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Erp implementation failure at hershey food corporation Erp implementation failure at hershey food corporation Document Transcript

  • PrefaceAll praise is due to Allah Subhanahu Wa Ta’ala, we praise Him and seek Hisaid and forgiveness. Furthermore, we seek refuge in Allah from our souls’ and actions’evils. Whomsoever Allah guides there is none to misguide, and whomsoever Allahmisguides there is none to guide. I bear witness there is none worthy of worship exceptAllah and that Muhammad salla Allah alayhi wa sallam is His slave andmessenger.What is Enterprise Resource Planning (ERP)? “Enterprise Resource Planning” is a termoriginally coined in 1990 by The Gartner Group to describe the next generation of MRPII software. The purpose was to integrate all facets of the business enterprise under onesuite of software applications. The definition of ERP would be broadened to includealmost any type of large integrated software package. Webopedia provides a generalizeddefinition of ERP as “a business management system that integrates all facets of thebusiness, including planning, manufacturing, sales, and marketing. Some of the morewell-known ERP software developers include SAP, Oracle, and PeopleSoft. This book I will describe one of the companies that failed in ERP implementation and itis HERSHEY FOODS CORPORATION. 2
  • ContentsTitle ... ………………………………………………………………………….1Preface… …………………………………………………………………………..2Contents ...……………………………….………………………............................ 3Chapter I Introduction 1.1 Background ………………………………………………………..…. 4 1.2 Goals...……………………………..……………………....................... 4Chapter II Study 2.1 Hershey foods corporation …….......................................................................5 2.2 Implementing ERP……....................................................................................6 2.3 The problems ………………………………………………………………….9 2.4 What went wrong ………………………………………………………………12 2.5 Consequences ………………………………………………………………..15 2.6 Effect on the market …………………………………………………………….16 Chapter III Solution 3.1 Failure avoidance ….............................................................................................17 3.2 Failure avoidance learning………. ......................................................................17 3.3 Bouncing back ………………………………………………………………….18 Conclusion …………………………………………………....…………………….. .20 References……………………………………………………………………………..20 3
  • CHAPTER I INTRODUCTION1.1 BackgroundEnterprise Resources Planning (ERP) is a technology computerized integrated informationsystem used by world-class company in improving its performance. ERP has evolved as ameans of integration. ERP goal to integrate all enterprise applications or the companys coreactivities include sales and marketing, maintenance, production / manufacturing,procurement / logistics, warehouse, HR, Commercial and Finance to the central data storage(server) and can be easily accessed by all unit in need. An ERP system will help the parts inan organization to share data and information, cost reduction, and improved management ofbusiness processes.Many ERP systems that have failed at the time of implementation. Theaverage failure of the software implementation of ERP, SCM and CRM in the world basedon the results of the survey was 50% to 70%. In many writings, the figure of 70% can be saidto be "standard" mutually acceptable failure in IT projects. Furthermore, the Standish Groupstates only 10 % of companies that successfully implement ERP, 35% of projects werecanceled and 55% experienced delays. The conditions experienced by companies inIndonesia, many of which suffer the same fate with overseas companies that have ERPimplementation failure after investing heavily. But the failure is rarely expressed as theaverage company revealed details of the failure of shame that will reduce the companysimage and disappointing consumers and shareholdersnya (Garside, 2004).1.2 GoalsThis book contains the following objectives:1. Analyze failures in the Hershey food corporation2. Readers will know the problems of the Hershey3. Readers will know what went wrong of the Hershey3. The solution and bounce back of Hershey.4. Fulfilling assignment of ERP presentation. 4
  • CHAPTER II Study2.1 Hershey foods corporation was founded by Milton Hershey (Milton) asHershey Chocolate Company (HCC) in 1894 before establishing HCC; Miltonunderwent a four year apprenticeship with a candy maker in Lancaster. In 1876, heestablished a candy store in Philadelphia, which was closed by 1882.He then moved to Denver, where he learnt making caramel using fresh milk. He thenstarted a candy business in New York which failed. He moved back to Lancaster to startLancaster Caramel Company which was successful. The companys products were soldall over the US and were exported to Europe.Milton decided to make chocolates, during a visit to an exposition in 1893, where hepurchased the machinery used to make chocolates. Using the machinery, he beganmaking chocolate coatings for caramels HCC was incorporated