Sei sulla pagina 1di 22


A Case Study of ERP Success and Failure & Features of an ERP Module Assignment: 02

Submitted By: Amar Nath Prasad (04) Md Jawed Akhtar (15) DFT, Sem-VI 08th of March, 13

Hersheys- An Overview
The Hershey Company, known until April 2005 as the Hershey Foods Corporation and commonly called Hershey's, is the largest chocolate manufacturer in North America. Its headquarters are in Hershey, Pennsylvania, which is also home to Hershey's Chocolate World. It was founded by Milton S. Hershey in 1894 as the Hershey Chocolate Company, a subsidiary of his Lancaster Caramel Company. Hershey's products are sold in about sixty countries worldwide. Hershey is one of the oldest chocolate companies in the United States, and an American icon for its chocolate bar. It is one of a group of companies established by Milton Hershey. Other companies include Hershey Trust Company, and Hershey Entertainment and Resorts Company, which runs Hershey park, a chocolate-themed amusement park, the Hershey Bears minor professional hockey team, Hershey park Stadium and the Giant Center. Most of the employees for the factory come from the surrounding counties, towns, and boroughs, such as Lebanon County, Hummelstown, South Hanover, and Harrisburg.

ERP Implementation Saga

Hershey priced its products low, and to achieve sales of almost US$ 5 billion, huge quantities of the products needed to be sold. This called for highly efficient logistics and supply chain systems duly supported by information technology (IT). Existing System In the early 1990s, the spending on IT in the food and beverage industry was among the lowest. During this period, Hershey, like most of the other companies in the industry used legacy systems. It functioned through several mainframe legacy systems, which were used for different functions ranging from human resources to order processing. Implementation Plan During late 1996, the management of Hershey gave its approval to a project named Enterprise 21, which aimed at modernizing the hardware and software used

by the company. At the turn of the century, Y2K problems were expected to crop up in the company's legacy systems. Hershey chose to replace the systems, rather than spending huge amounts on solving the date related problems in the legacy systems. The main goals of Enterprise 2l project were to upgrade and standardize the hardware, shift to client/server environment from the existing mainframe based environment, move to TCP/IPI network, etc. Hershey's information systems division wanted to switch over to the ERP system by April 1999. Hershey selected SAP AG's R/3 Enterprise Resource Planning suite, along with companion software from two vendors - Manugistics and Siebel. Software from SAP included modules for finance, purchasing, materials

management, warehousing, order processing, and billing. Manugistics would provide software for transport management, production, forecasting and scheduling. The software from Siebel was to support Hershey in managing customer relations and in tracking the effectiveness of the company's marketing through a pricing promotions module After switching over to the ERP system, Hershey was to have a client-server version of the same software. IBM Global Services was chosen to integrate the software provided by the three different vendors. The aim of the project was to put all the systems on a single integrated platform. According to the initial plan of the project, Hershey would be able to shift to the new system by April 1999, when the annual sales of confectionary companies were usually lower, compared to other times of the year. For confectionary companies, sales were mostly seasonal -with the Christmas and Halloween seasons accounting for 40% of the total sales. This essentially meant that the project which would otherwise take around four years to complete, had to be finished in a span of just over thirty months. Another reason why Hershey wanted to finish the project at a quick pace was because of the impending Y2K problem.

By January 1999, some of the modules like SAP financial, materials management, purchasing, and warehousing had been implemented. However, other modules like the critical order processing and billing systems modules from SAP, the pricing and promotions package from Siebel and planning and scheduling modules from Manugistics were behind schedule. Hershey planned to switch over to the new systems during April 1999, which was a lean season for confectionery sales, these modules were added on only in July 1999 -three months behind schedule. At that time, Hershey was under pressure and was not in a position to extend the implementation schedule, as the Y2K problem was looming large. That was the time that orders from retailers for Halloween started pouring in. Hershey then decided on a Big Bang approach to ERP implementation. In this approach, the software was to be implemented at one go, instead of a phased approach of implementing one module at a time, testing it, and then taking up the next module. The phased approach allowed a company to find and correct bugs before moving on to the next phase. However, Hershey was of the view that the Big Bang approach would enable it to meet all its Halloween orders. Expected Outcome By implementing new software, Hershey aimed at better coordinated deliveries of its products, helping retailers maintain low inventory and reduce inventory holding costs, and on the whole, providing better customer service. According to Keith Costello, Project Team Member for Enterprise 21, they

