Examining The Implementation Of ERP Systems Information Technology Essay

The implementation of ERP system has been problematic for many organization. As there are many substantial failure, the implementations of packaged ERP software and associated changes in business process has proved not to be an easy task. The ERP system cannot be implemented in a totally risk free environment. The only thing that differentiates successful and failed implementations is the way in which the risks were anticipated, handle and mitigated. The size and complexity of ERP implementation makes managing these project difficult and people, process and technology are consider as the three basic side of ERP management.

An ERP package touches the entire organization and can affect nearly every employee of the organization. And in many cases like Hershey company an ERP project manager and other related people will not be able to know who will be affected which can lead to some horrible surprise. Specify and discuss the people issues in an ERP implementation. In the case of Hersey people, employee, management, implementation team, consultants and vendor are the most critical factor that decides the success or failure of an ERP system. The main people issue with the Hershey Company can be Change management, internal staff adequacy, training, wrong implementation time and various risk associate with the ERP.

Contents

1.Executive Summary 2

Contents 3

2. Introduction 4

3. Discussion / Analysis 6

3.1 About the case 6

3.2 reason for system failure 7

3.2.1 Risk of ERP 8

3.2.2 People Issues 8

3.2.3 Change Management 9

3.2.4 Internal Staff Adequacy 9

3.2.5 Training 9

3.2.6 Wrong implementation time 10

4. Prevention of ERP Failure 10

4.1 Top management support 10

4.2 Consultants 11

4.3 Enhancement and upgrades 11

4.4 Unexpected gaps 11

4.5 Configuration difficulties 11

4.6 Operation and maintenance 12

5. Benefit of ERP 12

5.1 Reduction of lead-time 12

5.2 On Time Shipment 12

5.3 improved resource utilization 13

5.4 Better Customer Satisfaction 13

5.5 Use of Latest Technology 13

6. Alternative of ERP 13

7. Adopting ERP or Alternative 14

8. Conclusion 14

15

9. Reference 15

2. Introduction

Enterprise system (ES) is recent innovation in the field of information systems driven by modern concept of web based technology and the use of internet. The term “enterprise system” has taken on a narrow meaning of only the information system an organization uses. Research and project experience has taught how to design a good enterprise style. The greater view of enterprise systems is inclusive of the processes the system supports, the people who work in the system, and the information content of the system. Therefore the term enterprise system is to refer to not just the information system but to the enterprise itself.

Enterprise Resource Planning (ERP) systems are often defined as packaged business software which facilitates an organization to automate and integrate the majority of its business processes like production, manufacturing, human resources, sales, marketing and customer relationship by providing a central enterprise database where all business transactions are entered, processed, monitored and reported (Sumner, M 2005, p.2). Enterprise Systems, also sometimes referred to as Enterprise-wide Systems are also defined as systems or processes that involve the entire enterprise or two or more of its department with support to Supply Chain Management (SCM), Customer Relationship Management (CRM) and Knowledge Management (KM) (Turban & Volonino 2010, p.369).

An enterprise is a complex, social technical system that comprises interdependent resources of people, information, and technology that must interact with each other and their environment in support of a common mission. As a system, it is the interactions that are important to the enterprise behaviour. Interactions include such activities as coordination of functions, sharing of information and allocation of resources. The enterprise is a socio technical system in that it involves people and technology, it is an open system in that it interacts with its environment and it is purposeful in that it has goals that it works towards accomplishing. ERP system is use to support core business processes of an enterprise. For example: accounting; accounting related business documents in an ERP system are used to manage expenses and revenues of an enterprise, material management related business documents in the ERP system are used to manage information about employees and sales/client relationship management related business documents in ERP system are used to manage sales/relationship with the customers. An ERP system may support only those core business processes that belong to some specific business area of the enterprise such as client relationship management or production planning simulation.

The first case that demonstrates the results of not identifying the effects of technology on business performance is the case of Hershey Food Corporation. In the final months of 1999, the company could not deliver candy supplies to store shelves for Halloween, which is the single highest candy-consuming day of the year. The corporation maintains a website to supply information about visiting Hershey, similar to the type of marketing data that a chamber of commerce would provide. Developing the concept of Hershey has definitely been a private sector effort, although the chamber of commerce and the regional convention and visitor bureau use the Hershey name for their marketing purpose.

