Nestle Erp Case Study free essay sample

Nestle is a multinational company based on Switzerland, was establish long ago in 1866 by Henri nestle which supplies different kinds of food products. Over the period nestle has grown as one of the big company. Nestle USA is a part of nestle company, having seven business divisions: beverage, confection and snacks, food service, foreign trade, nutrition, prepared food and sales. Some of Its popular products in USA were: Alpo, Nescafe, Tasters choice. Its annual revenue was 8. 1 billion and 16000 employees were working. In 1992 enterprise resource planning (ERP) system provider SAP introduced the R3 system of client server architecture and Nestle USA has decided to implement R3 ERP system in 1997 and given a project name BEST ( business excellence through system technology). It had estimated cost of $210 million with total IT staff of 250 including outside consultant and estimated time to complete was 2003. To implement the ERP there are two choices; either you change your business process or customize the ERP system according to your business process. The CIO of nestle USA Jeri Dunn has consulted with the other key stakeholders from finance, supply chain, distribution and purchasing and came up with the idea of changing the Nestles business process to fit in with the ERP system. They assume that the new system would create saving through group buying and facilitate data sharing between subsidiaries. Implementation approach and its impacts Nestle was implementing a new system but they didn’t include the real user in stakeholder team who will have to face the change in business process. Those were the one working with the system but BEST project has ignored them. In other words, they failed to address the change management. They didn’t communicate with them to set expectation and prepare plan for the implementation. As a result Nestle faced a lot of peoples issue. Employee started to resist new system and no one wanted to learn the new system of doing things, which created a pressure to divisional executives and they became affronted with the employee. This has direct effect on the self-esteem of workers. Employee started to feel unsecure and pressurized in the new system and they started to leave the job. Scenario continued and reached 77 precent of employee turnover. Employees are the company’s assets, so Nestle lost their important asset which has impact on their day to day business. That new system created a lot of problems and the help desk was overloaded they are getting 300 calls per day. Nestle USA’s implementation problems did not stop with employee issues. The project team didn’t make a clear integration point between the modules to address the Y2K deadlines. This created the miss communication between modules. When the year 2000 started, the old system where only 2 digits were there to represent the year, created a lot of problems. Nestles BEST project was also infected by this confusion of Y2K deadline and the project was stopped due to lack of improper integration planning. Project team combined its separate brand in hurry to meet the time goal of the project they didn’t count the possible outcome of combining them without proper preparation. The project team, without doing the business process reengineering, necessarily replaced the divisional silos in to process silos. This created the conflict between the division and process silos were not in proper way of reengineering the whole business process of each division. After this big mess up of implementation of new system Nestle USA learned a big lesson about the process of ERP system implementation. The company restarted the SAP implementation from a claw mark. Stakeholder’s team reassembled to start the project. Now they have realized the importance of divisional heads and the end users, so they boost the support from divisional heads and communicate to the employee about the new system and its impact on business process. They have started the project from business requirements and decided to reach the end date rather than to set the date in advanced. As a result the implementation took place in quite excellent way that they started to benefit from new SAP system. The database system became more reliable on business intelligence such as demand forecasting, inventory reducing redistributing expenses which generated a lot of revenue. In addition Nestle made a five year deal with IBM in $500 million for software, hardware, IT services and integration of its mysap. com, e-business software system etc. Nestle was practically successful with SAP system and it was trying to solve the information management system by improving the SAP system all over the world. They were using e-procurement to its major regions to improve the system management. Conclusion ERP implementation is unlikely experience that any company will have. It has to be planned prepared and stimulated from the entire stakeholder otherwise it will sunk the millions of dollar and it drain the companies market. In case of Nestle USA, it confronted a lot of difficulties due to improper implementation plan yet be able to recover as a successful project. Many organisations have gone through the similar situation that there are plenty of lesson to be learned. We can conclude that ERP implementation needs big consideration on business requirement, business process reengineering, stakeholder’s involvement, hardware and software and other units. Three important things Change Management Organisations in these days are dynamic function and they keep changing with technology advancement hand in hand. So every organisation implements changed technology, business process, business function etc. such change have remarkable effect on organisation and its employee which formalize the idea of change management. Change management is most important in any organisation when the organisation is implementing any new technology and system. Change management build up strength to handle the change in organisation. So change management is adequate to any organisation to implement change within the organisation. There are a lot of examples of failure of new technology implementation from past that is due to unaddressed change management. Recently organisations have realised the importance of change management and its impact. Change management is the process of implementing change in such a way that it will involve all the people within the organisation to face and accept change. Change management involves and agree support from people within system, environment, and processes, organisation. It will identify where the organisation at the moment is and after certain change what the organisation will be what are the measures will be for having got there. It plans the change in appropriate way by Communicating, involving, enabling and facilitating people, as early and openly and as fully as possible. As we have discuss in our Nestle case study their first attempt to implement ERP was not successful because of poor change management. Business process reengineering Business process reengineering is change in the current process of doing business in to completely new process. Business process is an