erp implementation as of january 2013

ERP System Implementation

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Application Service Providers

• Outsource ERP• Popular Concept used by SMEs

Unocal pared IT staff 40% in two years Focus on core competencies, shed cost centers

• Many specific functions can be outsourced• Outsourcing benefits

Speed Organization lacks IT skills

• ASP the most popular way to outsource

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ASP Risks

• Q. What are the Risks of ASP?• A. Your applications and data are controlled by others• A. Service failures are out of your control• A. Confidentiality failure is a possibility• A. Performance issues are possible

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Key Planning and Implementation Decisions

• To ERP or not ERP?• What to hold on to?• Customization: Big R or small r?• Big bang or phased implementation?• Single package or best-of-breed?• Which ERP package?• What Enterprise?

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ERP or not to ERP?

• Business Case Rationale Technology

o Disparate Systemso Poor quality existing systemso Difficult to integrate acquisitions

Processo Personnel and IT cost reductionso Productivity improvementso Closing the financial cycle

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ERP or not to ERP?

• Business Case Rationale (cont.) Strategic

o Able to implement new strategies not supported by the current software (eCommerce and portals)

o Improving customer service and satisfaction

Competitiveo “Competition has it”o Improved customer response

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What to hold on to?

• Outsourcing Continue to focus on core mission Avoiding a huge financial commitment Minimize impact on IT department

• In-House Better match between the software and

the business Applications are optimized for the

organization Security

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Big Bang or Phased Implementation?

• Big Bang (All modules at all locations implemented at the same time) No need for temporary interfaces Limited need to maintain legacy software Cross-module functionality No going back Lower cost if no surprises

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Big Bang or Phased Implementation?

• Phased (Modules implemented one or a group at a time, often at a single location at a time) Smoothing of resource requirements Able to focus on a particular module Legacy system fall back Reduced risk Knowledge gained with each phase Used to demonstrate a working system

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Other Implementation Approaches

• Wave – different waves of change to a different business unit or region

• Parallel – both ERP and existing system run together for a period of time Basis of comparison Existing system serves as backup Requires more computing and human

resources – more costly Existing system may not be properly

maintained during the period Reengineering not supported by existing

systems

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ERP Implementation Life Cycle

• Phases of ERP Implementation Life Cycle Pre Evaluation Screening Package Evaluation Project Planning Phase Gap Analysis Implementation Training

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ERP Implementation Life Cycle

• Phases of ERP Implementation Life Cycle (Contd.) Testing Going Live End User Training Post Implementation

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Pre Evaluation Screening

• Hundreds of ERP Vendors• Limit the No. of packages to be evaluated to less than five• Thorough evaluation of a small no. of packages• No superficial analysis of dozens of packages

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Pre Evaluation Screening (Contd.)

• Zero in on a few best packages by Looking at product Literature Getting help from External Consultants Package used by similar companies

• Vendor’s standing in the Market• Local Implementation and post Implementation support

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Package Evaluation

• Do it right the first time Huge Investment Not easy to switch to another one, once

purchased one package A very little room for error

• None of them are perfect• Objective should be to find the best fit• Develop selection criteria

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Package Evaluation (Contd.)

• Functional fit• Integration between various modules• Flexibility & Scalability• Complexity• User friendliness• Quick implementation• Support Multi Sites

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• Technology Client / Sever capabilities Database Independence Security

• Availability of regular upgrades• Amount of customization required• Local support infrastructure

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• Availability of reference sites• Total cost of ownership of an ERP Solution

Cost of licenses Cost of Training Cost of Implementation Customization cost Hardware cost Maintenance cost Infrastructure Cost

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• Form a Package selection committee People from various departments

( Functional Experts ) Top Management ( CIO, COO etc.) Consultants ( Package Experts ) Package selected by the committee will

have company wide acceptance

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Project Planning Phase

• Time Schedules• Deadlines• Development of Project Plan• Roles & Responsibilities• Project Manager selection & appointment• Selection of Implementation Team Members

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Project Planning Phase (Contd.)

• Task allocation amongst team members• When to begin the project, how to do it & when it is supposed to be completed• Contingency plan• How to Monitor the progress• Control measures to be taken• Corrective action plan, in case something goes wrong

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Project Planning Phase (Contd.)

