ERP Implementation at Nestle

Derek S. Dieringer
Enterprise Resource Planning Systems
June 24, 2004
Implementation Strategy
The term ERP implementation has become synonymous with nightmare in recent years. High profile
failures dot the headlines and companies are often intimidated not only by the high price but also the
negative effect implementations can have on their business. Vendors such as SAP are working diligently
on shaking this reputation and have made great strides in meeting their goals. In 1996, a user could
expect to pay six to 10 times the license cost in consulting charges. These days the external consulting
cost has dropped to typically one to two-and-a-half times the software costs, depending on how much
process re-engineering the user does (Adshead, pg. 26). Fortunately for companies considering an
ERP implementation there have been enough done in the past that there are opportunities to learn from
the successes and failures of others. One of the key factors of a successful implementation is dont try to
make the product fit exactly the way you would ideally like to work or on the other hand assume that
people will completely change their processes to meet the package. The first takes many years and costs
loads, the second meets big resistance (Adshead, pg. 26). For most businesses there needs to be a
middle-of-the-road approach where individuals realize that the software will not solve every organizational
problem and not every process in the company can be re-engineered to fit the software. Regardless,
savvy project leaders with prior ERP implementation experience will tell you that there are several pitfalls
to avoid during ERP projects. The first is not to select an ERP package based on a demo. Choose your
package wisely, ask questions, get references, and do your homework. An ERP package is a costly
investment and you need to be sure you are choosing the package that best fits the needs of your
organization. The second is get management commitment. Not securing top management buy-in results
in an automatic project failure. Management commitment is often high at the beginning of a project but
begins to wane as the project wears on. It is vital to keep management interested, involved, and
positioned squarely behind the project. The third is to avoid heavy customization. It is both easy and
tempting to customize ERP packages to fit your exact needs. Unfortunately excessive customization will
haunt you by lengthening the project timeline and by driving up maintenance costs in the future. The final
pitfall to avoid in ERP implementations is not to underestimate the importance of training. It is not
uncommon that users receive several days of training on the new system and then do not see the system
again for months. Users need in-depth and on-going training and should even be involved with system
testing if at all possible (Adshead, pg. 27).
Unfortunately for Nestle USA, they did not heed the failures of others. Throughout the implementation,
Nestle USA made several large mistakes that almost doomed the project. When the project began a
team of 50 top executives and 10 senior IT professionals was assembled to develop a set of best
practices for all Nestle USAdivisions. The goal was to develop these best practices for all functions of the
organization. Each function from manufacturing to sales would eventually be forced to retire their old
approaches and adopt the new best practice that had been developed. Concurrently, a technical team
was charged with the task of implementing a common data structure across the company (Worthen, pg.
2). By the time the implementation began in 1999 Nestle already had problems with its employees
acceptance of the system. Most of the resistance met by the project team was traced back to the fact that
none of the groups that were going to be directly affected by the new processes and systems were
represented on the key stakeholders team (Worthen, pg. 3). This was only the start of Nestle USAs
problems. By early 2000, the implementation had turned into a disaster. Employees did not understand
how to use the new system and did not understand the new work processes they were being forced to
adopt. Divisional executives were just as confused as their employees as they had been left out of the
planning and development of the new system and were less than willing to assist in straightening out the
mess that had developed (Worthen, pg. 3). The result of this was that morale plummeted and turnover

