Nestle and Enterprise Resource Planning - Assignment Example

Nestle and Enterprise Resource Planning: Cautionary Tales Nestle's experimentation with enterprise resource planning has thus far been dubious. “Nestlé USA's $210 million ERP project, begun in 1997 and due to be complete in 2003, demonstrates much that can [go wrong with ERP implementation. The company rushed to make a Y2K deadline for the first phase, overlooking important integration steps. The CIO formed an implementation team of 50 top business executives and 10 senior IT people but included no one from the groups that would be directly affected by the new business processes. Users rebelled. Morale sank, turnover soared and help desk calls reached 300 per day. In June 2000, Nestlé halted the project in midrollout. The company regrouped, starting from scratch and jettisoning a predetermined end date. It conducted regular surveys of user reactions to changes, delaying implementation when feedback indicated the need for further training. Now close to the finish line, Nestlé CIO Jeri Dunn says she has learned a number of hard lessons, such as "no major software implementation is really about the software” (Werther, 2002). But has Nestle really learned its lesson? And how can their successes and failures be illustrative to the rest of the industry? The reasons for ERP are fairly simple: They can increase coordination, decrease overhead, increase the speed at which customer service complaints are resolved and prevent those complaints from getting lost amidst the bureaucratic shuffle, increase data access in real time and consolidate data into a central database. But Dieringer (2004) cautions that nothing is free: “Of course, these opportunities come at a high price in terms of financial cost, implementation nightmares, and human issues. Often these implementations fail miserably as they run behind schedule and over budget; other times they are successful. Regardless of the outcome, each ERP implementation holds valuable lessons to be learned for companies considering their own ERP implementation”. ERPWire defines both industry-wide and business-specific advantages (2011). ERP can help increase the manufacturing group's efficiency. Having one single software program with unified access to company databases lets supply chains be leaner, managers predict what will be needed to be produced and do so ahead of time to keep things on the shelf and anticipate demand so as to avoid shortfalls, give workers access to production goals and allow coordination among plants so as to avoid duplication of resources. Distribution and retail is facilitated by letting retailers get much better ideas of real inventory, make their orders automated or contingent on information on their end without slowing down production, have real-time status updates so they can spend less time monitoring shipments, and coordinating with the producer on a much more holistic level. The transport sector benefits because some things can be sent online such as forms and communications, reducing their overhead, and other things can be set up for lean shipment. And the project service sector benefits because reports can be made more quickly, more accurately and with data that is updated in real time instead of having substantial institutional lag. Similarly, the accounts department can record transactions themselves instead of waiting for the financial group to do so (ERPWire, 2011). Paperwork is reduced, which reduces cost of purchasing paper, ecological footprint (which is useful for PR purposes), trash and recycling costs, and storage costs. Information is also processed and stored faster, indeed nearly instantaneously, allowing customers, suppliers, distributors and shareholders to get information more quickly and not have to be told that their data is still being processed. Customer service is made more efficient and less onerous: There's a unified accounting of the customer's purchases, customer service history and tickets, and other factors. Queries are dealt with immediately and in order of receipt and priority. Accounts receivable benefits tremendously: Payments are facilitated by customers by the same mechanism that accounts payable uses to make their payments faster and get essential items from suppliers and other businesses more rapidly. “It helps in having a say over your competitor and adapting to the whims and fancies of the market and business fluctuations. The swift movement of goods to rural areas and in lesser known places has now become a reality with the use of ERP” (ERPWire, 2011). Ambiguity, pending good ERP design, can be reduced, reducing miscommunication and ensuing waste. “ERP is suitable for global operations as it encompasses all the domestic jargons, currency conversions, diverse accounting standards, and multilingual facilities. In short it is the perfect commercial and scientific epitome of the verse "Think Local. Act Global” (ERPWire, 2011). “Perhaps one of the most important advantages of ERP is its accounting applications. It can integrate the cost, profit, and revenue information of sales that are made, and it can be presented in a granular way. Enterprise Resource Planning can also be responsible for altering how a product is manufactured. A dating structure