Nestl Pieces Together Its Global Supply Chain

January 20, 2006 BaseLine Magazine By Tom Steinert-Threlkeld

Story Guide: Nestl Cooks Up a Global Supply Chain

One Supply Chain, 127,000 Products Signed: Global Project Manager; Undefined: The Project Project Plan: Finalized; Schedule: Not So Much Drafting a Project Team of Business-Unit All-Stars Standardizing IT: No So Tough; Standardizing Managers: Not So Easy Project Costs: Capped; Project Schedule: Changed Again Rollout: Fix It as You Go; Goal: Customer Can't Feel the Pain SAP Project: Global; Computing Resources: Limited Nestl By the Numbers Player Roster: Who's Who Among Nestl Project Planners Roadblock: Regional Managers Hurdles Overcome: Deploying a Common Global System Base Technologies: Nestl SAP: Not Pretty, But It Did the Job VEVEY, SwitzerlandChris Johnson was under attack. Fifteen months into standardizing how Nestl operates around the world, he was fending off a general revolt from managers in 40 countries.

Why should they spend money on his GLOBE project? The Global Business Excellence program, a worldwide initiative to implement a single set of procurement, distribution and sales management systems, would just hurt their bottom line. Andin their opinionsmake it harder to run their businesses. Johnson had been given the third day of a three-day meeting in October 2001 to sell the market managers on the importance of standardizing how Nestl conducts business around the world. Improvising, he decided as the day started to take questions, any questions. And by midday, he was still answering them. During lunch, Johnson decided as head of the GLOBE program that he had to somehow take charge. Or he would lose control of the $2.4 billion project, which was critical to Nestl's operating efficiency in 200 countries around the world. And, quite possibly, his job. So, when the meeting resumed after the break, he offered to give his job away. To anyone. "How many of you would like my job? Just raise your hand. If GLOBE doesn't work, I get fired. If I get fired, you know what's going to happen? Peter Brabeck [Nestl's chairman and CEO] is going to pick one of you to run it. So, here's the deal: If you don't want my job, you'd better make this work." No hands went up. Johnson had heard the complaints, but in the end, the project was going to happen. Whether it worked or not would depend on how well the market heads embraced what was a business initiative, not a technology initiative. The point was to find ways to streamline Nestl's myriad and vast supply chains, for everything from paper to powders to chocolate to water; to eliminate wasteful purchasing practices; and to take the best administrative practices and spread them throughout the company's operations.

Johnson turned the floor over to Jos Lopez, head of the Malaysia and Singapore markets. This was one of three test markets where the new standardized systems for handling all back-office operations of a Nestl businesssuch as taking orders, dealing with suppliers, running factories, calculating demand and paying invoiceswould go live the following year. Lopez could not yet attest to the effectiveness of GLOBE, but he stood by the logic and was committed to taking the plunge. Johnson kept his job. And his project. In effect, Nestl had put Johnson on a mission to create a "single source of truth" about how all of its far-flung operations worked. A common set of processes, in factory and in administration, backed by a single way of formatting and storing data; and a single set of information systems, to help it run its businesses. Nestl had 14 different enterprise planning systems from SAP AG of Germany in place in different countries. It would not meld them into one. It would replace them all with a new one, based on new Internet-based software known as mySAP.com. "Even though they may not have liked it, there was a realization among the [40] market leaders that they couldn't go any further with the systems they had," says Ronald Hafner, global relationship partner for Nestl with IBM Business Consulting Services, a.k.a. PricewaterhouseCoopers. "Market by market didn't work anymore.'' For Nestl, this wasn't an everyday project. When it built a factory to make coffee, infant formula, water or noodles, it was used to spending $30 million or $40 million. The idea of any initiative consuming billions in up-front capital was unheard of. The company made chocolate chips, not electronic ones. Chief executive Brabeck had bet his reputation on the initiative's success. He wanted not just to control spiraling information-technology costs, but gain a five- or six-year lead on Nestl's key global competitors, such as Unilever and Kraft Foods, in how a global food supplier could operate efficiently, even as its business entered more markets with more products at an increasingly rapid pace. Nestl figured it could cut the number of suppliers on record to 167,000, from 600,000. And save $750 million a year in the process, Chief Financial Officer Wolfgang Reichenberger would figure in 2002. If GLOBE succeeded, Nestland Brabeckwould have greater operating profits to plow back into innovation, stocking shelves with popular products and satisfying its main multinational customers, like Wal-Mart Stores and Tesco, the large United Kingdom-based food retailer. If it failed, it would be an arrow in the quiver of European investors such as the Ethos Foundation that had criticized Brabeck for assuming additional power in April 2005, when Brabeck took over as chairman after Rainer Gut retired. Normally, the chief executive and chairman roles are kept separate by publicly traded companies in Europe, to keep any one executive from becoming too powerful. The GLOBE project also stood as the largest-ever deployment of mySAP.com. But whether the software got rolled out to 230,000 Nestl employees or 200 was not the point. The point was to make Nestl the first company to operate in hundreds of countries in the same manner as if it operated as one. And that hadn't been achieved by any companynot even the British East India Co. at the peak of its tea-trading powerin the history of global trade.

One Supply Chain, 127,000 Products.

