Hershey Foods Corporation - Case Study Example

Executive Summary In order to match up with the competition in the food market, Hershey Food Corporation started revamping its hardware and software systems in the late 1996. Modernization of the hardware and software systems was a necessity for the company. The company was using legacy systems and with time it was forced to adopt the new client/server systems. The shift is attributed to Y2K (Year 2000 Problem) problems. The original plan of the implementation of new ERP system was to be complete by April 1999. However, the implementation project was not completed on time as originally planned. The company was unable to complete the last leg of implementation and thus switching over to the new system was done in July 1999. Halloween and Christmas seasons had put pressure to the company and thus forced to implement the remaining parts of the project simultaneously. The simultaneous implementation of the project led to a number of problems pertaining to the fulfillment of orders, processing and shipping of the finished products. The supply at the company’s warehouses was sufficient but it could deliver the supplies on time to the retailers. The report will give thorough information about the company’s failure in the implementation of the ERP systems. An account of the reasons for failure will also be given in detail. Corporation and time are necessary when a company transits from one regime to another. Therefore, all the matters pertaining to the management and implementation of new ideas must be taken with care and all the seriousness it deserves. Intensive research should be carried out before implementation of a system and enough resources should be availed for implementation of the system. Introduction While a major business management decision failure might be draw critics to swift judgments, intricate issues surrounding delicate management require caution from everyone. Whether the decision failure can been avoided or not should be anticipated since all systems tend towards entropy; this is the essence of management. Business in the modern age is increasingly facing new challenges and innovative solutions consequently formulated for the same. As the saying goes, necessity is the mother of invention. Such innovative solutions include the Enterprise Systems (ES) which consist of information technology applications integrating key operational systems for increased efficiency. Complex business enterprises have employed various packaged application enterprise software (PEAS) products that enable management issues to be resolved in good time and accurately. Top on the list of these applications is the Enterprise Resource Planning (ERP) software that systematically brings enterprise departments’ communication and coordination within dramatic control. At the managerial stage of which application to employ in the enterprise management, critical issues are involved touching on the feasibility concepts hooked on risks and benefits. Companies deciding on the employing the ERP for instance must carry out research to demonstrate the levels of effectiveness in implementation of the program (Kamath, Kumara and Prabhu 20). Taking a case study in the decision taken by Hershey Foods Corporation to implement ERP in 1999 which eventually failed will assist in highlighting the most important strategies to be considered. In this report, I present the Hershey Foods Corporation case pointing at the actual problems encountered by the candy giant in the implementation of its ES plan. To achieve this objective, I have also enumerated several options that the company should have considered with suitable examples of successful implementation plans being highlighted as well. In the end, based on the research findings of the ERP implementation program at Hershey Foods Corporation, I have formulated recommendations that support the conclusion contained in the tail end of the report. Discussion Background i) Hershey’s Company Profile Hershey Company, previously known by the name Hershey Foods Corporation until 2004, went into history books in the year 1999 as yet another company suffering huge dents based on ERP failure. The company was founded is eleven and a half decades old and has seen massive growth ever since it was incepted to cover the entire global market. Located in Hershey, Pennsylvania, is by far the largest candy and chocolate manufacturer in North America offering a classical example of a large organization in modern business. Management issues faced by the corporation, just as many organizations of its kind, entail keeping in touch with the information age solutions to modern challenges. The company statistics given by the 2008 Center for Management Research report in CMR (3) indicate that the company made net sales amounting to over one 1.217 billion US dollars in the third quarter of 1998 and a net profit of over 107 million US dollars. The corresponding revenue figures in the third quarter of 1999 were twelve percent lower, due to the ERP implementation failure discussed below. The revenue figures for the similar quarter of 2000 illustrates the company’s bounce back ability upon realization of is failures. Third Quarter financials (1998-2000) in thousand US $ Quarter ending Quarter ending Quarter ending Oct 01.2000 Oct 03, 1999 Oct 04. 