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Question 1:

If all FMCG companies do SAP (or similar) how does a particular company in that sector derive

any competitive advantage?

Introduction

Due to the rapid evolution of technology, it has become increasingly important for organizations

to stay abreast of the latest developments. Production manual labor has been widely used for a

long time in a large number of companies. In the digital age, now is the best moment for firms to

make the switch. For clients, the products are more presentable and precise when businesses

utilize digital manufacturing methods. Organizational structure may be redesigned with the help

of digital transformation. In recent years, the internet market has grown in popularity, resulting

in a surplus of consumers (Westerman, Bonnet and McAfee, 2014). Organizations that adapt

quickly to market changes are more likely to be successful. When it comes to accessing the right

market for the supplies you manufacture, digitalization is going to be effective at a rapid rate. In

addition, it enhances the customer experience, creates new business models, and automates

additional procedures.

Competitive advantages of FMCG companies using SAP-ERP

SAP is becoming more and more common in businesses, especially in manufacturing and FMCG

firms. In order to maintain a competitive edge over their competitors, companies must keep up

with technological advances. Businesses have embraced the use of sophisticated tools in their

operations to make work easier and enhance accuracy. Most of the time, an enterprise resource

planning (ERP) system is utilized to complete this work. Assuring that corporates utilize SAP in
the deployment of functionality, so that the operations of a company don't have to start from

scratch (Colvin and Carmona, 2020). Design and development of SAP are much more

spontaneous since it competes with custom solutions. Despite the fact that Sap is easy to

maintain and completely integrated into the operations of a new firm, it is more cheap to deploy

it. When most firms discovered SAP's benefits in 2000, they were willing to make compromises

for its deployment.

SAP-equipped organizations enjoy a number of advantages over their competition. Due to the

fact that SAP is centralized, companies will profit from economies of scale. By using a more

sophisticated technique, the firm may outsell its competitors. So as a result, a business has a pool

of well-rounded personnel, and activities continue as usual even after retirement, leading to

continued growth (Abd Elmonem, Nasr and Geith,2016). Materials that are required and may be

stored at a warehouse using SAP can be manufactured in a more ordered manner. Every

organization, every firm is fighting and attempting to maintain their place in their respective

sectors during this technological and development-driven period. This integrated, versatile and

comprehensive company management software has built-in support for standard operating

procedures. One flexible and supporting solution lets you manage anything from financials to

human resources to inventories to production, transportation, product growth and customer

services to sales and marketing.

There are generally common rules and processes in place for all employees in multinational

firms that are globally renowned in industries such as automobiles or software and electronics

manufacturers. Nestle is a group of firms that makes centralized decisions for the corporation as

a whole. These decisions are then communicated to the Nestle companies situated throughout the

world. Strategic decisions at Nestle are decided at the corporate headquarters in Vevey,
Switzerland, and subsequently distributed throughout all three zones (Wong, Veneziano and

Mahmud,2016). If a business uses a centralized integrated system, such as SAP, its rival gains an

advantage. Determining for the whole region, country, or zone may also save firms money.

Nestle, on the other hand, chose to build large, centralized warehouses with high levels of

automation for storing and retrieving products.

All strategic decisions are taken in Vevey, Switzerland and are then sent to all three Nestle

zones. Competitor organizations gain from the use of centrally integrated systems like as SAP.

Also, if a decision is made for all firms in an area, country, or zone, they can save money. Nestle

chose to build large centralized warehouses with high levels of automation for storage and

retrieval. As a result, centralizing all choices can occasionally create problems that cannot be

addressed and resolved in a general fashion. Some of these challenges are extremely unique to a

certain level of an organization, area, nation or zone (Varma and Ravi, 2017). Nestlé’s Material

Handling was one of its major challenges, according to the company. Even though they were

always in limited supply of finished items, their warehouses were frequently full. For the

Material Handling team, the main issue was to transfer the items at the proper rate to keep up

with the factory's production rate.

Basically, the Material Handling department couldn't update the actual SAP information with

production and manufacturing since there's always a backlog. Because of this, some

organizations do not want to implement SAP in all of their departments, as even a small delay in

updating the system's data might lead to larger problems that affect other departments (Grube

and Wynn,2020). Material Handling personnel should be provided with a portable device (tablet

or scanner) that allows them to enter the real pallet information into SAP immediately. Amazon

has embraced this approach of changing information on the fly.

