Enterprise resource planning (ERP) encompasses virtually every facet of information technology (IT); therefore, its implementation is vital to the overall effectiveness of an organization’s IT processes. In 2008, the Hershey Foods Corporation was the focus of a study conducted from 1997-2002 during which time Hershey’s attempt to implement ERP was a failure. In 1996, Hershey’s moved to modernize its hardware and software from legacy systems to a client/server environment by April 1999. The software module implementation was to be outsourced to three software vendors (SAP, Manugistics, and Siebel); however complications delayed the projected switch to July 1999. To bypass the complications, Hershey chose Big Bang ERP implementation but that choice proved fruitless as retailers experienced problems with order fulfillment, processing and shipping. Hershey’s warehouse contained sufficient inventory but retailers still received shipments late. During the third quarter of 1999, Hershey’s revenues dropped by 12%. The purpose of this study is to examine the past failure of Hershey’s ERP implementation, while reviewing current information and data to determine the effectiveness of Hershey’s efforts since 2002. Studying the circumstances that led to Hershey’s ERP implementation failure will aid in illustrating the process of ERP implementation in large organizations with focus on the role management plays in ERP success or failure and how these factors can be avoided in the future.
Contents
Executive Summary 2
Contents 3
Terms of Reference 4
Literature Review 6
Evaluation of Alternatives 10
Recommendations 13
References 15
Terms of Reference
Background
In 1894, the Hershey Foods Corporation (Hershey) was founded by Milton Hershey as the Hershey Chocolate Company. Hershey’s corporate headquarters is located in Hershey, Pennsylvania. Since its founding, Hershey has grown from a one-product company to a multi-billion dollar corporation with sales exceeding $1.41 billion during the first quarter of 2010 (Wahba 2010). After a tumultuous entry into the twenty-first century, Hershey is finally overcoming some of the obstacles that led to a significant decline in sales. Advertising spending was raised significantly during the first quarter of 2010 with plans to increase advertising spending up to 40% throughout the year. The company was one of many that experienced a decline during the global economic crisis but Hershey’s strong leadership and conscious efforts to revamp its image has proven effective in boosting sales. Primary focus during 2010 has been on boosting sales for Hershey’s Kisses, Kit at, and Twizzlers brands. Increased advertising is predicted to put these products well above the “25-30% range previously forecast” (Wahba 2010). Currently, about 85% of Hershey’s sales are generated in the U.S., but it has failed to meet the desired outcome in international markets, putting Hershey behind its major competitor, Nestle. When Nestle began sales in emerging markets its sales rose by more than 10% (Wahba 2010).
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Problem
Hershey has a long history of success and failure, mixed with both effective and poor leadership at the top management level. However, one of the company’s most memorable failures is its initial attempt to implement ERP. At present, sales are rising amid a rocky economy but Hershey is still rebounding from the stigma of the failed ERP implementation. Reported sales are lowest among its competitors, indicating Hershey’s need for improving its production strategies is of the utmost importance. Effective ERP implementation coupled with a strong top management team is one method of improving productivity and increasing sales -both domestic and abroad.
Scope of Study
By analyzing the past ERP implementation efforts, this study will illustrate how Hershey’s production will benefit from an effective ERP solution. Information reviewed during the course of this study includes, but is not limited to, academic journals, corporate reports, past case studies pertaining to the Hershey Corporation, government resources, and print and online library sources. The information obtained during the course of this study aid in fostering an understanding of the relationship between the information system and the external environment, strategy, business processes, structure and culture, and information technology infrastructure of an organization. The outcome of the references reviewed will provide sufficient data to conduct an evaluation of the potential impact implementing ERP has on Hershey. Following the submission of this report, the reader will understand the importance of implementing ERP as a vital component of an organization’s IT system, particularly for Hershey and its expanding needs amid the global marketplace.
Literature Review
When Hershey began planning to implement an enterprise resource planning (ERP) system, the company’s top management was unaware of the potential pitfalls it would encounter.
ERP systems are management information systems that incorporate and automate many of the practices linked to general operations and production of a company, including manufacturing, logistics, distribution, inventory, shipping, invoicing and accounting. An ERP system is integrated with a relational database system that, when implemented effectively, can improve the efficiency of the organization’s business processes. However, the process involves extensive employee training and retraining and the development of modified or new work procedures. Due to the cross-functional and extensive nature of the ERP system, all functional departments must be involved in operations and productions. The benefit of an ERP system for Hershey is the systems effectiveness in improving and automating much of the processes linked to the supply chain while improving timelines for shipments. Hershey opted to implement SAP because of its reputation as a leader among IT solutions in the early 1990s.
