Systems Design and Software Integration at Nestle - Case Study Example

Nestle- A Typical case of Systems design and software integration An essay written using Harvard Style of referencing The essay is a ic example of how misuse of systems integration approaches used by business organization can hinder their activities and affect their business integration plans. The essay is based on the case of milk and chocolate food products giant, Nestle. It focuses on the problem areas which prompted the management of Nestle to look for business integration through Enterprise Resource Planning programs and software. The essay is a wakeup call for those who wish to implement systems integration without realizing the problems to be addressed and the extent to which work procedures, planning activities needs to be coordinated and systemized for effective implementation of the software. The essay portrays the various difficulties associated with improper implementation of systems, inadequacy of data, lack of standardization of work procedures and methods. It throws light on the fact organizations gets affected because the top management fails to understand the nuance of systems integration and merely treats the whole job as purchase of software. It also highlights the additional costs involved in debugging wrong procedures or approaches. Introduction: The essay is primarily based on the case of the food and confectionary giant Nestle, SA. Nestle, best known for its milk and chocolate products operates from more than 500 locations across the world and has its operations in more than 16 countries. The case draws our attention because it projects the need for systems integration approach, measures to be taken in selection of ERP modules and vendors, the number of difficulties a business organization can encounter in integrating some of its key activity areas such as centralized purchasing, linking the supply chain, distribution, manufacturing and sales functions. The essay critically exposes the limitations systems integrations approach can pose business units to if they fail to use the definition given by Elliot.G regarding ERP. Elliot defined ERP as "A key feature of ERP system is the ability to link areas of businesses that are globally distributed" (2004, pg.202) and customize its applications to suit its business needs. Nestle, operating in more than 500 locations and with a business volume of around $46.6 billion is a huge enterprise, controlling and planning operations of that magnitude is a colossal task. Nestle, had its own Electronic Data processing and Systems departments to cater to its needs. They had around 80 systems units using a range of IBM mainframe computers and UNIX machines to process and ensure information is exchanged properly between all the business units. A large organization such as Nestle believes in decentralizing its purchasing, marketing and even production activities. They decentralize the above mentioned activities so as to suit the cultural needs, values, preferences of customers regionally. They focus at offering products depending on the preferences of the customers. This customization of products helps them in leveraging their market positions globally. Rationale for ERP in large multinational organizations such as Nestle: Areas of concern for Nestle in this case are the amount of expenditure it is incurring in purchase of raw material, damage of material in the ware house and supply chain problems. As they do not have a centralized electronic data processing unit it is unable to compare and analyzes prices paid in purchase of raw material from a single vendor. For any organization it can be a serious limitation in terms of information, time and money. In order to overcome this limitation Nestle decided to go for an ERP. Organizations before they decide to go for ERP packages do need to evaluate their organizational needs. Information technology for managers a book from ICMR in a chapter named as Enterprise resource planning suggests that "before initiating the process of ERP implementation, the management should identify the changes to be brought in business processes, skills and attitudes of the work force."(ICMR, 2005, pg.38) In Nestle, the existing business processes became a concern for management and are calling for a change as they do not have a centralized communication and data processing network. Decentralized electronic data processing units prefer use of heterogeneous software and hardware platforms and data compatibility will become a problem, similar to what happened in the case of Nestle. As a result they were unable to check or compare data from various business units of their own. They maintain at each electronic data processing unit, master files of key operations such as purchase, sales, finance and accounts, production etc. As work processes, business needs of one business unit vary with others master files of one unit varies greatly from others, maintenance of data, accessing key information becomes a problem for the top management and hence changes are sought in terms of ERP. In order to implement ERP organizations and their management have to make sure the following are observed and analyzed carefully before taking a decision. It is a well known fact that if ERP is not implemented properly can result in dire consequences. Understanding corporate needs thoroughly is a key activity before implementing ERP begins as stated in Information technology for managers a book from ICMR*(see Appendix #1). The book in a chapter called as enterprise resource planning states that "The primary requirement of ERP implementation is the organizations readiness and it's capability to implement change."