1998 Net Sales 1,196,755 1,066,695 1,217,237 Cost & Expenses Cost of Sales 696,431 634,042 706,605 Selling, Marketing Administration costs 303,688 268,575 3l 1,658 Total Costs & Expenses 1,000,119 902,617 1,018,263 Income before interest & income taxes 196,636 164,078 198,974 Interest Expenses net 21,152 20,507 22,691 Income before income taxes 175,484 143,571 176,283 Provision for income taxes 68,079 55,993 68,750 Net Income 107,405 87,578 107,533 Source: CMR (3) ii) 1999 ERP Implementation In the modern industrial setting, large organizations are characterized by several departmental needs that require an integrated management platform which has been facilitated by computer applications. These large scale computer based systems are collectively referred to as Enterprise Systems (ES). Data is handled in an integrated manner to ensure that the entire organization is harmoniously run. Among the most commonly used systems include the Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) as well as Supply Chain Management (SCM). As their terms depict, the systems are generated to offer managerial coordination for various departments, where large organizations are involved. According to the report by CMR (2) the ERP system was approved for implementation at Hershey Foods Corporation in 1996 for a full implementation targeted at 1999. There were delays along the way and final implementation leg was severely compromised. The company had to integrated its customer order handling and processing management and a clogged system could not be detect in the peak seasons of 1999 Halloween and Christmas. The report indicates that the implementation problems arose from the rush to cover earlier delays in the final leg, which saw the adoption of the Big Bang implementation program. As the Big Bang implementation plan went underway, the several modules of ERP implemented concurrently caused a snarl up of orders which could not be handled by the system. Problems that Faced Implementation Failure Firstly, based on the company’s preparedness perspective with regard to the system implementation, we can point out some insufficiencies. The major problem that lies within failure of implementation of several ERP systems in organization is occasioned by the lack of understanding the compatibility intricacies that go with new systems. According to (Kamath, Kumara and Prabhu 3), even if complete failure might be evaded in the implementation process, extra costs as well as time overruns may be experienced due to lack of preparedness and misunderstanding of the process. The author states that initial Enterprise System modeling needs to be well understood by the company throughout the new ERP system implementation and integration. Similar sentiments are held by Davenport (125) to the effect that since an ERP system imposes its own directions and logic to the system, issues of conflicts are likely to arise at least in a few aspects. To illustrate the Hershey’s apparent lack of preparedness and possible lack of understanding of the compatibility issues involved is the last minute rush to ensure the final leg went through. Contrary to previous thoughts that the Big Bang implementation plan could work out, it never saw the light of the day. This misunderstanding caused the company to suffer the loss plunge it had due to inability of the system to handle orders. Secondly, an ill-timed and rigid “go-live” program could have affected the entire implementation schedule at Hershey, so much that any success gained went down the drain as lost effort. According to Koch, C. (1) the implementation failure at Hershey can be attributable to the corporation’s rush to make the system live, at a particularly sensitive period when the peak season was on. The misery of the company began when the uniformed decision to let the incomplete system go live at a sensitive trading season was accepted. Thirdly, the unrealistic time targets set for full ERP implementation program could have been the source of misgiving in the Hershey’s project. The period set from 1997 to 1999 for a complex system as ERP to be completely implemented proves to be inadequate. While short periods of implementation period set could be detrimental in the achievement of the desired final results, long periods of time target are also inappropriate due to budget overrun (Vaman 19). The author states that module designed ERP systems require customization that should take into account all the time requirements. At Hershey, there is a high probability that the customization process failed in discerning the timeframe needed for the full implementation. Alternatively, the timing of separate module implementation could have been done inaccurately. Unrealistic timing of the module-implementation at Hershey is illustrated by the adoption of a different approach in the final leg of implementation. Apparently, the Big Bang implementation plan was not in contention