As many organizations have discovered the implementation of ERP system can be a monumental disaster unless the process is handled carefully. In 1999, Hershey Foods Corporation headquartered in Pennsylvania failed in their ERP implementation. Hershey foods and four different teams of consultants had been working on for 3 years on a massive enterprise resource planning (ERP) software from SAP and other two software vendors who were suppose to put the company’s operation on one integrated computing platform. The million dollars system was to replace scores of legacy systems that were currently running everything from inventory to order-processing to human resources. And as a result because of the system failure the Hershey food corporation make a huge amount of loss in their business. The company lost their clients and customer which are the main aspect of the business.

There are lots of reasons behind the system failure the first reason is the late implementation of ERP system as the software company were three months behind schedule and by September (one of the busiest seasons for the candy and chocolate industry) the company was still trying to fix glitches in its order processing and shipping functions and because of these reasons Hershey missed the September seasons of 1999 which make their company a huge amount of loss. Implementing an ERP project involves a certain amount of risk. The SERP system cannot be implemented in a totally risk free environment. The only thing that differentiates successful and failed implementation is the way in which the risks were anticipated, handle and mitigates. The risks and controls used in ERP implementations, with the objective of understanding the ways in which organization can minimize the business risks involved. The scene can be set for the successful implementation of an ERP system by controlling and minimizing major business risks in the first instance. This is very important issue as identifying the risks and risk mitigating strategies is of great significance for organization as they are critical for the successful implementation of ERP system.

3. Discussion / Analysis

The introduction, problem, discussion, arguments and analysis are particularly different in functionalities of ERP systems implementation and the various reasons behind the Hershey Food Corporation ERP system failure which is represent by the following subsection with suitable heading for more cleanness before approaching to a reasonable conclusion on the particular given case study.

3.1 About the case

A new way of thinking about technology is needed because technology touches everything in a company. Opportunities and challenges affect overall business performance not just the success of individual projects. The first case that demonstrates the results of not identifying the effects of technology on business performance is the case of Hershey foods Corporation. During late 1996 the Hershey management gave an approval to a project named enterprise 21, for the modernizing the hardware and software of the company. As the turn of the century Y2K problem were expected to destroy the company’s legacy systems. And Hershey decides to replace the system and get rid of the Y2K problem before the problem take place in the legacy system. The main target of Enterprise 21 project is to upgrade the hardware which is to shift the client/server system from the existing mainframe to TCP/IP network. At the same time the retailer got the demand that suppliers like Hershey should allocate their data about the delivery of the product which help retailers to maintain optimum inventory levels and to minimize costs. And by implementing new software, the main target of Hershey is to direct deliveries of its products, helps in maintaining low inventory for retailers and decrease inventory holding costs, and the most important thing is to provide better customer service.

In the final month of 1999, the company could not deliver candy suppliers to store shelves for Halloween, which is the single highest candy consuming day of the year. Three years earlier, the company began an initiative to upgrade software for its order entry, manufacturing, fulfillment, and delivery systems.

Hershey food corporations, a fortune 500 companies and self proclaimed candy giant experience one of the worst travesties in ERP history and as it revealed to the public about their new ERP system which was preventing them from filling their orders. And at the Halloween time which is one of their peak times they are unable to deliver over $100 million worth of candy which is consider as the huge amount of loss for their business. Though Hershey planned to switch over the new system during April 1999 but the system were completed in July of 1999 lacking three month behind schedule. At the same time Hershey comes under pressure as they cannot extend the implementation schedule because of Y2K problem was alarming widely. That was the time when orders from retailers for Halloween started getting in. But by September of that year candy could not be shipped efficiently to customers while inventory was piling up in the shipped efficiently to customers, while inventory was piling up in the warehouses. In fact the company was unsure if it could meet deliveries for the Christmas season.

