Last July was a hot month in Pennsylvania, but the IT managers at Hershey Foods Corp. headquarters, in Hershey, Pennsylvania, were feeling a different kind of heat. For the past three years, they and four different teams of consultants had been working on a massive enterprise resource planning (ERP) software system from SAP AG and two other software vendors that would put the company's operations on one integrated computing platform. The $115 million system would replace scores of legacy systems that were currently running everything from inventory to order processing to human resources. They were three months behind schedule, and itching to flip the switch on the project. It would all go live simultaneously across the enterprise with one big bang.
Big bang? Big flop. By mid-September, the company was still trying to fix glitches in its order-processing and shipping functions. During the busiest season of the year, big customers like WalMart and Kmart were loading up on extra Halloween candy from competitors like Mars and Nestlé, while Hershey warehouses piled up with undelivered Kisses, Twizzlers, and peanut-butter cups. The upshot: third-quarter sales dropped by a staggering 12.4 percent compared with last year, and earnings were off 18.6 percent.
A week after Hershey's disappointment, Whirlpool, a leading manufacturer of household appliances, announced similar though less severe problems with its SAP implementation. In fact, the two companies are just the latest additions to a long list of companies that includes Dow Chemical, Boeing, Dell Computer, Apple Computer, and Waste Management that have struggled in varying degrees with ERP projects.
What's going on here? Since 1992, when market leader SAP introduced R/3, the first client/server-based ERP system, thousands of companies worldwide have implemented the software. Many have been successful, but none has been without problems. Indeed, since at least 1996, SAP and the others have worked vigorously to respond to customer complaints about complexity and difficulty of implementation. But horror stories about SAP implementations (and, to a lesser extent, competing products like those from PeopleSoft, Oracle, Baan, and J.D. Edwards) persist.
Where Did Hershey Go Astray?
Like most companies with snarled ERP projects, Hershey hasn't offered many details. But outsiders point to two notable errors the company made. The first involves timing. When installing a famously complex product like SAP's R/3, the busiest season of the year is not the time to take the system live. Snags always arise, and it's far easier to iron them out during less busy periods of the year, says Kamalesh Dwivedi, chief information officer for telecom equipment maker ADC Telecommunications. Dwivedi and Minnetonka, Minnesota-based ADC managed to accomplish a rarity in the world of corporate computing: a big-bang R/3 implementation completed on time and under budget.
Dwivedi, who was involved in two other successful R/3 implementations, suggests that the best time to go live with an ERP system is at the end of the first month of a quarter. That way, the company is through its financial reporting from the previous quarter and still far enough from the next to provide time for troubleshooting with a new system. "It takes three to six weeks after going live to identify and fix problems," says Dwivedi. That may seem absurdly optimistic to IT managers who have spent years tinkering with SAP systems. But if Hershey had gone live in April, as originally planned (the company did not disclose reasons for the delay), at least it would have had more time to fix problems before the rush of transactions from the busy fall season.
Second, Hershey attempted to do too much at once. Installing SAP's R/3 software is complicated enough. Throw in a customer-relations management program from Siebel Systems and a logistics package from Manugistics, and the project becomes dangerously complex.
But not impossible. In another ambitious SAP installation, Amoco Corp. (now BP Amoco) successfully implemented R/3 in all 17 of its business groups. It kept legacy systems in several departments, such as production planning and human resources, that had to be integrated into the SAP platform.
Steve Grossmann, Amoco's SAP manager at the time, says the project was accomplished in five separate implementations. "These were big bangs," says Grossmann, whose department has since been outsourced to PricewaterhouseCoopers. "People walked out Friday, and when they came back Monday, their whole world was upside down."
Hershey can relate. But the differences between the two installations are significant. Amoco did not implement other software at the same time as R/3, avoiding the gnarly issues of integrating multiple new applications. And it took its time between the five major rollouts of the R/3 system, which began in March 1996 and finished last summer. Grossmann says Amoco had its problems, but nothing like the major business disruptions Hershey is experiencing. Hershey, unfortunately, did not have the luxury of time. With Y2K looming, it may have felt pressure to get all three software packages up and running before the end of the year. It is now left with a mess that will continue to hurt the company heading into next year. "There were three cooks in that kitchen," says Stephen Cole, research director of Forrester Research, in Cambridge, Massachusetts. "That's why there is so much finger-pointing going on."
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