redesigned the whole business process with the customers in mind. They were implementing thiso To enhance our competitiveness, and o To enhance our customer service. In their corporate culture, the customer service piece is highly visible. For example, when customers place orders, Hershey

customer-service representatives will be able to say whether the product can be delivered on the date the customer wants it, and, if not, when it will be available. The new ERP software was expected to help Hershey reorganize its business processes. Fine-tune deliveries to suppliers. Upgraded and standardized companies business processes. 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.

What Happened After ERP Implementation- The Actual Scenario Initially, the rollout appeared to be smooth. But slowly, problems pertaining to order fulfillment, Processing and shipping started to arise. Several consignments were shipped behind schedule, and even among those, several deliveries were incomplete In July 1999, when Hershey opted for the Big Bang approach to ERP

implementation, it had supplies for around eight days - this was higher than usual. Hershey maintained more supplies in order to address any minor problems that might occur during the implementation. But three weeks after the implementation of the new system, it was evident that Hershey would not be able to meet its deadlines as the shipments were delayed. As against the usual five days, that it took to deliver the products, Hershey asked distributors for around twelve days to deliver their orders. However, Hershey missed that deadline too. By August 1999, the company was 15 days behind schedule in fulfilling orders. 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

Hershey also lost precious shelf space, for which there was high competition in the market. Customers began switching to products of competitors like Nestle and Mars. Retailers opined that not only short term sales but long term sales of Hershey too would also be affected. On the one hand, Hershey was unable to send the consignments on time due to problems in order entry, processing and, fulfillment; on the other, the warehouses were piled up with products ready to be shipped, as the manufacturing process was running smoothly. 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. Hershey missed out on the deliveries, in spite of having enough products at its warehouses. Company's supply chain has ground to a halt, making it impossible to fulfill $100 million worth of orders. For Hershey's confectionary manufacturing and distribution operations, this nightmare came true in 1999.When it cutover to its $112-million IT systems, Hershey's worst-case scenarios became reality. Business process and systems issues caused operational paralysis, leading to a 19-percent drop in quarterly profits and an eight-percent decline in stock price. When the systems went live in July of 1999, unforeseen issues prevented orders from flowing through the systems. As a result, Hershey's was incapable of processing $100 million worth of Kiss and Jolly Rancher orders, even though it had most of the inventory in stock.

What Went Wrong?

The two main reasons for its failure are as under: ERP Systems Testing Hershey's implementation team made the cardinal mistake of sacrificing systems testing for the sake of expediency. As a result, critical data, process and systems integration issues may have remained undetected until it was too late.

Testing phases are safety nets that should never be compromised even if testing sets back the launch date. The potential consequences of skimping on testing outweigh the benefits of keeping to a longer schedule. In terms of appropriate testing, analyst advocates methodical simulations of realistic operating conditions. The more realistic the testing scenarios, the more likely it is that critical issues will be discovered before cutover. With respect to the Hershey's case, many authors have criticized the company's decision to roll out all three systems concurrently, using a "big bang" implementation approach. In our view, Hershey's implementation would have failed regardless of the approach. Failure was rooted in shortcuts relating to systems testing, data migration and/or training, and not in the implementation approach. Had Hershey's put the systems through appropriate testing, it could have mitigated significant failure risks. ERP Implementation Scheduling Hershey's made another textbook implementation mistake - this time in relation to project timing. It first tried to squeeze a complex ERP implementation project into an unreasonably short timeline. Sacrificing due diligence for the sake of expediency is a sure-fire way to get caught. Hershey's made another critical scheduling mistake - it timed its cutover during its busy season. It was unreasonable for Hershey's to expect that it would be able to meet peak demand when its employees had not yet been fully trained on the new systems and business processes. Even in best-case implementation scenarios, companies should still expect performance declines because of the steep learning curves. By timing cutover during slow business periods, the company gives itself more slack time to iron out systems kinks. It also gives employees more time to learn the new business processes and systems. In many cases, its advisable to reduce incoming orders during the cutover period. Apart from these two reasons industry analysts also concurred that problems in project management were to blame for the debacle. According to Tom Crawford, General Manager,

