IBS Center for Management Research
ERP Implementation Failure at Hershey Foods Corporation
This case was written by P. Indu, under the direction of Vivek Gupta, IBS Center for Management Research. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.
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ERP Implementation Failure at
Hershey Foods Corporation
“The Hershey debacle is not an indictment of ERPs per se, but it should caution any company that chooses to implement such a broad suite to make sure that system will function smoothly before entering a peak sales period.”1
– Chain Store Age, in 1999.
“There is no doubt that 1999 was a most difficult and disappointing year for Hershey Foods Corporation. While the year got off to a slow start due to excessive retail inventories, we fully expected a strong finish in the second half of the year. Instead, the implementation of the final phase of the Corporation’s enterprise-wide information system created problems in the areas of customer service, warehousing and order fulfillment. These difficulties were exacerbated by our growth in recent years which had resulted in shipping capacity constraints. As a result, Hershey’s sales and earnings fell well short of expectations for the year.”2 – Kenneth L Wolfe, Chairman & CEO, Hershey Foods Corporation, in 1999.
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 1
Matt Nannery, “When the Candy Man Can‟t,” Chain Store Age, December 1999. Hershey Annual Report, 1999, (filed on March 13, 2000), www.sec-edgar-online.com. In April 2005, Hershey Foods Corporation was renamed as The Hershey Company. Marc L Songini, “Halloween Less Haunting for Hershey this Year,” Computerworld, November 06, 2000. Walldorf, Germany-based SAP AG is the largest business software enterprise in Europe. SAP is the pioneer of enterprise resource planning with its main product SAP ERP. In 2006, the company‟s revenues were at € 9.327 billion and net income was at € 1.871 billion. Siebel Systems Inc. was founded by Thomas Siebel in 1993, and was involved in designing, developing, and marketing of CRM applications. In September 2005, Oracle Corporation acquired Siebel for US$ 5.8 billion. 1
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