Hershey’s initial attempt to implement SAP spanned over three years and was conducted during the company’s peak periods. The implementation process was to be completed over a period of time to allow the company to continue production and sales; however, the complications that Hershey faced hindered its productivity and sales. The impact of such a drastic change during the peak sales period created a major setback resulting in a significant loss in profits and sales (“Analyzing” n.d.). The company maintained full compliance with the vendor during the implementation process. However, the problem stemmed from timing issues. Hershey’s choice to implement the change during its peak period provided detrimental to production and sales and put the overall organization at risk. In retrospect, the company’s primary errors were related to the timing of the planned implementation and the implications regarding workloads.
Based on the company’s sales history, Hershey’s top management should have been aware of the risks implementing a major solution would have on the organization’s processes. The impact was felt at all levels, particular during periods when confectionary products are in highest demand. The company’s order processing systems were impacted the most. Retailers complained that orders were not received, were delayed or that the wrong products were received (Stedman 1999). The relationship between Hershey and its customers were bruised and trust was dwindling. The fiasco opened the door for competitors to step in and take up the slack Hershey left in the marketplace. As a result, Hershey’s annual sales plummeted and the competitor’s annual sales soared.
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When implementing an ERP solution, the initial planning process is most important. Hershey’s top management was aware of peak sales periods; therefore, the authorization to proceed with a drastic organization-wide change was the first error. The initial proposal for implementation should have raised red flags among the company’s executives, but the plans moved forward and the result was devastating for the company, its customers and employees.
The use of IT should yield results opposite of what was achieved at Hershey’s. IT, particularly ERP systems, are designed to create barriers to competition, lower the costs of market entry, shorten timelines, speed cash flow, cut out intermediaries, build bridges, and keep the organization better informed than its competitors (Benson and Standing 2002). Technology, in the context of organizations similar to Hershey, can change production, business processes and organizations, including the potential to change and maximize the potential of social structures and interactions (Benson and Standing 2002).
When contemplating IT changes the organization’s management must pay close attention to the areas of the business that may be impacted by the change. Despite the belief that success in one area of business usually comes at the cost of another, this does not have to be true (Benson and Standing 2002). Understanding the organization’s strengths and weaknesses aids in the planning process. Management will then be able to plan for potential obstacles and implement an alternative before complications put the organization at risk. Under the same premise, Hershey’s decision to implement SAP was not the problem, poor management and ineffective planning was the company’s major problem. Hershey’s error was linked to ineffective restructuring of its business processes and the amendments needed to accommodate the company’s production during the ERP implementation period. Furthermore, the company pushed to implement a process in 30 months when the typical implementation process averages about four years. The rapid implementation attempt disrupted the company’s normal functioning and created mass confusion and conflict at both an internal and external level. “Since [Hershey’s] attention was wholly diverted to ERP, it was not possible to rectify the uncertainties that emerged in the business as a result of ERP” (“Analyzing” n.d.). The company’s efforts, although limited, were unbalanced. Hershey found it difficult to focus on both the regular processes of conducting business and the ERP implementation. The result was a reduction in sales, irate customers, conflict among employees, and a growing reputation as a vendor that could not be trusted. The situation was worsened at the end of the 30 month period when Hershey realized the implementation was not effective “because the ERP systems were not working in full capacity” due to “some final touches which were not done” (“Analyzing” n.d.).
The optimal solution for ERP implementation is to plan the process around an organization’s peak periods. If Hershey had begun the implementation process during slow periods, the outcome would have been different. However, the impact of missing “final touches” would still be an issue. Again, the fault falls to the company’s management team, who is ultimately responsible for ensuring that such major changes begin only when the company is least vulnerable. Implementing during slow market periods gives the company the time needed to make the change, to prepare its departments and respective employees for the change, and emerge stronger than before the change was made.
Evaluation of Alternatives
ERP is a complex process that requires stringent maneuvering and processing within the organization. Prior to beginning the ERP implementation, Hershey should have put more effort into ensuring the success of the process. Hershey should proceed with the process only after researching and planning to ensure that ample time and efforts needed to achieve successful change was possible. Instead, Hershey chose to proceed during a time when its sales were highest and risks were compounded. Most disturbing is that the company was no stranger to implementing IT processes. In the past, Hershey had implemented a CRM solution, so it should have been aware of the complications that can arise. The company simply chose the wrong time to implement the ERP solution, and timing is everything.