after this business successin that year.By 1895, HCC was manufacturing more than ll4 different varieties of chocolates. Butmilk chocolate was still made only by a few Swiss companies. Milton aimed to learn howto mass produce milk chocolates, and spent several years to try to discover the rightcombination and method to produce milk chocolates. By 1899, he arrived at the rightcombination of cocoa, sugar and milk through trial and error and became the firstAmerican company to make milk chocolate.In order to concentrate on the chocolate business the caramel company was sold in 1900for US$ 1 million. A new facility to produce chocolates was started in Derry Township,in Pennsylvania.The First World War had a negative impact on the company, as the sugar it importedfrom Europe became scarce. This led HCC to explore the possibility of using Cuba as aviable Alternative source of sugar. It went on to acquire several sugar plantations andalso constructed sugar refineries in Cuba.In 1927, HCC was incorporated as Hershey Chocolate Corporation. At the same time,another company Hershey Estates was incorporated. This company looked into Miltonsother activities like community projects. Another company to oversee the Cuban 5
  • operations was also founded at the same time. In the same year, the company went publicby offering 350,000 shares of convertible preferred stock of Hershey ChocolateCorporation.Hershey was known for several innovations and was credited with introducing severalchocolate variants. Some of the variants included chocolate syrup for home use (1926),chocolate chips (1928>, Krackle Bar, ice cream toppings, cream topping with milkchocolate, shell toppings, hot fudge, etc. Some of HCCs other popular products includedHersheys Kisses, introduced in 1907, M r. Goodbar(1925), Krackel Bar (1938), andHershey’s Hugs ( 1993).During the Second World War the US army demanded a chocolate that weighed fourounces, d id not melt at high temperatures and provided high energy. The product shouldnot taste good and soldiers should eat it only in case of emergency. Taking up thechallenge, Hershey produced special candy bars meeting the above specifications. Theywere known as Field Ration D. By the end of the War, Hershey was producing around24 million Field Ration D bars every week.After the Second World War, the Cuban facilities were sold to Cuban Atlantic SugarCompany Through the years, Hershey Chocolate Corporation acquired several companiesin order to expand and consolidate its position. In 1963, Hershey acquired H B ReeseCandy Company, which was well known for peanut butter cups. It also diversified intopasta manufacturing to by acquiring San Giorgio Macaroni, Inc. and Delmonico Foods,Inc. In 1977,Y&S Candies was acquired. Hershey also acquired the rights to manufactureand distribute many products of Cadburys in the US. In 1968, the company was renamedHershey Foods Corporation.Hersheys products were exported to more than 90 countries across the world, through itsinternational division. Hershey sold several products and some of the popular ones wereHersheys Kisses, Kit Kat, Reeses Peanut butter cups, Twizzlers, etc. (Refer Exhibit I formore about Hersheys products). Hershey sold nearly 3,300 products, including candieswith variations in shapes and sizes. The sales of Hershey which were at US$ 334 millionin 1969 grew to US$ 4.94 billion By 2006. As of 2006, the company had more than14,300 employees. 6
  • 2.2 Implementing ERPHershey priced its products low, and to achieve sales of almost US$ 5 billion, hugequantities of the products needed to be sold. This called for highly efficient logistics andsupply chain systems duly supported by information technology (IT). In the early 1990s,the spending on IT in the food and beverage industry was among the lowest. During thisperiod, Hershey, like most of the other companies in the industry used legacy systems. Itfunctioned through several main frame legacy systems, which were used for differentfunctions ranging from human resources to order processing.During late 1996, the management of Hershey gave its approval to a project named Enterprise2 1, which aimed at modernizing the hardware and software used by thecompany. At the turn of the century, Y2K problemsl2 were expected to crop up in thecompanys legacy systems. Hershey chose to replace the systems, rather than spendinghuge amounts on solving the date related problems in the legacy systems. The main goalsof Enterprise 2l project were to upgrade and standardize the hardware, shift toclient/server environment from the existing main frame based environment, move toTCP/IP network, etc. At around the same time, there was growing demand from theretailers that suppliers like Hershey should share their data about product deliveries sothat the retailers could maintain optimum inventory levels and reduce costs. Byimplementing new software, Hershey aimed at better coordinated deliveries of itsproducts, helping retailers maintain low inventory and reduce inventory holding costs,and on the whole providing better customer service.Hersheys information systems division wanted to switch over to the ERP system byApril 1999. According to Keith Costello, Project Team Member for Enterprise2 1, "Weredesigned the whole business process with the customers in mind. Were implementingthis No I. To enhance our competitiveness, and No. 2 to enhance our customer service.In our corporate culture, the customer service piece is highly visible. For example, whencustomers place orders, Hershey customer-service reps will be able to say whether theproduct can be delivered on the date the customer wants it, and, if not, when it will beavailable. 7
