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An Analysis of ERP Systems Implementations

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  • Institute of Business Studies, Papua New Guinea
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Abstract

This paper discusses how ERP implementations took place at Hersey and Nestle USA. The paper is intended to take the learnings of ERP implementations.
An Analysis of ERP Systems Implementations
Bienvenido B. Abad, Jr.
Institute of Business Studies,
School of Information Technology
Section 57, Allotment 10 Magila Street, 6 Mile PO Box 2826 Boroko,
NCD, Papua New Guinea
Bbajr1981@gmail.com
Abstract
Keywords: ERP; Implementations; ERP failure; lesson learn ERP implementation;
Introduction
The challenges faced by world business are predictably grow in intensity and complexity
as we go on. Widened global competition has become the norm rather that exception,
with an unparalleled number and various products available to curb consumers’
necessities and desires (Motwani, Jaideep 2004). To survive in very competitive
business environments, companies have to dynamically shift their business processes
(Vuksic, V. and Spremic M. 2004). Many firms have employed company-wide schemes
called Enterprise Planning (ERP) systems, these systems are designed to integrate and
optimize various business processing, e.g. order entry and production planning, across
entire firm.
An ERP can make or break the whole business organization. A successful ERP can be
the backbone of business intelligence for an organization, give management a unified
view of its processes (Motwani, J., 2004) if correctly implemented otherwise business
process and system issues may cause operational paralysis as happened to
Hershey’s ERP implementation (Gross, Jonathan, 2011).
In the subsequent sections, ups and downs of ERP implementations of two companies
such as Nestle and Hersey’s are compared and contrasted.
The Background
Nestle USA. In 1997, Nestle USA began BEST (Business Excellence through
Systems Technology), the name given to its ERP implementation. The implementation
was scheduled in six years which would ending in the 1st quarter of 2003. BEST was
budgeted with over $200 million and would implement five SAP modules: purchasing,
financials, sales and distribution, accounts payable and accounts receivable. The goal of
Nestle ERP implementation was to unify all its plants and solve the problem which would
bring by Y2K bug.
Before the implementation, Nestle acted as group of companies. Nestle USA had 9
different general ledgers and 28 customer entry points which the object of ERP
implementation to bring prior mentioned numbers to one. One of the intriguing views of
the Nestle USA problem was the story of vanilla. In 1997, a team of examiners in Nestle
found that wide redundancies were present in the company. The Nestle USA’s brand
were paying 29 different prices for vanilla to the same vendor. Each factory negotiated
their own deals with the vendor. The vendor asked price from the factory differently
based on their capability. Further, each factory referred to vanilla with different name
hence the corporate headquarters nearly impossible to compare the manufacturing cost
across the plants (Dieringer, Derek S., 2004).
Hersey. In 1996, the legacy IT systems of Hershey’s set out to upgrade into an
incorporated ERP environment. Three of major software were chosen namely SAP’s R/3
ERP software, Manugistic’s supply chain management (SCM) software and Seibel’s
customer relationship management (CRM) software. The recommended implementation
duration is 48 months, but Hershey’s insisted a 30-month change to avoid Y2K bug.
Based on these the target date was set to July of 1999 to go-live schedule which was
happened together with the company’s peak season to receive bulk orders for Halloween
and Christmas orders. The implementation team cut some time on their critical system
testing phase to meet the implementation deadline. The time cut-off caused unexpected
issues which prevented orders from flowing through the systems when the new system
came alive in July 1999. Hershey could not process worth $100 million of Kiss and Jolly
Ranchers orders even though it had enough inventory stock (Gross, 2011).
Organizational Structure with the Level of Implementation Success. The
Nestlé’s ambition is to be the globally recognized leading Nutrition Health and Wellness
company, and the industry reference for financial performance, trusted by all
stakeholders (“Strategy”, n.d., para 1). However, how could Nestlé achieve such
objective if they face dilemma such Vanilla 29 as they had before shifting to ERP. ERP
implementation has solved problem and all factories have common databases referring
to vanilla in same manner (Dieringer, 2004). In short, price of vanilla for all the factories
has been standardized.
The implementation ERP for Nestle USA went through bumps but it certainly seems to
be paying for itself. As of 2002, Nestle USA claimed they had already realized a savings
of over $325 million (Worthen, 2012) as cited by Dieringer, Derek S. (2004).
