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ERP Implementation Failure Hershey Foods Corporation

ERP Implementation Failure Hershey Foods Corporation

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ERP lmplementation Failure at Hershey FoodsCorporation

Case study Reference 908-001-1 no

This case written InduPerepu, was by under direction Vivek the of Gupta, lcFAl center Management for Research. intended be used thebasis lt is to as for class discussion rather thanto illustrate either effective ineffective or handlinq of a management situation.The was case compiled published from sources. @2008, ICFAI Center Management for (ICMR). Research Nopartof thispublication be copied, may stored, transmitted, reproduced or distributedanyformor medium in whatsoever without permission the of thecopyright owner.

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Wolfe (Wolfe)."' .Instead. 2005.8 and marketing of CRM applications. in 1999. Walldo4 Germany-based SAP AG is the largest businesssoftware enterprisein Europe.4million.Hershey.www. were both much improved during this period of high demandfor our domesticconfectionery business.In September billion. According to KennethL. December1999. we were in the depthsof our shipping difficulties during last year's third quarter.an increase l2Yo. of During the sameperiod.sec-edgar-online. Hershey'ssalesand earnings for fell well short of expectations theyear. t L Songini. Siebel Systemsu for lsiebell and ManugisticsT the I Matt Nannery.announcedthat its revenuesincreasedto US$ l l97 billion as comparedto US$ 1. November 06.r.ERP system.developing.097billion in the third quarterof 1999 . Chairman & CEO.'a Hershey had started revamping its hardware and software infrastructure in 1997.(filed on March 13.6 million to US$ 107.871billion. the company'srevenues were at € 9. CEO and Chairman. HersheyFoodsCorporation.warehousingand orderfuffillment.Kenneth L Wolfe. In 1999.profits increased 23% from US$ 87. Hershey FoodsCorporationwas renamedas The HersheyCompany. we fully of expecteda strongfinish in the secondhalf of the yea. ."l ."Admittedly.Chain StoreAge. by The company'smanagement and shareholders were pleasedat this announcement. was foundedby ThomasSiebelin 1993.908-001-1 ERP IMPLEMENTATION FAILURE AT HERSHEY FOODS CORPORATION "The Hersheydebacleis not an indictmentof ERPsper se. In 2006. 1999. the implementation theJinal phase of the Corporation's enterprise-wide information systemcreatedproblems in the areas of by customerservice. Hershey's as revenues and profits for the third quaÍer of 1999aswell as for the year 1999as a whole had been adversely affected due to problems related to ERP systemsimplementationin the company. INTRODUCTION (Hershey). llhile the year got off to a slow start due to excessiveretail inventories. Thesedfficulties were exacerbated our growth in recent years which had resulted ín shipping capacity constraints. in 1999.Hershey had selectedthe servicesof three vendors SAP AGs (SAP). o Marc 2000.as well as a revampeddistribution facility in the EasternUS." Chain StoreAge. 2000).com.the US basedmanufacturer In the third quarterof 2000. "There is no doubt that 1999was a most dfficult and disappointingyear for Hershey Foods Corporation. and was involved in designing." Computerworld. "Halloween Less Haunting for Hershey this Year. 3 In April 2005. u Siebel SystemsInc.327 billion and net incomewas at € 1. SAP is the pioneerof enterpriseresourceplanning with its main product SAP ERP. 2 Hershey Annual Report. "When the CandyMan Can't. Oracle CorporationacquiredSiebel for US$ 5. but it should caution any company that choosesto implementsuch a broad suite to make sure that systemwill function smoothly beforeenteringa peak salesperiod. Hershey faltered during the final leg of the ERP implementation. As a result. HersheyFoodsCorporation3 of chocolatesand sugar confectionary.