in the initial stages. Poor timing could have prompted the desperate change of plan to fit in the deadline. It could have been logical for the implementation plan being reviewed and necessary adjustments made in good time or time extensions being incorporated for a smooth and complete shift to be effective. It has since been established that the initial implementation program covered a period of four years but due to improper planning and insensitive demands, it was reduced to two and a half years (CMR, 2010). Due to the faulty order handling capacity that the company was reduced to, Hershey faced serious market challenges including the sending of consignments for orders placed pretty early but remained unattended to. Loss of credibility from the customers’ perspective saw the company lose ground to competitors who made their deliveries on time. The company had to recover later by gaining back their customer loyalty in 2000 (CMR 7). Fourthly, Hershey did a batch system applications launch at a go, causing divided attention and reduced accuracy. A total of three companies were contracted to offer ES solutions at the company, with several areas of enterprise management being targeted for improvements. Hershey’s applications that went live at a go included Siebel CRM and Manugistics increasing chances of undetected errors. Since enterprise management applications touch on delicate issues of production and profitability, it is very risky to handle several application modifications simultaneously (Wood 1). A sequential implementation program could have been suitable for the company, especially at a time when the peak season was on. After testing the stability of the application upon the distinct launches, it could have been the right time for the huge organization to embark on the next system implementation and launch. Alternatively, successful implementation could be achieved by allocating extra resources to the program monitors at the early implementation stages, to ensure that the necessary attention is given to the implementation plan. Enough time for testing each module and ensuring that stable levels of response are achieved should be availed. None of these happened at Hershey or inadequate resources were allocated for the same. Fifthly, the cooperation offered by the staff during the implementation could have been a possible cause of failure. In a huge organization as Hershey, it is obviously difficult to coordinate the compliance needed down to the lowest level that could reasonably be achieved. Apparently, training is needed to the staff and officials handling the implemented application. Hershey training or awareness program offered in preparation for the new system was found to be inadequate or completely absent in many instances. User training programs are usually advised for higher compliance levels by all sections of the company during the implementation. Sixthly, the coinciding of the Y2K problem variously known as the millennium bug could have added more trouble to the fate of Hershey ERP implementation program. Since several programs performing calculations based on dates were susceptible to flaws on the turn of the millennium due to the two last zero digits, it was speculated that serious problems could arise. However, the turn of the millennium was beyond the control of the company in as far as the system results were concerned. The anticipation that the company had on possible calculation errors was within reasonable thoughts since the costs likely to be incurred could have been worse that the system implementation failure costs expected (CMR 5). The seventh cause of the problem is attributable to the company’s inability to handle complex software applications of the magnitude that ERP systems brought. Previous solutions that the company implemented were of a lower magnitude and complexity. This apparent lack of experience in handling software solutions was occasioned by the management’s lack of interest in performing ground research ahead of the venture. The management was on the other hand not kept aware of the proceedings of the procedure, which is understandable from their lack of experience. Understanding the scope of the project was a vital asset that the company lacked form the beginning. Finally, the capacity to facilitate the entire project was not within the reach of the company during the implementation procedure. To support all the necessary system requirements on its network, the system modeling that Hershey had at the time proved to be inadequate. If prior assessments were done within reasonable time, the implementation program could have been facilitated effectively. The impact of the systems launched at concurrently overwhelmed the capacity of the company’s network. According to Wailgum (1) several other companies that reported similar fate under the ERP implementation programs can assist in understanding the implementation intricacies involved in large organizations. Besides Hershey Food Company, similar stories were reported by Nike, HP, Freshman Hazing, Waste Management, Oracle, TomorrowNow and Select Comfort. Options in the Implementation