Additionally, Demand and Supply Planning presents additional issue for the company when

using SAP software. This department, which forecasts the growth or reduction in demand for a

specific product, is unable to use SAP since it is unable to update the system with actual demand

data. Most FMGC products, such as Nestle, are already produced and packaged, and can be

stored for a lengthy period of time (Annamalai, C., & Ramayah,2011). This allows the Sales

Forecasting department to advise the production department to produce huge quantities of

products and store them in their warehouses, so that when demand increases, the items may be

sent to their appropriate locations, countries, and zones as needed. SAP does not have answers to

such specific circumstances at this point in time. By being in the same environment as their

competitors, firms who are able to address such challenges in a better way get a competitive

edge.

This gives Nestle an edge in planning by allowing it to access data from each department and

other destinations in real time, but it does not include a competitive advantage until each

directorate and other location accepts responsibility for updating data on a timely and regular

basis, as is the case with ERP. Employees that are regularly trained on SAP show more

enthusiasm and show less opposition (Al-Sabri, Al-Mashari and Chikh, 2018). The Resource

Based View of the Firm is now being used, in which the firm's resources are utilized in order to

establish a competitive advantage that will last. In and of itself, ERP has no actual value, but its

sole worth is in how it can be exploited. An ERP system is increasingly commonplace and

standardized in international businesses, meaning it is no longer unique.

In the short term, businesses who embrace it early in the game have a competitive edge. Success

in project planning, execution, alignment, and ERP system use may provide a competitive

advantage that lasts a long time. ERP program management and subsequent operations should be
prioritized. An FMCG firm such as Nestle may gain a competitive edge by making SAP-ERP

user-friendly. Employees should be educated regularly, problems should be resolved promptly

and the system should be updated regularly. Integration of cultures and management consultants

should encourage a "one size fits all" philosophy.

Question 2:

Does the biggest payback come from i) IT savings ii) savings elsewhere in the business iii)

higher sales iv) something else?

Introduction

Nestle is one of the largest Fast Moving Consumer Good (FMCG) Companies that has shown a

tremendous growth ratio since 2000. Many of its competitors, such as; P&G, KJS, and Unilever

are still hustling to attain the level of success that Nestle has attained in the last two decades. All

the success, growth, and paybacks are due to the strategic planning that Nestle had adopted in the

late 2000s. Unlike traditional methods of operations, Nestle adopted a global approach to design

the SAP template. Conventionally, the different Nestle factories operating around the world were

allowed to adopt and implement SAP templates of their own choice. However, Nestle decided to

bound all the Nestle factories around the world with each other, to share the common data, and to

allow them to strategically plan their operations. The project named “Globe” was launched by

Nestle which set out its template for SAP. Nestle set strict guidelines and timelines for the

implementation of the SAP template, under the “GLOBE” project as the primary part of their

ERM operations. Finally, Nestle successfully implemented its SAP template in all the factories

around the world, which revolutionized their supply chain. IT processes and savings resulting

from it made the biggest payback for the industry.

Factors That Made Significant Paybacks

Savings From IT

The adoption of new approaches, methods, and techniques within the IT system of Nestle made

the greatest payback. The primary reason for crediting IT for the tremendous growth and success

of Nestle lies in the fact that; it helped Nestle to adopt a general ERM system for all the factories

around the world. With the help of more advanced IT technology, all the Nestle factories around

the world can share common data, can adopt general methods of production, orders processing,

manufacturing, and product delivery to the consumers. Moreover, the advanced IT system also

allowed Nestle headquarters to regulate their purchases, which were previously not regulated;

this presented Nestle with a crucial problem. Since, Nestle was spending a lot more on the

purchases of raw materials, industrial, and office equipment. Advance IT operations formed the

basis for all the other Nestle operations such as; Finance, Supply Chain, Factories, HR & Payroll,

Sales & Marketing (Mitra & Neale, n.d.). All the savings that resulted from each of the company

operations mentioned above were the direct result of the implementation of a generalized SAP

template under the “Global” project through advanced IT solutions. These advanced IT systems

enabled Nestle to be strong from the inside while being from the outside. By the virtue of

advanced IT techniques, Nestle headquarters were able to control some of their major operations

which led Nestle to save up to millions of dollars. Other factors that served in the saving of

millions of dollars are; Sales order processing, purchasing, distribution, demand and supply

planning, and manufacturing.

