Hershey priced its products low, and to achieve sales of almost US

$ 5 billion, hugequantities of the products needed to be sold. This

called for highly efficient logistics andsupply 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
thelowest. During this period, Hershey, like most of the other companies in the ind
ustry usedlegacy systems. It functioned through several mainframe legacy systems,
which were usedfor different functions ranging from human resources to order
processing.

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 toowould 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 warehouseswere piled up with products ready to be shipped, as the
manufacturing process wasrunning 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 millionworth 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-
percentdrop in quarterly profits and an eight-percent decline in stock price.When
the systems went live in July of 1999, unforeseen issues prevented orders
fromflowing through the systems. As a result, Hershey's was incapable of
processing $100million worth of Kiss and Jolly Rancher orders, even though it had
most of the inventoryin 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
testingfor the sake of expediency. As a result, critical data, process and systems
integrationissues 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 benefitsof keeping to a longer schedule. In terms of appropriate
testing, analyst advocatesmethodical simulations of realistic operating conditions.
The more realistic the testingscenarios, 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 decisionto roll out all three systems concurrently,
using a "big bang" implementation approach. Inour view, Hershey's
implementation would have failed regardless of the approach. Failurewas rooted in
shortcuts relating to systems testing, data migration and/or training, and notin the
implementation approach. Had Hershey's put the systems through
appropriatetesting, it could have mitigated significant failure risks.
ERP Implementation Scheduling
Hershey's made another textbook implementation mistake - this time in relation to
projecttiming. It first tried to squeeze a complex ERP implementation project into
anunreasonably short timeline. Sacrificing due diligence for the sake of expediency
is asure-fire way to get caught.Hershey's made another critical scheduling mistake
- it timed its cutover during its busyseason. 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 stillexpect performance declines
because of the steep learning curves.By timing cutover during slow business
periods, the company gives itself more slack timeto 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 thecutover
period.Apart from these two reasons industry analysts also concurred that problems
in projectmanagement 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 itis now. The SAP workers are just making sure they're using
the business processes (builtinto the software)
correctly.Another reason cited for the debacle was Hershey's lack of experience in i
mplementingsoftware solutions of this magnitude. Hershey had earlier
implemented a few customizedsystems, but they were on a much smaller scale. Th
e top management did not conductenough groundwork before going ahead with im
plementation of this company-wide ERPsolution. Since the
groundwork was inadequate, the top management also fell
short inguiding the company's technical and business managers. These two levels o
f managementwere working towards different goals. An analyst commented, "The t
hing Hershey can befaulted for was to announce that they
had blown ERP as justification for missing earnings.
Conclusions
In closing, any company implementing or planning to implement ERP can take
away valuablelessons 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 wouldhave been better if Hershey had chosen to roll out each system successivel
y and thencheck the integration issues. For a project to be implemented in a compa
ny as big asHershey, each component had to be rolled out cautiously, ensuring
that the systemworked according to the plans. But with such a short time-
frame to implement the ERP, itwas not possible to test each of the components care
fully. In this case, a big bang was notthe right approach