of ERP (Enterprise Resource Planning) If the right steps are not taken in the implementation of ERP systems, then the implementation is bound to fail. An ERP system is regarded as one of the elements for the survival and prosperity of an organization in the present business environment (Gallagher 1). Hershey Food Corporation is not the only company that was faced with problems in the implementation of ERP systems. Other companies such as Allied Waste Industries, Whirlpool and W.L. Gore & Associates were faced with similar problems. Experts argue that the implementation of ERP systems can be successful if the right steps are followed, the schedule kept on time, the availability of knowledge transfer and the management of board’s expectations (Recktenwald 1). When the implementation of the ERP systems fails, many companies blame the customer for the failure. Most of the companies do not understand the intensity of the implementation of these systems. Things such as the scale of the project, sufficient time and sufficient money are to be put into consideration when the company shifts from the outdated system to a new system. The management of these companies also believes that they are just investing in a new technological infrastructure. Lip service is common among the company executives. More often than not, they follow what they have said (Recktenwald 1). There are a number of options that the Hershey Food Corporation could have used to avoid the problems in the implementation of ERP systems. Some of these options were available but the company may have overlooked them. The Hershey Food Corporation had an option of not using ERP systems that used SAP R/3 software. The software leads to potential problems during the implementation of the ERP systems. Most of the ERP systems run on 2-tier or 3-tier client/server using operating systems such as UNIX, NT and AS/400. The software did not work well when implementing ERP systems in some organizations such as Volkswagen AG. Delivery of spare parts to the car dealers by the Volkswagen Company was delayed due to the ERP systems problem (Recktenwald 1). The same problem was replicated in the Hershey Food Corporation when it was unable to deliver and process orders on time to the retailers though it had enough supply in its warehouses. The company could have offered sufficient training and user preparation before the initial implementation of the ERP systems (Wood 1). The training and user preparation could have prepared them to manage the day to day operations of the company. The company had not adequately prepared and trained its users. Thus they were unable to manage the day to day operations of the company, clean up and correct data in the new system. The original timeline for the full implementation of the project was supposed to be four years but it was cut down to two and a half years. Having failed due to reduced timeline, the company had an option of correcting the problems that arose due to reduced timeline and setting realistic implementation timeline (Wood 1). The company had the option of rescheduling the go-live. The go-live was done at peak sales season and this did not give the company enough time to process issues and analyze its data. The company was aware of the risks involved in going live during the implementation of the project at peak sales season (Wood 1). Although the company was eager to satisfy its customer needs during the Halloween and Christmas season, it could not have implemented other large enterprise applications the same time with the ERP system. It is advisable to implement large enterprise applications one at a time. Implementing all of them at the same time can bring problems. The company had an option of implementing Siebel CRM and Manugistics at a different time because it had enough implementation timeline. This could have given them enough time to monitor and stabilize these large enterprise applications before implementing others. To coincide with the busy season, the company could have stabilized some of the issues before going live. Steps to a Successful Implementation of an ERP System Many companies like Hershey Food Corporation faced problems in the implementation of ERP systems. A number of factors contributed to their failure. However, the following building blocks are essential in successfully implementing an ERP system: Organizational Commitment ERP systems require change in the way people work for the company to realize its full advantages. Implementation of these systems involves a transition from the old systems to new systems. Lack of commitment and clear leadership in the top management, often gives an opportunity to the other individuals in the company to discover creative ways of maintaining their status quo, thus the capability of the new information technology becomes compromised. Key business processes need to be reengineered for proper implementation of an ERP system. An ERP system changes the normal mode of functioning and operation. Social systems within the organization are not an exception to change. A problem like resistance to change arises when the people in