3.2 reason for system failure

Enterprise resource planning (ERP) systems have fundamentally changed the work of organization. The total size and complexity of ERP implementations makes managing this project difficult. There are really three basic things behind the ERP system management which include people, processes and technology. An ERP package touches the entire organization and there is a very high possibility to affect nearly every employee of an organization. And in most of the cases, an ERP manager will not be able to figure out who will be affected and lead to some horrible surprise.

As ERP system will introduce new business processes and like Hershey food corporations every organization will have to change the way they have being doing things. The only one situation to avoid this is to customize the ERP system. But on the other hand customization might not work in all the cases. In some cases, it is better that the organization discards the existing processes and working practices and embrace the newer and efficient business process and practices offered by the ERP system as the new system is implemented by Hershey food corporations too. Deciding what to change and what not to change is often a very difficult task and a wrong decision make the ERP implementation defective. So it is difficult to get a clear vision of the technological portion of the implementation as it consists of vast grouping of hardware and software involved. So the project manager and other concern person who ever working with the ERP implementation must cope with thousands of parts. So in the case of Hershey food corporations their might have many problem problems associated while implementing ERP system. So everyone must ensure consistency and full integration across the various project, which is an enormous effort involving considerable risks and there can be many reason behind the ERP failure of Hershey food corporations.

3.2.1 Risk of ERP

ERP implementations are high complex, time consuming and unpredictable in terms of cost. The main challenge that often leaves Hershey food corporations marooned when it comes to ERP is that most companies like Hershey cannot handle a project of such complexity and one that require huge amount of resource. Lack of budget and skilled personnel prevent Hershey from focusing on the steps necessary to ensure that the new ERP is configured and rolled out in a fashion to best meet the business needs of the company. Then there are many people, technological, business process, implementation and operational issues that increase the risk of ERP implementations.

The first task of risk assessment is to understand what is involved. Risk assessment should be done at the first possible opportunity and by an individual or team to experienced professionals. An appreciation of what is involved will enable determination of the potential risk. A potential issue can be gained by reviewing the main problems experienced by other. (Iskanius, Päivi. Engineering Letters, 2009) Hershey food Corporation should also do the risk assessment and they must get some preventive measure as the risk level is going to be high during their peak times. Which cause them a loss in their business.

3.2.2 People Issues

People-employees, management, implementation team, consultants and vendors are considering as the most crucial factor that decides the success or failure of an ERP system. As implementing an ERP system is a change and it is human nature to oppose change. So any ERP implementation will face some amount of resistance. Users will be skeptical about the new system. But for an ERP implementation to succeed, the co-operation of everyone involved is an absolute necessity.

If the employees of Hershey food corporations are not persuaded about the importance of ERP and the advantage of using an ERP system, they will not be fully co-operative, which can result in the failure of the system. It is very important that every user should be won over before implementing the ERP system and forcing the system on unwilling people will only harden their resolve to revolt. The main people issues are change management, internal staff adequacy, project team, training, employee re-location and retraining, staffing, top management support, consultants, cost of ownership, discipline, resistance to change, etc.

Since ERP is an IT-related project there are various reasons behind the failure of ERP implementation. It could be the poor leadership from top management, non value added processes in the new system, due to unrealistic expectations, poor project management, not enough education and training to the staff members, a bad match and in accurate data, ERP implementation is views as an It project and significant technical difficulties(Umbel, Elisabeth, J., Michael, M, 2010). As Hershey Foods Corporation is not aware of such problem it could be the main reason behind the failure of the Hershey foods corporation.

3.2.3 Change Management

The ERP system will definitely change the way Hershey Foods Corporation do business and the way people work. The job profile of the employee working in Hershey will change, some job will no longer be require while new job will be created, the way in which the organization functions will change, the planning, forecasting and decision making capabilities will improve, many processes will be automated and so on. Managing these change is a very difficult task and if not done properly can result in failure.

Changing the scope of project is another reason for Hershey as it creates a lot of confusion and disorder. So the people related to project must be sure to really nail down the project requirement and have them properly documented and signed by the users and senior level management. Clearly define change control procedure and hold everyone to them. Tight change control procedure may end up causing tension between the project team and those who do not get the change they want. As same condition happen with Hershey’s management as they want to change it to ERP system form legacy system because of the fear arises from the Y2K problem. So the whole management comes under pressure to change the system and get it into ERP implementation.

