ERP Implementation’s failure cases (Valuable Lessons)

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Why do ERP implementation failures happen?

What are the valuable lessons that we should learn from these cases?

Many businesses have enticed by the ERP system and its success cases. Thus, they were prompted to switch to an ERP system, either out of necessity or favoring cutting-edge solutions. Yet, there is a dark side of ERP implementation. If not correctly applied, then the costs and damages would be enormous; even the suffered company may shut down or takeover. This article is caution tales about failures of ERP implementation, and what are valuable lessons we should take to our heart?

It’s best to take a look at some famous cases on companies’ ERP Implementation failures and their resolutions for disasters. The examples are Nestlé USA, Hershey, and Nike.

Nestlé USA

Initially, Nestlé USA organized as a series of brands, each operating independently. Nestlé USA was heavily decentralized but later reorganized into the group under the one umbrella of American parent control in 1991. However, there was still no centralized headquarters. Thus, different divisions were free to make their own business decisions.

That changed in 1997 when Jeri Dunn as vice president and CIO of American Company arrived. She found that Joe Weller, Nestlé USA Chairman/CEO began the vision as referred to “One Nestlé” that designed for transforming the separating brands into a centralized company. Jeri gathered their study group to understand the company’s strengths and weaknesses. The result of the study group shows they were suffering many problems stems from decentralized strategy.

For example, Nestlé USA was paying 29 different prices for vanilla from the same vendor. Plus, they even assigned different names for the same product; thus, it’s impossible to compare. Besides these, Nestlé USA had nine different general ledgers and 28 points of customer entry. That led to multiple purchasing systems. Not mentioning, every factory has its own vendor master for purchased on their own, which makes volume estimated impossible.

To solve this problem, they began its own ERP project codenamed “BEST” (Business Excellence through Systems Technology). The estimated time to complete was the first quarter of 2003. During that time, the budget was about over $200 million and would implement four SAP modules and Manugistics module: purchasing, financials, sales, distribution, and supply chain.

The goals of the “BEST” project:

• Unification — consolidate the operations of different locations (leverage Nestlé’s size and buying power), and centralize and control data (data can be more consistent and accurate.)

During that time, the headlines were focusing on high profile failures cases on the ERP system. For example, the failures of ERP system driven FoxMeyer (Fifth Largest Drug Wholesaler in 1995) to bankruptcy in 1996. Fortunately, there are successful cases enough to set-off the failure cases. There are lessons to making successful with the ERP system.

Unfortunately for Nestlé USA, they didn’t heed the failures of others. They made several huge mistakes that almost doomed the project.

Nestlé USA’s mistakes are:

• The key stakeholders’ team didn’t have any staff (who will be affected by the changes) during the planning phase and implementation phase.
• Employees’ resistance to the changes with redesigned business processes.
• By rushing, the team had failed to integrate the various modules properly.
• Too much pressure on deadlines without proper preparations, thus lost sight of the bigger picture.
• Too much focus on technology, yet not enough on existing components.

The project finally halted in June 2000, and the team took a three-day offsite retreat to reevaluate the future of the project.

After the retreat, they come up with the solutions:

• Redefine business requirements.
• Shape the project timeline around the needs, not shape the deadline around a predetermined end date.
• Communicate between the project team and the different functional divisions.

With the new blueprint, they managed to completed rollouts by the first quarter of 2003. The payoffs of the project show that by 2002, Nestlé USA claimed they already savings of over $325 million. The savings were coming from the area of supply chain improvements as better demand forecasting. In addition to saving money, they become one organization, thus standardize training, procedures, and even allow for the centralization of the functions. The nature of consolidation lets any Nestlé USA employees relocate to another factory without any problems and not have to adjust to branches’ processes.

Nestlé’s global organization took the lessons from this project and successfully implemented their ERP system. The global organization experienced many benefits of standardizing its data and business processes. For example: by the end of 2004, about ten percent of Nestlé’s global food and beverage business was operating with standard procedures, data, and systems. Remains of the company’s food and beverage business will uplift to these standards in few next years later.

What are the lessons taken from this case?

