IMPLEMANTATING BUSINESS PROCESS

RE-ENGINEERING: NESTLE & NIKE

Common Factors for Difficulties
There were many common factors for difficulties for Nestl
and Nike as each embarked on projects of vast proportions
that had not been attempted by companies of their size
before[Wor02,Koc04]. Neither company realized that
changing their supply chain and resource planning structures
would mean very prolonged planning and analysis of their
core business systems. They failed to implement broad
business process changes before rolling out the software
that would make them more agile and competitive. Neither
realized which modules of the SCM and ERP would integrate
seamlessly and which would not, i.e. i2 and AFP. Both
companies outsourced the software implementations to SAP
this was at once a success factor but also a point of difficulty
since Nestl had to make a last minute change in demand
planning software from a core SAP product to Manugistics
while Nike turned to i2 which in turn led to their SCM
debacle. Nike turned to i2 because the SAP module that Nike
wanted was not ready for implementation and such
companies as Reebok [koc04] had serious issues aligning
their legacy systems and the new modules. Nestl on the
other hand did not trust the existing version of SAP demand
planning tool for their forecasting and went with a SAP
partner, Manugistics. However even this did not save them
from an initial rejection of the system by the planning team.
Nestl and Nike attempted the plunge methodology to
implement their demand planning systems and did not take
a parallel or phased approach; had they done so both
problems could have been avoided. However, both did adopt
a phased approach after the initial difficulties. Although it
could be argued that Nike approached the i2 issue as a pilot
approach to see if the i2 would work better then the existing
SAP module, they failed because the pilot methodology

should be used within a business system such as the

planning and forecasting shifting a small part of the division
onto i2 instead of rolling it out company wide without
addressing the legacy incompatibility issues that would have
quickly become evident.[Koc04] They mixed the plunge and
the pilot approach and spent an extra $100 million for their
efforts.
Nike and Nestl underestimated the initial budgets that they
would need to accomplish the project. These cost overruns
were in the millions of dollars and could easily have
scrapped the projects at smaller companies or those that did
not have such a strong vision of what they needed to
accomplish. Nike spend $400 million on the implementation;
$100 million of which was spent on the i2 glitch.[Koc04]
While Nestls Jeri Dunn estimated that 5% of her $210
million project cost named BEST[Wor02].
Budget variations were exacerbated by the time constraints
placed on each project. Time constraints were not realistic.
Nestl pushed its implementation goal to be over by Y2K
and failed to meet this deadline, while the rush to meet the
deadline caused many of the initial problems of
communication within the rank and file of the company. Nike
expected the demand planner implementation to be over
quickly with the installation of i2 without taking into account
the heavy customization that i2 would require and effects
that the poor messaging between the legacy systems and i2
would have on the supply chain. They paid a heavy price for
failing to analyze the integration demands of i2 and the
legacy systems[Koch04] Nike survived because of its size,
but the after effects of the debacle have put other
companies out of business.
Both companies failed to adequately train and prepare its
core staff for the software rollout. This failure was evident
both in the technical aspects of training users how to use the
systems and failing to prepare users in the BPR for the vast
changes that the new systems would usher in. Nestl was
particularly bad at this and had to shut down the project and
change management in order not to flounder [Wor02]. The

Nestl management failed to communicate to the demand

planning team that would be using the software system
about the software system. This was the worst mistake
Nestl made and they repeated it several times until the
Manugistics crisis. The upper management took great pains
to communicate to stakeholders, but failed to communicated
with the right stakeholders that would be most affected by
the new system. [Wor02] When the projected was rolled out
the demand planning turnover came to 77% yearly, a figure
that showed a disastrous discontent among the workers
using the system and enough to bring a company to a
standstill. The workers did not want to change their business
process and culture of demand planning and not even the
executive management could move them. Only after
reassessment and training could the project go forward.
Nike committed a similar error in failing to prepare its
demand planners in the requirements of the i2 systems
resulting in the demand process overloading the i2 systems
connectors and slowing the entire system to a dead crawl.
Had Nike communicated with its planners and trained them
on the systems as well as conducting careful business
analysis as to how the two systems would integrate they
could have avoided the $100 million dollar pitfall.
Both companies failed to evaluate their legacy IT
infrastructure and assess the effects of new software
systems on their legacy systems. The mistakes were almost
identical as each company found out that their legacy
systems and business process where not able to properly
communicate with the new systems. The connectors of the
i2 systems could not properly translate the data from the
legacy system. This resulted in the slowing down of systems
to such a degree that effective forecasting became
impossible and a minor error reverberated throughout the
entire cycle like a tsunami. Nestl did the same thing by
failing to align its existing business process with the new
business rules of the Manugistics module and then failed to
train the end users on how to use the system.