Consumer Products unit, SAP America Inc., "There are really no software issues per se, in terms of bugs or fixes that need to be applied to make (R/3) work any differently that it is now. The SAP workers are just making sure they're using the business processes (built into the software) correctly. Another reason cited for the debacle was Hershey's lack of experience in implementing software solutions of this magnitude. Hershey had earlier implemented a few customized systems, but they were on a much smaller scale. The top management did not conduct enough groundwork before going ahead with implementation of this company-wide ERP solution. Since the groundwork was inadequate, the top management also fell short in guiding the company's technical and business managers. These two levels of management were working towards different goals. An analyst commented, "The thing Hershey can be faulted for was to announce that they had blown ERP as justification for missing earnings.

In closing, any company implementing or planning to implement ERP can take away valuable lessons from the Hershey's case. Two of the most important lessons are: test the business processes and systems using a methodology designed to simulate realistic operating scenarios; and pay close attention to ERP scheduling. Industry experts said that with three different vendors working on the system, it would have been better if Hershey had chosen to roll out each system successively and then check the integration issues. For a project to be implemented in a company as big as Hershey, each component had to be rolled out cautiously, ensuring that the system worked according to the plans. But with such a short time-frame to implement the ERP, it was not possible to test each of the components carefully. In this case, a big bang was not the right approach.

The Company:
Pacific Dunlop Garments, in business for over a century, owns the production and distribution rights for many well-known international brands and is the largest garment retailer in Australia. It currently operates seven factories in Beijing, Shanghai and Guangdong. A decade ago the Group became over-extended and had operational problems which led to insolvency. It used information technology to strengthen production management and control costs, reduce inventory, and shorten production cycles. As a result Pacific Dunlop returned to profitability and acquired additional well-known European and American brands and general merchandise groups as its customers. In 2002, Pacific Dunlop invested US$ 30 million to build a new factory in Zhongshan. This enables it to react more rapidly to world markets and customer needs. Recently, it purchased Sara Lee Courtaulds, a large UK garment manufacturer and merchandiser with operation in England, Sri Lanka, and Morocco.

Transformation of the industry: Why it needed ERP?

According to Wu Wenhe, Business GM of Pacific Dunlop Garments in China: "The clothing industry is undergoing a transformation: suppliers have to offer more than quality and value; they must react quickly to the needs of customers and the market; producers have to produce on a large scale and standardize management practices; all enterprises in the supply chain must learn how to co-ordinate and interact more efficiently. To shorten your production cycle drastically one must leverage information technology. So, they decided to go for an ERP. The Group examined software solutions from many global software companies and finally chose Millenar Apparel Enterprise (MAE), Parellax Limiteds Enterprise Resource Planning (ERP) system.

Expected Benefit From New ERP

To shorten its production cycle from three to nine months to just fourteen days Inventory Control -Material costs are the major factor in the cost of finished garments. If a company can control production and reduce inventory of finished goods and raw materials, it will help reduce overhead and storage costs and avoid losses on outdated products. Supply Chain Collaboration- With the increasing demands of the global markets for more original products and the rapid changes in fashion trends, manufacturers need to be in close touch with market trends in order to predict their production plans. They should be able to share information on product design and development, sales, order execution, production and purchases, and require the major suppliers of raw materials to produce the necessary materials in advance. Change of Operation Mode- The traditional mode of operation of the garment industry was often influenced by the old planned economy (this was particularly true of China). The different branches of the industry would hold meetings once or twice a year and make their orders and production plans for the next six months. There was no way to match orders to the fluctuating demands of the market .Companies were left with large inventories of materials and sewn products that they were unable to sell and often a shortage of the products they really needed. This mode of operations often resulted in serious economic losses and even to the failure of a company.The objective was use ERP to monitor and control every link in the chain.

Reasons For Choosing MAE

According to Wu Wenhe explained, Pacific Dunlop's management believed that Millenar Apparel Enterprise (MAE), Parellax Limiteds Enterprise Resource Planning (ERP) system had the right solution for the Group for several reasons: First, MAE is specifically designed for their industry so it fits their requirements very closely. A generic solution like Oracle or SAP would have required extensive and expensive customizations and it would never have met their needs as well as MAE.