• Not just introducing correct individuals but emphasize the need for communications between the divisions and the project.
• Ultimately determine the business goals of the project and then create the timeline that will accomplish those goals.
• Don’t cut or reducing training. It’s crucial that employees receive training early and maintaining them throughout the project. If possible, bring end-users for testing the new system.
• Carefully evaluating the business process reengineering concurrence with an ERP implementation. Don’t re-engineer processes just for the sake of re-engineering; it will fail quickly and breeding resistances and contempt within the organization. It’s vital to choose which procedures need redesigning wisely. Basically, “If it’s working, then don’t fix it.”
• Limit the number of customizations to the system. The number of customizations can drove up the cost, timeline, and likelihood of bugs in the system. To determination as which processes need to be reengineered and which pieces of software need to customized required a balancing act.
• Obtain truly universal “buy-in” for the project that means everybody from the organization, not just top-level executives, needs to support the project. Traditionally, high-level executives usually defined ERP scenarios, then purchasing the system to installing without inputs or preparations from relevant parties in crucial stakeholders. Thus, ERP implementations will collapse without any questions.
• The top priority is first gaining cooperation between the party/key stakeholders and different divisions, and then carefully changing business processes. After that, only later on installing the software, and working with end-users to ensure it’s correctly functional.

Hershey

In 1996, when Hershey has decided to upgrade its legacy IT system into an integrated ERP environment, they chose three ERP vendors: SAP, Manugistics, and Seibei. They purchased the modules: SAP’s R/3 ERP software, Manugistics’ supply chain management (SCM) software, and Seibei’s customer relationship management (CRM) software.

They were planning ERP implementation to address the issues:

• Improve coordinated deliveries to retailers while maintaining excellent relationships with retailers.
• To enhance competitiveness.

Hershey established the project codenamed “Enterprise 21”, and its project cost was $110 million. Initially, the recommendation implementation time was 48 months (4 years). However, at that time, they were concerned about the ability to being competitiveness. That resulted in several mistakes they made that damaged the company severely.

Hershey’s mistakes are:

• Lack of experience in implementing solutions of this magnitude.
• Weak management commitment as Hershey hasn’t correct processes in place to keep its senior management regularly informed about how implementation was proceeding.
• Hershey cutback from the first estimated time to 30 months (2.5 years). They want to roll out the systems ASAP. That led to Hershey decided to go with the “Big Bang” approach instead of the “phased” approach.
• Based on their planning, the cutover was going to happen on July 1999. Unfortunately, the go-live scheduling coincided with Hershey’s busiest periods — Halloween and Christmas orders. Thus, the need to meet the aggressive schedule prompted the implementation team taken to cut corners on critical systems testing phases. In other words, they were sacrificed systems testing for the sake of expediency.
• Due to rushing time, Hershey’s employees were trained inadequately on the new systems during the busy season.

When the system goes live in July of 1999, the unforeseen issues shown up and prevented orders from fulfilling throughout the operations. Due to cutting corners, there was a lack of information inventories in the database. By August 1999, the organization was 15 days behind schedule in satisfying orders, as order fulfillment time has doubled. Plus, several of Hershey’s distributors suffered loss of credibility when they were not able to supply products to retailers in time. Later, that leads to loss of shelf spaces, as retailers shifted to their rivals for stocking the products in the busiest seasons.

As a result, Hershey was incapable of delivering $100 million worth of candies for Halloween 1999. Product inventories started to pile up, thus accumulated 25% more by the end of September 2000, compared to the previous year.

When Hershey announced their problems, their stock price plunged by 8% in a single day. Later, they experienced a sharp decline over a more extended period as profits for the third quarter of 1999 dropped by 19% and declined by 12% in its 1999 annual report. Approximate, during the third and fourth quarters of 1999, Hershey lost about 0.5% market share.

The Hershey’s failure to implement the ERP software on time led to the loss of $150 million in sales. Fortunately, Hershey has managed bounced back from this ERP implementation failure.

They appointed a CIO, George Davis, from Computer Sciences Corporation. With his leadership, they implemented a rigorous software testing program. In Sept-Oct, they managed to iron out most of the initial problems with the ERP system. By Easter, they have filled out orders, then next peak season, Halloween-Christmas also being successful, too. Hershey again back on the track, while sales are reaching $4.2 billion.

In July 2001, they redesigned the process and upgraded SAP R/3 4.6; it took 11 months for the system has implemented successfully. The best parts of this implementation were ahead of schedule and with 20% less costs compared to the budget estimates. They achieved this by learned its mistakes and applied solutions to performed necessary actions.