skyrocketed. In fact, turnover among the employees who forecast demand for Nestle products reached
77 percent (Worthen, pg. 3).
Nestle USAs implementation problems did not stop with employee issues. Technical difficulties began to
emerge as well during the rollout. In the rush to beat the Y2K deadline the project team had overlooked
the integration points between the modules. This meant that the different modules could not talk to each
other. So if a salesperson gave a discount to a customer and entered it in the system, the accounts
receivable portion of the system did not know of the discount. The result was that the customer would
pay their bill but invoice appeared as though it were only partially paid (Worthen, pg. 3).
By June 2000, Nestle USA was forced to halt the rollout and the project manager was removed from the
project and reassigned to Switzerland (Worthen, pg. 3). NestleUSA gathered 19 key stakeholders and
executives went on a three-day offsite retreat to discuss the future of the project. Out of this meeting
came the revelation that they would need to redefine the business requirements of the project and then
shape the project timeline around the requirements rather than to shape the timeline around a
predetermined end date (Worthen, pg. 3-4). This process took until April 2001 and resulted in a detailed
blueprint for the project team to follow. A director of process change was hired to act as a liaison between
the project team and the different functional divisions (Worthen, pg. 4). With all of these items finally
resolved, the project was able to continue. The last rollouts were scheduled to be completed in the first
quarter of 2003 (Worthen, pg. 1).
Results
Although there were bumps in the road for Nestle USAs ERP implementation, it certainly seems to be
paying for itself. As of 2002, Nestle USA claimed they had already realized a savings of over $325 million
(Worthen, pg. 1). Most of these savings came in the area of supply chain improvements, specifically
demand forecasting. The old process involved a sales guy giving a number to the demand planner, who
says, Those guys dont know what the hell they are talking about; Im going to give them this
number. The demand planner turns [that number] over to factory, and the factory says the demand
planner doesnt know what the hell hes talking about. Then the factory changes the number again. With
SAP in place, common databases and business processes lead to more trustworthy demand forecasts for
the various Nestle products. Furthermore, because all of Nestle USA is using the same data, Nestle can
forecast down to the distribution center level (Worthen, pg. 4).
In addition to saving money, Nestle USA has also been able to come together as one organization. The
problem of 29 different brands of vanilla has been solved and now with common databases each factory
refers to vanilla in the same manner. They also use common processes that simplify operating
procedures and allow for the centralization of functions such as developing training procedures. Training
no longer needs to be customized for each factory. Since each location follows the same procedures,
training materials only need to be developed once. Additionally, any Nestle USA employee could relocate
to another factory and not have to adjust to local processes.
Nestle UK experienced similar successes with their ERP implementation. They were able to recoup the
money spent on the system in only two years (Glick, 7 Days, pg. 4). Further, like their American
counterpart, Nestle UK has experienced reduced inventory levels, tighter control on inventory, and a more
disciplined attitude toward business processes (Glick, 7 Days, pg. 4). Most importantly, the ERP
implementation at Nestle UK helped to foster a culture of continuous improvement (Glick,Enterprise, pg.
24). Improvement priorities are clear: first, the internal opportunities; second, business-to-business; and
third, business to consumer (Glick, Enterprise, pg. 24). This attitude is embodied by the fact that
following the ERP rollout they hired a process development manager. This persons sole responsibility is
to act as a bridge between business and the Information Technology department and to make sure that
employees stay focused on continuous improvement rather than simply trying to maintain existing
systems (Glick, Enterprise, pg. 24).

Inside one of SAP's smallest ERP success stories

By Thomas Wailgum
Artisan Hardwood Floors' purchase of SAP's BusinessOne ERP software in late 2007
wasn't anything that triggered a gushing press release from SAP's PR staff. It most
likely didn't hit the radar screens of SAP CEO Henning Kagermann or CEO-in-waiting
Leo Apotheker over in Walldorf, Germany.
But it's a telling story, nevertheless, that starts with a "de facto" CIO and no IT staff,
disparate systems, and almost no customer knowledge of SAP's ERP expertise.
If you've worked in a small business, that scenario doesn't seem so surprising. But if
you work for SAP, that scenario is a radical change from the past.
Located in Austin, Texas, Artisan Hardwood Floors is a family owned and operated
company with 37 employees and virtually no in-house IT staff. Like most small
businesses, it found itself in 2007 running a couple of disconnected software
packages for operations and accounting, and relying heavily on manual processes,
says Pat Bailey, a general manager and co-owner of the business, as well as a selfdescribed "guy who does everything."
"We didn't have any network [connection] between operations and accounting,"
Bailey recalls.
So he began looking for a new package that could unite back-office functions of
Artisan's three separate business lines: a flooring installation business; a lumber
yard that imports wood from South America and sells both at retail and wholesale;
and a distribution arm to a network of U.S. dealers.
Even with the modicum of complexity between the separate operations, Bailey (the
de facto CIO for big tech decisions) was going to need only a dozen or so seats for a
new software package, which has not been an area that SAP (or Oracle, for that
matter) has had much interest in selling to in the past. After all, SAP made its bones
implementing large, complex and expensive software rollouts almost exclusively to
the Fortune 1000 set: the Coca-Colas and Wal-Marts of the world were its signature
deals.
So the chances of Artisan Hardwood Floors using SAP software were seemingly as
likely as Larry Ellison inviting Hasso Plattner over for a brats and beer BBQ. But
today, Artisan Hardwood Floors is running SAP BusinessOne 100 percent. "I was sold
the first day they did the demo," Bailey says.
If that's any indication of future SMB success for SAP, then the small potatoes deal
should have at least brought a grin to Kagermann's and Apotheker's faces. For it