Unique Factors for Nikes Difficulties

The specific instance of demand planning software known as
i2 was a unique factor as it cause the major problems
discussed in the article[Koc04]. Nike failed to properly
evaluate how the demand planning software would integrate
into its legacy system. They rushed the implementation
before their main SAP package was ready for deployment
resulting in the i2 system failing the Nike supply chain.
Nike had a unique supply chain process that required stores
to pre order merchandise 6 months in advance, the difficulty
of this is that Nike could never know if the sneakers that a
store ordered would still be in style 6-9 months later when
they would deliver them to the store. The fashion designers
and the demand planners could not accurately judge how
much they should order with such a long lead time and
depended solely on Nikes brand name that the new
sneakers would actually sell. In the market where stores
increasingly demanded a short order to ship time, Nike was
under competitive pressure to get their supply system to
work in 3 to 6 months. The risk of not getting their SCM in
place would open them to losing market share in a fiercely
competitive market. Thus when Nike implemented the i2
system and the system could not hold up to the vigorous
demands of the planning the 9 month cycle began to
collapse and the forecasting data completely threw off the
supply chain resulting in some $100 million in direct
damages and untold millions in consequential damages such
as reputation, law suits, and SEC investigations. [Koc04]
Unique Factors for Nestls Difficulties
One unique difference for Nestl is the extent to which they
failed to involve the key stake holders for the groups that
would be most influenced by the new software in the
planning process. This is both a factor of difficulty and one of
success since these early blunders helped Nestl leadership
adjust and reassess. Nestl made a good effort to bring

together its business leaders and stakeholders but failed to

let the rank and file know what was taking place.
To add to the confusion, Nestl had to deal with many
different suppliers that were not all paying Nestl the same
for goods and services. They had highly fragmented system
and even within departments the left hand did not know
what the right hand was doing. The 29 different flavors of
vanilla [Wor02] illustrated the frustration Nestl had with all
of its thousands of products. The waste that went on during
demand planning and the lack of coordination between the
different departments was a glaring difficulty that had to be
addressed and that the ERP implementation aimed to cure.
At the same time Nestl failed to realize how much the ERP
system would change their entire business process and the
pushback that they would receive from the end users when
these changes became evident. Nestl operational problems
stemmed from its massive acquisitions drive in the early
nineties. The company was comprised of so many different
units and held together in a loose network that each
subsidiary had a unique business process and any attempt
to change the process was regarded by management as an
attempt to take away autonomy and in the worst case
decrease competitiveness. Thus, when the new changes
were thrust upon the unsuspecting management the
pushback halted the project and necessitated emergency
measures, including the reassignment of one key project
manager to a different country [Wor02].

Common Factors for Success[i]

The common factors for success are that at both companies
the projects had unwavering support from the executive
leadership and were driven through all difficulties by the
strong management. Both Nestl and Nike knew that to
retain competitive advantage in the market place and to
sustain their competitive advantage they needed to make
drastic changes to align themselves with new market

realities of leaner competition and cost cutting.