• Implementation Team will meet periodically• Review the progress• Chart the future course of action

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GAP Analysis

• Best Fit Meets 80% of Functional Requirements

• Solutions for the GAP Alter business processes to fit the package Pinning hopes on Upgrades Third party Interface Write additional programs Altering ERP Source Code ( Most

expensive )

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Implementation Team Training

• How to Implement the package• Running the system• Consultants will Implement at the first site• Selection of the employees for training

People with the right attitude People who are willing to change, learn new

things, have good functional knowledge and are not afraid of technology

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Testing

• Test for extreme case scenarios System Overloads Multiple users logging on at the same time

with the same query User entering invalid data Hackers trying to access restricted areas

• Design the test cases to find Weak links in the system

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End User Training

• Actual user will be given training on how to use the system• This should be done before going Live• Identify the employees – the users of the new system• There will be resistance to change• Most Implementations fail because of lack of user training

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Going Live

• Data Cleansing and Conversion• Databases should be up & running• Prototype should be fully configured & tested & should be ready to go operational• New system is Live when the old system is removed & only new system is used for doing business

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Maintenance of an ERP

• System bugs• User assistance• Changes to system• Manage different input and output requirements• Documentation• Training• Maintaining and updating software• Budgeting for Maintenance

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Difficulty in implementation

• Very difficult• Extremely costly and time intensive• Typical: over $10,000,000 and over a year to implement• Company may implement only certain modules of entire ERP system• You will need an outside consultant for first site Implementation

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Common Pitfalls

• Do not adequately benchmark current state• Did not plan for major transformation• Did not have executive sponsorship• Did not adequately map out goals and objectives• Highly customized systems to look like old MRP systems

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Key Issues - Process

• Do it OUR way Considerable business process

changes for the organization• OK, don’t do it our way

Customization: cost, maintenance (upgrades), compatibility issues

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Key Issues - People

Employee resistance Job Changes oRetraining and re-orientation

Likely more data collection screens than in legacy system

Loss of ERP veterans Security

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Key Issues - Technology

• Data migration from legacy systems• Lack of interoperability among different vendor products• Maintenance

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Key Issues - Financial

• Cost Range = $400,000 - $300 million TCO = $53,320 per user (Meta Group) Hidden costs

o Trainingo Integration and Testingo Data Conversiono Data Analysiso Consulting Feeso Turnover

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Definition & Measurement of Success

• Success depends on the Point of View

Point of view of Project Managers & Consultants – Completion on time & within Budget

Adopters view – Smooth transition to stable operations with the new system, Achieving intended business improvements like Inventory Reductions, gaining improved decision support capabilities etc.

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• Second issue is timings of Measurement Success in the short run & long run Instances when Successfully installed ERP

systems were terminated when the companies were merged with another

Successes measured at three different points in time in ERP experience cycle

Three distinct phases

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• Project Phase During this phase ERP software is configured &

rolled out• Shake down Phase

During this phase the company makes transition from “Go Live” to “Normal Operations”

• Onward & Upward Phase During this Phase the company captures the

majority of benefits from ERP & plans for next steps for technology implementation & business improvements

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• Success Metrics for different Phases Project Phase

o Project Cost Vs. Budgeto Project completion in time relative to scheduleo Completed & installed system functionality

relative to the scope Shakedown Phase

o Short term changes occurring after system “Go Live”

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• Success Metrics for different Phases Shakedown Phase

o Length of time before KPI achieve “Normal” or “Expected Levels”

o Short term impact on Organization’s adopters, suppliers and customers such as average time on hold when placing a telephone order

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• Success Metrics for different Phases Onward & Upward Phase

o Achievement of Business results such as reduced operational cost, reduced inventory carrying costs

o On going improvements in business resultso Ease in adopting new ERP releases, other new

technologies, improved business practices, improved decision making etc. after ERP system has achieved stable operations

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The 12 Cardinal Sins of ERP Implementation

• Lack of Top Management Commitment Proper commitment of time and resources

are required for a successful implementation

• Inadequate Requirement Definition 60% of ERP failures are for this reason This will also lead to poor package selection

• Poor ERP Package Selection Inadequate functional requirements

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• Poor ERP Package Selection Inadequate and improper evaluation of the

package

• Inadequate Resources Skills availability within the company Working full time on ERP Implementation