was perfect execution on SAP's newfound strategy to infiltrate the small business
space with easy-to-use ERP applications.
SAP: Just a Name on a Golf Hat
Not every SMB deal is going to have as happy an ending for SAP. What did Bailey
know of SAP when he was reluctantly introduced to it by a persistent consulting
sales guy? Bailey's response illustrates just how difficult a challenge lies ahead for
SAP: "Absolutely nothing. Well, I knew that golfer from South Africa [Ernie Els] wore
it on his hat." He also was convinced that SAP was going to be way too expensive.

Besides sponsoring a professional golfer, SAP is spending lots of marketing and

partnership dollars to make SMBs take notice of its product set. (Maybe you've seen
the "SAP is for great companies, not just great big companies" advertisements.)
In April 2008, SAP announced a new referral and incentive program for its partners
and nonpartners to drive SMB customers' business SAP's way. The move, paying for
new software business, was a first for SAP, and it shows just how much thirst
enterprise software vendors have for new customers in the SMB business
applications market. (See "SAP Pays Partners, Goes with Gusto for Small and
Medium-Sized Business Customers" for an in-depth look at SAP's strategy.)
TBC International Consulting of Salado, Texas, was the SAP channel partner that
eventually sold Bailey on the software and did the implementation. (Bailey was not
the warmest of potential customers at first: "This SAP guy came in and he said,
'Hey, I want to sell you this product.' I ran him out of here a couple of times before
he got through the door.")
The implementation team was just three people: two from TBC and a consultant
hired by Bailey.
Unlike inside big companies, where sometimes no one wants to take full
responsibility for an ERP rollout, Bailey became immersed in the software
purchasing and rollout process. "I became a research junkie, and I learned about
pieces of software in our price range and picked the best one," he says. "I'm a bit of
an overachiever. So by the time those SAP consultants left, I probably could have
been one." (To read about the workforce implications of SAP's SMB strategy, see
"SAP's Push Into the SMB Market Is Creating a Skills Gap for IT Departments.")
Just after SAP's April announcement about its channel strategy, Patricia Hume, SAP's
senior vice president for channel sales and strategic alliances in the SMB sector,
told CIO: "Right or wrong, SAP has been for 35 years the leading industry supplier of
ERP to large enterprises." And now, she added, SAP's goal is to "bust the myth that
SAP is only for great, big companies."

Can SAP Beat Microsoft's Ease of Use?

One of the key selling points for Bailey was BusinessOne's ease of use-an area
where some of SAP's product sets have earned reputations for exactly the opposite
in terms of usability, especially within large, complex implementations that required
business process change. "It's one of the easiest products I've see to operate, both
all the way from operations up to the accounting department," Bailey says.
Superclass: 14 of the worlds best living programmers
Today, he says, he can see Artisan's financial and operational picture "much clearer
than I could before. Am I where I want to be? Not yet. The big thing for me is: the
information is being put into the system." In addition, "at any point of time, any
person can walk up to a station, log in, get a phone number, fax number, account
balance, get an agent report-anything like that," Bailey says. "That's what I was
shooting for, and I succeeded."
What's also interesting about Bailey's decision-making process: Microsoft did not
win out. Microsoft often wins ease-of-use comparisons, simply because everybody
knows Office. That familiarity, in turn, is giving Microsoft an advantage as it
continues to market and roll out its SMB ERP and CRM product lines, called
Dynamics.
Bailey says he considered the Dynamics ERP product set as well as several other
vendors' offerings, but for the staffers that would be using the new system, the
BusinessOne software offered the easiest training environment. "Because I had to
educate a lot of non-technical people about a system, I wanted to do it in something
that was easy to learn," he says. "BusinessOne is just too easy to navigate."

