Maza, were
received well by the consumers.

MAGGI MASTER MIND PROMOTION

Maggi came up with a master mind game and a sticker in its Chicken and Chatkhara flavor
noodles. The sales got a good boost. Other than POS material and print advertisements, a
mastermind quiz show was aired for a month and hosted on PTV World. Other promotional
activities included writing competitions at school level and 'question of the day' related to
major TV programs. The Maggi team visited homes of the celebrities, asking them to relate
interesting incidents about their cooking experience and encouraged them to try out Maggi
sauces. Other programs were held at schools, the Lahore Zoo and Sozo world. PTV World
awards were also sponsored.
Maggi develops an exclusive recipe for KFC
To develop KFC's needs, Maggi Sweet and Chilli Ketchup has been exclusively developed
and supplied to KFC.
This is a relatively new product line, and efforts to build its market are at the top swing.

PEDIATRIC INFANT DIETIC GROUP

Children are the most beautiful gift of God. Proper care of diet with full nutrients and
necessities is essential for the child to be healthy. Nestlé being the world's leading giant in
food products, also focuses a major portion of its efforts on infant diet.
Pediatric Infant Dietic is a separate food product group at Nestlé, where PID stands for
"Product of Infant Dietics".
Dr. Usman Bhatti, the Brand Manager for the PID Group, also handles another small segment
which is of "Clinical Nutrition". He briefed us about the PID Group.
PRODUCTS
There is a variant product mix for this group. PID Group develops products on three lines;
focusing on children form birth till three years. The variety of products under this group
supplies the proper diet for infants according to their respective ages. The three major
product groups under this group are:
1. Infant Formula.
2. Infant Cereals.
3. Growing Up Milk.
Infant Formula has four types of products to offer namely:
Lactogen I and II.
Nan.I and II.
AL-110.
Pre-Nan.
Lactogen I and Nan I are suitable for children up to six months of age. Whereas Lactogen II
and Nan II should be switched for infants from six to twelve months of age. AL-110 is a
diarreheol product which is lactose free. It has the proper combination of formula suitable for
infants suffering from diarrhea. Pre- Nan is a formula specifically developed for pre-mature
babies.
Infant Cereals
The infant cereal group again offers a series of products:
Cerelac is the most widely recognized product under this head. Following it are Nestlé Wheat
and Nestlé Rice, which are prepared by just adding water.. Cerelac further provides a variety
of flavors. Cerelac has to be prepared in milk for which Nestlé provides the Nestlé Infant
Formula.
Growing Up Milk
Neslac is Nestlé’s growing up milk, suitable for children aged 1-3 years. After that Nido is
recommended. So Nestlé’s products provide a set combination for all ages and proper diet for
children in growing ages.
Clinical Nutrition
Clinical Nutrition or Adult Nutrition as it can be termed offers Nutren and Peptones. These
have been developed for the weak and adults lacking health.
PRODUCTION
Cerelac and Neslac are produced locally. Whereas Lactogen is available both in local and
imported form Nan is available only in imported packing. But Nestlé planned to launch it
locally from July'01. AL-110 and Pre-Nan, Nutren and Peptones are imported products.
PRICING STRATEGY
A market driven pricing strategy is followed for these products. The product is positioned
according to the price which is to be settled. Nestlé can afford to position its products
according to its needs due to its long experience with nutrition meant to provide adequate
health and consumer's confidence on Nestlé’s products.
PID Group follows different tactics for the variety of products it offers. For instance local
Lactogen is priced lower from its counterparts; strategically with its basic aim to hit the
masses. Nan being a technically premium product, is priced in a similar fashion. Therefore it
is high on quality and high on price both. Although its price not highest in the market but is
competitively priced with the rest of the imported infant formula.
Accordingly with the price structure that Nestlé officials have in mind, the product is
positioned in the market using skip, penetrate or positioning in a Niche strategy.
PROMOTION
The promotional strategies for this group cannot follow the same track as the rest of the
brands. This is the most sensitive product group at Nestlé. As its main consumer is the infant,
therefore it is mandatory for it to be 100% correct. PID products especially infant formulas fall
under the WHO Codes.
WORLD HEALTH ORGANIZATION(WHO) CODES
The third world countries were exploited in 1981, when a campaign was launched against
them. The campaign was that the promotion of infant formulas in these countries serving as a
substitute for mother's milk was causing the new-born to die. According to these criticisms,
the hygiene conditions and the literary rate of mothers in these countries was not appropriate
for the young to nourish.
Hence the WHO developed a code of conduct for the third world countries pertaining to these
criticisms. It is known as the "WHO CODE OF MARKETING OF BREAST MILK
SUBSTITUTES". It has the proper guideline which instant formula companies should follow.
Countries where there is local law for such activities do not require the WHO GUIDELINE. But
for places where there is no local legislation, WHO CODE is applicable for infant formula
companies. Therefore, the Nestlé Pakistan Ltd. has developed a stricter structure based on
the WHO CODE known as the "Nestlé Charter"; an instant document.
According to this the Nestlé cannot contact the buyers directly either through print/non-print
media. Products cannot be sampled and no advertising activities can be followed on Radio
and TV. Along with that the packing of the product and the description written on the pack
should strictly pertain to the guidelines. No picture inducing the mother to buy the product can
be made on the pack. Similarly the guideline should be followed for what to write and what
not to write on the packing.
The only activity for promotion acceptable for such products is for the company's
representatives to go to doctors with technical information about the brand regarding
prescription about the formula. It is a prescription driven business and Nestlé extracts 80-85%
of its sales through this mode. The other modes of promotion for this product have nothing to
do with the company itself. As one is the recommendation through the peers(friends and
relatives) to mothers. The other is through the shops where the pharmacist suggests
something to the mothers according to the market trend.
Cerelac and Neslac
Cerelac is a product that lies in the grey zone. Government has still not decided what to do
about its promotional activities. But its advertisements are aired on the TV and Radio as well
as the Print Media. There is no below the line activity for it. Sampling can be done only to the
doctors but not the consumers/mothers. Consumer promotions i.e. gifts for babies in the pack
or branded bowls with the pack are frequently followed to reward the loyal consumers and
also to build excitement around the brand.
Neslac is also advertised in Print and Electronic Media. Detailing activities for these products
to doctors are constantly on the run. But no such promotions like posters branded in the
doctor's rooms with Nestlé’s products and table sets for the doctors are done. Therefore, in
contrast to competitors the PID Group at Nestlé follows a strict code of conduct where every
product packaging goes to its headquarters at Vevey, Switzerland for verification and
approval.
Medical Representatives
Due to the sensitive nature of products handled by the PID Group, the head of the Medical
Representatives also sits along with the other product managers of the group. These Medical
Representatives are required to follow certain objectives. These are knowledge objectives,
which requires these representatives to have up to date information and they are tested every
three months. Territory coverage objectives based on detailing activities to doctors are
marked on the physician's profile.
COMPETITORS
The major competitor of infant formula for Nestlé in Pakistan is Morinaga (an imported
product). Others like Meiji etc are also prevalent. However, in the case of cereals Nestlé is the
market leader. There is very low competition with Morinaga and Cow and Gate.
Neslac is the only growing up milk in Pakistan. Other than that, Non Governmental
Organization’s developed for consumer protection are very vocal in their campaign against
infant food producing companies. Nestlé occupying a giant share of the infant food market in
Pakistan and it is produced locally mostly under fire of their comments.

ULTRA HEATED TEMPERATURE (UHT) MILK

On Monday, the 16th of July, at around 4 p.m. we visited Mr. Khurram Maqbool, who is the
Brand Manager for UHT milk. 'Milkpak' as the name goes, has been in the market for quite a
long time now. Almost every Pakistani is familiar with the name and the concept of having
milk in cartons. Milkpak was the pioneer in this respect and has played a dominant role
consistently.
PRODUCT HISTORY
Nestlé launched Milkpak in 1981. Although like other products its packing had no label of
Nestlé but it was making profitable business. It steadily grew as a brand and captured the
market.
It began to face losses after the launch of Haleeb by Chaudhry Dairies Limited. The strategy
followed by Haleeb to weaken Milkpak as a brand was to capture the market niche where
Milkpak was not very strong. That is, with their novel idea of packaging in a quarter of a liter,
they targeted the "C" class market. People with extremely low levels of incomes constitute the
"C" class market. As majority of Pakistan's population is poor, so Haleeb quickly gained its
market share and became a tough competitor for Milkpak. By launching this new size, not
only was it targeting the major part of the population, but was also earning a higher price per
liter. "C" class market is where people do not buy on a regular basis, so the per capita usage
is low, but volumes are high. This factor contributed for gaining a high market share.
Depressed with the situation in 1995, Nestlé under its flagship launched a new UHT Milk with
added vitamins A & D by the name of Everyday. But this product did not gain the success as
expected.
In 1996, Nestlé started building up its brand image. Ultra Heated Temperature brands are not
worldwide Nestlé products. These are restricted only to specific regions where there is high
availability of raw materials compared to the products like Nescafe or Maggi which are
trademarks of Nestlé worldwide. Eventually, as a comeback step in 1999, Milkpak was
launched in the market under the label of Nestlé. Television shows were aired to gain
people's attention by stating that something new has happened to Milkpak. From then
onwards, it was known as Nestlé Milkpak with a completely new packaging and Nestlé’s label
right on the top. By 2001, Nestlé Milkpak has taken its leadership back and holds the major
share of UHT Milk in the market.
In the "A" class market Nestlé is the market leader with a clear cut share of 70%. Whereas in
the "C" & "D" class markets Haleeb leads the way by taking 45% and 55% of the share
respectively.
PRODUCT
Nestlé Milkpak offers milk in three formats:
• 1000ml
• 500ml
• 250ml
Nestlé bases the superiority of its product on their unique method of procuring the core raw
material i.e. milk. To have a clear understanding of this edge, a brief preview about the milk
collection system at Nestlé is necessary:
Milk Collection
The core raw material of Nestlé Milkpak is milk. Over the last twelve years, the Company's
prime concern has been to improve the quality and volume of milk for UHT processing and for
other milk based products. Driven by its commitment, to quality and having realized that only
self collection could eliminate its dependence on poor quality milk available from outside
sources, the Company successfully established its own collection system and expanded its
operations over a very large milk shed area in Punjab. Owing to this tremendous growth in
the volume of an extremely high quality raw milk, Nestlé Milkpak now produces a superior
quality and better tasting UHT milk, with longer shelf life.
Today Nestlé Milkpak can boast of the largest milk collection network in the country,
unmatched in size, productivity and efficiency. Milk is collected through a vast network of
village milk centers (VMC's), sub-centers and centers. At these centers, chillers have been
installed to lower milk temperature to 4 0 C for preventing bacteria development during long
hauls to the factories, which are undertaken by a large fleet of specially insulated tankers.
Due, to this unified system of milk collection the milk reaches the factory latest by seven or
eight in the morning.
Here lies the major difference of Nestlé Milkpak with its competitors who have to depend
upon contractual milk for production. In that case, the contractor collects the milk and delivers
it to the factory. Hence, the milk does not reach in pure form.
Another advantage gained through this collection system is that cost of the product decreases
as contractual milk is expensive compared to the milk collected through own sources and
transportation.
The marketing and sales representatives of Nestlé Milkpak Limited keep in close touch with
the farmers. This steady relationship with the farmers provides advantage to the company.
Many efforts are undertaken to help the farmers and to solve their problems.
Service to Farmers
As a service to farmers, Nestlé Milkpak has established an Extension Service, staffed by
quality veterinary doctors, who assist them in vaccination and treatment of livestock,
improved breeding, good animal husbandry practices, provision of high yield fodder seed etc..
By taking professional help and guidance to their doorsteps, which they otherwise find difficult
to access, coupled with incentives and a good and prompt return for their milk, Nestlé has
created a mutually beneficial relationship with the farmers, which translates into opportunities
of economic uplift for the rural population.
To promote milk production, Nestlé Milkpak is successfully promoting the use of molasses to
enrich the fodder and has arranged its distribution to farmers at cost.
Production Process
According to the food law guidelines UHT milk should contain the following ingredients:
• Fats 3.5%
• Solid Non Fats 8.5%
• Overall solid Contents 12.4%
• Water
In terms of quality, the milk collected by Nestlé Milkpak is low in sodium, high in fat and solid
non-fats (SNF) and very low in Total plate Count (TPC) which, stated simply means the
bacteria count. This was achieved through a comprehensive strategy and sustained efforts to
overhaul the milk collection process, intensive education programs for the farmers and milk
collection staff, upgrading of milk loading and transportation system, increase in the chilling
capacity and above all, adherence to the highest acceptance standards at all milk collection
points, including all the factories.
After reaching the factories, milk is transported to huge steel containers called Silo's. Here the
milk is boiled and led through pipes to the filling area where it is packaged in different sizes
and fitted into trays.
The packaging is obtained from Tetra Pak. It is a six layers packing saving the milk from
bacteria attack and chemical reaction. It has a capacity to stop the process for three months.
In addition to the bacteria growth, it also saves the milk from light and sun.
The packaged milk is shifted to the warehouses in the factories and sent out to the
distributors and retailers accordingly.
PRICING
The pricing strategy for UHT milk is dependent on the forces of demand and supply and the
company can not influence the price greatly as it faces a strong competition in the market.
Following is the price structure for the three formats of Nestlé Milkpak:
• 1000ml 30 Rs.
• 500ml 16 Rs.
• 250ml 8 Rs.
UHT milk constitutes only a meager share of 2% of the country's total milk market. Processed
milk has a market of 3 million liters only whereas the overall market for milk in Pakistan is 20
billion liters. Therefore, processed milk producers cannot afford to bargain for a higher price.

PROMOTION
The promotional activities for UHT milk have to be organized keeping in view the target
market and their demands. As it is, this is the pioneer and the major profit earning brand for
Nestlé in Pakistan.
Advertising in the print media is not done at a very large scale except for the placement of
advertisements in popular newspapers or magazines once or twice a month.
During 1996-98 period, below the line activities for UHT Milk were at their peak. As this is the
same period that Nestlé was building its brand image and a platform for the new look of
Milkpak. A large number of 'road shows' and 'consumer service' shows were conducted to
educate the consumers about the product.
The Point of Sale campaigns are always on the go, with the display of new posters, banners
and buntings at all retail outlets. There are about 14 to15 outdoor hoardings of UHT milk
nationwide.
Nestlé Milkpak offers discounts to the bulk procurers of milk. This discount is provided at a
rate of 20%. The Food Services Channel institutes these contracts and the buyers in this
case are the Armed Forces and other major government and private setups.

DISTRIBUTION
Nestlé Milkpak Limited has divided the country into three zones for the sake of convenience
in its sales and distribution system. These are:
• South Zone 4 regions
• Center Zone 5 regions
• North Zone 3 regions
Nestlé maintains a comprehensive sales staff, including the Assistant Sales Managers,
Regional Sales Managers And Zonal Sales Managers who are reporting to the National Sales
Manager.
These people are responsible for the distribution channels of their own particular area. For
instance, in Lahore, 50 vans have been hired on a daily basis to deliver the products to the
retail outlets. A sum total of approximately 270 vans are required daily to cover the three
zones.
As Nestlé focuses on the "A" class market, so its reliance on wholesalers is very less and it
maintains close contacts with the retailers. This strategy is not possible for "C" class markets
where it is difficult to cover the retail.

MILK POWDER
Nestlé Milkpak Limited is engaged in the production of two different types of milk powders.
These are:
• Nestlé Nido
• Nestlé Everyday
Mr. Sajjad Leghari is the brand manager for milk powders at the organization and a session
was arranged with him to brief on the marketing mix of this brand.
NESTLÉ NIDO
Nido was introduced to the Pakistani market in the 1950's, when milk powder was first
imported through the aid program. Thereafter, it grew in popularity in volumes establishing a
significant place for itself. When in 1990's Nestlé went for local production, Nido was already
a well-established brand. It came to enjoy this position on account of its high quality,
affordability and value for money.
Nido is milk for children aged between 2-4 years. The process of collecting milk for the
preparation of this milk powder is the same as for UHT milk. It has retained its leadership
position for a number of years now. Supported by years of research and leadership in dairy
products, Nido is a class apart in that it is a full cream milk powder, fortified with vitamins A &
D and thus especially suitable for children.
The brand has now launched a low unit priced SKU that offers half a liter of high quality milk
at a very affordable price. A 62 gm sachet was introduced in February 2000, for low income
consumers.
The marketing investments in grassroots activities and the media aimed at educating
consumers about powder milk and positioning of Nido as the quality milk for children, have
paid dividends.
Advertisements are targeting the mothers by focusing their attention on supreme nutrition for
their kids. Supported by a very strong sales effort, the brand has gained formidable presence
in the retail channel. After creating the highest ever invoicing and retail per day nation wide
record in June, Nido achieved its 1999 OPL annual volume target on July 15, 1999. Today,
Nido can proudly claim to be one of the strongest pillars of Nestlé Milkpak Limited.
A review of Nido sales over the past two years shows that the strategically planned
promotional activities and the rigorous marketing efforts have successfully established Nido
as the best milk
for children and is associated with quality, health and nutrition.
MARKETING HIGHLIGHTS
Nido Spellathon
In line with its positioning, Nido continued to promote educational activities for the mental
development of children in association with WWF. It sponsored the Spellathon which
attracted a large number of school children. For the past two years, the activity has very
successfully projected Nido as quality milk for children and the best option for mothers.
Nido Quiz Contests
Quiz contests were also sponsored by Nido. Several schools competed in this mega-event
and the program was aired on TV.
Nido Rolls Out Its New Thematic
TV viewers nationwide witnessed the new Nido Thematic in May 2000. From the production
and execution point of view, this was the best Nido Thematic to date. It features a Nido boy
who grows up to contribute to the family income. The advertisement is very emotional,
highlights a mother's love for her child and shows how Nido helped her in realizing her life
long dream.
Mother's Day Shows
Nestlé Consumer Services has continued to play an important role in the growth of Nido. The
Mother's Day Shows organized by consumer services in schools have highlighted the
importance of milk to help children excel in studies, raise awareness of hygiene in milk and
also eliminate misconceptions about powder milk.
Held in an interactive manner, the shows allow Consumer services representatives to discuss
these issues with mothers and give free samples. These shows have been a success, as is
clear from the tremendous rise in Nido Sales in markets where these shows were held.
Trade Offers By Nido
To support the sales team in pushing the brand to the trade and also reward its loyal retailers,
Nido gave a trade offer in its major markets. Retailers were given coupons on the purchase of
a pre-decided quantity of Nido, which were also entered in a draw for fabulous prizes. The
response was very enthusiastic and sales got a good boost.
Road Shows
In May and June 2000, Nido organized road shows in its key markets to have close
interaction with mothers and to provide entertainment. These included a puppet show
performed by the Rafi Peer Theatre Workshop, dance performances by folk artists and
competitions among children. Free samples were also distributed.
NESTLÉ EVERYDAY TEA WHITENER
"Everyday" is a specialized milk powder positioned as a dairy tea whitener. In 1992, Everyday
tea whitener was introduced in the market, offering a premium valued milk powder that brings
out a special taste in tea. It was specially suited to the taste of a very large tea drinking
population, which consumes over 100,000 tones of tea every year. Due to its excellent taste
delivery, this brand has prevailed any competitive forays in the milk powder segment since its
launch.
During the last few years Everyday has shown a proverbial growth, thanks to effective
marketing efforts, such as heavy sampling among its core target audience.
Everyday's thematic campaign was launched in January 2000 with a bang. It has been an
instant success due to its better production, greater emotional and appetite appeal and well
known models, Junaid Jamshed and Mahnoor Baloch. Everyday's consistent presence on
television, in the print media, on radio and in cinema, has helped the product gain popularity.
The largest outdoor campaign, featuring more than 65 sites nationally, created tremendous
impact in the outdoor arena. Additionally, all sales regions also focused on the Point of Sale
and merchandising campaigns, helping significantly to increase volumes and put the product
on its way to becoming a giant in this category.
Nestlé has launched a 40 gm sachet for a mere Rs. 8, a low unit priced SKU especially suited
for lower middle class.

MARKETING HIGHLIGHTS
Wet and Dry Sampling for Everyday
Nationwide wet and dry sampling by Nestlé Everyday continued during the year 2000. The
activity was significantly reinforced to introduce more consumers to the product. Special town
storming drives were also launched in Northern Areas, Interior Sind and Central Punjab.
Caltex - Everyday Promotion
A joint promotion with Caltex in April 2000 gave the brand excellent exposure. Caltex stations
were covered with attractive POS material highlighting the promotional offer. More than
300,000 Everyday samples were distributed with petrol sales.
Everyday Sponsors International Music Event
An International Music Festival was sponsored by Everyday in March 2000. A magnificent
Everyday stall was set up to ensure maximum brand exposure. Events such as Sozo Laser
show, were also sponsored to provide maximum support to the new campaign and the
ongoing sampling activity.
Everyday Road Shows
Road shows organized by Everyday, featuring musical groups and attractive puppets created
major hype in Karachi, Lahore and Islamabad. Thousands of consumers were involved in this
massive activity, which was coupled with wet and dry sampling.
Everyday Premium Prospects
To reward its partners in trade i.e. the retailers, a special lucky draw scheme was launched.
More than 10,000 retailers participated in the scheme which offered 20 Umra tickets, 7 tickets
to Dubai and 250 gold rings. The launch of new 5 gm sachets of Everyday for offices was a
major success.
Supported by aggressive marketing activities, focused distribution with sampling drives and
excellent consumer acceptance, the brand has shown good growth and holds good promise
for the future.

