Case study on erp failures

“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
customers 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 expectation for the year.”

- Kenneth L Wolfe
(Chairman & CEO, Hershey Foods Corporation, in 1999)

 Chocolate Business started by Mr. Milton S.
Hershey in 1876
 The Hershey Company was established in
1894
 One of the leading Chocolate
manufacturer in North America
 Hershey's sales are roughly 80% chocolate
and 20% non-chocolate
 Hershey‟s Competitors include Mars,
Nestle, Russell Stover, Palmer and Nabisco

 During late1996, the management of Hershey gave
its approval to a project named Enterprise21
 For this Hershey selected SAP's R/3 ERP software,
Manugistic's SCM software and Seibel's CRM
software and IBM Global Service so as to manage
integration among these three systems.
 Overall Project Cost was US $10 Million
 The recommended implementation time for the
project was 4 yrs. and Hershey demanded for 2.5
yrs. because of impending Y2K problem
 Hershey decided to go with Big Bang Approach
instead of phased approach

 Problems pertaining to order fulfillment, processing and
shipping started to arise; Hershey would not be able to
meet its committed date of delivery
 Several of Hershey's distributors who had ordered the
products could not supply them to the retailers in time, and
hence lost their credibility in the market
 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
 After Hershey‟s announcement in the market about
problems due to malfunctioning of the newly installed
computer systems, Hershey's stock price plunged by 8% on a
single day.
 Hershey's failure to implement the ERP software on time
costed the company US $150 million in sales. Profits for the
third quarter 1999 dropped by19% and sales declined by l2%.
In its 1999 annual report

 Over-squeezing implementation
schedules
 Big Bang Approach instead of Phased
Approach
 Mistake of sacrificing systems testing
for the sake of expediency
 Cutover Activities and Go-Live was
scheduled in Hershey‟s busiest business
periods

 Do not force an ERP implementation
project into an unreasonable timeline
 Never schedule cutover during busy
seasons
 Testing phases are safety nets that
should never be compromised

 August 2004, HP announced that their
revenue for 3rd quarter from its Enterprise
Servers and Storage (ESS) segment had gone
down by 5% to $3 bn.
 Reasons stated for the downfall was due to
migrating to a centralized ERP in one NA
division.
 Total financial impact of the failure was
around $160 million.
 This loss was more than 5 times the cost of
implementing ERP.

 HP is an American multinational corporation
headquartered in Palo Alto, California, US.
 Provides products, technologies, software,
solutions and services to consumers including
government, health and education sectors.
 Stanford engineers Bill Hewlett and David
Packard started HP in California in 1938 as an
electronic instruments company.
 First product was a resistance-capacity audio
oscillator, an electronic instrument used to test
sound equipment.

 HP implemented mySAP ERP.
 HP started their migration of data with SAP
into mySAP ERP.
 After two months, the result of the migration
had decreased revenues.
 SAP had already roll out the application 4
times and this roll out was number 5.
 Gilles Bouchard became the CIO and
Executive Vice-president (EVP) of global
operations at HP. He was made responsible
for both the supply chain and ERP software
implementations.

 HP revealed that there was execution
problem and there was no fault of SAP in it.
 There were small technical glitches but the
main issue was contingency planning, which
was not addresses properly.
 The other issues were like:
 Data Integration Issues
 Demand Forecasting Problems
 Poor planning & Improper Testing

 The ESS division's order system became unstable
due to problems with data integrity and a
simultaneous increase in demand for HP's
Standard Servers.
 This technical glitch led to improper routing of
orders and caused backlogs to escalate till the
end of August 2004.
 Analysts commented that the Companies culture
did not support the much active involvement of
employees also Co. ignored valuable suggestion
from employees.
 Many Vice-President had joined the rival Co. and
also many employees had a fear of been layed
off.

 Implementation failure can impact overall
business performance.
 HP had spent huge amounts of money in
speeding up delayed orders.
 There has to be a detailed mapping between
the departments and their business
requirements or else it would miss the
objectives.
 The success of implementation depends upon
the planning, which considers the business
process along with the technical aspects.

