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Critically examine and comment on the factors that led to the ERP implementation failure at Hershey Foods.

How do you think the failure could have been avoided? What lessons can be learnt by other companies from Hershey’s initial failure and subsequent success in implementing ERP? Factors that led to the ERP implementation failure at Hershey Foods Hershey Foods’ SAPAG’s R/3 implementation initial failure in 1999 is now infamously cited as a notorious example of a failed ERP implementation. When the $112 million, 30 month project went live in July 1999, the company experienced issues in operating the new system resulting in non-fulfillment of a large number of orders. Several reasons can be ascribed to this failure – 1) The original estimate of project time of about 48 months was subsequently condensed to 30 months by the company, resulting in a number of shortcuts having to be taken (training, for example), that eventually reflected in inadequate functioning of the system. 2) The company’s decision to simultaneously implement the CRM and SCM packages pushed up the complexity of the project and the requirements for time and resources – both for the implementation teams and the end users who probably had to learn a lot more in the already limited time. 3) The system kicked in at a time which is traditionally the busiest time of the year for the company. Large scale non-fulfillment at this time caused the company to incur higher losses than they would have at any other time. This also made the results look much worse that they would have otherwise. In the final analysis ‘time’ was the single biggest cause for the initial failure of ERP in the case of Hershey Foods. A company can not be expected to change or restructure its processes, something that invariably must accompany an ERP implementation, during a time when the demands on its resources are the highest. By investing a lot of time and effort in the on-going implementation at this time, the company necessarily had to shift its focus away from its core activities. All of this in turn came about because of a necessity to adhere to a self-imposed deadline – one that was impractical and undesirable to start with. Squeezing a 4 year project into a 2½ year time frame requires that some parts of the project be deferred to a more convenient time. However the company did not quite appreciate the possible impact of this time reduction without an associated reduction in scope. The ‘Big-Bang’ approach to implementation that Hershey Foods finally adopted, did not help matters at all. Simultaneous implementation of the additional CRM and SCM packages, within the reduced time period, left little or no time for two of the most critical steps on which the eventual success of the project rests – testing and training. Implementing an IT project, of this size and scale, without adequate testing, is almost a recipe for disaster. It is this combination of a lack of adequate testing, as well as training, that led to the additional ‘surge storage’ capacity not being recorded within the ERP, with the result that orders from several retailers and distributors could not be fulfilled, even though the company had the finished goods stocked in its warehouses. From a technical perspective, there was nothing that was actually wrong with the software itself. It is also creditable that Hershey was prompt in doing everything that was demanded by the ERP vendor. The company did not resort to any move capable of disturbing the plans of the vendor. They had extended full cooperation to the vendor in all aspects.

Wolfe arguably demonstrated poor judgment and leadership in the planning. The new ERP was expected to impact on virtually every facet of the company's operations. The company should go ahead with the process only after ensuring that it has the necessary time and can put the necessary efforts to ensure the success of the enterprise operation. should have foreseen. This of course does not exonerate other key business and IT managers. it must be accepted that the success or failure of strategic undertakings falls ultimately on the CEO. and even among those. several deliveries were incomplete.many consignments were shipped behind schedule. In this case. designed to replace many older systems within the company that had till then been running a number of processes including order processing. which they actually did). Lost a lot of prominent shelf space for the season to other suppliers of candy Most of these fallouts could have easily been avoided altogether had best practices for ERP implementation been followed. The CEO must take a major part of the blame for a lack of contingency plans and underestimating unforeseen obstacles. The benefits that the company expected to reap from this project included: Upgrading and standardising the business processes Reducing order cycle times and increasing inventory control and forecasting accuracy Reducing inventory costs Fine-tuning deliveries to suppliers Broadening and deepening its base in the mass market candy business The situation in July 1999. . was however far from perfect: Unable to deliver $100 million worth of Kisses and Jolly Ranchers for the Halloween season in 1999. who could have been utilised for ‘fire fighting’ had things not gone according to plan. identified and isolated the potential threats to their particular functions and communicated these to the CEO. HRMS and several others.As regards the role of the key players. This would have made a lot more number of resources naturally available to the company. Company’s stock price fell by about 35% Earnings reduced by 18% Order fulfillment time nearly doubled to 12 days . A large amount of trouble could have been avoided if the company had decided to ‘go live’ with the project during a lean time of the year (instead of during a period of peak demand. inventory control. CEO Kenneth L. ERP implementation is a complex process and calls for a lot of resource usage within the company. while it is difficult to point the finger at a specific person. organizing and controlling of the ERP implementation project. soon after the implementation of the project. who. because of their knowledge and expertise in their areas of responsibilities. -------------------------------------------------------------------------------------------------------------------How could the failure have been avoided? The ERP project was a large project.