  • The new ERP software was expected to help Hershey reorganize its business processes.For this purpose, Hershey selected SAP AGs R/3 Enterprise Resource Planning suite,along with companion software from two vendors - Manugistics and Siebel. Softwarefrom SAP included modules for finance, purchasing, materials management,warehousing, order processing, and billing. Manugistics would provide software fortransport management production, forecasting and scheduling. The software from Siebelwas to support Hershey in managing customer relations and in tracking the effectivenessof the companys marketing through a pricing promotions module. Hershey had usedsoftware from Manugistics earlier in its main frames. After switching over to the ERPsystem, Hershey was to have a client-server version of the same software. IBM GlobalServices was chosen to integrate the software provided by the three different vendors.The aim of the project was to put all the systems on a single integrated platform. Overall,the project was expected to cost the company US$ I l0 million.As a part of Enterprise 2l project, Hershey installed bar coding systems across itsproducts and plants in the US. Through bar coding, Hershey aimed to reduce productioncosts, track the inflow and outflow of the materials and improve the overall managementof logistics.According to the initial plan of the project, Hershey would be able to shift to the newsystem by April 1999, when the annuals ales of confectionary companies were usuallylower, compared to other times of the year. For confectionary companies, sales weremostly seasonal - with the Christmas and Halloween seasons accounting for 40% of thetotal sales. This essentially meant that the project which would otherwise take aroundfour years to complete, had to be finished in a span of just over thirty months. Anotherreason why Hershey wanted to finish the project at a quick pace was because of theimpending Y2K problem.By January 1999, some of the modules like SAP financial, materials management,purchasing, and warehousing had been implemented. However, other modules like thecritical order processing and billing systems modules from SAP, the pricing andpromotions package from Siebel and planning and scheduling modules from Manugisticswere behind schedule. Though Hershey planned to switch over to the new systems duringApril 1999, which was a lean season for confectionery sales, these modules were addedon only in July 1999 - three months behind schedule. At that time, Hershey was underpressure and was not in a position to extend the implementation schedule, as the Y2Kproblem was looming large. That was the time that orders from retailers for Halloweenstarted pouring in Hershey then decided on a Big Bang approach to ERPimplementation. In this approach, the Software was to be implemented at one go, instead 8
  • of a phased approach of implementing one module at a time, testing it, and then taking upthe next module. The phased approach allowed a company to find and correct bugsbefore moving on to the next phase. However, Hershey was of the view that the Big Bangapproach would enable it to meet all its Halloween orders. 2.3 The problemsInitially, the rollout appeared to be smooth. But slowly, problems pertaining to orderfulfillment, Processing and shipping started to arise. Several consignments were shippedbehind schedule, and even among those, several deliveries were incomplete. However, itwas too late for Hershey to respond to this problem. The old logistics system that hadbeen in place was pulled down, making way for the new one, which could not function asrequired. Without any data about the Products in its hands, Hershey was often forced tocall up customers and inquire about the details of the quantity they received and ordered.In July 1999, when Hershey opted for the Big Bang approach to ERP implementation, ithad Supplies for around eight days - this was higher than usual. Hershey maintained moresupplies in order to address anything of problems that might occur during theimplementation. But three Weeks after the implementation of the new system it wasevident that Hershey would not be able to meet its deadlines as the shipments weredelayed .As against the usual five days, that it took to deliver the products, Hersheyasked distributors for around twelve days to deliver their orders.However, Hershey missed that deadline too. By August 1999, the company was 15 daysbehind Schedule in fulfilling orders. Several of Hersheys distributors who had orderedthe products could not supply them to the retailers in time, and hence lost their credibilityin the market. The retailers complained that the problems with in regular supplies fromHershey had been persisting since summer and they were looking at other alternatives.According to a Candy Category Manager at 7-Elevenru, lf we ran out of Kit Kat oranother Hershey item, we might expand facings of Snickers. We typically used the next-best-selling item.Hershey also lost precious shelf space for which there was high competition in themarket. Customers began switching to products of competitors like Nestlé and Mars . 9