can be set up which can allow the company to be informed of when their product should be updated” (Exforsys, 2007). Individual sales, individual transactions, etc. can all be monitored, not just put onto a balance sheet or kept as receipts, and the amount of data recorded can be immense even for a single transaction with a one-time customer. There are also technical advantages. “It should first be noted that companies that fail to utilize systems such as ERP may find themselves using various software packages that may not function well with each other. In the long run, this could make the company less efficient than it should be” (Exforsys, 2007). Conflicts between different software types, native operating systems, and so on can cause crashes, inefficiencies and compatibility issues. “There are a number of processes that a company may need to integrate together. One of these processes is called design engineering. When a company is in the process of designing a product, the process of actually creating it is just as important as the end result. ERP can be useful in helping a company find the best design process” (Exforsys, 2007). ERP lets the company keep track of every prototype in real time with design notes available from the engineers. Design processes can be tested, analyzed and submitted for approval on the part of all parties. And ERP can help against sabotage and corporate malfeasance. By having information be unified, access controlled through a single portal, access monitored, and transparency be created, there is an incredibly effective combination of transparency and security that makes it very easy to find out who could have been responsible for a particular act of fraud, embezzlement, sabotage, spying or other security breaches. ERP is particularly interesting in that it allows more bottom-up and frontline participation in decision-making or at least in input. Management often has to make overarching decisions for the entire company because they have the monopoly on global-level information. This inevitably leads to conflict between upper management and middle management, middle management and line management, and line management and workers, as all of them try to comply with a mandate based on what makes sense to the company at the top but what might not to anyone at the bottom. Meeting a sales goal in a particular region, for example, might require one or two factories to put in immense work that might be practically impossible. ERP helps to solve this problem. “Managers can exchange data in a collaborative manner with other workers. This provides them with the ability to get input or make input on critical decisions. Technology to foster collaboration includes applications such as electronic mail, teleconferencing, intranets, document management systems, and groupware” (Delahunty, 1999). But there are immense costs to ERP. There is not only immense initial investment in acquiring the software and making it ideal for end-users but also investment over time in terms of the manhours required to put in the data and the money to manage it. An example, often overlooked, is updating computers to all be compliant. Many companies have “good enough” computers that might be a decade old running systems that manage SKUs and inventory through DOS-based programming! Giving them real-time access requires updating computer access all across the board, in every factory and office, so that they are capable of minimal use of the software on the software's intended operating system. “However, with all the advantages that ERP offers, there are a number of disadvantages as well. Perhaps one of the biggest disadvantages to this technology is the cost. At this time, only large corporations can truly take advantage of the benefits that are offered by this technology. This leaves most small and medium sized businesses in the dark. A number of studies have shown that the biggest challenges companies will face when trying to implement ERP deals with investment. The employees must be continually trained on how to use it, and it is also important for companies to make sure the integrity of the data is protected” (Exforsys, 2007). And by having the data all in one place, it does become possible for a single security weakness to allow access to everything: One malicious program could take substantial amounts of data. The Nestle example shows that technical and monetary limitations pale in comparison to institutional implementation, however. Nestle was and is highly decentralized (Worthen, 2002). When a company that is decentralized has an ERP implementation, there is a risk that, instead of offering a promise of yet more bottom-up input and autonomy, that the program is used to tighten the reins, reduce local innovation and give more monitoring and micro-management which is opposed to the corporate culture. “It touches the corporate culture, which is decentralized, and tries to centralize it” (Worthen, 2002). A corporate culture is a fragile thing: Move it too much, jostle it, and it might break. Jeri Dunn, learning from the early catastrophic hiccoughs, found that “"If you weren’t concerned with how the business ran, you could probably [install the ERP software] in 18 to 24 months” (Worthen, 2002). But the next