3.2.4 Internal Staff Adequacy

ERP implementation require a large number of people from within the organization and from outside the organization as well. In Hershey Foods Corporation the external people are consultants and representative of the hardware and package vendors. But the bulk of the implementation team will be made up of the company employees. Making the implementation consist largely of employee is a good idea for the Hershey Company which helps in reducing employees’ resistance. The members of the employment team will act as champions and will be training other employees. And in most business and big company when a colleague teaches the training, the chances of struggle and skepticism are reduced. But finding people who have the necessary skills is a difficult task. And in the case of Hershey’s the skill power of the employees of the company is critical and as a result of insufficient skilled personnel in the company, more consultants will have to be hire which will increase the implementation cost of the company.

3.2.5 Training

Training is perhaps the most misjudged activity of the implementation life cycle. A major complaint is that not enough training is done. Although training is consider as one of the major project management activities. It appears to be widely neglected in the case of Hershey Company. Furthermore, as every business knows that the greater part of training takes place towards the end of the implementation cycle, when it looks like overall costs will go above budget training is the first activity to be reduced. And lack of proper training which prevents people and organization form taking the maximum utilization for the ERP system and as a result which lead to failed or flawed implementation as Hershey Company could not be able to provide the proper training to its staff. And lack of proper training and skilled manpower make the ERP implementation a proper failure system.

3.2.6 Wrong implementation time

Another reason was that Hershey implemented ERP during the wrong period of time which is the peak season during Halloween time and did not have an enough time to rectify the mistakes arising out of problem during the implementation. According to analysts, ERP implementation was a difficult process and many troubles could occur. Hershey’s mistake was to put the implementation during its busiest season. Experts in the field mention that to identify problem and to fix them it will take up to three to six weeks after the implementation. If Hershey had completed the project on time and implemented it by April, implementation and correction would have been complete before the peak season.

And for a project to be implemented for a big company like Hershey, each and every component had to be checked properly to make sure that the system work according to the plan. And in the case of Hershey Company it was not possible to check each and every component during such short period of time and to implement the system without executing properly was not consider as the right approach.

4. Prevention of ERP Failure

The introduction of ERP changed the way big companies conduct their business. Many of them are investing a lot amount of money in a system to fit their company’s needs and requirements. However not all ERP’s are success. Many company succeeded in implementing their ERP and some companies did not succeed that resulted to massive loses instead of the expect return of investment.

But every company makes a goal to maximize the use of their ERP and to increase the productivity at the same time, efficiency and most importantly profit. In order to do this instead of doing damage control when the problem arise it is then more sensible to identify the cause why ERP’s fail before it happens. And there can be the many reasons for Hershey Company to prevent ERP system failure.

4.1 Top management support

If the ERP implementation does not have the full backing of the top management, then the implement is most likely to get fail. With Hershey Company the complex nature of ERP project makes it necessary to have huge resource at the disposal of the implementation team. This requires the support and permission of the top management. If Hershey Company’s employee get a feel that the management is not supporting the ERP system, then they will not embrace the new system which will result in failure of the ERP implementation. So it’s better for Hershey Company not to start the ERP implementation if the top management is not fully convinced about its benefit and if the ERP system does not get the full support from the top level management. So basically the ERP implementation should get the top level management support in order to prevent the system failure.

The critical success factors for implementing ERP systems. To successfully implement and use the ERP systems, several critical success factors are essential. Like thorough analyses of business processes as well as top management support are most important for a successful implementation of ERP system. (Cheng, T.C.E., Choi, T.M., 2010).

4.2 Consultants

Consultants are experts in the implementation of ERP package. So the consultants of Hershey Company might not be familiar with the internal working and organizational culture so the main trouble created by trying to implement the ERP system without taking into account needs of the organization. So to minimize this risk the consultants should be assigned a senior manager of Hershey Company who can familiarized them with the company and its working. The person can also acts as the guide and intermediary between the consultants and the implementation team, until the consultants are familiar with the company and the people.

