Enterprise Resource System

At Nestle

* * *TEAM: H

Krista Collins

Christine Chim

Dorothee Deckert

Sara Villanueva

Literature ReviewMain Benefits

Potential for great savings (both tangible like inventory cost savings and intangible like happier customers due to faster delivery)

Main CostsHuge upfront cost (purchase of hardware and software)Huge cost of re-implementation if failed initially

Lessons Learned:Do not implement ERP because it’s the “trend” must evaluate organizational need and fit

MethodologyResearch

Internet search engine (i.e.. www.google.com)Research and business based websites (i.e.. www.cio.com)

AnalysisTextbook and class materials from MISModels and concepts from other courses (i.e.. PEST model from BU 481)

System Implemented

•An ERP system with SAP

•Role based work-place templates

Effects on general efficiency

•Unit brands and divisions that act independently

Effects on service efficiency

•mySAP Supply Chain Management will provide cost savings and increase speed of produciton

•mySAP.com will track customer preferences/orders more efficiently, responding to their needs in terms of location and timing of delivery

Company Objectives

By implementing SAP, Nestle is pursuing four goals:

1. Define common business processes and roll them out

across the Nestle worldwide locations

2. Standardize the master data

3. Standardize the entire IT infrastructure

4. Implement web-based initiatives

Environmental Forces

•Technological: Increasing speed and power

•Managerial: CEO embraces change

•Organizational: Integration of global operations

•Market Trends: More demanding customers

•Competitive: ERP adopted by other competitors

Outsourcing

• Nestlé chose the outsourcing option to SAP system: hire external vendor to design and create software for Nestlé system.

• 80 different information technology infrastructure over the world

• Long and very complex project

• Nestlé could not monopolize their IT people or hire more staff to set up the project for several years

• Outsourcing is more cost-effective than maintaining IS staff

• The June, 2000 Nestlé new agreement is one one of the largest software deals in the history of SAP

Reasons:

Reasons for success

• Nestlé USA did errors but they took lessons to implement successful other SAP system in Nestlé firms over the world

• No one from the IT team were directly affected by the new business processes

• Rebellion of employees and divisional executives

• ERP was not about system but change management

• Nestlé USA improve relationship and communication with their employees

Managerial reasons:

Reasons for success

• Reduce redundancy, better share information and do economies of scale

• Be aware of difficult and complex task to accomplish

• No start projects with deadline in mind

• Frequently revisit numbers to minimize trouble surprises

Organizational reasons:

Challenges

Managerial

• Worldwide system standardization

* Project size = greater risk

* High up-front

investment

* Size of the

implementation team

• Long process: loss of momentum

Challenges

Technological

• The first SAP R/3 Enterprise customer

* changes introduced will

have large cost implications

• Unicode compliance with all mySAP.com

components

• Technological capabilities

Challenges

Organizational

• Change in corporate processes and

culture

• Employee resistance

• Technological experience

Results

• High employee turnover rates

• Efficiencies

• Organizational structure

• Shareholder interests

• Contingency costs

Take Home Lessons

•Training

•Contingency plans

•Testing

•Different policies

•Top level commitment

•Employee emplowerment

•Open to structur changes

•Update budget

•Timelines

•No One Likes Change!

Technology

Markets/CompetitionOrganization

Management

Environment

Dynamics

• Strong top-management support for investing in ERP

• Power and memory capabilities increasing 10 fold over five years. Ignoring this trend is not an option.

• Technology has advanced to the point where SAP now offers its products in parts of the world where it once did not. Thus, Nestle can implement SAP in parts of Syria and Far East countries

• Brands and divisions were using different systems that that did not facilitate data sharing or integration.

• Inventory costs were high due to lack of communication between suppliers, packaging companies and other nestle divisions.

•Points of customer entry were numerous, which resulted in entering customer information more than once, and into different systems.

• Market: Customers more knowledgeable, and demanding higher quality, lower costs, better service and continued innovation.

•Competition: Nestle has many large, well established competitors such as Coke and Hershey, both of which have implemented their own ERP or IT/IS systems.

Exhibit 1: Drivers of Change in the Environment

0

5

10

15

20

1996 1997 1998 1999

ERPInvestments

Worldwide Investment in ERP Projects, In $ Billions

Growth over time

1996-1997: From 8.41 to 11.98 42% increase

1997-1998: From 11.98 to 16.7 39% increase

1998-1999: From 16.7 to 17.7 6% increase

Conclusion: The rate of growth has slowed down recently, possibly due to cutbacks in spending or negative feedback form firms that have attempted to use the ERP systems and failed. Overall, growth has endured, suggesting that ERP still has a great deal to offer companies.

Company System $Spent (US$) Savings?

Nestle SAP 280M (in US subsidiary only)

500M global project

325 Million savings till date (Claimed since it’s headquarters not in US don’t have to disclose numbers)

Coca-Cola SAP 8M in India alone (Full Contract Amount Undisclosed)

Better utilize the information from daily operations enhance customer service, improve execution, efficiency, grow our business (no numbers given)

Hershey SAP 112M Initial 100M lost in sales b/c bad implementation

United Biscuits SAP 16.3M Undisclosed

Cadbury-Schweppes SAP 212M “Counting on a 500M pounds ROI” (no actual figures given)