These solutions are:

• Appointed new CIO who knows IT/Computer Science.
• Strong Management Commitment.
• Implemented a rigorous software testing program.
• Redesigned the system to ensure functionalities and compatibilities issues solved.
• Implementing the system in parts (the “phased” approach), instead of the “Big Bang” approach.

What are the lessons taken from this case?

• Strong Management Commitment is necessary to manage an ERP implementation successfully. This commitment shouldn’t be forgotten easily.
• An ERP implementation system should not be forced into an unreasonable timeline since this causes critical issues overlooked. Testing phases are safety nets, and they are an essential part of the implementation. No compromise should ever part of testing phases, periods.
• Data migration required discipline, and ensure data as inventory input correctly.
• Never schedule cutover during busy seasons, even in the best-case scenario. The ERP implementation will always have steep learning curves and operational performance dips. By timing cutover during slow seasons, the company gains slack time to iron out any issues. Another advantage of this is letting employees more time to learn new business processes and systems.

Nike

In the early 1990s, Nike decided to incorporate an old version of the ERP system from SAP. However, the software was inefficient, full of bugs, and offered outmoded/obsolete demand forecasting at the time. Thus, it wasn’t adequate for the forecasted demand requirements.

In 1998, Nike had 27 order management systems around the globe, all highly customized and poorly linked to Beaverton, Oregon (Nike Headquarters). To gain control over its manufacturing cycle, they decided their manufacturing systems need centralized as its planning processes.

As a result of this, Nike decided to replace its ERP system by switching from the SAP vendor to i2 Technologies, Inc. Even, they purchased different modules from other vendors for incorporation into a new ERP system: SAP’s R/3 software (bedrock of the strategy), i2 supply software (demand and collaboration planner), and Siebel’s CRM software. They incorporated into the overall system by using middleware from STC (now SeeBeyond).

By 2000, the objectives of new ERP software were the forecasting market demand and meeting these demands in an expeditious and precise manner. The critical element of this project was i2 software, since it was customized to aid Nike in forecasting market changes, and helps the company automate its main processes.

Nike would gain the advantages of this ERP system if success with implemented:

• The manufacturing cycle — driving down from nine months to six, so they can match its retailers’ ordering schedule (six months).
• Decreased its response time to shoe market changes and planned production schedules of the new demand (fashion’s volatile trends).
• Began production of the new shoes in one week, rather than one month (reducing unwanted products and decreasing inventory levels, yet have higher production of products in demand).

Due to their experience with the ERP system, they knew the ERP implementation comes with various risks and uncertainties. Thus, Nike can afford to be patient with its application.

However, Nike fell into the false security of sense. The i2 system seems smaller than the original ERP system, and they underestimated its challenges and dangers as the company didn’t take many precautions as required.

Nike’s mistakes are:

• They didn’t hire a third-party integrator to help them to implement the new system smoothly.
• Didn’t wait to deploy i2 as part of its SAP ERP project; Nike decided to install i2 software at the beginning of 1999, while it was still using the legacy systems.
• The i2 software has an integration issue as its software has different business rules and stored data in various formats. This software required to be heavily customized to operate with Nike’s legacy systems. It took much as a minute for a single entry to be recorded by the software. Due to that issue, the system frequently crashed by overwhelmed by the tens of millions of product numbers Nike used.
• Nike decided to go with the “Big Bang” approach for implementing an ERP system.
• Fail to train employees properly with new systems, which led to the excess production of unsought shoes.

As a result of this implementation, Nike suffered glitches as it has spread to factory orders. The demand planner deleted orders data six to eight weeks after information inputted. That caused an impossible situation for planners, as they cannot ask each factory to produce with no available information orders.

Afterward, additional problem has appeared as more orders were made for Air Garnett than the market demanded, yet calls for Air Jordan orders were lost or deleted.

That would escalate into the crisis that would costs a loss of more than 100 million in sales, depressing the stock price by about 20% at that time. Furthermore, the company’s health had deteriorated due to the corporate stock has suffered for over a year.

When Nike identified these failures and inconsistencies, they indicated that the company suffered because of the over-reliance on demand forecasting software and the lack of system customization. Even though the new ERP system caused an immense loss in materials, revenue, and headaches in significant technical issues, the company didn’t give up on the network.

They had come up with several solutions to ensure the implementation has adequately managed.

