Assignment No.

2
Supply chain Management
Dua Fatima
BBA171037

Supply chain failure

Topic: Hershey’s ERP failure

Introduction
The Hershey Company is the North American leader in the manufacturing of sugar
confections. Established in 1894 by Milton Hershey, the brand quickly became
known and loved for producing delicious milk chocolate. Built from a strong
community and good values, they established themselves as a trusted brand. As a
result, they grew their loyal customer base and business acquisitions.
Growing into a multinational corporation overnight, a top-notch supply chain
operations system was needed to support its growth. Hershey’s supply chain
portfolio is impressive and is designed to handle complexity. However, with a
failed attempt with an enterprise resource planning (ERP) system, all of Hershey’s
supply chain came to a full halt in July 1999.

What Went Wrong?

In 1996, Hershey’s set out to upgrade its patchwork of legacy IT systems into an
integrated ERP environment. It chose SAP’s R/3 ERP software, Manugistics’
supply chain management (SCM) software and Seibel’s customer relationship
management (CRM) software. Despite a recommended implementation time of 48
months, Hershey’s demanded a 30-month turnaround so that it could roll out the
systems before Y2K.
Based on these scheduling demands, the cutover was planned for July of 1999.
This go-live scheduling coincided with Hershey’s busiest periods – the time during
which it would receive the bulk of its Halloween and Christmas orders. To meet
the aggressive scheduling demands, Hershey’s implementation team had to cut
corners on critical systems testing phases. 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.
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. If testing sets
back the launch date, so be it. The potential scheduling benefits of skimping on
testing outweigh the costs of keeping to a longer schedule. In terms of appropriate
testing, our firm 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. 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 workflows. 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, a company can use slack time to iron
out systems kinks. It also gives employees more time to learn the new business
processes and systems. In many cases, we advise our clients to reduce incoming
orders during the cutover period.
It had paid $112 million to install a complex combination of ERP systems and, as
it happened, it failed to ship $100 million worth of Kisses, its iconic brand of
chocolates, in time for Halloween that year. Before kids had sorted out their
Halloween loot, Hershey’s profits declined 19 percent, its stock price plummeted
by 35 percent, and the company lost more than $150 million in anticipated
revenue.

How could it have been avoided?

While Hershey's was given 48 months as a suggested deployment period, leaders at
the company insisted on 30 months. Due to the rushed deployment, issues
appeared that might have been resolved with more time. 
Rather than focusing on a single centralized solution, Hershey attempted to launch
three different resource planning technologies at the same time. This created
conflict among the various operations. If it focused for only one solution this
failure would have been avoided.
In 1999, hysteria about the impact of "Y2K" motivated Hershey to insist on
implementation before the new year. Unfortunately, this meant the transition of
critical systems happened during the busiest sales and distribution period of the
company's fiscal year. In addition to raising the stakes, this window of time also
made it harder to provide sufficient attention to the new technology. The benefit of
working with experts to deploy a business management software solution is that
they can help determine worst-case scenarios and establish ways to avoid them. If
the Hershey involved some experts this wouldn’t have happened.