Quelle: CIO USA
In June 2000, Nestlé SA signed a much publicized $200 million contractwith SAP - and threw in an additional$80 million for consulting andmaintenance - to install an ERP system for its global enterprise. TheSwitzerland-based consumer goods giant intends to use the SAP systemto help centralize a conglomerate that owns 200 operating companiesand subsidiaries in 80 countries.
Not surprisingly, a move of this magnitude sparked skepticism. AnneAlexandre, an analyst who covers Nestlé for HSBC Securities in London(the company is traded only in Europe), downgraded her recommendationon Nestlé stock a year after the project was announced. While she saysthat the ERP system will likely have long-term benefits, she is waryof what the project will do to the company along the way. "It touchesthe corporate culture, which is decentralized, and tries to centralizeit," she says. "That's risky. It's always a risk when you touch thecorporate culture."
It is a risk that Jeri Dunn, vice president and CIO of Nestlé USA, the$8.1 billion U.S. subsidiary, knows all too well. In 1997, theGlendale, Calif.-based company embarked on an SAP project code-namedBest (business excellence through systems technology). By the time itreaches the finish line, Best will have gobbled up six years and morethan $200 million (the same amount its global parent intends tospend). Dunn now says she sees the light at the end of the tunnel. Thelast rollouts will take place in the first quarter of 2003. But theimplementation has been fraught with dead ends and costly mistakes. Itis a cautionary tale, full of lessons not only for its Swiss parentbut for any Fortune 1000 company intent on an enterprisewide softwareimplementation.
"I took eight or nine autonomous divisions and said we are going touse common processes, systems and organization structures," says Dunn."[Nestlé SA is] looking at 80 autonomous countries and saying the samething. They're just taking it up a notch. If they go in with anattitude that there's not going to be resistance and pain, they'regoing to be disappointed."
Nestlé's global SAP project, which is tied in to a larger $500 millionhardware and software data center rehaul, will be integrated with itsAmerican subsidiary's soon-to-be completed ERP. And Dunn is evenlending 70 of her own staffers for the global initiative, as well assome of her hard-won expertise. But while the verdict is still out onthe global project, the pain - angry employees, costly reengineeringand long periods when it seemed the project would never end - was worthit for Nestlé USA, Dunn says. To date, she claims, the Best projecthas saved the company $325 million. (Because Nestlé is headquarteredoutside the United States, it doesn't have to disclose its financialinformation to the SEC.)
Regardless of the project's exact ROI, the lessons learned are real.The primary lesson Dunn says she has taken away from the project isthis: No major software implementation is really about the software.It's about change management. "If you weren't concerned with how thebusiness ran, you could probably [install the ERP software] in 18 to24 months," she says. Then "you would probably be in the unemploymentline in 19 to 25 months."
Nestlé learned the hard way that an enterprisewide rollout involvesmuch more than simply installing software. "When you move to SAP, youare changing the way people work," Dunn says. "You are challengingtheir principles, their beliefs and the way they have done things formany, many years."
The Problem: 29 Brands of Vanilla
Vanilla may be the world's least exciting ingredient - the word is evena synonym for bland. But that wasn't the case at Nestlé USA, wherevanilla represented a piquant plethora of inefficiencies and missedopportunities.
Before 1991, Nestlé was simply a collection of independently operatingbrands, such as Stouffer's and Carnation, owned by the Swiss-basedparent. In 1991, the brands were unified and reorganized into NestléUSA. Even so, the new company continued to function more like aholding corporation than a single entity. Divisions still hadgeographically dispersed headquarters and were free to make their ownbusiness decisions, although they now reported to corporate Nestlé USAexecutives in Glendale rather than in Vevey, Switzerland. The newcompany was trying to introduce economies of scale and commonpractices, but years of autonomous operation proved an almostinsurmountable hurdle.
In 1997, a team examining the various systems across the companyfound, among many other troubling redundancies, that Nestlé USA'sbrands were paying 29 different prices for vanilla - to the samevendor. "Every plant would buy vanilla from the vendor, and the vendorwould just get whatever it thought it could get," Dunn says. "And thereason we couldn't even check is because every division and everyfactory got to name vanilla whatever they wanted to. So you could callit 1234, and it might have a whole specification behind it, and Imight call it 7778. We had no way of comparing."
While the American brands were willing to go about their business asautonomous companies - headaches be damned - the Swiss parent knew thatsimilar problems would continue. In 1991, the same year that NestléUSA was created, Dunn, then associate director for application systemsof Stouffer's Hotels, one of the many Nestlé brands, went toSwitzerland to help implement a common methodology for Nestlé projectsworldwide. In 1995, she was promoted to assistant vice president oftechnology and standards for Nestlé SA, where she came up withtechnology standards for every Nestlé company to follow. Dunn figuredthat common systems across the Nestlé empire would create savingsthrough group buying power and facilitate data sharing betweensubsidiaries.
