Hershey Food
ERP implementation
Table of Contents
1.0
Introduction
Hershey Food Inc. underwent ERP
implementation where in project named Hershey’s Enterprise 21 Project was
adopted by the organization so as to implement system organization wide. The
goal of ERP implementation in Hershey Food Inc. was to establish co-ordination
among various department of the organization so that duplication of work can be
avoided and information stored in the system can be used by any department so
as make active decision making. But finally ERP implementation in Hershey Food Inc.
failed to achieve the intended goals for which implementation was done.
The aim of present paper is to analyse
implementation strategy used by Hershey Food Inc. in order to develop ERP
system organization wide. Further processes which resulted into final outcome
of failure for ERP system in Hershey Food Inc. would be examined and possible
mitigates for these processes would be suggested. Final section of the present
report would examine overall effectiveness of implementation plan used for
Hershey Food Inc. Further lesson learned section would highlight key learning
from this case so that during the future implementation of ERP mistake done can
be improved.
2.0
Implementation strategy
The major objective of ERP
implementation in Hershey Food Inc. was to fulfil demand of retailers so as to
share the product delivery information by Hershey Food so that they can
maintain optimal inventory thereby reducing their inventory holding cost. Newly
proposed information system was designed in order to enhance their
competitiveness and to make better customer service. Implementation of ERP in
Hershey began with selection of SAP AG’s R/3 Enterprise Resource Planning
suite. Companion software of company was purchased from two vendors named Manugistics
and Siebel. There were several modules present in the SAP software such as
finance, material management, purchasing, billing and order processing etc.
Further companion software for SAP would provide support for the important
functions such as transportation, forecasting, production and scheduling etc. (COTTELEER,
2002).With implementation of ERP software
it was intended to put entire system on single platform from which all
functions can be operated with ease. The entire ERP implementation project for
Hershey was supposed to cost around US$ 10 million.
Bar code system was implemented across
the plant in US for all products so that inventory tracking and cost of
production can be made efficient. Bar code system would also help in order to
track the inflow & outflow of material and to improve overall logistic for
the organization. It was proposed that shift from legacy to new system would be
done by April 1999 as during this time sales for confectionary items would
reduce as compared to other times of year. Implementation of ERP during this
time period given a challenge that a project which normally takes 4 years to
complete was proposed to accomplish within 30 months. Early implementation of
ERP project was not only due to seasonality in sales but also due to impending
Y2K problem faced by the company.
During the implementation of ERP till
January 1999 some of the important modules such as SAP financials, warehousing,
purchasing and material management were implemented by the organization. But
other supporting modules such as order processing, billing from SAP and
pricing, promotion from Siebel and scheduling from Manugistics were way behind
their implementation schedule proposed by the company at the start of
implementation plan. After making hard efforts for the final implementation
Hershey could make the final implementation in July 1999 with their three month
behind schedule implementation (DIEDERICH, 1998).
Even on the final implementation many a things were incomplete but Hershey
could not delay ERP implementation further due to looming Y2K problem.
3.0
Process contributing to final outcome
After the implementation of ERP system
several processes were responsible for the final outcome of ERP implementation
as its failure for the implementation. Rollout of ERP was initially appearing
as smooth but processes such as order processing, fulfilment and shipment
become the major reason which lead to the failure of entire ERP implementation
as the shipped was delayed everytime. Further inventory maintenance process for
Hershey was putting high burden for the organization as it was maintain
inventory of more than eight days and this inventory position was higher as
ever. Also product delivery time for Hershey got extended where in Hershey was
usually delivering products in less than five days while after implementation
of present system Hershey was asking their retailers to wait for more than
twelve days so as to obtain their order (BROWN
and VESSEY, 2003, pp 65-77). In addition to
this there was no proper tracking of inventory inflow and outflow due to which
Hershey was forced to rely on their retailers in order to know quantity of
goods ordered by them and finally quantity of good received by them. Old
logistic system of the company was no longer existing paving the path for new
one but the newly implemented logistic system was not efficient to track goods
and deliver them on time.
4.0
Process contributing risk and possible mitigates
Some of the critical processes which
contributed risk to the overall implementation of ERP system in the
organization along with possible mitigate for these processes can be given as
mentioned below:
§ Inventory pile up:
Inventory pile up was among the major risk which harmed Hershey Food Inc.
during implementation and post implementation as well. Due to non-shipment at
given time there was high inventory storage done by company which not only
enhanced cost for inventory holding but also made company inefficient that even
after having good amount of inventory Hershey was not able to deliver it on
time (MAJED, 2000, pp 3-8).
Possible mitigate for inventory pile up could have been to check all inventory
storage places and ship as per the customer demand which not only reduces the
shipment time but also reduced overall inventory hold by company.
