Enterprise Resource Planning
At Nestlé and Celestica
* * *
BU 415 FINAL REPORT
TEAM: H
Prepared For:
Prof. Michael A. Haughton
Prepared By:
Krista Collins
000066170
Christine Chim
000264020
Dorothee Deckert
039004968
Sara Villanueva
001619110
Tuesday, March 30, 2004
Table of Contents
Executive Summary 4
Introduction 7
Literature Review 10
The Critical Role of Networking in Enterprise Resource Planning (ERP) 10
The ABC’s of ERP 11
Justification of ERP Investments 12
When is it Time to Re-Implement? 15
Implications of the Articles 16
Methodology 17
Findings/Results 18
Systems Implemented at Nestlé 18
Improving Overall Organizational Performance at Nestlé 19
Improving Service Delivery at Nestlé 19
Organizational Objectives at Nestlé 20
Systems implemented at Celestica 20
Improving overall organizational performance at Celestica 21
Improving service delivery at Celestica 21
Organizational Objectives at Celestica 22
Environmental Forces at Nestlé 22
Technology 22
Organization 23
Management 24
Market Forces 24
Competition 25
Environmental Forces at Celestica 25
Technological 25
Organizational 25
Managerial 26
Market competition 26
Comparison between Nestlé and Celestica 26
Outsourcing 26
Nestlé 26
Celestica 27
Comparison between Nestlé and Celestica 28
Reasons for Success 28
Nestlé Managerial Reasons for Success 29
Nestlé Organizational Reasons for Success 29
Celestica Managerial Reasons for Success 29
Celestica Organizational Reasons for Success 30
Comparison between Nestlé and Celestica 31
Challenges 31
Managerial Challenges at Nestlé 31
Technological Challenges at Nestlé 31
Organizational Challenges at Nestlé 32
Managerial Challenges at Celestica 32
Technological Challenges at Celestica 33
Organizational Challenges at Celestica 33
Comparison between Nestlé and Celestica 34
Results 34
Nestlé’s Results 34
Celestica’s Results 35
Comparison between Nestlé and Celestica 36
Lessons Learned 36
Conclusion 38
Works Cited 40
Appendix 42
Exhibit 1: IT/IS expenditures of Nestlé versus the competition 43
Exhibit 2: Worldwide Investment in ERP Projects, In $ Billions 44
Exhibit 3: Drivers of Change in the Environment 45
Exhibit 4 : Comparing Nestlé USA and Celestica Asia SAP implementation 46
Exhibit 5: Comparing Nestlé and Celestica’s ERP Choices 47
Executive Summary
Enterprise Resource Planning (ERP) is a system that has the ability to integrate all departments and functions across a company onto a single computer system. In addition, the information on the server can be made available for all the different departments and functions of that company. ERP became popular in the 1990’s as everyone scrambled to find ways to cut costs, make their organization more efficient and finding ways to prevent the Y2K bug. The reasons for the popularity of ERP included big savings and a high return on investment (ROI). However, many companies failed to realize this because of their ignorance to the needs and discipline required for an ERP system to function correctly.
Although ERP systems promise great returns, as stated before there are many potential downfalls to this system too. Hence, the purpose of this paper was to study both the cost and benefits of ERP by focusing on Nestlé and Celestica’s ERP projects and how both firms handled the installation and implementation of their respective firms.
Nestlé, a Swiss based company embarked on an ambitious project at the beginning of 2000. It wanted to integrate all its systems and software worldwide into one system. Although, on the surface it would provide many benefits to Nestlé, this project proved to be a great challenge due to the shear size of the project. Not only would it require an ample amount of time and commitment, but Nestlé would also have to be prepared to fork out a lot of money not just for the cost of purchasing and installing the system and its software, but for additional costs such as retraining its employees, and costs associated with fixing the bugs in the system. In Addition, Celestica also embarked on a bold project; one that involved integrating many different enterprise systems, in hope of attaining a best-of-breed solution. When Celestica implemented its SAP system in Asia, it used a surprisingly risky approach: the big bag. However, this paid off, as they were able to implement the system in a mere nine months and unlike Nestlé, they did not have to deal with a lot of the hidden costs, as their employees were supportive and were involved every step of the way.