 WasteManagement, Inc. is North America's leading
provider of integrated environmental solutions

 WM is leading developer, operator and owner of
waste-to-energy and landfill gas-to-energy
facilities in the United States

 Mission
: To maximize resource value, while
minimizing environmental impact so that both our
economy and our environment can thrive

 The project has to be completed in 10 Months (8
months for pilot program & 2 months for
Implementation) but it took 2 Years to implement.

 Wanted an ERP package that  Waste Management didn‟t
could meet its business
requirements without large „timely and accurately
amounts of custom define its business
development within time
period requirements‟ nor provide
 SAP used a „fake‟ product „sufficient,
demonstration” and “SAP‟s knowledgeable, decision-
technical team had
„recommended that SAP empowered users and
deliver to Waste Management a managers‟ to work on the
later version of the software
than the version SAP in fact project.”
delivered‟.” They also claimed
SAP knew the software was
“unstable and lacking key
functionality

WM’s Claim SAP AG’s Claim

 Lack of Senior management support.
 However their support is not enough, what the Waste
Management lawsuit points out is that risk
management (risk identification and risk mitigation)
are critical components of an SAP project.

 In this case it seems entirely reasonable, and
plausible, that Waste Management did not
provide key, timely information or key decision-
makers as SAP had said. However, it also found
Waste Management's other claims they made in
later pleadings that the SAP sales force had a
strong hand in creating the problem because the
sales person was concerned about getting their
million dollar commission.

 Organization or company who implements SAP, ERP, or
other enterprise software applications must ensure they
are in control of their own project.

 This would generally fall under numerous critical
success factors: business process engineering / change
management, scope management, senior management
support, formal project plan and schedule, consultant
experience, implementation strategy, and amount of
custom coding.

 Delivering a project with standard system functionality,
and on time / on budget requires strong leadership from
both the customer and the integrator.

 FoxMeyer Drugs was a $5 billion company.
United States’ fourth largest distributor of pharmaceuticals.

 They thought of Implementing ERP for using technology to
increase efficiency.

 FoxMeyer conducted market research and product
evaluation and purchased SAP R/3 in December 1993.

 FoxMeyer also purchased warehouse-automation
from a vendor called Pinnacle.

 They chose Andersen Consulting to integrate and implement
the two systems, and named the project as Delta III

 Implementation of the Delta III project took place during
1994 and 1995.

• Project kick-off
• Software acquisition
1993 • FoxMeyer signed a large contract to supply University HealthSystem
Consortium (UHC)

1994 • Implementation

• Implementation
1995

• Thomas Anderson, FoxMeyer Health's president and CEO (and champion of the
company's integration /warehouse-automation projects) was asked to resign due
to delays in the new warehouse and realizing the SAP system's projected savings.
1996 • Bankruptcy

• The trustee of FoxMeyer announced that he is suing SAP, the ERP vendor,
1998 as well as Andersen Consulting, its SAP integrator, for $500 million each

 Although senior management commitment was high,
reports reveal that some users were not as committed.

 There was a morale problem among the warehouse
employees, warehouse automation threatened their jobs

 The execution of the project was an issue due to the
shortage of skilled and knowledgeable personnel.

 There were over 50 consultants at FoxMeyer, many of them
were inexperienced and turnover was high (Computergram
International 1998)..

 Although FoxMeyer must have realized the project was in
trouble, its dependence on consultants and vendors
prevented it from seeing how it could gain control.

 Since FoxMeyer was competing on price, it needed a high
volume of transactions to be profitable.

 The New R/3 could process only 10,000 customer orders
per night, compared with 420,000 under FoxMeyer's
original mainframe system

 Thomas Anderson, FoxMeyer Health's president and CEO
was asked to resign due to delays in the new warehouse
and realizing the SAP system's projected savings.

 FoxMeyer was driven to bankruptcy in
1996, and the trustee of FoxMeyer announced in 1998
that he is suing SAP, the ERP vendor, as well as
Andersen Consulting, its SAP integrator, for $500 million
each (Caldwell 1998, Stein 1998).

 http://www.icmrindia.org/casestudies/catal
ogue/IT%20and%20Systems/ITSY045.htm
 http://www.cio.com/article/486284/10_Fam
ous_ERP_Disasters_Dustups_and_Disappointm
ents
 http://www.scribd.com/doc/24366268/ERP-
Implementation-Failure-at-HP

Case study on erp failures

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