In the contemporary business world, particular amid a time of rapidly advancing technology, Hershey’s main focus should be on maintaining productivity. However, the use of ERP solutions is a must to meet the growing demands of the consumer. Customers want easy ordering options, fast order processing, and rapid order receipt. The ERP system is designed to improve these functions in businesses but for an effective implementation process that will yield the desired results, the company must carefully choose the time for the implementation process -even if that means dividing the process into stages. By segmenting the implementation process, Hershey would meet its objectives of a streamlined IT process while maintaining productive operations and retain satisfied customers.
An ERP system can help increase a businesses’ efficiency, which increases customer satisfaction. Instead of focusing on independent departments for processing and meeting objectives, the ERP system streamlines the process from production to shipping and beyond. Prior to beginning the ERP implementation Hershey should have met with department heads who, in turn, would explain the upcoming processes including how the implementation process would impact production within the company. From there the employees would be knowledgeable in how to handle issues that could arise (e.g. order fulfillment issues, shipping, et al). Overall, the bottom line is to plan accordingly so that the ERP implementation process can be effectively achieved while the organization’s regular processes are not negatively affected.
Inadequate training is a common factor in ERP implementation failure. Hershey failed to train its employees on how to handle potential changes that would occur during the implementation process, while also preparing for training for the new system. All the way around, management failed. While pre-implementation research and planning is one alternative to effective implementation, the company’s management team should have been more diligent in handling its responsibilities for the organization. Therefore, the company should have taken a closer look at its management team to determine where the error originated. The complications originated at the management level creating a domino effect where the company’s individual departments were impacted and the customer was left in the cold.
In a customer-driven market it is not the product or service that matters most; instead the greatest value rests in how the customer perceives their overall relationship with the company. It is the value factor. The management team should have been aware of the customer’s view; then it should have approached the implementation process accordingly to ensure the customer’s needs were not ignored. In retrospective, Hershey’s management team should have known, prior to the ERP implementation, how the company would maintain customer satisfaction during the process. Both internal and external factors should have been better analyzed. Hershey failed to analyze the very components that achieve customer satisfaction. Management should have focused its change in a way that would not jeopardize its relationship with current customers, their use of the company’s products, and their impression of Hershey’s service. The information obtained during the pre-planning phase is more important than the overall projected change since this information is a guiding point for successful ERP implementation.
Recommendations
When Hershey decided to implement an ERP system, it failed to analyze the company’s history of peak sales periods and plan the implementation process around the most productive periods. Instead, the company began implementation during its peak period which resulted in overload among its workforce nd complications within production and shipping that led to a significant loss of sales, a tarnished reputation, and a loss of trust among its customers. The decision to implement an ERP system was a good idea but the timing was wrong. Timing is everything, especially when the risks involve not only the organization and its employees but retaining customers. Furthermore, Hershey’s management team failed to consider its supply chain management functions and the outcome was chaos within the internal and external processes associated with production, order fulfillment, and shipping. The onset of pre-planning begins with reviewing the company’s current balance (Caruso 2007). When management has a view of what it takes to keep the organization productive, then the planning phase can begin.
When accurate planning is achieved the risks to the organization are minimized. Studies reveal that one of the most common reasons the implementation of change results in failure is linked to unplanned or under planned phases of implementation. Planning is crucial for effective implementation of an ERP system. However, there is no universal single point of failure linked to unsuccessful ERP implementations. In the case of Hershey, however, the causes are directly linked to efforts that are easily remedied: inadequate training, corporate culture, timeline flexibility, and unrealistic expectations.
Hershey has since worked hard to ensure the same mistakes are not repeated. Its current management team is more in tune to the needs of all the organization’s stakeholders. Adequate training within Hershey has become paramount to all other functions. The company’s management team realizes that inadequate training, particularly at the management level, is a leading cause of organizational failure. Now, the company focuses on how to do business differently, rather than training on new computer software. While training for the ERP system was a focus, it was not the predominant focus. Hershey learned the hard way that change had to be made internally before an ERP solution could be effective in streamlining its internal and external processes. Many ERP projects are bound to fail because employees are not trained to handle the factors that come with change. Timeline flexibility is imperative to success, as well. In its subsequent attempts to streamline operations, Hershey worked to ensure that the system was fully tested and ready for implementation to avoid negative consequences similar to those the company experienced in 2002.
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