ERP System With Nestle
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ENTERPRISE RESOURCE PLANNING –ERP
NESTLE
MAHECHCHHA R. PATEL
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What is ERP?2
The practice of consolidating an enterprise’s planning, manufacturing, sales and marketing efforts into one management system.1
Combines all databases across departments into a single database that can be accessed by all employees.2
ERP automates the tasks involved in performing a business process.1
Sources:1. http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 20022. CIO Enterprise Magazine, May 15, 1999.
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Evolution of ERP3
Source: http://www.intelligententerprise.com/020903/514feat2_1.shtml, viewed September 19, 2002.
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How Do ERP Systems Work?
4
Employees
Managers andStakeholders
CentralDatabase
ReportingApplications
HumanResource
ManagementApplications
FinancialApplications
ManufacturingApplications
InventoryAnd SupplyApplications
HumanResource
ManagementApplications
ServiceApplications
Sales andDelivery
Applications
Sales ForceAnd CustomerService Reps
Customers Back-officeAdministratorsAnd Workers
Suppliers
Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 1998.
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ERP Components
Finance: modules for bookeeping and making sure the bills are paid on time. Examples: General ledger Accounts receivable Accounts payable
HR: software for handling personnel-related tasks for corporate managers and individual employees. Examples: HR administration Payroll Self-service HR
Manufacturing and Logistics: A group of applications for planning production, taking orders and delivering products to the customer. Examples: Production planning Materials management Order entry and
processing Warehouse management
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Source: http://www.computerworld.com/printthis/1998/0,4814,43432,00.html, viewed September 19, 2002.
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An ERP Example: Before ERP
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Customers
CustomerDemographic
FilesSales Dept.
Vendor
OrdersParts
Accounting
AccountingFiles
PurchasingPurchasing
Files
Order is placedwith Vendor
Invoicesaccounting
InventoryFiles
Warehouse
Checks for Parts
Calls back “Not in stock”
“We ordered the parts”
“We Need parts #XX”
“We ordered the parts”
Sends report
Sends report
Sends report
Ships parts
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An ERP Example: After ERP
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Database
Customers Sales Dept.
PurchasingWarehouse
Accounting
Vendor
Inventory DataIf no parts,
order is placedthrough DB
OrdersParts
Order is submittedto Purchasing.
Purchasing recordorder in DB
Order is placedwith Vendor
And invoices accounting
Financial Data exchange;Books invoice against PO
Books inventoryagainst PO
Ships parts
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Who are the main ERP vendors?
Baan JD Edwards Oracle PeopleSoft SAP
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Why ERP?9
3 Major Reasons:
To integrate financial data.
To standardize manufacturing processes.
To standardize HR information.
Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002.
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ERP Project and Time10
Real transformational ERP efforts will usually run between 1 to 3 years, on average.
Short implementations (3 to 6 months): small companies, implementation limited to a small area of the company,
or the company only used the financial pieces of the ERP
system. The important thing is not to focus on how long it
will take but to understand why you need ERP and how you will use it to improve your business.
Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002.
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Total Cost of Ownership of ERP
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Total cost of ownership (TCO) is a model developed by Gartner Group to analyze the direct and indirect costs of owning and using hardware and software. TCO essentially helps a company determine whether it wins or loses from specific technology implementations.
Metagroup study among 63 companies surveyed
showed that: the average TCO was $15 million (the highest was
$300 million and lowest was $400k), the average TCO per user was $53,320.
Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002.
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Total Cost of Ownership of ERP
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It also found that: it took 8 months after the system was in to see
any benefits, but that the median annual savings from the
system was $1.6 million per year.
Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002.
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Hidden Costs of ERP13
Training Integration and testing Data conversion Data analysis Consultants Replacing best and brightest staff after
implementation Implementation teams can never stop Waiting for ROI Post-ERP depression
Source: http://www.cio.com/summaries/enterprise/erp/index.html, viewed September 19, 2002.
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Benefits of ERP Systems14
Improving integration, flexibility Fewer errors Improved speed and efficiency More complete access to information Lower total costs in the complete
supply chain Shorten throughput times Sustained involvement and
commitment of the top management
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Benefits of ERP Systems (cont’d)15
Reduce stock to a minimum Enlarge product assortment Improve product quality Provide more reliable delivery dates and
higher service to the customer Efficiently coordinate global demand,
supply and production
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Risks with ERP Implementation
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Expensive (can costs 100 thousands to millions of dollars)
Time-consuming (can take months to years)
Great risk for the organization Transfer of Knowledge Acceptance with the company
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EXAMPLE: NESTLÉ USA
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Nestlé Background18
Found in 1866, Switzerland. World's largest food company, # 50 in Fortune
magazine’s Globe 500
Nestlé USA was incorporated in 1990; Home Office in Glendale, CA.
