Four ERP implementation case studies you can learn from
Because of high degrees of complexity associated with large-scale ERP installations, over time the proportion of successful, versus failed outcomes tend to become fifty-fifty propositions from a business case perspective. Some enterprises are simply ready for ERP, and some aren’t, some are paying attention to what they’re doing, and others aren’t; but either way, any ERP case investigation is worth understanding what went right, and what didn’t.
Consequently, here are four examples of what I’m talking about.
1. Cadbury – success
Cadbury is a 123 year-old confectioner currently owned by American snack foods conglomerate Modelez International. The company was on an accelerated growth-track while facing problems meeting its production and distribution requirements.
Subsequently, SAP was engaged to resolve these concerns. Along with other significant changes triggered by the ERP implementation; multi-node resources-management was extended throughout its supply-chain, along with a complete revamping of existing warehouse, and distribution processes.
The consequent impacts afforded Cadbury an opportunity to reduce overall operating costs, while its newly engaged supply-chain, produced significantly better production efficiencies throughout its manufacturing chain.
Covering the key issues faced by businesses selecting and implementing ERP.
Remember: for an ERP implementation to really pay off, you'll need to see improvements in key areas. A thorough requirements gathering effort during the selection phase is therefore essential
2. Hershey Candies – failure
Hershey is a 147 year-old confectioner, headquartered in Hershey Pennsylvania. The enterprise saw the implementation of an ERP platform as being central to its future growth.
Consequently, rather than approaching its business challenge on the basis of an iterative approach, it decided to execute a holistic plan, involving every operating center in the company. Subsequently SAP was engaged to implement a $10 million systems upgrade, however, management problems emerged immediately.
The impact of this decision represented complete chaos, where the company was unable to conduct business, because virtually every process, policy, and operating mechanism was in flux simultaneously. The consequent result was the loss of $150 million in revenue, a 19% reduction in share price, and the loss of 12% in international market share.
Remember: poor management can scupper implementation, even when you have selected the perfect system.
Guide: ERP Implementation:11steps to success
3. Nestle - success
As a enormous international candy-maker, Nestle SA headquartered in Konicki Switzerland, had harbored a goal of integrating ERP across all three of its operating companies; Nestle SA, Nestle UK, and Nestle USA. The latter operation had been working toward complete integration of a set of ERP solutions since in the late 90s, but various requirements, organizational, and policy problems had plagued the complete initiation.
By the turn of the millennium, its management finally decided that a holistic re-approach to its business requirements were in order. Consequently, this effort paid dividends that allowed SAP to finally get the $200 million job done.
Ultimately, positive business impacts included the consolidation of an outdated accounting structure, better and more efficient communications throughout its supply-chain, and a much more confident workforce.
Remember: integration across different sites requires a lot of upfront effort - but it pays off in the long run
4. PG&E– failure
As a major energy utility San Francisco’s Pacific Gas and Electric should have know better. Its Oracle ERP implementation had gone well, and there had been no problems of note; until it came time to test the system.
Apparently, a manager had chosen a live information database to use during pre-launch testing, although no one thought that the regime would uncover any sensitive company information. Unfortunately, this was untrue, and consequently created a host of costly recovery programs, in addition to losing public confidence in the company’s brand.
Remember: brief your staff on exactly what they should do and not do. Don't get non-specialist staff to carry out non-specialist roles
Overview – Hershey’s ERP Implementation Failure
When it cut over to its $112-million IT systems, Hershey’s worst-case scenarios became reality. Business process and systems issues caused operational paralysis, leading to a 19-percent drop in quarterly profits and an eight-percent decline in stock price. In the analysis that follows, I use Hershey’s ERP implementation failure as a case study to offer advice on how effective ERP system testing and project scheduling can mitigate a company’s exposure to failure risks and related damages.