Nestl may be known best for its chocolates, coffee, infant formula and condensed milk. But it's a lot more complex and sizable than that. It's the world's largest food company, with almost $70 billion in annual sales. By comparison, the largest food company based in the U.S., Kraft Foods, is less than half that size, with $33 billion in annual sales. Nestl's biggest Europe-based competitor, Unilever, has about $54 billion in sales. The real trick: Nestl gets to its huge size by selling lots of small-ticket items-Kit Kat, now the world's largest-selling candy bar; Buitoni spaghetti; Maggi packet soups; Lactogen dried milk for infants; and Perrier sparkling water. Nestl operates in some 200 nations, including places that are not yet members of the United Nations. It runs 511 factories and employs 247,000 executives, managers, staff and production workers worldwide. For Nestl, nothing is simple. The closest product it has to a global brand is Nescaf; more than 100 billion cups are consumed each year. But there are more than 200 formulations, to suit local tastes. All told, the company produces 127,000 different types and sizes of products. Out of this complexity, Brabeck, Nestl's CEO since 1997, wanted to bring some order, at least in how the company operates the businesses that support the marketing of its vast array of brands, products and factories. Keeping control of its thousands of supply chains, scores of methods of predicting demand, and its uncountable variety of ways of invoicing customers and collecting payments was becoming ever more difficult and eating into the company's bottom line. From 1994 to 1999, the amount spent on its information systems went up by a third, from approximately $575 million to $750 million a year. Those costs were escalating, while the company was shrinking. Nestl, under Brabeck, had been selling off some properties, such as Carnation, that it no longer felt were strategic. As a percentage of sales, keeping track of what Nestl was selling, how it got to market and how it got paid had risen from 1.2% of its $48.1 billion in sales in 1994 to 1.6% of $46.9 billion in 1999. One of the culprits, according to Olivier Gouin, at the time chief information officer for the company's business in France, was uncoordinated introductions of planning and management systems from SAP, the progenitor of enterprise resource planning software. In 1984, Nestl introduced its first SAP system. By 1995, 14 countries ran their businesses on SAP. And each implemented the same software, known as R/2, in a different way. Data was formatted differently. Forms were handled differently. As a result, the company's costs to maintain the system were going up, and the process of consolidating reports-to determine overall financial results-was becoming more difficult, not easier. Enough was enough. By April 2000, Brabeck, then-chief financial officer Mario Corti-who a year later would move to Swissair in an attempt to rescue that company-and Nestl's entire executive board would back a $2.4 billion attempt to force its confederation of global businesses to operate as if they were a single unit.

Signed: Global Project Manager; Undefined: The Project

Shortly afterward, Johnson got a call from Mike Garrett, then head of Nestl's Asia, Africa and Oceania markets, and a member of the executive board that had launched what it would come to call GLOBE. Johnson, an American who stated as a Carnation products salesman, was head of one of the key Asian markets, Taiwan. His challenge: trying to promote sales of items such as probiotic milk products, which help digestion, kill bacteria and might even help ward off colon cancer. The call was vague, to Johnson's ears. Garrett had a project in mind, but made no mention of SAP. It was a business project with some sort of global significance. Johnson eventually signed on, even though, as he puts it, "I didn't really know what I was signing up for." But Johnson received three baseline edicts from Garrett and Corti: Harmonize processes. Standardize data. Standardize systems. This included how sales commitments are made, factory production schedules established, bills to customers created, management reports pulled together and financial results reported. Gone would be local customs, except where legal requirements and exceptional circumstances mandated an alternative manner of, say, finding a way to pay the suppliers of perishable products like dairy or produce in a week, rather than 30 days. And when was this all to be done? In just 3 1/2 years. The original GLOBE timeline, delivered to Johnson by the executive board, was to have 70% of the company's $50 billion business operating on the new unified processes by the end of 2003. No matter that Johnson hadn't quite learned how to spell SAP yet. Gouin got a similar call from Lars Olofsson, the executive vice president of Nestl's European operations and Garrett's counterpart there. Gouin also had almost no knowledge of what was going on. He certainly didn't know anything about GLOBE-or Johnson. But he did know how hard it had been to get managers in Nestl's previously decentralized culture to work together. Even though standards and best practices had been urged by technology executives from Vevey in each of the 14 earlier SAP deployments, the company had still wound up with 14 different systems. What could be different this time? One part of the world, Asia, had shown that market managers could work together and create a common system for doing business with their customers. They had used a set of applications from a Chicago supplier, SSA Global, that allows manufacturers operating worldwide to manage the flow of goods into their factories, the factories themselves and the delivery of goods to customers, while making sure the operations meet all local and regional legal reporting requirements. The system was adopted by Indonesia, Malaysia, the Philippines, Thailand, even South Africa, and was dubbed the Business Excellence Common Application. Managers in the U.S. had committed themselves to a similar effort, also based on SAP software, called BEST (Business Excellence through Systems Technology). But it was Asia, where multiple countries and market heads had figured out how to resolve differences and protect their profits at the same time, that caught Corti's eye. Johnson and Gouin wound up with the burden of replicating Asia's success-with SAP software-everywhere Nestl operated.