Nestlé’s goals in implementing SAP were to define common business processes and roll them out across Nestlé’s worldwide locations, standardize the master data, standardize the entire IT infrastructure, and to implement Web-based initiatives. On the other hand, Celestica’s goals were to be able to meet clients demands and due to the fact that the market that Celestica operated in required timely market entry strategies, it was vital that the system they implemented will allow them to coordinate all aspects of their business in a timely manner. In order to reach these goals, Nestlé and Celestica had to address many environmental factors such as technological, organizational, managerial, market forces and competitors.
Although the high level of managerial support helped Nestlé’s project succeed, the firm faced many challenges along the way. One of the biggest challenges that Nestlé faced was the implementation of the software worldwide. Organizational change also posed a great threat to the project’s success. Due to the differences in culture, some subsidiaries would be more reluctant to change then others and may also require more training and development to help overcome any restraint that Nestlé faced. Some of the challenges that Celestica faced was having a leveled skill set of their employees all around the world. Due to the fact that Celestica had recently acquired numerous different companies around the world, they had to make sure that all the systems were integrated properly so that information was readily available because of Celestica’s short product life cycles.
Even though some of the end results were not positive for Nestlé (i.e. a high employee turnover rate), Nestlé claimed that they were able to save $325 Million Dollars in costs ever since the implementation of the SAP system. Since not all benefits can be judged by tangible means, Nestlé learned great lessons such as the importance of testing, the importance of keeping everyone in the loop of changes and decision making, and the importance of having a contingency plan just in case things do not go as planned. As for Celestica, although no dollar amount was giving on any savings, they were able to provide real-time access to information to employees worldwide. This allowed them to improve the overall efficiency of their information infrastructure. The system will allow for better communication between employees and Celestica’s SBU’s worldwide. Like Nestlé, Celestica faced high employee turnover rates, but not for the same reasons. Celestica’s high employee turnover rate was due in part because of the acquisition of new companies and the implementation of new systems.
Introduction
Enterprise Resource Planning or ERP has longed been hailed as the cost saver of the century. To businesses, its initial introduction was the best invention since sliced bread. However, many soon found out that they underestimated the complexity of ERP systems and many failed to realize this cost savings and instead incurred larger expenses. Even though ERP had big potential in saving companies millions of dollars and giving companies both tangible and intangible benefits, implementing an ERP systems also contained many hidden costs not explicitly stated by the ERP consultant or on the ERP contract. Many companies were not prepared for the change and commitment that an ERP system demanded. Hence, this was one of the biggest reasons for the numerous ERP implementation failures around the world.
One of the most popular and restrictive ERP systems in the market is SAP. Many companies such as Coca-Cola, Wal-Mart, Hershey’s, Ford Motors, General Motors, Nestlé and Celestica uses this system to help enhance productivity and efficiency, increase customer service satisfaction and decrease filing errors.
One of SAP’s clients, Nestlé was founded in 1866 and today is one of the biggest food and beverage companies in the world. Nestlé has operations in almost every corner of the globe employing over 230 000 people, and owning many famous brands such as Golden Gram, Crunch Bars, Nescafe, Perrier, Kit Kat, and Stouffers. In 1997 the United States subsidiary of the Swiss company implemented an SAP project called “Best” (business excellence through systems technology). Although this project had a promising projected ROI, “Best” used up more than $200 million dollars, and took six years for the system to be fully integrated and functional.
Celestica is another SAP client; they are a world leader in the delivery of innovative electronics manufacturing services (EMS). They operate in a highly sophisticated global manufacturing network with operations in Asia, Europe and the Americas. Celestica provides a broad range of services to leading original equipment manufacturers (OEMs) across a variety of industries. A recognized leader in quality, technology and supply chain management, Celestica provides a competitive advantage to its customers by improving time-to-market, scalability and manufacturing efficiency. In order to accomplish its organizational goals Celesetica did not restrict itself to SAP alone. The firm also used Business Planning and Control System (BPCS) from Chicago-based System Software Associates Inc. (SSA) in North America, and used SAP in Asia. This strategy effectively allowed them to customize their own ERP system to match their needs, and the needs of their clients.