These Solutions are:

• They hired consultants and external experts to construct databases and bypass portions of the i2 software application. Plus, the team further built bridges within the software to enable data sharing. Later, they moved its short — and long — run shoe demand planning from i2 application to SAP ERP system. Nike picked SAP ERP system for using more predictive algorithm to estimate real demand.
• In addition to that, Nike installed the program that required employees to receive mandatory training and development for 140 to 180 hours so that they could understand the new system better.
• Nike adopted a phased geographical approach while integrating its new SCM, CRM, and ERP system. Initially, the project has envisioned as a 2–3 year for implementation.

However, it took Nike over six years, and the project bill was more than $500 million.

Nevertheless, by 2004, Nike launched the new project (designed for enhanced the centralized planning, production and delivery processes, and even facilitating the “single-instance” ERP strategy), it was hugely successful.

When ERP, CRM, and SCM systems were implemented all at once, the company experienced a multitude of benefits, included proposed advantages originally from the former project. For example, the “pre-building” time required per shoes was 30%, but it fell to approximately 3% in some factories. So far, the most direct benefits are improved financial visibility, cash flow management, and revenue forecasting. Nike even gains the ability to juggle cash stockpile in different currencies to take advantage of shifting exchange rates.

Furthermore, the positive effects of ERP have reduced the risk of a “bullwhip effect,” which led to a significant competitive advantage. The new ERP system caused massive cost reductions along the supply chain, thus increasing Nike’s margin and overall economic performance. This benefit helped Nike recovered from the i2 software implementation disaster. Nike even looking to reducing from 6 months lead time to three, though they are still working on this planning since they don’t want to complicate the rollouts.

What are the lessons taken from this case?

• Don’t underestimate the size of software/modules, as they can carry nasty surprise bugs or any issues. Thus it’s crucial to take many precautions as required.
• The “Big-Bang” approach should never implement as Nike does. If they attempted work breakdown structure, and testing modules religiously, then they could catch these issues before the going-live schedule.
• Patience is an essential virtue when coming to ERP software implementation. Nike rushed i2 software installation when it wasn’t part of its SAP ERP project, which caused compatibility issues.
• Due to compatibility issues, i2 software had to be heavily customized. That caused further cost, timeline, and even potentially introduced glitches in the system. Don’t go for heavily customizing software.
• The Lacking of proper training for employees combined with glitches from the system and this had lead to the increasing orders of unneeded shoes and decreasing profitable orders. Emphasize the training and development for employees so that they can understand the new systems better.
• It’s vital to hire external experts and consultants to ensure ERP implementation successfully.

Several lessons can be learned from these cases since it bears with successes and failures. There are breakdowns during system implementation, but when properly implemented, the ERP rollout provided several successes as the consolidated system and saving enormous money.

To review solutions for ERP implementation:

• Bring correct parties as IT consultations and people who will be affected by an ERP implementation, not just high-level executives and stockholders.
• Take time to redesign business processes before even implementing the new system, so the company will know which and what will be affected by implementing the ERP software.
• Reengineer business processes only if it’s necessary.
• Ensure compatibilities and functionally when coming to modules.
• Limit the number of customizations on the system and modules, and the customizations will drive up the timeline, costs, materials, and likelihood of bugs.
• Don’t underestimate the size of software/modules.
• Strong management commitment is necessary to stabilize the ERP system since they are responsible for keeping everyone on the tracks.
• Define business goals and create a timeline around these goals, thus allow adequate time for testing phases (and bring end-users is possible) and do an ERP implementation correctly.
• Mandatory Training is a vital tool for employees, as it will reduce employees’ resistance and contempt toward new systems. Plus, training will help employees’ morale and operating the system better.
• Don’t make the “Big Bang” approach; it’s better to make the “phased” approach.
• Never schedule cutover during busy seasons. It’s best to do cutover during slow seasons, as it will let employees adapt to the new system better.
• Data migration required discipline and ensure data are input correctly. If not, then even the best system cannot functionally and will cause problems in the long run, not just the short term.
• Do hiring external experts and even third-party integrators. They will help with ERP implementation smoothly.
• Patience is a virtue; don’t rush anything, and don’t assume the ERP system is the “magic bullet.”

It’s impossible to avoid any issues when coming to implementing the ERP system. However, if following these guidelines, the company will able to reduce these risks and avoid even worst-scenario as filing bankruptcy. The benefits of the ERP implementation will come for who heed the lessons of the cases.