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• Resistance to change / Lack of Buy-In Caused by failure to build a case for change Lack of involvement of the users affected

by the change Inadequate communication Lack of visible top management support

and commitment

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• Miscalculation of time and effort • Misfit of Application software with Business Processes• Unrealistic expectation of Benefits and ROI

Software providers and consultants are notorious for overstating benefits in terms of ROI and understating the total cost of the project

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• Inadequate Training Training needs are underestimated ERP related training is crucial Employees must learn new software interfaces and business

processes which is going to affect the operation of the entire enterprise

• Poor Project design and Management Short cutting critical events in the project plan, such as

documentation time, redefining and integrating processes or testing before going live

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• Poor Communications Poor project communications beginning with announcing the reasons

for the ERP project, continuing advise on the progress and the importance of ERP implementation to the company

Communication is a vital part of managing the change which ERP will bring about in the company

• Ill advised cost cutting Simultaneous implementation at multiple sites Compressing the schedule to save costs

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Adopters problems with ERP

• Project Phase Problems Software Modifications

o Strongly recommended to avoid modifying the software & live with existing functionality

o Difficulty in getting modifications to work wello Getting well tested & working modifications in a

timely manner is a problemo When the user understands the software

better, they discover ways to implement needed capabilities without modifications

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• Project Phase Problems Even though ERP systems are said to be

comprehensive, need for retaining some legacy systems & third party specialized software cannot be totally ruled out

Interfacing these systems with ERP is both challenging & expensive

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• Project Phase Problems Problems with product & implementation

consultantso Coordinating the efforts of various consultants

is a challenge ( H/W Vendor, Software Vendor, telecom Vendor, ERP Vendor, Implementation Consultant )

Turnover of Project Personnelo Losing key IT specialists & user representatives

working on the project while the project is going on

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• Project Phase Problems Turnover of Project Personnel

o Losing experienced people after the project is complete

• Shakedown Phase Problems Companies experienced negative outcomes

during this phaseo ERP system performance problemso Data entry errors

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• Shakedown Phase Problems Companies experienced negative outcomes

during this phaseo Increased staffing required to cope with

slowdown & errorso Negative impact on customers & suppliers from

an inability to answer their queries & delayed shipments

o Inadequate management reporting

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• Shakedown Phase Problems These were caused by problems occurred

during Project Phase which were not recognized as problems or were not resolved when occurred

The most important problems that occurred during Project Phase wereo Inappropriately cutting project scope when

there are missing key milestones

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• Shakedown Phase Problems Cutting end user training

o Underestimating the need for training Inadequate Testing

o Testing of cross module integrationo Testing of interfaces with legacy systemso Testing of modifications carried out by external

vendorso Testing unusual business scenarios

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• Shakedown Phase Problems Underestimating data quality problems &

reporting needso Retaining legacy data for many years

( Regulatory compliance & Product servicing for many years )

o In integrated ERP systems, data must be cleano Users will be disappointed if their reporting

needs are not met

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• Shakedown Phase Problems Reveals unresolved or unrecognized

problems of Project Phase Many of these problems can be avoided by

giving adequate attention during Project Phase to :o Cross functional configuration & testing of

softwareo End user trainingo Data conversion & management of legacy data

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• Shakedown Phase Problemso Reporting needso Scenarios for recovering from data input errors

• Onward & Upward phase problems Fragile human capital

o Losing ERP knowledgeable IT specialists & end users

o Difficulty replacing them

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• Onward & Upward phase problems Migration Problems

o Software modifications made earlier convert poorly during implementation of later releases

o Some organizations vowed never again to modify ERP software but to make necessary changes to their business processes

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Critical success factors in ERP implementation projects

Fourteen CSFs were identified by majority of the companies:

Top management support and involvement

Top management support is critical because top managers have to make fast and effective decisions, Top managers have to resolve conflicts, They have to bring everyone to the same thinking to promote company-wide acceptance of the project, and build co-operation among the diverse groups in the organization.

Clear goals, objectives and scopeClearly defined business and strategic objectivesClear goals and objectives should be specific and operational and have to indicate the general directions of the project. They should also provide a clear link between business goals and IS strategy. Well-defined objectives help to keep the project constantly focused, and are essential for analyzing and measuring success.

