Background
Discuss about the Case Study Of Nestle Sap Implementation.
The case study selected is about Nestle regarding the SAP implementation in order to align all the business function through technology for better organizational outcome. SAP refers to Systems, Applications and Products for the purpose of data processing (Monk and Wagner 2012). SAP developed many version of their enterprise resource planning (ERP) system and the first is known as SAP R1, which is launched in 1972, where R refers to ‘real-time’ data processing. SAP R/2 was released in 1979 and it s a dialogue oriented data processing system. Leon (2014) stated that the first version of SAP is developed following the one-tier structure comprises of three layers presentation, application and data in one server; whereas, the second version was designed as a two layer architecture in which the same three layers were present in one server. The first serve comprised of presentation and the second server consists of application and database. The recent version of SAP is R/3, which is three-layer architecture and have separate server for each layer.
SAP R/3 is utilized by Nestlé in 1992 and the main aim behind implementation of the ERP system is to use common business processes, organizational structures and systems for all the autonomous divisions present in the USA. However this implementation of a new system also has some associated problem which will be illustrated in the assessment. The problem and opportunity Nestlé faced due to this incorporation of new system along with the nature of the enterprise system will also be demonstrated. The difficulty faced by the concerned organization while adopting the system followed by suggestions for adopting enterprise system and success metrics will also be demonstrated.
Nestle aims for delivery consuming products contributing to a healthier future by enhancing life and to inspire people to live healthier life. Nestle have more than 2000 brands and operates their business function in 189 nation across the world (Nestle.com 2018).Nestle that is operates in USA has seven different business divisions- beverage, confections and snacks, food services, foreign trade, nutrition, prepared foods and sales (Nestle.com., 2018). Some of the famous brands are- Alpo,Baby Ruth, PowerBar, Coffee-Mate, Nescafé, Nestlé, Carnation Instant Breakfast, Nestlé Toll House, Stouffer’s Lean Cuisine and SweeTarts. The managing people of the concerned organization intended to operate all the business function through all the brands presented in the USA through one single business system. Nestle also has 28 points of customer entry and 9 different general ledgers and also intended to reduce these number to 1. This is the main reason that the organization opted for implementing SAP R/3 ERP system for handling major function like supply chain management, distribution process and purchasing operation from the suppliers. The name of their ERP system was BEST (Business Excellence through Systems Technology).
ERP System in Nestle
The problem that was occurred due to the incorporation of new system in the business functions lead to many problem. The case study illustrates that when the planning for the implementation of SAP R/3 was introduced for managing people of charge of finance, supply chain, distribution and purchasing team were included but these people did not included any group members. Boeder and Groene (2014) stated that in business process reorganization, it is required to make all the employees especially the low-end workers aware about the changes in the business process. Thus, excluding these staff of Nestle from the decision making session resulted in sense of confusion and anger. Mitra and Neale (2014) also depict that change in organizational structure also raises the problem of adaptation power of the staff in case they are incompetent to learn the changed functionalities. In Nestle also, the employees do not wanted to learn new ways of performing similar organizational responsibilities. During this time, the employee turnover and morale sank rate become 77% and the number of called received in the help desk was reached to 300 each day. Thus due to all these problems leads to halt of the project and the aim to unifying separate brand of the company remained unfulfilled.
The opportunity that Nestle got from the failure in implementing the ERP system is to identify the major fault in the process due to which the plan cannot be accomplished. Nestle reconvened the stakeholder team and started the project of implementing the SAP from the scratch. This redesign of the process also allows the organization to identify the that it is better to mould the project deadline of the business operation according to the competency of the software implemented rather than design the software according to the determined project deadline in the company. Another opportunity that Nestle had identified is that all the leads of every division should support their team and make the team members aware of the changes that are brought in the operations of the business.
The ERP that was implemented in the Nestle is SAP R/3, whose major aim is to integrate the different modules of the business system. Mitra and Neale (2014) stated that SAP R/3 integrate the module of financial accounting, human resources, plant maintenance, project system, production planning, quality management, production planning, material management, sales and distribution, asset accounting and controlling.
In the year 2003, Nestle has given the project to design the ERP system for the organization to IBM. It was a 5 year deal and the total cost of the project that Nestle paid to IBM was $500 million. The main objective in this case is to reduce inventory and redistribution expenses. According to the project plan, the developed system should align the server of hardware, software and IT services with mySAP.com, which is an e-Business software system. The designed system also comprised of internal portal that is access by each of the employee through mySAP.com for performing their daily work responsibilities.
Problems faced by Nestle
The implementation process of the developed EPR in the Nestle was done based on the fact on how the developed software takes time to accomplish business functions by not trying to mould the business function behave like the developed software. Nestle have also chosen their ERP package by making IBM clear about their requirements. Nestle did not relied on the demo version of any ERP system. Nestle did not focused on heavy customization of the ERP implementation in the business. Karduck and Tumer (2012) stated that heavy customization makes the project deadline extended much which might be impacted the business result in a negative way like high maintenance cost of the system. Akinsolu (2013) highlight another problem that is high customized might help the organization to perform their business functions differently but all the service providers might not be aware of the system the organization is adapting. This make the improvement time of the system grater as the provider of not the previous ne come to make amendments in the developed software system.
