Nestle Tries for an All-for-One Global Strategy

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Part Four Building and Managing Systems

Nestlé Tries for an All-for- One Global Strategy
CASE STUDY

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estlé is the largest food and beverage company in the world. Headquartered in Vevey, Switzerland, the company has annual revenues in excess of $70 billion and nearly 250,000 employees at 500 facilities in 200 countries. Best known for its chocolate, coffee (it invented instant coffee), and milk products, Nestlé sells hundreds of thousands of other items, most of which are adapted to fit local markets and cultures. Traditionally, this huge firm 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 had 80 different information technology units that ran 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. However, Nestlé’s management 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 used 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 then extended its enterprise systems strategy to all of its facilities to make them 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. Achieving global standardization of operational processes has been a complex task. None of Nestlé’s products is considered a truly global brand, with perhaps the exception of Nescafé, of which

100 million cups are served around the world each year. But even Nescafé is rebranded, repackaged, and reformulated to create over 200 product versions for different regional preferences. This is just a small representation of the complexity that CEO Peter Brabeck wanted to address when he decided to bring a sense of order to the company’s business operations. In 1995, Nestlé facilities in 14 countries were running their businesses on SAP R/2, an older version of its ERP software. They all ran the software 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 more laborious. Between 1994 and 1999, Nestlé increased its spending on information systems from $575 million to $750 million. Brabeck arrived in 1997, and while the technology budget was growing, he was actually decreasing the size of the company by selling off Nestlé brands. The cost of tracking the sales chain, as a percentage of total sales, rose from 1.2 percent in 1994 to 1.6 percent in 1999. By April 2000, Brabeck had had enough of a corporate philosophy that allowed for thousands of differently configured supply chains, multiple methods of forecasting demand, and innumerable practices for invoicing customers and collecting payments. The inconsistencies and inefficiencies across the enterprise were chipping away at Nestlé’s profits. Brabeck, chief financial officer Mario Corti, and the entire executive board launched a $2.4 billion initiative to compel its market heads around the world to adopt a single set of business...
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