Implementation Failure Hershey Foods Corporation

1. ERP Implementation
Failure
In Hershey’s
Presentation By,
Parth V. Purohit - Rohan Mehta - Vaibhav Parakh

2. Contents
• Benefits Of ERP
• Problems Of ERP
• Risks In Implementing ERP
• Risks In System Project
• Introduction Of The Company
• Need for an ERP implementation
• IT Partners
• The Plan
• Actual Outcome
• What went wrong?
• Failed Strategic Decisions
• Learning
• Hershey today – The turnaround

3. What Is ERP
• ERP (enterprise resource planning) is an industry term for the broad
set of activities that helps a business manage the important parts of its
business.
• The information made available through an ERP system provides
visibility for key performance indicators (KPIs) required for meeting
corporate objectives.

4. ERP System

5. Benefits Of ERP
• A single system to support rather than several small and
different systems
• A single applications architecture with limited interfaces
• Access to management information unavailable across a
mix of applications
• Access to best practice systems and procedures
• More integration hence lower costs
• More "automation" of tasks Generic Costs and Impacts

6. Problems With ERP
• The cost is likely to be underestimated
• The time and effort to implement is likely to be underestimated
• The resourcing from both the Business and IT is likely to be higher
than anticipated
• The level of outside expertise required will be higher than anticipated
• The changes required to Business Processes will be higher than
expected.
• Scope control will be more difficult than expected
• There will never be enough training - particularly across different
modules

7. Risks In Implementing ERP

8. Risk in ERP System Project

9. Hershey’s – A Brief Overview
• One of the leading chocolate manufacturer across world.
• Large chunk of sales from Valentine’s Day, Easter, ―back to school,‖
Halloween and Christmas – 40% of profit.
• Need of an efficient and reliable logistics system to cater to these large
no. of seasonal requirements .
• Reliable product availability is critical.

10. Existing System
• A network of 19 manufacturing plants, 8 contract manufacturers
and more than 20 co-packers.
• The company was running on legacy systems, and with the
impending Y2K problems, it chose to replace those systems and
shift to client/server environment.
• To tackle Y2K problem Hershey decided to replace existing legacy
systems.

11. IT Partners
• A $112 million worth of combination of softwares for CRM, ERP and
forecasting.
• Replace existing mainframe based legacy systems by SAP R3 –
Accenture.
• Production forecasting, scheduling and transportation management –
Manugistics Group Inc.
• Managing customer relations and tracking effectiveness of marketing
activities– Siebel CRM.

12. Implementation Plan for Enterprise 21
Jan 1996-Roll out of the plan
Tackle Y2K issue by Replace Mainframe Advanced final date to
Jan 2000 with SAP R/3 April 1999
Jan 1997
Installed new TCP/IP network
Replaced 5000 desktop computers
hardware
April 1999
Enterprise 21 went live

13. Expected Benefits
• Fine-tune deliveries to suppliers.
• Upgrade and standardize companies business processes.
• Efficient customer driven processes capable of managing changing
customer needs.
• Reduce order cycle times and boost inventory accuracy.
• Reduce inventory costs.
• Better execution of business strategy of emphasizing core mass
market candy business.

14. Actual Scenario
• Unable to deliver $100 million worth of Kisses and Jolly Ranchers for
Halloween in 1999.
• Stock price down 35%
• Earnings drop 18%
• Order fulfillment time doubled to 12 days!
• Lost prominent shelf space for the season!!!
• Several consignments were shipped behind schedule, and even among
those, several deliveries were incomplete.

15. “Enterprise software isn’t just software.
It requires changing the way you do business.”

16. What Went Wrong?
Squeezed Deadlines
Wrong Timing
Big-Bang Approach
Un-entered Data

17. What went wrong?
• Squeezed deadlines:
– Project originally scheduled for 4 years
– Company forced the implementation to 30 months
• Wrong timing:
– The company went live at their busiest time
– Released the solution just before the Halloween
• Big-Bang Approach:
– To quicken the implementation process, Hershey opted for Big Bang
implementation.
– Simultaneously implemented a customer-relations package and a
logistics package even without testing some of the modules
– Increased the overall complexity and employee learning curve
• Un-entered data:
– ―Surge Storage‖ capacity not recorded as storage points in the ERP
– Orders from many retailers and distributors could not be fulfilled,
even though Hershey had the finished product stocked in its
warehouses.

18. Failed Strategic Decisions
• Unrealistic Expectations
• The Big Band Implementation
• Implementation of Systems from 3 different Companies
• No CIO to look after IT before implementation

19. Learnings
• The evolutionary way
• Test each module before
Go Slow release
• Data migration is important.
• Discipline in inventory. Successf
Data is King
ul ERP
• Management should keep a
close watch.
Oversight Matters • Work for a common goal.

20. A New Challenge
To restore confidence in distribution systems
following the 1999 breakdown; to extract
additional efficiencies from the supply chain.

21. The Turnaround
 Hershey made sure to take the time and resources to thoroughly test
the computer systems.
 Testing included putting bar codes on empty pallets and going
through the motions of loading them onto trucks so that any kinks
would be worked out before the distribution center opened for
business.
 Began work on the upgrade to mySAP in July 2001.
 Hershey Foods said it had completed an upgrade to mySAP.com —
completed in 11 months, 20% under budget.
 Hershey now has an inventory location accuracy of 99.96 % and can
turn orders within 24 to 48 hours of receiving an order as opposed
to the previous 10-plus days that it took.

22. Eastern Distribution Center, EDC III
 Opened in 2000, to help custom pack some products at its
distribution centers, removing co-packers from the chain.
 To strengthen the overloaded physical logistics infrastructure.
 To help with errors in forecasting.
 Enabled by WMS from Mc Hugh DM+.
 In its few short months of operations, EDC III nearly has halved the
company’s order-cycle times of a year ago while dramatically boosting
inventory accuracy.

23. Hershey’s Today
 Revenues of nearly $5 billion and almost 13,000 employees
worldwide.
 In 2005 & 2006, Hershey acquired the Berkeley, California-based
boutique chocolate-maker Scharffen Berger, Joseph Schmidt
Confections, the San Francisco-based chocolatier and Dagoba Organic
Chocolate, a boutique chocolate maker in Oregon.
 Markets Hershey's, Reese's, Hershey's Kisses, Kit Kat, Twizzlers, and
Ice Breakers.

24. General Solutions
• Justify Enterprise-wide Projects.
• Both the Software & Business Processes should FIT together.
• Identify And Implement Strategies For Reskilling The Existing It Workforce
And Acquire External Expertise Through Vendors And Consultants When
Needed.
• Project management team should have both Business Knowledge And
Technology Knowledge.
• Make A Commitment To Training.
• Manage Change Through Leadership, Effective Communications And The
Role Of A Champion.