Implementing Oracle ERP System in Nestles Finance Department - Case Study Example

Implement Oracle ERP System in Nestle’s Finance Department Student’s Name Institution Affiliation Executive Summary Nestle USA, a subsidiary of one largest and renowned firm in the food and beverages company industry, embarked on a process of establishing an ERP system, which would centralize its numerous firms in 80 countries. The company experienced various implementation challenges such as high employee turnover and low morale due to unpreparedness and technical difficulties. The company failed to involve the employees in the rollout stage and hence they had a hard time using the new system and adapting to the new business processes. Technical issues also arose during the rollout and implementation stage. The implementation team overlooked the integration points in order to complete the project within the set deadline. As a result, they failed to integrate the system with the sales, planning and financial groups although all purchasing departments followed a common process, used common systems, and names. Due to these challenges, ERP implementation took several years longer than set and cost the company millions of dollars more than had been budgeted. The company redefined the project business requirements and then shaped the timeline of the project around the requirements instead of shaping the timeline around the prearranged set end date. The company employed a director of change process to act as a link between the different functional departments and the implementation team. After addressing all the problems, the company experienced a successful rollout of the project. With the new oracle ERP system and business processes, forecasts are more correct and this led to reduced inventory, costs for redistributing inventory, and has saved the company a lot of money from improved demand forecasting. Introduction Organization Background Organization Business Nestle USA one of the subsidiaries of Nestle SA, a giant food and beverages firm with operations in most parts of the world. Nestle SA is headquartered in Vevey Switzerland and is one of the largest food companies worldwide measured by revenues. It provides a wide range of foods and beverages categories and is best known for its coffee, chocolate, and milk products, which are adapted to fit local cultures and markets. Triggers for implementing the enterprise system In the past, Nestle USA allowed every local branch to undertake business as it saw fit considering the local business cultures and local conditions. Due to the decentralized strategy, the company had numerous information technology units that run almost 900 IBM AS/400 midrange computers, 200 UNIX systems, and 15 mainframes; there was no corporate computer center. This led to extra costs and inefficiencies, which prevented the company from competing effectively in food and beverage industry. There were no standard processes and this prevented the company, for instance, from leveraging its international buying capacity to acquire lower prices for its raw products. Challenges in Context of IT Project/Portfolio Management In 2000, the company embarked on a program, which aimed at coordinating and standardizing its business and information systems processes. It initially installed ERP system software to integrate accounting, distribution, and material applications in Canada, Europe, and the United States; this system was intended to centralize a conglomerate that owned two hundred operating firms and subsidiaries in eighty countries (Worthen, 2002). As of May 2000, the ERP system had saved the company $ 325 million, most of the savings accruing from enhanced forecasting of demand. Previously, factories, demand planners, and sales force all had unconnected databases. The implementation of ERP system and new business processed led to forecasts that are more accurate and this led to lesser inventory and outlays for redistributing inventory, which had arisen from numerous products being distributed to one location and not sufficient to another. To function effectively in any organization, there is a need to comprehend the costs and benefits of company-wide integration of information systems as well as the ERP system used in the integration process. Components of the ERP systems The company ERP system integrated different departments including the department of finance. Building the ERP system around the finance department enabled a successful implementation. In the finance department, the company sought financial excellence through superior ERP solutions for finance and controlling; it took a comprehensive approach to management and financial accounting. The ERP system was intended to increase the efficience of the department of the finance through automating reporting functions and automating processes with hastened financial closes. It helped to reduce risks and created a predictable path for the future as it helped to support everything from overhead cost accounting to general ledger. The real-time accounting information from the ERP system helped to improve decision making due to great and deeper insights. It helped to reduce and monitor overhead costs to increase the company competition in the industry and also optimized its returns, cash, liquidity, and working capital. The ERP system led to streamlined processes which improved reliability and visibility of financial information and also enabled more effective collaboration with suppliers and consumers. In implementation, an efficient financial management system became the initial point for all the financial information which circulated around the company. It entailed joining and consolidating the information and distributing it to the users that needed it. This meant not only compiling information and delivering it, but also directing the information in the best format to the right personnel that required the information to undertake various tasks in a precise moment. The financial department used the ERP system to maintain the accounting updated in a precise and reliable manner. Since general