Overview – Hershey’s ERP Implementation Failure
When it cut over 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. In the analysis that follows, I use Hershey’s ERP implementation failure as a case study to offer advice on how effective ERP system testing and project scheduling can mitigate a company’s exposure to failure risks and related damages.
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 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. Unfortunately, too few companies have learned from Hershey’s mistakes. For our firm, it feels like Groundhog Day every time we are retained to rescue a failed or failing ERP project. In an effort to help companies implement ERP correctly – the first time – I have decided to rehash this old Hershey’s case. The two key lessons I describe below relate to systems testing and project scheduling.
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 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.
For our clients, we generally perform three distinct rounds of testing, each building to a more realistic simulation of the client’s operating environment. Successful test completion is a prerequisite to moving onto to the next testing phase.
In the first testing phase – the Conference Room Pilot Phase – the key users test the most frequently used business scenarios, one functional department at a time. The purpose of this phase is to validate the key business processes in the ERP system.
In the second testing phase – the Departmental Pilot Phase – a new team of users tests the ERP system under incrementally more realistic conditions. This testing phase consists of full piloting, which includes testing of both the most frequently used and the least frequently used business scenarios.
The third and final testing phase – the Integrated Pilot Phase – is the most realistic of the tests. In this “day-in-the-life” piloting phase, the users test the system to make sure that all of the various modules work together as intended.
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 my 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 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.
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. By following these bits of advice, your company will mitigate failure risks and put itself in a position to drive ERP success.
Our team has been leading successful ERP implementation projects for decades – for Fortune 500 enterprises and for small to mid-sized companies. Our methodology – Milestone Deliverables – is published and sells in more than 40 countries.
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This article was originally published by Manufacturing AUTOMATION on July 30, 2010.
Analysis of Critical Success Factors in Enterprise Resource Planning (ERP)
ERP stands for Enterprise Resource Planning. ERP is an integration of business management practices and modern technology. ERP is the tool to integrate all departments and functions across a company onto a single computer system that can serve all those different departments’ particular needs.  The typical of ERP system can combine inventory data with human resource, finance, and sales data. This capacity enables the business to manage human resource, manage supply chain, price product, produce financial statement and control financial resource effectively. ERP also enables management a better overview of all of the company’s operation and management’s activities. The examples of ERP software are SAP and People Soft. ERP system is unite and link together multiple processes and parts of the business. The system also centralizes the data in one place, which can eliminate the problem synchronizing changes between multiple systems.
Due to complexity and high investment, time consuming of moving process to ERP system, most of the firms purchase ERP software, instead of developing. Many businesses reluctant to choose suitable ERP to their need and the result of implementation ERP is not always successful. Many firms have installed ERP system but abandon their implementation later.  The study of critical success factors helps firms to have better analysis and avoid the pitfalls. Also, organizations must pursue and evaluate the performance of ERP project by using solid parameters and indicator to measure the success of ERP project.
Analysis Critical Success Factors in ERP implementation
ERP success refers to the utilization of the system to enhance organizational goals. The critical success factors from this report have been studied from many different perspectives, such as social enabler, strategic factors, selection of software and etc., In order to succeed in ERP project, business or organization should consider these success factors before implement ERP. The study of CSFs implementation can help organization to identify practical activities that are important to ERP implementation, contribute to decreasing the uncertainties related to ERP implementation, and help all project actors to better control the various areas of expertise required. The process of identifying CSFs helps to ensure that those factors receive the necessary attention and these directly affect to the success of ERP projects. 
