Hershey's- ERP Failure

Transcript

1. Burcu Durmuşoğlu
2. Company Background  Chocolate Business was started by Mr. Milton S. Hershey in 1876.  The Hershey Company was established in 1894.  Its headquarters are in Hershey, Pennsylvania, which is also home to Hershey's Chocolate World.  Hershey's products are sold in about sixty countries worldwide.  Hershey's is the largest chocolate manufacturer in North America.
3.  Hershey's sales are roughly 80% chocolate and 20% non-chocolate.
4. Existing System  The company was running on legacy systems, and with the impending Y2K problems, it chose to replace those systems and shift to client/server environment.  To tackle Y2K problem Hershey decided to replace existing legacy systems.
5. Enterprise 21 Project  During late1996, the management of Hershey gave its approval to a project named Enterprise21.  Hershey decided to go with Big Bang Approach instead of phased approach.  The recommended implementation time for the project was 4 yrs. and Hershey demanded for 2.5 yrs.
6. IT Partners  A $112 million worth of combination of software for CRM, ERP and forecasting.  Replace existing mainframe based legacy systems by SAP R3 – Accenture.  Production forecasting, scheduling and transportation management – Manugistics Group Inc.  Managing customer relations and tracking effectiveness of marketing activities– Siebel CRM.
7. Expected Benefits  Efficient customer driven processes capable of managing changing customer needs.  Reduce order cycle times and boost inventory accuracy.  Reduce inventory costs.  Better execution of business strategy of emphasizing core mass market candy business.  Upgrade and standardize companies business processes.
8. Impact Of ERP Failure  Problems pertaining to order fulfillment, processing and shipping started to arise; Hershey would not be able to meet its committed date of delivery.  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.  Product inventory started to pile up and by the end of September 2000; the inventories were 25% more than the inventories during the previous year.
9. Impact Of ERP Failure  After Hershey’s announcement in the market about problems due to malfunctioning of the newly installed computer systems, Hershey's stock price plunged by 8% on a single day.  Hershey's failure to implement the ERP software on time cost the company US $150 million in sales. Profits for the third quarter 1999 dropped by19% and sales declined by l2%, in its 1999 annual report.
10. Reasons Of Failure
11.  Squeezed deadlines: -Project originally scheduled for 4 years -Company forced the implementation to 30 months  Wrong timing: -The company went live at their busiest time -Released the solution just before the Halloween  Big-Bang Approach: -To quicken the implementation process, Hershey opted for Big Bang implementation. -Simultaneously implemented a customer-relations package and a logistics package even without testing some of the modules -Increased the overall complexity and employee learning curve  Un-entered data: -“Surge Storage” capacity not recorded as storage points in the ERP -Orders from many retailers and distributors could not be fulfilled, even though Hershey had the finished product stocked in its warehouses.
12. Questions  What were the goals and details of the Enterprise project?  What were some of the key problems that Hershey encountered when choosing, integrating and implementing their new ERP system?  What difficult lessons did Hershey learn from this entire process? Did Hershey ultimately achieve its original goals by implementing this new ERP system?