  • Retailers opined that not only short term sales but long term sales of Hershey too wouldalso be affected.According to Ron Coppel, Vice-president of Business Development at Eby-BrownCompany, a distributor, said," lf you dont have my tooth paste Im walking out. But for achocolate bar, Ill pick another one. Customers are not likely to walk out of the storebecause there wasnt a Hershey’s bar. Theyll pick another candy bar.On the one hand, Hershey was unable to send the consignments on time due to problemsin order entry, processing and, fulfillment; on the other, the warehouses were piled upwith products ready to be shipped, as the manufacturing process was running smoothly.Product inventory started to pile up and by the end of September 2000; the inventorieswere 25% more than the inventories during the previous year. Hershey missed out on thedeliveries, in spite of having enough products at its warehouses.This confusion surprised market observers a d Hershey on its part did not disclose thedetails of what went wrong. Later on, analysts identified that the problem had occurreddue to several informal structures within the company. SAP R/3 ERP Implementationrequired all the data pertaining to the location of the inventory and its details. Hersheyused to ensure peak-season inflow of products from its manufacturing units by placingthe products wherever the space was available; this was not always the distribution centeror the warehouse. Sometimes, it rented temporary space and products were even stored inunused rooms in its factories.The temporary facilities where products were stored were not identified as storage pointsas far as SAP R/3 ERP software was concerned, and so many such storage locations weresimply not taken into account. In order to fulfill customers orders, the SAP initiallychecked the inventory available at each of the locations mentioned in Hersheys officialrecords. However, the products stocked in informal locations were not checked, whichSAP R/3 software did not consider. The main reason for the gap was the lack ofcoordination between the technical personnel implementing the system and the peopleinvolved in operations, who did not update those Implementing t he software solution.Without a database of the entire inventory of the company, the orders could not beprocessed on time. According to Kenneth D. Miesemer, Director of Eastern DistributionOperations at Hershey, Wed had a real problem with inventory accuracy, and a lot of thetime we didnt have the right inventory to the right place according to our records.Hershey did not acknowledge the existence of the problem till early September 1999. Inmid-September1 999, Hershey announced that it was having problems in processing 10
  • orders using its new computer systems. The company said that employees were facingproblems entering new orders into the systems, and the new systems were nottransmitting order details to the warehouses. Thus the company did not indicate whetherthe root cause of the problems w as poor software quality or implementation, but did saythat the information flow between different applications needed to be righted in order tofix the problems. The news made it to the headlines of major business newspapers andHersheys stock price plunged by 8 % on a single day. With the news about the problemswidely reported in the media, it experienced a sharp decline even over a longer period,falling by 35% to US$ 47.50 by late October 1999, from US$ 74 during October 1998(Refer Exhibit II for Hersheys stock price from 1998 to 2002).Hershey announced that the problems would be sorted out by the first week of November1999. However, analysts expressed doubts about Hersheys ability to bounce back.According to William Leach from Donaldson, Lufkin & Jenrette, Theyve missedHalloween, theyre probably going to Miss Christmas, and they might even start missingEaster."24 Later, Wolfe confirmed that in all probability, the problems would not besorted out before the end of the year 1999.With several orders remaining unfulfilled, Hersheys failure to implement the ERPsoftware on time costed the company US$ 150 million in sales. Profits for the thirdquarter 1999 dropped by 19% and sales declined by l2%.In its 1999 annual report,Hershey stated," The reduction in shipments resulted primarily from difficulties in orderfulfillment (customer service, warehousing, and shipping) encountered since the start-upof a new integrated information System and new business processes during the thirdquarter of 1999." Hershey confirmed that the problem was with getting the customerorders into the system and transmitting them to the warehouses .it was estimated thatduring the third and fourth quarter of 1999, Hershey lost about 0.5% of market share. 