Erp Implemenatation Failure At Hershey Foods Corporation 49b4p

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 s 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.

As regards the role of the key players, while it is difficult to point the finger at a specific person, it must be accepted that the success or failure of strategic undertakings falls ultimately on the CEO. In this case, CEO Kenneth L. Wolfe arguably demonstrated poor judgment and leadership in the planning, organizing and controlling of the ERP implementation project. The CEO must take a major part of the blame for a lack of contingency plans and underestimating unforeseen obstacles. This of course does not exonerate other key business and IT managers, who, because of their knowledge and expertise in their areas of responsibilities, should have foreseen, identified and isolated the potential threats to their particular functions and communicated these to the CEO. -------------------------------------------------------------------------------------------------------------------How could the failure have been avoided? The ERP project was a large project, designed to replace many older systems within the company that had till then been running a number of processes including order processing, inventory control, HRMS and several others. The new ERP was expected to impact on virtually every facet of the company's operations. The benefits that the company expected to reap from this project included: -

Upgrading and standardising the business processes

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Reducing order cycle times and increasing inventory control and forecasting accuracy

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Reducing inventory costs

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Fine-tuning deliveries to suppliers

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Broadening and deepening its base in the mass market candy business

The situation in July 1999, soon after the implementation of the project, was however far from perfect: -

Unable to deliver $100 million worth of Kisses and Jolly Ranchers for the Halloween season in 1999.

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Company’s stock price fell by about 35%

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Earnings reduced by 18%

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Order fulfillment time nearly doubled to 12 days - many consignments were shipped behind schedule, and even among those, several deliveries were incomplete.

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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. 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, which they actually did). This would have made a lot more number of resources naturally available to the company, who could have been utilised for ‘fire fighting’ had things not gone according to plan. ERP implementation is a complex process and calls for a lot of resource usage within the company. 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.

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 a pre-training course should have been organised before the project implementation. In fact, since Hershey started the project in 1996, this pre-implementation period could have been utilised to initiate an in-depth training program. By reducing the overall timeframe for implementation, Hershey also unwittingly reduced the time available for a comprehensive training program for its employees. Had testing and integration received its due place within the project plan, a lot of the eventual worries could have been easily avoided as the glitches would have shown up during the testing phase. Hershey’s should not have attempted to accelerate implementation and should have stuck to its original 48-month timeframe. 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. Had Hershey taken sufficient measures to modernise its business process along with its IT infrastructure, some of the adverse impact could have been reduced. Instead of assuming that the records maintained in the earlier system(s) would work well with the new system, the company should have taken this opportunity to remove redundancies and irrelevancies in the earlier record sets before migrating to the new system. Finally, 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, a lot of the complexity could have been avoided – something that made the eventual implementation very ‘expensive’. -------------------------------------------------------------------------------------------------------------------What lessons can be learnt by other companies from Hershey’s initial failure and subsequent success in implementing ERP? In Sept 1999, Hershey Foods’ former CEO and Chairman Kenneth L. Wolfe told Wall Street analysts during a conference call that the company was having problems with its new ordertaking and distribution computer system. At that time it was a terrifying new prospect for investors to consider, that a failed computer project could take down a Fortune 500 company. Hershey’s stock price fell more than 8 percent on that September day, and the computer system mystery appeared on the front page of The Wall Street Journal. Even in 1999 many analysts could see that Hershey’s only real failure was its timing. The system went live at the same time when orders were pouring in for Halloween, and they couldn’t be fulfilled. Other than that, Hershey’s experience was quite average. Today, analysts will not even bother about Hershey’s computer systems. Still, there are a number of lessons that can be learnt from the Hershey experience, that are actually based on the sound principles of ERP implementation, that could be used by other companies to give their ERP projects a much higher chance of success within the first attempt: -

If possible, ERP projects should go live during the company’s slow periods. Modules (of ERP) should be rolled out in stages. Simultaneous implementation of other major applications should be avoided. There should be no undue attempt to condense the timelines.

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Proper change management policies and procedures are required – ‘changing the sails midstream’ without adequate control can be a recipe for project failure.

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Nothing can be taken for granted. According to ComputerWorld, the problems with Hershey were only related to order entry and fulfillment, and did not involve manufacturing. So, the company actually produced lots of chocolates, but it piled up in the warehouse.

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Having multiple vendors within the same project is not desirable. It is better to sacrifice ‘choice’ for ‘consistency’. If it is absolutely necessary to have multiple vendors however, providers should be lined up sequentially for implementation, with adequate gap to allow the s to be comfortable with each individual application.

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A ‘Big Bang’ approach is definitely avoidable. Companies should use a phased approach to implement their system, even if takes considerably longer. A phased approach makes employees gain a better understanding of the system.

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The system needs to be run for a long time before being adopted into the company.

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Data migration is critical – data compatibility within two systems can not be assumed. Extreme care is required when dealing with inventory while shifting from a legacy system, else large amounts of inventory are likely to just ‘disappear’.

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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. It is also a good idea to have an external project audit committee. Still, management should be cautious enough to not get over-committed (forcing unrealistic deadlines, for example).