Change management and organization culture
This factor is about the need for the implementation team to a change management program.  Building user acceptance and a positive employee attitude are very important to this concept. One of the important parts in change management is training. Change management should start as soon as possible and should start to get support at mid-level managers. The actions/practices supporting change management are: 1) Make sure that executive management support the ERP project. 2) Assess the organization’s capacity to accept the change. 3) Provide training throughout the organization. 4) Communicate the benefits of changes. 5) Form the mitigate plan. 6) Reduce the resistance at the beginning of change. 7) Motivate employee throughout the project. 8) Train project leader to handle with change management problems. ----[Top]
2. Business process reengineering (BPR) and customization
Business Process Reengineering is fundamental steps undertaken prior to ERP implementation. BPR take a major role in analyst and suggestion the structural changes. Also, feasibility study is one part of the BPR. It is very important process because it helps in knowing how the organization should be customized in order to implement EPR.  One of the results of BPR is to complete description of how the business will operate after implement ERP package. In order to practice the BPR, the business must review the business processes by using appropriate tools. Processes and activities have to be aligned with new system. BPR activities must put in the plan. Business should keep in mind that the best way to manage change is to adopt it. The examples of action that should include in this factor are 1) Inform the limited of BPR. 2) Record specific reengineering activities in the plan. 3) Minimize the customization of the application. 
Customization is an integral part of ERP implementation. The goal of customization in ERP implementation is to ensure that the companies’ requirements match with ERP solution. Deciding the degree of customization for an ERP system is an important decision. The companies might need help from consultants since this process require a strong working knowledge of ERP system. Customization relates to both ERP’s success and achieving user satisfaction. Therefore, customization in ERP affects directly to ERP’s success.  ERP often requires extensive customization but customization of the system should be avoided or should be kept at the minimum level because customization associates with a longer time and higher cost of implementation. According to Kumar, he mention that the customization should less than 30%  ----[Top]
3. ERP team composition, skill and compensation
This factor is about the combination of member and skill in ERP team. The actions/practitioners that organization should practices are 1) Ensure that in the ERP team includes people both business and technical knowledge. The selection of the implementation, vendors and consultant is important to the project. 2) Ensure that team leader posses the authority that is recognized throughout the organization. Also, team leader needs to have adequate decision making power. 3) Encourage member to get involved in the project. 4) Team should be balance and cross functional. The representative should include both internal staff and consultant. 
4. Project management
Effective project management is important to the success of ERP implementation. This concept refers to the ongoing management of the implementation plan.  Project management includes defining the requirement of the project, planning stages, assigning the responsibilities to various members, and training and determining the measure of success. The actions that favor project management are 1) The scope of ERP implementation project should be clearly defined. The delivery date and milestone should be clearly stated and realistic. 2) Prepare the material, people and financial resource available to the project. 3) Because many parties involved in ERP project, it is need to coordinate project activities across all parties. 4) Assess project manager’s competency Confirm the scope such as, timeline, risk and resource with a project’s manager. 5) Continuous monitor is needed for project management to ensure that the project is in the scope 6) Plan risk management process. ----[Top]
5. End-user involvement
Many company neglects to involve end-users’ requirement and eventually lead to the failure of the project. End-user must be involved in the project at the beginning of the project until the end. This involvement ensures that the system respond to user’s need, easy to use and less resistance. The ERP package that is selected must support the organization’s business process. Also, it must meet the information and functional needs of the organization.  The actions that favor end-user involvement are 1) Provide training program that enable users’ knowledge and their needs. 2) Investigate and collect users’ requirement. 3) Identify way or plan approach of getting user involvement during the development process. ----[Top]
6. Knowledge management and consultant selection
It refers to exchange of information within the team and the organization. The actions that support knowledge management are 1) Build channel and climate to exchange the information within the company. 2) Encourage as many people as possible trained to the new system by the consultants. Inadequate training causes failure in ERP implementation. 3) Create support programs with the consulting firms.  Because ERP project implementation is costly and time-consuming, many companies seek helps from consultants. ERP consultants transfer the knowledge and business practices in an ERP packages into the customers. Good consultant should show five roles which are
- Expert: this role refers to the ability to provide knowledge and skill. A consultant can provide useful knowledge and skill to his/her customer.
- Manager: this role refers to the ability to manage and control the project.
