One Supply Chain, 127,000

By Tom Steinert-Threlkeld  |  Posted 2006-01-20 Print this article 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, purchase

Nestlé 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. Nestlé's biggest Europe-based competitor, Unilever, has about $54 billion in sales.

The real trick: Nestlé 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.

Nestlé 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 Nestlé, nothing is simple. The closest product it has to a global brand is Nescafé; 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, Nestlé'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. Nestlé, 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 Nestlé 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, Nestlé 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 Nestlé'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.

Story Guide:

Nestlé 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
  • Nestlé By the Numbers
    Player Roster: Who's Who Among Nestlé Project Planners
    Roadblock: Regional Managers
    Hurdles Overcome: Deploying a Common Global System
    Base Technologies: Nestlé
    SAP: Not Pretty, But It Did the Job

    Next page: Signed: Global Project Manager; Undefined: The Project

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    Tom was editor-in-chief of Interactive Week, from 1995 to 2000, leading a team that created the Internet industry's first newspaper and won numerous awards for the publication. He also has been an award-winning technology journalist for the Dallas Morning News and Fort Worth Star-Telegram. He is a graduate of the Harvard Business School and the University of Missouri School of Journalism.

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