237 696. Lancasteris the eighth largestcity in Pennsylvania.079 107.he established candy store in ftritaOeiptria.a drop of l2Yo for (Refer Table I for the details of Hershey'sfinancialsduring the third quarter of 1998.617 164.60s 3l 1. where he learnt making caramelusing fresh milk. 1998 1.8 BACKGROUNDNOTE Hershey was founded by Milton Hershey (Milton) as Hershey ChocolateCompany (HCC) in 1894'Before establishing HCC. 1999 Oct 04. even though Hersheyhad the finished product stockedin its warehouses.152 902.750 107.974 303.018. a He then moved to Denver. The-namewas changedto Manugisticsin 1992.119 196..042 268. This led to severalproblems related to order management and fulfillment. TABLE I HERSHEY'STHIRD QUARTERFINANCIALS (1993-2000) In US$ thousand Quarter ending Quarter ending Quarter ending Oct 01.The companywas a pioneer in supply chaií softivarebut its fortunes were adverselyaffected by cut-throat competition and tLe dotcom crash in March 2000.which was closedby l gg2.066.000. Information Sciencesand Technology.507 175. 143.'Baseline.571 s5.hersheycom).283 68. In order to quicken the implementationprocess.575 706. the remaining moduleswhich were to be implementedby April 1999 were delayedand were implemented only in July 1999.908-001-1 project.o good. Hershey was quick to rebound and implementedmySAP. Milton underwenta four year apprenticeship with a canàymaker in Lancastereln 1876. most corporations don't fail so dramaticallythe first time. December 2002.According to SteveSawyer.533 However.688 1. However.695 t. 8 David F Carr. . .professor..431 Net sales Cost& Expenses Costof Sales Selline. and orders from many retailersand distributors could not be fulfilled. He then starteda candy businessin New York which failed.263 198. 'Located in SouthCentralPennsylvania.This overlappedwith the time when the company usually started receiving huge orders for the impending Halloween and Christmas seasons. where several modules were implementedsimultaneously..with a significantdrop in the revenues third quarterof 1999.2000 Oct 03. er much beforethe schedule and below the estimated budget. for Annual revenues 1999were US$ 150 million lesscomparedto thosein 1998.Some of them could not be tested properly due to lack of time.078 20.755 1.Mkte. USA. so their repair is nèu. .Hershey opted for Big Bang implementation."Hershey'sSweetVictory. In 2006.484 68.217.com by Septemb 2002. . 1999 and 2000). PennsylvaniaState UniveÁity.40s Source:HersheyFoodsCorporation(www. and some of the modules were implementedas per the scheduleby the company in January 1999. it was sold to JDA Software..578 22..993 87.691 176. He moved back to Lancasterto start Lancasrer ' Manugistics is a softwareapplicationcompanyfoundedin 1969 as Scientific Time SharingCorporation.In othei words.196. Admn Total Costs& Expenses Incomebeforeinterest& incometaxes InterestExpenses net Incomebeforeincometaxes Provisionfor incometaxes Net Income 634.658 1.636 21. The adverseaffects of failed ERP implementation were immediate.

etc.Hershey sold its pastabusiness New World Pastafor $450 million. Hershey acquiredH B ReeseCandy Company. (Refer Exhibit I for more aboutHershey'sproducts).hot fudge. was also foundedat the like community projects. A new facility to producechocolates The First World War had a negative impact on the company. After the SecondWorld War. By 1895. Hershey also acquired the rights to manufactureand distribute many products of HersheyFoodsCorporation. HCC was manufacturingmore than ll4 different varieties of chocolates.Taking up the challenge. It also diversified into pastamanufacturingto acquiring San Giorgio Macaroni. the end of the War. ln 1927. chocolatechips (1928>.300products.sugar the milk throughtrial and error and became first Americancompanyto makemilk chocolate.in Pennsylvania. In 1963.It went on to acquireseveralsugarplantationsand also constructed sugarrefineriesin Cuba. through its international division.andHershey's 1907. the Cubanfacilities were sold to CubanAtlantic SugarCompany.shell toppings. In 1977.the companywas renamed Hershey's products were exported to more than 90 countries across the world. ice creamtoppings. 1 million. Inc. and business. During the SecondWorld rily'ar.Using the machinery. 4 . Through the years. the machinery used to make chocolates.000 sharesof convertiblepreferredstock of HersheyChocolateCorporation. Inc. the company went public by offering 350.But milk Milton aimed to leam how to mass chocolatewas still made only by a few Swiss companies.and spent severalyears to try to discover the right combination and By methodto producemilk chocolates.where he purchased Milton decidedto make chocolates. Hersheywas known for severalinnovationsand was creditedwith introducingseveralchocolate variants. while retaining a minority stakein the business.At the sametime.Kit Kat. by which was well known for peanutbutter cups. This led HCC to explore the possibility of using Cuba as a viable altemative sourceof sugar.creamtopping with milk chocolate. Cadbury'sin the US. after this business HCC was incorporated coatingsfor caramels.did the a not melt at high temperatures provided high energy. By specialcandy bars meetingthe above specifications. introduced in (1925). Some of the variants included chocolatesyrup for home use (1926).including candieswith variations r0 In to early 1999.Y&S Candieswas acquired. Reese'sPeanutbutter cups.The product should not taste good and and soldiers should eat it only in case of emergency.Another companyto oversee Cubanoperations the same time. he began making chocolate in success that year. Twizzlers. US army demanded chocolate that weighedfour ounces. and Delmonico Foods. Hershey sold several products and some of the popular ones were Hershey'sKisses.Hersheysold nearly 3. another This companylooked into Milton's other activities companyHersheyEstateswas incorporated. as the sugar it imported from Europe became scarce.KrackelBar (1938). 1899. In the same year.etc.Mr. during a visit to an expositionin 1893. Hershey Chocolate Corporation acquired several companiesin order to expand and consolidateits position.HCC was incorporatedas HersheyChocolateCorporation. The company'sproductswere sold all over the US and were exportedto Europe.he arrived at the right combinationof cocoa. Some of HCC's other popular products included Hershey's Kisses. caramelcompanywas sold in 1900for US$ the In order to concentrate the chocolate on was startedin Derry Township. produce milk chocolates. In 1968. Goodbar Hugs(1993).Krackle Bar. Hersheywas producingaround24 million 'Field Ration D' barsevery week.Hershey produced They were known as 'Field Ration D'.908-001-1 CaramelCompanywhich was successful.