NESTLÉ YOGURT
A new product from Nestlé Milkpak, Nestlé Plain Yogurt took the market by storm with the
dawn of the new millennium. On November 1, 2000, the management and sales teams rode
to Liberty Chowk in Lahore in a cavalcade of colorful horse drawn carriages led by a folk
dance troupe and followed by a procession of our new yogurt distribution vans and sales staff
on motorbikes. It was a great sight.
Fritz Mahler, the Managing Director, unveiled a giant sized NESTLÉ Plain Yogurt cup and
moved the teaser message off the hoarding, displaying the campaign launch message at
Liberty Chowk. Mr. Dominique Dupont and Mr. Apkar Sutlian from Zone AOA, Vevey, who
were visiting Pakistan, were also present and joined the festivities.
Mr. Abdullah the Brand Manager for Nestlé Yogurt gave the following detail.
PRODUCT
Nestlé Yogurt comes in a packing of 450 gm. The product is of a very high quality. It
extensively benefits from Nestlé’s 125 years of expertise in dairy products and the superior
quality milk that Nestlé Milkpak collects in Pakistan.
The major strength of Nestlé Yogurt lies in the culture used to prepare it. Cultures are of two
types:
Bulk Starter.
Devious.
Bulk Starter used by all competitors regenerates automatically and can be used over and
over again. Whereas Nestlé imports the devious culture which can be used only once for
batch production. It leads to best quality and its strength is not reduced with use. Other
ingredients include sucrose and stabilizers.
Process
The procedure for preparing the Yogurt is that:
Milk is standardized and the percentage of fat is adjusted. A standard proportion of Fats and
Solid Non Fats is maintained. Solid Non Fats include water minerals and vitamins. The quality
of the yogurt depends on this proportion of Fats and Non Solid Fats. The minimum level for
Fats is 3.5% and for SNF's is 8.2%. This level has been decided through research and Nestlé
maintains it at above minimum levels i.e. 3.6% for Fats and 8.3% for SNF's. Sugar content in
the yogurt is standardized at 4%.
After standardization the next step to follow is pasteurization
From there, the milk moves on to the filling machine. Milk is poured in the cup containing the
bacteria.
The cup with milk and bacteria moves to the incubation room where temperature is
maintained at 400C to make the bacteria grow.
From here the cup moves to the glass chillers in a temperature of 40C to stop the growth of
bacteria.
After completion of these phases, the cups are moved to the cold store which again maintain
a temperature of 40C.
Chilled Distribution Vehicles are used for the distribution of yogurt; where the temperature is
more than freezing point ranging between 0-100 C.
The product has an edge over competition that it carries a 21 day expiry date - longest in
Pakistan and a Stay Fresh Seal. All products carry an expiry date.
PRICING
Nestlé Yogurt is available at a price of Rs.21/- in the market. The strength of the brand lies in
the factor that consumers buy the product on its price.
Nestlé gains this advantage as it is backed by formidable brand strength. Prime followed a
strategy of major trade discounting because of the launch of Nestlé Yogurt. But they were
able to gain only a short run advantage. Halla remained the major loser by a reduction of 10%
in market share.
PROMOTION
A dairy based product, the largest markets for Nestlé Yogurt are children ranging between 4 -
12 years of age. The largest audience for this brand are the decision makers in families i.e.
the mothers of these children who are health conscious about the diet of their kids.
As the product has been launched in Punjab only, the TV. Commercials is aired only on
Lahore Local Networks. Also advertisements are aired on Radio Channels FM 100 and FM
101.
Outdoor advertising includes MMT's and banners at major roads of Lahore. The launch was
preceded by an extensive teaser campaign. The placement of an aluminum seal foil in the
newspapers created a great deal of consumer curiosity. On October 31, 2000 a sales function
was held at Sozo World in which over 300 guests participated, including the members of
senior management, Mr. Dominique Dupont and Mr. Apkar Sutlian and the sales team.
Everyone thoroughly enjoyed the food and the music.
Channel promotion is attained by linking Nestlé’s name with other small firms. Like Nestlé
Yogurt has coupled with Chen One products and prizes are offered on lucky draws at Chen
One sales point. Nestlé is chipping in a small amount but is gaining a lot of mileage for its
brand.
DISTRIBUTION
As already mentioned Nestlé uses chilled distribution vehicles for delivering its products to the
retailers. A total of six to seven vans are used to cover the city of Lahore. Areas have been
specified for these vans to deliver the Yogurt to retail outlets
The consumer response in connection with this product has been excellent and the off take
very high. Nestlé Yogurt plans to capture the market in South soon, after launching its product
in Karachi.

MILKPAK UHT CREAM, DESI GHEE & NESTLÉ BUTTER

These are small brands compared to the rest of the dairy based products but they gather a
large proportion of the market share due to their supreme quality. Their production is based
on the same milk collection process as followed by the rest of the dairy brands.
MILKPAK UHT CREAM
Milkpak UHT Cream was introduced under the Milkpak brand in 1986. It is available in 200-ml
pack size in an attractive slim pack. The consumer trust in the brand name and the product
has ensued its dominant share in the cream category.
Milkpak Cream was also introduced in an economical 1000ml pack size in the year 2000. This
SKU has been developed for Food Services to cover institutions using large quantities of
fresh cream.
MILKPAK DESI GHEE
Milkpak Desi Ghee was introduced in 1986 in tin packaging. The packaging was later
changed to Tetra Pak. However in line with the current market trend, Milkpak Desi Ghee was
re-launched in 1 Kg tin packaging in the year 2000. The product was also introduced in 16 Kg
tin packaging to tap the huge potential of loose Desi ghee.
NESTLÉ BUTTER
Nestlé Butter was launched on January 20, 2001. The venue was the picturesque seaside
Carlton Hotel in Karachi where a concert was held to round off the National Marketing and
Sales Conference. Against an impressive backdrop, famous singers swung and sang, making
it a memorable occasion.
At a cost of over Rs. 19 million, the old butter churn was replaced with a continuous butter-
making machine to produce a highly improved product. This close circuit process enables
Nestlé to produce cultured butter that is comparable to any international brand. As compared
to the non-cultured butter, it provides better taste, aroma and spread ability. Available in new
attractive packaging of 200g and 100g, Nestlé Butter has been well received by the
consumers, for whom the Nestlé branding is an endorsement of its high quality.

NESCAFE'
Coffee and beverages at Nestlé Milkpak Ltd. includes Nescafe Classic (soluble coffee),
Frothe and Frappe. Under the head of beverages are juices and cold drinks.
Coffee or "Nescafe Classic" as it is commonly known is the major trademark of Nestlé. It is
the strategic brand at Nestlé. It is the biggest profit maker for Nestlé world wide and the most
vital source of revenue generation. The growth of the brand is estimated to be approximately
5-7% annually world over.
As is evident from history there is a highly dominant tea drinking culture in Pakistan. Lever
Brothers Ltd. took the first step in this direction in the 18th Century. They added the taste of
tea to the milk drinking culture of South Asia, by free sampling of their product. After people
formed a habit of drinking tea the vendors profited greatly by putting a price on it. Therefore,
today 80% of the country's population is hooked on to tea.
The market size of coffee as compared to tea is just less than 1%. This figure is true if we
take into account only the legal import of coffee. Legal imports are less as govt. has imposed
heavy duty on such items.
Main hurdle faced by Nestlé Nescafe is to counter the tea drinking culture and to
breakthrough the tea drinking habit of people. Its aim is not to deviate people from drinking
tea, but simply to replace the numbers of cups of tea drunk in one day, by a single cup of
coffee.
We had set an appointment with Mr. Nauman Khan, the Brand Manager for Coffee and
Beverages at Nestlé Milkpak Ltd. He as a Brand Manager keeps on conducting surveys to
judge people's perceptions about coffee and tea. Even as we were having our discussion with
him, he kept questioning us for our views. He told that there is a multitude of negative and
positive connotations attached with it.
The platform on which Nestlé places its viewpoints are that tea no doubt is an eye-opener
and mind-jolter, but it is a more mature drink that does not go in keeping with the nature of the
young masses. It relates to ancient times whereas coffee is a relatively younger and modern
concept. It talks about the future, it is modern and upbeat. The key areas attached with it are:
1. It has a sensual appeal.
2. Its aroma can be matched with no other drink.
Recently a new product form was launched i.e. Frothe'. It was developed clearly for the tea
drinking cultures of the Asian countries. It has the creamy and frothing effect that normally
relates in the minds of traditional Asian cultures. Where coffee relates to a hot drink i.e. beat
up with sugar and water and added in a lot of milk to provide the frothing effects.
Frothe' has been made more appealing by adding Vanilla and Mocha flavors.
The major drawbacks restricting the use of coffee remains the seasonal factor. Connotations
attached to coffee remain that it is hot beverage stimulating heat in the body and with adverse
effects for health in summers, its use is curtailed.
To bridge the seasonality gap to keep alive the tradition of drinking coffee, Nestlé launched a
novel product, the first and sole one of its kind in Pakistan. Nescafe Frappe or the "Cold
Coffee", a refreshing and tasty drink that has highly appealed to the young masses in the
country. Frappe was developed to keep the target market on track of coffee irrespective of the
limitations posed by seasons.
Soluble coffee, Frothe and Frappe are three pillars of Nescafe'. Volumes of sales are small
compared with tea, still it has made a major inroad in the beverage market.
The target market of Nescafe is the young generation i.e. ages 18-24. This is the 'wanna be'
age where youth want to be in keeping with the changing times.
Nescafe also wishes to place itself where the younger crowds are going. It wants to position
itself in the area which is not the domain of its competitor. Vending machines with imageries
of Nescafe have been setup at various educational institutions. Concerts at institutes and
clubs are sponsored by Nescafe mostly. It promotes the renowned singers in the pop
cultures. Advertisements are constantly splashed on media and also non-media activities.
Internet advertisement is also at its bloom where local chat pages are used for advertising to
attract the Pakistani generation.
Nescafe faces a huge task in this respect. Its cover area is the younger generation and from
facts it is evident that coffee has only been able to make a breakthrough where tea drinking
culture was very dominant. People accustomed to coffee are difficult to move from their taste
as its aroma and flavor has no counterparts. Compared to that Japan popular as a chronic tea
drinking nation all over the world is the second and fastest growing market for Nescafe coffee.
With no formal company as its competitor, the major competition Nescafe faces at Pakistan is
Nescafe itself i.e. smuggled goods pouring in the country from all boundaries.
Above all the changes coming globally in the world, due to the emerging trends and novelties
are all opening the market for Nescafe. Globalization on and communication all are
addressing in the
growth of Nescafe. It is becoming the trend for the younger masses.
All these changes are going in favor of the coffee producers and the tea giants know this.
Therefore, they have also started building up their efforts by associating their product with
celebrities appealing to the younger generation.
Nauman Khan at Nestlé Milkpak Ltd. Lahore and all brand managers worldwide are very
optimistic that they would be successful in adjusting the taste buds of people in hot beverages
according to their wishes.

BEVERAGES
Mr. Arsalan Khan; the Assistant Brand Manager briefed us about the Nestlé Beverages and
said that cold beverage market at Nestlé is divided into three segments. All beverages come
in tetra- pack packing.
1. Fruit Drinks (Frost Mango, Mango Orange etc ).
2. High Quality Juice ( 100% Pure Nestlé Orange Juice ).
3. Value Added Beverages (Frappe, Milo Ready to Drink ).
These beverages are produced locally at Sheikhupura Factory.
Market strategies and dynamics followed in these three segments are totally different from
each other:
The Fruit Drink Market has been converted into a trade market. It depends highly on trade
rebates and not on consumer pulls. A number of companies offer their fruit drinks in the
market posing a great deal of competition for Nestlé Products. No specific trends for customer
preference have been witnessed in this market segment. Therefore, it is basically a market
that can earn profit by offering attractive deals to wholesale distributors, retailers and the
consumers.
High Quality Juice and Value Added Beverage Market are quite similar to each other; they
have similar market dynamics and strategies. Both these markets demand high consumer
pull. These markets show clear distinctions in consumer preferences. Close substitutes are
generally not available other than imported and expensive products, such as Nestlé which is
the 100% pure juice market leader by a wide margin. Trade influence in these sectors is lower
than the fruit drink market. The target of these segments is the high income class group that
prefers to give value for their diet intake.
Cold Beverage Market faces competition from a wide range of companies offering different
products (carbonated drinks being the major competitors). These drinks also take the
"Pioneer Advantage" as the beverage market in Pakistan was developed primarily by Pepsi
and Coke. Other than these, the competition faced by Cold Beverage Market at Nestlé are
the Fruit Squashes, Rooh Afza and other fruit drinks in tetra-packing. Along with these bottled
Mineral Water also brews up some competition as it is the best alternate for thirst quenching.
Promotional activities keep their focus on the consumers. Price-off promotions are frequently
rendered to induce new buyers and to reward the loyal consumers. The most challenging task
by and far is not to attract new consumers but to keep the consumer base stand where it is.
Point of Sale Material like posters and buntings are constantly being designed and innovated.
Where in turn they are forwarded to the retailers to make their shops look attractive and
appealing. TV commercials are aired in all peak timings and more often products are also
used to sponsor cricket tournaments. Outdoor activities and MMT's are also used to support
consumer promotion. Trade activities are constantly on the go. Target incentives are offered
to the wholesalers, distributors and retailers to induce them.
Below the line activities i.e. restricted to a specific vicinity, such as sampling and conversation
with the target markets are frequently followed. Recently, MILO arranged an inter school
cricket competition in Karachi. This not only boosted the sporting spirit in children but also
free sampling at these matches created a close association for children with MILO.
Evident from all this narration from the ABM, is that the Cold Beverage Market for Nestlé is
very lucrative. And keeping in mind the seasonality effect, which induces the need for thirst
quenching beverages, Nestlé can cash from this market segment greatly. Therefore minds at
Nestlé are constantly searching for new ideas to gain from this segment.

REGIONAL SALES OFFICES

Karachi F-77/1, Block 7,

Clifton, KDA Scheme 5,
Karachi, Sind, Pakistan.
Phone : (021) 5833935-6
Fax : (021) 5833937
Hyderabad 178, Block C, Unit 2 Latifabad,
Hyderabad, Sind, Pakistan.
Phone : (0221) 860403
Fax : (0221) 863202
Lahore 29-b, Main Gulberg,
Lahore, Punjab, Pakistan
Phone : (042) 5754335-6, 5752582
Fax : (042) 5761491
Multan Surij Miani Road, Chungi No. 1,
Multan, Punjab, Pakistan.
Phone : (061) 515061
Fax : (061) 515057
Faisalabad Al Haq Plaza, 271-A,
Small D Ground, People’s Colony
Faisalabad, Punjab, Pakistan
Phone : (041) 546993, 734538
Fax : (041) 543538
Gujranwala 23, D.C. Road.
Gujranwala, Punjab, Pakistan.
Phone : (0431) 256320
Fax : (0431) 256320
Peshawar 201, Block B, 2nd Floor
City Tower, Jamrud Road,
Peshawar, N.W.F.P, Pakistan
Phone : (091) 840859, 842415, 43901
Fax : (091) 45516
Quetta 63 B – D, Chaman Housing Scheme,
Opposite Askari Park
Quetta, Baluchistan, Pakistan.
Phone : (081) 834887
Fax : (081) 822297
Islamabad 74-W, Yaseen Plaza, 1st Floor, Blue Area,
Islamabad, Pakistan
Phone : (051) 2271874-5, 2824328
Fax : (051) 2821899

FINANCIAL ANALYSIS OF NESTLÉ MILKPAK LIMITED

BALANCE SHEET AS AT JUNE 30, 1998 AND
DECEMBER 31, (1998-2001)
All figures in ‘000’s
1998 1998 1999 2000 2001
Share Capital and Reserves
Issued, Subscribed and Paid up Capital 301,759 301,759 452,639 452,639 452,639
Capital Reserves 400,407 400,407 249,527 249,527 249,527
Accumulated Profit 100,913 174,053 160,320 138,524 149,065
Total 803,079 876,219 862,486 840,690 851,231
Non –Participatory Redeemable Capital Secured 343,895 333,459 863,009 300,000 400,000
Long Term and Deferred Liabilities
Deferred Taxation 82,892 137,666 156,855 178,690 178,301
Employee Benefits 24,306 27,832 34,889 38,956
Total 161,972 184,687 213,579 217,257
Current Liabilities
Current maturity of Non -Part. Capital 225,818 225,834 25,818 613,009 200,000
Finances under Mark up Arrangement 58,311 319,023 398,927 346,251 457,468
Creditors, Accrued and Other Liabilities 361,050 465,987 539,761 459,291 705,147
Dividend Payable 90,528 105,616 135,792 203,688 271,584
Provision for Taxation 65,404 - 66,181 62,755 103,797
Contingencies and Commitments - 1,116,460 1,166,479 1,684,994 1,737,996
Grand Total 2,030,977 2,488,110 3,076,661 3,039,263 3,206,484
Tangible fixed assets
Operating Fixed Assets 1,237,432 1,544,156 1,761,024 1,878,516 1,832,292
Capital work in Progress 51,091 133,784 34,376 20,564 6,721
Total 1,288,523 1,677,940 1,795,400 1,899,080 1,839,013
Long term loans, deposits and Prepayments 15,099 9,681 3,161 7,430 4,071
Current Assets
Stores and Spares 89,970 80,551 136,984 169,087 184,033
Stock in Trade 498,871 557,532 985,731 828,874 833,350
Trade Debts 48,527 29,159 22,316 36,015 44,119
Advances, Deposits, Prepayments and other receivables 76,708 109,140 68,553 81,034
89,473
Cash and Bank Balances 13,279 24,107 64,516 17,743 59,418
Total current assets 727,355 800,489 1,278,100 1,132,753 1,210,393
Grand Total 2,030,977 2,488,110 3,076,661 3,039,263 3,206,484

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED, JUNE 30, 1998 AND DECEMBER
31, (1998-2001)
All figures in ‘000’s
1998 1998(6 months)*2 1999 2000 2001
Sales 4,268,433 5,014,710 5,755,482 6,575,221 7,902,202
Cost of Goods Sold 3,038,716 3,489,778 4,079,506 4,782,843 5,679,001
Gross Profit 1,299,717 1,524,932 1,675,976 1,792,378 2,223,201
Administration and Selling Expenses 785,151 854,702 1,038,769 1,141,909 1,293,586
Operating Profit 444,566 670,230 637,207 650,469 929,615
Other income 5,346 9,708 4,458 14,258 15,754
Financial Charges 97,927 102,136 122,317 135,248 129,187
Other Charges 24,373 30,554 37,163 36,658 61,014
Profit before Taxation 327,612 547,248 482,185 492,821 755,168
Provision for Taxation 123,224 160,838 201,702 220,401 291,987
Profit after Taxation 204,388 386,410 280,483 272,420 463,181
HORIZANTAL ANALYSIS

The most straightforward method of analyzing financial statements is simply to compare the
current year with the previous year and to note and rationalize any significant changes. This
is often performed in analytical review procedures before proceeding to any detailed audit
work. It is known as ‘horizontal analysis’, but its formal title is hardly important as it amounts
to the application of basic common sense. It is a form of ‘inter temporal’ analysis i.e., a
comparison between accounting periods.

The line by line comparison must be performed considering

1. The change in turnover

2. The relevance of anything else you may know about the company

HORIZONTAL ANAYSIS OF BALANCE SHEET

AS ON 30 JUNE, 1998 AND 31 DECEMBER (1998-2001)
1998 1998 1999 2000 2001
Share Capital and Reserves
Issued, Subscribed and Paid up Capital 100 100 150.00 100 100
Capital Reserves 100 100 62.31 100 100
Accumulated Profit 100 172.47 92.10 86.40 107.60
Total 100 109.10 98.43 97.47 101.25
Non –Participatory Redeemable Capital Secured 100 96.96 258.80 34.76 133.33
Long Term and Deferred Liabilities
Deferred Taxation 100 166.07 113.93 113.92 99.78
Employee Benefits - 100 114.50 125.35 111.65
Total - 100 114.02 115.64 101.72
Current Liabilities
Current maturity of Non -Part. Capital 100 100.00 11.43 2374.34 32.62
Finances under Mark up Arrangement 100 547.10 125.04 86.79 132.12
Creditors, Accrued and Other Liabilities 100 129.06 115.83 85.09 153.52
Dividend Payable 100 116.66 128.57 150 133.33
Provision for Taxation 100 - 101.18 94.82 165.40
Contingencies and Commitments - 100 104.48 144.45 103.14
Grand Total 100 122.50803 123.65 98.78 105.50

Tangible Fixed Assets

Operating Fixed Assets 100 124.78 114.04 106.67 97.53
Capital work in Progress 100 261.85 25.69 59.82 32.68
Total 100 130.22 107.05 105.77 96.83
Long term loans, deposits and Prepayments 100 64.11 32.65 235.05 54.79
Current Assets
Stores and Spares 100 89.53 170.05 123.43 108.83
Stock in Trade 100 111.75 176.80 84.08 100.54
Trade Debts 100 60.08 76.53 161.38 122.50
Advances, Deposits, Prepayments and other receivables 100 142.27 62.81 118.20 110.41
Cash and Bank Balances 100 181.54 267.62 27.50 334.88
Total Current assets 100 110.05 159.66 88.62 106.85
Grand Total 100 122.50 123.65 98.78 105.50

COMMENTS
The horizontal analysis of a financial statement is carried out to measure the trend whether
the items that constitute the statement are moving in a positive or a negative direction. The
horizontal analysis of the balance sheet shows that the accumulated profit is decreasing with
time due to the reason that the profit is flowing out in the form of dividends. Deferred taxation
has increased in 1998 and then continuously decreasing. The employee benefits have risen
by more than 10% in 2000 but are again on a decrease. Current maturity increases at a very
high rate due to the large amount payable in the year 2000 and after that it is again declining.
Finances under markup have increased consistently except for in 2000 where some of the
long term fund which was excess was decided to be put into operating cycle. Other liabilities
have decreased greatly traditionally but in 2001 it has almost been doubled. The dividend
payable has risen by 50% in 2000 compared to the year 1999, and in 2001 again there is a
rise of 33% which indicates that even after 11 September catastrophe the company has been
able to meet its shareholders expectations. The fixed assets of the company continue to raise
even the Indus factory no longer exists which means the company is heavily investing in
terms of the machinery imported and new plants set up every year. The deposits and
prepayments of the company show a marked positive increase in the year 2000 but again a
control sort of thing definitely has been implemented because prepayments have been
reduced by 40-45 %. The most significant change in the current assets is evident in the cash
and bank balances which fell greatly in the year 2000, due to the acquisitions made by Nestlé
Milkpak in the water market but that doesn’t stopped the working because the company has
again its normal balance available at its disposal in 2001.