The top three ERP implementation disasters

No Kisses for Hersheys
In September 1999, former CEO and Chairman of Hersheys Foods, Kenneth L. Wolfe
told Wall Street analysts during a conference call that the company had issues with
its $112m order-taking and distribution computer system, implemented by SAP,
Siebel and supply chain software provider, Manugistics. Such issues, in fact, that
Hersheys were unable to deliver $100m worth of Kisses and Jolly Ranchers for
Halloween the next month, causing outrage amongst Americas youth and the
companys stock price to plummet by over 8%.
Despite much of the mystery surrounding Hersheys terrible situation, the truth of
its failure apparently lies in the timing. The system went live before the crucial
month of Halloween, one of the most profitable periods for any US candy
manufacturer. Studies suggest that for most companies that engage in enterprise
software implementation, business processes suffer temporarily which can affect
revenue for anywhere up to six months.
Lesson number one to be learned schedule your installation for a less-demanding
period during the year, and dont expect to hit the ground running.

Freshers Failure
When the University of Massachusetts-Amhersts new online registration system,
Spire, crashed the day before classes commenced, all 24,000 students found
themselves unable to register for classes, access timetables or perform any online
activities at all. Pandemonium broke out amongst disoriented first-years and classes
were disrupted for the first three days of term.
But the chaos didnt stop there. At Stanford University students started the new
school year with a dead web portal and no clue where their classes were meant to
be, and at Indiana University, 3,000 students were denied financial aid by the faulty

new ERP system, rushing financial aid administrators off their feet to scramble
together food and short-term loans.
You may be wondering the cause of such widespread disaster. Could it have been a
sorority Ouija session or a practical joke gone-wrong? The truth lies in the rushed
installation of software that included a PeopleSoft Web portal implementation.
University administrators may be drawn to the organizational features of ERP
systems but often fail to remember that they have been designed to centralize
corporate business processes. According to CIO.com, recent studies have shown
that not only do ERP implementations take far longer to install at Universities, but
they usually cost up to five times more than the original quote which is rather a
problem when youre running a college and not a profit spinning corporation.

Lesson number two - the moral of the story: if you dont have the talent, experience
or financial capability to manage a sturdy enterprise system, its better to leave it
alone, in particular if you are a non-profit organization.

An uncomfortable SAP experience

In 2008, Select Comfort, maker of the Sleep Number bed announced its sudden
decision to stop all work associated with their wide-ranging SAP ERP implementation
plans which had included ERP, CRM and SCM modules among many more.
What went wrong? Select Comfort had originally expected the move to provide
greater flexibility and functionality for their growing and evolving business model
as well as becoming less expensive to maintain over the long-term.
But, the truth was inevitably revealed after the company then went on to cut 22% of
its workforce. A range of SEC filings showed that Select Comfort officials had really
been under pressure for months from one of its shareholders, The Clinton Group, to
quit the project citing it as both hugely over budget and behind schedule.
According to the Clinton Group, $12m was spent on the initial implementation in
2007 with a further $8m (sans additional costs) anticipated in 2008. It is difficult
for us to envision, given the size of the company, that the company could ever
achieve cost savings to justify such as large expense said the shareholder.
Particularly in light of the departure of the companys Chief Information Officer not
only was the Clinton Group unamused at a lack of any attempt by Select Comfort to
undertake a detailed review of their IT needs through an independent consultancy,
but they were deeply concerned by the companys decision to implement the ERP
software using their own internal resources which had at best, limited experience.