4.3 Enhancement and upgrades

The ERP system needs to be upgraded and keep up to date. The people who every doing the ERP system maintenance should be in regular contact with the vendors to see whether any upgrades or updates are available. But as mention above in section 3.2.6 before implementing the system it was not properly check to identify the problem and hazard because of the short time period and after the implementation of the system it was never been looked after properly. For the successful implementation all the patches and upgrades should be installed to ensure that the tools are working at their maximum efficiency. Other important step that needs to be taken by the Hershey was the proper decision while selecting the vendor and upgrade/support contracts should be signed to minimize the risk.

4.4 Unexpected gaps

No matter how big and sophisticated the software is fits every organization perfectly. Every vendor will tell that their software will solve the problems but there will still be gaps and because of these gaps make the implementation failure for Hershey Company. These gaps may be small, or extremely large and problematic. The main problem is that each time a gap is identified it requires additional money to fix.

To solve this problem Hershey should be extremely thorough in the package selection process and make sure everyone at every level known what the software can and cannot do. The company should start creating a gap document early because the gap analysis document is very useful for stakeholder management. It provides direction on project management and provides a clear knowledge of what will need to be done. The review of gaps and design of the adapted implementation program should detail the change scope, cost and benefit as well as the adapted project plan.

4.5 Configuration difficulties

The ERP system is re-configured or customized in a number of ways. So the main responsibility of the Hershey Company is to make a decision where to use the processes that come with the package which is consider as the best business practices or to customize the ERP package to suit the needs of the organization is a decision that should be taken with lots of thought care and customizable. There are many areas that cannot be customized or are very difficult to customize. If these aspects are consider very carefully then there is a low chance of false implementation of ERP system of the Hershey Company.

4.6 Operation and maintenance

Most companies like Hershey treat ERP implementation as project, with the assumption that someday the project will end. And they are right; the implementation project will end but the ERP system cannot just end with the implementation. But the real fact is once the implementation phase ends and employee of the company started using the ERP system the real benefits of the ERP will start. An ERP system is not only a project it is a way of life. No organization can say “they are finished”. There will always be new modules / feature and version to install, new persons to be trained, new technologies to be embraces, refresher courses to be conducted and so on. Even if an organization could declare final victory on implementation of ERP, more time will be needed to gain real business value from the ERP system. Hershey Company only implements the system even though it’s late but they cannot derive the real value from that system. So, ERP operation and maintenance requires a lifelong commitment by the company management and users of the system.

5. Benefit of ERP

Installing an ERP system for Hershey Company has many advantages both direct and indirect. The direct advantages include improved efficiency, information integration for better decision-making, faster response time to customer queries, etc. the indirect benefits include better corporate image, improve customer goodwill, customer satisfaction and so on.

When used effectively by Hershey, ERP systems can allow an organization to achieve higher levels of profitability. They can provide more accurate and complete information, resulting in reduced purchasing and manufacturing costs, reduced customer response time, increase quality of product and services, increase customer satisfaction and better business that Hershey Company can make. Moreover, the benefits of ERP are not limited to manufacturing companies. Service organizations have also come to realize the benefit of ERP systems. Organization efficiencies such as improved customer service and better communication provide benefits to all types of companies. Eventually there are many benefit of ERP system and some of them are as below

5.1 Reduction of lead-time

The elapsed time between pacing an order and receiving it is known as the lead-time. So in order to reduce the lead-times the organization should have an efficient inventory management system. ERP system helps in automating this task and thus makes inventory management more efficient and effective.

5.2 On Time Shipment

Today, companies must be able to deliver customer specific products with the lead time of standard. Today ERP systems provide the freedom to change manufacturing and planning methods, as needs change, without modifying or re-configuring the workplace or plant layouts. With ERP systems business like Hershey are not limited to a single manufacturing method such as make to stock or make to order.

5.3 improved resource utilization

The ERP systems have simulation capabilities that will help the capacity and resource planners to simulate the various capacity and resource utilization scenarios and choose the best option. The efficient functioning of the different modules in the ERP system like manufacturing, materials management, plant maintenance, sales and distribution ensure that the inventory is kept to a minimum level, the machine down time is minimum and the goods are produced only as per the demand and the finished goods are delivered to the customer in the most efficient way. Thus the ERP systems help the organization in drastically improving the capacity and resource utilization.