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Training for end s is paramount. Rather than basic, software-specific training, a more broad-based understanding of the flow of information through the system is needed.

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Management should commit sufficient resources to the project and standard implementation methodologies should be used.

In the second phase of implementation Hershey did most things right and reaped the benefits in of a successful and rewarding implementation: -

Hershey made sure to take the time and resources to thoroughly test the computer systems.

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Testing included putting bar codes on empty pallets and conducting mock tests so that any hitches could be resolved before the system went live.

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The company completed an mySAP.com in 11 months and 20% under budget

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Hershey now has an inventory location accuracy of 99.96 % and can fulfill orders within 24 to 48 hours of receiving an order as opposed to the previous 12-plus days that it took.

In the final analysis, the culture of the organisation plays a big role in deciding the approach to adopt for a successful ERP implementation. If we consider the examples of three companies who used widely different approaches, though with equally successful end results, we can better appreciate the need to choose the right approach.

The examples are that of Cisco, Tektronix, and Harley-Davidson. All three companies needed to implement ERP systems but went about it in very different ways. While Cisco used a big-bang approach to the implementation, Tektronix primarily used a phased strategy, in which the various ERP modules were implemented one after another. Harley-Davidson was highly cautious – in fact their selection strategy alone took over 2 years just to narrow down the potential set of vendors.1 Cisco's big-bang implementation took only 9 months and was an enormous success. Tektronix' s phased implementation in its offices in several countries was also a success but one that took quite a bit longer. While on the surface, Harley-Davidson's outcome might seem like a failure, its important to understand that any other approach would have most certainly been doomed given the culture of the organisation.

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"One-Size-Does-Not-Fit-All": Teaching MBA Students Different ERP Implementation Strategies, By Venkatesh, Viswanath; www.allbusiness.com

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

1. the sponsor must have the influence to obtain needed resources without going through many approval layers 2. the sponsor must show that upper management has a stake in the project just as much as those operating the day-to-day chores, and 3. 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. Sobesys, a leading grocery chain in Canada, experienced problems with a SAP R/3 installation. Researchers reached the conclusion that several executives had come from other organisations that had installed competing systems, and as such, they had different expectations. To avoid the problem of mismanaging expectations, the project manager must be able to: •

Understand the expectations

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Explain what can and can not be achieved

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Prioritise the expectations

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Formally document the expectations

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Continuously validate project deliverables with expectations

Some companies tend to apply technology as the solution to correct fundamental flaws in underlying business processes. Companies should not view the new technology as a new core competency, but rather as a means to achieve the competency through better business processes. New business processes must be debated, established, and implemented before the new software systems are rolled out.

Selecting the right product and the right vendor is important. The product must meet the requirements envisaged to a very large extent. Drug distribution giant FoxMeyer declared bankruptcy, ostensibly due to a failed ERP implementation. The company adopted ERP early, when the software was designed specifically for manufacturing, not distribution, companies. The software was unable to handle processing demands. Although many experts insist that ERP implementation timelines should be closely followed, the company must ensure that the system is fully tested and ready for implementation. Whirlpool suffered delays in shipping product after it went live with an SAP system implementation. Even though some major discrepancies emerged during the testing phase, Whirlpool elected to stick to their schedule. The decision resulted in a severely underperforming shipping system that left appliances sitting in warehouses and stores with six- to eight-week delays in shipping orders. It is important to stick to schedules in ERP implementations because delays can increase costs substantially. However, management must review closely the need for extending the timeline to ensure

success of the project. It is futile to insist on a project deadline if meeting that deadline results in a failed implementation. The companies should as a rule, attempt to minimise the extent of customisation they order for their ERP packages. It is better to take an off-the-shelf package and modify the business processes wherever any mismatch is encountered. Rampant customisation can lead to scope creep with inevitable delays and unforeseen glitches.2 The case of CRM software implementation at BMC software amply illustrates the importance of following sound implementation strategies. BMC succeeded the third time after two failed attempts. main reasons for initial failure were: o

There was no defined customer strategy - CRM merely focused on performing processes faster

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Top Management involvement was minimal

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No efforts were made to educate the staff on the advantages of implementing CRM – the company believed that the software would sell itself

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No attention was paid to the required organisational changes that must accompany the implementation for increased effectiveness.

In the third attempt, BMC did it right. o

Project headed by VP of sales for North America - ed by manager of marketing programs

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Defined the CRM program’s requirements with the help of 175 employees

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Communicated the benefits to employees

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Showed how the CRM system would help the sales force to achieve its targets

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Rolled out the CRM program in stages to capitalise on early successes – this also reduced the risk of any problems affecting the entire company

The core requirements for a successful implementation can thus be summed as follows:

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Establish the business processes prior to selecting the software.

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Develop an implementation plan and stick to it.

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Project team must comprise the community in addition to IT staff.

The Military Sealift Command (MSC) successfully implemented Oracle’s ERP solution. 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, then resolve to implement the package without significant modifications. 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, without any modifications. The MSC put together 1,000 requirements the optimal software would fulfill. 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.

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Train the s thoroughly on the process changes and flow of information in addition to the actual software.

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The project doesn’t end with “go-live”, but must be continually monitored

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