The very fact that the end of Select Comforts ERP journey colluded with the axing
of 120 jobs speaks volumes about the severe misjudgement (a kind
understatement) of management in regard to the companys priorities. What on
earth were they thinking?
Lesson number three - If you cant do it properly. Dont do it at all! If youre lacking
the funds or the management to execute such an intensive project as SAP ERP
implementation there should be no doubt in your mind to leave it well alone!
Although there is no question that the technology industry has evolved massively
since the earlier years, there will always be somebody, somewhere that needs a
gentle reminder of the basic requirements for ERP implementation success. Know
anyone that suffered at the hands of Enterprise Resource Planning?

UPDATED - Avon's Failed SAP Implementation A Perfect

Example Of The Enterprise IT Revolution
Update: SAP contacted me to point out that other vendors involved in the project
were involved in the usability aspects and hence this cant be cast as a SAP failure
story. That is a valid point and I agree that there are multiple failures in play here.
The core thesis however remains traditional enterprise business is failing to offer
the easy user experience that modern software customers need. SAP has done a lot
of work in 2013 on the user experience aspects of software including the
introduction of Fiori and Screen personas. They have also put together a Design and
Co-innovation center
Last week the Wall Street Journal covered the news that Avon Products Inc. is halting
a massive multi-year software project. Avons new management order system was
rolled out initially in Canada and was to be extended globally thereafter. Avon
balked however when the software rollout not only disrupted regular operations, but
when implemented was so difficult to use that Avon representatives left the
company in meaningful numbers. Avon was forced to write down somewhere
between $100M and $125M on its balance sheet since it wont be put to use
globally as was initially intended and budgeted for.
This isnt the first enterprise software debacle to strike Avon. Two years ago its
Brazilian operations suffered under an Oracle system roll-out that contributed to
disappointing earnings from the companys operations in that country.
So whats up? Enterprise IT systems are supposed to make organizations more
efficient, not drag them down into a quagmire of process and inefficiency. And they
certainly shouldnt result in a large exodus of workers from the organizations
implementing them.

Now in fairness to these two IT vendors, some of the problems can be attributed to
Avons model whereby it has direct sales representatives on the ground it is
always going to be more difficult to roll out an enterprise software system with this
sort of sales-force as opposed to a traditionally employed one. But beyond the Avon
specifics, this story of a failed IT project is symptomatic of a far broader change in
IT.
For years weve heard about the rise of the Digital Natives, the generation that
has grown up immersed in technology. Weve heard that when this generation starts
to enter the workforce well see a tipping point as they demand enterprise tools that
are as easy and intuitive as the tools they use in their home life. But Avon sales
people are generall not Digital Natives they tend to be older and less attuned with
the very latest in technology than the millenials. Rather than the digital native influx
creating the IT revolution, were seeing something far more distributed.
Walk down the main street of any town in the developed world (and much of the
developing world for that matter) and you see people of all ages, from all socioeconomic groups and of ever race, color, creed and gender using smartphones to
communicate. Largely thanks to the changes the iPhone brought, we have everyday
people using a plethora of lightweight and simple applications. Its not just the
millenails grooving out on Facebook, but baby-boomers and beyond are Instagraming, WhatsApp-ing and SnapChat-ing with abandon. These people spend much of
their waking moments using applications that are designed from the ground up to
be easy to use.
In what should have set alarm bells ringing in the SAP media department, a
representative of the company told the Wall Street Journal that its software was
working as designed, despite any issues with the implementation of the project.
Its a sad indictment of enterprise IT vendors that they would consider an
implementation where the end users refuse to use the product as working as
designed.
In commenting on the debacle, industry analyst Michael Krigsman put it succinctly:
Basically, users will accept less crap today, when it comes to software. That is
because the world of consumer software has become easy and simple to use and
has trained users to expect that business software will follow a similar model. And if
it doesnt, people are much less patient than they were in the past.
There are a plethora of new startups hitching their caravan to this notion of the
consumerization of IT. While that trend is often overstated, what cannot be
overstated is the risk that traditional vendors face if they dont start being laserfocused on making their solutions both fit-for-purpose in terms of functionality, but
also in terms of ease of use. Users can no longer be dictated to, an entire
generation of startups are building massive value for themselves by delivering
solutions that end users actually want to use.