Project team competence and organizationSelecting and motivating the right employees to participate in implementation processes is critical for the implementation’s success.

Teams must consist of the right mix of business analysts, technical experts, and users from within the organization and consultants from external companies, chosen for their skills, past accomplishments, reputations, and flexibility.

User training and education

A lack of user training and understanding of how ERP systems work appears to be major reason for many problems and failures in ERP implementation. If the employees do not understand how a system works, they will invent their own processes using the parts of the system they are able to manipulate. The full benefits of ERP is not realized until end users are using the new system properly.

Business process reengineering

ERP implementation is a matter of transforming business practices.

So implementing an ERP system involves reengineering the existing business processes to fit best business practices.

Change managementERP brings in lot of changes in processes, introduces many checks and controls etc.These changes might cause resistance from the users

These changes have to be managed properly

Many ERP implementations fail to achieve expected benefits in part because companies underestimate the effort involved in change management.

Effective communicationThe importance of communication across different business functions and departments is well known in the information technology implementation Communication has a significant impact on the process by minimizing possible user resistance. Communication has to cover the scope, objectives, and tasks of an ERP implementation project. Effective communication is required in project teams and within the organization (i.e. weekly team meetings, postings on the company intranet etc.)

User involvementCooperation and involvement of all people in the organization are essential.

Involving users in defining organizational information system needs, selection of the right ERP solution and in BPR if necessary, can decrease their resistance to ERP systems.

Users often perceive their role in ERP implementation as central in their judgment about new system.

Data analysis and conversionThe quality of pre-existing data and information systems is very important factor in successful ERP implementation.

If problems with data are not solved in old legacy systems they will hardly be solved during ERP implementation and therefore the quality of implemented system will be questionable.

Data problems could even rise because modules in ERP solution are interlinked.

ConsultantsThe success of a project depends strongly on the capabilities of the consultants because the consultants are the only one with in-depth knowledge of the software.

Consultants provide a very valuable service by filling gaps, providing expertise, and thinking out-the-box.

They are specialized and can usually work faster and more efficiently than others involved in the implementation process.

Project management

ERP projects are huge, complex, and risky, so effective project management is crucial.

Approximately 90% of ERP implementations are late or over-budget, which may be due to poor cost and schedule estimations or changes in project scope.

Project championProject champions or sponsors are individuals who have a clear understanding of what is going on; they are very critical to implementation success. Champions ideally should have experience in previous implementation efforts to manage conflicts that arise before and after implementation. Project champions play a critical role in the acceptance of the technology and he/she is usually at senior management level so they have the authority to make substantial organizational changes occur.

Architecture choice (package selection)All ERP packages have limited capabilities. Some packages are more suited for larger companies while others fit smaller firms better. Some packages have become a “de facto” standard in certain industry. Some have a stronger presence in certain parts of the world. To increase the probability of success, management must choose software that most closely fits its requirements.

Minimal customizationMost companies significantly underestimate the effort required for code modification.

Vendor’s code should be used as much as possible, even if this means sacrificing functionality, so upgrades from release to release can be done easily.

Therefore, every modification request should be carefully evaluated and approved, or rejected, after considering all the options.

Management issues of ERP implementation projects – reasons for ERP

Answers to the question “ What are the reasons of a company to decide to implement ERP solution” were:

better access to data, modernization of existing business processes

with ERP solution, single data entry, incompatibility of previous information systems, integrity of a solution, demand of owners, better reports, adaptability and flexibility of ERP solution

Management issues of ERP implementation projects – why particular ERP solution was chosen

Answers to the question “Why a particular ERP solution has been chosen” were:

integrity of a selected ERP solution, efficiency and stability operation of an ERP

solution, support of an ERP vendor, cost and price of an ERP solution, and requirement of an owner or other

business partners (customers, vendors etc.).

