Nestlé Pieces Together Its Global Supply ChainBy Tom Steinert-Threlkeld | Posted 2006-01-20 Print
More than five years ago, the world's largest food maker set out to standardize how it operates around the world. GLOBE, or the Global Business Excellence program, is aimed at getting far-flung operations to use a single system to predict demand, purchaseVEVEY, SwitzerlandChris Johnson was under attack. Fifteen months into standardizing how Nestlé 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 Nestlé 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 Nestlé'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 [Nestlé'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 Nestlé'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 José 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 Nestlé 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, Nestlé 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. Nestlé 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  market leaders that they couldn't go any further with the systems they had," says Ronald Hafner, global relationship partner for Nestlé with IBM Business Consulting Services, a.k.a. PricewaterhouseCoopers. "Market by market didn't work anymore.''
For Nestlé, 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 Nestlé'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. Nestlé 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, Nestléand 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 Nestlé employees or 200 was not the point.
The point was to make Nestlé 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.
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