HORIZONTAL ANALYSIS OF PROFIT AND LOSS ACCOUNT

FOR THE PRIOD ENDING 30 JUNE, 1998 AND 31 DECEMBER (1998-2001)

1998 1998(6 months)*2 1999 2000 2001

Sales 100 117.48 114.77 114.24 120.18
Cost of Goods Sold 100 114.84 116.90 117.24 118.74
Gross Profit 100 117.33 109.90 106.95 124.04
Administration and Selling Expenses 100 108.86 121.54 109.93 113.28
Operating Profit 100 150.76 95.07 102.08 142.91
Other income 100 181.59 45.92 319.83 110.49
Financial Charges 100 104.30 119.76 110.57 95.52
Other Charges 100 125.36 121.63 98.64 166.44
Profit before Taxation 100 167.04 88.11 102.21 153.23
Provision for Taxation 100 130.52 125.41 109.27 132.48
Profit after Taxation 100 189.06 72.59 97.13 170.02
COMMENTS
The horizontal analysis of the profit and loss account does not provide a good judgment in
this case as Nestlé Milkpak Limited changed its Income Year from June to December in the
year 1998, and the measures for 1999 and 1998 are taken against a period of six months
only. To cope up with this problem the assumption I have taken is that the figures of the
period ending 31 December 1998 are doubled. This is being done to make all the 5 periods
which I have taken for analysis comparable. And as we all know that comparability is the
basic assumption of the financial accounting concept.

Sales have been consistently on the rise with a cumulative percentage of 10-15% annually.
Cost of sales has also been invariably showing the same trend.

Administration and selling expenses are also in direct proportion with the sales and CGS,
which shows that only the variable portion is influenced with the passage of time.
Operating profit in later part of 1998 has shown a considerable increase, which were because
of the increase in prices of major brands like UHT Milk.

Financial expenses have been consistently increasing showing again a consistent trend. This
consistent trend has not been influenced by major inflow of non participatory redeemable
capital in 1999.

The Net Profit after Tax has also depicting sudden fluctuation in 1998 and 2001, which is
because of price regulations being implemented from Vevey.

VERTICAL ANA
YSIS
VERTICAL ANALYSIS OF BALANCE SHEET
AS ON 30 JUNE, 1998 AND 31 DECEMBER (1998-2001)
1998 1998 1999 2000 2001
Share Capital and Reserves
Issued, Subscribed and Paid up Capital 15 12 15 15 14
Capital Reserves 20 16 8 8 8
Accumulated Profit 5 7 5 5 5

Non –Participatory Redeemable Capital Secured 17 13 28 10 12

Long Term and Deferred Liabilities
Deferred Taxation 4 6 5 6 6
Employee Benefits 1 1 1 1
Total
Current Liabilities
Current maturity of Non -Part. Capital 11 9 1 20 6
Finances under Mark up Arrangement 3 13 13 11 14
Creditors, Accrued and Other Liabilities 18 19 18 15 22
Dividend Payable 4 4 4 7 8
Provision for Taxation 3 2 2 3
Contingencies and Commitments - 1,116,460 1,166,479 1,684,994 1,737,996
Grand Total 100 100 100 100 100

Tangible Fixed Assets

Operating Fixed Assets 61 62 57 62 60
Capital work in Progress 3 5 1 1 0
Total
Long term loans, deposits and Prepayments 1 0 0 0 0
Current Assets
Stores and Spares 4 3 4 6 7
Stock in Trade 25 22 32 27 26
Trade Debts 2 1 1 1 1
Advances, Deposits, Prepayments and other receivables 4 4 2 3 3
Cash and Bank Balances 1 1 2 1 3
Total
Grand Total 100 100 100 100 100

COMMENTS
All the items of current assets continue to rise as a percentage of the total assets except the
cash and bank balances which were reduced in the year 2000 due to the investment made by
the company in Universal Aqua Pvt. Ltd.
At the current liabilities side, the figure that proves most critical in the further analysis also, is
that of the varying percentage of the current maturity, in accordance with the amounts
payable of the redeemable capital each year. The provision for taxation has risen, in order to
cater the higher rate of taxes.
The long term liabilities follow a steady pattern over the five years except for in 1999 when
heavy funds were acquired for launching PURE LIFE.
The fixed assets continue to rise for the company.
The share capital increased with the subscription of shares in 1999. The capital reserves and
accumulated profit show a fall as the cash is flowing out in the form of dividend payments.
The total current assets and fixed assets maintain a stable pattern in the total assets with
minor changes.
The long term and short term liabilities rise but not at a very high rate. The long term loan has
decreased due to the change in the company's policy to rely on short term advances.

VERTICAL ANALYSIS OF PROFIT AND LOSS ACCOUNT

FOR THE PRIOD ENDING 30 JUNE, 1998 AND 31 DECEMBER (1998-2001)

1998 1998(6 months)*2 1999 2000 2001

Sales 100 100 100 100 100
Cost of Goods Sold 71.19 69.59 70.88 72.74 71.87
Gross Profit 30.45 30.41 29.12 27.26 28.13
Administration and Selling Expenses 18.39 17.04 18.05 17.37 16.37
Operating Profit 10.42 13.37 11.07 9.89 11.76
Other income 0.13 0.19 0.08 0.22 0.20
Financial Charges 2.29 2.04 2.13 2.06 1.63
Other Charges 0.57 0.61 0.65 0.56 0.77
Profit before Taxation 7.68 10.91 8.38 7.50 9.56
Provision for Taxation 7.68 10.91 8.38 7.50 9.56
Profit after Taxation 4.79 7.71 4.87 4.14 5.86

COMMENTS
The percentage of raw and packing materials in the cost of goods manufactured has
decreased in the year 2000, although the sales have risen, which is an indicator of good cost
controls.
The labor charges and factory overhead remains exactly the same again indicating the high
efficiency of the management.
The financial charges have risen over the time. The interest rates may have also changed but
the significant changes are due to the change in the principal amount which changes with the
payment of current maturities each year.
The provision for taxes keeps on rising indicating that the company is making 100% tax
payments.
Selling and administration expenses have been maintained at a steady level although the
sales have risen and a 5-7% change is acceptable. This again reflects the tight cost controls
of the company.

ACCOUNTING RATIOS

Ratio analysis is a more sophisticated technique for analyzing financial statements. It is the
next step after the so called horizontal analysis.

IMPORATANCE OF ACCOUNTING RATIOS

The importance of accounting ratios, that is, relationships worked out among various
accounting data which are mutually interdependent and which influence each other in a
significant manner, arises from the fact that often absolute figures standing alone convey no
meaning. They become significant only when considered along with other figures.

For the purpose of analysis, accounting ratios are indispensable. Suppose sales have
increased but profit has fallen. One may be vaguely aware of the causes, but for precise
knowledge it will be necessary to analyze all the figures completely. For example, one will
have to ascertain the contribution to higher sales by change in prices and by increased or
lower sales volume; the consumption of materials will also be analyzed both for the changes
in prices and in quantities consumed. Such analysis is greatly facilitated by accounting ratios.
I fact, a meaningful analysis of the financial situation and performance is the first great
advantage of accounting ratios. This requires ratios and their comparison which may be:

1. For the same firm over a period of years

2. For one firm against another
3. For one firm against the industry as whole or against predetermined standards
4. For one division or department of a firm against other divisions or departments of the same
firm

Inter firm comparison and a intra film comparison are thus, possible on the basis of
accounting ratios; this can also be attempted in other ways but accounting ratios are
indispensable in this respect, for example, to judge which firm has the best overall efficiency,
one should compare the rate of profit on capita l employed for the firms concerned--- the size
of the profits as such is not relent.

Accounting ratios not only indicates the present position, they also indicate the causes
leading unto the position to a large extent. For instance, accounting ratios may indicate not
only that financial position is precarious but also the past policies or actions which have
caused it. Best results are obtained when ratios for a number of years are put in a tabular
form so that the figures for one year can be easily compared with those of other years.

Accounting ratios tabulated for a number of years indicate the trend of change. This helps in
preparation of estimates of the future. Ratios also help in ascertaining other figures if one
figure is available. Suppose it is known that the ratio of wages to sales is 15%; it is then easy
to calculate the amount to be spent on wages if the amount of expected sales is known.

LIMITATIONS

RATIO ANALYSIS is very fashionable these days and is useful but one should be aware of its
limitations also. The following are the chief limitations of accounting ratios:--

1. Accounting ratios can only be correct as the data on which they are based. For example, if
inventory values are inflated, not only will one have an exaggerated view of profitability of the
concern, but also of its financial position. The basic data must be absolutely reliable, if the
ratios worked out on its basis are to be relied upon.

2. When two firms’ results are being compared, it should be remembered that the firms may
follow different accounting policies; for instance one firm may charge depreciation on the
straight line method and the other on diminishing balance method. Such differences will not
make some of the accounting ratios strictly comparable.

3. Changes in price levels often make comparisons of figures for various years difficult. For
instance the ratio of sale to fixed assets in 2001 would be much higher than in 1995 due to
rising prices, fixed assets being expressed still on the basis of cost.

4. Accounting ratios may be worked out for any two figures even if they are not sign9ificantly
related. For example, a ratio a ratio may be worked out for sales and investments in
government securities. Such ratios will only be misleading. Care should be exercised to work
out ratios between only such figures as have a cause and effect relationship. And should be
also reasonably clear as to what is cause and what is effect.
5. Ratios sometimes give a misleading picture. One company produces 1000 units in one
year and 2000 the next year ; the progress is 100% another firm raises production from 6000
to 8000 units --- the progress is only 33 % the second firm will appear to be more active than
the first firm if only the rate of increase is considered. It is, therefore, useful if, along with
ratios, ratios, absolute figures are also studied --- unless the firms being studied are equal in
all respects. In fact, one should be extremely careful while comparing the results of one firm
with those of another if the two firms differ in any significant manner, say, in size, location,
degree of automation or mechanization, etc.

6. Accounting ratios are expressed in precise figures and that may be misleading unless one
remembers that the figures on which they are based are often only estimates and that
different figures could also have been worked out legitimately. One should also remember
that often the basis of accounting is changed; this will mean that ratios of one period and
those of another may not be comparable. In a nut shell, before one works out the ratios, one
should be sure of the figures leading to the ratios.

7. Another important point to keep in mind is that there is almost no single standard ratio
against which the actual ratio is measurable. Circumstances differ from firm to firm and the
nature of each industry is different. Therefore, the standard will differ from for each industry
and the circumstances of each firm will have to be kept in mind. For instance, while
comparing the rate of return of electricity companies with that in other industries, one must
remember that, by law, electricity companies are precluded from making higher profits. One
company may have to invest heavily in fixed assets and another industry may have to keep
large stocks of raw materials and finished goods. For these reasons, the performance of one
industry may not be properly comparable with that of another. For each industry, standard
ratios will have to be worked out separately, mostly on the basis of actuals for a few
representative companies which may be considered as reasonably sound and competent.
The performance of firms in the industry may then be compared but still remembering the
circumstances of each firm.

Even when the ratios are worked out correctly, it should be remembered that they can at best
be used as a doctor uses symptoms --- indications that some thing is wrong somewhere. Just
as the doctor will try to get to real reason, in the same manner the analyst should try to locate
the real factor leading to the present state of affairs. Suppose, the ratio of gross profit to sales
is low. The reasons may be poor sales, bad purchasing, defective pricing strategy, wastages
and losses, etc. ratios thus point out areas which needs investigation- they are only a tool in
the hands of the person trying to get to the truth.

RATIO ANALYSIS OF NESTLÉ MILKPAK LIMITED PAKISTAN

Financial Ratio Analysis is an exercise carried out to determine liquidity, credit worthiness,
management efficiency and profitability of a business entity.

OBJECTTIVES OF FINANCIAL ANALYSIS

Business concern and Management
For assessment of profitability of the business.
For assessment of stability and financial strength of the business entity.
Assessment of efficiency of resources utilization.
Assessment of potentials of profitability.
Evaluation of different management controls.

SIGNIFICANT RATIOS

PROFITABILITY RATIOOS

1998 1998 1999 2000 2001

GROSS PROFIT MARGIN
GROSS PROFIT / NET SALES * 100 28.81% 30.46% 29.126% 27.26% 28.13%

OPERATING MARGIN
OPERATING PROFIR / NET SALES * 100 10.42% 13.47% 11.07% 9.89% 11.76%

NET PROFIT MARGIN

NET PROFIT / SALES * 100 4.79% 7.78% 4.87% 4.14% 5.86%

RETURN ON ASSET
NPAIT / TOTAL ASSETS * 100 10.06% 7.84% 9.07% 8.96% 14.45%

RETURN ON EQUITY
NPAIT / SHARE HOLDER EQUITY * 100 25.45% 22% 33% 32% 54.40%

RETURN ON CAPITAL EMPLOYED

PBIT / ASSETS - CURRENT LIABILITIES *100 31.00% 45.24% 34.52% 35.81% 60.94%

EPS
NPAIT / NO. OF SHARES OUTSTANDING
RS. PER SHARE 6.77 6.46 6.2 6.02 10.23

EFFICIENCY RATIOS

1998 1998 1999 2000 2001

CAPITAL TURNOVER
SALES / CAPITAL EMPLOYED 3.47 1.05 3.01 4.86 5.38

FIXED ASSET TURNOVER

SALES / FIXED ASSET 3.31 1.49 3.21 3.46 4.3

TOTAL ASSET TURNOVER

SALES / TOTAL ASSET 2.1 1.01 1.86 2.16 2.46
INVENTORY TURNOVER
CGS/INVENTORY
TIMES 5.16 5.46 3.63 4.79 5.58
DAYS 70 66 99 75 65

ACCOUNTS RECEIVABLE TURNOVER

CREDIT SALES/TRADE DEBTS
TIMES 88 86 258 183 179
DAYS 4 4 1 2 2

WORKING CAPITAL TURNOVER

SALES/WORKING CAPITAL
IN TIMES 28.07 - 41.87 10.8 -

ACCOUNTS PAYABLE TURNOVER

TOTAL CREDIT PURCHASES/CREDITORS
IN TIMES 6.056 6 7.08 7.188 6.096
IN DAYS 59 60 51 50 59

LIQUIDITY RATIOS

1998 1998 1999 2000 2001

CURRENT RATIO
CURRENT ASSETS/CURRENT LIABILITIES 0.91 0.72 1.096 0.672 0.696

QUICK RATIO
QUICK ASSETS/CURRENT LIABILITIES 0.173 0.145 0.133 0.079 0.11

ABSOLUTE LIQUID RATIO

CASH AND CASH EQUIVALENT 0.017 0.021 0.021 0.011 0.034

INTEREST COVERAGE RATIO

EBIT/FIXED INTEREST CHARGES
IN TIMES 4.35 6.35 4.94 4.64 6.84

LEVERAGE RATIOS/LONG TERM SOLVENCY RATIOS

1998 1998 1999 2000 2001

DEBT EQUITY RATIO

LONG TERM DEBT/(SHF+LONG TERM LOAN)*100 41.50% 38.96% 50.75% 52.06%
41.34%

DEBT TO EQUITY RATIO

TOTAL DEBT/SHF*100 70.94% 63.83% 103.05% 108.60% 70.49%

FIXED ASSETS RATIO

SHF+LONG TERM LOAN/NET FIXED ASSETS*100 106.54% 85.55% 97.54% 92.34%
78.91%

OTHER RATIOS

1998 1998 1999 2000 2001

RESERVES TO CAPITAL
CAPITAL RESERVE+ACCUMULATED PROFIT/TOTAL CAPITAL*100
Times 1.66 1.90 0.905 0.857 0.88

PROPRITERY RATIO
SHF/TOTAL ASSETS*100 35.22% 39.54% 28.03% 27.66% 26.55%

RATIO ANALYSIS is useful essentially for:

Investors
Assessment of earnings and dividend prospects.
Growth in economic value of investments with respect to the risks undertaken.
Bankers/Creditors concern
Assessment of the ability of the business to service its debt obligations.
Debt coverage.
Proper utilization of assets financed.
Government's concern
Evaluation of the economic contributions of the business entity.
Determination of the entity's financial strength to carry social and developmental programs.
THE ANALYSIS
The financial ratios discussed here are those which are derived simply and directly from
financial statements. These ratios are used in analyzing the financial statements in ordinary
course of business activity. The ratio analysis can be divided into three broad categories:
The Solvency Ratios.
The Efficiency Ratios.
The Profitability Ratios.

THE SOLVENCY RATIOS

Solvency or more commonly known as liquidity ratios or credit worthiness ratios are
calculated to determine the degree of financial risk existing in a business entity before and
after making an investment in a project.
Solvency means ability of a company to meet its liabilities. The extent of solvency of an
individual company depends on the amount of assets vis-à-vis liabilities.
The following ratios were computed to examine solvency of the company.

Current Ratio
Current ratio is computed as current assets divided by current liabilities.
Current Ratio = Current assets / Current Liabilities

As a rule of thumb, the specialists say that it should be 2:1. However, practically the rule of
the thumb can vary with industry, depending upon the nature of assets and liabilities.
Looking at the above chart, we see that the current ratio is declining with time. Presently it is
at 0.696 which is very low compared to the comparable standard. One basic reason why the
current liabilities are high as compared to the current assets is that Nestlé follows a company
policy of investing in projects by relying on short term advances. Although the company is
investing in massive long term projects but it tries to depend mostly on internal finances for its
needs.
Nestlé Milkpak Limited has acquired 80% fully paid ordinary shares of Universal Aqua Limited
in the year 2000. NML has used its own funds to make the acquisition. This is a major reason
why there is a fall in the current ratio and as reflected from the balance sheet a fall in the cash
and bank reserves of the company.
Therefore according to the conventional pattern that any new investment follows, during the
first few years of launch, company profits fall before following a steady pace. Thus this
declining trend does not necessarily show a poor performance on behalf of the company in
maintaining its short term assets to liabilities ratio.

Quick Ratio
Quick Ratio or Acid Test Ratio is quite similar to the current ratio. It is a bit more severe in the
sense that it takes into account only that current assets that can be transferred into cash with
a minimum effort. Inventories are excluded form the current assets and the balance is divided
by the current liabilities to compute the acid test ratio. As a rule of thumb 1:1 is taken which
also meets the requirement of SBP Prudential Regulations.
Quick Ratio = Current assets - Inventories / Current liabilities
In the economic situation of Pakistan, 0.5 is considered to be the bottom line for companies
with a positive quick ratio. Following the same pattern as the current ratio the quick ratio is
also declining. A major contributor to this factor is the declining amount of cash and bank
balances. The fact behind it is that a company that is making huge investments needs to
borrow from financial institutions. While putting up a request to borrow and at the same time
maintaining high amount of cash is redundant and would not help to serve the purpose.
The declining trend in the quick ratio is also attributed to the acquisition of the Universal aqua
Pvt. Ltd. in the year 2000. And the company's banking on internal finance to carry out this
acquisition.
The cash balances have also fallen because of the drastic change in the company's credit
policy. Whereas, previously the company maintained credit sales now it works only on cash.
The cash which it receives is immediately used to service its debt obligations. And also the
company does not need to maintain cash for the days sales remain outstanding. Although the
quick and current ratios pose a poor position but even then creditors are willing to invest in a
MNC that has such a goodwill as Nestlé. Investor's confidence is the major force behind the
factor that they are willingly lending to Nestlé.
Absolute liquid ratio

Absolute liquid ratio = Cash and cash equivalents / current liabilities

This is a special type of ratio especially for cash budget people, this help them to estimate
whether the organization would be able to meet its immediate cash requirements.
As already discussed that the short term solvency ratio of Nestlé falls far below the required
standards, this ratio is no exception. But still it is reasonably good when I will discuss the
main reason for not meeting standards.