Sales Order Processing (SOP)

Different Nestle factories in various countries around the world had different ways of processing

orders. Some factories prepared the stock and offered sales in the field, whereas some factories

took the orders based on the amount of stock present in the warehouses. However, Nestle

believed that the company could only thrive and make savings only when the company runs as a

whole, despite being operated in different parts of the world. Thus to save money to bring

uniformity in the operations of the company as a whole, Nestle’s “Globe” approach adopted two

key approaches; Key Decision (KD), and the second was customer’s orders served as the basis

for their need (Mitra & Neale, n.d.). The KD helped Nestle in saving money by allowing

factories to take orders based on the stock in their warehouses, discouraging the backorders. The

second approach ensured that customer orders would form the basis of the factory requirements

for preparing the order, which determined CFLR%. However, bonuses of managers were linked

to higher CFLR percentages; with the implementation of the above two decisions in SOPs,

Nestle was able to save a significant amount of money by lowering CFLR percentages.

Purchases

With the implementation of a new SAP template, through Nestle’s universal “Globe” project,

Nestle was able to save millions of rupees around the world. Since WWII, Nestle has acquired

numerous suppliers in various countries. The factories that made purchases from these suppliers

were not giving any account of their purchases to Nestle headquarters. According to research,

Nestle was spending $36 billion on the direct and indirect. The 'directs' include; raw materials

such as water, sugar, or flavors, whereas the indirect involve equipment related to industry or

offices. However, to reduce the spendings of the Nestle factories around the world, Nestle

adopted a new approach. It formed a “zone” from selected people, which was responsible for
calculating the number of materials needed by various Nestle factories around the world for the

next 18 months (Mitra & Neale, n.d.). Moreover, Zone also implemented the rule of no

purchases without purchasing orders. Purchasing orders were necessary for the factories before

making a purchase, which was issued by the Zone. By adopting the “Zone” approach, Nestle was

able to control its spendings or purchases.

Saving From Distributions

Before the implementation of the global “Globe” project, numerous variations were present in

the distribution of the stock in various Nestle companies around the world. Some were

outsourcing services for the stock distribution, some were using highly advanced and automated

warehouses for the storage and the distribution of their stock, and some in underdeveloped

countries were deprived of either of the facilities. One of the major issues that Nestle used to face

was; the blocking of stock when the sources were insufficient to store and distribute them.

However, to ease out the operations and to increase their flow; Nestle adopted a general method

of stock distribution. Nestle, adopted the policy of outsourcing the services of the distribution of

products, the only requirement was to record the specs for the storage and distribution of the

products (Mitra & Neale, 2014). This general method of distribution has helped Nestle in

evening out the expenses of distribution among its factories worldwide. Thus, leading to savings.

Savings From Demand and Supply Planning

Nestle was able to maximize its savings and profits by adopting an efficient method for demand

and supply planning. A demand and supply chain planning team were set up in each of the

Nestle’s business around the world. The responsibility of the team was to come up with the

overall plan for every SKU produced by the company in 18 months (Mitra & Neale, 2014). The

supply chain was based on the team’s planning and was independent of the individual company’s

decision. Therefore, enabling Nestle to maximize profits while maximizing the savings also.

Conclusion

As a part of the global “Global” project, Nestle had adopted various strategies and techniques to

limit spending by its branches around the world, and at the same time maximize the profits,

production, and delivery of the products. However, the implementation of each of the strategies

discusses above, required Nestle to centralize its operations from headquarters to each of its

companies present around the world. Therefore, the advanced IT system served as the basis for

the introduction and implementation of strategies introduced by Nestle in its companies around

the world. The implementation of a new SAP template as a part of a new ERM system through

IT systems proved to be a successful endeavor for Nestle.

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