Sunday, June 8, 2008

Case: Nestlé tries for an All-for-one Global Strategy

1. Nestlé one of the world’s largest food and beverage company in the world operated at 500 facilities in 200 countries having nearly 250,000 employees and revenues in excess of $70 billion.
Taking into account local conditions and business cultures it supported decentralized strategy wherein ,it had 80 different information technology units that ran nearly 900 IBM AS/400 midrange computers,15 mainframes and 200 Unix systems.

Supply chain management – local differences prevented Nestlé from competing effectively in electronic commerce. The lack of standard business processes prevented Nestlé from leveraging its worldwide buying power to obtain lower prices for its raw material. Although every factory used the same global supplier each unit negotiated on different terms. Nestlé’s supply chain technology also was not as per the required standards especially with its largest customers Wal-Mart and Tesco
Lack of sales information from retailers on a gloabl basis caused inefficiency in its supply chain management by overstocking and products sitting too long on the shelves.

Enterprise management – Nestlé facilities in 14 countries ran their ERP application differently and used different schemes for formatting data and managing forms. The system disparity resulted in increasing maintenance costs. Compiling financial reports to gain a company wide view of performance became laborious.
With thousands of differently configured supply chains, multiple methods of forecasting demand, and innumerable practices for invoicing customers and collecting payments made planning coordination and controlling at an enterprise level a nightmare.
The inconsistencies and inefficiencies across the enterprise were chipping away Nestlé profits as it had to invest more in its information systems sending.

Customer management- with the localized approach to systems management it was very difficult to gauge customer buying trends and preferences and lack of such knowledge prevented Nestlé in its decision making abilities to roll out new products or offer discounts to increase sales at an enterprise level.

Knowledge management – with the diverse systems knowledge was localized and not harnessed at an enterprise level. There was no common set of best practices nor any global standards to rollout products to market or common financial reporting practices or common tools for its sales teams.

From the Porters competitive forces model Nestlé had to improve its operation efficiencies and reduce its IT spending while trying to grow in new markets and introducing new products in order to gain advantage over its competitors like Unilever and Kraft Foods.

Nestlé on a global platform lacked the standardization of all of its processes, data and systems that prevented it from planning, coordinating, controlling and decision making abilities at an enterprise level.

4. To deal with the above challenges Nestlé embarked on a program to standardize and coordinate its information systems and business processes.
They launched a $2.4 billion initiative to compel its market heads around the world to adopt a single set of business processes and systems for procurement, distribution and sales management. This initiative started in year 2000 was know as Global Business Excellence (GLOBE).
The strategy was all of Nestlé worldwide business units were to use the same processes for making sales commitments, establishing factory production schedules, billing customers, compiling management reports and reporting financial results.
Every Nestlé facility would format and store data identically, using the same set of information systems.
Nestlé wanted to bring in 70 percent of the company’s global markets to adhere to GLOBE strategy within a span of three and a half years. This was a lofty goal and a challenge in itself.

Nestlé also wanted to bring in operational efficiencies by reducing its number of suppliers from 600,000 to 167,000 and save millions of dollars in this process.

Previous attempts to develop a standardized system brought resistance from market managers and country heads. One of the challenges the GLOBE team had was to convince and buy in the market managers who would be the key in its roll out and oversee its adherence. To circumvent this resistance from technology managers GLOBE build a team of best of the breed business managers from diverse business groups.
The plan was to achieve this standardization through the deployment of mySAP an internet based ERP software application.

The GLOBE team of 400 executives who knew best how the company conducted business documented best practices for every business process.

The strategy encountered both technical as well as personal challenges.

The greatest challenge that the GLOBE team had was that managers resisted the idea of giving up control over their business processes to participate in a centralized solution.
Managers feared loosing their decision making power to a centralized head.
To bring in manager support the GLOBE team took a frank and open discussion to address all their concerns and questions and for the ones who were still not convinced were threatened to be fired.

mySAP ERP could not accommodate localized overrides so Nestlé worked with SAP to allow difference for specific countries that had different promotional strategies.
The short timelines to implement GLOBE strategy prevented sufficient training time for end users using the new ERP nor did they have the time to perfect the processes.

The initial rollout in the spring of 2003 show caused to many managers the improvement in operational efficiencies with better demand forecast and better financial reporting.
By the end of 2005 only 30 % of its business adhered to GLOBE standards which was way below the ambitious target of 70%.Although GLOBE proved to be beneficial its project costs overran the initial budgeted amount and also eat into the firms profits.

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