Main Reason for short term solvency ratios’ variations from standards

I have discussed this phenomenon when we were discussing the FCM division. It is that
customers are paying in advance. Goods are only delivered when the banks confirms the
transfer of fund from distributor to Nestlé. Thus the Trade Debts are almost negligible,
creating very little amount for current assets.

Debt to equity ratio

Debt to equity ratio = total debt / SHF * 100

Well the total debt here includes long term debt i.e., redeemable capital and part of it which is
short term debt i.e., current portion of it. This ratio signifies that how much the company is
externally financed as compared to the internally financed. Nestlé is maintaining this ratio
upto 60-70%. In 1999 the company raised non participatory redeemable capital for launching
PURE LIFE and acquisition of its water competitors that is why it has shoot up to 103.05%.

Debt-Equity Ratio
The most important ratio calculated by development banks is debt equity ratio or also known
as debt capitalization ratio. This ratio is calculated by dividing long term debt by the amount of
Total Equity.
Debt Equity Ratio = Long Term Debt / Total Equity + long term debt
The acceptability of this ratio depends upon the economic environment at a particular time. At
present the permissible limit is 60:40.

The debt to equity ratio maintained at Nestlé remains favorable during all the periods under
observation. The years where it is lower than 40% pertains to the fact that in those particular
years current maturities of the long term debt are due and when they are excluded from the
long term debt the ratio falls considerably. Again this ratio reflects the company policy of
relying less on long term loans and basing its needs on internal financing for the creation of
fixed assets.
Debt-Service Coverage Ratio

Debt Service Coverage Ratio = Net Profit before interest & tax
Fixed financial charges

A ratio which is regarded as the most comprehensive ratio to determine the creditability of the
business to pay its maturities. A banker is always interested to ensure that the project has the
capability of making payments to the bank. Following results were obtained for the years
under review:

Debt Service Coverage Ratio follows a strong pattern all through, although the values may
show major differences if we exclude the current maturities, but this is not the assumption we
are taking on so we have not much variance in it. When we take off current maturities it would
be 25,818 in 1999 whereas it rises to 613,009 in '00. Therefore, we conclude that the
company is maintain a high debt coverage ratio, considering that a 3 times ratio is
significantly good. But even if huge amounts may suddenly become due in a particular year( if
current maturities are taken as short term debts and exclude the interest from fix interest
charges) still the company maintains strong potential to service its debts.
This ratio is also a positive indicator for the investors who are most conscious about the
repayment of their loans.

Fixed Asset Ratio

Fixed asset ratio = SHF + long term loan / fixed assets * 100
The ratio signifies, how much of fixed assets are financed from the long term sources. Nestlé
is doing really good by financing its long term assets by current sources. It is a rare
observation for any corporate analyst.

Because the short term sources are mostly cheaper and in few cases free of cost to. So it is
always better to keep your working capital lesser without hindering the company profile.
THE EFFICIENCY RATIOS
Efficiency Ratios provide measures of asset used and expense controlled. Following are the
most commonly computed ratios:
Day's Receivables
It is computed as:
Receivable turnover = credit sales / receivables
Day's receivables = Receivables / Sales per day
The day's receivables figure shows the average number of day's sales remain uncollected.
This ratio reflects both the efficiency of management in collecting receivables and the credit
policy which the company maintains with its customers. For more than one or two months of
receivables outstanding, the company may need to raise additional funds to carry the larger
amount of outstanding.
As it is evident from the above calculated figures that the company’s credit policy is very
much controlled because of advance payments from most of its distributors. Credit is
exchanged under severe circumstances only.
Inventory Turnover
The inventory turnover ratio measures the speed with which a company revolves its stocks
and shows the relation of the stock of inventories required to support a given level of sales.
Inventory Turnover = Cost of Goods Sold / Inventory
A low turnover ratio may mean that large stocks must be maintained to be assured of meeting
production schedules. Where raw materials are imported this is often true. A low ratio means
that a sizable amount of funds are tied up; holding funds in form of inventories rather than
cash in an inflationary environment is often a necessary company policy.
Following trend was observed for the years under review:

Some imported raw materials are included in Nestlé’s production. Therefore, its inventory
turnover lies on the low side to cater for these imports and the time lag involved in the import
process.
Day's Inventories
An alternative and comparatively easier ratio to use is the number of days inventories are
maintained.
Day's Inventories = Inventory / Cost of average days Sales

The chart indicates the trend in the days receivables ratio. Following the same reason as in
the case of inventory turnover, due to import of raw materials days inventory remains around
the conventional standard of 90 days in 1999. Even then the company wishes to maintain a
lower inventory which is evident from days followed, now a days it stands at 65 days.
Accounts payable turnover
This is a very important ratio. It tells how many times the company has paid of his creditors. It
is worked out as

=total purchase / accounts payable

the less it is, the good it is. But care should be taken of that the credit worthiness of the
company in eyes of its suppliers should not be lowered.

Another very interesting thing is the payable turnover in number of days. This is very
important from suppliers point of view, because it signifies the average credit period which the
company is availing from its existing suppliers for the time being.
Administrative Expense Control

Administrative & selling expense control=admin & selling expense/sales*100

One of the biggest difficulties faced by rapidly expanding organizations is the control of selling
and administration expenses. For unusual changes in the selling and administration expenses
the detailed selling and administration accounts should be analyzed and prepared for the
income statement.
The trend observed was as follows:

Administrative expense control is a very essential factor for any growing enterprise. Nestlé
maintains a very steady ratio over the period, indicating the efficiency of the management in
controlling its administrative expenses. This is greatly contributed to the foreign expertise
involved in managing the company's affairs.

Capital turnover ratio

Capital turnover = Sales / Capital employed

Capital turnover indicates the speed with which the internal funds are utilized to cater the
objectives of the organization. Considering that Nestlé is a gigantic multinational and Pakistan
is a very small market for it,(Pakistan’s total turnover is 0.26% of Nestlé world over turnover)
a 5.38 times turnover is remarkably good.

Fixed asset turnover ratio

Fixed asset turnover ratio = Sales / Fixed Asset

This ratio is also known as Sales to Fixed Assets Ratio. This ratio measures the efficiency
and profit earning capacity of the concern. Higher the ratio, greater is the intensive utilization
of fixed assets. Lower ratio means under utilization of fixed assets.
Sheikhupura Factory covers about 8000 kannals of area, where fixed assets worth billions of
rupees are installed. It has 2 factories and dozens of offices and a 4.3 times fixed assets
turnover is really good which is still showing signs of improvements.

Total asset turnover ratio

Total asset turnover ratio = Sales / Total assets * 100

This is also known as balance sheet utilization. As we know that current assets are not known
for generating lot of revenues so the total asset turnover is lower than the fixed asset
turnover.

Working capital turnover ratio

Working capital turnover ratio = Sales / working capital
Working capital turnover ratio indicates the velocity of the utilization of net working capital.
This ratio represents the number of times the working capital is turned over in the course of a
year.
A high ratio indicates efficient utilization of working capital and a low ratio indicates otherwise.
But a very high ratio may also indicates the lack of working capital which is not a good sign as
well.
In case of Nestlé in 1998 and 2000, working capital is negative. Well surprisingly the
company is still cruising you may wonder why? The answer is same old one that the company
has very little trade debts because of advance payment from most of the distributors. Which
means very little current assets and thus working capital tends to be also very little or
negative.

THE PROFITABILITY RATIOS

The long term success of a company depends upon the funds it can generate for
reinvestment and growth, along with its ability to provide a satisfactory return on investment.
The following ratios are used to determine the profitability of the business:
Net Profit Margin / Return On Sales
This ratio shows how large an operating margin the company has on its sales. The lower the
margin, the greater the volume of sales that must be achieved in order to make an adequate
return on investment.
Net Profit Margin = NPAT / Sales

Following are the results obtained for the years under consideration:
The Net Profit Margin gradually declines. Although the sales are rising but NPAT is unstable.
It even shows a negative trend in some years when compared horizontally. This is because of
the change in taxation policies and Nestlé strictly adheres to making 100% tax payments.
Return on Equity
This is one of the most important ratios computed to measure the profitability of a business. It
is obtained by dividing the profits after tax by the equity or net worth of the company at the
end of the year.
Return on equity = NPAT / Share Capital + Retained Earnings
This ratio is used frequently because it is one of the main criteria by which owners are guided
in their investment decisions. It is important for the project analyst to understand the
incentives to the owners.

The return on equity rises steadily. The 22% is for the period of six months. The company has
been making dividend payments and is one of the few companies to pay 40% dividend. And it
has been recognized as so by the Government of Pakistan. Therefore, shareholders are also
confident about the company's position.
Return on Capitalization
A heavy amount of debt in the financial structure can increase the return on equity. The return
on capitalization shows the amount of profits the company is making on all the investment
funds it is using. This can be important when comparing the company against its competitors
to see how effectively it is using its term funds.

Return on Capitalization = NPAT + Interest / Equity + Total Debt

The return on capitalization shows a positive trend. With a continuous increase in the amount
of fixed assets, this is a good sign. This is an indicator that the company is using its term
funds effectively in the creation of fixed assets. By adding fixed assets to its portfolio, the
company is not losing its profit.
Return on Total Assets
The earning power of a company's assets is vital for its success and the principal way of
calculating the earning power is to compute the return on total assets. Of all the financial
ratios, the return on assets comes closest to the rate of return concept used in the economic
analysis of projects.
Return on Total Assets = Earning Before Interest and taxes / Total assets
Following are the results for the years under review:

Similarly, the return on assets is also positive. Gradually increasing with time, showing that
the fixed assets management at Nestlé is adding benefit to the company.
Gross Profit Margin
Gross Profit Margin indicates the amount of margin available to meet operating expenses. In
the capital goods industries the margin of profit is usually on the lower side. Whereas, in the
consumer goods industry, the margin of profit is high as the products have to go through
many channels where each factor keeps its profits. Similarly, while producing consumer
goods more promotional activities are needed.
Gross Profit Margin = Gross profit / Sales

The chart indicates the trend seen in the years under review.
Gross Profit Margin gives an analysis of cost controls. Company's mission is not high level of
sales but maximum level of profits. A decrease in gross profit margin is a negative indicator.
From the chart, we can see that the gross profit remains around 27-28% during all these
years. This indicates that the company is maintaining cost controls over its operating
expenses. The reason behind the variations is the type of new products launched each year
by the company and the different methods applied for the promotion of these products. Also,
the recent acquisition by the company, led to a lower profit margin.
Another reflectant of the tight cost control is the fact that the sales rise but the cost of goods
sold is always below the sales. Hereby, leading the company to maintain a margin for
meeting its operating expenses.
An increase in selling and administration is not necessarily bad. The market conditions of
Pakistan are volatile, the biggest danger faced is from smuggled goods. For sales promotion
of local goods, producers have to give incentives. This is not a weakness on part of the
management or a lose cost control, it is because of lack of law enforcing agencies. Also the
rise in administration overheads is highly attributed to the sales tax imposed on the services
and promotional activities followed for the various brands offered by Nestlé.

Operating Profit Margin

Operating Profit Margin is used to pay off the financial charges and taxes.
Operating Profit Margin = Operating profit / Sales
Following were the results obtained after calculation:
Profit has improved over the years, but tax has increased in the same proportion. Any
increase in income tax, is not inefficient on part of the company, it is legislation, and there is
always a possibility of a company earning pre-tax profit but incurring loss after the payment of
tax.
Nestlé Milkpak maintains an almost stable ratio indicating a rise in profitability in accordance
with their needs to service their financial charges and taxes.

COMPARISON
Ratios 1998(Jun) 1998 1999 2000 2001
Gross Profit Margin 28.81% 30.45% 29.125% 27.26% 28.13%
Operating Profit Margin 10.42% 13.47% 11.07% 9.89% 11.76%
Net Profit Margin 4.79% 7.78% 4.87% 4.14% 5.86%

By comparison of the three margins, we find that the operating expenses remain around 22-
24%. (Taking the difference between gross profit margin and net profit margin). Therefore, the
decline is attributed to the taxation policies.
Earning Per Share
The earning per share is calculated by dividing the profit for the year by the number of shares
issued.

Earning Per Share = Profit for the year / Number of Shares

According to the shares increased, in any particular year there is a slight decline in the
earning per share. The above chart shows the results obtained for the years under
consideration.

OTHER RATIOS

RESERVE TO CAPITAL RATIO

The ratio of reserves created out of profits to share capital indicates the financial position of
the company. Higher the ratio the better it is, because that means that any future loss can be
easily absorbed. It is worked out as:

Reserve-Capital ratio=Capital reserves+Revenue Reserve / Issued Capital

Propriety Ratio

It is the ratio of funds belonging to the shareholders in the total assets of the company. Funds
belonging to the shareholder means share capital plus reserves and surpluses, both of capital
and revenue nature. Losses should be deducted. Funds payable to others are not added.
Higher the ratio the better it is for all concerned.
It is worked out by:

Propriety ratio = Proprietor’s Fund / Total Assets

WRAPPING UP
Seeing all the above calculated ratios in detail, we can financially analyze Nestlé Milkpak
Limited from three angles:
Investor's point of view
From the point of view of an investor, NML is a company showing a steady return on equity. It
does not maintain reserves to increase its equity instead cash flows out in the form of
dividend paid to its share holders. The company has a very good reputation in the Stock
Exchange which is favorable for both short term and long term investors.
Banker's point of view
From a banker's point of view, current ratio is not seen as a security, instead it measures
whether the company has enough cushion to keep as a going concern. The quick ratio is
always in a fraction as the assets against which loans are given is deducted whereas current
liabilities are in full amount. 0.5 is an ideal situation for Pakistan, that is after disposal of
inventories the company is able to service its debt obligations. However, it varies from
company to company depending upon the nature of the business. If a company is able to do
well with a lower ratio, then it is in a favorable position.
Same is the case with NML as for the past two years the quick ratio shows alarming figures
but lender's confidence is high as the company carries a huge amount of goodwill in the
financial environment. Also, the cash has out flowed in the form of investments in the water
sector. The company has made the investment by banking on its own cash reserves. Also, it
maintains a good reputation in terms of servicing its debt obligations.
Financial Manager's point of view
The efficiency ratios show improving figures with time. Therefore, management is satisfied
from that angle. Gross Profit and Operating Profit margins show a steady trend meaning that
cost controls are strict also. This is attributed to the foreign management of the company and
the management style by which they are able to extract the best results for the company.

PERFORMANCE OVERVIEW
APPLICATION OF REVENUE RS IN MILLION %

MATERIALS 4294 54.4

STAFF COST 488 6.2
FINANCIAL CHARGES 129 1.6
INCOME TAX 292 3.7
DIVIDENDS 453 5.7
RETAINED EARNINGS 10 0.1
DEPRECIATION 304 3.8
OTHERS 1932 24.5
TOTAL 7902 100

NESTLÉ AND ME

It was my first experience to be interviewed for something like getting a job or training. I was
confident but feeling bit nervous, but the time proved that there was nothing to be worried
about. I was the last person to be interviewed, so I was thinking that it might be a negative
point on part of me. Ms Saadia Irfan and Ms Koqub Bilquis were the HR representatives.
Courtesy to them I was called to join Nestlé for a 6 week internship. My training program at
Nestlé Milkpak Limited commenced on Monday, the 17th of June, 2001. The internees were
asked to report at the Human Resource Department, where they were issued their letters of
commencement.
Well it was interesting I was the first one to be there, I was exactly on time, but to my surprise
not even the staff was there, but it was just a matter of 2-3 minutes when the building was full
of people and there was a buzz all around. Soon my first mate Athar was there too, soon
Arooj also joined us. We met Ms. Saadia who gave us the appointment letters and the
INTERNEE badge without which we no one can walk in the Nestlé building. The badge gave
us a psychological satisfaction that we are now Nestlé People at least for 6 weeks (Mean
while Bisma also joined us). We were directed to meet Mr. Azhar Usman Janjua, the chief
accountant of Financial Accounting department. The person occupying a very high post and
very impressive personality. I latter came to know that he is also my line manager. Mr. Azhar
Janjua, had a very detailed session with me and Athar, regarding educational background,
the various courses studied in the MBA specialization program and our areas of interest. After
that he briefed us about the sub sections of his department and the work performed by each.
I was attached with the Finance and Control Division for a period of 06 weeks. I was asked to
report to the manger of GLD Mr. Nadeem in the Finance and Control Division.
Mr. Nadeem gave me a tentative outline concerning how my internship program would
proceed. After that he took me around the various sub-sections of the Financial Accounting
Department, where he introduced me with all the employees.

HIGHLIGHTS OF MY STAY AT NESTLÉ

My most of time passed in Financial Accounting department and thus I have made it a
separate head as “Finance & Control Division”, in this part. Apart from my stay at Finance and
Control Division I was sent to Regional Office with Athar which was in Gulberg. It was one
week experience. Well the regional office was very different. People were much busier than
one can think, continuous ordering, purchasing, delivering, customers’ phones, distributors’
claims etc etc. I was back next week but I lost my pal Athar, who had to remain in regional
office for rest of his internship period. I was given my Desktop computer and separate cabins
for completing projects.

Initially I was assigned two projects, details regarding those projects are in same part under
different head.

Along with those two projects I also prepared the income tax returns of Nestlés almost 140
employees. It was fun jumping from text book numericals to actual real life situations.

I am really thankful to Mr. Rana Mushtaq Income Tax Manager (Chartered Accountant), as he
gave me a detailed lecture cum discussion on the topic of Deferred Taxation.

I was also a part of Surprise Audit party of ACR section.

The last and most interesting part was to make a presentation on NEFAM (details are present
in the project section in this part of my report). NEFAM is the Nestlé’s Fixed Assets
Management System.

Nestlé’s Business Excellence Group or which is more commonly known as Global Project
which is in the process of implementation. It is a project of replacing the current software
BPCS (Business Planning and Control System) by the International Software ‘Global’ to make
the information easily transferable to Head office in Vevey. It is a very complicated software
for which needs adequate training to every employee of Nestlé Pakistan. So this project is
also yet to be implemented. I have the great honor of having comprehensive discussion over
Global with the Chief Global Coordinator Pakistan. So Global is a Standard Application
Program which will full fill the objects of standard processes of external internal data and
replacing current IT infrastructure.

FINANCE AND CONTROL

The Finance and Control division at Nestlé Milkpak Limited constitutes the departments which
are given in the table on the next page:

The Finance and Control Division at Nestlé Milkpak is headed by the Finance and Control
Manager or popularly known as the FCM.
The FCM has six further sections reporting to him.
The Accounts Department is headed by the Financial Accounting Manager.
The Accounts Department has three further Sub-sections namely the General Ledger
Department (GLD), Accounts Payable (ACP) and the Accounts Receivable. (ACR).
The Budget Manager is in charge of the Budget and Control Department.
The Treasury Department is headed by the Treasury Manager.
Treasury Department comprises of three sections, the first looking after all the daily
transactions with the Financial Institutions, the second sub-section is of Share Registration
and the third deals with the Insurance concerns of the organization.
Corporate Purchase Department is headed by the Corporate Purchase Manager.
Corporate Purchase further deals in the Local Purchase and Imports.
Purchase can be of two types either raw and packing material purchase or technical
purchase.
The Taxation Department also falls under the Finance and Control Division.
It deals with the sales tax, excise duty and income tax of the employees of the organization.
The Legal Affairs Department deals in all the legal matters of the organization, and Nestlé has
employed its own lawyer to look after its best interests.

THE FINANCE AND CONTROL MANAGER

It is a very important position in the organization. The Finance and Control Manager is
responsible for a variety of jobs and Mr. Regino Manglicmot was the FCM at Nestlé’. He is
also the Company Secretary.
His Budget and Control Manager keeps him up to date about the budgets being allocated for
every product. And also about the efficient spending of the allocated budget to each brand.
Other than that, the FCM has to be presented with facts and figures to get the budget revised
concerning some brand. Only after the FCM is convinced, he would forward the application to
the Chief Executive.
The Taxation Department, reports to the FCM, regarding the taxes the company has to pay in
the form of sales tax, excise duty and the income tax of employees. This tax calculated is
used in the financial statements to determine the profit or losses for the organization.
It is the responsibility of the FCM to see that proper accounts are being maintained and the
accounts are kept up to date. Nestlé Milkpak Limited has to send monthly statements of
accounts to the Nestlé center at Vevey. It is the duty of the FCM to see that the deadlines are
being met. He works closely in interaction with the Accounts Manager and all reports are
reviewed by him before forwarding them to Vevey, Switzerland.
He is responsible for maintaining a clear picture about the liquidity position of the company.
He has the Treasury Manager directly reporting to him. The FCM after viewing the current
position of the company's bank accounts and market conditions draws strategies for the
future. He also monitors the company's position on the stock exchange and the placement of
the firm in the market.
Any asset to be purchased by the company, may it be of any nature i.e. land, building,
machinery, plant or equipment and furniture or fixtures. The purchase proposal request of
such items is approved by the FCM. Therefore the corporate purchase department also
reports to the FCM.
Although, the Legal Affairs Department is not directly under the FCM, it is the reporting
authority for it in absence of the Chief Executive. Also this Department is located in the
Finance and Control Division.
The FCM is directly in contact with the Chief Executive here and the Nestlé Headquarters at
Vevey. Meetings of the FCM, the NSM and the MM are held frequently with the Chief
Executive, where each one makes reports concerning his area of work. The findings from
these meetings are reviewed and the future feasible policies of marketing and sales of the
organization are designed within its financial framework.