the concerned company are not well prepared for the changes that are to take place. Thus the whole process of implementation becomes compromised. Companies that have successfully implemented the ERP systems take the implementation process as an exercise in change of management. An executive champion is required to lead the change initiative. For those companies that have recorded failure in the implementation of ERP systems, the difficulty in implementation is associated with problems in cultural adaptability, change management and top management commitment (Umble and Umble 1). Clear Communication of Strategic Goals Before the implementation of ERP systems, the key stakeholders of the company must have a vision on how they should operate in future in order to satisfy the customers, suppliers and employees. The vision must be availed to all people in the organization regardless of their level in the organization. If a company is to avoid problems related to ERP implementation, it must remain focused (ERPwire.com 1). Where people do not understand the organization’s strategic goals, it becomes difficult for them to understand why ERP systems are being implemented. These individuals also fail to coincide with the company in addressing some of the critical business needs. Thus, for the organization to successfully implement ERP systems, it is imperative for the management to ensure that the whole organization understands and agrees with the ERP system implementation needs. A considerable degree of integration is required for successful implementation of an ERP system. Support for such a system-wide integration is out of reach for many organizations. In case transformation is needed due to incompatibility with the new processes, the management must ensure that the transformation process proceeds smoothly (Umble and Umble 2). View ERP as an Enterprise-Wide Venture An EPR system is the basic information foundation for any organization that has implemented it. Successful implementation of the system changes the way functions are operated in a company. ERP systems mostly involve the introduction of new technologies and in most cases the responsibility of implementing these systems is left to information technology specialists. Viewing ERP systems implementation as an IT project invites problems. The technological parts of the implementation must be within the broad program of transformation in order to realize the full advantages of ERP systems. Most of the successful EPR systems implementations have been headed by people outside the IT section (Umble and Umble 2). Select a Compatible ERP System Due to the rapid growth of technology, expansion of capabilities and features, and the entry of software vendors, a number of ERP systems options are available. Selection of an ERP system must be in line with the company’s organization, strategy and processes since ERP systems will impose their own logic on these company’s driving factors. ERP packages have similarities and differences and most of the ERP software vendors make assumptions on business practices and management philosophy. A company implementing an ERP system must be aware of the supplier’s assumptions about reengineering processes and procedures and business processes. Apart from being aware of the assumptions, the company must as well conform to these assumptions. The selection should be based on the need to overcome competitive weakness(s) and underscore the company’s competitive strength(s). After negotiating a contract with a prospective software vendor, the company should conduct a pre-implementation pilot to unmask any key surprises about the software as fast as possible. Using all the available information, the company should be capable of giving a go ahead or block the implementation process. In isolated cases, it may be necessary to change vendors, renegotiate the contract or delay the implementation process (Umble and Umble 2). Ensure Data Accuracy Proper functioning of the ERP system is dependent on the accuracy of the data. High levels of data accuracy are achieved when effective processes are put into place. It is vital to ensure that data mistakes and errors are minimized before the implementation of the ERP systems begin. The users must be educated on the risks associated with data errors and mistakes during the implementation process (Umble and Umble 2). Resolve Multi-Site Issues To avoid failure in the implementation of ERP systems, all the multi-site issues must be resolved before the implementation begins. This is the case in organizations where the ERP systems are to be implemented at multiple sites. The following issues have to be resolved before implementation begins. The first issue is whether to customize or standardize the implementation at these multiple sites. Standardization will involve moving people and products between the sites and the ability to consolidate the organization data. The move is done with minimal disruption. Customization will result in efficient and effective operation at each site and this reduces the operation costs. The second issue is whether to use a phased approach (pilot