"rs The new ERP softwarewas expectedto help Hersheyreorganizeits business processes. and or " Legacy systems have beenmodified severaltimes. Legacy systemsare also defined as systems that were alreadyin use in which the data cannot be changedto new formats. where the year in the 'date' field was stored in two digits. etc. the next year 2000 would be interpreted 1900. this For purpose. Jeff Sweat. This called for highly efficient logistics and supply chain systems duly supported informationtechnology(IT).During this period. functionedthrough severalmainframelegacy in It systems.print servers.908-001-1 in shapes and sizes.com. At around the same time. I to enhanceour competitiveness. We're implementingthis No. In the early 1990s.informationweek. if not. Hershey'sinformation systemsdivision wantedto switch over to the ERP systemby April 1999. helping retailersmaintain low inventory and reduceinventory holding costs.shift to clieníserverl3environmentfrom the existing mainframebased the environment. when it will be available. like calculating interest. Clients refer to PCs or workstationson which usersrun the applications.ProjectTeam Memberfor Enterprise21. Hershey aimed at better coordinateddeliveries of its products. When as this happens in programs that make calculationsbased on dates.The salesof Hersheywhich were at US$ 334 million in 1969grew to US$ 4. along with refer to computersystems applicationprogramsthat have existedfor a long time. Hershey. and. April0l.like most of the other companies the industry usedlegacysystemsrr. Thyfault.and network servers. Hershey customer-service reps will be able to say whetherthe product can be delivered on the date the customerwantsit.rather than spendinghuge amountson solving the date related problems in the legacy systems.The companies using legacy systemswould have spent considerabletime and money on them and are not keen on changing them. During late 1996. accounting systems.and on the whole. Hershey selected SAP AG's R/3 Enterprise Resource Planning suite. there was growing demand from the retailers that suppliers like Hershey should share their data about product deliveries so that the retailers could maintain optimum inventory levels and reduce costs."The ServiceImperative. It usually contains a data platform with customdesignedsoftware. the customerservice piece is highly visible.Hershey chose to replace the systems. StuartJ. In our corporate culture. tt Mary E. and to achievesalesof almost US$ 5 billion. Protocol is a suite of communicationprotocols used to connect TransmissionControl Protocol/Internet the hoststo the Internet. According to Keith Costello.300 employees. For example. 1999. IMPLEMENTING ERP Hersheypriced its productslow. Johnston.and No.At the turn of the century.the management Hersheygaveits approvalto a project namedEnterprise21. ra 5 . providing bettercustomerservice. 2 to enhanceour customer service. Y2K problemsl2were expectedto crop up in the company's legacy systems. By implementing new software. of which aimed at modernizingthe hardwareand softwareusedby the company. After December31. wrong resultswould be given.The main goals of Enterprise2l project were to upgradeand standardize hardware.the spendingon IT in the food by and beverage industry was amongthe lowest. etc. management t' The Y2K problem also known as Year 2000 problem or the millennium bug was a result of computer program design. 1999. t' Seryersare computersor processors used for managingfile servers.94billion by 2006.when customersplace orders. which was read as 99. which were used for different functions ranging from human resourcesto order processing."www.As of 2006. move to TCP/IPIa network.the company had morethan 14. "We redesigned whole the businessprocesswith the customersin mind.due to the last two digits 00. huge quantitiesof the productsneededto be sold.