Both companies were wiling to spend more money and time
to complete projects effectively and to roll out their
implementations. Neither project was terminated because of
mistakes or glitches even if the glitches cost $100 million.
This flexibility is one of the key reasons that the projects did
not fail and became successful. This option however is not
always viable for a company and many have gone out of
business when they tripped over a speed bump[Koc04]
Nestl and Nike adjusted their business process to reflect
the new realities of their new systems. Nestls demand
planning department had to learn a new computer system
and go from using spreadsheets to using new SAP
interfaces, a move they initial rejected out of hand [Wor02]
Nike on the other hand had to train its personnel first on a
failed i2 product then on a new SAP product reengineering
the business process in each case to adjust to the new
systems and ways of demand planning and forecasting. A
major factor in the success of these systems was that each
company learned from their mistakes and involved everyone
in the company including the rank and file employees. Nike
was especially good at this since they enshrined the
business plan of the company to the point were everyone
knew it and supported it. For Nike the problem was more of
teaching the employees new systems rather then realigning
their entire mindset. For Nestl the problem was twofold,
not only did they have to teach the employees how to use
the new system to become more effective, they also had to
change the way the employees thought about the business.
Nestl success can be attributed to the way in which the key
stakeholders adapted to gauge the atmosphere of the
various divisions before rolling out new business process and
software so as to do it at a time that was just right by
administering surveys to key user groups.[Wor02]
Nike and Nestl believed the ROI on the projects would be
greater then the cost and the cost over runs. Nike planned
on spending about $400 million dollars on the project hat
ballooned by 25% as a result of the i2 fiasco. Nestl on the

other hand planned to about $200 million that ended up

being $210 million dollars including the Manugistics project
halt. Although exact figures are not available, Nestl claims
to have Made back some $325 million dollars, or roughly
150% of the dollars they put into the project. Nike claims
that their manufacturing lead time has gone down from 9
month to 6 and in some instance even shorter [koc04],
however other ROI indicators are still coming in. What is
undoubtedly true for the ROI of Nike is that their systems
are more agile and work better with their suppliers, their
cash flow is more manageable and their data is easier to
access and assess; this part is perhaps more important the
figures of ROI. The real return will show itself when Nike is
able to introduce another system into its legacy
infrastructure without a hitch reacting quickly to market
forces and retaining their competitive advantage.
Both companies did phased roll outs starting first with a
smaller department or division and moving on once the
implementation was complete. This was initially what caused
the Nike SCM problem; they had thought that a simpler
implementation would be easier and did not check the
software for compatibility before implementation.[Koc04]
This oversight causes the entire debacle; had Nike analyzed
the technical requirements for i2 and their legacy system
and had done a parallel implementation testing out a small
portion of the demand infrastructure they would have seen
the problems. By taking the plunge with an untested i2
system cost them 100 million dollars and untold stress. To
fix the problem they literally had to build infrastructure
bypasses to take the load of the floundering i2 system.
[Chi03]
Another factor that saved both implementations was SAP.
Both companies outsourced their ERP and SCM projects to
SAP that provided guidance and support and also
customized the packages to suit the particular needs of the
clients. SAP had the experience and know-how to advise the
two companies on the technical roll outs. It is unfortunate
that SAP could not have better advised their clients on the

business process aspects of the rollouts as SAP did not have

an intimate understanding of the BPR that would need to
take place.
Unique Factors for Nikes Success
Nikes success lies in the top down understanding on the
Nike Business plan by all of its employees and their
willingness to be flexible in the eyes of great difficulties.
Nikes CEO and CIO both knew that they would gain
competitive advantage with the new system or at the very
least retain Nikes competitive edge. Roland Wolfram( VP
Global Operations) and Phil Knight(CEO) both understand
that they need to cut down the time it takes for Nike to
manufacture the sneakers and deliver them to the stores.
[Koc04] This unique understanding of the process and the
alignment of the goals of the company, management, and
employees was something that Nestle desperately lacked
and why their implementation almost floundered.
Nike is one company with its suppliers belonging to Nike and
within Nikes system. So while the time to market for Nike is
9 months, Nike did not have the difficulty of integrating
between different companies, rather they just needed to
make everyone in their company conform to the new
system. This is a success factor because everyone in the
company understood without too much effort and hand
holding exactly what the goals of the implementation were.
The effects of a vertical delivery model where the supply
chain is under the same management brings not only
efficiencies of scale but also better operational agility.
Unique Factors for Nestls Success [ii]
Jeri Dunn led the effort and was completely supported by
the corporate headquarters in Switzerland. Dunn almost
single-handedly drove the entire process and involved as
many key stake holders as was feasible. She was also willing
to be flexible and admit mistakes carefully learning and
revising the process as the projected progressed. Nestl