Management issues of ERP implementation projects – was ERP implemented according to planed time

33.3% of implementations lasted longer than they have been planned and the reasons for that were:

changing scope of implementation, weak knowledge about functionality of ERP

solutions, passive collaboration within project team during the

analyze phase, key users have been overloaded with daily tasks so

they do not have time to participate in the implementation process

Management issues of ERP implementation projects – changes in ERP functionality during the implementation

Answers to the question “Whether scope of expected functionality has changed during the implementation” were:

14.6 percent answered small decrease according to planned functionality,

36.6 percent answered no changes – planned functionality implemented,

29.3 percent answered small increase according to planned functionality

19.5 percent answered big increase according to planned functionality.

nobody answered big decrease according to planned functionality

Major reasons reported for changing the functionality have been: “during an implementation we found out

new functionalities of the ERP solution for which it would be foolish to release it out of the project”;

“after analyzing and defining business processes key users understand importance of the ERP solution better and that was leading to the increase in scope”,

“bad analysis and defining processes, and bad cooperation with top management”.

Management issues of ERP implementation projects – changes in costs

Answers to the question “Whether the costs of implementation changed according to planned costs” were:

nobody answered much smaller than planned. 4.9 percent have answered a little smaller than

planned, 26.8 percent have answered the same as planned, 46.3 percent have answered a little bigger than

planned 22 percent have chosen much bigger than has

been planned.

Major reasons reported for raising of costs were:

bigger scope of functionality than planned, more consultants’ hours, bigger number of interfaces with other

information systems as planned, persistence at adaptation of ERP solutions

to existent processes and procedures.

Management issues of ERP implementation projects – major unexpected problems during the implementation

To the question “If any big problems have occurred during an implementation process”: 31.7 percent have answered yes and 68.3 percent have answered no.

Most often problems reported were:

user resistance for change, bad training and bad user manuals, unsuitable consultants, bad computer

literacy, poorly included middle management, the solution has not been tested enough by

users, bad defining of business processes etc.

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ERP Implementation: A Real Pain

More ways to fail than to succeed Very expensive Slow to install Medium size projects in tens of millions

and require years of tweaking Support Industry surrounding ERP:

costly services and consultantscan be 10 times the cost of softwareConsultant’s “Full Employment Act” !

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Hidden Costs

1. Training

2. Integration

3. Testing

4. Data Conversion

5. Data Analysis

6. Getting rid of your consultants

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ERP implementation costs fall in the range of $3 to $10 per dollar spent on the software itself

- Meta Group

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Training- Consistently Underestimated

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Because….Workers have to learn new processes Not just a new software interface

e.g., A receiving clerk at the plant’s loading dock now becomes an accountant. Because the clerk is keying new inventory directly into a live system, mistakes have an immediate impact on the books. And the plant’s number crunchers can no longer simply look at their data in batches, now they need to be able to pinpoint the origin of each data entry to verify its accuracy.

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ERP is NOT Just About Technology Implementation

• It requires significant change managemento the most elusive budget item

• Training costs: 10% - 15% of total budgeto do not skimp on training; otherwise, pay more later

• One approach to control price tago train the trainers

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Integration-- Is NOT Easy

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Links have to be built between ERP and other corporate software on a case-by-case basis

Monsanto has add-on applications for logistics, tax, production planning and bar coding. Integrating them with SAP has consumed more time and money than estimated

AND…

If the ERP’s core code has to be modified to fit the business process, costs will skyrocket.

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TestingMust be Process-Oriented

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DO NOT…… Use DUMMY DATA… And move it from one application to another

Run a real purchase-order through the system, from order entry to shipping and receipt of the payment -- the whole “order-to-cash” cycle - preferably with the employees that will eventually do the jobs.

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Fox-Meyer’s Mistake

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Company received about 500,000 orders daily from thousands of pharmacies, each of which ordered hundreds of items.

SAP could only handle a few thousand items a day

No way to test in advance…ran some simulations, but not with the level of data we have in an operating environment.

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Data Conversion Is NOT 1-2-3

• Most companies in denial about quality of legacy data. Hence, underestimate cost of moving data to new ERP home.

• Even clean data may need some overhaul to match process modifications necessitated by the ERP implementation

• One alternative: outsource data conversion claim to reduce costs by 75%

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Because….

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Data Analysis- An Additional Cost

Reports in ERP package will NOT meet management information needs because …

… ERP data has to be combined with external and soft data such as goals, budgets, etc.

