The case examines in detail the reasons behind the failure of ERP implementation at the US based Hershey Foods

Corporation. In late 1996, Hershey began modernizing hardware and software systems in the company. The company was running on legacy systems, and with the impending Y2K problems, it chose to replace those systems and shift to client/server environment. As per the original plan, it was to switch over to the new ERP system by April 1999. It chose three software vendors - SAP, Manugistics, and Siebel for implementing different software modules. The project was running as per schedule till January 1999, and when it came to the last leg of implementation, the company faltered and could switch over to the new system only in July 1999. Hard pressed for time, Hershey went in for Big Bang ERP implementation which led to several problems pertaining to order fulfillment, processing and shipping. The retailers who ordered for Hershey's products could not get them on time, even though the company had ample supplies stocked at its warehouses. Hershey's revenues dropped by 12% during the third quarter of 1999 compared to the third quarter of 1998. The case explains in detail, the events leading to the failure of ERP implementation and examines the reasons behind it.
Issues:

Understand the process of ERP implementation in a large organization. Study the circumstances that led to ERP implementation failure at Hershey. Evaluate the role played by top management in ERP implementation. Examine the factors that lead to success or failure of ERP projects.
Introduction

In the third quarter of 2000, Hershey Foods Corporation3 (Hershey), the US based manufacturer of chocolates and sugar confectionary, announced that its revenues increased to US$ 1.197 billion as compared to US$ 1.097 billion in the third quarter of 1999 - an increase of 12%. During the same period, profits increased by 23% from US$ 87.6 million to US$ 107.4 million.

The company's management and shareholders were pleased at this announcement, as Hershey's revenues and profits for the third quarter of 1999 as well as for the year 1999 as a whole had been adversely affected due to problems related to ERP systems implementation in the company. According to Kenneth L. Wolfe (Wolfe), CEO and Chairman, Hershey, "Admittedly, we were in the depths of our shipping difficulties during last year's third quarter. ERP system, as well as a revamped distribution facility in the Eastern US, were both much improved during this period of high demand for our domestic confectionery business."4 Hershey had started revamping its hardware and software infrastructure in 1997. In 1999, Hershey faltered during the final leg of the ERP implementation. Hershey had selected the services of three vendors SAP AG5 (SAP), Siebel Systems6 (Siebel) and Manugistics7 for the project, and some of the modules were implemented as per the schedule by the company in January 1999. However, the remaining modules which were to be implemented by April 1999 were delayed and were implemented only in July 1999. This overlapped with the time when the company usually started receiving huge orders for the impending Halloween and Christmas seasons. In order to quicken the implementation process, Hershey opted for Big Bang implementation, where several modules were implemented simultaneously. Some of them could not be tested properly due to lack of time. This led to several problems related to order management and fulfillment, and orders from many retailers and distributors could not be fulfilled, even though Hershey had the finished product stocked in its warehouses. The adverse affects of failed ERP implementation were immediate, with a significant drop in the revenues for third quarter of 1999. Annual revenues for 1999 were US$ 150 million less compared to those in 1998, a drop of 12% (Refer Table I for the details of Hershey's financials during the third quarter of 1998, 1999 and 2000)...
Background Note

Hershey was founded by Milton Hershey (Milton) as Hershey Chocolate Company (HCC) in 1894. Before establishing HCC, Milton underwent a four year apprenticeship with a candy maker in Lancaster . In 1876, he established a candy store in Philadelphia, which was closed by 1882. He then moved to Denver, where he learnt making caramel using fresh milk...

Implementing ERP

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). In the early 1990s, the spending on IT in the food and beverage industry was among the lowest...
The Problems

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. However, it was too late for Hershey to respond to this problem...
What Went Wrong?

The top management of the company as well as industry analysts began looking at the reasons for the problems at Hershey. Though SAP was blamed for Hershey's debacle, the company's management viewed it differently...
Bouncing Back

After the debacle, Hershey made efforts to stabilize SAP and other systems. The company appointed a CIO, George Davis from Computer Sciences Corporation. Under his leadership, a rigorous software testing program was implemented...
Exhibits

Exhibit I: Hershey's Products Exhibit II: Hershey - Stock Price Chart (1998 - 2002) Exhibit III: Hershey Foods Corporation - Statement of Income

Background Note

Hershey was founded by Milton Hershey (Milton) as Hershey Chocolate Company (HCC) in 1894. Before establishing HCC, Milton underwent a four year apprenticeship with a candy maker in Lancaster . In 1876, he established a candy store in Philadelphia, which was closed by 1882. He then moved to Denver, where he learnt making caramel using fresh milk...
Implementing ERP

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). In the early 1990s, the spending on IT in the food and beverage industry was among the lowest...
The Problems

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. However, it was too late for Hershey to respond to this problem...
What Went Wrong?

The top management of the company as well as industry analysts began looking at the reasons for the problems at Hershey. Though SAP was blamed for Hershey's debacle, the company's management viewed it differently...
Bouncing Back

After the debacle, Hershey made efforts to stabilize SAP and other systems. The company appointed a CIO, George Davis from Computer Sciences Corporation. Under his leadership, a rigorous software testing program was implemented...