There are many problems that Nestle had faced after the implementation of the project. The first problem was not providing staff training to any staff when a changed system was introduced. This lead to dissatisfaction among the employees and as a result their performance during the change system was poor. Mitra (2012) stated that during the change management, people in company feel fear for whether not they can manage the change and perform well through the new system. Singhla (2014) furthermore stated that some of the employee developed the fear that they could be replaced by the technology have to lost their jobs. In Nestle, employee are not introduced with change system prior in the implementing sessions due to which employees did not understand how to use the new system and they were forced to adopt the changed system. Another problem that the company faced is the technical difficulties. Kalaimani (2016) stated that every hardware and software system has some limitations which should be known by the users so that they can accomplish this system with the proper knowledge of the limitation. In case of Nestle, employees of the company intends to o beat the Y2K deadline the project and they omit and overlooked the integration points between the different models. This resulted in misalignment of the different module as not information was passed from one module to the other which furthermore resulted in poor performances. One such incident occurred in the Nestle is that during the period when discount were going on, even if the customers pays the full bill after the discounted price, the data shows that the payment received by the company is partial.
Opportunities for Nestle
After the adversity occurred, Nestle brought their managing people together and discuss about re-defining the business requirement. The decision taken by the management team is to shape the project timeline around the requirements and not to shape the timeline of the project around a predetermined deadline as it required much financial resources and expertise.
Successful adoption of the enterprise system
The case study also highlights that after the implementation of the ERP system, all the transactions of the company processed through this system. Jaaskelainen and Pau (2013) also stated that in the change management process, the company need to evaluate the business architecture and requirement. This will allow the business people to identify the financial resource required for the project. Nestell and Olson (2017) moreover stated that the leaders of the company should also have to be committed and support the employees with all the necessary resources. Tsai et al. (2012) also identifies that communication plays an important role during the change management and in this processes the leaders need to make the employee aware of the implemented change and the reason due to which this planning has been implemented. These employees when realized the important of the change system and the benefits that they can attained form the newly implemented system, automatically their performance will rise.
Nestle USA claimed that they saved over $325 million and the areas from which this savings has been made is in supply chain improvements as the ERP system allow the company to forecast the demand. Initially this has been done through a sale person, who was recruited to give the number of the total number of users opted for a particular Nestle products to the demand planner. The problem arise when Nestle’s management people cross-checked the value given by the sales person with the factory manager and both the value found to be contradicted. Thus, this frequent change in number delays the demand forecasting method. The SAP implemented utilizes the common databases and business processes which not only make the process of demand forecasting faster but also presented an accurate update regarding the orders purchased and demanded by the users. The similar database system helps the organization to maintain the raw materials purchase from the supplier in a similar way and simplified the operating procedures along with centralization of functions. The company also benefited through training programs that is same for all the locations as all the location follows a similar procedure to accomplish the business functionality.
Success Metrics for Enterprise Systems
Technical Failures- The problem of lack of misalignment of the databases occurred in Nestle’s account department reduced. Earlier when employees at the cash counter take the payment from the user at a discounted amount, the data were not updates in the account database in the older times. As a result, the later database showed that user has made a particle payment for their purchase. This problem gets resolved as all the databases are linked after the redesign of the ERP system.
Employee engagement- As mentioned above that during the change management, many employees have the fear of losing jobs ad have low self confidence in utilizing their potential to adopt new system. However, the training process provided to all the employees regarding the new system and the procedure to use the same, allow the organization to retain their employees.
Saving financial resources- Over $325 million was saved in the year 2002 after the implementation of the ERP system. The incorporation of the SAP ERP in the existing system helps Nestle to save money in some of the departments especially in supply chain management and distribution process. Thus, Nestle also focus on profit over revenue for each passing year that they have attained trough the ERP system.
Conversion Rate- The successful implementation of the system helps the organization to forecast the demand for certain products accurately. Thus, Nestle can use the system for manufacturing the high demanded products more to increase the conversion rate. Thus, it can be said that the higher number of customers or user need is also a success metrics that Nestle utilized.
Conclusion
Thus, it can be said that the implementation process of the SAP ERP contain both the aspects of failure and success. It can be concluded that the management need to be collaborative in the initial phase and if the employees are forced to adopt the changed system the project might be rolled out. It is practically difficult to redesign work processes without the involvement of the low level employees. Thus, support from the management is necessary as they are the one who can make the employee learnt about the advantage of the newly implemented system. Another aspect that can be learnt from the case of Nestle is that the new design of the ERP system should not be forced to be completed within the given time limit of existing projects. This will lead to improper design of the customized system and overlooking of some crucial parts of the software in order to match the project requirement. It is found from the case study that it is better to develop the ERP system and then mould the project existing in the company with the software. The third thing that is identified in this report is the importance of training in the change management procedure. Employees need to be provided with effective training sessions so that they can gain confidence that the company want to retain them and giving them a chance to utilize the new system. In case of Nestle after the successful implementation of the ERP system, the training session also become easier as only one training module has to be designed for all the similar departments in different locations. Lastly, it is also found from the evaluation that management of the organization need to limit the number of customizations as the more a system is customized, the probability of the occurrence of cost, timeline, and likelihood of bugs increased. Thus, it is better to give the project of designing the ERP system from third party providers rather than developing the same in-house. Nestle also follow the same approach and give the project to IBM which resulted in greater saving of financial resources and profitability with greater customer satisfaction.
Reference List
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Kalaimani, J., 2016. Key SAP Implementation Challenges. In SAP Project Management Pitfalls (pp. 65-77). Apress, Berkeley, CA.
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Mitra, A., 2012. One Size Fits All: Case Study of Enterprise Systems Implementation in Nestlé. In ECIS (p. 229).
Monk, E. and Wagner, B., 2012. Concepts in enterprise resource planning. Cengage Learning.
Nestell, J.G. and Olson, D.L., 2017. Successful ERP Systems: A Guide for Businesses and Executives. Business Expert Press.
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