Hershey Foods implemented an ERP system in 1999 that led to major problems. The key issues were: 1) Modules were simultaneously implemented instead of sequentially, leading to integration problems. 2) Training and testing were inadequate. 3) Peak season was chosen for the implementation. 4) Top management lacked IT expertise and did not properly oversee the project. 5) Problems were exacerbated by the looming Y2K issue and demand from retailers. The failed implementation resulted in delivery delays, lost revenue, and excess inventory. Hershey later took steps to stabilize the systems and implement improvements.

1. ERP lmplementation Failure
at Hershey Foods Corporation

2. INTRODUCTION

3. In 1999
Hersheys ERP
was implemented by
The remaining modules were
delayed
from April to July 1999

4. IMPLEMENTATION…
…to QUICKEN
the implementation
process!

5. Simultaneous
implementation
of modules lead to
IMPLEMENTATION…
…to QUICKEN
the implementation
process!

6. Simultaneous
implementation PROBLEMS!
of modules lead to
NO MODULE
TESTs
IMPLEMENTATION…
…to QUICKEN
UNFULFILLED
the implementation ORDERS
process!

7. Hersheys
Financials for
3rd quarter of
1999

8. Hersheys DROP
Financials for in
3rd quarter of REVENUE$
1999

9. Founded
by Milton
Hershey in
1 st known for several
innovations
+
company to make chocolate variations

10. IMPLEMENTING
ERP

11. Hershey
price$ its
low

12. Hershey
price$ its
low
Efficient IT
systems
HUGE necessary
quantities to support
logistics and
supply chain

13. Late 1996
“PROJECT ENTERPRISE 21”
MODERNIZATION of IT SYSTEMS to
solve
and have
Y2K
better
Problem
coordinated
deliveries
to retailers

14. ERP software
to help reorganize
business
PROBLEMS!
processes!

15. ERP software
to help reorganize
business
PROBLEMS!
processes!
initial plan of the project:
shift to system
by April 1999

16. other
modules
were
BEHIND
SCHEDULE
January
1999

17. other
modules
were
BEHIND
SCHEDULE
Planned
to switch
January over to
NEW
1999 SYSTEMS
April
1999

18. other
July
modules
were
1999
BEHIND
SCHEDULE Planned
Planned
to switch
3
to switch
Months
over to
behind
NEW
January over to
NEW
schedule
SYSTEMS
1999 SYSTEMS
April
1999

19. other
July
modules
were
1999
BEHIND
SCHEDULE Planned
Planned
to switch
3
to switch
Months
over to
behind
NEW Y2K
January over to
NEW
schedule
SYSTEMS problem
was
1999 SYSTEMS looming +
large
Orders from
April retailers
1999

20. other July
modules
were
1999
BEHIND
SCHEDULE
Planned
to switch
3 Months
behind Y2K
January over to
NEW
schedule problem
was
1999 SYSTEMS looming +
large
Orders from
April retailers
1999

21. THE
PROBLEMS

22. Problem # 1 “delivery delays”
July can’t keep their usual
1999 5 day delivery
August still 15 days
1999 behind order schedule

23. Problem # 2
“Loss in Credibility”
because they failed to
supply products in time
“Loss of Market Share”
because suppliers looked for reliable
alternatives

24. “ lf you don't have my toothpaste,
I'm walking out. But for a chocolate bar,
I'll pick another one.
”

25. Problem # 3
Warehouse was
piled up with products.
“Inventory” In September 2000
inventory was 25% more
than in previous years.

26. Analysts say
the cause
of the
problem
was…
MISSING INVENTORY
DATABASE in
SAP R/3 ERP software

27. THE REASON FOR THE
lack of coordination
between
technical personnel
and people involved in
operations,
who did not update
Inventory data.

28. WHAT WENT
WRONG

29. there are
9 reasons
for the failure.

30. reason #1
NO BUFFER planned
for the systems to be tested
NOT sticking to
the deadlines

31. reason #2
Hershey implemented the
ERP during a peak season and
couldn’t rectify the implementation

32. 3 VENDORS
reason
# 3 It was not possible to
test each component
IMPLEMENTATION…
Roll out each system
successively and then
carefully check the integration issues

33. Inevitable implementation
related problems due to high
number of interfaces of the
software packages
Problems integrating
SAP R/3 with the
software from Siebel
and Manugistics
reason #4
“ERP Suite Complexity”

34. IT Department
No CIO appointed
reason #5
+
the board did not have
any representative with IT
competence

35. Inexperience
Top management
did not conduct
enough groundwork
before
implementing the
ERP solution
#6
reason

36. Employees
Training
#7
reason

37. Lack of
technological
Right processes werethe in place
savviness at not top
To keep senior management informed
8
reason # Top management failed to
understand the scope of the project

38. reason #9
“Lack of Evaluation”
Hershey
…was missing the
infrastructure to support
the project
…did not check the impact
on their network
to identify potential problems

40. Hershey made
efforts
to stabilize SAP
and other systems
“…rigorous
software testing
program”
- George Davis
(CIO)

41. SEPTEMBER 1999
Most of the initial problems
with the ERP systems
were fixed

42. SEPTEMBER 1999
Most of the initial problems
with the ERP systems
were fixed
2000
$ales reaching
US$ 4.2

43. SEPTEMBER 1999
Most of the initial problems
with the ERP systems
were fixed
July 2001
Redesign of the
process and start to
work with SAP N3 4.6
2000
$ales reaching
US$ 4.2

44. SEPTEMBER 1999
Most of the initial problems
with the ERP systems
were fixed
July 2001
Redesign of the
process and start to
work with SAP N3 4.6
2000 June 2002
began using SAP for
marketing analysis an
$ales reaching brand management
order management
US$ 4.2

45. Hersheys new distribution center
ERP and the new
distribution center reduce
the order cycle times by
half
1.2 million sq. ft.
= 14 Football fields

46. Hershey
should that
…ensure
mistakes committed
earlier are not
repeated
…provide
adequate training
to employees

47. Thank you for
listening.
Any questions?