(ICMR, 2005, pg.38). Organizations such as Nestle need to evaluate whether or not their organization can sustain the impact of change if caused all of a sudden. If we probe deeper into the case of Nestle we can see clearly their problems are a result of poor judgment of Nestl''s ability to withstand the pressures due to change. Business Process integration at Nestle using Enterprise Resource planning: In order to find a solution for these problems Nestle decided to go for systems integration and process integration approach using SAP Financials, Purchases, and Sales distribution models. These models have in built mechanisms which can guide organizations to customize their applications in the specific areas of operations. Here the need arises to check whether all the formal procedures have been adopted before deciding on an ERP package or not. Enterprise architecture planning plays an important role in deciding upon an ERP package. It consists of multiple layers such as Hardware layer, Relational database layer, database access layer, application software layer etc. Nestl''s, decision to use mySAP.com, a n ERP software which will not only enable them to standardize and coordinate their information systems requirements and various business processes but also enable employees to directly get connected to the web where employees can login onto their personalized web pages and work on specific applications related to their tasks. The idea boomeranged on Nestl''s management as the projects team has to cope with multiple tasks at a time. They had to interconnect all the key operational areas and at the same time they had to manage and make necessary changes in modules to cope with Y2K problem. Employees of Nestle were totally confused and were unable to cope with the demanding requirements of the new software module. One of the reasons for all this chaos is Nestle management's inability to understand the very fact that ERP brings a complete business process change and before implementing the change, top management should decide on the sort of changes needed and the extent of change this is required. Also management needs to understand implementation of ERP will bring in whole lot of changes in the existing processes. Also they failed to communicate the need across the organization in a sustained and planned manner to convince the employees of the change expected from them. Prior to implementation of ERP it is essential the top management needs to communicate the need for change to all the employees and convince them. It also essential the projects team receives all the support they need from the top management during the process. A careful study of the case suggests that Nestl''s top management failed to manage the change process resulted the project ending in a terribly messy situation. Nestle, USA thought this as the best fit for changing their corporate culture from a decentralized one to a centralized one. It is apparent that at that stage, Nestle, USA conveniently neglected one problem, the complexity and the magnitude of the task at hand Implementation - A key aspect in deciding ERP's success in organizations: Enterprise wide information systems designs suggests that stake holder participation through out the design and implementation process is necessary in order to assess individual's training as well as data collation and compiling needs. The four phases of implementation, an article in Financial Express suggests that the process goes through four phases, namely, Process Study: Where in the existing processes of the company are studied and feedback is collected from the employees on the existing processes and procedures. Process Design: The new processes to be implemented in the company are designed by the team members and the design will be mapped on the pilot SAP package on LAN network of the company for testing. Simulation: In each department, representatives chosen by the team will test run the pilot project on real time situations for results they are looking for. Actual Implementation: Once the pilot project or the simulation project is found to be successful over a period of time, then actual implementation begins. When compared the phases in which the entire planning and implementation of business process integration exercise took place in Nestle it can be seen that the third stage, simulation stage was not observed properly. Small scale implementations could have been tested initially and then should have been tried in the entire Nestle. When Ms.Jeri Dunn, the Executive Vice president and CEO of the American took over as the project in-charge, she had decided immediately to bring the confusion to an end by integrating all the activities, a task not completed. She decided to go for new SAP systems instead of the existing supply chain models as she felt it was improved drastically in the mean time. All these happenings are a replica of the technical blues critical decisions like systems integration pose when the change process is not observed properly or its requirements were not taken care of. Change of an ERP module during the implementation means extra cost for the company, extra time lost. But in the case of Nestle, USA, it seemed unenviable as the previous ERP module did not give them the desired results they wanted. Choosing Ms.Jeri Dunn, who knows majority of the problems Nestle is susceptible to augured well for the change process. This enunciates the fact that for better results from the project the projects team should have balanced teams with a leader having vision and clear cut goals leading from the front and comprise of people from the related problem work areas such as sales, financials, production, purchases and systems. A healthy mix of people from all the departments will ensure that team members understand the various complexities involved in the project and takes corrective measures to avoid problems. Nestl''s Success - a case of success of ERP: Ultimately Nestle were a success using SAP ERP and they were able to achieve better results than before. All this is possible because finally they have chosen the right project leader with a vision in Ms.Jeri Dunn, they understood the corporate and cultural needs of the organization and they were able to bring in complete business process change, which was their objective, they were able to communicate the need to change, the types of change sought properly and they were able to obtain a balanced team which resulted in the success of the project. Also if observed carefully, from the case study it is evident that they were able to obtain lead time reduction, improves supplier performance and improved resource utility. Prior to starting the project the aforesaid are exactly the reasons which forced the organization towards ERP and SAP and ultimately they were to achieve the same. References 1. Elliot.G. 2004. Global Business Information technology, Pelgrave: Macmillan 2. 2005; Enterprise Resource planning, Information technology for Management, ICFAI Centre For management Research, ICFAI press. 3. 2005; Enterprise Resource planning, Information technology for management, ICFAI centre for management research, ICFAI Press. 4. 26th November, 2002; the four phases of implementation, The Financial Express. Appendix 1. ICMR: ICFAI centre for management Research, a constituent of ICFAI which conducts management research activities for ICFAI. Read More