2.4 What went wrong?The top management of the company as well as industry analysts began looking at thereasons f for the problems at Hershey. Though SAP was blamed for Hersheys debacle,the companys Management viewed it differently, According to McKay, Chief ExecutiveOfficer and President, SAP US, "If it was a system issue, Id point directly to a systemissue." Siebel stated that the problem was not due to their software, saying, "It may haveturned out with the big bang kind of installation, they were maxed out there." 11
  • Industry analysts also concurred that problems in project management were to blame forthe debacle. According to Tom Crawford, General Manager, Consumer Products unit,SAP America Inc., "There are really no software issues per se, in terms of bugs or fixesthat need to be applied to make (R/3) work any differently that it is now. The SAPworkers are just making sure theyre using the business processes (built into the software)correctly. Hershey had planned to have all the systems up and running by spring 1999,with the Y2K problem in the vicinity. As a result, there was hardly any buffer left for thesystems to be tested.The deadlines Hershey had set to implement the ERP suite were unrealistic. Hershey wasunable to stick to the deadlines and some of the important processes like transportationand warehouse management got shifted into the third quarter.Another reason was that Hershey implemented ERP during the peak season, and did nothave time to rectify the mistakes a rising out of problems pertaining t o theimplementation .According to analysts, ERP implementation was a complex process andmany glitches could occur.Hersheys mistake was in going ahead and implementing ERP during its busiest season.Had it done his in an off-peak period, the company could have successfully addressed thelapses a rising in the software. According to experts in the field, anything between threeto six weeks was required after implementation to identify problems and fix them. IfHershey had completed the project on time, and implemented it by April, implementationand connection would have been completed before the peak season. Tony Bear, ITanalyst, asked, "Who really was culpable in this situation? Was it Hersheys managementfor not realizing that its busiest sales period probably was not the best time to activate anew ERP system?Industry experts said that with three different vendors working on the system, it wouldhave been better if Hershey had chosen to roll out each system successively and thencheck the integration issues. For a project to be implemented in a company as big asHershey, each component had to be rolled out cautiously, ensuring that the systemworked according to the plans. But with such a short time-frame to implement the ERP, itwas not possible to test each of the components carefully. In this case, a big bang was notthe right approach. According to Jim Shepard, Senior Vice-president for AMR Researchin Boston," Theses systems tie together very intricate ways, and things that work fine intesting can turn out to be a disaster. (Going live with all the software is) a huge bite totake, given that (processing orders)is the lifeblood of their business."" 12
  • SAPs R/3 ERP suite on its own was complex to install and run. But Hershey attempted toimplement two other applications along with it, making the whole exercise still morecomplex.With more than one package in operation, there was a sharp increase in the number oftouch points and interfaces, and implementation related problems were almost inevitable.Since there was more than one vendor, it was easy for each party to blame the other forany mess-up.According to Stephen Cole, Research Director, Forrester Research"," There were threecooks in that kitchen. Thats why there is so much finger-pointing going on.Some experts were of the opinion that there were problems integrating SAP R/3 with theCRM software from Siebel and supply chain software from Manugistics. These threeneeded to work in tandem to process orders and schedule shipments. Inputs fromconsulting firms with experience in SAP-Manugistics integration could have helpedHershey avoid the catastrophe. Dave Boulanger, Senior Director with AMR Research,said, "Every facet of the business a t Hershey was changing. They didnt just have one setof balls up in the air. They literally had two or three sets of balls up in the air."Hersheystop management was strongly criticized in the media.Until implementation started, the company did not have a CIO position and the ITdepartment was headed by a Vice-president. T he board did not have any representativewith competence in the field of IT. To address the issue, the board recruited Allen Loren,then CIO of American Express, to join the board. Hersheys