“Continuing Milton Hershey’s legacy of commitment to consumers, community and
children, we provide high-quality HERSHEY’S products while conducting our business in
a socially responsible and environmentally sustainable manner.” (“Hershey's Vision”,
n.d, para 1)
The vision had compromised when Hershey $100 million in sales in 1999 unable to fulfill
customer orders during the peak season (Ciecierski, 2015). According to Kenneth
Wolfe, Hershey’s CEO during that time, the problem of sales lost is attributed to the
system’s setup – even the experts agreed (as cited by Ciecierski, 2015).
After the setup was worked out Hersey began to “to realize the benefits of the new
system’s power.”-Wolfe. The company recovered, and they were back on track the
following year Ciecierski, Anya (2015).
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ERP Life Cycle Approaches. Choice of carrying out methodology establishes an
important component of implementation strategy. “Big bang” approach is most popular
implementation methodology where entire system is installed throughout the organization
on a scheduled set cut-off date. All users move to the new system and manual /legacy
systems are left behind. Another major implementation strategy is “phased
implementation”, where roll out is done over a period (MSG Experts, 2015). Unlike the
big bang approach, part of system is still employed in parallel with the new system.
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” approach (Gross,
2011). While Nestle, chose to implement using “phased implementation”. As to the
cases of Hershey and Nestle regardless of approach they used in their implementations
both were undergone implementation nightmares and came out as success after
figuring out their mistakes.
Benefits and Drawbacks of ERP Lifecycle Approaches. The “big bang”
approach for implementation is rapid and cheaper than a phased implementation. On the
other side, peril element is much greater and resources for training, testing and hand
holding are needed at a much higher level, albeit for a shorter period of time (MSG
Experts, 2015). Big bang approach is high of risk and can pose several disadvantages
such as a number of things can go wrong, more problems can be identified, small issues
can be overlooked in the haste, can cause problem with employees when learning the
new system, testing can be difficult before implementation, failure in one part can cause
problem to other, fall back plans do not always work and employees performance can
temporary decline after initial implementation (Lee, Jeanne, 2013).
The “phase implementation” method is less focused, prolonged and requires
maintenance of legacy system over a period of time (MSG Experts, 2015). Further, can
have missing information because each module relies on info from others, so in a
transition there may be some gaps (Lee, Jeanne, 2013). But, phased implementation is
certain, provides time for user’s acquaintance and fall back scenarios are less
complicated (MSG Experts, 2015). As oppose to big bang approach petty details and
issues can be fixed as implementation goes and skill and experience are gained with
each step/phase which can help smooth process (Lee, Jeanne, 2013). There is
various choice of phasing such as i) phased roll out by locations for a multi-location
company ii) phased roll out by business unit e.g. human resources iii) Phased roll out by
module e.g. general ledger.
Use of Change Control of To ERP Systems and the Level of Success They
Had with the Process. At the brink, the transition to ERP from legacy system made the
two companies lost millions of dollars but they did not give up easily.
Nestle was forced to stop the rollout. They identified the mistakes they been through.
Conducted meeting with 19 key stakeholders and executives to discuss the project’s
future. They decided to redefine the business required requirements rather than meeting
the predetermined timeline. The new business requirements became the detailed
blueprint for the project team. They hired a director who acted as liaison between project
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team and the functional divisions. Finally, this action resolved the problems and they
were able to continue the rollouts. (Worthern, 2002).
In the case of Hershey, was being in the dilemma, sitting on the problem was not they
option. They started correct the system set-up. Afterward, the system was functioned
correctly. Hersey started enjoy the advantages of the new system. The company
recuperated and they were back on trajectory the succeeding year (Ciecierski, 2015).
Readiness process of such systems and the level of success they had with
the process. Dieringer (2004) recommended points to consider to avoid Nestlé’s
drawbacks in their ERP implementation.
First, right persons need to be involved right from the beginning of the implementation.
Nestlé’s implementation suffered because the users were not ready to accept the new
system. Redesigning work process without involvement of some people who actually do
the work is impossible.
Second, ERP implementation is not that companies should attempt to force into specific
timeline. Hershey also suffered a when their huge, intricate system squeezed into
unreasonably short timeline. Another Hershey’s failure on this account is that it timed the
cut-over during the peak season (Gross 2011).
Third, ERP implementation is to focus on its end users training. In Nestle, employees
did not understand the new work process but they were forced to adopt which resulted
to employees’ morale to plummet. Also Gross (2011) argued that impossible for Hershey
to meet peak demand when its employee had not been trained for the new system and
business process.