Second, they had confidence in the MAE implementation consultants and business analysts. They all had strong garment industry backgrounds and impressive skills and experience. Third, MAE is versatile and expandable. They can be configure and customize it to meet the requirements of any type of operation. That is important to them because they are always adding new businesses and continuously improving their business processes. Fourth, Parellax has the most advanced technology and uses the worlds leading database, Oracle, as its technology platform. They wanted the reliability and stability that that platform offers them. Finally, the MAE development team impressed them. They demonstrated the ability to extend their product and add new modules and functionality to meet their projected needs. They can provide solutions such as e-commerce, ERP, and SCM to integrate their system with those of their suppliers and their customers. For example, when their inventory of certain raw materials falls below replenishment level the system informs suppliers directly. This is a feature which shortens their production cycles considerably.

Results Of Successful Implementation

The MAE implementation team performed detailed business process analyses in each of the Groups six factories in China. Based on this, the team advised Pacific Dunlop how to use MAE to re-engineer the Groups business processes to streamline operations and improve the efficiency of management and production. Pacific Dunlop has achieved unprecedented profits after implementing this solution. Their product planning process has changed. In the past, they produced finished goods based on sales forecasts (Make-to-Stock, production was determined by inventory). The factory reacted slowly to the market and had a large amount of inventory. Today, production is based on customer orders. (Make-to-order - production is started by an order). They react more quickly to market demand; their products sell better; dead stock is reduced, the storage period of materials and finished products is shortened, and inventory turnover speeds up

Before, overseas import distributors needed to stock inventory for about six months. Today, they have reduced that to one or two months leading to a reduction of 65-80% in inventories. In the past, the factories had to order material in advance and hold finished products for an average of four months. Today the factories order materials only when orders are received. Storage time is reduced and finished products need to be held for only three weeks. This has reduced inventory by 25%. In the past, overseas designs required six months. They can now complete them in two to three months, a 50-65% time saving. In the past, production cycles took three to nine months; today they have shortened them to fourteen days, as was their goal. They have automated and simplified their complicated order management process and have improved the communication between departments. Now employees enter information into the order processing system once; MAE processes all relevant information and documents automatically and greatly reduces losses caused by human error. They can now process orders ten times more quickly than in the past. The Group now has the confidence to implement further IT applications which will enable each buyer to process 3,000 orders, each for only 300 pieces, at one time, thus shortening the production cycle even more. Mr. Wu Wenhe believes that the technology advantage of POS, the Internet, and Parellax's Electronic Data Interchange (EDI) system will connect the whole supply chain of the industry, and make his plan come true. In nutshell, with the help of Parellaxs technology, Pacific Dunlops management can see the market situation at any point in time. They use this information to organize their resources to meet the demands of the market. It has been instrumental in lowering costs and increasing profits .Annual turnover has been increasing by 50%. The Group is now looking ahead and believes that the solution provided by Parellax will serve as a foundation for Pacific Dunlop's future development.

Why Was It Successful?

We analyzed that there were three main reasons for the success of the ERP implementation. They are: ERP System Testing After analyzing the recommendations, they decided to make the Dongguan garment factory the test case for the first stage of implementation. They implemented several key modules, including order processing, inventory management, material requisition, production control, and accounting, and production progress management. Within six months these modules were working smoothly in the Dongguan factory with impressive results. They then implemented the system in all the factories and offices owned by the Group and incorporated Supply Chain Management functionality into the system to integrate the Group with its suppliers and further enhance its competitiveness. Hence, a methodical simulations of realistic operating conditions gave them the confidence and avoided any failure that might have occurred in case it was directly implemented. Careful And Analytical Selection Of ERP Provider Before selecting the software they looked for certain important points like garment industry background, skills and experience of consultants. Unless the service provider has complete knowledge of garment industry, it cant provide a good software specific to this industry. Systematic study Before implementing the software they laid out the requirements of the industry which resulted in customization of the software. They can provide solutions such as ecommerce, ERP, and SCM to integrate their system with those of their suppliers and their customers.