management clearly did notquite understand what was required from them for the implementation of ERP software.Another reason cited for the debacle was Hersheys lack of experience in implementingsoftware Solutions of this magnitude .Hershey had earlier implemented a few customizedsystems, but they were on a much smaller scale. The top management did not conductenough groundwork before going ahead with implementation of this company-wide ERPsolution. Since the ground work was inadequate the top management also fell short inguiding the companys technical and business managers. These two levels of managementwere working towards different goals. An analyst commented," The thing Hershey can befaulted for was to announce that they had blown ERP as justification for missingearnings.The employees at Hershey were required to follow and understand how different businessProcess was built, in SAP R/3. They needed to be trained in how the system functionedand also how different modules interacted with one another. The employees were 13
  • overloaded as they had to learnt his intricacies of not one, but three new systems, andbring out the required revisions in their activities. Further, this happened at the peakseason, when they were very busy with little time to spar for the new endeavors. Analystswere of the view that though some though not all, of the problems could have beenavoided if there had been more focus on training.During ERP implementation, Hershey did not have right processes in place to keep itssenior Management regularly informed about how implementation was proceeding. Theconsultants who were brought in subsequently said that the top management had reallyfailed to understand the scope of the project. Dave Boulanger, Research Director, AMRResearch, who worked on fixing the bugs at Hershey said, "A lack of technologicalsavviness at the top, whether it was the CEO, or CIO, or somebody else, was to blame. Ifyou dont understand the complexity of it all, this is precisely the kind of thing you woulddo.According to Jake Sanchez co-founder, CEO and President, of Planning Technologies,Hershey did not have enough infrastructures to support the project. He opined, "Hersheyhasnt said if it Checked its network before embarking on its implementation, but athorough assessment would have raised some red flags. By doing a full probe of thenetwork, modeling it and profiling the applications that will run on it, Hershey could havechecked the impact of the R/3, Manugistics and Siebel systems on its network. Thecompany would have seen the loads those applications were going to put on its network,and it would have been able to identify potential problem areas. Those risks could havebeen eliminated."2.5 ConsequencesWhen the company was facing many problems in the system, they started not only toreconstructing the whole process but also spent a lot of time and efforts behind it. Due tothis they were not able to focus on their existing business as they were fully concentratingon the problems that had been occurred in the ERP implementation process. When theyrealized this, they started to pay more attention on the existing business. But this createdanother problem which was, now they were less focusing on the ERP system. Thissituation created a lot of confusions in the company. Even though concentrating more onERP they got one more shock; the ERP was not working properly because there weresome final touches which were not done. 14
  • 2.6 Effect on the MarketDue to all these problems with the ERP system, the company had to face a great loss inthe market regarding order fulfillment, processing and shipping. The retailers who hadordered for the products were not able to get them on time even if the company hadample supplies stocked at the warehouse. This lowered the reputation of the company inthe world of business and caused a huge loss for the company in terms of money. It was avery hard time for the company. They were in a deadlock state, where they were not ableto understand what step should be taken next. 15
  • CHAPTER III Solution3.1 Failure AvoidanceThe failure could have been avoided if the company would have taken the right decisionon right time. Hershey is a highly renowned company so they shouldnt have taken therash decisions related to the business advancement. They could have implemented theERPs in a dull period when their business wouldnt have affected much even if theimplementation process would have given the errors.3.2 Failure Avoidance Learning3.2.1 Have a Game Plan: Before starting to work on any ERP implementation process,some planning has to be done. First of all decide whether this time is perfect toimplement ERP or not. Then enough period of time should be allotted for the wholeprocess so that there will be no need to take any rash decisions. Hershey failed to followthis strategy and started to implement without thinking about the consequences.3.2.2 Focus: This is a major aspect of a successful ERP system. The company should payfull attention to the implementation process. Because once something goes wrong, itaffects the entire system. So the company should focus fully on what its doing. Hersheywas not fully paying attention to the implementation process which resulted into the lossfor the company.3.2.3Testing: Each and every module of the entire process should be tested beforeimplementing. Because after testing only we can come to know the problems related tothe module. After testing, the software can work more efficiently as this will reduce thechances of the errors. For proper testing enough training should be given to thedevelopers so then they can think in several ways to solve any given problem. Hersheydid not test some modules and directly implemented in a big bag fashion which causedseveral problems. 16