Here are the relevant facts: In 1996, Hershey’s set out to upgrade its patchwork of legacy IT systems into an integrated ERP environment. It chose SAP’s R/3 ERP software, Manugistic’s supply chain management (SCM) software and Seibel’s customer relationship management (CRM) software. Despite a recommended implementation time of 48 months, Hershey’s demanded a 30-month turnaround so that it could roll out the systems before Y2K. Based on these scheduling demands, cutover was planned for July of 1999. This go-live scheduling coincided with Hershey’s busiest periods – the time during which it would receive the bulk of its Halloween and Christmas orders. To meet the aggressive scheduling demands, Hershey’s implementation team had to cut corners on critical systems testing phases. When the systems went live in July of 1999, unforeseen issues prevented orders from flowing through the systems. As a result, Hershey’s was incapable of processing $100 million worth of Kiss and Jolly Rancher orders, even though it had most of the inventory in stock.
This is not one of those “hindsight is 20-20” cases. A reasonably prudent implementer in Hershey’s position would never have permitted cutover under those circumstances. The risks of failure and exposure to damages were simply too great. Unfortunately, too few companies have learned from Hershey’s mistakes. For our firm, it feels like Groundhog Day every time we are retained to rescue a failed or failing ERP project. In an effort to help companies implement ERP correctly – the first time – I have decided to rehash this old Hershey’s case. The two key lessons I describe below relate to systems testing and project scheduling.
ERP Systems Testing
Hershey’s implementation team made the cardinal mistake of sacrificing systems testing for the sake of expediency. As a result, critical data, process, and systems integration issues may have remained undetected until it was too late.
Testing phases are safety nets that should never be compromised. If testing sets back the launch date, so be it. The potential scheduling benefits of skimping on testing outweigh the costs of keeping to a longer schedule. In terms of appropriate testing, our firm advocates methodical simulations of realistic operating conditions. The more realistic the testing scenarios, the more likely it is that critical issues will be discovered before cutover.
For our clients, we generally perform three distinct rounds of testing, each building to a more realistic simulation of the client’s operating environment. Successful test completion is a prerequisite to moving onto to the next testing phase.
In the first testing phase – the Conference Room Pilot Phase – the key users test the most frequently used business scenarios, one functional department at a time. The purpose of this phase is to validate the key business processes in the ERP system.
In the second testing phase – the Departmental Pilot Phase – a new team of users tests the ERP system under incrementally more realistic conditions. This testing phase consists of full piloting, which includes testing of both the most frequently used and the least frequently used business scenarios.
The third and final testing phase – the Integrated Pilot Phase – is the most realistic of the tests. In this “day-in-the-life” piloting phase, the users test the system to make sure that all of the various modules work together as intended.
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” implementation approach. In my view, Hershey’s implementation would have failed regardless of the approach. Failure was rooted in shortcuts relating to systems testing, data migration and/or training, and not in the implementation approach. Had Hershey’s put the systems through appropriate testing, it could have mitigated significant failure risks.
ERP Implementation Scheduling
Hershey’s made another textbook implementation mistake – this time in relation to project timing. It first tried to squeeze a complex ERP implementation project into an unreasonably short timeline. Sacrificing due diligence for the sake of expediency is a sure-fire way to get caught.
Hershey’s made another critical scheduling mistake – it timed its cutover during its busy season. It was unreasonable for Hershey’s to expect that it would be able to meet peak demand when its employees had not yet been fully trained on the new systems and workflows. Even in best-case implementation scenarios, companies should still expect performance declines because of the steep learning curves.
By timing cutover during slow business periods, a company can use slack time to iron out systems kinks . It also gives employees more time to learn the new business processes and systems. In many cases, we advise our clients to reduce incoming orders during the cutover period.
In closing, any company implementing or planning to implement ERP can take away valuable lessons from the Hershey’s case. Two of the most important lessons are: test the business processes and systems using a methodology designed to simulate realistic operating scenarios; and pay close attention to ERP scheduling. By following these bits of advice, your company will mitigate failure risks and put itself in a position to drive ERP success.
Our team has been leading successful ERP implementation projects for decades – for Fortune 500 enterprises and for small to mid-sized companies. Our methodology – Milestone Deliverables – is published and sells in more than 40 countries.
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This article was originally published by Manufacturing AUTOMATION on July 30, 2010.