REAL CASE STUDY I
Hershey Foods Corporation: Failure and Success with Information Technology Point of View Managerial Point of View Objective To examine the reasons behind the SAP AG’S R/3 ERP implementation failure at Hershey’s Food Corporation Problem What could have done otherwise to avoid the SAP AG’S R/3 ERP implementation failure at Hershey’s Food Corporation? Areas of Consideration In late 1996, Hershey Foods Corporation the leading manufacturer of chocolates, confectionaries and beverages in United States of America began modernizing hardware and software systems in the company.
In an attempt to manage Y2K issues, it chose to replace those systems and shift to client/server environment, which suggest that the company had pressing needs which forced the implementation. It was to switch over to the new ERP system by April 1999 as per original plan. It chose three software vendors – SAP, Manugistics, and Siebel for implementing different software modules. The company spent $112 million and 30 months on their ERP project. The project was running as per schedule till January 1999, and when it came to the final phase of the implementation, the company faltered.
Time pressed, they went live in July 1999 which led the company experienced several problems pushing orders through the system, resulting in shipping delays and deliveries of incomplete orders. The retailers who ordered for Hershey’s products could not get them on time, even though the company had ample supplies stocked at its warehouses. However, it was too late for Hershey to respond to this problem. As a result, Hershey’s revenues dropped. Many reasons have been cited for the Hershey ERP failure. One, the project was originally scheduled to take four years, but the company forced the implementation to go live in just 30 months.
Two, the company simultaneously implemented a customer-relations package and a logistics package, largely increasing the overall complexity and employee learning curve. Three, the company went live at their busiest time of the year, just before Halloween, and the resulting delays caused profits to fall. Though SAP was blamed for Hershey’s disaster, the company’s management viewed it differently. Hence, the top management of the company as well as industry analysts began looking at other reasons for the problems at Hershey.
Alternative Courses of Action 1. Before opting to deploy a new ERP system, try to consider upgrading your old version of system rather than instantly launching for a new one. Before trying to replace those systems and shifting to new ones, try to know the factors affecting or contributing to success and failures that you might encounter along the implementation. Evaluate the needs first before making a decision. Also before opting to deploy a new system, try to stabilize first the phases of its implementation before going on live.
Make sure that the old version of system is running standstill during the first phase of implementation of the new system. Lest the new system suddenly fall short, you still have the old version of system to back you up during mid-operations. 2. Never have multiple vendors within one project. ERP systems must be installed in a more staged manner, especially when applications from multiple vendors are involved. Roll out the modules in stages and don’t attempt to implement other applications simultaneously. 3. Choose the right time for implementation.
Implementing it in a wrong time is a messed up. The company would have very well avoided this trouble if only they thought of going ahead with ERP during those occasions when the business process in the whole market experiences a slow movement. And never went to the extent of spending the whole time and efforts on implementing ERP. This will disrupt the normal functioning of the business and creates confusion in the company. Since attention was wholly diverted to ERP it was not possible to rectify the uncertainties that emerged in the business as a result of ERP. . Effective testing and scheduling. Effective testing in an ERP implementation can lessen exposure to failure risks and damages. Never opt to quicken the implementation process, where several modules are implemented simultaneously. The company must ensure that the system is fully tested and ready for implementation. If possible, plan the ERP project to go-live date during the company’s slow periods. Effective scheduling is important in ERP implementations because the process is lengthy, complicated and delays can increase large costs.
However, management must review closely the need for extending the timeline to ensure success of the project. TOWS Threats ERP Implementation in Hershey Foods Corporation can be a difficult, time-consuming, and expensive project for the company. The technology is tightly integrated and requires a commitment from all division. It can take years to complete and cost risks. Moreover, there is no guarantee of the outcome. If not properly planned for, the investment may drive Hershey out of business. Opportunities Hershey made efforts to stabilize SAP and other systems. Hershey’s recent upgrade of its ERP system to R/3 version 4. was completed 20 percent under budget and without any of the order processing and product-shipment disruptions that marred the initial $112 million rollout in 1999. It was able to make more than 30 improvements to its core business processes within 60 days of going live.
The company cited enhancements such as the automation of pick-list processing and materials management invoice verification, plus credit processing for distributors to military customers. These improvements have helped reduce costs and speed up processing times. It has also “achieved a near-zero-defect production environment” with R/3 4. and is using SAP’S business analysis tools to measure the impact of sales and marketing programs as they happen. Weakness Hershey wouldn’t specify whether the problems stemmed from its configuration of the system or the software itself. The top management of the company as well as industry analysts began looking at the reasons for the problems at Hershey. Though SAP was blamed for Hershey’s disaster, the company’s management viewed it differently: Hershey decided to take shortcuts since the project was originally scheduled to take four years, but the company forced the implementation to go live in just 30 months.
Thus, Hershey’s experiences illustrate the fact that most troubled ERP rollouts are caused by project management issues, not faulty software. Strengths By experiencing this kind of failures Hershey Foods Corporation’s IT Staff was able to exceed its delivery commitments for the project because of strong program management and executive leadership, diligent planning and an extensive testing and training plan. This time the implementation underwent extensive testing. Hershey made sure to take the time and resources to thoroughly test the computer systems.
Conclusion Consider alternative course of action no. 1 Failures in major business/IT projects continue to occur to large companies like Hershey Foods Corporation with so much IT expertise and financial resources. These mistakes cost the price in the long run. Hershey has learned valuable lessons from their SAP implementation and these lessons are to move slower and be more methodical. The lessons learnt can as well serve as indication for failure or bankruptcy by driving you out of the business path.
Hershey’s failure should caution any company that chooses to implement such broad application and make sure that system will function smoothly before entering peak sales period. There is one final aspect to be considered in any degree of project failure. All success is rooted in either luck or failure. If you begin with luck, you learn nothing but arrogance. However, if you begin with failure and learn to evaluate it, you also learn to succeed. Failure begets knowledge. Out of knowledge you gain wisdom, and it is with wisdom that you can become truly successful.
Recommendation Before committing to a specific ERP software package, companies like Hershey Foods Corporation need to take the time to evaluate their ERP needs. They need to define in advance: 1. How they want to run their business? 2. What problems need to be resolved? 3. What are their priorities? 4. What are the current processes – what works and what doesn’t in the implementation plan? 5. What software will best resolve their problems, meet their goals and priorities?
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