  • 3.2.4 Data Migration: Data migration is a very important aspect of any successful ERPsystem. Running all the modules together need a good synchronization of data. So thedata migrated from one module to another should match the requirements of the receivingmodule. Data migration plays a very important role in inventory management. It helps tokeep a track on the stock of the inventory. Hersheys software was malfunctioning due tothe problems so it was making difficult for the company to migrate the data efficiently.3.2.5 Think about Future: Implementation is the initial process, but the company also hasto think about the future. Like, whether the ERP system will fulfill all the expectations.Moreover, make a plan of changes that are need to be done in future if required by thesystem. As the Hershey was facing the problems regarding the SAP, later on they did notcare much about the future and implemented other ERPs too which created furthermoreproblems.3.3 BOUNCING BACKAfter the debacle, Hershey made efforts to stabilize SAP and other systems. Thecompany appointed a CIO, George Davis from Computer Sciences Corporation. Underhis leadership, a rigorous software testing program was implemented. By September-Octobe2r 000, Hershey announced that most of the initial problems with the ERP systemswere fixed. In 2000, Hershey was in a position to fulfill orders for Easter. The next peakseason, Halloween Christmas also passed smoothly. By the year 2000, Hershey was backon track with sales reaching US$ 4.2 billion (Refer Exhibit III for Hersheys sales andincome during 1997 to 2000).In July 2001, Hershey redesigned the process and began working with SAP N3 4.6,which was a part of SAPs products. Within 1l months, the system wasimplemented successfully - ahead of schedule and with 20% less costs as compared to thebudget estimates. Hershey also began using SAP for marketing analysis and brandmanagement, order management etc. The company announced that within 60 days ofimplementation major improvements were made to processes like invoice verification,credit processing etc. Hershey was using SAPs business analysis tools to measure theimpact of sales and marketing programs. Hershey ensured that the mistakes committedearlier were not repeated by thoroughly testing the software before implementing it andby providing adequate training to employees. for example, Hershey carried a dry run ofloading the pallets and distribution by putting bar codes on empty pallets. According to 17
  • Joe Zakutney, Director, SAP Upgrade Program at Hershey, the companys success in itssecond round of ERP implementation was attributable to strong program managementand Executive leadership, diligent planning and an extensive testing and training plan.""Hersheys distribution system which included several regional warehouses, some ofwhich were operated by third parties, was one of the primary reasons for the problemspertaining to the first major ERP at Hershey. In order to address this issue, Hershey builta 1.2 million sq. ft. distribution center, to align its distribution function with the new ERPsystem. With the new distribution center, Hershey was able to reduce its order cycletimes by half. After putting this new facility in place, Hershey closed several warehouses.In mid-2001, with the ERP system running successfully, Wolfe said, "With more than l8months experience using the system, Hershey employees are much more comfortable andare able to execute at a higher level of performance. We have moved into a continuousimprovement mode and have begun to realize the benefits of the new systems power." 18
  • CONCLUSIONHershey could have avoided this failure if they would have been more focused towardsthe ERP implementation process. Instead of keeping an example of successful ERP inmind they should have kept the example of failure ERP, so then they would have come toknow, in what factors company fails to implement ERP. But Hershey did exactlyopposite to this and they did the very common mistakes which many companies do likeERP implementation at wrong time, not changing the business process and implementingwithout thinking about the future.References1. CMR Case Studies in Business, Management(2008) The Hershey Company (2009) Crewind Technologies Pvt. Ltd. (2009) Slide Share Inc (2007) 19
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