I came across an article recently that said:
“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.”
This sounds like an operation managers worst
nightmare. Unfortunately for Hershey’s manufacturing and distribution this was
their reality during the Halloween of 1999.A failure in the implementation of
ERP systems alone had a catastrophic impact on Hershey’s Confectionary.
Hershey’s saw a 19% reduction in a quarter’s profit and an 8% reduction in
stock value.
To backtrack a little, Hershey’s Foods was a $5
billion dollar company as of 1999. Being an industry leader in confectionaries
Hershey’s received numerous orders from a number or retailers every year.
However, Hershey’s had not continued to invest or innovate in the use of their
IT systems. Soon enough, the retailers pressurized Hershey’s for systems that
can perform better delivery scheduling.
Succumbing to this pressure, Hershey’s decided to roll out an ERP system
that should have ideally taken 4 years within 30 months. A perfect recipe for disaster,
Hershey’s ended up being behind on schedule during Halloween season and lost
out on sales to Mars and Nestle. While Hershey’s had both the supply in form on
stock and strong demand, it was a failure of implementation that caused this
catastrophe. Most of the analysis behind this case stresses on the fact that
Hershey’s tried implementing too many changes without a well-planned change
management.
While a whole lot has been discussed about how
Hershey’s failed I was more curious to learn about how they recovered from this
loss. Being unable to fulfill orders worth $100 million during the busiest time
of the year would have certainly affected the relationships they shared with
their retailers and customers. I believe this could have potentially hampered
their brand image, goodwill and trust from both their retailers and customers. In
2000, Hershey’s spent a great deal of time and resources to scrupulously test
their systems before deploying them. They ensured that all faults and bugs were
fixed before opening a distribution center. As of now, Hershey’s Foods has a
turnaround time of 24-48 hours after an order is placed. They have also managed
to reach an inventory location accuracy of 99%, which is commendable.
An interesting observation of this case is the importance of IT in the
supply chain industry. IT now plays a very significant role in the successful implementation
of a business strategy. I wonder if there will be a point where IT is no longer
the competitive advantage or disadvantage in the industry. With advancement in
technology and the ability of purchasing solutions of the shelf will everything
become standardized? How will companies then continue to differentiate
themselves from one another?
References:
1) http://www.authorstream.com/Presentation/purohit1323-1364889-erp-failure/
2) http://www.pemeco.com/resources_center/erp-implementation-importance-testing-and-scheduling
I really like this post. Your information about erp implementation disaster is really helpful.Most of the analysis behind this case stresses on the fact that Hershey’s tried implementing too many changes without a well-planned change management. ERP Implementation Methodology consists of design, implementation, stabilization, continuous improvement & transformation.
ReplyDeleteHi Thank for sharing this article. ERP Implementation has never been an easy task. For a successful ERP Implementation, the major role is not only the ERP vendor and consulting team, but also the union of team work and a perfect implementation strategy between the vendor and the company.
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