HERSHEY’S ERP IMPLEMENTATION

 SAP R/3 ERP software

 Supply chain management (SCM) software 
 Customer relationship management (CRM) software

By 1999, Hershey’s Food had a market capitalization of $5billion. As a leading

confectionary company, Hershey’s receives many orders every year. Despite this, Hershey’s
hadn’t invested or innovated in its IT systems. It didn’t take long for Hershey’s to be
pressured by the retailers to create better scheduling delivery systems. To avoid this
pressure, Hershey’s rolled out an ERP system that should have taken 4 years instead of 30
months. Hershey’s ended up being behind schedule during the Halloween season and lost
on sales to Mars and Nestle. Despite Hershey’s having both the on-hand supply and strong
demand, a lack of implementation caused this disaster. Most of the analysis behind the case
stresses the fact that Hershey’s tried implementing too many changes without a well-
planned change management program. An interesting observation in this case has the
importance of IT in the supply chain industry. IT now plays a very significant role in the
successful implementation of a business strategy.
THE KEY FACTS OF THE ERP FAILURE
The Hershey Company began upgrading its patchwork of legacy IT systems into an
integrated ERP system in 1996. Despite a recommended implementation time of 48
months, Hershey’s demanded a 30-month turnaround so that it could roll out the systems
before Y2K. Based on these scheduling demand, the cutover was planned for July of 1999.
In this instance, Hershey’s go-live coincide with the company’s busiest periods – Halloween
and Christmas, when the company received the majority of its orders. In order to meet
Hershey’s aggressive schedule, the implementation team has to compromise on critical
testing of systems phases. During the systems launch in July, 1999, orders failed to flow due
to unforeseen issues. Due to this, Hershey’s could not fulfill orders worth $100 million for
Kisses and Jolly Ranchers, even though it had the majority of the inventory.
THE PROBLEMS
Initially, the rollout appeared to be smooth. But slowly, problems pertaining to order
fulfillment, processing, and shipping started to rise. Several consignments were shipped
behind schedules, and even among those, several deliveries were incomplete. However, it
was too late for Hershey’s to respond to this problem. An old logistics system was removed,
making way for new one that could not function as required. Without any data about the
products in its hands, Hershey was often forced to call customers and inquire about the
details of the quantity they received and ordered.
BIG BANG APPROACH
When Hershey opted for the Big Bang approach to ERP implementation, it had supplies for
around eight days - this was higher than usual. Hershey maintained more supplies in order
to address any minor problems that might occur during the implementation. But three
weeks after the implementation of the new systems, it was evident that Hershey would not
be able to meet its deadlines as the shipments were delayed. As opposed to the usual five
day that it takes to deliver the products, Hershey asked distributors for around 12 days to
deliver their orders. However, Hershey missed that deadline too. By August 1999, the
company was 15 days behind schedule in fulfilling orders.
IMPLICATIONS
Several of Hershey’s distributors who had ordered the products could not supply them to
the retailers in time and hence lost their credibility in the market. Hershey also lost
precious shelf space, for which there was high competition in the market. Customers began
switching to products of competitors like Nestle and Mars. Retailers opine that not only
short-term sales but long-term sales of Hershey’s too would be affected. On the one hand,
Hershey was unable to send the consignments on time due to problems in order entry,
processing, and fulfillment, on the other hand, the warehouses were piled up with products
ready for shipment, as the manufacturing process was running smoothly. Product
inventory started to pile up and by the end of September 200, the inventories were 25
times more than the inventories during the previous year. Hershey missed out on the
deliveries, in spite of having enough products at its warehouse. With several orders remain
unfulfilled, Hershey’s failure to implement the ERP software on time cost the company
$150 million in sales. Profits for the third quarter of 1999 dropped by 19% and sales
declined by 12%.
REASON FOR PROBLEM
The implementation team at Hershey made a fata mistakes by sacrificing system testing for
expediency. Due to this, critical data, process, and systems integration issues could have
gone undetected for a long time. Testing phases are safety nets that should never be
compromised. Testing with more realistic scenarios is more likely to uncover critical issues
before cutover. Many authors have criticized Hershey’s for deploying all these three
systems simultaneously in a “big bang implementation effort, but Hershey’s’
implementation would have failed regardless of the approach. It was shortcuts related to
systems testing, data migration, and training that led to failure rather than implementation
method. Had Hershey’s put the system through appropriate testing, it could have mitigated
significant failure risks.
ERP IMPLEMENTING SCHEDULING
Another reason for the failure was that Hershey implemented ERP during the peak season,
and did not have time to rectify the mistake arising out of problems pertaining to the
implementation. Moreover, the Hershey Company made another textbook implementation
mistake – this time with respect t project timing. Initially, it tried to squeeze a complex
implementation project into an unreasonably short time frame. Further, it was
unreasonable for Hershey’s to expect that it could meet peak demand when its employees
were not fully trained on the updated systems. The employees at Hershey were required to
follow and understand how different businesses’ operating process were built in ERP. Even
in the best-case implementation scenario, companies should still anticipate performance
decline due steep learning curves.
SOFTWARE EXPERIENCE
Hershey’s lack of experience implementing software solutions of this magnitude was also
cited contributing to the debacle. There had been few customized systems implemented by
Hershey in the past, but they were much smaller in scale. The top management did not
conduct enough groundwork before going ahead with the implementation of this company-
wide ERP solution. Since the groundwork was inadequate, the top management also fell
short in guiding the company’s technical and business managers. During the ERP
implementation Hershey did not have the right processes in place to keep its senior
management was regularly informed about how the implementation was proceeding. The
consultants who were brought in later said the management had a lack of understanding of
the project’s scope.
BOUNCING BACK
After the debacle, Hershey made efforts to stabilize SAP and other systems. The company
appointed a new CIO, George Davis, from the Computer Sciences Corporation. A rigorous
testing program was implemented under his leadership. By September – October, Hershey
announced that most of the initial problems with the ERP systems were fixed. In 2000,
Hershey was in apposition to fulfill orders for Easter. The next peak season, Halloween-
Christmas, also passed smoothly. By the year 2000, Hershey was back on track with sales
reaching US$4.2 billion.
CONCLUSION
In conclusion, Hershey’s case provides valuable lessons for companies implementing or
planning to implement ERP. There are two key lesson to learn, 1, test the business
processes and systems using a methodology designed to simulate realistic operating
scenarios; 2, pay attention to the ERP schedule. These tips can help a company mitigate
failure risks and succeed with ERP.