implementation at one site is the start) or simultaneous ERP implementation at all sites. Simultaneous implementation takes less time for the whole system to be integrated. The disadvantage is that the project requires a high level expertise. Phased approach implementation requires a single implementation team. Phased approach implementation has two advantages; it creates a positive momentum from the early successes and it gives room for lessons learned in the early implementation to be used in the subsequent implementations (Umble and Umble 2). Before Going Live, Stress Testing Must Be Performed Most companies assume that once an EPR system has been proven in the pilot phase, it should go live. This is an assumption that does not rest on any truth. The pilot phase is just a prototype phase and once it is completed and all data loaded into the system, stress testing ought to be performed. Stress testing may reveal a number of things such as the network becoming overwhelmed with volume or response time degrading to unacceptable levels. The information from stress testing may necessitate increasing the bandwidth or adding more processors (Grossman and Walsh 40). Judgment While the massive size of an organization could act in favor of its growth agenda, inexperience and poor decision making could cause its downfall amid a promising future. Managerial decision making should be founded on informed choice of alternatives, especially in the current information age to keep up with the pace of new developments. Hershey’s response towards the implementation of its ERP is perhaps a mockery of the status that the company has gained over its long history of existence. A small blunder touching on sensitive issues in a company’s operations cannot be assumed in the wake of real innovation capacity that offers real solutions to nearly every problem faced in the world of business. The top management at Hershey should have been more attentive and consequently take the project more seriously than it did. Based on my judgment on the neglected responsibility by the company’s management, it should have been appropriate that the management found it prudent to make adjustments in the implementation plan. Strict reviews should have been in place to ensure that the company made the best out of the plan even if it required more time than the set plan. Rigidity could have affected the results that the company anticipated. Conclusions Quoting the company’s retired CEO Wolf, it is a sensitive and cumbersome venture to trying to perform Enterprise Systems implementation. Changing from one regime to the other is difficult since corporation and time are both required. It is therefore the mandate of the management to ensure that the seriousness and caution it deserves are maintained throughout. Complete concentration should be invested by all sectors within the precincts of the organization. Recommendations Intensive research should be carried out to determine the appropriateness of a system to be adopted as well as discern the capacity within which an organization lies. Enough resources should be amassed in preparation for the implementation of sensitive projects such as the ERP. Infrastructure changes including training are necessary; outsourcing services should be considered also. Alternatives should be put in place to mitigate against adverse failures of the mains systems. Works Cited Centre for Management Research (CMR) “ERP Implementation Failure at Hershey Foods Corporation.” 2008. Web. Accessed 8th Jan. 2011 < http://members.home.nl/c.schalkx/Cases%20ARP/ERP%20Implementation%20Failure%20Hershey%20Foods%20Corporation.pdf> Davenport, T. H. “Putting the Enterprise into the Enterprise System.” Harvard Business Review. 1.1(1998):121-131 ERPwire.com. Analyzing ERP failures in Hershey. ERPwire.com. Web. 8 Jan. 2011. Gallagher, Michael. Implementation of ERP Systems - A Significant Business Continuity Risk. Continuity e-GUIDE, 4 May 2005. Web. 8 Jan. 2011. Grossman, Theodore & Walsh, James. “Avoiding the Pitfalls of ERP System Implementation.” Information Systems Management (2004): 38-42. Web. 8 Jan. 2011. Kamath, M., Kumaram S. T., and Prabhu, V. Scalable enterprise systems: an introduction to recent advances, Norwell, MA: Kluwer Academic Publishers, 2003. Print Koch, C. “Supply Chain: Hershey’s Bittersweet Lesson.” 15th Nov. 2002. Web. 8th Jan. 2011 < http://www.cio.com/article/31518/Supply_Chain_Hershey_s_Bittersweet_Lesson> Recktenwald, Jennifer. Experts Offer Advice on Successful ERP Implementation. TechRepublic, 2 Feb. 2000. Web. 8 Jan. 2011. Recktenwald, Jennifer. More Advice on Successful ERP Implementation. TechRepublic, 9 Feb. 2000. Web. 8 Jan. 2011. Umble, E. J. & Umble, M. M. Avoiding ERP Implementation Failure. (Enterprise Resource Planning). Entrepreneur, Jan. 2002. Web. 8 Jan. 2011. Vaman, N. ERP in practice. New Delhi, India: Tata McGraw-Hill, 2007. Print Wailgum, T. “10 Famous ERP Disasters, Dustups and Disappointments.” 24 March 2009. Web. 8th Jan. 2011 Web Wood, B. “SAP, ERP Project Failures Lessons Learned and Mini Case Studies 3.” 27th Dec 2010, Web. Accessed on 8th Jan 2011 Read More