Introduction to Enterprise Resource Planning

SCM-400
Section M-9753
Spring 2021
Instructor: Sir Rizwan Ellahi

Term Report:
“ERP FAILURE AT HERSHEY’S”

Group Members
Syed Osama Ali Shah 24032
Faiq Asad 22571
Table of Contents

INTRODUCTION ABOUT ERP.....................................................................................................2

WHAT IS ERP FAILURE...............................................................................................................3

ERP FAILURE AT HERSHEY’S...................................................................................................4

Overview Hershey’s.....................................................................................................................4

Project Enterprise 21...................................................................................................................4

Implementation of ERP................................................................................................................5

Reasons of ERP Failure..............................................................................................................5

Solutions........................................................................................................................................6

Learning.........................................................................................................................................6

REFRENCES..................................................................................................................................7

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 INTRODUCTION ABOUT ERP
In the global perspective, the way of doing business has
been completely transformed. Now organizations are more
concerned about overall business operations and their
effectiveness rather than just focusing on price and quality.
In today’s world, organization’s competitiveness is purely
based on how well the organizations are managing their
overall business operations in order to deliver best
experience to its final customers.

A number of originations have decentralized their

operations by outsourcing them so they can run their
businesses operations optimally and effectively. But it also
requires a system to ensure that all the departments,
operations and information are perfectly coordinated with each other. For that purpose,
Enterprise Resource Planning System (or simply ERP) is designed to integrate all the
departments, operations and information with each other so the organisations are
responsive to changing market dynamics, customers’ needs and become profitable in the
long-run.

The concept of ERP was introduced in 1990s when

organisations finally decided to re-engineer their entire
businesses processes and supply chain in a single
uniform system known as ERP. It allows organizations
to integrate all their core operations like
manufacturing, procurement, distribution, warehouse,
human resources, finance with each other and provide
information flow for effective decision making. ERP is
made up of different modules and each module focus
on one core area of the business. The other major advantage of using ERP is that it ensures
smooth running of business operations at cost-effective methods.

The rise of internet and technology also played a vital role in the successful implementation
of ERP in different business domains. Initially it was very difficult for the firms to implement
ERP in their business premises as the people were very reluctant to technological changes
but with times people started to realize that it is the only way to achieve competitiveness and
to survive in the changing business world.

In today’s world, ERP is implemented in almost all the Large-

Scale Businesses around the globe. It is playing a vital role in
achieving competitive advantage for the firms where it has been
implemented successfully and part of day-to-day business
activities. It has been found out that once the ERP is
successfully implemented in organisation, it helps them to
automate their business operations, easier access to
information, effective managerial decisions and integrated
supply chain which contributed in overall operational
excellence. However, in order to make the most out of ERP, it is

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very important for the users to understand the basic difference between the functions and
modules of ERP.

The functions are generally described as actual physical tasks and operations which are
carried out in an organization whereas modules can be best described as pieces of software
which are designed to perform operations. Each organization has different functions
therefore the modules in ERP vary from organization to organization.

WHAT IS ERP FAILURE

Given the tremendous amount of execution of an ERP
project, several factors can lead to its failure. The true
definition of an ERP execution failure is that it is not
executed or finished on schedule, whether it is not under
the planned budget or if the expected benefit is not
produced. Mostly, the perception whether the company
has been good, relies upon the differentiation of the
company's objectives and main concerns.

Implementing an ERP in organizations is not an easy task.

It takes million-dollar investment and yet it could turn out as biggest nightmare for the
company. Therefore, in order to successfully implement ERP in the organization, it is very
important that all the stakeholders, departments and employees are on the same page and
must be ready to adapt the change. The management should also make a fair assessment
of their organizational goals, structure, culture, corporate governance and strategical
considerations before making such huge investment decisions. ERP system is very effective
but organizations need to change their working practices to best fit in the software. It is
important to note that the key success of ERP is based on configuration of the system as per
the core business areas and business model of the organizations.

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 ERP FAILURE AT HERSHEY’S
In decades since the launch of Enterprise Resource planning (ERP) technology, there have
been numerous high-profile successes as well as setbacks. The failures, though, frequently
attract more attention than the success of ERP. Hershey's adoption of ERP in 1999 was an
unforgettable example of ERP launch that had to be rife with organisational problems. This
case highlights one of ERP's catastrophic shortcomings in the 20th century.