At that time. Software from SAP included warehousing.order processing. other modules like the critical order processingand billing systemsmodules from SAP.it had supplils for aroundeight days . to As a part of Enterprise2l project. production. testing it.it was evidentthat Hersheywould not be able were delayed. Hersheywould be able to shift to the new systemby were usuallylower. some of the moduleslike SAP financial. IBM Global Serviceswas chosen to integrate the software provided by the three different vendors.that it took to as to meet its deadlines the shipments 6 .materials management. However.In this approach. The aim of the project was to put all the systemson a single integrated platform.Hersheyhad usedsoftwarefrom Manugisticsearlier in its mainframes.the softwaie was to be implementedat one go.Hersheyinstalledbar coding systemsacrossits productsand plantsin the US.three months behind for confettionery schedule. were shippedbehind schedule.and improvethe overall management logistics.But three of weeksafter the implementation the new system. when Hershey opted for the Big Bang approachto ERP implementation. problemspertainingto order fulfillment. Throughbar coding.with the accountingfor 40Yoof the total sales. forecasting billing. According to the initial plan of the project.Without any dataabout the and inquire aboutthe details produclsinits hands. insteadof a phasedapproachof implementingone module at a time.Hersheywas of would enableit to meetall its Halloweenorders. and warehousing had been implemented.Manugisticsand Siebel. That was the time that orders implementation from retailersfor Halloweenstartedpouring in' Hershey then decided on a Big Bang approachto ERp implementation.and modules for finance. By January 1999. the rollout appeared be smooth. and scheduling.Another reasonwhy Hersheywanted to finish the project at a of quick pacewas because the impendingY2K problem.eriing and shipping startedto arise. pro.thesemoduleswere addedon only in July 1999 . and then taking up the next module. For confectionarycompanies. the Y2K problem was looming large.Hersheywas often forcedto call up customers ofthe quantitythey receivedand ordered.908-001-1 companionsoftware from two vendors.The phasedapproachallowed a companyto find and correctbugs beforemoving on to the next phase.Though during April 1999. the project was expected costthe companyUS$ I l0 million.However.had to be finished in a span of just over thirty months. The old logistics systemthat had been in place was pulled down. it was too late for Hershey and even u-otrg thóse.this was higher than usual. purchasing. the pricing and promotions packagefrom SieUetand planning and schedulingmodulesfrom Manugisticswere behind schedule.As againstthe usualfive days. the view that the Big Bang approach THE PROBLEMS to Initially. comparedto companies April 1999.Hershey was to have a client-serverversion of the same software.This essentiallymeant Christmasand Halloween seÍNons that the project which would otherwisetake aroundfour yearsto complete.which was a lean season Hersheyplannedto switch over to the new systems sales. making way for thó new one.But slowly. which could not function as required. to respondto this problem. Manugisticswould provide software for transportmanagement. materialsmanagement.track the inflow of and outflow of the materials. The software from Siebel was to support Hershey in managing customer relations and in tracking the effectivenessof the company's marketing through a pricing After promotionsmodule. purchasing. Hershey was under pressureand was not in a position to extend the as schedule. Severalconsignments However. In July 1999.Hersheyaimedto reduceproductioncosts. switching over to the ERP system. Overall.whenthe annualsalesof confectionary other times of the year.sales were mostly seasonal.Hersheymaintainedmore suppliesin oràèr to addressanyhinot problems that might occur during the implementation.severaldeliverieswere incomplete.