From this case we concluded that a successful implementation of ERP requires the better understanding of its needs, careful selection of the ERP software based on feasibility study, experience. Successful implementation also requires a prior systematic testing of the software and making changes accordingly.

ERP Purchase Module:

Introduction Purchase also plays a very important role in a manufacturing organisation. Purchase procures all sorts of items or product required by the organisation, provides all departments with their necessary item requirements, keeps a ready count of the quantity of the different items and deals with the suppliers in an endeavor to procure new stock.

Purchase always pumps store with oxygen and keep it alive. So that store can keep the other departments alive. Purchase Module is fully integrated with related functional processes including automated inventory replenishment, sales requests for non-stock and direct-ship items.

The Purchase module controls the inventory purchasing side of your business. You can track Purchase Orders, supplier prices, and quantities on order. When used in concert with the Inventory and the Invoicing/Order Entry modules, the Purchasing module can calculate quantities to order to meet customer commitments. Built-in lead times will ensure that your purchasing meets your customer or production due dates. With the usage of Purchase module you will increase your inventory efficiency and eliminate costly shortages. ERP Purchasing module streamlines procurement of required raw materials. It automates the processes of identifying potential suppliers, negotiating price, awarding purchase order to the supplier, and billing processes. Purchase module is tightly integrated with the inventory control and production planning modules. Purchasing module is often integrated with supply chain management software. Features of purchasing module:

Streamlines purchase and process cycles Detailed Supplier/Subcontractor/Service Provider database Capturing materials requirement Automatic firing of purchase requisitions based on MRS Quotations from various suppliers

Recording Payment terms in PO Excise consideration in Purchase and Process Orders PO authorization PO amendments with complete amendment history Order cancellation and order closing Multiple delivery schedules Quality inspection of goods Quotation validity MIS for vendor evaluation based on quality, price & delivery time Subcontracting generation of process orders Multiple indents for multiple items in a single PO Purchase order processing Purchase order entry with item details and other details like taxes, discounts, extra charges like freight, P&F, octroi etc.

Flexibility to generate Purchase Order in domestic and foreign currency Advance adjustments Purchase bill with updating of GL and purchase book Service contracts, Service Bills, Service indents and PO Value based approval of indents Bill of Entry Complete import functionality with handling of custom details - Purchase Bill for import, Excise consideration in imports

Reports for Order tracking for complete control on the procurement cycle

ERP Purchasing module aims at making available the required materials of the right quality, in the right quantity, at the right time and at the right price, for the smooth functioning of the organization. All purchasing and subcontracting activities such as inviting quotations, supplier evaluation, placing purchase order, order scheduling and billing are covered in this module. Import of goods is also handled by the system.

Features of PURCHASE ERP with respect to ECAPS Software Module:

ECAPS Purchasing management consists a group of application that controls purchasing of raw materials needed to build products and that controls the inventory. It also helps creating Purchase orders / contracts, supplier tracking, good receipt and payment, and regulatory compliance analysis and reporting. Work Flow: Recognize, describe, and define the Purchase Requirement Item Wise Purchase Requirement Strategic or Operational? Repetitive or Non-Repetitive Automatic generation of PR when the reorder level or min max levels are reached. Delivery Schedules

Determine sources, investigate, and select Vendor /analyze bids Request for Quotation from Vendors Quotation Analysis Vendor Analysis according to past history of Vendor. Issue Purchase Order with proper schedules of Payment and Delivery

Follow-up the order Keeps track of pending Purchase Order

Receive and inspect the material Create MRN/GRN on receipt of material. Acceptance / Rejection of material after different quality checks.

Clearance of the invoice and payment to supplier Matching of Purchase invoice with MRN and Purchase Order terms

Other Features:

Due dates by line item On line Material Requisitions Maintains a purchase history file by product and by vendor Ability to handle blanket orders Allocate inventory to specific job and job cost category Capable of auto faxing PO's Systematic comparison of an invoice to goods received Ability to accept multiple receipts against: an open purchase order Ability to cancel an open purchase order Specific reason codes for items returned to vendor to include; over shipment, quantity rejected etc.

Order parametric components generated from the Product Configurator Module for sizes, colors and options

Bibliography 20Hershey%20Foods%20Corporation.pdf