would slow down their project and wait for input from the
end users to gauge their readiness to accept the new
process. [Wor02] Nestle sheer size is also an important
success factor as the company gained momentum and could
not be easily stopped once a project of such magnitude was
underway. With the global implementation happening close
to the same time as the USA one, the project was inline with
the global company mantra about process change and
competitive innovation.
Reference:
[Chi03] Paul Chin, Cold Case File: Why Projects Fail,
Datamation, May 6, 2003,
http://itmanagement.earthweb.com//article.php/2201981
[Wor02] Ben Worthen, Nestls ERP Odyssey, CIO
Magazine, May 15, 2002,
www.cio.com/archive/051502/Nestl.html
[Koc04] Christopher Koch, Nike Rebounds, CIO Magazine,
Jun 15, 2004, www.cio.com/archive/061504/nike.html

[i]POWS analysis for Nike

Nikes biggest problem was its traditionally long 9 month
manufacturing cycle. This cycle evolved from the 70s and
80s when consumer did not much care for the brand but
cared for supply. Retailers could always depend on Nike to
sell and did not mind the long manufacturing time. Recently,
retailers began demanding faster turn around and did not
want to order 6 months in advance creating a competitive
pressure on Nike to establish a faster delivery mechanism.
Nike would have to reengineer its demand forecasting
engine and therein lay the biggest challenge for the SCM
project. The opportunities presented by speeding up the
manufacturing and demand planning time was that Nike

could cater to smaller stores that did not have the capacity
to buy 6 months in advance as well as to a greater extent
follow styles and fashions better and adjust to trends faster
making itself more agile and responsive to ongoing market
pressures. The weakness of Nike was its long manufacturing
cycle that may produce sneakers that were no longer in
style by the time they arrived at the store. Another
weakness was that the demand planners could not really
coordinate with the fashion designers and were going more
on instant then on hard facts. The strength of Nike is its
brand name as well as its business plan. The brand
guarantees that Nike will remain the top player in sports
apparel market and remain a competitive force. While the
business plan is an operational strength that allowed Nike to
pull through the SC implementation project by ensuring that
everyone in the company knew why the implementation was
taking place and bought into the implementation.
Nevertheless the implementation did not go smoothly, but it
ultimately succeeded because everyone in the company
wanted it to succeed, from the CEO to the individual demand
planners and supply managers who would have to change
their business process entirely.
[ii] POWS for Nestle
Nestl faced an ever competitive market with a distributed
franchise like conglomerate of companies. The business
process within each division was different, forecast demand
planning varied from one group to another and vendor
management was non existent. One vendor could charge the
company 29 different ways for vanilla and there was no way
of catching this glaring incongruity.[Wor02] This presented
at once a challenge and an opportunity for the company to
create a single system that would eliminate the waste,
create greater efficiencies of scale and cut costs by charging
the vendors the same price and forecasting demand in a
manner that was respected by the factories[Wor02]. There

was also opportunity to bring down cost for consumers that

would result in greater sales due to the decreasing cost of
production, planning, and delivery. The main opportunity lay
in the promise to eliminate the weaknesses of the present
system by changing the business process and strengthening
the internal structure of the company thereby eliminating
weaknesses in the eyes of the competition.
Another weakness was the giant size of the project that
Nestl was embarking on. Communication would have to be
flawless for the projects succeed and this turned out to be
another weakness that the key stake holders did not realize
and indeed may stake holders were left out of the planning
process completely.
The main strengths of the Nestl project were its vast size
and large IT budget. This ensured that no matter what
glitches the company encountered along the way, it would
not scrap the project due to budgetary or time constraints.
Nestl market position is another major strength as it is the
market leader and the strategy behind implementing the
ERP system was designed to keep Nestl in this position thus
the justification for the project was extremely strong,
ensuring that the project would have top level management
support through out its life. This support is crucial since at
one point Nestl had a planning fiasco with the
implementation of Manugistics that threatened to bring the
company forecasting to a standstill, yet with the strong
management support Nestl pulled through.