ERP Implementation Failure at

Hershey Foods Corporation

Group 3
•DM23222 Harsha Shashikumar Malbari
•DM23244 Sudhansu Panigrahi
•DM23253 Siddharth Jyoti
•DM23262 Pavithra Bommu
•DM23303 Abhishek Chaudhary
Introduction

● Founded in 1876 by Milton Hershey. Headquartered in Pennsylvania.

● One of the leading chocolate manufacturers across the world - Its products
are sold in about 60 countries worldwide
● Large chunk of sales from Valentine’s Day, Easter, “back to school”,
Halloween and Christmas.
● Revenue of nearly $5 billion and almost 13,000 employees worldwide.
● Hershey’s sales are roughly 80% chocolate and 20% non-chocolate
● Need of an efficient and reliable logistics system to cater to these large no of
seasonal requirements.
● Competitors - Mars, Nestle, Russell Stover, Palmer and Nabisco.
How the transaction to ERP
began
The company was running on “legacy systems”, needed modernisation of IT
system to:
1. Solve Y2K Problem
2. Have better coordinated deliveries to retailers.
To tackle the issues, Hershey’s management decided to REPLACE EXISTING
SYSTEMS WITH MODULES FROM THREE IT Partners-
i.) SAP’s R/3 ERP software
ii.) Manugistics SCM software iii.) Seibel’s CRM software
During late 1996, the management of Hershey gave its approval to a project
named “Enterprise 21” to help business processes
Enterprise 21 Project - Overview

Overall Project Cost:

● $112 million worth of combination of software for CRM,
ERP and forecasting.
Implementation Time:
● Shift to the new system by the end of year 1999.
● The recommended implementation time for the project
was 4yrs and Hershey demanded for 2.5yrs.
● Management decided to go with “Big Bang” approach
instead of “phased approach.
Implementation Timelines - “Enterprise 21”
Expected Benefits

● Standardised Business Processes

● Fine-tune deliveries to suppliers
● Reduce order cycle times and boost inventory accuracy
● Efficient customer driven processes capable of managing changing
customers needs
● Reduce inventory costs
Actual Scenario (Post Enterprise 21
Implementation)
● Order fulfillment time doubled to 12 days
● Several consignments were shipped behind schedule(15 days delay), and even among
those, several deliveries were incomplete. Unable to deliver $100 million worth of
Kisses and Jolly Ranchers for Halloween in 1999.
● Lost Credibility & Shelf space for season
● Accumulating inventories (+25%)
● Missing Inventories in the database.
Announcement of ERP failure -
● September - Stock price declined 8% in 1 day
● Quarter 3 - Stock price down 35%, Profit down by 18%, sales down by 12%
● Quarter 4 - Market share dropped by 0.5%
HERSHEY'S THIRD QUARTER FINANCIALS (1998-2000)
What went wrong? (Failure Factors)

• Squeezed Deadlines - 4 years of deadline got squeezed to 30 months

• Wrong Timing - Decide to go live at the peak season
• Big Bang Approach - Simultaneous implementation of modules.
• Unentered Data - Orders from retailers & distributors couldn’t be fulfilled
• Technical Competence - No CIO appointed
• Employee Training - Employees were overloaded with learning 3 new systems
during peak season
• ERP Suite Complexity - Integration problem due to three different vendors.
Bounce Back
● Hershey learned from mistakes and began work on the upgrade to mySAP in July 2001.
● Completed the upgrade to mySAP in 11 months, 20% under budget.
● Built a 1.2 million sq ft distribution center, to align its distribution function with the
new ERP system.
● Hershey now has an inventory location accuracy of 99.96% and can turn orders within
24 to 48 hrs of receiving an order.
Lessons Learned

GO SLOW DATA IS THE KING MANAGE CHANGE TRAINING TESTING UNREASONABLE

TIMELINES
Thank You