Project Plan: Finalized; Schedule: Not So Much

Ironically, the GLOBE initiative would be launched in earnest on a date that would have the most historic significance in the U.S. It was July 4, 2000. Independence Day, in America. But Johnson wasn't concerned about fireworks; he had his own explosive issues to deal with. A team that included Johnson, Gouin, a hand-picked group of 12 senior Nestl executives from varying backgrounds-including marketing, production and finance-and advisers from SAP and PricewaterhouseCoopers had two weeks to figure out whether the GLOBE project could meet its baseline goal of getting 70% of the company onto a standard set of software-enforced best practices by the end of 2003. Nestl "laid down the law: standardize everything," Hafner says. "The plan did not allow for any deviation." Changing the date or scope was a risky proposition. The board's target date-December 2003had already been published in a company newsletter. But this was no small undertaking. Besides being unable to unify its 14 SAP systems, it had taken the confederacy nearly six years in the late 1980s and early '90s just to agree on a companywide e-mail system. And this project was orders of magnitude more involved and complex. Instead of just 14 countries, it would affect 200. Instead of just one business process-text communication-it would touch every aspect of every daily routine. Change would come in gobs, not small steps. Using benchmarks they could glean from competitors such as Unilever and Danone, and assistance from PricewaterhouseCoopers consultants and SAP's own deployment experts, Johnson and Gouin soon came to a conclusion they had largely expected going in: This project would take more people, more money and more time than the board had anticipated. Instead of measuring workers in the hundreds and Swiss francs in the hundreds of millions, as originally expected, the team projected that 3,500 people would be involved in GLOBE at its peak. And the cost would reach 3 billion Swiss francs-about $2.4 billion. The money required was possibly the easiest "surprise" to sell. In effect, Gouin figured the company would have to spend 4 billion francs, or about $3.2 billion, if it continued to let each country choose and manage its own systems over the next five years. By contrast, even with the costs of changing processes and putting in place new software and data centers, GLOBE would be cheaper. All up-front and operating costs could be kept to 3 billion francs with GLOBE, a savings of about $800 million. Besides recommending a multibillion-dollar spend, Johnson and Gouin were also saying that at the project's peak, 3,500 people would be working on rolling out GLOBE's processes and systems. And, oh, by the way, if you commit to spending all that money and putting all those staff and contractors to work, you'll have to push back your expectations of when you can have results. The new target: Putting the "majority of the company's key markets" onto the GLOBE system by the end of 2005, not 2003. Brabeck, according to Johnson, "was not that shocked." And Corti "probably knew" it would be costly. But the rest of the executive board was surprised, he says.

Of course, the board had a surprise for Johnson in turn.

Drafting a Project Team of Business-Unit All-Stars

When Nestl's board gave Johnson and Gouin a suggested team of a dozen technology staffers, Johnson noticed one common thread: All were nearing retirement. He knew he'd need a different team. First, he wanted a group of business managers, not technology managers, from all of Nestl's key functions: manufacturing, finance, marketing, human resources. And from all across the world: Europe, Asia, the Americas, Africa, and Australia. He avoided any volunteers. Instead, he spent his time looking for "untouchables"-the managers no one wanted to give up. The first team had to be everyone's first team. And they had to get to work in a hurry. Even with the time extension granted by the board, he had to have his team in place by the fall of 2000. Because by the following February, he wanted to recruit an even bigger team: 400 executives from across all disciplines and 40 different countries-users of the system that would go into place. He would have the program's charter established and ratified by January, and he wanted his troops on the ground in February. Their task: not to deploy software or consolidate data centers. Rather, to figure out how Nestl worked. These would have to be people who knew how things actually worked-or should work. They would have to know how the company figured out demand for each of its products, how supplies were kept in the pipeline, even mundane things like how to generate an invoice, the best way to process an order, how to maintain a copier or other office equipment, and how to classify all of the various retail outlets, from stores to vending machines, that could take its candy bars and noodles. And allow managers to manage it all, from the Web. "All of these things were sort of oral history across the Nestl world, but we never put it all together at once," Johnson says. "We've decoded the DNA of how Nestl does business." The process for the 400, once lined up, would start with the team finding and then documenting the four or five best ways of doing a particular task, such as generating an invoice. Then, the GLOBE team would bring in experts with specific abilities, such as controlling financial operations, and use them as "challengers.'' They would weed out weaknesses, leaving the best practice standing. And once it figured out the DNA, the GLOBE team would, in effect, be poking, prodding and, ultimately, changing it. Converting to a single, templated set of processes and information systems sounds straightforward. In reality, says Nils Herzberg, senior vice president of manufacturing at SAP, "it's a great excuse to question the processes" you already have. At the end of that first year, Johnson, Gouin and their teams had built up the basic catalog of practices that would become what they would consider the "greatest asset of GLOBE": its Best Practices Library. This is an online repository of step-by-step guides to the 1,000 financial, manufacturing and other processes that apply across all Nestl businesses. Grouped into 45 "solution sets," like demand planning or closing out financial reports, the practices are now online, available throughout the company, updated as necessary and commented on at any time, in electronic forums.