and now producedworldwide by Nestlé.Hersheyaskeddistributorsfor around twelve days to deliver their orders. we ran out of Kit KatrT or anotherHershey item. Hershey missed out on the deliveries.confectionaryand pet food. October29.000stores. The company's Way. andTwix. and pet products. Some of the company's products are milk.for which there was high competiti^on the market.Hersheywas unableto sendthe consignments time due to problemsin order were piled up with productsready and.5billion andprofitswere at CIIF 5.one of the largest privately owned companiesin the US.They'll pick another on On the one hand.Japanoperates chain of convenience presence over l8 countriesincluding the US. company's revenues 20Us-based Mars Incorporated. chocolate."lf you don't havemy toothpaste." Emily Nelson. processing to be shipped. bottled water.1999. walking out. and Hersheyon its part did not disclosethe detailsof This confusionsurprisedmarket observers what went wrong. TreatsGoodbye.Product inventory startedto pile up and by the end of September 2000.a bar. Several of Hershey's distributorswho had orderedthe products could not supply them to the retailersin time.except in the US where it is made with Rowntree." Emily Nelson."l8 usedthe next-best-selling in Hershey also lost precious shelf space. manufactures chocolate. this was temporaryspaceand productswere evenstoredin unusedroomsin its factories. The companyoperatedmore in than 30.1999. But for a chocolate pick another one. on the other. Japan. said.We typically item.fulfillment. analystsidentified that the problem had occurred due to several informal structureswithin the company.908-001-1 deliver the products.Thailand and Taiwan. Snickers. TreatsGoodbye. we might expand facings of Snickers.the warehouses entry.and so many such storagelocations were simply not storeswith a 7-Eleven. According to Ron Coppel. and hencelost their credibility in the market. Later on.October29."2r Hershey's bar. coffee. which acquiredRowntreein 1988. England. The temporaryfacilities whereproductswere storedwere not identified as storagepoints as far as SAP R/3 ERP software was concerned."Kiss Your Hershey re Switzerland basedNestlé is a packagedfood company with a significant presenceacrossthe world.subsidiaryof Seven& I Holdings Company."Kiss Your Hershey " 'u 7 . Some of the renownedproducts from Mars are Mars bar. in spite of having enough productsat its warehouses. However. Milky in revenue 2006was at US$ 2l billion. I'll I'm distributor. Customers that not only short term sales but long term sales of Hershey too would also be affected. Hersheymissedthat deadlinetoo.05billion in 2006. Vice-presidentof BusinessDevelopmentat Eby-Brown Company. SAP R/3 ERP implementationrequired all the data pertaining to the location of the inventory and its details.as the manufacturingprocesswas running smoothly. M&M's. under licenseby Hershey'sdue to a prior licensingagreement 18 ZDNet News.According to a Candy CategoryManagerat 7-Elevenru. Retailersopined beganswitching to productsof competitorslike Nestléreand Mars2o. It A Kit Kat bar is a confectionarywhich was first createdby Rowntree Limited of York.the companywas 15 days behind in schedule fulfilling orders. Customersare not likely to walk out of the store becausethere wasn't a candybar.The retailerscomplainedthat the problemswith inegular suppliesfrom Hersheyhad been persistingsince summerand they were 'olf iooking at other aliernativés. By August 1999. ZDNet News. The wereat CIIF 98.Sometimes. the inventorieswere 25Yomore than the inventories during the previous year.it rented available. Hersheyused to ensurepeak-season units by placing the productswhereverthe spacewas inflow of productsfrom its manufacturing not always the distribution center or the warehouse.

The news madeit to the headlines stockpriceplungedby8% on a singleday. With the newspapers Hershey's and of majorbusiness a news aboutthe problemswidely reportedin the media. was estimated It 0. the companywas acquiredby The Credit Suisse 'o Craig Stedman. Director of the orders could not be EasternDistribution Operationsat Hershey. Group. Without a database the entire inventory of the company.The company said that employeeswere facing problems entering new orders into the systems."Computerworld. and the new systems were not transmitting order details to the Thus the companydid not indicatewhetherthe root causeof the problemswas poor warehouses.Hersheyannounced new computer systems. "They've missed Halloween.In order to fulfill customers'orders. 1999."22 Hershey did not acknowledgethe existenceof the problem till early September1999. In August 2000. Hersheyannounced However.brokerageservices. November01. that the problemswould be sortedout by the first week of November 1999.However. According to William Leach from Donaldson.Lufkin & Jenretteis an investmentbank founded by three Harvard graduates 1959."Hershey'sSweetVictory. HersheyFood Corporation.but did say that the information flow between different applicationsneededto be righted in order to fix the problems.falling by 35% to US$ 47. etc.In its 1999 annualreport.from US$ 74 during October 1998(Refer Exhibit II for Hershey'sstock price from 1998to 2002). With severalordersremainingunfulfilled.908-001-1 taken into account. financial advisory. Miesemer. 19%o salesdeclinedby l2%.and they might even start missing Easter.which SAP R/3 softwaredid not consider. and a lot of the time we didn't have the right inventory to the right place according to our records.50Á marketshare. 1999. investmentresearch. 25 Discussionand Analysis. 22 2002.Hersheystated. 23Donaldson. According to Kenneth D.50by late October1999. warehousing.Hersheylost about warehouses. "Failed ERP GambleHauntsHershey."24 confirmedthat in all probability. the problemswould not be sortedout beforethe end of the year 1999.the products stockedin informal locationswere not checked.salesand trading.who did not update those of implementingthe softwaresolution.it experienced sharpdeclineevenover a longerperiod.and shipping) encounteredsince the start-up of a ne_wintegrated information Hersheyconfirmed that during the third quarterof 1999. Wolfe probably going to miss Christmas."25 systemand new businèis processes the problem was with getting the customerordersinto the systemand transmitting them to the that during the third and fourth quarterof 1999. Lufkin & Jenrette23. banking." Baseline. analysts expresseddoubts about Hershey's ability to bounce back. they're Later. The in of business the companyincludedsecuritiesunderwriting. processedon time.Management . software quality or implementation. Annual Report.The main reason for the gap was the lack of coordination between the technical personnel implementing the system and the people involved in operations. Hershey'sfailure to implementthe ERP softwareon by Profitsfor the third quarter1999dropped the time costed companyUS$ 150million in sales. investmentbanking."The reductionin and shipments resulted primarily from difficulties in order fulfillment (customer service. December David F Carr. In midthat it was having problemsin processingordersusing its September1999.the SAP initially checkedthe inventory availableat eachof the locationsmentionedin Hershey'sofficial records.merchant venture capital.'oWe'dhad a real problem with inventory accuÍacy.