DETAILS REGARDING THE FINANCE AND CONTROL DIVISION

My attachment of 6 weeks at Nestlé Milkpak Limited was with the Finance and Control
Division. As seen from the framework it is a large division comprising of many sections and
sub-sections. Therefore it was not possible to work with all these departments.
I was assigned to the Accounts Department under the Finance and Control Division. My
training period was spent learning the work of all the sub sections of this department. One of
the section of my report focuses on my training program and all the details regarding the
"Accounts Department" would follow in that section.
During my training, with the help of my bosses I visited every department at the Finance and
Control Division to get briefings regarding their work. This was essential to understand the
framework of the Finance Division and also its role in the organization. These discussions
helped me to interrelate all the departments and I learned how the working of every
department helps all the others. All these departments work in collaboration with each other
and the flow of documents from one section to another is a feature that distinguishes it from
the Marketing Division.

BUDGET AND CONTROL DEPARTMENT

The Management Accounting Department is responsible for preparing budgets for each
department and for every product. This department not only has to prepare the budgets but
also to control those estimates. That is why, this department is also known as Budget &
Control Department. All the work is being performed at brand level in this department.
Therefore, this department is close in co-ordination with both the brand managers in the
marketing division and the people working in the factory on budget estimates.

REPORTS PREPARED BY THE BUDGET AND CONTROL SECTION

This department prepares the Long Term Plan, which is an estimate for the next three years,
and it is for all the brand groups.
On the basis of long term plan, an Operational Plan is prepared which provides estimates for
the next one year.
This process continues and the operational plan is prepared annually.
It prepares the product-wise Profit & Loss Accounts and verifies the costs.
This department controls factory costs through variance reports.
The Selling Price Calculations are also made in this department which verify the ones already
made at the factory level.

CONTROLS IMPLEMENTED
The budget and control section is responsible for the control of the following expense items of
the company.

Pricing structure
The pricing structure is prepared in collaboration with the Accounts Receivable Section of the
Finance and Control department. This pricing structure should take into account the
distributor and retailer margin.

Variance reports
Variance reports are prepared at the brand level and the differences between the actual
values obtained from the Financial accounting department and the ones estimated in this
section is measured.
Product Fixed Marketing Expenses
Every brand is allocated an acceptable budget for making ,marketing expenses. The budget
and control department sets up suitable limits for these expenses, so that the brands have an
idea of how much expenditure they can sustain on marketing.
Factory Overheads
Estimated rates from Commercial Department
Volume from Marketing department of all the products
Estimates of capital expenditures from Corporate Engineering Department

BUBBLE CHARTS
Bubble Charts are prepared by the department for each brand, indicating the trend in which
the company wants a particular brand's profitability to rise. This is an overview for the years to
come and future positioning of the brand in the market. The size of the bubble grows each
year indicating the gain in market share. These charts are made a basis and used as targets
by the marketing and sales team who make sustained efforts for attaining those goals.
It is a managerial accounting department making all important decisions like "make or buy",
decision by taking strict estimates of the products to be produced. It is working close in co-
ordination with the financial accounting department whereas they are working with the actual
figures and the budgeting department analyzes the estimates.

TREASURY DEPARTMENT
The Treasury Department is a new department at Nestlé Milkpak Limited. It is a
comprehensive department handling various kinds of jobs. It has been structured in a way to
deal with all external financial relationships. External financial relations for Nestlé Milkpak are:
• Share holders
• Suppliers or Vendors
• Financial Institutions
As repeatedly mentioned that Nestlé Milkpak has divided the country into three zones for its
convenience. The Treasury Department also has links with all the three zones. It works in co
ordination with them to know about the actual cash requirements in each zone and their
respective regions.
Following is the structure of the Treasury Department at Nestlé Milkpak Limited:

As shown in the above chart, the Treasury Department consists of three sections:
• The Treasury dealing with the payments and receipts connected with every zone.
• The Share Registration dealing with the investor relations i.e. keeping all knowledge about
the Stock exchange and the Central Depository Committee of which Nestlé Milkpak is a
member.
• The Insurance section dealing with the area of risk management for the assets of the
organization i.e. both physical and material assets.
These three sections fall under the Treasury Manager who is responsible to co ordinate and
look after the workings of each section. The Treasury Manager is directly reporting to the
Finance and Control Manager. Currently Mr. Adnan Masood is the Treasury Manager at
Nestlé Milkpak Limited.

The main Treasury receives Sale Receipts from the north, south and central zones on a daily
basis. These sale receipts are adjusted at one bank account. Nestlé maintains approximately
80-90 bank accounts in various banks located at different places. But as the company follows
a policy of being net borrowers so the inflows are adjusted against the borrowings. This
means that as soon as the inflows reach any bank account, they are transferred to a single
specified account for adjustment against the borrowed funds. A minimum level of cash is
maintained at all the accounts for every region and zone.
Nestlé makes all its payments on 30 days credit basis. Except for the Milk collection areas
where payments are made on cash basis. Nestlé has recently restructured its policy of
making credit sales and now almost all the sales are on cash basis. Therefore, the Treasury
Department has to be very efficient in order to keep track of all these transactions.

SHARE REGISTRATION
Mr. Abdul Hameed is in charge of the Share Registration section at Nestlé Milkpak Limited.
He provided the following details about the working of his section.
Historical Perspective
Milkpak Limited was floated in 1980. At the time of floatation, it was under subscribed. If a
company is under subscribed, it shares are sold according to the undertaking done at
previously decided rates. The undertaking of Milkpak Limited was done by IGI and Packages
Limited.
At the beginning, five foreign companies had invested in the business; which are namely:

Name Origin
• DEG German
• IFU Danish
• DTD -do-
• IFC USA
• Tetra Pak Sweden

In 1987, the shares of Milkpak Limited were sold to Nestlé with 15% holding in the company.
A special issue of 12 lakh shares followed in 1988, out of which only 2% were issued to the
local shareholders.
In 1993 and 1995, shares worth 4 million rupees were floated in the market.
Issue Of Right Shares
Nestlé also issued right shares 4 times and at face value. For right issue, the Board of
Directors decides the amount and the rate of issue and then has to get approval from the
Securities and Exchange Commission.
The first issue of right shares was in 1987 and there were 33% right issues, and this issue
was done at premium to Nestlé Milkpak Limited. At that time, a conflict arose with ADBP,
which also demanded a special issue at premium price.
A clause contained in the right letter states that if the right issue remains unsubscribed, NIT
has the right to the shares at par value. In case, NIT or the government does not take the
shares, it is upto the directors to decide whether they issue the shares to the employees or
keep the shares themselves.
The second issue of right shares followed in 1988, and there was a 100% right issue.
The third issue of rights was in the year 1990, at a rate of 33%
The fourth round followed in 1992, again with a 33% right issue.

Issue of Bonus Shares

Nestlé Milkpak Limited has also issued Bonus shares two times since its establishment. The
right issues preceding the bonus issues had a clause written on the right letter, that these
right issues did not qualify for bonus shares. The government opposed this clause and a case
was launched against it. The government specified a period for settlement of the issue.
Finally the bonus shares were issued to the right share holders in 1990.
Central Depository Committee
The Central Depository Committee (CDC) was formed under the 1997 Act. Nestlé Milkpak
took a stay on option basis otherwise it was to enter the CDC in 1999. In November 2000,
Nestlé Milkpak entered the CDC.
Nestlé is connected through the Internet with the CDC software. This program has been
installed by the CDC at the Nestlé Head office. This connection enables the company to carry
out online share transactions with the Stock Exchange and the investors. The same software
is in use by the brokers.
Two kinds of transactions are involved, in the CDC:
Deposit Approval
Withdrawal Approval
Deposit Approval
For deposit approval of shares in the CDC, information regarding the Volume and Status of
the shares is required.
Volume
The volume of shares is entered by the broker. These shares are of a particular company and
the brokers e-mail's the shares to the CDC software. A "Security Deposit Form" is issued for
the shares.
Status
The status of the shares is approved by the respective company. The company compares the
certificate with the transfer deed to check on the various particulars regarding the shares.
After that, the issuance certificates return to the share issuing authority. The transfer deed or
the share certificate remains with the company and there are no copies with the broker.

Withdrawal Approval
The sale or purchase of all the shares in the CDC is done on the Certificate Numbers. The
concept of Distinctive Numbers has been finished from the CDC. These distinctive numbers
are not important for either the CDC or the brokers. But for the company, the last count of
distinctive numbers signifies the paid up capital of the company.
For the withdrawal of shares, A "Security Withdrawal Form" is created. The previous
securities are cancelled and new securities are issued with the same distinctive numbers.
The Central Depository Committee was established when the people's confidence on the
brokers shattered and the brokers grew tense on the out of stock transactions.
It became essential for companies to transact their shares in the CDC when the banks issued
instructions that those shares which are not in the CDC, loans can not be issued against
them.
SOFTWARE
Apart from the CDC software, Nestlé also maintains its own record in a separate system. This
system has three options:
Enter: Only authorized people can view the records.
Screen View: to check the records in the P.C.
Printing: if the record is needed for any purpose like tallying with the CDC position, then an
option for printing is available.
Transfer In
An option of Transfer In is available in the software to see the shares certificates in deposit
with the company.
Transfer Out
Transfer Out keeps a measure of the shares held by various shareholders and all the
particulars regarding these shareholders.

DIVIDEND
Two types of dividend are declared by the company:
Interim Dividend : is recommended by the directors
Final Dividend: it is also recommended by the directors but it is approved by the share
holders at the Annual General Meeting.
The dividend has to be paid within 45 days of its approval.

INSURANCE
Mr. Zaheer Ahmed who works in the Insurance Section of the Treasury Department provided
the following details regarding the working of his section.
Insurance can be defined as the compensation against any loss. Assets and gains both can
be insured. Nestlé Milkpak Limited follows a policy of insurance of its assets only. Assets also
include its employees. who are covered under the Group Life Insurance.
The compensation value for an asset is its market value. The loss assessor determines this
value.
Parties
There are three parties to an insurance deal:
1. The Insured
2. The Surveyor
3. The Insurer
Governing Bodies for the Insurance Agencies
There are two bodies which govern the insurers, they are:
1. Insurance Corporation
The Insurance Corporation monitors the behavior of the Insurance companies with their
clients and how they work in the field.
2. Insurance Association
By law, the rules and regulations for the Insurance companies are provided by the Insurance
Association. The association keeps a check on the Insurance companies to see that those
rules are being implemented.
ASSETS INSURED AT NESTLÉ
Nestlé Headquarters at Vevey have issued a policy that limited perils should be selected for
insurance purposes. But the insurance against perils is essential for obtaining loans from the
banks. As banks demand insurance claims while lending huge amounts to organizations.
Nestlé Milkpak Limited has Insurance claims for the following:
Factory Hazards
Stocks
Vehicles
Cash
Group Life Insurance
FACTORY HAZARDS
Factory hazards can be of various kinds and for a company like Nestlé with all the production
being done at large factory setups, a number of perils have to be insured to minimize the
losses. Details of these are as follows:
• Theft
Although theft is a constant peril, but to have a positive impact on its employees, insurance
against thefts have not been taken. Maximum security measures are taken at factories and
this is an internally controlled matter.
• Fire
Cover has been provided against fire and the allied perils of fire. Fire insurance covers a wide
range of causes like electric cause or explosions etc.
• Floods
Floods are a common phenomenon in the regions of Punjab, where all the factories of Nestlé
are situated. Therefore, insurance cover has been taken against such calamities due to
atmospheric disturbance.
• Earthquake
Cover against earthquakes has not been taken, as the degree of hazard has been measured.
Past record shows that both the factories are located in the zone where earthquakes do not
exceed a hectare scale limit of 4.7-4.8. The factories have been built with a capacity to
sustain earthquakes uptill 6.7-6.8 hectare scale.
• Malicious Damage
As this kind of damage is willful and done knowingly, therefore no cover has been taken
against it.
• Aircraft Damages
Factories are located in aircraft training areas and if an aircraft falls on the factory, a cover
has been taken against this situation.
• Working Hours
Nestlé has obtained a claim of 24 Hours from the insurance companies as the damage may
be due to the work in extra shifts.
• Riot and Strike Damages
Strikes of factory unions are very common and they tend to destroy equipment of the factory
during such riots, so the threats from such strikes have also been insured.
• Terrorism
Insurance has been taken against acts of terrorism from outside the factory.
REBATES
A company which employs state-of-the-art technology is on a better position than the rest and
it can claim rebates from the insurance companies on its claims. Nestlé Milkpak is on a very
good position as compared to other local production setups so it has been given good rebates
compared to other factories.
As told by Mr. Zaheer:
Item Rebate (%)
Hydrant lines 20%
Extra Tubewells 2.5%
Sand Buckets 2.5%
Extinguishers 2.5%
Class 1A construction 10%
Sprinklers 10%
All this equipment is installed at the production setups to provide security against the afore
mentioned perils.
• Hydrant Lines
Hydrant lines have been installed with 7-8 bars pressure. These lines measure above 90ft.
and they can cover a long range of area.
• Extra Tubewells
Extra Tubewells have been setup at the factories and no tank remains empty at any given
time.
• Sand Buckets
Certain fires can only be controlled by throwing of sand and water does not help to extinguish
them. Sand buckets have been placed at various points in the factories to counter such
situations.
• Extinguishers
Areas have been specified for extinguishers within the factory. The insurance agents visit the
factory and only then the rebate is taken.
• Class 1A Construction
Class 1A construction refers to the kind of brick construction with adequate amount of
openings. All factory buildings of Nestlé fall in this class.
• Sprinklers
Sprinklers are used to cover a sparse area. The specification of the sprinklers installed at the
production setups is not according to the insurance companies. Instead Nestlé claims that it
has installed better in built sprinklers with the most modern technology.
All these rebates have been provided after a thorough inspection of the factory area by the
Insurance agents.
STOCKS
The second item against which Nestlé has taken insurance covers are its stocks. In case of
import of products, they may be stocked for more than a year. High fluctuations should not be
present. Therefore, the insurance is taken by keeping the fluctuation on the maximum side.
VEHICLES
Vehicles are insured at market value. In case of loss, compensation provided is only for the
market value. Because of this reason, the personnel of the insurance department should be
very much in contact with the market. They should have complete knowledge about the
market prices. This is essential for them to carry out arguments with the surveyor. As
surveyors are provided a license by the government so they have high powers. Therefore, the
people working in the Insurance department should be fully aware of the market trends.
CASH
This is another asset insured at Nestlé Milkpak Limited. It includes the cash in transit also. In
most transactions, the employees are involved in Spot Purchasing, so some sort of
assurance has to be provided that they are properly utilizing the cash assigned to them. The
fidelity guarantee has only been provided to certain trusted employees. Although, Nestlé
employs great confidence in its employees but the hazard still remains. The fidelity guarantee
has been finished at the Head Office level but it is still prevalent in villages. As employees
have to buy milk from farmers individually.
GROUP LIFE INSURANCE
This is an Insurance cover provided for the employees of the organization. All permanent
employees of Nestlé Milkpak Limited have been insured under this policy. The contractual
employees or trainees are not included. According to the law, every company having more t
an 4 employees are liable to maintain a group life insurance policy.
HEALTH INSURANCE
As all medical expenses of the employees are borne by the company, so no health insurance
has been taken.
This ends our discussion on the Treasury Department, and it can be seen from the details
that it is playing a key role for the organization by monitoring the payments and receipts,
maintaining relation with investors and risk management for all Nestlé establishments in the
country.

LEGAL AFFAIRS DEPARTMENT

Mr. Azeem Naqvi, who handles the Legal Affairs Department at Nestlé Milkpak Limited,
provided us the information on the legal affairs department. Azeem was solely in charge of
the section since 1995, but recently due to the workload he has been provided with an
assistant. The major share of work still remains with him and he plans to expand his
department. So presently, it is a department with a simple structure of 2 people only, but
handling very important work for the organization.
ESTABLISHMENT OF AN IN HOUSE COUNCIL
Nestlé Management took control of Milkpak Limited in 1992, by a majority of shareholding in
the company. They entered into transactions with third parties. By 1995, most of these
contracts were getting mature.
With time disputes arose with respect to these business transactions. Legal complications
started arising. Nestlé Milkpak had employed a couple of external lawyers to look after its
legal matters, but they were not being sufficiently taken care off. Top managers were too busy
in their own activities and co ordination was lacking greatly. Multinational corporations like
Nestlé employed foreigners who were easily exploited by the locals.
Therefore an In House Council was established in 1995, to improve co-ordination and to look
after the day to day legal affairs of the company; such as drafting of opinions, salary matters
and litigation of external lawyers.
MAJOR ROLE OF THE LEGAL AFFAIRS DEPARTMENT
Following major functions are performed by the Legal Affairs Department at Nestlé Milkpak
Limited:
Opinion writing.
Drafting of legal documents.
Wetting of agreements.
Co-ordination with external parties.
Explaining the company stand to external parties.
Providing information and documents in legal procedures.
Co-ordination with the Nestlé Headquarters at Vevey.
Ensuring compliance with the legal policies.
Ensuring compliance with the local laws.
Providing periodic guidelines.
Providing legal opinions to various divisions like Finance, Marketing, Sales and Human
Resource.
ADMINISTERED BY THE FINANCE AND CONTROL MANAGER
It is the requirement of law, that one person has to be declared as manger for assigning all
legal documents on behalf of the company. This power is given to that manager by the Board
of Directors. In the case of Nestlé Milkpak Limited, this power has been assigned to the
company secretary, who is also the Finance and Control Manager (FCM). Therefore, this
department falls under the Finance and Control Division.
The In House Council works closely in co ordination with the FCM. He is responsible for
signing of different legal documents and litigation. In the absence of the FCM, all such
responsibility goes hierarchically up to the Managing Director of the company.
ROLE OF THE LEGAL OFFICER
Legal officers have a very general role in any company. Any person working in the company
has access to the legal officer.
Legal officers co-ordinate directly with the department heads. They have the right to procure
any kind of information from all departments and they can access the records of the
company.
All matters with the unions of the company are also settled through the legal officer. There are
two unions at Nestlé Milkpak. The milk collection centers and the regional offices and these
unions are directly in contact with the legal affairs department and carry out their negotiations
through the legal officer.
GOALS OF THE LEGAL AFFAIRS DEPARTMENT
Following are the desirable goals of this department so that it can gain maximum benefits for
its organization:
• Avoid to the maximum level the legal problems because of the lack of information on the
laws of companies.
• To secure the flaws in business transactions and agreements.
• To reduce litigation.
To enforce company stance in disputes, so that the company has a strong legal footing.
CORPORATE PURCHASE DEPARTMENT
The Corporate Purchase department at Nestlé Milkpak Limited is headed by the Corporate
Purchase Manager. This department has got two sections:
• Local Purchase Department
• Imports Department
The following chart shows the structure of the Corporate Purchase Department at the Head
Office of Nestlé Milkpak Limited.
LOCAL PURCHASE DEPARTMENT
As shown in the chart, this department has two sub sections, namely:
• Raw and Packing Material Department
• Technical Purchase Department
These departments are headed by Purchase Managers. The two departments are taken up
separately to discuss their working in detail.
RAW & PACKING DEPARTMENT
The following chart shows the structure of this sub section of the Corporate Purchase
Department. Mr. Tariq Saleem, the Assistant Manager of the department provided the details.

MAJOR PURCHASES
The Raw and Packing Department is involved in the purchase of the following major items:
• Raw Materials
• Commercial Chemicals
• Laboratory Chemicals
• Packing Material
• Office Equipment
• Vehicles (cars, motorcycles, cycles)
• Sale of Assets (scrap assets, cars etc.)
PROCEDURE
The general procedure for the procurement of the above mentioned articles is as follows:
A "Purchase Proposal Request" is prepared by the department which requires the object.
Based on the request, quotations are called and the price is checked in the market.
Based on these quotations a "Purchase Order" is drafted.
Three copies of the Purchase Order are prepared; these are :
o Supplier's copy
o Account Departments' copy
o Purchase Department's copy
Afterwards, the material is sent to the plant if it is for factory use.
The Store at the Plant makes a "Goods Received Note" (GRN) and sends a copy to the
Accounts Payable section at the Head Office.
Meanwhile, the invoice from the supplier of the material also reaches the Accounts Payable
section.
A three way match is made at the Accounts Section after the receipt of the three documents
i.e. the Purchase Order, the Invoice and the Goods Received Note (GRN).
After the completion of this process, the payment is made to the supplier as per terms and
conditions settled before the contract is signed.
Vehicles
For the purchase of Vehicles, the only difference is that the vehicle is purchased under the
name of specific person.
Purchase of Assets
For the purchase of assets, instead of a Purchase Proposal Request, a "Capital Expenditure
Proposal" is prepared.
Other than the sales of food items all other sales of assets are handled in this department.

TECHNICAL PURCHASE DEPARTMENT

Following is the structure of the Technical Purchase Department at Nestlé Milkpak Limited.