- Researcher: this role refers to the ability to obtain, analyze and interpret objective data in scientific manner.
- Counselor: the consultant requires formal method and knowledge to client in learning process.
- Politician: this role refers to the ability to politically sophisticated and active in order to be success in management consulting projects. ----[Top]
7. Software selection
There is a strong relationship between ERP success and software selection. It is very important to choose right ERP software.  Businesses need to start with defining the processes within the organization and determine function that is critical to the operation. It is important to keep in mind that the system must match with the system process. The organization should think of core business function. For example, if the business is manufacturer, manufacturing is the core business function. Therefore, business should focus on the package that is designed specifically for manufacturers and specific type of manufacturing. In other word, business need to choose one that meets the specific requirements completely. Also, the requirements of companies can change. Organization should choose software that is able to meet the present and potential future requirements. ----[Top]
Top four mistakes in software selection process
- Not knowing what the company really need in ERP software: the issues that companies should consider before selecting ERP software are 1) the companies should determine what they really for their own business, they must think of core business function and focus on the package that is designed specifically for and met the specific requirements completely. 2) It will often depend on the problems that the businesses are trying to solve. 3) The size and structure of the company. For example, small to mid size companies who have limited resource and budget might consider a fully integrates ERP software system. This type of system allows organizations to streamline processes and achieve improved productivity at a lower cost and with fewer resources.
- Not recognizing the uniqueness of business: each industry has unique characteristics and needs. Companies must to choose software that enhance the business, not limit the capabilities. First of all, companies need to define the core businesses and business requirements. The software the businesses choose should fit to the industry and tailor for the businesses. By choosing ERP software solutions that is specialized for businesses’ industry, companies will be able to get a specific targeted solution to meet unique business needs. The right solution will improve efficiency, reduce costs, and enhanced profitability.
- Not choosing the right vendor: one of the most common mistakes in software selection is choosing an ERP software vendor who doesn't know your business. It is unnecessary to choose the big vendor but it is better to pick the partner who already known and understand buyer’s industry. By choosing a partner who has in-depth understanded buyer’s industry and known where your industry's future is headed will help the company achieve more rapid deployment, be more cost effective, and be more efficient with the use of your ERP software solution.
- Not giving ERP software implementation the attention it needs
This mistake falls into 1) Lack of attention from project manager, the majority of successful implementations occurs when the customer's Project Manager dedicates 80-90% of their time to the implementation project. The role of the Project Manager is to streamline the process and keep things in check. 2) not documenting business process flows when implementation is complete. Documenting the process helps company in situation that an employee leaves or changes position. 3) Inadequate training program. Employees should continue to receive training after the software has been implemented. 4) Proper and thorough testing is another common oversight when implementing ERP software. It is necessary to perform test all of businesses’ data, procedure and process where users from each department of your organization do their job using real data. Testing allow business to identify any errors or misunderstanding in the process flows before it launch. 
8. Data accurate and integrity
The availability and accuracy of system’s data is very important to the success of ERP project. The business must make a right decision in loading useful data to the system since problem with data causes serious delay in the project. ----[Top]
Other critical successful factors that business should consider
9. Top management commitment and support
This concept refers to the need to have commitment from leadership at the top level and the need for senior management who would be involved in the strategic planning and technically oriented.  Top management should be willing to allocate the enough resource such as money and time to the ERP project. The examples of action presented for the top management support factor are 1) Identify selected top management member. 2) Inform selected members of top management about the detail of the project’s processes and project’s impact on the company. 3) Set up management committee. 4) Plant for meeting management ex. monthly meeting. 5) Include top management in the decision-making process and/or project follow-up activities .