… Management reports should be customized to the organization needs and culture

Cost of data analysis is often overlooked in project budget because of misconception that ERP package provides all the analysis users need

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Consulting Fees Can Run Wild

IF…

Users fail to plan for disengagement

Hence…

• Identify objectives for consulting partners when training internal staff

• Include metrics in contract

e.g. A specific number of staff should be able to pass a project management leadership test - similar to what Big 5 consultants have to pass to lead an ERP engagement

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How to Uncover Hidden Costs Upfront

• Assemble cross-functional teams.

• Include both senior managers.

AND lower-level end users who will have daily contact with the ERP systems and provide level of detail.

• Systematically question and challenge each other’s assumptions and estimates

• Examine in depth the six components of hidden costs.

• Cost of ERP software is only a SMALL SLICE of the total project outlay.

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The Promise of ERP

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Promise: Change the way companies work by integrating the back-office processes into one smoothly functioning whole.

Problem: Years to implementHundreds of millions of $

AND Inward-looking

Focus: Efficiency of the Enterprise in isolation

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Case Studies

- Failure Stories

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Horror Stories

• Whirlpool: ERP implementation crippled its shipping system, leaving appliances stacked on loading docks and not delivered to paying customers for a full eight weeks.

• Hershey Foods: A 19 percent drop in earnings was caused by an incompetent ERP implementation that wreaked distribution havoc during one of its most profitable seasons: Halloween.

• Volkswagen: Significant delays in parts shipments causing product inventories to build up to costly levels.

“Half of the issues in ERP disasters are not technical but are people related and culture related.”

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The Reality : Fox-Meyer Case Example

- Once a $5 billion drug distributor - 4th largest in the US

- Tight Margin Business

- CIO Magazine praised them in 1995 for new client/server initiatives in 1993

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Fox-Meyer’s ERP Project

- Launched ERP Project in 1993, a hot new idea at the time

- SAP’s R/3 had a track record only in the manufacturing industry

- Goal: First mover advantage in distribution industry

- “We are betting our company on this”- CIO Robert Brown

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Fox-Meyer - The System

- Cost – $100 million

- Implemented SAP’s ERP and Pinnacle’s Computerized Warehouse Systems at the same time

- Big problems surfaced in late 1994e.g.: R/3 miscounted inventory, which in turn screwed up customer orders - Outright crashes were routine

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Fox-Meyer – What Happened?- R/3 could not handle the volume- Could process just 10,000 invoice lines per night

compared to 420,000 in the old Unisys system- Software usable only in 6 of 23 warehouses- Had to revert to old Unisys system

- Data conversion bungled by implementation consultants- Used incorrect product codes- Faulty interfaces between old and new systems

- State of the art warehouse opened late- Incorrect orders cost millions in excess shipments

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Fox-Meyer – The Blame Game

- Fox Meyer Management:- Claimed vendors oversold capabilities- Consultants were neophytes- “Installation guinea pig – far worse than original system”

- Pinnacle COO – “not a failure of automation – It was a management failure”

- SAP – “users who install R/3 are usually changing basic business processes at the same time – this is where most of the pains and challenges of implementation come from”

- Vendors claim project was completed according to their agreement

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Fox-Meyer - Aftermath

- Filed for bankruptcy in 1996

- Purchased by a major competitor for $80M

- August 1998 - Bankruptcy trustee for Fox-Meyer sues Vendors for $500 million each.

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And Others...

- Allied Waste Industries Pulled the plug on a $130 million SAP R/3

system

- Waste Management Inc. Cancelled SAP installation after spending

$45 million of a $250 million project.

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L. Mohan103

A Notorious Disaster Hershey Foods – October 1999

– IBM-led installation and integration of software from 3 vendors: SAP, Manugistics (planning applications) and Siebel (pricing promotions)

– Embarked on the project in 1996. . . Partly to satisfy retailers who were demanding fine-tuning of deliveries to keep their inventories and costs down. . . Also faced Y2K problems in old system

– Investment : $ 112 M, 5000 PCs. – “To be used by 1200-person salesforce and other departments

to handle every step from order placement to final delivery . . . Touches nearly every operation; tracking raw ingredients, scheduling production, measuring the effectiveness of promotional campaigns, setting prices, and even deciding how products ought to be stacked inside trucks”-

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Why “Hershey’s Biggest DudIs Its New Computer System”

