Chapter 15 Article: "Issue: Getting Along with Suppliers" from Business Week (2 September 2008)

Travel agencies have done well with developing internet travel sites such as Expedia.com to allow customers to book their leisure or business travel at a great price anywhere in the world. However, this advancement for the travel industry did come about without a reformed centralized global business strategy. InterActive Corporation, Chairman Barry Diller, acquired Expedia.com and became successful along with other travel discounters like Hotels.com and Hotwire in the post 9/11 travel slump where hotels needed to unload their empty rooms at low prices.

However, by 2005, the travel industry became more prominent and hotels were less inclined to offer low deals. The new company Expedia started their business without the best relations with its suppliers. About this time, Hotels.com had taken an aggressive approach with their hotel suppliers. Expedia adopted these practices too. If the hotel companies refrained from paying higher margins, then they would not get equal treatment on the travel sites. This approach to doing business strained supplier relationships.

Besides the strained relationship, Expedia had 15 different groups that worked externally with suppliers. Each group performed their own independent negotiations or contracts that fit the needs of that unit. Thus, large global hotel chains would need to work with 15 different Expedias. The hotels viewed these groups with uncertainty because of the chaotic nature in which to conduct business.

By the end of 2005, several hotel suppliers threatened to withdraw from Expedia. The hotels said that they would rather take the risk of losing revenue rather than doing business with Expedia.

Investors were hearing the frustrations from suppliers so Paul Brown, president of Expedia North America met with his senior managers and stated clearly they need to take a new business strategy to their current operations if the company is to survive in the long term. He said, "If we don't have good inventory and great prices on our shelves, our customers proposition will erode over time."

Expedia decided to form a central group that could smooth out relationships wit suppliers so as to alleviate the negative perceptions. The company formed a single entity that allowed for Expedia to present one face to hotel chains that complained about having to deal with 15 different Expedias. This new approach gave Expedia an overall view of the each hotel chain's total business. Thus, to make the new central "partner services group" work, the tame had to spend a lot of time meeting with Expedia country heads, account managers, and hotel representatives in different global markets to acquire concerns. New experts from the airline and hotel industry were brought in to identify standard metrics and policies that could be implemented across the company. Thus, all of the employees working in different parts of the business were accountable to the same performance standards.

Three years after implementing a centralized business group for Expedia, supplier relationships have certainly strengthened based on mutual trust that allowed the company to grow. About 11,000 new merchant hotels have been added to Expedia's inventory and its price competitiveness has remained strong. Paul Brown is pleased that the company offers the broadest selections and the best inventory. The outcome of a new global systems strategy has allowed the company to become more competitive in the global market and it happened with having the right relationships with suppliers as mentioned in Chapter 15 of the where the core business processes need to be clearly defined.

Reference: Jena McGregor (2008, September 2). Issue: Getting Along with Suppliers. Business Week. Retrieved from: http://www.businessweek.com/managing/content/sep2008/ca2008092_371191.htm

Chapter 15 Case Study: Nestle Tries for All-for-One Global Strategy

Question #2: What type of global business and systems strategy did Nestle adopt? Was this strategy appropriate for Nestle's business model?

Based on the case study, it appears that Nestle initially adopted a multinational decentralized strategy that concentrates financial management and control out of a central home base while decentralized production, sales, and marketing options to business units in other countries. The products and services on sale in different countries are adapted to suit local market conditions. However, this strategy was not appropriate for Nestle's business model because the inconsistencies and inefficiencies of 14 countries using an older enterprise resource planning software resulted in diminishing profits for the company.

Question #3: What management, organization, and technology challenges did Nestle have to deal with to standardize its business process and systems?

Management determined that a decentralized strategy of 80 different information technology units running multiple midrange computers created inefficiencies and extra costs that prevented the company to compete effectively in electronic commerce. Facilities in 14 countries all ran software differently using different schemes for formatting data and management forms. The challenge was to was to launch a $2.4 billion initiative to compel market heads around the world to adopt a single set of business processes and systems for procurement, distribution, and sales management. As a result, Nestle launched the Global Business Excellence (GLOBE)that would harmonize processes, standardize data, and standardize systems. All of Nestle's worldwide business units were to use the same processes for making sales, commitments, establishing factory production schedules, billing customers, compiling management reports, and reporting financial units. The greatest challenge of GLOBE was more personal in implementing a policy that would be accepted by highest-ranking executives. Managers resisted the idea of giving up control of their business processes to participate in a centralized solution.


Question #4: What strategies did Nestle management use to deal with these challenges? How successful were these strategies? Explain your answer.

Chris Johnson, who was charge of Nestle's Taiwan market was asked to lead the GLOBE initiative. In July 2000, Johnson formulated a team 12 senior executives with various backgrounds to help establish a GLOBE policy of converting 70 percent of the business to a common set of practices and systems by December 2003. However, the schedule was changed to establish a GLOBE-enabled organization by the end of 2005 rather than 2003. Johnson expanded his team to 400 executives with diverse backgrounds at Nestle covering 40 different countries. The core group formulated a GLOBE Best Practices Library and documented the best way to perform their core processes based on their initial weaknesses.

The biggest challenge was not a technical one, but a personal one because many of the high ranking executives were reluctant to give up their decision making authority. Johnson met with executives and market heads several times until the managers eventually endorsed the benefits of GLOBE. To help the rollouts, Johnson asked each country to name a GLOBE manager who would facilitate the operation and adoption. There were some technical challenges along the way and by the end of 2005, Nestle have converted 30 percent of its business to GLOBE. Each country has a data manager to ensure that data entering GLOBE's streamlined data centers are accurate and complete. Challenges, Nestle has successfully implemented its goal of standardizing all processes, data, and systems so as to better serve its customers. I think that the strategies implemented were successful because Johnson succeeded in changing the culture of the various business units. The benefits of applying GLOBE at Nestle have provided a more efficient business model, reduced maintenance costs, and gained profits. This strategic approach has resulted in a better use of global supply chain management.