This would have provided more opportunity to address the threats as they appeared. Hershey’s lack of adequate testing also severely hampered the successful integration of the add-on packages with the SAP platform. Hershey’s experience was quite average. The system went live at the same time when orders were pouring in for Halloween. Had Hershey taken sufficient measures to modernise its business process along with its IT infrastructure. a lot of the complexity could have been avoided – something that made the eventual implementation very ‘expensive’. Hershey also unwittingly reduced the time available for a comprehensive training program for its employees. ERP projects should go live during the company’s slow periods. Hershey’s should not have attempted to accelerate implementation and should have stuck to its original 48-month timeframe. Even in 1999 many analysts could see that Hershey’s only real failure was its timing. that could be used by other companies to give their ERP projects a much higher chance of success within the first attempt: If possible. Modules (of ERP) should be rolled out in stages. Still. Hershey Foods’ former CEO and Chairman Kenneth L. Had testing and integration received its due place within the project plan. and a pre-training course should have been organised before the project implementation. and the computer system mystery appeared on the front page of The Wall Street Journal. There should be no undue attempt to condense the timelines. this pre-implementation period could have been utilised to initiate an in-depth training program. Finally. By reducing the overall timeframe for implementation. Instead of assuming that the records maintained in the earlier system(s) would work well with the new system. that are actually based on the sound principles of ERP implementation. Wolfe told Wall Street analysts during a conference call that the company was having problems with its new ordertaking and distribution computer system. a lot of the eventual worries could have been easily avoided as the glitches would have shown up during the testing phase. analysts will not even bother about Hershey’s computer systems. -------------------------------------------------------------------------------------------------------------------What lessons can be learnt by other companies from Hershey’s initial failure and subsequent success in implementing ERP? In Sept 1999. that a failed computer project could take down a Fortune 500 company. Simultaneous implementation of other major applications should be avoided. Today. - . Other than that. some of the adverse impact could have been reduced. At that time it was a terrifying new prospect for investors to consider. the company should have taken this opportunity to remove redundancies and irrelevancies in the earlier record sets before migrating to the new system. In fact. Proper change management policies and procedures are required – ‘changing the sails midstream’ without adequate control can be a recipe for project failure. Hershey’s stock price fell more than 8 percent on that September day.Training and education is a critical success factor for ERP – something that was not adequately addressed by Hershey. Training facilitates effective use of the system. and they couldn’t be fulfilled. there are a number of lessons that can be learnt from the Hershey experience. it is also a fact that had the company opted for a single ERP vendor instead of trying to go for a ‘best-of-breed’ combination. since Hershey started the project in 1996.