accounting was at the centre of the system financial activities, it helped to integrate and capture the transactions made inside the module, enabling the company to see the impact in financial terms over the business as a combined system. The ERP system allowed the application of measure units in accountable ways. The entry register of the daily transaction was displayed in a complete manner and enabled the finance department to allow two personnel to work in varied entries in a similar accounting package. In Nestle, MS-Excel was commonly used, however addition of the ERP system provided security in terms of access of the use macros. By using Microsoft Excel it was possible to create a link to different subsidiaries and units and also to connect to different databases via a single electronic page. In order to maintain an effective record and order of all the financial activities, all the details on audits included information on the person who made the financial and the time and date and the person who created and changed it the last time. The system provided the option of filtering the financial details using the entry dates and this made it simple to display transactions according to needs. The system enabled execution of double accounting closing (at the subsidiary and global level) as well as registering of motions in new financial period without having closed the preceding period. The system enabled the finance department personnel to maintain accounting information of numerous years online without upsetting the performance and various features were afforded to leave audit tracks to establish the transactions origin. It also allowed integration with other components for the fast reception of financial entries and it allowed the accounting combination of an unlimited number of units in an unrestricted number of levels. This comprises a hierarchical pyramid which could be depicted as a tree. With the system, each accounting period is flexible as well as totally defined in line with specific requirements. With the ERP system in the finance department, there was more safety as well as better access. All the department components were able to access the flow management chain. Implementation Challenges Implementation problems included employees’ issues leading to high turnover and low morale due to unprepared and technical difficulties. The $210 million project was headed for failure since the company did not include in the implementation team any employees from the operating groups that were affected. As a result, employees resigned, morale was down and the help desk calls increased to about 300 calls a day. Turnover amongst the workers who estimate demand for the company merchandise reached 77% (Worthen, 2002). In addition, the employees did not also understand how to use the new systems and the new systems that they were being forced to take up. Even the divisional executives did not understand the process and were just as confused as the employees and hence did not help them (Worthen, 2002). The project was temporarily stopped after three years. The Chief Information Officer and Vice President of Nestle USA learnt that the project was not about implementing the software, but about managing change. Since the project changed the manner employees worked, it necessitated that team concentrate its focus on change management (Worthen, 2002). Technical issues also emerged during the rollout of the system. The integration points between the modules were overlooked in a bid to beat the deadline. This meant that all purchasing departments followed a common process, used common systems, and names; however, their system was not incorporated with the sales, planning or financial units. According to Worthen (2002), the project team substituted the division silos with process silos in the rush to bring together Nestlé’s separate products. Because of these problems, implementation took several years longer than planned and cost the company millions of dollars more than had been estimated. By June 2000, the Nestle USA was forced to stop the project and the project manager was removed from the rollout plan and moved to Switzerland (Worthen 2002). To determine the way forward, Nestle USA assembled nineteen key executives and stakeholders and sent them of a 3-day offsite meeting. The meeting revealed that the company needed to redefine the project business requirements and then shape the timeline of the project around the requirements instead of shaping the timeline around the prearranged end date. The process and meeting led to a comprehensive plan for the project team to follow. The company hired a director of change process to serve as a link between the varied functional divisions and the implementation team. After addressing all the problems, the company experienced a successful rollout of the project. There were obvious breakdown during the planning stages of installing the system however the overall result can be considered successful owing to the consolidated system that the company currently have in place as well as the large savings due to the system rollout. Nestle case highlighted the need to align company processes and important of a well-chosen ERP system in the alignment. The company does not need to rely solely on divisional manager for real-time information; they can intervene on a global level as required. The ERP system integrated and automated most of the company business practices and standardized and coordinated information systems. All the departments and functions were integrated into a single computer system. Project Management Portfolio The ERP system was intended to help Nestle achieve technology infrastructure savings, together with control over worldwide operations and improved business intelligence, with one worldwide instance of its ERP system. However, the needed integration of application servers and databases is organizationally and technically challenging. In Nestle, some of the module of the system proved harder to centralize, and hence, the company had to deal with centralizing back-office function such as human resource