Sometimes, it was not possible to choose one best practice. Perhaps the hardest process to document was what Gouin would come to refer to as G.D.: "generating demand." With so many thousands of products, hundreds of countries and local tastes to deal with, there were "many different ways of going to market" and many quite valid. Hard to fit into a single software template that would serve all market managers. So Johnson and Gouin practiced, in Johnson's words, "a bit more tolerance" on that score. The GLOBE template would include a half-dozen or so different ways of taking products to market around the world. But financial reporting? No leeway. The 400 executives had to come up with a rigorous step-bystep process that would not change. In the past, salespeople used to write commitments from customers on scraps of paper and toss them over to someone in accounting to make heads or tails of; Johnson put a stop to that. With GLOBE processes, each salesperson not only has to enter the exact numerical commitmentssay, each $100,000 order-into the system personally and in clear, standardized detail, but the data has to be entered by a specific deadline each month. Otherwise, manufacturing to fulfill the order can't commence. The software that drives the system is "kind of like handcuffs in a way to make you do the right thing,'' Johnson would say in June 2005. Some experts were brought in along the way to challenge each process. But in the end, one standard would, in this case, have to stand. Financial terms would be consistent. The scheme for recording dates and amounts would be the same. The timing of inputting data would be uniform. Only the output could change. In Thailand, there would have to be a deviation so that invoices could be printed out in Thai characters, so they could be legal-and readable. In the Philippines, dates would have to follow months, as in the U.S. Most of the rest of the world would follow the European practice of the day preceding the month.

Standardizing IT: No So Tough; Standardizing Managers: Not So Easy

No matter how he sliced it, however, Johnson was walking uphill, into the wind. Even though Brabeck had "stuck his name on that project,"' as computer systems consultant Robert Barton puts it, Nestl managers had always conducted their businesses as they saw fit. Even standardizing on behind-the-scenes practices like how to record information for creating bills to customers could produce heat. Decision-making was being taken out of local markets and being centralized. Beyond that, someone had to pay the bill for the project itself. That would be the countries, too. "In a case like Nestl, you're saying, well, you used to decide locally how you work. Well, we're globalizing supply chain, and if everybody does it differently, it's not going to work. So, let me explain it to you. You're all going to do your supply chain like this," says Barton, a former Computer Sciences Corp. consultant who studied Nestl for his 2003 book, Global IT Management. Which is why Johnson found himself under attack by October 2001, when he pulled the country managers together to go over the purpose of the project and how to get the processes deployed. The managers saw a "unified" solution as a "central" solution. It was ridiculous, they said, to think all back-office operations could be standardized. And if they were to be standardized, it's

my country's practices that should be the template. Because they're the best. and GLOBE might mean you couldn't be best at anything. And so, when the market heads were brought together once more in May 2003, Johnson again let the executives let off steam. And then again let their peers speak. But this time, at least a handful of market heads could actually describe the "operational efficiencies" they had achieved, like getting faster financial reports and demand forecasts, so they could run their businesses better. And by May 2005, when the market heads met a third time, 20 of them could speak from experience. The general consensus: Another mass meeting was probably not necessary. If Brabeck, however, had expected GLOBE to curb the company's information-technology expenses, which had steadily risen in the last half of the '90s, he was mistaken. From 1.6% of sales in 1999, the project was pushing costs toward 2% of sales. That was a Rubicon the chairman was not willing to cross. So, before 2003 even rolled around, Johnson and Gouin had to reset the schedule. Again. Brabeck put a cap on spending at 1.9% of sales, per year. Which meant, in order to hit that new target, the project would have to last longer.

Project Costs: Capped; Project Schedule: Changed Again

To stay under the 1.9% cap, the third GLOBE rollout plan would call for 80% of the company to be on GLOBE by the end of 2006. This central benchmark would have a side benefit: It produced a local benchmark as well. Each country would have to keep its technology spending, even during the rollout, to less than 1.9% of its sales; which ensured that costs would not go out of control and profits-which determine bonuses and other benefits-would be protected as well. As 2002 turned into 2003, the cap served its purpose. In Europe, Asia and elsewhere, all rollouts spent less than 1.9% of sales on software, hardware, training and operations. Even as 2005 came to a close, Johnson noted that no rollout had burst through the ceiling. By the fall of 2005, almost 25% of Nestl was running on the GLOBE templates. And Johnson was confident that, indeed, 80% of the company would operate on the new standardized processes by the end of 2006. At the end of September 2005, 15 countries were in the middle of rolling out GLOBE methods of conducting business. Just like his mid-2000 prediction, 3,500 people were at work deploying GLOBE templates and practices. At GLOBE's technology center in Vevey, 250 Nestl engineers and managers worked in sparse cubicles in a former warehouse, developing and adjusting the information systems that would enforce the company's revamped processes. Another 200 contractors joined them. In each rollout, 100 business and technology executives managed the deployment, or 1,500 all told, at the time. Another 1,500 worked in the three regional GLOBE data centers, one for each major zone: the Americas, Europe and Asia-Oceania-Africa.

Of course, that was five years into a project that was supposed to be largely completed two years earlier. And getting to 3,500 hadn't seemed like a lay up in October 2001, when Johnson offered, seriously or as a stunt, to give up his job to any taker. Back then, he had each country appoint a GLOBE manager, to ensure buy-in and create a network of managers around the world who could consult with each other on challenges they faced and solutions they'd found. Of course, that wasn't part of the pitch. "What exactly they were going to do wasn't so clear at the time," Johnson says. But it was a start. He also created a steering committee in Vevey. These were senior Vevey-based executives, from finance, marketing, production and human resources, as well as a vice president from each zone. The VPs would act as the ears and agents of the zone chiefs, such as Garrett and Olofsson. Together, they would establish schedules for rollouts and manage the rollout teams. They would oversee the collapse of 100 data centers into just three regional centers, plus the fourth in Vevey. This would cut down on duplicative operations, and reduce staff and overhead. Yet it would make each region a part of the GLOBE infrastructure, responsible for its upkeep; each zone would manage and maintain its own data center. The Vevey center would maintain the templates, best-practices libraries and central functions. But when they got started, they didn't even have a basic way to know if they were doing well in whatever they were supposed to be doing. There was no criterion for success.