Overview Hershey’s
Milton Hershey founded Hershey in 1876. In 1894, the company established headquarter in
Pennsylvania. The company became multinational corporation in 1927. The company
started to grow rapidly and soon became market leader by exporting its chocolate, candies
and bars in almost 90+ countries. There products include Hershey cookie, Hershey kiss, Mr
Goodbar, Hershey Chocolate Chips and the company had worth of $7.44 trillion in 2016.
During the holidays and festivals like Christmas, Halloweens, Eaters and Valentines,
Hershey got a lot of earnings which is about 40% of total income. To satisfy seasonal
demands, Hershey required to update its infrastructure and make the system efficient and
reliable.

In the 1990s, several organizations in the confectionary industry were using traditional
technologies for many production and operating functions. The traditional system
technologies which those companies were using was Legacy System. The Legacy system is
defined as data management platform that store data in such a way that the structure and
format of data cannot be changed. The businesses using legacy systems would have to
spent considerable amount of time and money therefore they were not interested to change
the system. It usually contains custom designed software aimed to solve different business
needs of their clients.

Project Enterprise 21
At the end of 1996, Hershey’s management finally allowed to upgrade their software and
hardware from Legacy System to ERP System with the project name of Enterprise 21. The
main goal of Enterprise 21 was that Hershey wanted to share data about product delivery
and keep track of updated inventory so the distributors would order and receive delivery on
time at reduced cost and providing better customer service. The company also wanted to
meet the seasonal demands of confectionary effectively and willing to provide maximum
customer satisfaction that’s why opted to shift their existing system from Legacy to SAP-
ERP.

Another reason behind the approval of the project was Y2K Problem in Legacy’s System.
The Y2K Problem also called Year 2000 problem was a result of flaw in computer design of
Legacy System where the year in the date “field” can only be enter in two digits. Till 31 st
December 1999, the system would read year as 99 but once 2000 would start, the company
would display it as 00 of 1900. Because of this structural error, all the calculations and
accounting inputs would go wrong. It is therefore Hershey decided to replace the system
rather than spending money on solving the date related error in the legacy systems.

Hershey chose SAP AG's R/3 ERP system in addition with two support software from other
two vendors namely Manugistics and Siebel. SAP aimed to provide modules for accounting,
finance, materials management, order processing, warehouse management and sales
automation. Manugistics software would provide support for transport, production
management, forecasting and scheduling. Whereas, Siebel software would support Hershey
in CRM and help in measuring the effectiveness of pricing promotions module. Hershey

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decided to integrate all three software in a single interface known as IBM Global Services.
The estimated cost of the project was around US $ 110 Million.

The project required 48 months to successfully implement ERP at Hershey but the top
management wanted to shift its business operation to the new system by April 1999 which
essentially meant that the company forced the project team to complete the project in 30
months. Hershey justified this act by saying that demand and sales of confectionary were
usually lower in this period. Therefore, they wanted to shift to new system before peak
seasonal sales and also tackle the problem of Y2K in advance.

Implementation of ERP
In January 1999, some of the SAP modules were went live like financial management,
materials management, purchasing and warehouse management. The remaining modules
like SieUet by Siebel and Scheduling Module by Magugistics had to be implemented later in
July 1999. But since Hershey wanted quick implementation of ERP before its peak seasonal
sales of Halloween, they opted for Big Bang implementation of ERP System.

Big Bang ERP implementation is the approach where all the modules are implemented
simultaneously and the system goes live without any testing. The modules were not
adequately tested due to shortage of time which resulted in serious backlash for the
company and several problems started to occur regarding order management and fulfilment.

In the beginning, the implemented ERP system was working smoothly but then gradually
problems started to halt the order fulfilment cycle. A number of consignments were delivered
before schedule and several deliveries were not even complete. Hershey's distributors lost
their credibility in the market because they could not have provided stock to the retailers on
the required time. The retailers also complained that they were shifting to other alternatives
because of poor order commitments by Hershey. Meanwhile, customers also began
switching to competitors’ products like Nestlé and Mars. The ERP failure was not only
compromising the short-term sales but also the long-term sales of Hershey would have lost.