Mr. Faheem Aslam Janjua, the Technical Purchase Manager provided the details about the
working of his department.
MAJOR PURCHASES
This department is directly in interaction with the factory. It is involved in the purchase of
machinery and parts of machinery. These include:
Balls
Ball Bearings
Belts
Pipes etc.
PROCEDURE
The following procedure is followed for the purchase of technical items:
The requisition is raised by the factory engineer, in the form of a "Purchase Proposal
Request" or by the store keeper through "Store Cards".
To proceed in the purchase department these are the only two documents.
Store Cards
On a daily basis, approximately, 20or more Store Cards are raised. All the history regarding
previous purchases of the same items is present on the card. It contains particulars like the
previous suppliers, previous rates and provides options of contacting three suppliers for the
fresh purchase.
The Purchase Proposal request has three formats, for each of the three establishments of :
o Sheikhupura
o Milk Collection Centers
o Kabirwala
The second step after receiving the PPR is that the Technical Purchase Manager calls for
quotations.
He is responsible for making negotiations with the suppliers and settling of discounts.
A comparative statement is made and a Purchase Order is drafted.
5 copies of the purchase order are required for :
o Supplier
o Accounts Payable
o Factory Engineer
o Store (price is deleted)
o Purchase Department
After receiving the goods, the store issues a "Material Inspection Report" (MIR) declaring its
acceptance or rejection of the goods and sends a GRN to the Accounts payable (ACP)
section at Head office.
The ACP section receives the Purchase Order, the Invoice from suppliers and the copy of
GRN, so it makes a three way match and the payment is made with credit terms of 30 days.

IMPORTS DEPARTMENT
The Imports Department is another section of the Corporate Purchase Department at Nestlé
Milkpak Limited. Mr. A. D. Bhatti working in the imports section gave the following briefing
regarding the work of his department.
Nestlé Milkpak Limited imports a sufficient number of items. Its imports include some food
products and machinery for production purposes in local factories. Therefore, the Imports
section is busy dealing with importers, and local companies responsible for getting the
imported goods cleared at Karachi Port.
PROCEDURE
A systematic procedure is followed for the import of goods at Nestlé Milkpak Limited. It can be
described as follows:
Demand requirements for the import of goods reach the Import Section minimum 3-4 months
before the need, to provide ample time for the process to take place.
These demands are sent by the originators; either from the marketing section or from the
factory.
If it is an item that is imported regularly, then the source is also mentioned on the demand
request.
If it is not a regular imported item, then the source is found out by the Imports Section. This
source must be one approved by Nestlé Head quarters.
The next step is the negotiation of price between the exporter and the Import Section.
It is the requirement of the Government of Pakistan, that for the import of items, either a
Letter of Credit (L/C) should be opened or the import is done on Documentary Collection
Basis.
In both these cases, bank formalities have to be seen to, which gives an assurance to the
government regarding the fulfillment of obligations by both the parties.
If before fulfilling this requirement, the shipment takes place, it would be against the law and
State Bank of Pakistan does not remit the money.
It is the duty of the Imports Section to keep a follow up of the shipment so that no delays are
caused and the items reach on time.
Before the arrival of shipment, the Import Section requires the Original Shipping Documents,
from the exporter. These include:
o Invoice
o Packing List
o Bill of Lading
o Airway Bill (or by sea)
Other then these documents, according to the Import Policy, certain Certificates are also
demanded. This is generally held in case of import of food items. The document certifies that
the food is:
o Halal
o Fit for Human Consumption
o Shelf Life is higher than 75%
And other particulars like:
o Date of Manufacturing and Expiry
o Radioactivity Certificate
o Health Certificate
o Certificate of Origin
If the goods are declared fit, they are released from custom and if there is any doubt they are
sent to the custom laboratory.
Until these documents are received by the importer, payment is not made to the supplier.
The "Bill of Entry" is filed on behalf of Nestlé by its agent companies, to fulfill the custom
formalities.
The custom authorities make an assessment of the following particulars from the Bill of Entry;
the cheaque value, duty rate, and the verification of goods declared.
After the completion of assessment, the Bill of Entry is passed.
The payment of government dues is demanded in the shape of Pay order or a Demand Draft.
The custom duty varies according to the items. It ranges from 10%-30%.
After submission of the dues, the goods are sent to the respective factory for quality
assurance and to gain information about their state (useable or not) or if there is any
discrepancy regarding the shipment.
Once this procedure is completed, the L/C is closed by making the payment to the exporter.
MODES OF PAYMENT USED AT NESTLÉ MILKPAK
L/C's can be of many kinds but Nestlé Milkpak only uses the "Payment on Sight" L/C. The
benefit of using this kind is that in a volatile economy like ours it is difficult to judge the
exchange rate fluctuations.
"Cash against Document" (CAD) is another mode of import used frequently at Nestlé. The
use of L/C is discouraged through this mode. The conditions are fulfilled like L/C, but the
banks are not liable for anything. The commission of the banks is very low in this case.
Suppliers don’t accept CAD unless they are sending the goods to regular customers with high
levels of trust. As most imports of Nestlé Milkpak Limited are conducted with Nestlé affiliated
companies, so this mode of payment is employed. And this enables the organization to save
on bank charges.

TAXATION DEPARTMENT
The Taxation Department at Nestlé Milkpak Limited also falls under the Finance and Control
Division. The taxation department has to deal in three different kinds of taxes:
Sales Tax
Excise Tax
Income Tax
Mr. Qayyum. gave the following briefing regarding the work performed at his department
SALES TAX
Sales tax is levied on certain items produced by Nestlé Milkpak. The taxable items include:
Juices
Culinary
Water
Confectionery
Coffee
The non taxable items include:
Milk
Powders
Cereals
It is the responsibility of the Sales Tax department to calculate the figures according to the
rates implied by the government. This amount is then added to the price of an item and it is
sold at profit to the distributor. The distributor in turn, includes the amount of sales tax in his
final price and sells the product to the end consumer. So, the end consumer has to bear the
burden of the tax eventually and this is a form of indirect tax for the producer and the
distributor.
The rates of sales tax in case of registered to registered firms is 15% and 3% for non
registered firms.
The sales tax department calculates these figures and sends them to the Budget and Control
section to enable them in calculating the distributor and retailer margins.
EXCISE DUTY
Excise duty is a manufacturing tax implied by the government on certain production items.
This tax is calculated at the plant. For Nestlé Milkpak this tax is levied only on the beverages.
The government has fixed a rate of 10% as excise duty. The method for implying this tax is
that the excise duty is added at the rate of 10% to the price. This gives the "Duty Paid Value"
of the item. After this the sales tax rate is applied to the product.
INCOME TAX
Income tax is the tax applied to the total income earned by an assessee throughout the
income year. The taxation department has to calculate the tax for two kinds of income tax:
• Corporate Tax
• Employees Income Tax
For corporate tax the rates are fixed by the government during a particular year. And for the
income tax of employees, their total income is calculated and decided that which income slab
it falls into according to the limits provided by the government. The rates of the slab are
implied on the income of employee and the amount of tax calculated. The employees’ tax is
then deducted from their salary as per calculation and adjusted at the end of the Income
Year.
The taxation department plays a very important role, as the amount of tax calculated by them
in various categories is sent to different departments. As the total amount of tax calculated for
the organization, which involves a very lengthy and tedious procedure moves to the Accounts
section where the General Ledger Department uses the figures for calculation of the Profit
after Tax in the Profit and Loss Statement. Similarly, as mentioned above, the figures also are
needed in the Budget and Control Section for calculation of distributor and retailer profit
margins.

INFORMATION SYSTEMS DEPARTMENT

The Information Systems (IS) Department has a very important role in any organization of the
modern century. Especially, for such a large scale Multinational Corporation like Nestlé
Milkpak limited that has to maintain contact not only with its establishments in the country
which it is operating but also with Nestlé Headquarters and Nestlé setups in other countries,
Information Systems play a vital role.
The exchange of information is a continuous function and the decision making process is
based on this information. Proper hardware and software is necessary to maintain
effectiveness and efficiency.
The Information Systems Department comes under the Finance and Control Division at
Nestlé Milkpak Limited. Mr. Moeen Khan who is currently working as the Manager Information
Systems gave the following details regarding the working of his department.
IS STAFF
Mr. Moeen Khan is the head of the Department. He has a staff of sixteen people working
under him employed at various establishments of Nestlé Milkpak. Out of the sixteen people,
six are employed for Business Application purposes and the remaining ten for Technical
Network support. Of these ten, seven are working at the Head office, two at the Sheikhupura
factory and one at Kabirwala.
Business Application
The six people employed for Business Application are working only at the Head office.
Business Application is a field related with business reporting. So all the reporting activities
are to be conducted from the Head Office to other cities and all other Nestlé setups in the
world. Therefore, for this purpose these personnel are not required at other setups.
Technical Network Support
Employees in the IS Department looking after the desktop related problems are working in
this category. For day to day problems, at various setups they have to be employed at sites,
whereas major problems in the network are solved at the Head Office.

BUSINESS PLANNING AND CONTROL SYSTEM (BPCS)

The system currently in work at Nestlé Milkpak Limited is known as the Business Planning
and Control System (BPCS). It is an AS 400 based system. This system covers almost all the
business areas like financial processing and budgeting. This system is in work at different
departments, with different methods of use and numerous options available to assist the
employees. Every department has been provided with a manual which contains instructions
on the use of the system.
Wide Area Network
The BPCS system is connected through a Wide Area Network (WAN) with all the five
establishments of Nestlé i.e. Sheikhupura, Kabirwala, Milk Collection Centers, Head Office
and The Indus Factory. Other than the five establishments, it is also connected with the three
zonal offices of North, South and Center zone.
Nestlé Milkpak wishes to expand this facility to a Global WAN in the coming year so that all
users can have access to the system.
Use of E-mail
Any confirmed employee at Nestlé Milkpak Limited has access to this facility but only for
business purposes. No religious material or personal material can be circulated through the
company's user.
PROBLEMS FACED BY THE IS DEPARTMENT
The IS Department faces a few problems, which need to be countered to provide the best
results. These problems are:
Firstly, it is a service department, solving the problems of other departments. Employees
normally do not have adequate know-how about the working of their computers and IS
personnel are kept calling for minor problems. It is the demand of every employee to be
catered on priority. Due to a low number of staff, this is not possible for the department. The
IS manager plans to change the process, by acquiring a time limit of two hours maximum for
solving the problem since it reaches the Help Desk at IS department.
The major problem faced at the IS department is the turnover ratio. It is difficult to retain man
power. Employees learn the work in a MNC like Nestlé and after that leave the company as
soon as they are offered better packages elsewhere. The opportunities are expanding in the
modern field of Information Technology and it is difficult to retain people.
SUPPLY CHAIN DEPARTMENT
The concept of having a Supply Chain Department is a new one in Pakistan. This trend is
mostly prevalent in the developed markets. Nestlé Milkpak has recently introduced this
concept in its company functions and the supply chain department is passing through various
stages of completion. Nonetheless, it has started working and performing vital functions for
the organization.
Function of the Supply Chain
The supply chain department performs a range of functions, starting from the procurement of
raw and packaging material, the manufacturing process and the distribution of the finished
goods to the consumers. Purchase, logistics, production planning are different issues but
Nestlé Milkpak has undertook the concept of getting the hurdles attached with these resolved
under one umbrella.
Structure
The following chart shows the structure of the Supply Chain Department at the organization:

The structure shows that there are five support departments for the Supply Chain. These are:
Export Marketing
Demand Planning
Customer Order Services
Transportation
National Distribution Center
Out of these five departments, four are headed by the Supply Chain Manager with three
working at the Head Office and the National Distribution Center at the Sheikhupura Factory.
The fifth department i.e. Export Marketing, falls under the FCM and works at the Head Office.
Mr. Ijaz Ahmad working as the Demand Planner at the Supply Chain gave the following
information regarding demand planning.
DEMAND PLANNING
Demand planning or it may be called as short term planning. Demand Planning means
analyzing the market demand for various products and arranging the production facilities to
meet the demand. The following features highlight a demand planner's job description:
Rolling Sales Forecast
A rolling sales forecast is made by the demand planner ranging for a period of six months.
This forecast is made after the National Sales Manager and the Marketing Manager hold a
meeting twice in the month to analyze the market trend. This sales forecast is sent to the
Factory Manager. The Factory Manager and Production Planner review the sales forecast
and identify the capacity constraints involved in achieving the stipulated targets. These
capacity constraints can be closing down of the factory for the Annual Repairs and
Maintenance.
Monthly Forecast Review
A monthly report is prepared for the production planning and forecast setting. This report is
also required by the Factory Manager.

Monthly Operational Review

The senior management meets once in a month, and reviews the operations of the
organization. They analyze the operations on the statistics provided by the previous year-to-
date target, the present sales achievement and the Real Internal Growth.
Weekly Supply and Demand Review
A weekly supply and demand review is also taken. Every Friday, priorities are outlined for the
coming week. Percentages are set for the Net Proceeds from Sales (NPS) and the Real
Internal Growth (RIG).
For instance, for the production of UHT Milk in the lean season these figures are calculated
by keeping the requirements of homogenizer, the level of demand, the availability of milk due
to lean season and the WAPDA constraints in consideration.
The last week of the month is very busy for the department, as it is busy catering the orders in
hand.
Stocks Coverage
Although, this is not the primary job of a demand planner, still the expiry dates of the products
are marked. And top management is prompted by presenting to them the Liquidation
schedule of stocks.
MANAGER DISTRIBUTION OPERATIONS
The MDO is responsible to deal with the labor. He is the Warehouse Incharge and also the
Shift Incharge.
Warehouses
Nestlé Milkpak stores its stocks in warehouses. According to its production, it has the
following warehouses:
National Distribution Center: the Manager Distributor Operations is responsible for this
Center. It has 8000 pallets capacity.
Quarantine Warehouse: all products made at the factories, are sent for a quality test to these
warehouses and are kept there for the specified incubation period.
Kabirwala Warehouse: major portion of the stocks at this warehouse is shifted to the NDC,
but some products are also dispatched directly.
Karachi Warehouse: this warehouse is used to store chocolates, imported from China.
Rented Godowns: these are rented according to the seasonal requirements e.g. Gloria is
stocked for the lean season.
TRANSPORTATION
This department is responsible for hiring trucks from the open market to retrieve the stocks
from the warehouses and supplying them in various cities. It has to arrange chilled vehicles or
dedicated trucks for the refrigerated products. Five transporters presently have a contract with
Nestlé Milkpak handling the distribution.
ORDER PLANNER
The "Stock Availability Report" is prepared by the Order Planner. It is the daily routine of the
Order Planner to convey the dispatches to the transporters in the evening.
MODULE
The software used by the Supply Chain Department is known as the Inter market Supply
Planning (IMSP). It is a Nestlé software, showing every week's stock, the previous week's
actual sales and the forecast sales. The supplier sees the forecast and measures the need
for stock.
STEPS TO COMPLETE ESTABLISHING THE SUPPLY CHAIN DEPARTMENT
The following two steps would lead to the completion of the Supply Chain concept at Nestlé
Milkpak:
Production Planning
Procurement
Both these departments would eventually form a part of the Supply Chain.

FINANCIAL ACCOUNTING DEPARTMENT

This was the department in which I spent my most time. Athar and I was injected in it on the
first day after we took our letters from Human Resource Department.
It is headed by Mr. Azhar Usman Janjua, the great person known for his innovations,
creativity which at first seems to be impossible. But I must say that his influence over the work
and people doing work over there was just simply remarkable. I have heard of zero day
closing concept in certain accounting subjects with a clear expression of its impossibility, but
under his captainship the accounting department at Nestlé was doing this. The second
remarkable achievement I found there was that customers were paying there debts in
advance. Which is not prevalent any where. It means that who ever(The Distributor) wants
any product must pay for it, and inventory is dispatched only on confirmation from the bank
about the availability of funds.
The first achievement is amazing in itself because this phenomenon is not taking place
anywhere in the world even in Nestlé. This is the pride of Nestlé Pakistan of having such a
capable and ambitious person on the ship.

The financial accounting department at Nestlé was further subclassified in to three

departments. These departments work in close collaboration with other departments.
The details regarding those are on the coming pages.

ACCOUNTS PAYABLE SECTION

Me and Mr. Athar my mate from IBA were first injected into the Accounts Payable Section at
Nestlé Milkpak Limited which deals in receiving the invoices from all its creditors. This section
plays a very vital role, as a major part of the invoicing concerning the Head Office is carried
out in this section. It depends on the efficiency of this department to make timely payments to
the creditors, which is necessary to create a good impression of the company in the market.
The Accounts Payable (ACP), is headed by the Assistant Manager (AM) ACP. Presently, Mr.
Shabbir Siddiqui is performing the job. He has five people working under him, to cover the
various areas of bills and invoices. The following chart shows the structure of the ACP
Section and the areas of work for the individuals.

Mr. Shabbir Siddiqui, briefed me about the working of the various officers under him. My 4
days of attachment at his section was divided by allocating the time between the various
areas of work according to their importance.
To get a general overview of how the department proceeds after receiving the invoices, I was
provided the manual of the department and briefed about the whole process.
GOALS OF ACP
A standard set of procedures has been developed by the company to ensure that the
operational practices in the Accounts Payable section achieve the desired goals. These goals
are:
Immediate logging of vendor invoice in the Business Planning and Control System (BPCS),
after its submission by the vendor, to establish exhaustive awareness of its receipt within the
company.
Precise monitoring of invoice movement within the company, to ensure the invoices gets paid
within the committed time period.
Thorough verification of every invoice, by the approving departments, to promote a sense of
responsibility and ownership amongst them.
Validation of proper approval by the APS to increase efficiency and encourage equitable
distribution of work.
SCOPE OF THE GUIDELINES
The procedures and guidelines mentioned in the manual pertain only to the Head Office
Purchase Order (PO) Invoice and Non-Purchase Order Invoice transactions of Human
Resources, Corporate Affairs, Marketing, Finance and Control Departments.
LIMITATIONS
These guidelines and procedures do not govern those APS transactions and activities that
are related to transportation expenses, regional imprest funds, and raw and packing
materials.
INVOICE PROCESSING TIME
All the invoices will be considered payable within twenty working days of receipt in Nestlé
Milkpak Head Office, unless otherwise stated by the ordering departments on the invoice
approved by them. The approving departments will not take more than nine working days for
verifying and authorizing payments. APS will process the approved invoice after receiving it
from the approving departments and forwarding it to the Treasury Department within four
working days. The Treasury Department will issue the relevant cheaque to the vendors within
three working days of receiving the approved and posted invoice from APS.

PROCEDURE
Receipt of Invoices in APS
Vendors will submit their original invoice to the APS Incharge. The APS Incharge will affix the
following stamp on it:

This invoice will be withheld in APS for payment processing.

Invoice Login
The APS Incharge will ensure the section executives login the invoices in the BPCS on the
day invoices are received. The APS Incharge will be authorized to distribute the workload of
logging-in the invoices amongst the section executives in a fair and efficient manner.
Distribution of Logged Invoices
Upon completion of the logging-in, the invoice will be immediately filed in the respective
department's mail out record. APS will maintain department-wise Invoice Monitoring
Registers, that will identify the major data parameters of every invoice received by it. An APS
executive assigned by the APS Incharge to this effect, will take the Invoice Monitoring
Register along with the requisite invoices to the designated person in the concerned
department and get his receiving against each invoice.
Invoice Monitoring
APS will age the invoices according to the date which they become due for payment in the
Invoice Monitoring Register. In case, no payment date is mentioned on the invoice, it is to be
paid within 30 days from the date of receipt. The APS executive will calculate the due date for

payment and seven workdays remaining date prior to it. The APS Incharge will review this
Invoice Monitoring Register daily. When seven working days remain before payment
becomes due, the APS Incharge will send information to the concerned department
communicating the delay in processing the invoice. If the invoice becomes overdue for
payment, the APS Incharge will inform the Chief Financial Controller of this development and
he will send information to the concerned department head communicating the delay in
processing the invoice.
Receipt of Approved Invoices by APS
Upon proper verification and approval of the invoice by the concerned department, as to the
quantity, quality and price of goods and services either ordered or received by Nestlé Milkpak
Limited it will be delivered to APS by the designated employee of the concerned department.
This designated employee of the concerned department will ensure that an APS executive
gives his receiving against each invoice which he will countersign himself.
Verification Under Taken by APS
Each invoice will be checked by APS for its proper approval in accordance with the limits
decided in each department's Authority Level Schedules. These Authority Level Schedules
will provide the approval and authority levels of various designations in the absence of the
concerned persons. It is the responsibility of APS to confirm the proper approval of all the
invoices it receives from the approving departments for posting in the PURCHASE JOURNAL
VOUCHER (PJV).
The approving departments will be responsible for:
Ensuring that three copies of Purchase Order's (PO) are generated, one each for the ordering
department, APS and vendor respectively.
Canceling the PO's as and when the need arises, by affixing the following stamp on them and
getting the ordering department head's approval on it.

Verifying the presence and validity of PO reference number on the invoice and posting the
invoice number on the PO's.
Maintaining a record of all the advance and partial payments made against each PO by
posting the invoice number date and amount on the same.
Getting the advances approved by either the Managing Director or the Finance and Control
Manager.
Generating a monthly detail of advances to trade conditions in which aging breakup will be
provided.
Confirming the quantities and services rendered mentioned on the invoices with the original
Delivery Challan and employee receiving respectively.
Affixing the following stamp on the invoice after it has been properly verified and getting the
approving department head's approval on it.