"Computerworld. Siebel statedthat the SAP US."" is) a hugebite to take.ConsumerProductsunit.I'd point directly to a systemissue.October29. TreatsGoodbye." Craig Stedman.According to Tom Crawford. 1999. IT analyst." "Kiss Your Hershey 2t November01.. December "Tony Baer. If Hersheyhad completedthe project on time. I .October29.there was hardly any buffer left for the systems be tested.But with such a short time-frame to implement the ERP.ensuringthat the systemworked accordingto the plans. Tony Bear. ERP implementation was a complex process and many glitches could occur."Don't Pointthe Finger 30Boston. USA-based AMR Research. As a result.and did not have According time to rectify the mistakesarising out of problemspertainingto the implementation. Another reasonwas that Hershey implementedERP during the peak season. implementationand conection would have been completedbefore the peak season.a big bang was not the right approach.Hersheywas unable The deadlines like transportationand warehouse to stick to the deadlinesand someof the importantprocesses got management shiftedinto the third quarter.1999.msimag.eachcomponenthad to in issues.the companycould have successfully done in the software. SAP America Inc. The SAP workersarejust making surethey're (built into the software)correctly. In this cÍNe. According to McKay. anything betweenthree to six weeks was required after implementationto identiff problemsand fix them. tie in for Vice-president AMR Research3o Boston. 2e ."z8 processes using the business Hershey had planned to have all the systemsup and running by Spring 1999. "If it was a systemissue.asked. to analysts.908-001-1 WHAT WENT WRONG? for The top management the companyas well as industryanalystsbeganlooking at the reasons of the problems at Hershey." 2t Emily Nelson. Craig Stedman. addressed lapsesarising the this in an off-peak period.com. was founded in 1986 and is involved in providing researchand other servicesto companiesintendingto carry out tasks like transformingsupply chains. it was not possible to test each of the components According to Jim Shepard.customerprofitability. Though SAP was blamed for Hershey's debacle.it would have been and then checkthe integration better if Hersheyhad chosento roll out eachsystemsuccessively project to be implemented a companyas big as Hershey. ZDNet News.etc. "FailedERP GambleHauntsHershey."27 were to blame for the Industry analystsalso concurredthat problems in project management debacle."26 problemwas not due to their software. "There are really no softwareissuesper se. and implementedit by April. orders)is the lifeblood oftheir business. GeneralManager."Thesesystems togetherin very intricateways. given that (processing 'u Emily Nelson. customerbeneftts. (Going live with all the software and things that work fine in testingcan tum out to be a disaster. According to experts in the field."Who really was culpable in this situation? Was it Hershey's managementfor not realizing that its busiest sales period probablywas not the besttime to activatea new ERP system?"2e Industry expertssaid that with threedifferent vendorsworking on the system. in terms of bugs or fixes that needto be applied to make (R/3) work any differently that it is now. 1999.Look in the Mirror." www. 3r November01. Hersheyhad set to implementthe ERP suite were unrealistic. "Failed ERP GambleHauntsHershey.they were maxedout there. with the Y2K to problem in the vicinity. Had it Hershey'smistake was in going aheadand implementingERP during its busiestseason.1999' TreatsGoodbye.For a be rolled out cautiously. Computerworld. Chief ExecutiveOfficer and President.saying. the company's management viewed it differently."Kiss Your Hershey ZDNet News.Senior carefully."It may havetumed out with the big bang kind of installation.introducing new products. 2003.