Rollout: Fix it as You Go; Goal: Customer Can't Feel the Pain

Brabeck took the committee out of that analytical abyss in short order. His criterion: The customer should feel no pain. After you turn the system on in a given market, it should work. You should be able to take orders, produce products, ship them, generate invoices and collect money, without anyone who is buying food from you noticing the changeover. Lopez wasn't so sure he could live up to that benchmark, as one of the first three test markets. To stay on track, the first three markets would be in the middle of a systems storm. First, they would be implementing the first version of the GLOBE template for mySAP planning systems. Any bugs or unexpected outcomes would have to be resolved, in progress of deployment. Second, they would have to implement processes that were being developed at the same time the systems were being put in place. There was not enough time to nail down the processes first. They would be developed in parallel. Because of that, the third disadvantage would be a lack of training for workers and managers in each of those first pilot markets. They'd have to learn on the job-and hope customers wouldn't notice. "It was almost like teaching somebody how to fly a plane, and just showing them a presentation and not even letting them get into a simulator," Johnson recalls. The hardest part: Getting managers and workers to understand that their jobs would change, in practical ways. In many instances, workers would be entering data on raw materials as they came into or through a factory. Keeping track of that would be a new responsibility. Doing it on

a computer would be a wholly new experience. And figuring out what was happening on the screen could be a challenge. Minutiae? Maybe. Considerable change? Definitely. "The biggest challenge is in the mind,'' says Martial Rolland, chairman and managing director of Nestl India. "Yes, it's an equipment change. But, ultimately, it's a mind change.'' But the templates got installed and business went on, in Switzerland, Malaysia/Singapore and the Andean region. Those first three rollouts stayed out of the newspapers, one of the GLOBE team's informal goals. Only if things went wrong, Johnson figured, would it make print, in any given market. In each successive rollout, the managers of a given market would have nine months or more to document their processes and methodically adjust them to the templated practices. In 2003, Thailand, Indonesia and Poland would go live. In 2004, Canada, the Philippines and the Purina pet food business in the United Kingdom. But, by then, the system was bumping up against some technical limits. In particular, the mySAP system was not built for the unusual circumstances of the Canadian food retailing market. Food manufacturers have lots of local and regional grocery chains to sell to, and promotional campaigns are rife. MySAP was not built to track the huge amount of trade promotions engaged in by Nestl's Canadian market managers: too many customers, too many products, too many data points. For instance, in Malaysia, the SAP software was set up to collect sales and procurement data at the product level, say, Crunch Bars and Nescaf canisters, according to IBM's Hafner. In Canada, managers wanted to keep data at the stock-keeping unit (SKU) level-maintaining extensive records on every flavor and size of every product. Trying to report sales figures every morning at the SKU level would swamp the SAP software. Nestl and SAP had to come up with a "multiple angles approach'' to solve this unexpected hitch, says Emiel Van Schaik, a SAP vice president and head of the company's consumer products and life sciences unit. The storage of data would have to be separated, according to the market from which it came. Canada's trade promotion information might be allotted 50 gigabytes, and Brazil's 5; and the data kept apart.

SAP Project: Global; Computing Resources: Limited

The amount of data that Canada would have to store also would be streamlined. Each of its grocery store, discount chain, and other retail customers in that country would be slotted into one of six customer groups. Uniform sets of data on trade promotions would be kept in each of those categories. Hewing to form would keep down the size of files. But it hasn't been easy, even with country managers and SAP staff working on the problem. Even as late as Sept. 16, 2005, Canadian managers were meeting face-to-face with Gouin and Johnson in Vevey to wrestle with details on how to track and manage the trade promotions. In India, changing over in mid-2005 was complicated by the fact that not only was Nestl overhauling all of its business processes, but it didn't know what some of the key financial processes would have to be. At the same time it was converting to the GLOBE system, India was changing its tax structure, in all 29 states and six territories. Each would get to choose whether and how to implement a fee on the production and sale of products, known as a value-added tax. Meeting a May go-live date involved intestinal fortitude, Rolland says. Up until the last