“…America's most admired Food Company for the fourth consecutive year” - Fortune Magazine, February 2001
Source: http://www.nestle.com/all_about/at_a_glance/index.html
http://www.ir.nestle.com/4_publications/pdf/financial_report/final_2011/consolidated_accounts_2001.pdf,
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Nestlé Background19
Source: http://www.nestle.com/all_about/at_a_glance/index.html
http://www.ir.nestle.com/4_publications/pdf/financial_report/final_2011/consolidated_accounts_2001.pdf,
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Nestlé's products and brands
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Milk products, dietetic foods, infant foods, chocolate and confections, refrigerated and frozen items, ice cream, and pet foods
Source: Weller, Joe, “Introduction to Nestle in the USA”,http://www.ir.nestle.com/home-frameset.asp?largeur=1024, viewed October 14,2002.
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Competitive Market
USA Food Market in 2014
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Business Challenges22
After the brands were unified and reorganized into Nestle USA
in 1991,. Divisions still had geographically dispersed. For example, Nestle USA’s brands were paying 29
different prices for vanilla - to the same vendor.¹ Nine different general ledgers and 28 points of
customers entry.
Years of autonomous operation provided an almost “insurmountable hurdle”.
“… Nestle was the world’s NO. 1 food and beverage company– but one of the least efficient ”²
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Project Scope – “BEST”23
Five SAP Modules – purchasing, financials,
sales and distribution, accounts payable and accounts receivable and Manugistics’ supply chain module
From October 1997 to 1st Quarter of 2000.
$210 million budget
50 top business executives and 10 senior IT professionals
Source: Worthen, Ben, “ Nestlé's ERP Odyssey”, May 15, 2002 Issue of CIO Magazine.
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Project Objectives - “One Nestle, under SAP”
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Transforming the separate brands into
one highly integrated company.
Internal aligned and united, establishing a common business process architecture
Standardizing master data
Source: Worthen, Ben, “ Nestlé's ERP Odyssey”, May 15, 2002 Issue of CIO Magazine.
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Process of SAP Implementation
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The new business process confused most of employees, then resistance grew into rebellion in 2000.
Reconstructed in June 2000 and completed in 2001.
Source: Worthen, Ben, “ Nestlé's ERP Odyssey”, May 15, 2002 Issue of CIO Magazine.
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Conclusion of Nestlé Case 26
Changes and success Common database and business processes lead to
more trustworthy demand forecast. A comprehensive account planning tool. Nestle can now forecast down to the
redistribution center level. Nestle has improved forecast accuracy by 2%
Higher factories utilization fewer factories = big gains in factories Utilization Reduce inventory level
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Conclusion of Nestlé Case
27
The favorable evolution of COGS continues
0
100
200
300
400
500
600
700
1997 1998 1999 200 2001 2002 2003 2004
$USD min
Annual Incremental Saving Cummulative Annual Savings
371
Saved $$$
- With ERP in practice , $ 371 million has been saved until 2001.
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Conclusion of Nestlé Case
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Lessons learned by Nestlé Don’t start a project with a deadline in
mind. Update your budget projection at regular
intervals. ERP isn’t only about the software.
“No major software implementation is really about the software.” Former Nestlé CIO Jeri Dunn says, “You are challenging their principles, their beliefs and the way have done things for many many years”
Keep the communication lines open. Remember the integration points.
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Nestlé in the Future29
The Global Business Excellence ProgramSupported by SAP, contracted in June 2000 and by IBM in July 2002. To be completed by the end of 2005 To save cost around CHF 3 billion, with
benefits realized from 2003.
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THE FUTURE OF ERP
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ERP II31
Integrates the front and back office to enable an “information visibility” strategy that pushes the right information to the right people at the right time through the right communications channels.
A competitive strategy that integrates a centralized, core ERP system with highly specialized solutions.
In 2001, $4 billion (or 20%) of the $20 billion of total vendor revenue was spent on extensions to the ERP system. In 2006, AMR predicts this percentage will increase to 50%.
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ERP II Architecture32
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ERP II: A Revolutionary Change
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ERP II: A Revolutionary Change
34
Technology Technology goals aligned with internal
business processes and those of diverse partners,customers, suppliers, and distributors.
Business Process Implementation cannot be made without a change of
business processes. People
ERP II implementation success depends on the business community’s cultural acceptance of the system.
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Conclusion35
To achieve competitive advantage in the global economy, organizations are extending their ERP system beyond the firm.
Future growth of the industry lies in adding extensions.
Integration, scalability and flexibility issues.
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THE END
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