management and financials. For all organizations, tasks such as creation of consolidated reports on worldwide operations get easier with centralizing data in a single database. As a result, it is important to integrate the back-office functions of the system. Most of the functions had to be centrally managed in order to make technical consolidation easier and effective. Alternatively, applications such as customer relationship management and supply chain management were more challenging due to the variation in the way sales, logistics, and customer services are managed in various regions-and at times the variations are seen as important in the way the company compete in the areas. To ensure that the transaction volume and scale of the company did not exceed the capacity of the ERP system, SAP was chosen as a single-instance strategy. To prevent network latency or bandwidth issues, Nestle ensured to deliver acceptable performance to every location prior to making it dependent on the central system. The system led to much standardization of business processes, to ensure that it did not clash with the different processes of particular locations and divisions, the company evaluated the diversity of the these processes. Implementation of the ERP system offered the company a chance of re-engineering business processes, coordinating the systems of geographically dispersed regions, consolidating data and empowering users through offering them access to all the company data in real time. Included in the ERP system implementation were supply chain, direct procurement, production management, accounts receivable, accounts payable, financials, business intelligence, fulfillment and demand planning modules (Konicki, 2000). With the ERP system in place, common business processes and databases have led to more dependable demand forecasts from the company product portfolio. In addition, since all of Nestle USA is applying the same information, the company can project down to the level of the distribution center (Worthen, 2002). It has also come together as a single organization. The system, resolved the issue of 29 different brands as the common databases enabled every factory to refer to vanilla in the same way. The company is also able to employ common processes that make operation procedures simple and enable functions for instance, training procedures to be centralized. Given that every location follows similar processes, the training materials are only produced one time. In addition, any employee working in Nestle USA can move to another industrial unit and not have to adjust to the local procedures. There is need to gain a comprehensive understanding of the processes that encompass business operations in executing the ERP system. The system is often meant to be the key management system for the operations of a company. Comprehensive understanding of company business processes is important in choosing the appropriate ERP vendor and in planning the implementation process. After the business processes are understood, the next stage should encompass defining and prioritizing the main organization requirements. Since they are the basis for evaluation and selection of the ERP system and eventually establishing the customization requirements, requirements definition should start as early as possible. It is important to prioritize business requirements. Priorities should be developed depending on satisfying the immediate business requirements, the ones which impact the standard business processes followed by long-term strategic goals. Defining business requirements should be a continuous process which can be improved on a regular basis to deal with the changing needs of a company. The Technical ability of the ERP system should match the defined company requirement. Most firms usually concentrate more on the technical attributes of the ERP software, instead of the requirements that are very critical to the organization. ERP features and functionality that is not aligned with the business needs of the company often lead to an unnecessary waste of implementation money, time, and resources which may be spent on other activities such as training or software customization. Meer (2005) argued that a clearly defined purpose as well as a number of attainable objectives characterizes successful ERP implementation. Matching best practices to company needs is what differentiates one ERP system from another and is an important contributor to the eventual success of the implementation. The Enterprise Trends and Perspectives The company is under constant pressure from suppliers, shareholders, and customers to constantly improve and make better products efficiently and quickly and improve processes. Competing in a dynamic business environment as well as meeting the worldwide challenges entails agility. For the company to be successful, it had to be able to quickly respond to changes and ensure cost effective operations. The change could be of any type: change in consumer demands and supply chain associates, changes to a business process or model, business expansion as well as the need for new initiative such as outsourcing, and regulatory pressures brought about by government bodies, industrial groups, and financial markets. As a result, the company has to convert its business processes into demand-driven, responsive, and lucrative operations through optimizing their operations. Its competitiveness and eventual survival depends on the use of extended technological or information system applications. The implementation of Nestle ERP system in the USA led to the adoption of similar systems in the other countries where Nestle is based. The implementation of the ERP system in the United Kingdom also led to numerous benefits. Glick (2001) noted that Nestle UK was able to recoup the money used on the system within two years. In addition, like Nestle USA, they benefited from tighter inventory control, reduced inventory levels, and a more disciplined outlook towards business processes. The system also helped to cultivate a culture of continuous improvement. The improvement priorities