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minute, the country's managers didn't know what would happen. That almost meant pulling the plug on the launch. And the world over, managers learned that the smallest hitch in standardized systems means that product can get stopped in its tracks. In Indochina, for instance, pallets get loaded with 48 cases of liquids or powders, then moved out. If a worker fails to manually check off that the right cases have been loaded on a particular pallet, all dispatching stops are held up until the pallet is checked. "A few small errors can cause a lot of problems," says Graham Campbell, the market head. Even now, Johnson is not happy with the state of reports that are being generated for heads of factories and country managers. Summary reports on everything from raw material usage to labor spending are marred by delays and data that "is not that great." For now, Johnson is content with capturing exactly what materials are flowing through factories and making sure they are coded properly, so one type of sugar does not appear around the world as 12 different types. But he wants reports that can quickly aggregate information from multiple plants worldwide, for faster response to sales trends. Now, at times, he has to settle for factory production reports being completed overnight and available at 9 a.m. each day for review. Johnson would like to see the system available 24/7, with each screen of information coming up instantly. Even now, however, this is proving to be a "tuning challenge." By September 2005, though, Nestl had its rollouts pretty much in gear, and could handle one major go-live every month. GLOBE has already taught Nestl how to operate as a truly global company. Hafner points out that managers from the water businesses initially rejected the idea of collecting, managing and disseminating data in the same way as their counterparts in chocolate and coffee. "Some managers figured that if they were able to produce all of the water or all of the chocolate they needed for their market locally, that should be enough," he says. "But the idea was to get Nestl's vast empire to think, order and execute as one rather than a collection of disparate companies." This could mean that a particular manufacturing plant in a particular manager's region might be asked to produce double or triple the amount of coffee it had in the past. Or it might mean that particular plant would be shuttered. So, while the company did away with data centers for individual countries, each one does now have a data manager. The task: Make sure the information that goes into GLOBE's data centers is accurate and complete. If Nestl can indeed achieve its original three goals-standardized processes, data and systems-it figures its country managers can concentrate more on what really matters: serving customers. "If a market drops or a market takes off, you want to respond," says Bob Belshaw, the chief operating officer of Insight, a supply chain consulting firm. The overall effect on the company is still being quantified. Only 30% of its business ran on GLOBE processes by the end of 2005. The goal by the end of this year: 80%.

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But 100% perfection will never be possible, Johnson says, if speed is also part of the equation. "With speed comes a tolerance for a lack of perfection," he says. "And that is a very important point. Because Nestl [tends to be] quite perfect on things. And this tolerance that, OK, I'll take 80% today versus 100% five years from now, is a challenge. "Hey, it's not all going to work perfectly," he says, just before he embarks across a side street in Vevey to tackle the Canadian trade promotions problem.

Nestl By the Numbers: Headquarters: Avenue Nestl 55, CH-1800, Vevey, Switzerland Phone: 41-21-924-21-11 Business: The world's largest manufacturer of food products; has extensive holdings in coffee, chocolate, baby formula and bottled water. Chief Executive Officer: Peter Brabeck-Letmathe Project Leader: Chris Johnson Financials in 2004: Net income of $5.4 billion on sales of $69.9 billion Challenge: Implement a single set of procurement, distribution and sales management systems and processes worldwide. BASELINE GOALS: Save $2.4 billion by the end of 2006, from supply chain, sales generation and support activities.
Spend no more than $2.4 billion in capital, to get these savings. Cap spending on information technology, companywide, at 1.9% of sales each year. Increase percentage of company operating on GLOBE systems to 80% by end of 2006, from 30% at end of 2005.

Copyright (c) 2006 Ziff Davis Media Inc. All Rights Reserved.

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Player Roster: Nestl

Chief executive Peter Brabeck-Letmathe is the driving force behind Nestl's efficiency drive.

Peter Brabeck-Letmathe Chairman and Chief Executive Officer Driver of business efficiency at Nestl. Urged the company to spend more than $1 billion on the GLOBE (Global Business Excellence) project, to automate and integrate all of its behind-the-scenes operations, from purchasing to manufacturing to demand forecasting to distribution. Closed 38 factories, cut $1.6 billion in costs and capped technology spending at 1.9% of revenue, in the process. Insiders

Chris Johnson Deputy Executive Vice President, GLOBE Program Worked at "muscle jobs" in Southern California during high school and college, which he considers good preparation for working with Nestl factory workers in the GLOBE rollout. Was managing director of Nestl's Taiwan operations when he got "vague" request to take on GLOBE. Agreed in mid-2000; survived revolt in 2001; remains head of project today.

Olivier Gouin Information Systems Director, GLOBE Was involved in several attempts to coordinate different installations of SAP software at Nestl. Found it difficult to get managers to work together. Saw GLOBE, with its worldwide mandate, as a way to unify systems.

Mario Corti Chief Financial Officer, 1996 to 2001 Championed GLOBE. Wanted to speed up financial reporting by a month, and get faster understanding of where businesses were faltering. Nicknamed "Super Mario"; left to become chief executive officer of Swissair, in ill-fated career move.

Michael "Mike" Garrett Former Executive VP,Asia, Africa and Oceania Began working for Nestl in 1961. Believes in decentralization, even though he recruited Johnson to be head of Nestl's most visible centralized initiative, GLOBE.

Lars Olofsson

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Executive VP, Strategic Business Units, Marketing Joined Nestl in 1976. Rose from head of Nordic countries to head of France to head of Europe. In France, spotted Gouin and recruited him to be technologysystems head of GLOBE project.

Martial Rolland Managing Director, Nestl India Came to India at time of sluggish growth for the company. Pushed for conversion to GLOBE systems, in midst of change in Indian tax structures. Says GLOBE contributed to 9.4% growth rate in the last year. PARTNERS

Nils Herzberg Senior Vice President, Manufacturing, SAP Proponent of "adaptive" business networks. Says GLOBE project created a "single source of truth" for Nestl, by cleaning up its data and forcing choices on where the most reliable information is collected.

Emiel Van Schaik Vice President, Consumer Products and Life Sciences, SAP Says the Nestl project "was broader [and] faster than we have done before." Seventy percent of new code written for GLOBE will be built into future versions of SAP software, he says; only 30% stays with Nestl.

Ronald Hafner IBM Business Consulting Services, Global Relationship Partner for Nestl Helped Nestl set up SAP configuration, development and testing services at Nestl GLOBE Centers around the world, and at the GLOBE Business Technology Center at its headquarters in Vevey, Switzerland.

