People First, Policies Later: Nespresso’s Sustainable Supply Chain
A supplier network can pave the way to a reliable and profitable supply chain. Here are five keys to success.
Why build a sustainable supply chain for coffee? Research shows it’s possible – and profitable – to build a sustainable supply chain by focusing on trust-based personal relationships.
In fact, a collaborative supplier network outperforms a buyer-centric “mission control” supply chain, resulting in a steady supply over the long term, financial benefits to suppliers and quality assurance.
In the 1990s, coffee growers were suffering the financial pinch of the worldwide oversupply of coffee. And NGOs like Oxfam were actively raising the public’s awareness of the coffee growers’ plight. At the same time, Nespresso, a division of Nestlé, was struggling to meet growing demand for high-quality coffee. It needed a sourcing strategy that improved conditions for subsistence farmers while ensuring a reliable supply of high-quality product over the long term.
In 2003, Nespresso created the AAA Sustainable Quality Program with just three initial partners: two coffee suppliers and an NGO. By 2007, the network had grown to include 14 partners in five countries, and Nespresso sales had reached 1.7 billion CHF (Swiss Francs) – compared to 445 million CHF in 2003.
Some keys to success included:
Nespresso opted not to do extensive planning or budgeting in advance of the program launch. Instead, they experimented as they went and allocated resources from existing departments to the project.
Nespresso started with only three initial partners. One of those partners was an NGO, Rainforest Alliance, which possessed subject-matter expertise and conferred credibility on Nespresso’s activities.
Nespresso focused on generating premium coffee, not letting their sustainability efforts overshadow the need for high-quality product. Nespresso also paid a premium to their coffee growers.
The supplier network partners interacted frequently – by phone, video conference, email and even face-to-face meetings in coffee producers’ countries.
Initially, they relied on trust and personal relationships to keep the program moving. As its supplier network grew, Nespresso introduced formal governance mechanisms such as objective-setting sessions, contracts, guidelines, project reports, stakeholder forums and annual review meetings with suppliers.
Gabriela Alvarez, Colin Pilbeam and Richard Wilding (all of the Cranfield School of Management) produced this case study by consulting historical documents and conducting employee interviews. Researchers and managers alike should be cautious about generalizing this supplier network approach to other products, organizations or sectors, as this research represents only a single case study. Further research could analyze the role of power in the network members’ interactions.