10. Business plan, vision and mission
The business must have clear visions and business plan for ERP project. It is very important to identify goal before implement ERP project. Business plan reflect a long term vision. Clear vision and mission provide the guideline for ERP implementation.  The vision and mission must specific target, goal and clear measurement. The business plan must include benefit, costs, risks and a timeline.  Those information need to be well understood and clear. Provide a clear link between the business goals and IS strategy. More important, goal should be measureable.  The examples action that support business plan, vision and mission are 1) Identify and formally communicate the link between the ERP and the company’s strategy. 2) Throughout the project, re-evaluate the achievement of goal. 3) Get the consensus from management team relating to the goal of the implementation. 4) Define ERP implementation as the company’s most important project. 
11. Effective Communication
Effective communication must start with communication plan. Expectation and goals must be communicated effectively throughout the organization. It is essential for stakeholder to know and understand the capabilities and limitations of the ERP system. The actions that support effective communication are 1) Create the communication plan at the beginning of the project. 2) The language that has been used to communicate be understandable for all members. 3) Centralize information for a common understanding of decisions. ----[Top]
ERP Performance Evaluation and measurement
ERP performance evaluation is an important step that helps a company analyzing the contribution of ERP. ERP evaluation refers to the systematic procedures followed to estimate the performance of ERP in a company. This is not a one step process and it should be a part of the organizational study and as well as be done from time to time . The evaluation helps organization to analyze the contribution of ERP to its business.The study of ERP performance evaluation helps firms to avoid pitfalls on ERP implementation.In order to evaluate the ERP performance,the businesses must deicide and stick on to one particular method. The assessment should set up within the time gap of three, six and twelve months. The frequency of assessment depends on many factors like the volume of business, ability to adapt to change and the characteristics features of the software that is in use. 
The evaluation of ERP requires deep understanding of the major impact ERP has on the business strategy, the organizational structure and role of people in the organization throughout the project. 
Due to the complexity of ERP and the intangible of ERP implementation, the evaluation must be both quantitative and qualitative. According to the research of Chen and Wang, they mentioned about indicators of each area which are
- Qualitative indicators include
- Human resources include personnel quality and management quality. The personnel quality is the knowledge level, professional standards, and corporate culture. Management quality includes the operator's decision-making level.
- Hardware resources refer to a variety of hardware involved in establishment of ERP systems.
- Software resources refer to the performance of the ERP software.
- Quantitative indicators consist of seven areas which are
- Business ability of innovation and learn, which are business model innovation and business process innovation
- Marketing, including sales, orders and inventories.
- Business operations management, including enterprise production management, logistic distribution and financial management.
- Financial condition includes overall budget, the ability of using financial indicators to monitor the production and operation management.
- Assets operation.
- Information Resources, specifically the ERP application level and application status.
- Business development capability, which is a comprehensive economic indicators. 
In the ERP traditional measuremen, ROI is one of the most important parameter in assessment which decides if ERP should be a part of the organization or if it should be given a go by. This is because a lot of money is spent on ERP implementing and training. 
One of the important flamework used to evaluate ERP is Balanced Scorecard Approach. The BSC is a framework that constructs the important and relevant KPIs or the key performance indicators for performance measurement and management. Aside from the traditional measures that are associated with the financial aspect, the ERP scorecard has now widened in its effects including internal processes, customers and learning and innovation. Therefore, the ERP scorecard contains the non financial as well as the less tangible features of the business including response time, the implementation and the business functions that support ERP. ----[Top]
A successful ERP implementation project brings many benefits to organization. For example, by eliminating redundant information and computer systems, ERP may lead to a reduction in overall information technology costs. It also can shorten production cycles, improve customer services, increase the accuracy of demand forecasts, and reduce expense from operating expenses . In addition, up-to-date and accurate data improved the company’s ability to track and control inventory and forecast future demand, this eventually led to inventory reduction.The disadvantages of ERP is expensive. ERP hav many hidden cost, such as training cost, testing , data analysis, data conversion,etc., Even though, successful ERP implementation brings many benefits to companies, many organizations fail to implement ERP project. This is because the complexity and difficult to control. The study of critical success factors in ERP implementation is an approach that can apply to all ERP projects and this help organization to have better analysis and successful in ERP project.
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