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Roadblock: Regional Managers

By Larry Barrett How do you get managers from around the world to buy into a global information-technology project?

THE OBSTACLE Nestl needed to overhaul its information systems to improve profitability and give its executives the ability to adjust products and marketing on the fly. But getting more than 40 regional and country-level managers to buy into its GLOBE project, a five-year effort to overhaul its procedures and systems, was no easy sell. Yet even when dealing with a massive makeover such as GLOBE, there are steps project managers can take to ensure that the leaders of various operations, who may have operated independently their entire careers, buy into an organization's single vision of how business and technology should work. THE RESPONSE Make the chief executive the biggest evangelist. Everyone in the organization has to be convinced that the project is supported at the highest level of executive management and will be monitored by the CEO. Nestl CEO Peter Brabeck was visible and vocal during the initial planning stages of GLOBE and, in subsequent planning meetings, remained involved and engaged with managers at all levels. Having the CEO advocating this change and consistently reinforcing the why's and how's gives managers little choice but to fall into line. Get buy-in. Simply operating by executive fiat, however, is a "sure-fire recipe for disaster," says Don DePalma, an analyst and author of Business Without Borders. You want people to support the move. Soliciting everyone's input on the priorities of a projectfor example, how all of the disparate business units should account for raw material orders, or how a sale is recorded in the software systemgives everyone a sense of ownership and decreases the likelihood of some resisting the project. Give a complete and honest assessment of technology deployments, and leave room for adjustments. Nobody likes to operate in the dark. That's why it's crucial for the project manager or CIO to go over details on a new technologyin Nestl's case, mySAP.comand how it will impact day-to-day operations. A straightforward explanation about the time frame of the project and the costs, in both hard cash and man-hours, gives regional or departmental managers the facts they need to plan and adjust accordingly. In addition, throughout Nestl's massive GLOBE implementation, time lines and

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deadlines were adjusted based on reality and fiscal constraints. Clearly show the corporate benefits of new technologies or procedures. Don Tapscott, an information-technology consultant and author of books including Paradigm Shift and Growing Up Digital: The Rise of the Net Generation, says it's important for project leaders to demonstrate proven early wins when embarking on such a massive project. As Tapscott puts it: "Those wins help build the case for the rest of the organization."

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The Hurdles Nestl Overcame to Deploy a Common Global System

By David F. Carr Consolidating databases and application servers can be technically and organizationally challenging.

An international company like Nestl can achieve technology infrastructure savings, along with improved business intelligence and control over global operations, with a "single global instance" of its enterprise resource planning system. But the required consolidation of databases and application servers can be technically and organizationally challenging. PROBLEM: Some modules of an enterprise planning system prove more difficult to centralize than others. RESOLUTION: Tackle first the centralization of back-office functions such as financials and human-resources management. For any company, tasks such as producing consolidated reports on global operations become easier when the data is centralized in one database. For that reason, it may make sense to consolidate the back-office functions of an enterprise planning system, even if other parts of the suite don't lend themselves to running in a single instance. "A shared services model for the back office, things like finance and procurement, lends itself very well to a single instance," says Gartner analyst Erik Dorr. These functions are often more centrally managed to begin with, which makes their technical consolidations easier. On the other hand, applications such as supply chain and customer relationship management may be more challenging because of differences in how logistics, sales and customer service are handled in different regionsand sometimes these differences are viewed as essential to how the organization competes in those areas, Dorr says. PROBLEM: The scale and transaction volume of a large business may exceed the capacity of some packaged enterprise applications. RESOLUTION: Get proof that your enterprise system is equal to the task before pursuing a single-instance strategy. Oracle and SAP are likely candidates for most large firms. "Anyone trying to do this on any kind of scale is doing it on SAP," Dorr points out. Oracle, however, has aggressively promoted a single-instance strategy, using itself as a prominent test case. Oracle's transition from 52 financial management systems worldwide to a single global instance produced real benefits, as validated by Gartner and others. Oracle cited the consolidation as a factor in improving

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operating margin from 20% in 1998 to 34% in 2005. But Oracle's business is relatively homogeneous, and the internal systems consolidation project focused mostly on back-office functions, Dorr notes. PROBLEM: Geographically distant locations may experience poor performance when accessing a centralized application because of issues with network bandwidth or latency. RESOLUTION: Make sure you can deliver acceptable performance to each location before making it dependent on the central system. Centralization may not be appropriate if you must support locations whose bandwidth is limited by poor local telecommunications infrastructure. Even with adequate bandwidth, performance can be hampered by latencythe delay caused by round-trip transmission of signals over the network. PROBLEM: A single global instance forces much greater standardization of business processes, which may clash with the distinct processes of particular divisions and locations. RESOLUTION: Assess the diversity of your business processes and be willing to make compromises. Ultimately, business processes for a multinational corporation cannot be entirely homogeneous because of the inherent differences in operations in each country. But as a rule of thumb, figure that business processes will need to be 80% standardizedthat is, if individual locations will require more than 20% customization, a single-instance strategy may not make sense. Of course, the larger and more complex the organization, the harder standardization becomes. "Moving systems, moving the data and changing it, often very significantly, to the standard the mother ship is adhering to can be a real issue," says Joshua Greenbaum, a principal at Enterprise Applications Consulting.

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Base Technologies: Nestl

Nestl has the largest rollout in history of SAP software. Here are the pieces it started with.