month, you'd “be in the unemployment line”. Implementing the software on a strictly technical basis is a tiny fraction of the implementation time and expense. The real problem is training, instruction, getting people on board, convincing them of the approach, listening to problems and changing the ERP system to reflect them, assuaging stakeholders who may be concerned that the ERP system is a way to cut their jobs or demote them in terms of responsibility and pay, etc. “The major problem that Best faced in the United States was that both Weller and most of the key stakeholders failed to realize how much the project would changed their business processes. it soon was clear that they had created as many problems as they had solved. In fact a rebellion had already taken place when the team moved to install the Manugistics module. The problem began during the early planning stage of the project when the staffs that would be directly affected by changes were not included in the key stakeholders' team... [They] were always surprising [the heads of sales and the divisions] because we would bring something up to the executive steering committee that they weren't privy to." By the beginning of 2000 it was clear that nobody wanted to learn the new processes, that nobody wanted to make the changes. The lower level workers did not understand how to use the new system and also did not understand the changes. Nobody had been prepared for the new ways of doing things, and their only hope was to call the project help desk” (Laudon and Laudon, 2009). The help desk and support throughput is a particularly key part of ERP implementation. Inadequate resources here causes a logjam that causes cascading problems. When workers can't get immediate responses to their queries, they get frustrated. That frustration causes them to be less willing to learn the new system and more hostile to it, issuing this complaint to managers who in turn end up needing to answer their questions by calling the help desk. The help desk begins to give shorter answers that not only can come across as curt but also don't answer the problem. When people are given ambiguous information, or can't receive information at all, they are more likely to crash the system or do something incorrectly which leads to yet more overhead. Another problem with Nestle's approach was outsourcing. “[T]his was at once a success factor but also a point of difficulty since Nestlé had to make a last minute change in demand planning software from a core SAP product to Manugistics... Nestlé...did not trust the existing version of SAP demand planning tool for their forecasting and went with a SAP partner, Manugistics” (Leshinsky, 2008). This is yet another reason why Nestle needed to avoid the “plunge methodology” of simply implementing the system as fast as possible (Leshinsky, 2008). One doesn't know much of what one doesn't know: When planning a system, it is difficult to anticipate what the system will need to do since it has yet to be implemented. With a phased or parallel implementation plan, inadequacies in the outsourced design can be reported to the software company. Dieringer (2004) summarizes the lessons learned thusly: “[I]n order for an ERP implementation to be successful the right individuals need to be involved in the process from the beginning...It is simply impossible to redesign work processes without involving some of the people that actually do the work. While an argument could be made for “too many cooks in the kitchen” regarding ERP implementations, it is certainly better to have more people than needed rather then not enough when the future of the company is on the line. It is easier on the project schedule to trim the project team during the project than it is to bring new people into the fold and then have to spend time bringing them up to speed on all of the intricacies of the project”. Bringing in stakeholders isn't just a courtesy, it's essential: If the people on the ground don't know how to use the system or don't like it, or find that it misses essential features, then the whole point is made moot. Similarly, timelines have to be flexible: Overhauling a system as completely as ERP tends to takes time and effort. Training is vital, and ERP can't be done in a vacuum: Business plans also have to change to take advantage of the system, or there is no point. Nestle got it exactly backwards, as they now know: They focused on implementation first then “buy-in” second, but the approach is actually to get everyone on board first, with their needs discussed and ready to be implemented. Nestle's ERP study is thus a warning to others: ERP isn't about technology, it's about the enterprise. Works Cited Delahunty, Stephen F. “The Effect of Information Technology on Decision Making”. 1999. Dieringer, Derek S. “ERP Implementation at Nestle”. Enterprise Resource Planning Systems. June 24, 2004. ERPWire. “Advantages and Disadvantages of ERP”. 2011. Exforsys. “The Advantages and Disadvantages of ERP”. 2007. Laudon, Ken and Laudon, Jane. Management Information Systems: 11th ed. Prentice Hall: US. 2009. Leshinsky, Gene. “Nestle and Nike: How they Almost Failed”. Boston Technical Recruiter. February 18, 2008. Worthen, Ben. “Nestle's ERP Odyssey”. CIO. May 15, 2002. Read More