Invoice Entry into BPCS

The APS Incharge will ensure that section executives unlog the logged invoices and post
them in the BPCS. The APS Incharge will be authorized to distribute the workload of logging
and posting the invoices amongst the section executives in a fair and efficient manner.
PJV Related Responsibility and Authority
The APS executive responsible for posting the PJV will acknowledge this by signing above
"Prepared By" on the same. He/she will also be responsible for posting the PJV reference
number on the relevant invoice. He/she will also be responsible for the validity of the PJV
posting and timely delivery of the same to the Treasury Department for payment.
Distribution and Filing of PJV's
The hard copy of the PJV will be attached to the relevant invoice and at the end of each day
an APS executive, assigned by the APS Incharge to this effect, will deliver the completed
PJV's to the authorized person in Treasury Department. After the payment has been made
against the PJV's, the APS Incharge will accept their return. The APS Incharge will ensure
that the section executives immediately file the PJV's according to their reference numbers.

IMPORTS SECTION AT ACP

My major portion of stay at the ACP was spent at the Imports Section. In this section, I learnt
in detail the procedure for the closing of Letter of Credits (L/C) established by the company to
import goods from Nestlé affiliated companies or elsewhere.
As mentioned earlier, during the discussion of the Imports Department, that establishment of
the L/C's is the responsibility of the Imports Department. The Imports Department has to
pursue the activities of the importers to ensure that the goods are received on time. A number
of documents are needed for this purpose, which has been mentioned in detail earlier. These
documents are required by custom authorities for the clearance of goods at the port. After the
whole process of the clearance of goods has taken place and the goods reach their desired
destination, in most cases which is the plant, these documents are provided by the Imports
Section to the Accounts Payable Section. The ACP is responsible for closing the L/C and
making payments to all the parties involved in the import of goods.
PROCEDURE
The L/C's are established at the Imports Section. Nestlé Milkpak follows a policy of opening
L/C's on the "At Sight" basis only.
The work of the ACP section starts when it receives the "Purchase Order". The Purchase
Order is also called the Performa Invoice and it is sent by the Exporter. It has the consent of
the exporter to sell a particular commodity.
It contains specifications like the quantity, item, specification and rate. The rate specifies
whether the L/C is Free on Board (FOB), Cost and Freight (C&F) or Cost, Insurance and
Freight (CIF).
All L/C's established at Nestlé Milkpak limited are based on the C&F rates, where the exporter
is responsible for the cost and freight of the goods.
It is the duty of the ACP executive working in this section to ensure that the following
documents are attached with the Purchase Order.
The "Debit Advice" or the document pertaining to the bank charges incurred by the company
for the opening of a L/C.
Nestlé Milkpak does major of its business with the ABN-Amro Bank Lahore or the Credit
Agricole IndoSuez Bank Lahore depending on the origin of import.
The "Insurance Bill" which at Nestlé Milkpak is the responsibility of the company itself. Its
major transactions are carried on with the "International General Insurance" company.
The Insurance cover is a mandatory requirement by the banks before opening of the L/C's
where FOB and C&F basis are used.
Along with these preliminary documents, the "Bill Of Entry" is also attached with the Purchase
Order. The importer i.e. Nestlé Milkpak limited submits the document to the custom
authorities. It is used for the computation of duties. Whether duty is imposed on the product or
not, the bill of entry has to be submitted to the custom authorities.
Nestlé Milkpak Limited has employed Clearing Agents for the purpose of submitting the Bill of
entry to the Custom Authorities.
The duty is charged on the invoice value plus the ITP value or the International Trade Price
according to the rules specified by the custom authorities.
Along with the Duty Charges, the clearing agent sends an invoice showing the handling
charges, the loading charges, the Karachi Port Surcharge, the Karachi Port Tax,
transportation charges, the demurrage paid etc.
The "Packing List" issued by the international firms of packers showing the quantity of goods
packed.
When the goods reach the plant, a "Goods Received Note" (GRN) is sent to the ACP section
at the Head Office. It contains particulars relating to the usage of the products and whether
the shipment was according to their requirement.
After receiving all these documents, the ACP executive is responsible for the settlement of
the L/C.
He rechecks all the figures relating to the duties paid, and all other charges paid by the
clearing agents.
Separate registers are maintained according to the banks used for establishing the L/C's.
These registers maintain a record of the L/C's in order of their establishment. The ACP
executive, calculates the total charges incurred for establishing the L/C on this register. The
register has separate columns relating to all kinds of charges.
These charges are also posted in the BPCS and document references are given on the
register by mentioning their numbers. The main documents used for establishing L/C's are
PJV's and LCJV's. The PJV number and LCJV number are specified on the register.
The LC number as issued by the bank is used as the major reference on all other documents
in use for settlement of an L/C.
A "Debit Note" containing the aggregate charges paid by the Head Office for the import of
goods is issued by the Head Office to the respective factory.
o DHS: debit Head Office to Sheikhupura
o DHK: debit Head Office to Kabirwala
The Debit Note is posted along with its specific number in the BPCS, for maintaining
complete record.
A copy of the Debit Note is sent to the GLD Section which maintains the Ledger for all
transactions and the third copy is kept at ACP.
After the completion of this process, the L/C is said to be closed or we can say that all the
formalities regarding the settlement of an L/C have been fulfilled.

TRAVEL (Domestic/International) BILLS

The ACP section also deals in the Travel Bills of the employees of the Head Office of Nestlé
Milkpak Limited. Travel is an important tool in the company's operation and as such
constitutes a major investment. It is therefore, important that the most cost effective travel and
accommodation suppliers are used in every situation.
The ACP section is provided with following guidelines relating to the domestic and
international travel policy of the employees of the company. It is the duty of the ACP
executive dealing in travel bills to verify that the procedure being adopted for travel is in
compliance with the company policy.
Domestic Travel Policy
Travel
Employees travel by air, rail and road. All travel related activities such as booking air tickets,
hotel arrangements and car rental are handled by Administration Services. To ensure cost
effectiveness, all air tickets are arranged by travel agencies appointed by the company.
Travel Authorization
All travel requests are completed by the traveler and then submitted for approval by the
appropriate authority on the Travel Request Form. Authorized Department Heads approve the
domestic travel. Division Heads may approve travel requirements for the company's official
guests.
Travel Advances
Majority of the travel expenses is settled directly by the company. In case of any out-of-pocket
expenses for business purposes, the amount is reimbursed on submitting a "Travel Expense
and Payment Voucher" approved and submitted within 10days of the conclusion of the trip.
International Travel
Travel Authorization
The Managing Director will approve all international travel. Division Heads may approve travel
requirements for the company's international official guests.
ROLE OF ACP
The ACP executive Incharge of the Travel Bills is responsible to see that all the Travel
Expense and Payment Vouchers have been submitted by the traveler with the proper
authorization as indicated in the Company Policy. He verifies the calculations made by the
travelers and maintains a record of all the vouchers after assigning them numbers. After that
the same process as mentioned for treatment of the invoices is followed and payments made
to the creditors.

TRANSPORTATION BILLS
These bills come from the factory to the Head Office. The company has contracts with
specific transporters and a pre arranged deal regarding the number of trucks and the load to
be carried each day. The invoices from the transporters reach the ACP section. The various
rates for the transport of goods from the factories to different cities are charged according to
the distance. The ACP executive working on transport bills verifies all the calculations by
multiplying the quantity of the different brands with the rates provided to him by the company.
He also has the responsibility for making provisions in the price, if any defects arise in the
products during their transportation. The process for the posting the vouchers is again
followed and payment made to the transporters after provisioning and approval of the bill.

ACCOUNTS RECEIVABLE SECTION

The other important section of the Financial Accounting Department is the Accounts
Receivable Section (ACR). Me and Athar were attached for about 5 days with the section,
and were given a detailed briefing about the working of the department by the Assistant
Manager of Accounts Receivable, Mr. Naeem Sheikh. The following chart shows the structure
of the ACR section.

The ACR section is dealing with all the sales statistics. It keeps a record of all the money
recoverable by the company from its debtors. This section of the Financial Accounting
Department is the monitoring authority for all the zones. As the data collected regarding the
sales of the three zones is consolidated in this department of the Head Office. Therefore, the
functional structure of the ACR section is as follows:

CUSTOMERS OF NESTLÉ MILKPAK LIMITED

The following table shows the total number of customers of Nestlé Milkpak Limited and their
segregation into the local customers and the foreign customers.
Customers Number
Local 171
Export (Third parties) 5
Export (Nestlé Group/ Affiliated Companies) 13
Total 189

The following table shows the business being handled at the Accounts Receivable Section.

Total number of brands in ACR 43

Total number of SKU's* dealing in ACR 256
*Stock Keeping Units
REPORTING DONE BY ACR
The ACR section is responsible for preparing the following reports on a periodic basis or as
and when required:
Sales Flash (Water): A single figure regarding the sales flash of water brands has to be
calculated, which is sent to the General Ledger Department, which in turn sends it to the
Perrier Vittel Head Quarters in Paris, France.
Sales Flash (other than water): This is also a single figure calculated covering all the brands
being dealt in the ACR, and this is sent through the GLD department, where it is processed
further, to the Nestlé Headquarters at Vevey, Switzerland.

Sales Statistics: This report shows the detail of each and every product's sales and sales tax.
Real Internal Growth (RIG): The ACR section also calculates the RIG of the company. It is
calculated both on monthly basis and for a longer period.
Daily Outstanding Customer Reports: This report showing the details of the sales, payments
and claims of customers is made on a daily basis. And the net receivables are calculated
after accounting for these. This report is made Region wise and Zone Wise separately.
Royalty and Technical Fee: Royalty is paid to the Nestlé Headquarters Vevey, for affixing the
Nestlé Logo on specific brands. Technical Fee is paid for the expertise hired from the
exporter countries for the installation of new machinery. Both these are charged at 1.5%
respectively, which makes a total of 3%. Royalty is treated to be a totally admissible expense
as decided by Vevey and is exempted from tax. Whereas tax at the rate of 15% is paid to the
State Bank of Pakistan in connection with the Technical Fee.
Sales Returns: The ACR section also calculates the sales returns on a region wise and
cumulative basis. A specific module is in use at the ACR section for this purpose and the
system itself picks up the "Systematic Sales Report".
Price Structure: The ACR section also prepares the price structure or a list showing the prices
of all the products, with respect to their sizes and quantities.
Prices History: The ACR section maintains in its modules a complete history of the prices
since the beginning, indicating the rise and fall measured in percentage for the price. This
history is very effective when the organization has to take a decision regarding the change in
price structure.
Invoices Detail Checking: No other section does a detail checking of the invoices other than
ACR. The rates of invoices are decided with the customers and their sequence is maintained
by the ACR section.
Sales Credit Notes (SCN): These are the documentary credit notes linked with the distributor.
These notes indicate the sales done by the distributor on behalf of Nestlé Milkpak Limited. All
the regions after approval from the Zonal Controllers send these SCN's to the ACR. One copy
is sent to the distributor, one copy kept at the regional office and one copy along with the
original supporting sent to the ACR. The ACR section adjusts the SCN's against the next
order of the distributor. The amount of SCN is deducted from his bill. The ACR section also
rechecks periodically the SCN's already issued. It is the responsibility of the section to see
that the claim was adjusted according to the settlement procedure. Any discrepancies found
are removed for avoidance of audit objection.
Dairy Export Customers Handling: The export dairy customers are handled directly through
the ACR and not through the regions. These transactions are for the bulk products purchased
and connection with the export customers is through the respective brand managers.
System Analysis: The ACR section maintains a check on its system and any discrepancies in
the system are reported and resolved through the system administrator.
Procedure Overview: A periodic overview of the procedure is undertaken, so that the Nestlé
Guidelines should be followed. The changes in the company's structure are not present in the
manuals and they are accommodated according to the business needs.
Distributors Contracts Maintained: It is the responsibility of the ACR section to maintain
contracts with the distributors. The distributors which have not signed a contract are liable to
do so. The ACR maintains a complete record of these contracts in lieu of their expiry dates.
Handling Fair Price Shop at Head Office: ACR has the responsibility of the stock taking of the
Fair Price Shop at the Head Office. Reconciliation is made between the sales and stocks. The
calculation of prices for the staff is also done at the ACR.
Resold Recovery: The sales returns from the distributors are resold through the ACR section.
The food products that are not fit for human consumption can be used for animal feeds. This
record is also maintained at the ACR.
Fixing Market Return: According to the policy, the market return is fixed. 1% return is fixed on
the invoice whether the return takes place or not. This is an incentive given to the distributor.
Apart from that the percentage varies from product to product when the returns are claimed.
These are:
Milk 1%
Juices 0.5%
Confectionery 0.5%
Powder 0.4%
Fixing of Cash Discount: This cash discount is provided to those distributors/customers
carrying out transactions on cash advance. This is also an incentive provided to them and a
rate of 0.5% is fixed for all.
Close Monitoring Zones Functions: The ACR monitors the functions being performed at the
zonal level. These are verified from the accounting point of view.
Co-ordination with other Departments: All the information maintained at the ACR section is
used by other departments like:
§ Taxation Department
§ Budgeting Department
§ Zones
§ General Ledger Department

GENERAL LEDGER DEPARTMENT (GLD)

I spent 4 weeks working in the General Ledger Department at the Finance and Control
Division of Nestlé Milkpak Limited. This is the most important sub-section of the Financial
Accounting Department.

FUNCTIONS PERFORMED BY THE GLD

This department performs a variety of functions, which are:
All Control Accounts of the subsidiary ledgers of the creditors of ACP and the debtors of ACR
are handled at General Ledger Department (GLD), which acts as the monitoring agent.
All Inter Company Control Accounts are maintained at the GLD. The Inter Company Accounts
show the transactions being made at the Sheikhupura Factory, Kabirwala Factory and the
Milk Collection Centers.
It consolidates all accounts to make the final Balance Sheet and the Profit and Loss Account
for the company.
It acts as the monitoring agent for the customer allowances, product discounts and volume
discounts being offered on different brands.
Nestlé Fixed Assets Management, is handled at this section of the Financial Accounting
Department. A module called NEFAM (Nestlé Fixed Assets Management) is used specifically
for this purpose.
The transactions relating to the fixed assets such as the calculation of the Insurance Value
and the Tax Written Down Value is the responsibility of this department.
Reconciliations are made for the Product Fixed Marketing Expenses (PFME) and the
Customer Allowances (CA) etc.
Vouchers are received from different departments like the Treasury, the ACP and ACR for
final posting and monitoring at the General Ledger Department. Ledgers of all these vouchers
are maintained at the GLD.
Monthly statements are prepared and sent to Vevey and for the water brands to Paris.
Working for such a long period at the department, I was able to examine in detail all the
functions performed there. Apart from helping, with these functions I was also assigned some
projects by Mr. Azhar Janjua while working in GLD. I was provided with a computer and desk
of my own which I utilized for my projects. Mr. Azhar Janjua and Mr. Nadeem Ahmed the
Assistant Manager of the GLD section took special interest that I should gain benefit from my
stay at Nestlé Milkpak.

PROJECTS
PROJECT I
CALCULATION OF THE TAX WRITTEN DOWN VALUE OF THE FIXED ASSETS (TAX
W.D.V)
One very interesting and informative assignment that I was given regarding the fixed assets
was the calculation of the tax written down value of the assets. This was calculated in respect
of all types of investment other than land i.e. buildings, machinery and equipment, furniture
and fixtures, vehicles and information systems. This report relating to the Tax W.D.V has to
be provided to the taxation department where it is used for further processing for the
calculation of the total income tax of the company.
Working on the Tax W.D.V report, I was able to learn the different kinds of depreciation
provided by the income tax authorities for development of the industry and for using as a
fiscal tool.
Normal Depreciation
For the calculation of the normal depreciation the Diminishing Balance Method is used till the
time the written down value becomes zero. The rates of normal depreciation vary from asset
to asset. For example in the case of vehicles it is 20% and for information systems it is 30%
per annum. Whenever, a specific rate is not mentioned, a general rate of 10% is applied.
Initial Depreciation
Although, the income tax department has finished this facility last year, but the tax W.D.V was
being calculated for assets purchased quite a few years back, so this depreciation had to be
calculated for certain specific assets. This depreciation is provided for the asset in the first
year of its use. So alongside the normal depreciation, another depreciation could be charged
for the first year of purchase of asset.
Re Investment Allowance
The Re Investment Allowance is provided for machinery, plant and equipment. This
allowance is provided under the Balancing Modernization and Replacement scheme, where
the already present machinery is replaced by new one. It is provided at the rate of 40% per
annum.
Extra Shift Depreciation
This is a kind of depreciation provided for organizations working in more than one shift. It is
provided on certain types of machinery and plant. Only those, where the general rates of
depreciation are being charged i.e. at the rate of 10% and not at specific rates. Double shift
depreciation is provided at half of normal depreciation and Triple shift at the rate of 100% of
normal depreciation.
The Tax W.D.V of various assets was calculated by me, accounting for all the above kinds of
depreciation. The calculation was made according to the schedule of rates provided and the
year of purchase of the asset uptill the year 2001 other than the assets who’s written down
value turned zero before the year 2001.

PROJECT II

BREAKING OF COST CENTER

Nestlé traditionally records all expenses regarding finance department under a single cost
center head of “FCM”. All the departments, be it corporate purchase, budget and control,
financial accounting, taxation, treasury, IS etc., were pooled in it. In year 2002 it was realized
that for proper cost controls and closer checks over expenses these expenses should be
divided into certain sub cost centers.

It was resorted to sub classify the FCM into following sub centers:
1. FCM
2. Taxation
3. Financial Accounting
4. Budget and control
5. Treasury
6. Corporate purchase
7. IS

It was July when more than half of financial year has already passed by. I was required to
analyze the expenses of past 6 months that is the part of year already passed and distribute
expenses into these classifications.

Well I must say that it was a hell of job, one can not imagine how many vouchers were there
in MNC like Nestlé. There were thousands and thousands of vouchers and I moved around
308 upper mall like a honey bee searching for nectar. For table to table, shelf to shelf and
store to store asking people what was the expense where it was spend, on whom it was
spend etc.
Well I can say that Nestlé’s financial accounting department owes me the system.

One of the very interesting work at Nestlé was a presentation on NEFAM (Nestlé Fixed
Assets Management System). The presentation was necessary because the management
system was to be decentralized. Previously the assets management was all done at head
office Lahore of all the assets present at HO, SkF and KWF. But it was decided that the
knowledge and system should be transferred to the factories. For that purpose a lecture was
arranged at the Sheikhupura Factory. I assisted Mr. Omar Shehzad in preparation and
presentation of the lecture. Mr. Omar first gave me a detailed lecture regarding his area of
work. He explained in detail the various fixed assets maintained at Nestlé Milkpak and the
procedure of capitalizing those assets. I was provided with a manual regarding NEFAM, and
the process explained to me thoroughly before starting my actual assignment.
NESTLÉ FIXED ASSETS MANAGEMENT (NEFAM)
Definition of Assets
Assets are economic resources, which are owned by a company and expected to provide
benefit in future operations.
Investment Areas

Production
This consists of factory related investment comprising offices, stores/warehouses, technical
raw materials, packing materials and semi-manufactured products, labor etc. as well as
regional control labs.
Sales and Distribution
This consists of regional sales offices, distribution centers and depots, as well as
manufactured products warehouses of the factories, salesmen's cars and distribution vehicles
etc.
Administration
This includes all administration related expenses of the Head Office.
Information Technology
Data processing, information storage, office automation and professional workstations,
telecommunication i.e. data and voice communications and all software are included in this
area of investment.
THE GROUPS OF INVESTMENT
A distinction is made between three groups of investment. A proposal can be assigned to only
one investment group.
I. Replacement and Rationalization
This consists of replacement of existing obsolete assets, rationalization, safety, protection of
the environment, energy saving and similar motives.
II. Capacity Increase
Increase of the existing production capacity for products already manufactured in the market
concerned are included in this group of investment. The replacement of existing production
related equipment may bring an increase in capacity.
III. New Products
It consists of proposals for installations required for the manufacture of products, which are
not yet manufactured by Nestlé Milkpak Limited. Additionally, it also includes proposals
related to products already manufactured that will undergo significant changes in:

• the product quality

• the packaging presentation/material
TYPE OF INVESTMENT
There can be six types of investments according to the Nestlé Milkpak guidelines. The
NEFAM module has allotted numbers 1-6 for these investments:
Land 1
Building 2
Machinery & Equipment 3
Tools & Furniture 4
Vehicles 5
Information System 6