Yet when Dunn returned stateside to take the more hands-on CIO job atNestlé USA in 1997, she found that few of her recommendations had beenacted on. "My team could name the standards, but the implementationrollout was at the whim of the businesses," she says during a recentinterview in her sparsely decorated fourth floor office in Glendale.Dunn takes cigarette breaks at every possible opportunity and isn'tafraid to dress in a leopard-print skirt and blouse. At 47, she is asurvivor who is refreshingly open about her mistakes and is respectedthroughout the company. Her staff speaks of her in almost reverentialtones.
The Proposal: One Nestlé, Under SAP
Dunn's arrival in spring 1997 came a few months after Nestlé USAChairman and CEO Joe Weller coined the term One Nestlé to re-flect hisgoal of transforming the separate brands into one highly integratedcompany. In June, Dunn joined with executives in charge of finance,supply chain, distribution and purchasing to form a key stakeholdersteam and study what was right and wrong with the company. When thetime came, the key stakeholders were initially allotted a little overtwo hours to present their findings to Weller and other top Nestléofficials.
The team balked at the time limit. "I told them that they would eitherthrow me out in the first 15 minutes or they would cancel the rest ofthe day, and we would really have a great discussion," says DickRamage, Nestlé USA's vice president of supply chain and a member ofthe team. "It took them an hour, but they canceled the rest of theday."
"I don't think they knew how ugly it was," says Dunn, referring to thecompany's condition. "We had nine different general ledgers and 28points of customer entry. We had multiple purchasing systems. We hadno clue how much volume we were doing with a particular vendor becauseevery factory set up their own vendor masters and purchased on theirown."
Soon the stakeholders team presented Weller with a blueprint for majorchanges they thought could be made in three to five years. While thecornerstone of the recommendation was an SAP package, Dunn says, "Wemade it very clear that this would be a business processreorganization and that you couldn't do it without changing the wayyou did business. There was going to be pain involved, it was going tobe a slow process, and this was not a software project."
Despite that warning, it would later become apparent that neitherWeller nor the key stakeholders really understood the degree to whichthe Best project would change the business processes at Nestlé or theamount of pain it would cause. "They still thought that it was justabout software," Dunn says.
By October 1997, a team of 50 top business executives and 10 senior ITprofessionals had been assembled to implement the SAP project. Theteam's goal was to come up with a set of best practices that wouldbecome common work procedures for every Nestlé division. All thedivisional functions - manufacturing, purchasing, accounting andsales - would have to give up their old approaches and accept the newpan-Nestlé way.
On the technical side, a smaller team spent 18 months examining everybit of item data in each division in order to implement a commonstructure across the company. From now on, vanilla would be code 1234in every division. The SAP system would be customized around theuniform business processes. In the case of the supply chain, the teamdecided not to use SAP because the ERP company's supply chain module,Ad-vanced Planner and Optimizer or APO, was brand-new and thereforerisky. Instead, Nestlé turned to Manugistics - at that time an SAPpartner. Manugistics' supply chain module followed all the SAPstandards and could easily be integrated.
By March 1998 the key stakeholders had a plan in place. Nestlé wouldimplement five SAP modules - purchasing, financials, sales anddistribution, accounts payable and accounts receivable - and theManugistics' supply chain module. Each would be deployed across everyNestlé division. For instance, the purchasing group for confectionswould follow the same best practices and data as the purchasing groupfor beverages.
Development work began in July 1998. The deadline for four of themodules was Y2K. The new systems would have to double as code fixesand be in place for the millennial change. Nestlé USA made thedeadline. But its haste created almost as many problems as it solved.
The Process: Nestlé's Crunch
Even before three of the SAP and the Manugistics modules were rolledout in late 1999, there was rebellion in the ranks. Much of theemployee resistance could be traced to a mistake that dated back tothe project's inception: None of the groups that were going to bedirectly affected by the new processes and systems were represented onthe key stakeholders team. Consequently, Dunn says, "We were alwayssurprising [the heads of sales and the divisions] because we wouldbring something up to the executive steering committee that theyweren't privy to." Dunn calls that her near fatal mistake.
By the beginning of 2000, the rollout had collapsed into chaos. Notonly did workers not understand how to use the new system, they didn'teven understand the new pro-cesses. And the divisional executives, whowere just as confused as their employees - and even angrier - didn't goout of their way to help. Dunn says her help desk calls reached 300 aday. "We were really naive in the respect that these changes had to bemanaged," she admits now.