" The employeesat Hershey were required to follow and understandhow different business processes were built. of the problemscould havebeenavoidedif therehad beenmore focus on training. 35 justificationfor missingeamings."There were three cooks in that kitchen." March 16.That's why thereis so much finger-pointinggoing on.the company did not have a CIO position and the IT department was headedby a Vice-president. "A lack of technologicalsawiness at the top. 'o Gray Hilson. the company's of focus in FonesterResearchis the business wereat US$ I 8l . Hershey's management clearly did not quite understandwhat was requiredfrom them for the implementation ERP software. then CIO of American Express. Research Director. Dave Boulanger.there was a sharp increasein the number of touch points and interfaces.Senior Director with AMR Research. With more than one packagein operation. Lesson. 32Us-basedtechnotogyand market research was founded in 1983.Sincethe groundworkwas of also fell short in guiding the company'stechnical and business inadequate. time to sparefor the new endeavors. whetherit was the CEO. Inputs from consultingfirms with experience in SAP-Manugistics integration could have helped Hershey avoid the catastrophe. Analystswere of the view that though some. They literally had two or three sets of balls up in the air. top management the were working towards different goals.though not all. with net incomeat US$ 16.The area companyFonesterResearch.The employees how different modulesinteracted also and bring out the requiredrevisions intricaciesofnot one.and implementationrelatedproblemswere almost inevitable."3aHershey's top management was strongly criticized in the media.cio. But Hershey attemptedto implementtwo other applicationsalong with it. AMR Research. implicationsof t3echnologychange. said. they but Hersheyhad earlierimplemented few customized a solutionsof this magnitude. had to learnthe when they were very busy with little at in their activities. Since there was more than one vendor.Hershey did not have right processes place to keep its senior who The consultants was proceeding.2002.Thesethreeneeded work in to tandemto processordersand scheduleshipments. An analyst managers.the board recruited Allen Loren. in SAP R/3.com.but threenew systems."33 Someexpertswere of the opinion that there were problemsintegratingSAP R/3 with the CRM softwarefrom Siebeland supply chain softwarefrom Manugistics. According to StephenCole.Research the bugs at Hersheysaid. in During ERP implementation. in The board did not have any representative with competence the field of IT. were on a much smaller scale. of in Another reasoncited for the debaclewas Hershey'slack of experience implementingsoftware systems. Canada. "supply Chain:Hershey's 10 .Further. Thesetwo levels of management that they had blown ERP as "The thing Hersheycan be faulted for was to announce commented." Bittersweet Koch.Dave Boulanger. scopeof the project."HumanFactorPlaysBig Role in IT Failures.The top management not conductenoughgroundwork before did going aheadwith implementation this company-wide ERP solution. To addressthe issue.January0l' 2000. they with one another. ForresterResearch".In 2006.17 million. Computing 3sChristopher November15."Blaming ERP. implementation regularly informed abouthow management the had really failed to understand management said that the top were brought in subsequently who worked on fixing Director. revenues " Andrew Osterland. it was easy for each party to blame the other for any mess-up.They didn't just have one set of balls up in the air.2001. www.47 million. Until implementationstarted. making the whole exercisestill more complex.' CFO Magazine.this happened the peak season. They neededto be trained in how the systemfunctionedand as were overloaded.to join the board.908-001-1 SAP's R/3 ERP suite on its own was complex to install and run. "Every facet of the businessat Hershey was changing.

PlanningTechnologies3T. this is the precisely kind of thing you would do.The next peak season.2 billion (ReferExhibit III for Hershey's sales andincomeduring 1997io 2000). SAP Upgrade Program at Hershey. distribution center. which was a part of SAP's mysap.Hersheyclosedseveralwarehouses. "Hershey hasn't said if it checkedits network before embarkingon its implementation. 06. of Hershey did not have enoughinfrastructureto supportthe project. Computerworld.a rigorous software testing program was implemented. 2000.CEO and President. "Don't Let Systems L Songini.Under his leadership. Hershey made efforts to stabilize SAP and other systems. etc.com products. September "The Digital Age Stormsthe Comer Office. Manugistics and Siebel systemson its network. 37 consulting firm.Hersheyensuredthat the the mistakes committed earlier were not repeated by thoroughly testing the software before For example. GeorgeDavis from Computer SciencesCorporation." Inter@ctiveWeek. ft. By doing a full probe of the network.which includedseveralregionalwatehouses. 11 . and it would havebeenableto identiff potentialproblemareas. Marc 09. . .September 2002. Online.908-001-1 or CIO. "Hershey Upgrades R/3 ERP System Without Hitcheso" " Todd R Weiss. or somebodyelse. March 27. diligent planningand . the company's successin its 'ostrongprogram managcmentand second round of ERP implementationwas attributable to testingand training plan. for by third parties.Planning Technologiesis an Atlanta-based 2001.In February PlanningTechnologies.Hersheywas able to reduceits order cycle times by half. modeling it and profiling the applicationsthat will run on it.If you don't understand complexity of it all. companyannounced processes like invoice verification.According to Joe Zakutney. major improvements were made to that within 60 days of implementation. In July 2001.By September-October 2000.was to blame. Hersheyredesigned process the and beganworking with SAP N3 4. He opined. but a thorough assessment would have raised somered flags. With the new distribution center. The began using SAP for marketing analysisand brand management.By the year 2000.The company appointeda CIO. Hersheyalso order management. The companywould have seenthe loads those applications were going to put on its network. Hersheywas using SAP's business analysistools to measure impact of salesand marketingprograms. acquired solutions 38JakeSanchez."36 the According to JakeSanchez. co-founder. Red Hat Inc. In 2000. Hersheywas back on track with salesreachingUS$ 4. specializing management Foundedin 1992.Hershey built a 1."3s BOUNCINGBACK After the debacle. Hersheycould have checkedthe impact of the R/3.credit processing.Hersheycanied training to employees. a company involved in open source in network infrastructureconsulting. Melt in your Hands.aheadof scheduleand with 20% less costsas comparedto the budget estimates.was one of the primary reasons the problemspertainingto the first operated major ERP at Hershey. implementingit and by providing adequate a dry run of loading the palletsand distributionby putting bar codeson empty pallets.2 million sq."" executiveleadership.Halloween-Christmas also passed smoothly. After putting this new facility in place. Hershey was in a position to fulfill orders for Easter. to align its distribution function with the new ERP system.6. Thoseriskscouldhavebeeneliminated." BusinessWeek 2001. In order to addressthis issue. Hershey announced that most of the initial problemswith the ERP systemswere fixed. 'u Eric rilahlgren. an extensive someof which were Hershey'sdistribution system. Within 1l months. etc. system was implemented successfully the . Director.