Land
It includes the value of the following:
land, developed and undeveloped
leveling and tracing of land
Land improvements such as roads, railway lines, fence, etc. will be registered as buildings.
The value of the land as such must be separated from that of the buildings.
Buildings
Under this type of fixed assets are recorded the following values:
Administrative buildings (head office), warehouses and sales offices including the cost of
sanitary, electric and sewerage installations.
Production centers (factories) including the cost of sanitary and sewerage installations and
sub structures to take production machines.
Housing including cost of electrical, sanitary and heating installations.
Land improvements such as roads, railway lines, parking lots, outdoor illuminations, water
treatment installations, walls, reservoirs, fences, sewers etc.
Buildings under construction including progress payments to construction enterprises are also
shown under this heading. A building constructed on lease hold land is also included.
Machinery and Equipment
This type of investment covers machinery and equipment for production and general services
as well as production equipment including data processing equipment related to process
control systems and process management.
Tools, Furniture & Others
It comprises in particular all the furniture of the administrative buildings. Also tools, point of
sale frozen food and ice cream cabinets, cabinets for chilled products, forklifts and indoor
vehicles etc. the furniture is capitalized in individual units.
Vehicles
Covers cars including those used for advertising, trucks, trailers, railway wagons, boats,
airplanes etc.
Information Technology
This concerns hardware i.e. data processing, information storage, office information and
professional workstations as well as telecommunications located at Head Office, factories,
warehouses, sales offices and other sites. Software concerns purchases of computer
programs or packages in connection with a hardware investment.
SUB TYPE OF INVESTMENT/ ASSETS
1 = Land
1.1 Free Hold Land
1.2 Lease Hold Land
2 = Building
2.1 Industrial Building on F.H.L
2.2 Industrial Building on L.H.L
2.3 Office Building
3 = Plant & Machinery
3.1 Machinery and Machinery Equipment
3.2 Milk Tankers
4 = Tools/ Furniture
4.1 Office Equipment
4.2 Air Conditioners and Refrigerators
4.3 Miscellaneous and Workshop Equipment
4.4 Electric Equipment
4.5 Laboratory Equipment
4.6 Furniture and Fixtures
5 = Vehicles
5.1 Motor Cars
5.2 Lorries, Jeeps, Pick-ups
5.3 Motor Cycles
6 = Information Technology Equipment
6.1 Computer and Software
6.2 Telephone and Communication

TEN DIGITS INVENTORY NUMBER

A ten digit inventory number is used for marking all the assets e.g.
First two digits used for year of purchase of particular assets.
Third digit used for type of investment
Fourth digit used for sub type of investment.
Fifth digit is spare for future allocation.
Six to nine digits used for fixed assets inventory serial.
Tenth digit used for child assets.
PROCEDURE FOR ADDITIONS OF ASSETS
Capital Investment Budget
The ensuing departments or divisions will send their asset requirements (including
specifications, drawings and all technical details) to their respective divisional heads. The
divisional heads will approve the asset requirements if they are essential to the proper
operation and growth of the business. The assets are presented to the Managing Director for
approval in a joint meeting of the MD, FCM, CE, and MM. After being approved by the MD
each individual asset requirement will be termed as Investment Proposal. These approved
investment proposals will be consolidated in the Investment Budget by the CE for the
presentation of the Capital Investment Budget. Two copies of this CIB will be sent to the
Executive Vice President --Zone Asia Oceania Africa (AOA), Nestec.
Capital Expenditure Proposal
Once the Zone Manager at the Center has approved the Investment Proposal, it becomes a
credit. The Zone Management will allocate a number to each credit. This credit number will be
called the Capital Expenditure Proposal (CEP) number, which is to be used from then on in
the concerned reporting and requests for issuance, allocation and consumption of funds. MD
will communicate the approved budget to the CE. The CE sends the approved CEP's to the
concerned Divisional Heads, who transfer the relevant CEP numbers to the concerned line
managers.
Budget Release by Managing Director
The MD will officially release the approved budget against each CEP number on a need
basis. Purchase Orders will be considered valid only when they are raised against a budget
release, for which the MD has issued a written authorization to this effect.
Purchase Proposal Request
For all fixed assets purchase an authorized Purchase Proposal Request has to be issued by
the person in need or responsible for the availability of materials as the case may be.
Cash Requirements Summary
For cash flow purposes, CE will prepare a summary of cash requirements on a monthly basis
and send it to the treasury manager for arranging funds.
Completion Certificate
For a production related asset addition a Completion Certificate (CC) will be used to signify
the closure of the physical and financial requirement of a project on a given date. For a non-
production related asset addition a completion certificate will be used to signify the physical
delivery and transfer of ownership of an asset to the company. For all types of assets, the CC
will p
ovide the allocation of the expenditure incurred, starting and completion date and comments
of the originating and executing department.

Asset Number Allocation

The asset numbers will be in accordance with the NEFAM software requirement. The GLD
will be responsible for allocation of the asset numbers to the additions in fixed assets. The
material of different types of Asset Number Tags (ANT's) and responsibility for their purchase
and physical tagging is also the responsibility of GLD.
The ANT's for machinery will be made of aluminum and riveted to the machinery at a spot,
which is safe from the environment and maintenance point of view. The ANT's for furniture
will be made of adhesive laminated paper and pasted onto the furniture at a spot, which is
safe from the environment and maintenance point of view.
Transfer Certificate
The transfer certificate will be used to signify the shifting of an asset from one cost center to
another or from one location to another. It will provide the asset number, categorization of the
investment, physical location and reason for transfer of the asset. All the transfer certificates
will be prepared by the sending department or cost center.
Deletion Certificate
It will be used to signify the retirement of an asset from active utilization and official book of
accounts of the company. It will provide the asset number, categorization of the investment,
physical location and reason for deletion of the asset. The Minimum Residual Value is
suggested and verified by concerned authorities on the Deletion Certificate. It is based on the
expected market value of the deleted asset.
Sale of Production Asset in Cut Parts or Single Unit
At time of deletion, it is also decided whether the asset will be sold by weight as scrap after
having it cut in small parts or as single unit. If the nature of the asset is such that it can be
used by the buyer to make a product which can potentially compete with existing Nestlé
products available in the market then it will be sold as scrap in the form of cut parts. On the
other hand, if the threat of production of a potentially competitive product is non-existent then
the asset will be sold as a single unit.
Utilization of Part of Deleted Asset
At the time of deletion, it is also decided whether any part of the asset (e.g. pipe, pump) which
does not have any identifiable cost or book value, can be utilized for any operational activity
in the Company.
Sum Insured
Sum Insured represents the value calculated by the company for each asset as to be
provided to the Insurance Companies to get the asset insured. This value should be
appropriate enough to cover the market price of an asset over its useful life.
Fixed Assets Register Structure
The fixed assets register in the NEFAM, has the following particulars, regarding each asset:
Establishment Code
Cost Center and Line Number
Assets Number
Type of Assets
Date of Purchase
Date of Completion
Purchase Price (Gross Book Value)
Description

VISIT TO THE SHEIKHUPURA FACTORY

One of the interesting part of our training program was our (internees from Punjab University)
to the Sheikhupura Factory. This visit was arranged by Mr. Hassan Taufique, the Budget and
Control Manager of the Finance and Control Division. This was the venture in which we all
five Athar, Usman, Bisma, Arooj and me went on together.
Although, the visit was for only one day, but with the considerate attitude of the Manger
Finance and control Mr. Zeeshan Haider, we were shown the plants for all the brands
produced at the Sheikhupura Factory. Before, visiting the production plants, Mr. Zeeshan
Haider working in the Accounts Section of the factory, gave a detailed briefing about the
brands being produced at the setup. He also briefed about the measures taken at the factory
level to ensure the quality of products. Due to shortage of time, we were not able to visit the
Quality Assurance Department at the factory.
He also explained how the accounts section at the factory is working close in co-ordination
with the Finance and Control Division of the Head Office. The reports generated at the factory
level are used by the Budget and Control Department at the Head Office. The product costing
is done at the factory level by performing trial runs before the sale price is made final. The
Annual Operational Plan based on the Standard Cost Budget is made at the factory level
primarily and then by the Budget and Control Department at the Head Office. Selling price
calculations are made by accounting for the variable manufacturing cost and the fixed factory
overhead. On a quarterly basis, the Actual Cost of Production is measured. Sales Forecast is
made based on the Production Plan. The Budget is then revised once every quarter, by
comparing the Actual versus the Planned. The Sales Forecast is then based on the revised
Cost of production and Production Level.
Similarly, all the expenses performed by the Head Office on behalf of the factory are
conveyed to the Accounts Section at the factory by the use of debit notes (as mentioned in
the ACP section). The factory also issues the debit notes to the head office for spending on
their behalf. The balances are then adjusted and the remaining amount is paid by the
establishment which owes the amount to the other.
The visit of the production setup was a very exciting experience. The first indication of the
level of hygiene and quality maintained at the factory was when we were handed white
overalls and white caps to cover ourselves.
The first plant was the Dairy plant, where MILKPAK UHT, NIDO, CREAMS, DESI GHEE,
EVERYDAY etc are rooted. All the products except for powdered milk i.e., EVERYDAY and
NIDO are started and completed here. We were provided with caps and overcoats here. The
most interesting part was that of UHT milk where there were 16 machines each of which was
capable of producing 4000 to 12000 units per hour of various packaging ranging from 250 ml
to 1000 ml. there were silos capable of storing milk from 54000 to 124000 liters of milk.
The second part was also in the same building which was of cold beverages i.e., FROST,
NESTLÉ ORANGE JUICES etc. there were 6 machines which can produce 4000 to 7500
liters of juice per hour. We were told about most of the technicalities of the processes which I
m not discussing in this particular report, because of confidentiality. However the people there
were so nice to let us know about each and every thing.
Our next stop was at the Nestlé Pure Life Plant. This was the most interesting plant and we
were anxious to see it. The well from which the water is extracted was shown to us. This well
is 500 ft. deep and a pipe from it is connected to the filling section inside the plant. The bottles
for water are manufactured from material in the form of small granules known as Poly
Ethylene Threptalate (PET). To finish the moisture in the granules they are melted at 280oC.
The granules are then heated up further for stretching and rounding. The pre-form of the
bottle approximately 3 inches in size is heated at 480oC. This pre-form is blown up at a
temperature of 440oC to give the final shape of the bottles of the two formats i.e. 0.5 liter and
1.5 liter. The bottles are produced at a speed of 8000 bottles per hour for the 0.5 liter and
6000 bottles per hour for 1.5 liter. After this, the bottles travel to the filling section. They are
again blown up with hot air to remove any particles and are finally capped with seals after
filling the bottles with the processed water. The bottles are labeled and the expiry date is
engraved on them.
Due to annual cleanup of the plant, we were not able to go inside the EGRON Plant used for
the manufacture of powder milk. This plant is six storey high as the liquid milk is thrown from
the top most storey to dry it up. For detailed observation of this plant ample amount of time is
required.
The last plant that we visited was the confectionery setup. We saw the manufacturing plant
for the press sweets i.e. POLO. The plant was closed at that time and no production was
taking place. The flexible line for the production of low boil and high boil sweets was in
operation. The first step is of pulling the batter on a pulling machine containing the ingredients
i.e. glucose, sugar, fats and flavor. This batter is then cooked at very high temperature. After
that this hot form is converted into cold form by chilling it. This cold form moves onto the
batch roller which rolls it in the form of a rope; the shape of the sweet. With the help of a dye
cutter it is cut into small pieces. If the toffee is still soft it is passed through the cooling tunnel
for five minutes to harden it further. After that the sweets are wrapped up and sorted manually
and packed in shipping cartons and sent to the National Distribution Center located in the
factory.
Another very interesting highlight of our visit was the National Distribution Center. Our in
simple words the ware house. But nobody can imagine without seeing it that what it was. It
was the most amazing building one can ever imagine. It was a ware house from which goods
are delivered to all over Pakistan. It has a capacity of over 8400 tons. Daily about 85 trucks
are given load which they delivered in every corner of Pakistan be it Karachi or Kalam,
Gadoon or Gilgit. Well simply you can stand tall and just can not recognize the person
standing on the other corner. It creates an atmosphere of English horror movies. We saw the
famous vehicle ‘striker’ a lifter capable of going upto 50 feet and can bring down a 2 ton pallet
from the roof top.
Our visit lasted for one day, but it was very interesting and informative. I am thankful to all the
people who made it so interesting for us. Every one there was very cooperative; we were
provided Lunch and juices from the Finance Manager in the Factory canteen, which was itself
a great experience.
SWOT ANALYSIS

Where there is a company in operation it has to work in two kinds of environment i.e.
• The external environment and
• The internal environment of the company.
For a company to avail maximum and avoid maximum, it has to know what it has to avail and
what it has to avoid. The external environment has to be scanned by the management for any
arising opportunities or any critical threats. The resources of a company constitute its
strengths and weaknesses.
External factors are broadly categorized into;
• Economic forces
• Social, cultural, demographic, and environmental forces
• Political, governmental and legal forces
• Technological forces
• Competitive forces etc

Internal factors are;

• Marketing strength of firm
• Financial/Accounting resources
• Management
• Computer information system
• Production/operations etc

BENEFITS OF SWOT ANALYSIS

A SWOT Analysis is conducted by the company so that it is able to position itself to take
advantage of particular opportunities in the environment and to avoid or minimize
environmental threats. In doing so, the organization attempts to emphasize its strengths and
moderate the impact of weaknesses. The analysis is also useful for uncovering strengths that
have not been fully utilized and in identifying weaknesses that can be corrected. Matching
information about the environment with the organization's capabilities enables management
to formulate realistic strategies for attaining its goals.
A SWOT Analysis of Nestlé Milkpak is as follows:

INTERNAL ANALYSIS

STRENGTHS

• Socially Responsible company.

• NML’s products enjoy strong brand image and market pull.
• Innovative and constantly growing product line. NML launched 17 new products, including
variants of existing products in recent past.
• Sales force is the major resource strength in terms of physical resources of the company.
• Marketing strategies established by the company are innovative and lure customers.
• Financial, marketing and sales strategies are formulated by gauging the customer demands.
• Periodic research carried out to judge market trends.
• It is a large scale organization, with abundant funds and has the capability of acquiring
weaker firms by throwing them out of competition. The recent acquisition of the water brands
Aqua and Fontalia provide an example for this strength of the company.
• Multinational.
• Growing Sales and profits.
• Major shareholder in the food industry of Pakistan.
• Aggressive Marketing.
• Efficient Distribution networks through out the country.
• Quality Products.
• Environment Friendly.

WEAKNESSES
• Selective investment due to uncertain economic and political conditions.
• Feasibility of new products needs to be analyzed, e.g. Nestea was launched some years
back but it failed because no customer demand for it existed.
• The plant installed for Maggi Noodles has a higher capacity than the actual demand of the
product, resulting in higher overhead costs for the product.
• Relatively a new company in comparison to its rivals e.g. Lever Brothers.
• Low levels of inventory maintained can be dangerous.
• No credit sales.
• Low sales margins due to highly value added products.
• They cannot launch many of its expensive international brands due to the lower income
groups.

EXTERNAL ANALYSIS
OPPORTUNITIES

• Pakistan is the seventh largest producer of milk in the world with annual output of over 22
billion liters.
• There are substantial growth opportunities considering the average yield of Pakistani
animals at only 1,100 liters/annum as compared to 6,000 liters/annum for animals in Europe
and USA. There are nearly 20 million milk producing animals in the country, mostly in Punjab
(80%).
• The overall milk market in Pakistan is 20 billion liters, out of which processed milk
contributes only 3 million liters. Nestlé Milkpak along with other processed milk businesses
contribute only 2% to this large market.
• Nestlé Milkpak has expanded its product range by entering the cold dairy market recently by
launching Nestlé plain yogurt and now fruit yogurt is also added to it.
• To expand the cold dairy products range, Nestlé fruit yogurt is the latest addition to this
group.
• The cold dairy market offers many opportunities for the company which can capitalize these
products by banking on its superior quality milk.
• The coffee brand also offers many opportunities for the company to expand by tuning the
taste of the masses towards coffee.
• Credit policy can be adopted to increase sales.

THREATS
• Price fluctuations due to rupee devaluation as raw material is imported.
• The uncertainty of economic conditions poses a great threat as the major funds invested in
the country come from outside Pakistan.
• The present economic crisis in the world, led to the withdrawal of foreign management from
the company and the investment has come to a halt.
• Competition with Nestlé’s owns smuggled brands.
• Effect of Seasonality’s upon sales.
• Imported raw material, in some of the company’s products.

CONCLUSION

Nestlé Milkpak Limited is a gigantic organization. Basically it is a food concern emphasizing

on producing good food for good health. The seed Henri Nestlé had planted in 1866 is now a
tree which provides extremely qualitative food to billions of people all around the world. It is
also providing jobs to millions of people in more than 479 factories in 81 countries. The fact
can be judged by this that it is the number one food manufacturing and processing company
of the world. It is bigger than Kraft foods and Cadburys international.
Management of Nestlé Pakistan is mostly foreign. As already told that the top management
involves MD and three senior mangers (Production, marketing, Finance). They all are
expatriate with only one exception which is that for the first time in the history of Nestlé
Pakistan one Pakistani has gained position among these four management seats. It is the
Marketing Manager Mr. Rashid Aleem Qureshi. The most important fact about this is that Mr.
Rashid Aleem Qureshi is a graduate of IBA University of the Punjab.
It is a relatively new Multinational on the Pakistani front as compared to its competitor
Unilever which has a lot bigger area of operation and also manufactures food items. But it has
established a strong footing for itself in the food industry. Apparently, there are no loop holes
in the working of the organization, but still some areas require more attention.
Management has designed rules and regulations which are supposed to be followed by
everyone. Policies have been formulated for major and minor issues both. Relationship with
the employees is maintained at a cordial level. Employees work with commitment and
dedication to achieve the best for the organization. Job satisfaction soars at a high level.

RECCOMENDATIONS
Following recommendations are based on my observation during my tenure of internship at
the organization and others have been given after talking to people over there and after
several discussions to my mates from IBA.
§ Basically we were Finance Trainees and spent our most of time in finance section, but we
are thankful to Mr. Hussan Taufiq for because of him we made several visits to Marketing
division. I found that people working in the finance divisions are bit depressed about there
career ladder and their promotional incentives. Although generally the employee satisfaction
was observed to be at a higher level in both the Finance and Marketing and Sales Division.
Still people at marketing are more well off than people working in finance department.
§ Finance department is ok as far as employee turnover is concerned, marketing is good as
well, just as I have mentioned that employee satisfaction is higher at marketing side, the
problem I found was in IS department which is working under FCM. The turnover is very high
over there. People get into Nestlé take a few month or maximum a year experience and leave
the organization for better financial package. The company got to take care of it soon;
otherwise it will loose all of its experienced system specialists.
§ Well to my surprise the Human Resource Department was in another building and is
separate from everything. Strange isn’t it? Means the human resource coordinator don’t want
to talk to anyone whom he has hired or recommended to be hired. To me the HR should is
responsible for not just hiring them but keep a close eye on the working of employees, their
satisfaction, their problems and about their every requirement. There should be a close
feedback mechanism for seeking what the employee is thinking.
§ I have talked to almost all of the brand managers, to my surprise they are just targeting the
A class consumer. And they are no where near thinking of lower classes. I wonder why? My
suggestion is to target B, C and D classes. By this I mean that they should inject this thinking
in product design phase not just in marketing planning phase. You can earn more by
increasing volumes and turnover.
§ I heard the name of the Consumer Services Department but couldn’t get what and where it
is. Well the name suggests that it should be most visible and active department, I wonder if it
is there? If it is there it should be organized at a larger scale and efforts should be made to
interact more frequently and at a personal level with the consumers.
§ Nestlé’s products are accepted all over the world, but it doesn’t mean that there is no threat
of extinction; well most of the products which are launched in Pakistan are in the same form
as in any European country. I mean to say that there is lack of research on part of people who
make feasibility study for launching a product. One example of such products is Maggi
Noodles, the product is doing very badly in market, and it is anticipated that the plant might
will be complete in year or two. Another example is of Fruit yogurt, although the Nestlé brand
has attracted initial boost for the product, still the response from the repeat buyers is very
bad, that is there are mostly one time buyers for this particular product. Well the Nestlé says
that it has targeted children with this product, one should come up with that why would a child
should opt for Yogurt if he can get Walls Ice cream from Unilever?
§ Nestlé has launched products which are under the same product category and thus creating
competition among themselves. Like Frost, values added fruit juices and Pure life.
§ Although the employees in Finance and Marketing department are quite satisfied with the
work environment, the problem is in there financial incentives. Along with there monetary
compensation for good performance there should be a continuous raise in basic pay so that
they feel more attracted towards their job. I suggest the incentive wage system for the
marketing people so that they hit targets more regularly then they are doing now.
§ More effort needs to be put in to capture a greater share of the milk market in Pakistan. The
ratio of processed milk to the whole milk market is extremely low. The existing system of milk
collection and the services being provided to farmers should be expanded to build the market
share in the milk market.
§ Prices of dairy products, I admit that there is very little room for improvement but still it can
be lowered down. Pakistan is a market of 20 billion liters in which only 3 billion liters is
covered by all companies providing tetra pack milk (Nestlé covers 60-70 %). So we should
improve our markets, in such a way that we can cover our reduced profits by increasing our
volume.
§ The last thing which I felt so strongly about is the QUALITY, I have added a separate
chapter in my report on quality, but here in the conclusion part I just like to mention is that the
quality is simply FABULOUS in production process and equally in every department be it
finance or marketing.
Last of all I must THANK IBA once again for providing me the golden opportunity of spending
6 weeks(less one day, I took a leave) in such a wonderful place where most people can only
dream of. I have talked to almost all of my class fellows about their internship experiences
and I have concluded that I am most fortunate to be at Nestlé.
It was an experience of life time. For the first time I got the chance for applying what I have
learned over the years. I got the chance of sitting among the ideal sort of people,
professionals whose names are engraved as pioneers and geniuses of the field. This training
program is the SPIRIT of all the courses at IBA. I learned about meeting and dealing with
people. Working in a group is itself a very thrilling experience because it makes you feel more
important. I must say that the integration of this training program and the courses I learned
here will definitely will be of significant improvement in my future professional life.
I end my report here by again thanking Allah Almighty who gave the ability to complete this
tedious task and all other people who have helped me in this venture.

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