Enterprise Resource Planning (ERP) systems are software systems that support and automate key business processes to provide timely and accurate organization-wide information for decision-making purposes (O’Leary, 2000). A typical Enterprise Resource Planning consists of integrated applications that an enterprise can use to collect, store, interpret, and manage data from business activities. Besides optimizing business processes, Enterprise Resource Planning systems provide accurate forecasting, improved process efficiency, integrated information, and the opportunity for departmental collaboration. There are many popular implementations of ERP software. This paper focusses on the case of Hershey Chocolate & Candy. This American multinational company employed an Enterprise Resource Planning environment to boost profits and gain a competitive edge, only to fail catastrophically. The company’s unsuccessful execution resulted in a 19 per cent decline in quarterly profits and an eight per cent drop in stock prices.
Hershey’s initially set out to shift from a legacy IT system to an integrated Enterprise Resource Planning environment. The firm selected three main applications: SAP’s R/3 software, Seibel’s CRM software, and Manugistics Supply Chain Management (SCM) software. SAP’s R/3 is designed to coordinate resources, activities, and information that are required to complete business processes such as billing, order fulfilment, production planning, and human resource management. The software was top-rated in the 1900s when Hershey’s decided to utilize it to manage its order processing. Its naming was based on the architecture of its three-tier client and server structure which was segmented into the presentation, application, and security layers. Siebel’s CRM was meant to manage Hershey’s relationship with customers by generating leads and retaining the existing pool of customers. In the 1990s, Seibel’s CRM was a dominant solution among companies that wanted to automate their sales and customer services. The Manugistics Supply Chain Management (SCM) software was used to plan and execute steps in the Hershey’s supply chain, including demand planning, inventory acquisition, manufacturing, and distribution.
Although the recommended implementation period was 48 months, Hershey settled on a 30-month time frame in order to roll out the system before Y2K, a shorthand term for “the year 2000.’ Accordingly, the cutover was set for July 1999. This scheduling corresponded with one of the market’s busiest period – just about when the company was about to receive the bulk of Christmas and Halloween orders (Barker, & Frolick, 2003). The hard-hitting scheduling demand only forced the implementation team to compromise on critical system testing phases. When the system was put into action in July 1999, unforeseen problems prevented the system from displaying orders. The company was subsequently unable to process $100 million worth of orders despite having the required items in stock. The greatest mistake in the company’s decisional capacity was the cutover. Based on the circumstances that endured during the busy holiday season, it was imprudent to overlook the value of the testing phase. The risk of failure and exposure to large-scale damage was too significant to be ignored. Nevertheless, Hershey’s team made the fundamental mistake of prioritizing expediency over systems testing.
In an exemplary ERP implementation, the testing phase acts as a safety net for shielding an enterprise from suffering irreparable financial damage. Hershey’s should have given precedence to the testing phase even if it meant setting back the launch date. The potential consequences of ignoring testing outweighed the benefits of maintaining a more extended schedule. The testing phase should take place in a series of steps to make sure that all operating scenarios are covered comprehensively. The more realistic the testing phase, the higher the chance of discovering critical issues before they cripple operations during the implementation phase. In the case of Hershey’s, the first testing stage should have taken account of major functional issues. Initial testing is usually aimed at validating key business processes. The company should have then moved to test the most frequently used business scenarios and ‘day-in-life’ situations. Perhaps one other major mistake that Hershey’s made is the choice to launch three different systems at the same time (Perepu, & Gupta, 2008). This ‘big bang’ implementation approach would have been unsuccessful despite the style of execution. The outcome of the firm’s decision was worsened by the project’s timing. In addition to squeezing a massive ERP implementation in a short time frame, Hershey’s planned the cutover in a busy shopping season. It was unreasonable for the company to anticipate that it would meet the peak demand when its workforce has not been well familiar with the new systems and workflows.
Eventually, Hershey’s unsuccessful Enterprise Resource Planning execution resulted in a 19 per cent decline in quarterly profits and an eight per cent drop in stock prices. The failure was attributed to a range of factors spanning from concurrent implementations of ERP packages to lack of experience in implementing ERP systems. During the implementation phase, Hershey did not put in place processes to keep its managerial department aware of the progress. The resulting assessment indicated that the top management had not understood the scope of the project. To date, the case of Hershey is quoted among the biggest failures of Enterprise Resource Planning implementation and one of the exemplary examples of why companies should use meticulous planning before putting ERPs into operation.