became clear, starting with internal opportunities, secondly business to business and thirdly business to customers. This approach is exemplified by the fact that after rolling out the ERP system, they employed a process development manager. The main role of the manager was to serve as a link between the information technology department and the business and to ensure that the employees stayed focused on continuous improvement instead of merely trying to maintain the current systems. Recommendations Although Nestle USA consolidated ERP system is a success and the company is saving a lot of money, there are various recommendations which need to be considered during a rollout and after implementation. The first recommendation entail involving the right individuals in oracle ERP implementation from the beginning in order the system to be successful. It is not possible to redesign work procedures without involving the employees that actually do the work. Secondly, oracle ERP implementation should not be forced into a set timeline. Forcing the timeline to a set time date leads to shoddy components and some things are missed all the same. It is critical to totally define the business objectives of the system and then create a timeline for accomplishing the objectives, taking into consideration the importance of a company’s future. Thirdly, there is a need to train employees. Training is an important aspect of oracle ERP implementation as it ensures that the employees are prepared to use the new system and new business processes. It is important that the employees receive training early on and throughout implementation. When possible, the employees or end users should be involved in testing the ERP system. Although training expenses may be high as the workers have to learn new processes, its importance should not be underestimated or overlooked. Fourthly, there is also need to evaluate the firm process re-engineering that will be undertaken in line with implementing the system. Organizations need to exercise caution since it is not wise to re-engineer business procedures just for the sake of it. Some processes should not be changed. Caution should be exercised when choosing the processes that should be modified. Fifth, firms should limit the amount of customizations, which are done to the system while implementing the ERP projects. A large number of customization increases the chance of increased costs, timeline as well as bugs in the system. Given that the systems are not developed in-house but purchased from vendors, they should be sufficiently generic to be resold to many organizations. This implies that the organization processes should be restructured to match the software or the software should be customized to fit the needs of the organization. It is critical to choose the processes that are re-designed effectively. There is thus need to balance the software pieces that are customized and the processes to be re-engineered when making the determination. There is also need to acquire collective buy-in for the project. In the past, top-level executive placed a lot of emphasis on securing buy-in for the system. This is not sufficient. For the project to be successful, all people in the company should support the project. Firms need to concentrate on changing business processes and attaining universal before installing the system. According to Worthen (2002), there is a big difference between implementing a solution and installing software. The employees are the end users who will use the system and adapt to the new processes. Failure to involve them will lead to low morale and turnover problems. As with training testing of the system, integration should be undertaken from a process-oriented viewpoint. Rather than using fake data and moving it from one application to another, the team can run a real purchase order through the oracle ERP system starting from entry of an order through shipping as well as receipt of the payment. The employees who will do the jobs eventually should be part of this process. Strong project controls as well as governance should play an important role while implementing the ERP system. Companies should develop a formal risk management as well as mitigation blueprint beforehand. The plan should include continuous assessment of the project stages throughout implementation, with full participation of the employees and outside personnel. A combination of project resources, management skills and methodologies are important for successful ERP implementation. Conclusion It is evident that companies experiences challenges during ERP implementation. Nonetheless, it is possible to experience a successful implementation. Nestle USA experienced major difficulties and setbacks during ERP implementation such as low employee morale, high turnover and technical issues. However, it was still able to salvage a successful system, which has been adapted by Nestle subsidiaries in other countries. The important lesson learnt is that implementation strategies should be sufficiently flexible to change midway to overcome hurdles that come up during the project and organizations have to do their homework before starting an ERP project. The implementation of the ERP project involves a large number of locations and users, re-engineering processes and different sources of data. It is almost impossible to plan for each eventuality in such large projects. The different between success and failure is a company capacity to convene and collaborate during challenging times to reach end goals which will eventually make the job of employees easier and the firm more competitive. References Glick, B. (2001). 7 Days: SAP Software Gives Nestle Sweet Returns. Computing, p. 4. Konicki, S. (2000). Nestle Taps SAP for E-Business. InformationWeek, p. 185. Meer, K. (2005). Best Practices in ERP Software Applications. Lincoln, NE: iUniverse. Worthen, B. (2002). Nestle’s Enterprise Resource Planning (ERP) Odyssey. CIO. Retrieved from http://www.cio.com/article/2440821/enterprise-resource-planning/nestl--s- enterprise-resource-planning--erp--odyssey.html   Read More