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ERP Implementation Failure Hershey Foods Corporation

ERP Implementation Failure Hershey Foods Corporation

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Published by Apoorv Jhudeley

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Published by: Apoorv Jhudeley on Jul 16, 2011
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07/30/2013

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ERPmplementationailuretHersheyoodsCorporation
CasetudyReferenceo908-001-1Thisase aswritteny nduPerepu,nderhedirectionfVivekupta,lcFAlenterorManagementesearch.t s ntendedo beused shebasisorclassiscussionatherhan o illustrateitherffectiverneffectiveandlinqfa managementituation.Thease asompiledrompublishedources.@2008,CFAIenterorManagementesearchICMR).Nopartofhispublicationaybecopied,tored,ransmitted,eproducedordistributednany ormr mediumhatsoeverithouthepermissionof hecopyrightwner.
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908-001-1ERP IMPLEMENTATIONFAILURE ATHERSHEYFOODSCORPORATION
"TheHersheydebacles not an indictment ofERPsperse, butit should cautionany companythat chooseso implementsuch a broadsuite to make surethat systemwillfunctionsmoothlybeforeenteringapeaksalesperiod."l-ChainStoreAge, in 1999."Thereis no doubt that1999was a most dfficultand disappointingyearforHersheyFoodsCorporation.llhile theyear gotoff toa slow start dueto excessiveetail inventories,wefullyexpectedstronginishin the secondhalf of theyea.r.nstead, heimplementation ftheJinalphaseof the Corporation's enterprise-wide nformationsystemcreatedproblemsin the areas ofcustomerservice,warehousingand order uffillment.Thesedfficulties were exacerbatedy ourgrowthin recentyearswhich hadresultedínshipping capacityconstraints. As aresult,Hershey'ssalesand earningsellwell short of expectationsortheyear."'-Kenneth L Wolfe, Chairman & CEO,HersheyFoodsCorporation,n 1999.INTRODUCTIONIn the thirdquarterof2000, HersheyFoodsCorporation3Hershey),he US basedmanufacturerof chocolatesand sugar confectionary,announced hat its revenuesncreasedo US$l l97billion as compared oUS$1.097billioninthe thirdquarterof1999 an increase f l2Yo.Duringhe sameperiod,profitsncreased y 23% from US$ 87.6million to US$ 107.4million.The company'smanagementnd shareholders erepleasedat this announcement, sHershey'srevenues ndprofitsforthe thirdquaÍerof 1999aswell as or theyear1999asawhole hadbeenadversely affecteddue toproblemsrelated to ERPsystemsmplementation nthe company.Accordingo KennethL.Wolfe(Wolfe),CEO andChairman,Hershey,Admittedly,we were nthe depthsof ourshipping difficulties during lastyear'sthirdquarter.ERP system,as wellas arevampeddistribution acility intheEasternUS, were both much improvedduring thisperiodofhigh demand orour domestic onfectioneryusiness.'aHersheyhad started revampingits hardware andsoftwareinfrastructuren 1997. In 1999,Hershey falteredduring the final legof the ERP implementation.Hershey hadselected heservicesof threevendors SAP AGs(SAP),Siebel SystemsusiebellandManugisticsTor the
IMatt Nannery,Whenthe CandyManCan't," ChainStoreAge, December1999.2HersheyAnnual Report,1999,filedon March13, 2000),www.sec-edgar-online.com.3In April 2005, HersheyFoodsCorporationwas renamed s The HersheyCompany.L Songini,"HalloweenLessHaunting for Hershey his Year,"Computerworld,November06,tWalldo4 Germany-based AP AG isthelargestbusinesssoftwareenterprise n Europe. SAP is thepioneerof enterprise esourceplanningwith its mainproductSAPERP. n 2006, he company's evenueswereat € 9.327 billion and net incomewas at € 1.871billion.uSiebel Systems nc. was foundedby ThomasSiebel n1993,andwas involved in designing,developing,and marketingof CRM applications.nSeptember005, Oracle CorporationacquiredSiebelor US$ 5.8billion.oMarc2000.
 
908-001-1
project,and someof the modules were implementedasperthe scheduleby the company nJanuary 1999. However,theremainingmoduleswhich were to be implementedby April 1999were delayedand were implementednlyinJuly1999.This overlappedwith the timewhenthecompany usually started receiving hugeorders for the impending Halloween and Christmasseasons.In order toquickenthe implementationprocess,Hersheyoptedfor Big Bang implementation,where severalmodules were implementedsimultaneously.Some of them could not be testedproperlyduetolackof time. Thisled to severalproblemsrelated to order managementndfulfillment,andordersrommany retailersand distributorscould not be fulfilled,even thoughHersheyhad the finishedproductstocked n its warehouses. headverseaffectsoffailedERPimplementationwere mmediate,with a significantdrop in the revenuesor thirdquarterof 1999.Annualrevenues or1999wereUS$ 150million lesscompared o thosen1998,a dropofl2Yo(ReferTableI forthe detailsof Hershey's inancialsduring the thirdquarterof 1998, 1999and2000).
TABLEIHERSHEY'STHIRDQUARTERFINANCIALS (1993-2000)
Source:HersheyFoodsCorporation www.hersheycom).'Manugisticssa softwareapplicationcompanyoundedn 1969as ScientificTimeSharingCorporation.The-namewaschangedo Manugisticsn1992.Thecompanywasapioneernsupply chaiísoftivarebutits fortuneswereadverselyaffectedbycut-throatcompetitionand tLedotcomcrashn March2000.In2006,twassold oJDASoftware.8DavidFCarr,Hershey'sSweetVictory,,'Baseline,ecember002.'Locatedin SouthCentralPennsylvania,ancasters theeighthargestcity in Pennsylvania,USA.
However,Hersheywas quickto reboundand implementedmySAP.combySeptembr 2002,muchbeforeheschedulendbelowtheestimatedudget.AccordingoSteveSawyer,professor,InformationSciencesandTechnology,PennsylvaniaStateUniveÁity,,,Inotheiwords,mostcorporationson'tfailsodramaticallyhe firsttime,sotheirrepairs nèu..,ogood.,,8
BACKGROUNDNOTE
HersheywasfoundedbyMiltonHershey(Milton)as HersheyChocolateCompany(HCC)in1894'BeforeestablishingHCC,Miltonunderwenta four yearapprenticeshipitha canàymakerin Lancastereln1876,heestablishedcandystoren ftritaOeiptria,whichwasclosedbylgg2.Hethen movedto Denver,wherehelearntmakingcaramelusingfreshmilk.HethenstartedacandybusinessnNewYorkwhichfailed.Hemovedbackto Lancasterostart LancasrerIn US$thousandQuarterendingOct01.2000QuarterendingOct03, 1999QuarterendingOct 04. 1998Netsales
1.196.755
1,066,695
t.217.237Cost& Expenses
CostofSales696,431
634.042706.60s
Selline,Mkte.Admn
303.688
268.5753l 1.658TotalCosts& Expenses
1.000.119902.617
1,018.263Incomebeforenterest& incomeaxes196.636164.078198.974InterestExpenseset21.15220.507
22.691
Incomebeforencomeaxes
175.484143.571176.283
Provisionorincomeaxes68,079
s5.99368.750
Net Income
107.40s
87.578107.533

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