act of doing business, for example; for delivering product to costumer, first need to check payment from account department, and need to check stock in go downs, approvals from sales manager and send to costumer. After implementing ERP this process may not remain same because implementing new ERP system is often required to change the business process to match with the functionality or either changes the ERP functionality. Changing the ERP functionality is not easy so normally organization prefer to change its business process to match the functionality. When organization decides to change its business process or reengineers the business process, organization should take care of the ERP functionality and the organizational needs to find the possible solution of reengineering. In case of nestle they have realized business process reengineering is required but their way of reengineering wasn’t sufficient and convenient enough to lead the project to a successful end. ERP implementation plan To implement ERP system there should be some implementation plan based on the scope, time and cost constraint. There are different methodology for ERP implementation by different vendors, among them an organisation should choose the suitable one based on their requirements and business process. There are three type of ERP implementation plan; comprehensive, middle of the road, Vanilla. Comprehensive plan is the lengthy, costly and expensive because it is a full functionality implementation, middle of the road is some change in core modules of ERP and cogent business process reengineering and vanilla approach is using the core ERP function to get the best business practise. When plan is selected, the methodology of implementing should also be clearly drawn. There are traditional methodology, life cycle methodology, fast-track; agile development etc. ecently agile methodology is being popular because it is more practical than any others. Agile approach assumes that whatever the requirements might be at the beginning of the project, they won’t remain same at the end. So ERP implementation is a plan not just set of time as nestle has done in the beginning. Question 2 Complexity of ERP implementation Enterprise resource planning (ERP) systems are the system which integrat e the data across and be comprehensive in supporting all major function. ERP systems are the specific software application which helps organisation to operate its function such as; accounting, finance, marketing, human resource etc. ERP system provides integrated system that operates in real time without relying on periodic updates and common database, which supports all applications. Implementing ERP system in any organization is complex task as it involves a lot of change which certainly creates the possibility of confusion and creates complexity. In these days business organization have become complex with a lot of layer of management and dependencies between departments. All the departments within the organization need a lot of communication to complete the business process. ERP systems are to ease the process of business within the organization, but ERP implementation is not similar to those other application like MS office, data base software etc. ERP implementation project needs a lot consideration and research and it has high risk of failure as well. The crucial thing for successful ERP implementation is to use the proper methodology, to take one step at a time and begin with the understanding of ERP life cycle. Even though we use proper methodology it’s not possible to implement it without discord. There are lot things which make the ERP implementation complex. The very first thing is selection of ERP vendors. There are a lot of vendors in the market providing the ERP and they all have different features. When an organization decides to implement ERP in very beginning it will face is what type, size, and scope of the future system it actually requires and how to choose the most suitable solution among the vendors but there is no Specific solution for it. Organisation itself has to make decision of suitability of system according to their business function and needs. First it needs to find what functionality is required and what future perspective for the system is. If it is not lined out clearly organisation might not select the right vendor. Including the business function organisation has to look at the various other things such as; features and integration capability of software, licensing and upgrades, infrastructure requirements, total cost of ownership etc. The second thing relates to the people within the organisation and has big impact on ERP implementation. New system implementation brings the big change and if that change is not managed properly it will bring tsunami. Past experiences shows that often the organisations were failed to manage the change due to improper management. People always act reversely when imposed new things up on them until they were awaked about the profitability of that. So people within the organisation needs to aware of change by Communicating, involving, enabling. Every person has his own thoughts and value. Convincing them and involving them is not so easy and without doing that implementation also becomes difficult. The third thing is business process reengineering. Business process is the actual act of doing business, for example; for delivering product to costumer, first need to check payment from account department, and need to check stock in go downs, approvals from sales manager and send to costumer. After implementing ERP this process may not remain same because implementing new ERP system is often required to change the business process to match with the functionality or either changes the ERP functionality. Changing the ERP functionality is not easy so normally organization prefer to change its business process though it is also not easily manageable. Changing the business process may create a lot of confusion and may create debate between departments as well. So reengineering of business process in suitable way also plays the vital role. Technically, ERP system may not fit with the current hardware and software may be it needs standardization or some of the third party software needs to be integrated with the ERP software, which is not easy task. Data issue also becomes the major problem after implementing ERP transferring legacy data into the new system from Excel spread sheets, manual records, or old disparate applications. Basically, the question is that old data that have been used and stored for years can for many reasons appear approximate or even incorrect in the new ERP. Operation of ERP and post implementation is also the critical points for successful Implementation. User needs to be trained to use the new system; active support via help desk needs to be provided and so forth. In conclusion, ERP implementation is a risky project, full of uncertainty of successful implementation and has lot of influencing factors affecting the implementation. Many factors such as vendor selection, people issue, technical and data issue, business process etc. makes the ERP implementation complex and creates the confusing situation.