A Case Study on Hershey's ERP Implementation Failure: The Importance of Testing and Scheduling

Imagine waking up one day to find out that your 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.

Overview - Hershey's ERP Implementation Failure

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.

Key Facts

Here are the relevant facts: 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, Manugistic's 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, 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 used a direct implementation approach and 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. This is not one of those "hindsight is 20-20" cases. A reasonably prudent implementer in Hershey's position would never have permitted cutover under those circumstances. The risks of failure and exposure to damages were simply too great.

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. If testing sets back the launch date, so be it. The potential consequences of skimping on testing outweigh the benefits of keeping to a longer schedule. In terms of appropriate testing, our firm advocates a methodical simulation of realistic operating conditions. The more realistic the testing scenarios, the more likely it is that critical issues will be discovered before cutover.

Question:

Describe what caused Hershey's ERP implementation failure.