Hence, the purpose of this paper is to study ERP and its impact on today’s businesses. In order to do this, this paper focused on Nestlé and Celestica and how they implemented their ERP system. In order to get a good picture of this topic, this paper used these research questions to achieve its objectives.
- The objectives to be achieved by implementing the ERP system.
- The environmental forces behind the choices of the Nestlé and Celestica
- The reasons behind the choice of outsourcing the ERP project
- The success factors for Nestlé and Celestica
- The problems and challenges that Nestlé and Celestica faced in developing and implementing the ERP system
- The effects of this project on Nestlé and Celestica as a whole
- The lessons learned while embarking on this project
The main reason why this paper chooses to study ERP is because of its increasing impact on today’s business environment. More and more Fortune 1000 companies as well as smaller companies are converting to using various types of ERP systems with the hope of being more competitive then its competitors. Over these past few years, the global market for ERP systems has increased from about 19 Billion Dollars US in 1999 to about $30 Billion dollars US in 2003. This trend is expected to continue as more people try to beat their competitors by being more productive and efficient. In addition, both the Nestlé and Celestica were chosen to study mainly because their particular ERP projects were so large and provide a lot of information on the challenges and successes of implementing an ERP system.
Literature Review
The Critical Role of Networking in Enterprise Resource Planning (ERP)
This article gives an overview of the emergence of ERP and the importance of a strong network infrastructure in order to increase the successful implementation and workability of the system.
ERP is a growing trend in today’s society. In the article it states that today, more then 60% of the Fortune 1000 companies have implemented ERP and the market is worth about 20 billion dollars. An average ERP deployment takes about three years with a total cost of 14.5 million dollars. Hence, it is vital that the system works, otherwise the company would incur more costs, which would severely affect its ability to operate and compete. The ERP application relies heavily on the company’s underlying infrastructure. Networking costs comprise of approximately 5% of the total ERP budget.
The importance of the network infrastructure increases as the importance of the ERP applications increase. Management of ERP applications and network interconnections are critical to the overall performance of the system. Overall performance is defined as application layer availability (uptime, capacity to grow) and infrastructure availability.
A lot of strain is placed on the company’s network, as a result of: supporting a growing numbers of users, adding geographic reach, integrating new applications, and having the system available and accessible to all (employees, suppliers, business partners, customers.) As a result, it has become critical that the company’s infrastructure is strong and reliable; otherwise, the constant crashing of the system will severely handicap a company.
Using integrated monitoring and reporting tools can provide a complete and real- time view of application and infrastructure performance, which leads to more effective trouble-shooting and better application performance.
The ABC’s of ERP
This article gives the reader a basic idea of what ERP is, its cost and its benefits. It also outlines why you should or should not implement ERP and the realities of ERP implementation.
ERP improves a company’s business performance by attempting to integrate all departments and functions across a company onto a single computer system that can serve all those different department’s particular needs. Although it does not handle the upfront selling process, it takes a customer’s order and provides a software road map for automating the different steps along the way. People in the different departments can update and see the information as the process gets completed. At any stage of the sale, an individual can log into the system and see where the order is. This is intended to get process customer orders faster and with fewer errors than conventional paper method. However, ERP requires an incredible amount of discipline. Warehouse employees can no longer keep inventory in their heads or on scraps of paper. They need to put that information online, and if they fail to do so, customer service representatives will see low inventory levels and tell customers their requested item is not in stock.
There are five main reasons why companies use ERP. The first is because it integrates financial information making it easier to find the “real numbers” of the company. Second, it integrates customer order information and allows for easy tracking and accountability. Third, it standardizes and speeds up manufacturing processes by standardizing processes and using a single integrated computer system to save time, increase productivity and reduce head count. Fourth, it reduces inventory by allowing for better plan deliveries to customers thus reducing the finished goods inventory at the warehouses and shipping docks. Lastly, it standardizes HR information in companies with multiple business units by having a unified, simple method for tracking employee’s time and communicating with them about the benefits and services.