§ Delay in shipment:
As on August 1999, company was behind 15 days of schedule for their
implementation. Retailers were not able to get their goods even after two weeks
of order which forced them to switch to other company in order to sell goods to
end consumers. This posed the risk of diminishing customer base for the company
and bad reputation as well. In order to mitigate risk for delay in shipment
order processing and production system in organization should have made in
alignment with each other so that proper co-ordination can be maintained
between two systems so as to deliver goods on time (PARR
and SHANKS, 2000, pp 289-303).
§ Co-ordination process:
There was no co-ordination between technical team of the organization working
on ERP system implementation and operation staff working in the organization
with inventory & production system (AKKERMANS
and VAN, 2002, pp 35-46). Due to lack of
co-ordination between the two departments there was no practical implementation
made where in technical team was unaware of the ground realities and
operational staff was not able to understand technical issues while dealing
with ERP system in order to get things done. In order to mitigate co-ordination
risk it was important that all stakeholders of the system should have been
involved during the design to implementation phase. This could have given fair
understanding between the two departments.
5.0
Overall effectiveness of evaluation for implementation
Overall implementation of ERP system
in Hershey Food was not effective considering below mentioned issues:
§ Time
plan: Time plan for implementation of ERP system badly failed for Hershey Food
Inc. as entire implementation was delayed and even many a components of the
proposed ERP system were not implemented due to lack of time in ERP
implementation.
§ Co-ordination:
There was clearly lack of co-ordination among several departments of
organization, among technical team & operation and among the different
vendors of the organization such as SAP, Manugistics and Siebel which lead to
poor implementation of system.
§ Budgeting:
Proposed budgeting for entire system was US $ 10 million while there was over
budgeting done in order to accomplish the project.
§ Intended
goals: Intended goals for implementation of ERP system were to develop a single
platform for the all operations, to enhance customer service and to make
Hershey Food more competitive through efficient operations. But after
implementation of ERP system intended goals of the system were not achieved by
the company and adversely company lost its existing competencies as well (SUMNER,
2000, pp 317-327).
Some of the important lessons learned
from the present case of ERP implementation failure for Hershey Food Inc. can
be given as under in order to improve future ERP implementation:
§ Focus:
Hershey made a big mistake by not paying full attention to its ERP
implementation program and its focus on several other things which were going
along with ERP implementation such as Y2K problem and efficiency improvement
program. From the present case it can be learnt that ERP implementation process
in itself one of the most important part of the organizational automation hence
full attention should be paid towards its implementation.
§ Developing
game plan: Planning is an important aspect for ERP implementation and key
elements such as time, budget and human resource should be planned with high
accuracy. Further contingency plans should be in place for making correction in
the proposed plans (COTTELEER, 2002).
§ Migration
of data: Data migration is critical due to the reason that while running
several modules simultaneously it would require complete data to be present beforehand
in the newly implemented system. Further for an organizational like Hershey
Food data migration would play vital role in inventory management as keeping
track of inventory would be possible by having systematic data beforehand (SUMNER,
2000).
§ Testing:
It is advisable to implement each and every part of ERP system after suitable
testing process. Before testing the individual component no implementation
should happen as this would lead to problems in later phase of implementation.
Conclusion
From the present case study of Hershey
Food Inc. it is evident that ERP system implementation was done by the
organization in order to develop a single platform for operating several
functionalities with ease. ERP implementation in Hershey food was done with
short of time, in unplanned manner and with lack of co-ordination. All these factors lead to failure of ERP
system implementation in Hershey Food Inc. and company has to bear undesirable
consequences due to failure of ERP implementation.
References
§ AKKERMANS,
H., and VAN HELDEN, K. (2002) Vicious and Virtuous Cycles in ERPimplementation:
a Case Study of Interrelations between Critical Success Factors. European Journal of Information Systems 11(1),
pp 35-46.
§ BROWN,
C.V. and VESSEY I. (2003) Managing the Next Wave of Enterprise
Systems:Leveraging Lessons from ERP. MIS Quarterly Executive 2(1), pp 65-77.
§ COTTELEER,
M.J. (2002) ERP: Payoffs and Pitfalls. Harvard Business School WorkingKnowledge, http://hbswk.hbs.edu/item.jhtml?id=3141&t=operations
§ DIEDERICH,
T. (1998) Bankrupt Firm Blames SAP for Failure. Computer World, August28.
§ MAJED
A. (2000) Enterprise-Wide Information Systems: The Case of SAP R/3
Application.In Proceedings of the
Second International Conference on Enterprise InformationSystems, pp
3-8.
§ PARR,
A. and SHANKS G. (2000) A Model of ERP Project Implementation. Journal ofInformation Technology 15(2),
pp 289-303
§ SUMNER,
M. (2000) Risk Factors in Enterprise-wide/ERP Projects. Journal of InformationTechnology (15),
pp 317-327.
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