Implementation failure on Hershey’s 1999
Many organizations across the world have adopted the implementation of the ERP system to have a constant data system in the organization and to re-organize their business processes (Chofreh et.al. 153). Effectively implemented ERP system leads to advantages like cost reduction and high quality systems (Soja and Piotr 23). However, some organizations that adopted the ERP failed because of the complexity of ERP for example the Hersheys 1999 leading to loss in revenue and profits of 12% between the year 1998 and 1999.
Hershey switched to the ERP system in order to re-engineer the industries processes and reach their goals. Their main aim was to provide quality services to their customers and improve their market competitiveness. Therefore, the Hersheys chose the SAP Ag’s R/3 Enterprise Resource Planning suite, Manugistics’ supply management (SCM) software and Seibel’s customer relationship management (CRM) software in order to have a uniform information system. Software from SAP would include components like financing, material management, warehousing, order dispensation, billing and buying while manugistic would include forecasting, manufacture, planning, transport management and forecasting. Siebel software on the other hand was to enhance the management of customer and improve on the firm’s efficiency through a rating promotion unit.
Adoption of the ERP by Hershey would give it a competitive advantage as compared to other companies that highly depended on the legacy system and did not want to spend more on IT. They would connect a bar coding system that would enhance the productions processes and reduce costs, enhance overall management logistics and track the inflow and out flow of materials. Additionally, it would enhance better customer service by letting retailers know when their ordered products can be delivered.
The adoption of the new system was expected by April 1999 when the yearly sales were low as compared to the high peak seasons of Halloween and Christmas where sales account to about forty percent. In January 1999 SAP material management, financial, purchasing and warehouse modules had been executed. However, some elements had not been executed like critical order processing, billing from SAP, pricing and promotion module from Siebel and planning and scheduling modules from magunistics. This modules 3 months late and were added on July 1999 and at that time Hershy was hard pressed and could not increase the implementation schedule.
Hershy encountered hard times after the implementation of the ERP since it overlapped at the time the company was burdened with high demands. Pressure of peak season during Halloween and Christmas seasons during bulk orders, Hershy opted for the big bang ERP implementation. Software in this approach was to be implemented at a go instead of a phased approach that involved implementation of one module, testing and the proceeding to the next module. The new ERP was to be implemented within 48 months however, Hershy demanded it to be done within 30 months so that it could roll out the structure Y2K. Hershy implementation team skipped the critical phase of ERP testing due to the aggressive demand at the high season and limited time to test the system for faults and to fix the problems (Perepu and Indu 15).
According to Gross and Jonathan, testing the system is a crucial phase in the ERP implementation. Therefore, skipping of the testing phase by Hershy and team during the implementation of ERP resulted in late detection of critical data, processes and system integration issues that ultimately lead to losses in revenue. Moreover, there were Problems pertaining management and fulfilling of retailers orders, shipping and processing. Most of the deliveries were incomplete and products ordered by retailers could not be fulfilled on time even though the company had enough finished products in stock. Suppliers lost their trustworthiness amongst the dealers which lead to bad reputation for Hershy which eventually resulted in the drop of revenue and profits by 12% in 1999 during the 3rd quarter as compared to the 3rd quarter in 1998 (Gross and Jonathan 2).
Data about the products was inaccessible because the old system was pulled down and replaced by the new system which did not perform as required. Hershy was then required to inquire from the clients about specifics of the products ordered, quantity delivered and the time of shipping. Loss of market credibility as Hershys suppliers could not fulfill their orders to the retailers on time. Hershy could not meet the expected delivery date of products due to delayed shipment, usually delivery of a product would take five days but he now asked his suppliers for at least twelve days to complete an order. On Aug 1999 Hershy was fifteen days behind schedule in achieving orders of products.
Due to the complex nature of the ERP most employees did not know how the system and the different units worked.
REFERENCES
Perepu, Indu, and Viviek Gupta. “ERP implementation failure at Hershey Foods Corporation.” Management (2008).
Gross, Jonathan. “A case study on Hershey’s ERP implementation failure: The importance of testing and scheduling.” Pemeco Consulting (2011).
Chofreh, Abdoulmohammad Gholamzadeh, Feybi Ariani Goni, and Mahdieh Gholamzadeh Jofreh. “Enterprise resource planning (ERP) implementation process: project management perspective.” Advanced Materials Research. Vol. 338. Trans Tech Publications Ltd, 2011.
Soja, Piotr. “Success factors in ERP systems implementations.” Journal of enterprise information management (2006).