Nobody wanted to learn the new way of doing things. Morale tumbled.Turnover among the employees who forecast demand for Nestlé productsreached 77 percent; the planners simply were loath or unable toabandon their familiar spreadsheets for the complex models ofManugistics.
A technical problem soon emerged as well. In the rush to beat the Y2Kdeadline, the Best project team had overlooked the integration pointsbetween the modules. All the purchasing departments now used commonnames and systems, and followed a common process, but their system wasnot integrated with the financial, planning or sales groups. Asalesperson, for example, may have given a valuable customer adiscount rate and entered it into the new system, but the accountsreceivable department wouldn't know about it. So when the customerpaid the discounted rate, it would appear to the accounts receivableoperative as though the invoice were only partially paid. In its hasteto unify the company's separate brands, the project team hadessentially replaced divisional silos with process silos.
In June 2000 the project was halted. The company removed MarcRichenderfer as project coleader and gave Dunn full responsibility.(Richenderfer was reassigned to work in Switzerland.) It was time forself-examination. In October 2000, Dunn gathered 19 Nestlé USA keystakeholders and business executives for a three-day offsite at theDoubleTree Hotel in Pasadena, Calif., about 10 miles from Nestléheadquarters.
Jose Iglesias, director of information systems, says the retreatstarted off as a gripe session. The time constraints necessitated byY2K had put too much pressure on the people in charge of executing thechanges. The project team had lost the big picture of how the variouscomponents would work together. And there was still work to be done.The existing modules had to be integrated and the team still needed toroll out two more SAP modules - sales and distribution on the domesticside, and accounts receivable - as well as a new module for the supplychain. Since Dunn had rejected the SAP supply chain module two yearsbefore, it had improved and been named a Nestlé global standard byDunn's old standards group in Switzerland. So she decided to replaceall but a couple of parts of the Manugistics system with APO. Dunnestimates that last-minute switcheroo accounted for 5 percent ofBest's $210 million cost.
The offsite group members eventually decided that to finish theproject they would need to begin at the beginning, starting with thebusiness requirements then reaching an end date, rather than trying tofit the project into a mold shaped by a predetermined end date. Theyalso concluded they had to do a better job of making sure that theyhad support from key divisional heads and that all the employees knewexactly what changes were taking place, when, why and how.
The End Game: Sadder But Wiser
By April 2001, the end-state design was complete, giving the projectteam a highly detailed road map to follow. A month later, Tom Jamescame on board as director of process change for the Best project,having the sole responsibility of acting as a liaison between thedivisions and the project team. James says that he was shocked by thestill poor relationship between the divisions and the project team. Heand Dunn began meeting with more of the division heads. They alsostarted conducting regular surveys of how the employees affected bythe new systems were dealing with the changes.
They were not afraid to react to what they found. Dunn says thatNestlé recently delayed the rollout of a new comanufacturing packagefor six months based on feedback indicating that the would-be userswere not prepared to make the process changes that wereinvolved.
ERP projects are notorious for taking a long time and a lot of money.Jennifer Chew, an analyst at Cambridge, Mass.-based ForresterResearch, found that 54 percent of respondents to a recent survey saidthat their project lasted more than two years (the other 46 percentbrought theirs to fruition in less than two years). Nestlé USA'sproject "sounds on the high side" for both time and money, says Chew.Still, success is ultimately measured by what the projectaccomplishes. Chew points out that Kmart had to write off $130 millionfor an ERP project that was never completed.
Dunn herself is not ashamed of the length of the project or thenumerous dead ends. She insists that slow and steady wins the race.Nestlé USA has already achieved significant ROI, she says, with thelargest chunk of savings from better demand forecasting. "The oldprocess involved a sales guy giving a number to the demand planner,who says, 'Those guys don't know what the hell they are talking about;I'm going to give them this number,''' Dunn says. "The demand plannerturns [that number] over to factory, and the factory says the demandplanner doesn't know what the hell he's talking about." Then thefactory changes the number again.
With SAP in place, common databases and business processes lead tomore trustworthy demand forecasts for the various Nestlé products.Furthermore, because all of Nestlé USA is using the same data, Ramagesays, Nestlé can forecast down to the distribution center level. Thatallows the company to reduce inventory and the redistribution expensesthat occur when too much of a product is sent to one place and notenough to another. Ramage says that supply chain improvementsaccounted for a major chunk of the $325 million Nestlé says it hassaved from SAP.
If Dunn were to do it over again, she'd focus first on changingbusiness processes and achieving universal buy-in, and then and onlythen on installing the software. "If you try to do it with a systemfirst, you will have an installation, not an implementation," shesays. "And there is a big difference between installing software andimplementing a solution."