Sources/Crediting to:

Nestlé USA:

Dieringer, Derek S. “ERP Implementation at Nestle.” ERP Implementation at Nestle, Uwosh.edu, 24 June 2004, https://www.uwosh.edu/faculty_staff/wresch/ERPNestle.htm. Accessed 18 Oct. 2019.

“Nestle Struggles with Enterprise System.” Nestlé Struggles with Enterprise Systems, Pearson Education, http://wps.prenhall.com/bp_laudon_mis_9/32/8212/2102272.cw/content/index.html. Accessed 18 Oct. 2019.

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Fruhlinger, Josh, and Thomas Wailgum. “15 Famous ERP Disasters, Dustups, and Disappointments.” CIO, CIO, 4 Oct. 2019, https://www.cio.com/article/2429865/enterprise-resource-planning-10-famous-erp-disasters-dustups-and-disappointments.html. Accessed 18 Oct. 2019.

Hershey:

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Curtis. “Failed Attempt at Enterprise Resource Planning by Hershey Chocolate Company.” The Journey to Fixing The Broken Internet, Cortisiko, 26 Sept. 2016, https://cortisiko.wordpress.com/2016/09/26/failed-attempt-at-enterprise-resource-planning-by-hershey-chocolate-company/. Accessed 18 Oct. 2019.

Chandrasekaran, A. V. “ERP Implementation Failure Hershey Foods Corporation.” Academia.edu, ICFAI Center for Management Research (ICMR), 2008, https://www.academia.edu/4630187/ERP_Implementation_Failure_Hershey_Foods_Corporation. Accessed 18 Oct. 2019.

“ERP Failure Of Hershey Foods Corporation — A Brief Description.” Myassignmenthelp.com, Myassignmenthelp.com, https://myassignmenthelp.com/free-samples/erp-failure-of-hershey-foods-corporation. Accessed 18 Oct. 2019.

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Nike:

Koch, Christopher. “Nike Rebounds: How (and Why) Nike Recovered from Its Supply Chain Disaster.” CIO, CIO, 15 June 2004, https://www.cio.com/article/2439601/nike-rebounds--how--and-why--nike-recovered-from-its-supply-chain-disaster.html. Accessed 18 Oct. 2019.

Desai, Utsav, and Prerna Hule. “Nike Case Study — ERP Failure — MIS.” LinkedIn SlideShare, LinkedIn SlideShare, 3 Dec. 2017, PowerPoint Presentation. https://www.slideshare.net/UtsavDesai12/nike-case-study-erp-failure-mis. Accessed 18 Oct. 2019.

Joey. “Operations Management Problems at Nike.” Operations Management Problems at Nike, The Business Scholar, 9 July 2014, http://the-business-scholar.blogspot.com/2014/07/operations-management-problems-at-nike.html. Accessed 18 Oct. 2019.

Kimberling, Eric. “The Biggest ERP Failures of All Time.” Third Stage Consulting Group, Third Stage Consulting Group, 8 Oct. 2019, https://www.thirdstage-consulting.com/the-biggest-erp-failures-of-all-time/. Accessed 18 Oct. 2019.

Bousquin, Joe. “i2’s Software Just Didn’t Do It for Nike.” TheStreet, TheStreet, 27 Feb. 2001, https://www.thestreet.com/story/1322748/1/i2s-software-just-didnt-do-it-for-nike.html. Accessed 18 Oct. 2019.

Bosari, Jessica, and Money Wise Women. “Real Costs of Choosing the Wrong Software Vendor.” Forbes, Forbes Magazine, 4 Oct. 2012, https://www.forbes.com/sites/moneywisewomen/2012/10/04/real-costs-of-choosing-the-wrong-software-vendor/#3b298e964997. Accessed 18 Oct. 2019.

Vasilev, Simeon, et al. “ERP and Supply Chain Management: Literature Review and the Case of Nike.” Issuu, Enterprise Information Systems Erasmus School of Economics, 14 Feb. 2018, PowerPoint Presentation. https://issuu.com/simeon.vasilev/docs/erp_and_supply_chain_management_-_l. Accessed 18 Oct. 2019.

Jenkins, Lindsey. “ERP Case Study: How ERP Software Can Affect Your Business.” SelectHub, SelectHub, https://selecthub.com/enterprise-resource-planning/erp-case-study/. Accessed 18 Oct. 2019.