Fourth, companies should spend time evaluating the business process reengineering
that will be done in connection with an ERP implementation. Hershey lost $100 million of
sales when the system setup failed so proper evaluation of business process is
paramount of importance.
Fifth, ERP project is to limit the number of customization as it may increase the cost,
timeline and like hood of bugs in the system.
Added to these recommendations, testing should not be neglected as it is the safety
nets Gross (2011). This attributed as big mistake done by Hershey.
Implementation Issues as they Relate to Risk, Access, and Cost and Data
Consistency. The Nestle and Hershey companies respectively unsuccessfully observed
the foregoing points which had caused their failures. The biggest risks posed by the
failures was the loss of hundreds of million dollars sales by Hershey.
In 1999 when Nestle began the implementation they faced problem of employees’
acceptance of the new system, none of the direct users represented in the stakeholders’
team thus they were not ready to use the new system. Another problem was failure to
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integrate modules which means different modules could not communicate (Worthen,
2002) wherein can be attributed to failure of system testing.
Due to rush implementation Hershey’s implementation team made the serious mistake
of sacrificing systems testing. This resulted to critical data, process and system
integration issues that may remained undetected until it was too late (Gross, 2011).
The ERP Implementation Training Plans and Identify Why They Were Successful or
Not. The training plans in both cases were not really successful. In fact, this was one of
the factors the ERP implementation on respective company failed in initial stage. As
cited by Dierenger (2004), Nestle failed to involve its employees in planning and
development of the system. By the time of implementation employees did not understand
how to use the new system and did not understand the new work processes but they
were forced to adopt. As a result, employees resisted. (Worthen, 2002). This had
contributed to failures of ERP implementation at Nestle, but after corrective action, the
system worked correctly as planned.
As Hershey’s implementation team rushing to meet the implementation deadline most of
the important tasks which including the training were shorten. Also, the implementation
time was during the peak sales season. As a result, the sales persons could know how
to manipulate the system. The implementation could have had done during slow season
so the employees could have time to learn the new system (Gross, 2011).
The importance of training should not be taken too lightly as it could result to pitfall of
ERP implementation. Users should be involved in system testing at all possible and
users need in-depth and on-going training (Adshead, 2002) cited by Dieringer, 2004.
Necessary Steps for the ERP Implementation to Be Successful In Both Situations.
After considering availability of required resources, state of readiness, risk perception,
timeframe of implementation and budgetary provisions formulation of an important
component of implementation strategy should be formulated as part methodology of
implementation (Jeanne, 2013).
Run a test for business processes and systems using a methodology designed to
simulate realistic operating scenarios; and pay close attention to ERP scheduling. These
are the two of the most important lessons that any company implementing or planning to
implement ERP can take away valuable lessons from the Hershey’s case. Any company
will mitigate failure risks and put itself in a position to drive ERP success by following
these bits of advice (Gross, 2011).
Conclusion
In the final note, consideration of all stakeholders, timeline, and business process
reengineering and testing should be taken account when implementing ERP regardless
of the size, budget and the team.
Involvement of stakeholders in all phases of implementation may give them window to
see how the new system works thus giving them better way of understanding the new
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system. Moreover, giving enough time and proper employees’ training would help them
to adopt to this would make the employee more efficient and effective in dealing with the
new system.
Timeline is also a great factor to consider in ERP implementation. Allowing enough time
to ERP implementation team to settle necessary things may reduce risks. Proper timing
should be considered as well to reduce the impact in case of failure.
In most cases business process reengineering (BPR) cannot be avoided. In dealing with
BPR the implementation team should be careful of the size as enormous amount of
process reengineering could cost money and time.
Testing is very essential in all aspects of ERP implementation and it requires time.
Insufficient testing period may cause great impact on the business.
Finally, planning would allow the implementation to run smoothly and lessen risks of
failures. For every ERP implementation expect obstructions and troubles along the way
but what important is the ability to change for setbacks and this would be attained
through proper planning.
References
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hersheys failed - erp - implementation/ | ERP Cloud Software on October 10, 2015.
Dieringer, Derek S. (2004). ERP Implementation at Nestle. June 24, 2004.
Gross, Jonathan, 2011, A Case Study on Hershey's ERP Implementation Failure: The
Importance of Testing and Scheduling. March 9th, 2011 Retrieved at
http://www.pemeco.com/a - case - study - on - hersheys - erp - implementation - failure -
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Hershey's Vision”, n.d, retrieved from http://www.hersheys.com/world - travel -
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2015
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