Case study: Nestlé Struggles with Enterprise Systems
Nestlé SA (www.nestle.com) is a giant food and pharmaceuticals company that operates virtually all over the world. Headquartered in Vevey, Switzerland, the company had 2004 revenues of $76 billion and more than 253,000 employees at 500 facilities in 80 countries. Best known for its chocolate, coffee (it invented instant coffee), and milk products, Nestlé sells thousands of other items, most of which are adapted to fit local markets and cultures. Traditionally this huge firm has allowed each local organization to conduct business as it saw fit, taking into account the local conditions and business cultures. To support this decentralized strategy, it has had 80 different information technology units that run nearly 900 IBM AS/400 midrange computers, 15 mainframes, and 200 UNIX systems, enabling observers to describe its infrastructure as a veritable Tower of Babel. Interestingly, despite its size, the company has had no corporate computer center.
However, Nestlé's management has found that allowing these local differences created inefficiencies and extra costs that could prevent the company from competing effectively in electronic commerce. The lack of standard business processes prevented Nestlé from, for example, leveraging its worldwide buying power to obtain lower prices for its raw materials. Even though each factory uses the same global suppliers, each negotiated its own deals and prices. Several years ago, Nestlé embarked on a program to standardize and coordinate its information systems and business processes. The company initially installed SAP's R/3 enterprise resource planning (ERP) software to integrate material, distribution, and accounting applications in the United States, Europe, and Canada.
Nestlé is working on extending its enterprise systems to all of its facilities to make its 500 facilities act as a single-minded e-business. Once this project is completed Nestlé will able to use sales information from retailers on a global basis to measure the effectiveness of its promotional activities and reduce overstocking and spoilage caused by having products sit around too long on grocery shelves.
The experience of Nestlé USA illustrates some of the challenges Nestlé had to face in implementing enterprise systems. Nestlé USA, an $8.1 billion subsidiary, in 2001 used to be organized as a series of brands, each operating independently. So, for example, the Stouffer's and Carnation units were separate companies, each owned by Nestlé SA, the Swiss-based parent, but reporting to Nestlé USA. In 1991, Nestlé USA reorganized itself and the different brands were brought under the parent American control. However, the Nestlé division headquarters were still dispersed, and each division was still free to make its own business decisions, although each one within the United States did report to Nestlé headquarters in Glendale, California. The situation did not really begin to change until the spring of 1997 with the arrival of Jeri Dunn as vice president and CIO of the American company.
Dunn actually knew Nestlé technology unusually well because of her long history with the company. In 1991, as associate director for application systems at Nestlé-owned Stouffer's Hotels, she was sent to Switzerland to participate in an effort to establish a common worldwide methodology for Nestlé projects. In 1995, she was promoted to assistant vice president of technology and standards for Nestlé SA, and while there came to understand and agree with the value of establishing common systems throughout global Nestlé because such a change would enable group buying which in turn would reduce costs. Dunn also realized that common systems would facilitate data sharing among subsidiaries. When she was moved to Nestlé USA in 1997 at age 42, she found that her earlier recommendations from Vevey were mostly ignored. "My team could name the standards," Dunn...