com in 11 months and 20% under budget Hershey now has an inventory location accuracy of 99. else large amounts of inventory are likely to just ‘disappear’. - - - - - In the second phase of implementation Hershey did most things right and reaped the benefits in terms of a successful and rewarding implementation: Hershey made sure to take the time and resources to thoroughly test the computer systems. and did not involve manufacturing. software-specific training. According to ComputerWorld. the company actually produced lots of chocolates. even if takes considerably longer. for example). If it is absolutely necessary to have multiple vendors however. Training for end users is paramount. the problems with Hershey were only related to order entry and fulfillment. the culture of the organisation plays a big role in deciding the approach to adopt for a successful ERP implementation. providers should be lined up sequentially for implementation. with adequate gap to allow the users to be comfortable with each individual application. So. . A phased approach makes employees gain a better understanding of the system. but it piled up in the warehouse. In the final analysis. a more broad-based understanding of the flow of information through the system is needed. Testing included putting bar codes on empty pallets and conducting mock tests so that any hitches could be resolved before the system went live. Data migration is critical – data compatibility within two systems can not be assumed. Rather than basic. Still. management should be cautious enough to not get over-committed (forcing unrealistic deadlines. Management should commit sufficient resources to the project and standard implementation methodologies should be used. Companies should use a phased approach to implement their system. A ‘Big Bang’ approach is definitely avoidable. It is better to sacrifice ‘choice’ for ‘consistency’. The system needs to be run for a long time before being adopted into the company. If we consider the examples of three companies who used widely different approaches. Having multiple vendors within the same project is not desirable. though with equally successful end results. Extreme care is required when dealing with inventory while shifting from a legacy system.- Nothing can be taken for granted. The company completed an upgrade to mySAP.96 % and can fulfill orders within 24 to 48 hours of receiving an order as opposed to the previous 12-plus days that it took. It is also a good idea to have an external project audit committee. Commitment and oversight from the top management is important – management should keep a close watch on the proceedings and should be willing to step in whenever a need is felt. we can better appreciate the need to choose the right approach.

com . All three companies needed to implement ERP systems but went about it in very different ways. Tektronix' s phased implementation in its offices in several countries was also a success but one that took quite a bit longer.allbusiness. By Venkatesh. in which the various ERP modules were implemented one after another. While Cisco used a big-bang approach to the implementation. Tektronix.1 Cisco's big-bang implementation took only 9 months and was an enormous success. Viswanath.The examples are that of Cisco. 1 "One-Size-Does-Not-Fit-All": Teaching MBA Students Different ERP Implementation Strategies. its important to understand that any other approach would have most certainly been doomed given the culture of the organisation. and Harley-Davidson. Harley-Davidson's outcome might seem like a failure. Tektronix primarily used a phased strategy. Harley-Davidson was highly cautious – in fact their selection strategy alone took over 2 years just to narrow down the potential set of vendors. www. While on the surface.

ERP. author of “ERP Project Management Basics”. ERP. and CRM The ‘Top 10’ critical factors for ERP success include: 1. Top management commitment 3. and CRM. ERP changes the way companies do business to a very large extent. Poor training is increasingly emerging as a major cause behind ERP project failures. prior to project initiation. Getting an external consultant involved from the early stages (from the moment the vendor selection process begins) can pay rich dividends later. Good implementation team 5. It’s important to know exactly. Good metrics help managers assess performance more accurately in order to identify problems before they get out of hand. Extensive education & training 8. explain the factors that are critical for the success of major software implementation projects like SCM. Project management implementation 4. The systems require a commitment from all divisions and also a change in the way a company does business to make it work. Clear understanding of strategic goals 2. Resolution of multi-site issues ERP Systems are complex. Focused performance measures 10. The sponsor must belong to the top management. A company implementing an ERP must develop good performance metrics. time-consuming. and expensive for a company. and implementing these can be difficult. every project needs a sponsor. for the following reasons: . the expertise currently available within the company. instead of just training on a new computer software. Ability to cope with technical issues 6. This helps to define the role of the consultant. Based on this successful experience.Hershey began to upgrade to maySAP.com in July 2001 and completed it successfully in eleven months. The staff therefore needs to be trained in on how to do business differently. According to Allen Web. Organisational commitment to change 7. Data accuracy 9. Factors that are critical for the success of major software implementation projects like SCM.

