BMGT476 Hershey Case.docx

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ERP Implementation Failure at Hershey Foods Corporation
Case #2
BMGT476 – Section 0201 September 19, 2013

Jane Lee Abi Shitta-Bey Scott Kincaid

Introduction While there are several benefits to ERP, companies must be cautious in taking the right measures to implement and integrate the system to support their functions. In the case, “ERP Implementation Failure at Hershey Foods Corporation”, the ERP debacle led to a 12% decrease for Hershey in annual revenues from 1998 to 1999. The case demonstrates that a company must consider several factors before implementing ERP and reaping its benefits.

ERP Implementation and Expected Benefits Through acquisitions and diversification, Hershey continued to grow since its establishment as Hershey Chocolate Corporation in 1927. Since their candy products were sold at low prices, they needed to sell large quantities to be profitable. From 1969 to 2006, sales of $334 million grew to almost $5 billion, and Hershey needed an efficient system to support their sales. Rather than squandering millions to update and solve problems with their legacy system, Hershey opted to replace it altogether. Issues such as the Y2K and the growing demand from retailers to share product delivery data pointed Hershey to upgrade their system to ERP. The system was desirable because it would allow them to reach their goals of increased competitiveness and improved customer service. Hershey expected that the new ERP software would reorganize its business processes and help them achieve their goals. Hershey selected SAP Ag’s R/3 Enterprise Resource Planning suite and two vendors, Manugistics and Siebel, in order to combine the best qualities of each into one integrated platform. They would install a bar coding system that would track the inflow and outflow of materials, reduce costs of productions, and improve logistics. ERP would give Hershey a competitive advantage because most industry firms did not spend much on IT at the

time, and they depended on legacy systems. It would also enable them to provide better customer service by letting retailers know when products could be delivered.

Problems and Causes Hershey encountered several problems after implementing ERP. Hershey expected the new ERP to be implemented in April 1999 after they began working on the project, “Enterprise 21”, in late 1996. However, some modules were implemented according to schedule, while some were delayed. With the pressure of the peak season drawing near, Hershey put a “big bang” implementation into effect. This was unsuccessful because there was no time to test the system for bugs and fix glitches in the system. Hershey found problems with processing, delays in shipping, and order fulfillment even though they had the product in stock. Distributors lost their credibility amongst their retailers, and Hershey’s reputation was at stake. There were several causes to these problems. First, there was no data about the products because the old system was replaced, and there was no way to access it. The only way to track their products was to ask their customers about its shipment time and quantities delivered. Also, there was no way to locate inventory in the informal places that Hershey stored some of their products, other than the distribution center or warehouse. This excess inventory was sitting in temporary storage spaces that the SAP R/3 ERP software could not identify, and this lead to inventory inaccuracy. At a higher level, management did not understand the scope of the project. Hershey did not have any experience in implementing such a huge software solution, so they had no groundwork or infrastructure to build upon. They set deadlines that were unrealistic and left no buffer for the systems to be tested, and they implemented ERP at the worst time during

Halloween and Christmas season. Because there were problems with management, there was also a lack of coordination in the lower level. Employees did not understand how the system functioned or how the different modules worked with one another, especially because the ERP system was complex on its own. With two other applications, employees had to learn more in a small time period, and vendors blamed each other for implementation related problems.

Lessons Learned, Values, and Obstacles After reading the Hershey case, there are several lessons to learn from their failures. One lesson is that it is important for management to do their research and get a full understanding of the technology before implementing it. Senior management could be more involved in the implementation process to ensure that the infrastructure and network is compatible with ERP beforehand. They need to set realistic deadlines to test for any bugs in the system and ensure that employees receive thorough training. During the process, they should confirm that ERP is able to function with all their distribution facilities. The case stated that Hershey created a new distribution center that was not operated by a third party and aligned with the new system. It is important to receive feedback from employees and distributors after each testing phase. There are several key values of ERP. If implemented correctly, ERP can reduce order cycles and lower operating costs by improving supply chain and logistic efficiencies. It also improves coordination of product deliveries by informing the firm and its distributors of product whereabouts. However, firms must realize that switching over to ERP takes a long time, and that implementing it could be done in phases. There is a learning curve for staff, and they must understand the fundamentals of ERP and why the company is using the system. Lastly, some

business practices may not align with ERP requirements. In this case, using alternate software may be the optimal solution. Conclusion After the ERP failure in 1999, Hershey built a new distribution center, employees grew comfortable to the system, and the company began performing at a higher level. Annual revenues increased by 12% in 2000, and Hershey realized the true potential of ERP. In order to avoid similar problems, companies must learn that implementing ERP is only effective when plans to overcome the obstacles are made in advance.

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