..networkcomputing. We have moved into a continuousimprovementmode and havebegunÍo realizethe benefitsof the new system'spower. 12 .with the ERP systemrunning successfully. Hershey employeesare much more comfortable and are able to executeat a higher level of performance."With more than l8 months experienceusing the system.2001. September Jim Romeo." www. Wolfe said.001-1 In mid-2001."4o oo 17.908.ERP:On the Rise Again.com.

com.hershevs. Source: 13 .gum.908-001-1 EXHIBIT I HERSHEY'S PRODUCTS ChocolateCandv Almond Joy candybar pot Hershey's ofgold boxedchocolates CpcaoReserve Hershey's by 5'Avenue candybar Health toffee bar Hershey's milk chocolate Hershey'sminiaturechocolate bars Mounds candybar Mr.lollipops. www. Twizzlers offers a range of candies. jelly beans. candies.Goodbarchocolatebar Hershey'snuggetschocolates Paydaypeanutcaramelbar Reese'sfast breakcandybar Reese's Nutrageous candybar Reese'speanutbutter cups Reesesticks wafer bars Rolo caramels milk chocolate in bar Symphonymilk chocolate Pantrv Items Bake shoppebaking pieces Bake shoppechocolatefor baking Hot cocoamix Moundssweetened coconutflakes Reese'speanutbutter Snacks 100caloriebars Hershey's brownies Mini kisses cookies bars Snackbarz rice / marshmallow Sweet& salty sranolabars Gum and Mint Breathsavers mints Bubble yum bubblegum Ice breakersliquid ice mints Susar Confectionarv Hershey'sextra dark Hershey's sticks Kissables Hershey's kisses Kit Kat wafer bar Krackel chocolatebar MaunaLoa Milk dudscandy 100Caloriebars pieces Reese's candy S'morescandybar SKOR toffee bar Specialdark Take 5 candybar candybar Whatchamacallit Whoopersmilk balls York peppermintpattie chocolate milk mix Hershey's Cocoa Desserttoppings Hershey's syrup Hershey's Sandwich cookies Mauna Loa Hershey's Reallynuts Snaksters chewinggum Ice breakers Ice breakers mints Goodandplentycandy Jolly rancherrange* Zero candvbar llershev's solution center 100caloriebars sticks Hershey's Hershey'ssugarfree candy Paydaypeanutcaramelbar Twizzlers range Zagnut candy bar * Jolly rancher range has fruit chews.

955 217.210 76.724 8 1.096 267.435. Source: 14 . marketineand administrative Gain on saleof business Total Costsand Expenses IncomebeforeInterestand Incometaxes net Interestexpense Incomebefore incometaxes Provision for income taxes 1997 1999 1998 2000 4.471.026 I 622.564 2 1 6 .9244.220.840 Q43.STOCK PRICE CHART (1998_2002\ -***sPIf.310 340.639 727.970.com.057.236 2.STATEMENT OF INCOME In US$ Net Sales Costsand ExDenses Costof Sales Selline.354.908-001-1 EXHIBIT II IIERSHEY .168. 1 3 l.271 76. 1 2 7 .006 553.650 802.3263.543 460.1512.779 3. 1 7 51.251 Net Income 1998.888 336.488.657 I 74. 18 334.302.bigcharts. t4 c Source www.01 546.Fl'4$*sem .1999and 2000.672. Hershey FoodsCorporation AnnualReports. 3 0 1 .704 212.785\ 3.896 2_625.9763.895 1 .167.6154.255 85.9 = .598.45 642.663 630.057 2.792.874 557.952 3. : EXHIBIT III TIERSHEYFOODS CORPORATION .

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