New business processes must be debated. The product must meet the requirements envisaged to a very large extent. and as such. Selecting the right product and the right vendor is important. established. Although many experts insist that ERP implementation timelines should be closely followed.to eight-week delays in shipping orders. To avoid the problem of mismanaging user expectations. companies. not distribution. Researchers reached the conclusion that several executives had come from other organisations that had installed competing systems. a leading grocery chain in Canada. Whirlpool suffered delays in shipping product after it went live with an SAP system implementation. The company adopted ERP early. the sponsor must show that upper management has a stake in the project just as much as those operating the day-to-day chores. the sponsor must have the influence to obtain needed resources without going through many approval layers 2. but rather as a means to achieve the competency through better business processes. Sobesys. However. when the software was designed specifically for manufacturing. they had different expectations. ostensibly due to a failed ERP implementation. and 3. the company must ensure that the system is fully tested and ready for implementation. Companies should not view the new technology as a new core competency. Whirlpool elected to stick to their schedule. The software was unable to handle processing demands. management must review closely the need for extending the timeline to ensure .1. the sponsor must be able to bring all involved parties to the table and force necessary compromises in a timely fashion Many ERP (or CRM or SCM) projects fail due to unrealistic expectations and the absence of clear specification of requirements. Even though some major discrepancies emerged during the testing phase. and implemented before the new software systems are rolled out. It is important to stick to schedules in ERP implementations because delays can increase costs substantially. the project manager must be able to: • • • • • Understand the user expectations Explain what can and can not be achieved Prioritise the user expectations Formally document the user expectations Continuously validate project deliverables with expectations Some companies tend to apply technology as the solution to correct fundamental flaws in underlying business processes. The decision resulted in a severely underperforming shipping system that left appliances sitting in warehouses and stores with six. experienced problems with a SAP R/3 installation. Drug distribution giant FoxMeyer declared bankruptcy.

o Project headed by VP of sales for North America . One rule they cite for achieving ERP success is that agencies must find an ERP package that mirrors their business practices as closely as possible. The MSC put together 1. main reasons for initial failure were: o There was no defined customer strategy . It is futile to insist on a project deadline if meeting that deadline results in a failed implementation. attempt to minimise the extent of customisation they order for their ERP packages.000 requirements the optimal software would fulfill. BMC did it right.success of the project. There were only 11 areas where their processes didn’t match the software and the commander made the decision to modify MSC processes to fit the Oracle software. without any modifications. Develop an implementation plan and stick to it. o o o In the third attempt. The Military Sealift Command (MSC) successfully implemented Oracle’s ERP solution. MSC managers made a key decision to minimize the risk of ERP implementation by taking a “vanilla” approach: They committed to installing the software as it was packaged. .CRM merely focused on performing processes faster Top Management involvement was minimal No efforts were made to educate the staff on the advantages of implementing CRM – the company believed that the software would sell itself No attention was paid to the required organisational changes that must accompany the implementation for increased effectiveness.2 The case of CRM software implementation at BMC software amply illustrates the importance of following sound implementation strategies. Project team must comprise the user community in addition to IT staff. then resolve to implement the package without significant modifications. BMC succeeded the third time after two failed attempts.supported by manager of marketing programs Defined the CRM program’s requirements with the help of 175 employees Communicated the benefits to employees Showed how the CRM system would help the sales force to achieve its targets Rolled out the CRM program in stages to capitalise on early successes – this also reduced the risk of any problems affecting the entire company o o o o The core requirements for a successful implementation can thus be summed as follows: • • • 2 Establish the business processes prior to selecting the software. The companies should as a rule. Rampant customisation can lead to scope creep with inevitable delays and unforeseen glitches. It is better to take an off-the-shelf package and modify the business processes wherever any mismatch is encountered.

but must be continually monitored . The project doesn’t end with “go-live”.• • Train the users thoroughly on the process changes and flow of information in addition to the actual software.

www.computerworlduk. Enterprise Resource Planning . www. Implementation of ERP Systems . Forcht. www. Patricia Barton 2.com 5. a retrospective.org 3.disaster-resource. Forrester: ERP project disasters.com 4. North Carolina A & T State University . Disaster Resource Guide. Implementing enterprise resource planning (erp) for strategic competitive advantage Karen A.erp-implementation.References 1.zdnet.Factors Affecting Success and Failure.A Significant Business Continuity Risk. www. ‘IT Projects failure’ – Michael Krigsman.com 6.