With such huge blowback of unsuccessful implementation of ERP at Hershey, the

company’s orders remained unfulfilled and company suffered a sales loss of US $ 150
Million. The Profits of third quarter was declined by 19% in 1999 and sales dropped by 12%.
Hershey also lost its market share of around 1%.

Reasons of ERP Failure

There are some of the reasons according to Geneco Consulting for the failure of ERP at
Hershey’s which are as follows:

1. Squeezed time limit:

4 years were planned for Hershey's Project Enterprise 21 but the management pushed
the project team to complete the project within 30 months. Because of the hurried
deployment, the system could not have implemented successfully. If the company had
implemented the project on suggested time which was April, the company would have
been successfully implemented the system and could save from the huge loss.

2. Inaccurate Timing for Implementation

Experts believe that one reason behind this disaster was the inaccurate time for
implementing the project in the organisation. Hershey did not have enough time to rectify
their mistakes because they implemented the system just before the peak sales period of
confectionary.

3. Hershey’s Internal Structural Flaws

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 There were also some structural flaws in the company which were later discovered by
the analysts. The analysts believe that SAP R/3 reads data pertaining to the location of
the inventory and all its details. However, the management at Hershey used to store its
inventory in rented warehouses and unused rooms in the factories to ensure peak-
season inflow of products the temporary spaces where stock stored were not recognized
as storage centre in SAP R/3 ERP software. It is therefore the SAP system could not
accept, process and deliver products on time. There were mismanagement related
issues which were the main reason behind the failure of ERP at Hershey. Also, there
was a lack of coordination between the technical personnel implementing the system
and the people who were involved in operations

4. Big Bang Approach

Analysts mentioned that ERP implementation was a complex process and implemented
in phases so any glitch occur can be solved easily. However, Hershey’s decision to
implement the system in one go by Big Bang approach was one of the main reasons of
this million-dollar setback for the company.

5. Complex Modules & System

SAP R/3 has a very complex structure and procedure to instal and execute the system
successfully. However, in order to make the system more complex, the project team
decided to implement two more systems from two different vendors. Analysts later
revealed that if Hershey decided to implement different system and modules in phases,
such mishaps would never have happened. Also, there were more than two vendors
working in the same project so it would be very easy for each vendor to blame the
second vendor for the ERP failure. If there were only one vendor, there would be more
accountability and less ambiguity while implementing the project.

6. Lack of Training to Employees

The employees at Hershey were not adequately trained to use SAP R/3 system. They
did not have proper knowledge to use different modules of SAP and how different
business processes had to be ran. The employees must have been trained by the
technical team in order to effectively run the system. Analysts revealed that majority of
the problems could have been easily resolved if there were major emphasis on the
training of employees at Hershey.

Solutions
1. The project should have been completed on suggested time and the project team should
have given enough time for preparation.

2. Hershey should have been aware about the risk consequences for Big Bang approach
by the technical team.

3. The company could have used phased implementation approach to rule-out all the
possible glitches of the system.

4. Ensure sufficient system testing, particularly UAT testing, is necessary before

implementation.

5. A proper review is needed to determine the correct criteria to ensure that the project
offers the maximum benefits to Hershey.

6. There must have been internal auditors to keep strong check on groundwork

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 .
7. There should be coordination between the executives and technical team

Learning
ERP Software is hard for businesses. It takes a long time to get there. It's difficult to
convince people to change their way of doing so the system works. But in order to succeed,
the way you do business has to be changed and ERP implementation is the only way
forward for successful business integration when implemented with great care and taken all
the important business considerations into best regard.

REFRENCES
https://kopisusa.com/wp-content/uploads/ERP_Implementation_Failure_Hershey_Foods.pdf

https://www.slackchannels.com/hersherys-erp-implementation-failure-case-study/

https://www.accenterp.com/erp/what-we-can-learn-from-the-1999-hersheys-erp-failure/

https://www.cio.com/article/2440386/supply-chain---hershey-s-bittersweet-lesson.html

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