For five years, Nestl has been rolling out a standard set of software, to simplify and unify the way it manages its supply chain and operates back-office functions, like purchasing and invoicing. Its GLOBE project involves the largest rollout in history of SAP software. APPLICATION Complete suite applications software Database, support tools, middleware, reporting PRODUCT MySAP.Com DB2, WebSphere, Mercator, Tivoli, MQ series SUPPLIER SAP IBM

Development tools, server C++, HAMCP,CSM, AIX operation system Desktop & server applications, developer tools Document management tools Data cleansing tools Firewall software Switch/communication software Output management Problem management support tools Customer managed inventory/vendor managed inventory Network monitoring Data conversion, ETL Testing tools GLOBE program tool Client/server infrastructure security High availability tool Office suite, Server products, CRM Documentum suite Athanor suite Check Point Enterprise CiscoWorks Dazel Output Management Peregrine suite CMI/VMI EWR+

IBM Microsoft

EMC Similarity Systems Check Point Software Cisco systems HP Peregrine/HP Influe

NetworkVantage Informatica suite VST tools Nestool Symantec AntiVirus Veritas Volume Manager

Compuware Informatica Mercury Nestl/ FileNet Symantec Symantec

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software Managed firewall services Client/server remote solution Internet EDI DCTM and Portal Services Citrix Cyclone Interchange Sun Java BT Infonet Citrix Cyclone Sun

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SAP: Uneasy on the Eyes

By Todd Spangler SAP says 10,000 companies use its Business Warehouse software to analyze sales data. But is the software too complicated for ordinary employees to use?

SAP's business intelligence tools have the brains. Can they get the looks? The German company says 10,000 customersincluding Nestluse its Business Warehouse software to analyze sales data and crunch other business performance metrics.

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Customers like that it taps right into an SAP enterprise resource planning system, without requiring translation into another format. But there's a common complaint about SAP's business intelligence tools: that the software is hard for ordinary employees to use. Consider the experience of Mold-Masters. Two years ago, the Canadian maker of plastics manufacturing equipment installed SAP Business Warehouse to provide sales and finance reports from its R/3 enterprise resource planning system directly to business users, without requiring the company's SAP administrators to compile the data. But Val Swift, Mold-Masters' manager of information technology, soon realized SAP couldn't provide everything she needed. The Business Warehouse system was just too complex for business users, she says: "It's powerful, but it can be intimidating." For example, according to Swift, SAP's reporting tools cannot easily be configured to package data differently for different groupsi.e., staffers have access to every

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piece of data in the system, regardless of whether it pertains to their job function. So, Mold-Masters bought Cognos' ReportNet to deliver weekly sales information in a format that salespeople can easily customize. For example, ReportNet can show members of the U.S. sales team all figures in U.S. dollars. "SAP's user interface has never been their selling point," Swift says. Ditto, says Mike Masciandaro, manager of business intelligence technology at Rohm and Haas. The specialty chemicals manufacturer has 3,500 employees tapping its SAP Business Warehouse 3.5 system, which handles 70,000 inquiries about sales and customer data each month. According to Masciandaro, the advantage of using SAP Business Warehouse is that everybody in the company works from exactly the same set of data, pulled from R/3. But Business Warehouse still has some "annoying" features that make it hard to work with, he says: "You have to dig around to manipulate things the way you want." For example, the text-entry function included with the software's Web reporting template confusingly pops up a box with no explanation of what someone is supposed to enter. A clunky interface, Masciandaro notes, "doesn't allow you to capture the hearts and minds of the executives"in other words, the CEO probably isn't going to spend a lot of time using it. Last year Rohm and Haas used SAP's Web development tools to create graphical dashboard displays for top managers. The dashboards show 10 key performance indicatorssuch as year-to-date sales for a given business unitalong with a "green-yellow-red" stoplight based on a comparison of actual data with what the company previously forecast (to show visually whether sales targets are being met). Masciandaro says his team had to create those reporting functions without help from SAP, whose tools for creating such dashboards he characterizes as immature. "SAP hasn't completely embraced the concept that usability can yield good results for them," he says. For its part, SAP says it's taking specific steps to make its business intelligence tools easier to use, starting with bundling them into NetWeaver, its dataintegration system (see sidebar). In addition, later this year the company promises to deliver Visual Composer, a wizard-based system that steps non-technical workers through analyzing data and creating reports without writing a single line of code. Visual Composer "will provide a visually appealing, rich experience," says Lothar Schubert, director of NetWeaver solutions marketing at SAP. "We expect a strong uptick in the number of end users, because it's very intuitive."

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But note that SAP doesn't make its bacon on business intelligence tools. For the first nine months of 2005, sales of NetWeaver and related products, including business intelligence applications, were $127 million, or about 7% of its $1.9 billion in total software revenue. SAP's enterprise resource planning software accounted for 40% of the pie. Ultimately, many customers find SAP's business intelligence tools valuable because they're close family relatives of the company's core enterprise resource planning software stack. JCB, a construction and farming equipment maker, uses Business Warehouse "because we've standardized on SAP," says Paul Limon, the company's manager of information systems. His team, he explains, doesn't have to worry about creating or managing hooks to a separate business intelligence system: "All of the tools necessary to bring that data into one format come right out of the cereal box." Now, it seems, SAP needs to make the bits of cereal that pour out look more appetizing.

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