1. “Scope – Creep” in Defining Objectives of the Project– Had to select 3 different vendors to meet project

objectives

2. Big-Bang Implementation Approach– Replaced all legacy systems at once despite

complexity of integrating 3 packages; Not a phased approach – one module or unit at a time

– Successful Implementation in Canada; but, it is a tiny fraction of the size of the U.S. business

3. Initial Time Estimate - 4 years– Squeezed into 30 months

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Why “Hershey’s Biggest DudIs Its New Computer System”

4. Expected to go live in April ‘99 - a slow period – Date pushed to July, when Halloween orders begin to

come in– 40% of candy sales between Oct. & Dec; Halloween

is the single biggest sales day, followed by Christmas

5. No Contingency Plan– Could not backpedal to old logistics systems – they

had been demolished to make way for new system– Built up 8 days of inventory as a cushion against

computer glitches - by early August, 15 days behind in meeting orders

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L. Mohan106

The Implementation Failure Candy “everywhere” but NOT in the stores for Halloween Problem : Getting customer orders into the system and

transmitting the details to warehouses for fulfillment Rivals, Mars and Nestle, benefiting without much effort

because :“If you don’t have my toothpaste, I’m walking out (of the store). But for a chocolate bar (and that too for Halloween), I’ll pick another brand.” - Shelf-space is hard to win back.

Hershey sales rep calling Dallas-based 7-Eleven chain candy- category manager weekly to ask what 7-Eleven has received because Hershey itself can’t tell what it was

“They’ve missed Halloween; problems could persist through Christmas and may be even Valentine’s Day & Easter”.

Bottom-Line : $ 150 M loss in sales in quarter after system went live, 29% higher product inventories, compared to year before

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Post-Mortem of Hershey Failure

#1 Trying To Do Too Much At Once

#2 Unentered Data in SAP

#3 No Leadership

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Integrating SAP With Manugistics- More Complex Than Anticipated

— Hershey had used Manugistics supply chain planning software for years – but it was the mainframe version

— The software had to be changed to a client-server version that had to be configured as a bolt-on to SAP

— Not enough time for testing, with the rush to implement by the Y2K deadline

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The Data Problem- How Could Hershey Lose Track of Inventory

Hershey’s management process- Very good at crisis management- Devised informal mechanisms for dealing with tremendous buildup of inventory to meet peak holiday sales- “They would put candy everywhere they could to store it…

they were not used to having to tell the computer about that.”

“Surge storage” capacity created in warehouse space rented on a temporary basis – even spare rooms within factory buildings- These locations were not recorded as storage points in SAP

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The Data Problem- How Could Hershey Lose Track of Inventory

SAP requires a lot of discipline- Found that significant amount of inventory was not where

the system said it was- To fulfill a customer order, SAP checks data of available

inventory in the system

Breakdown between Logistics Group and IT Group to identify this data in advance

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Poor Management Oversight

No CIO- Head of IT only a VP, a couple of levels down

Different parts of the business pulling in different directions - No one at the top to pull these demands together to guide

the creation of a system that will work for the whole system- “You get 100 little committees with no oversight”

No high-powered steering committee for project oversight

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Lessons Learned AND Applied by Hershey- The IT System for a New Distribution Center

Lesson #1: Go SlowlyHershey took the time and resources to thoroughly test the computer system. “Testing included putting bar codes on empty pallets and going through the motions of loading them onto trucks so that any kinks would be worked out before the distribution center opened for business”.

Lesson #2: Data is KingFixing data problems became a top priority for the top management of distribution centers

Lesson #3: Management Oversight Matters Top management was determined that nothing go wrong“Wound up with a very high-powered steering committee… we had the CEO himself involved.”

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No End In Sight . . .Goodyear – November 2003

Hits $ 100M Bump in the ERP System What caused a major accounting blowout ?

– SAP installed in 1999 to run core accounting functionsHad to be linked to existing systems for intercompany billing which handled internal transactions on the purchases of raw materials made centrally for use in global operations

– Consulting help from PwC and J. D. Power– Discovered “financial errors”

Need to identify whether “the errors were in the ERP or in the internal billing systems so that fixes can be made and accounting procedures improved”

– System FalloutHad to restate financial results from 1998 to first half of 2003 - > $ 100M in profits wiped out !

erp implementation as of january 2013

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