5.4 Better Customer Satisfaction

Customer satisfaction means meeting or exceeding customers’ requirement for a product or service Assessment of the degree of satisfaction is usually made on at least three measures. Whether the product or service includes the feature that are most important to the customer, whether the company can respond to customers’ demands in a timely manner in a timely manner, a standard that is especially important for custom product and services and whether the product or service is free of defects and performs as expected.

5.5 Use of Latest Technology

Another major advantage that Hershey can get is the utilization of the latest developments in information technology (IT) ERP package vendor realized that in order to grow and to sustain that growth, they would have to embrace the latest developments in the field of information technology. So they quickly adapted their system to take advantage of the latest technologies such as open systems, client/server technology and the internet/intranets.

6. Alternative of ERP

As ERP is consider as the whole reengineering process and big investment too. So before making the system replacement decision every organizational team must decide whether to go with ERP or other alternative of ERP. If the replacement decision has been made in favor of a package system, the team has to face with a final choice. Whether to implement a best of breed package or an integrated ERP suite.

Best of breed is the process of selecting the best package or set of packages available that provide a narrow set of capabilities but which are highly specialized and configure for the specific function they cover. Best of breed is the process of selecting the solution that provide the most robust feature sets in vertical functional needs, yet provide the openness to integrate as an enterprise solution with other best of breed packages or with an integrated ERP system horizontally across the enterprise. Most company uses best of breed over standard ERP because it provides particular solution for non integrated are and individual area with better-off functionality. On the other hand the integrated approach has a lot of benefit like cost saving, efficient data sharing and consistent user interface.

7. Adopting ERP or Alternative

ERP applications are a union of a company’s application systems designed to bind more closely a variety of company functions and operations. These systems usually provide supports for the entire internal company supply chain such as forecasting, manufacturing, planning, procurements, manufacturing management, shipping, distribution as well as functional areas such as human resource, marketing and finance. The ERP packages incorporated internal integration across business operations and function as well as to external entities such as suppliers and customers. ERP software companies such as SAP, Oracle and many other offer integrated ERP applications.

But whereas the best of breed approach generally delivers the closest fit to a company- specific business process by providing the richest functionality the greatest flexibility and the fastest time to market for new initiatives. The argument for a single, integrated approach is that it is much simpler, has cross application integration built in, carries less vendor and implementation risk and will likely have lower implementation and support cost.

So during insufficient time of implementing a new system in the organization the Hershey Company should choose best of breed application. Hershey cannot deliver their products to customer during Halloween time as their ERP system had failed to do so. If they would have implemented the best of breed system they don’t need to face the difficulties like time gaps, lack of proper training and high risk that is associated with ERP system. If Hershey company go with best of breed applications they still include lots of functional area like supply chain management, inventory management, forecasting and demand management, warehousing and logistics, order management, order configuration and lots of other things. So even going with the best of breed system Hershey won’t have to face a lot of problem.

8. Conclusion

Enterprise resource planning is a cross functional enterprise system that integrates an automates many of the internal business processes of a company, particularly those within the manufacturing, distributing, accounting and finance of the business. Thus ERP serves as the vital backbone information system of the enterprise, helping a company achieve the efficiency, agility and responsiveness required to succeed in dynamic business environment .ERP software typically consists of integrate modules that give a company a real time cross functional view of its core business processes, such as production, order processing and sales and its resources such as production capacity, raw materials, cash and people. However properly implementing ERP system is a difficult and costly process that has caused serious business losses for some companies like Hershey who underestimated the planning, development and training that were necessary to reengineer their business process to accommodate their new ERP systems. However continuing development in ERP software, including web enable modules and business software suite have made ERP system more flexible and user friendly.

Training of end user is a key success factor to achieving benefits. The users must relearn the process and training is the key to get proper knowledge about the ERP system. Productivity can suffer in an implementation until uses get proper knowledge and training.