- Internal Code :
- Subject Code : BISY2005
- University : Australian Institute of Higher Education
- Subject Name : Management
ERP System Implementations
Enterprise System
Enterprise system which is also known by the Enterprise resource planning system (ERP) is a system that provides an organization with the information of key business processes in a wide-coordinated and integrated manner (Managementstudyhq.com, n.d.). It is a kind of cross-functional information system. With the ERP system, information on different departments and processes can flow seamlessly within the organization. A wide variety of business processes in an organization can be linked with processed information from production, sales, manufacturing, HR, logistics, etc. The ERP system is a conglomerate of certain software which are linked together to produce a unified result of real-time information to have flowed to different departments, these software are connected with the centralized database management system which then stores and send required data accordingly to the concerned departments (Poranki et al, 2015).
In earlier times, large organizations face the difficulty of integrating and getting optimum information to use with different departmental information in real-time which resulted in a loss of efficiency for the organization. The functions like sales, manufacturing, logistics, marketing, etc were served differently with different software and were not capable of information to each other. Managers were faced with the difficulty of taking firm-wide decisions due to a lack of integrated and real-time information from all the departments (Matende & Ogao, 2013). For example, when a customer orders something, the salesperson may not be able to check if the ordered item is currently available or not in inventory, and if sold to update it on the website or the marketing departments and the inventory. To overcome such difficulty organizations started to use a new integrated system of Enterprise resource planning to support and update all the business activities to every concerned department, this is known as an enterprise system.
ERP and CRM systems are at the core of many companies’ operations and failure of these systems can be very serious for these which can lead to financial meltdown also. But after some biggest failures of the ERP systems, vendors and clients are working hard and found numerous loopholes and to ensure the success of their implementation of the programs. Panorama consulting solutions released a report that in 2015, only 58% of the organizations considered their ERP installations success and in 2019, the percentage reached 88 (Poranki et al, 2015).
Implementation of ERP in Cadbury
Cadbury is a multinational British company that deals in confectionary and is the second-largest brand of confectionary after Wrigley’s, founded by John Cadbury in the year 1824 (Matende & Ogao, 2013). Currently, Cadbury India deals with four sections- Chocolate, candy, gums, and milk food drinks. Cadbury has maintained its leadership in the chocolate sections over the years (Matende & Ogao, 2013).
Cadbury in recent years implemented the Kraft implemented the SAP 6.0 and called it one of the largest ERP implementation. It was credited with reducing operational costs. Around 11,000 employees were communicating with the company’s ERP system which was linked to 1750 applications and software in the year 2008. And then the same year, Krafty besides, loaded SAP's master core management system, NetWeaver. After the ERP system was installed, the inventory of Cadbury was left with a pile of stock at the year-end. The new system was a part of a five-year-long project with the name Probe aiming to integrate all of the sections of cadbury system including supply, manufacture, distribution, the customer (Matende & Ogao, 2013). Cadbury was aiming a high amount of savings form the Probe project but the project had confronted with some problems and delays.
Benefits noted-
- Cadbury’s business was increasing at a faster pace and the current system was not coping up with that pace, thus ERP added efficiency to the system and led to smoothening of a faster pace of growth.
- The company has built its strength regarding the up to date systems thereby not losing out on the competition.
- The ERP system brought a new way to manage the warehouse and inventory and structured it systematically to branch offices and the depots.
- The initial phase of implementation took some time and then successive implementations took lesser time and increased efficiency top positive and ultimately reached to advantages of huge savings (Matende & Ogao, 2013).
- The discounting of advantages on the part of competition does not imply here or matter because this change and transformation was industry-grade and was not advertised by the companies in general, only companies were adopting it creating the case for “prisoner’s dilemma”.
- This transformation needed a robust feedback system by the company and to inspect and check the changes. The implementation was expected to increase efficiency as it was cross-functional.
- The provider of the ERP was also selected from one of the best which facilitated the installation and adaptation to the system in a streamlined fashion.
- The system was also facilitating the vendors where they could retrieve information and can plan accordingly. Thus, restructuring and adaptation have been done internally as well as externally to suppliers which will add to their advantages and efficiency of time and cost. The ERP was a low-cost project looking at the efficiency and benefits it was going to provide (Poranki et al, 2015).
The ERP Implementation by Hershey’s
Hershey is a chocolate and confectionery manufacturer in North America headquartered in Pennsylvania. It is the largest manufacturer of chocolates in North America. The company was started in 1894. The products are distributed In around 60 countries all over the world. It earns 80% of the total revenue from chocolate products. The competitors are Nestle, Stover, Nabisco (Mala, 2015).
The implementation of the ERP system-
To enhance the company's efficiency and to cope with the increased competition, in 1996 the company came with a project named Enterprise 21. Hershey selected Sap's ERP, SCM of Manugistics, and CRM of Seibel and IBM Global to manage and integrate these three systems. The implementation time of the project was estimated to be 4 years. Hershey wanted a lesser time and thus decided to adopt the Big bang approach of integration instead of installation in a phased manner with an overall cost of $10 million (Mala, 2015).
Failure of The Implementation with A Big Bang Approach
Problems relating to the fulfillment of orders, processing started to arise and Hershey’s was not able to meet the committed delivery date.
Many distributors and suppliers were affected by this failure in that suppliers were not able to distribute the expected supply and incurred losses of finance and credibility.
After Hershey’s declared that the new database management (ERP)system is responsible for the hotchpotch of the company’s operations, its share plunged immediately by 8% (Trust in the company decreased).
Hershey’s wrong strategy of installation of the new system without giving a phased time to adaptation led to a loss of $150 million, profit plunged by 19% and sales dropped by 12%. (Poranki et al, 2015).
Reasons for the failure of ERP system with Hershey's
The overburdened implementation schedule and a big bang approach instead of phased manner installation. Thus the system didn't get the sacrifice for testing time for the sake of feasibility.
Activities of cut-over and go-live were introduced at the time when Hershey's business was at a very busy schedule.
Learning Outcomes from Failure
The ERP system should not be implemented in a hurry and at once. It should be allowed to better adapt to the business and the employees.
The testing period is a safety net against any malfunction of the organization with the new system adaptation. Thus over squeezing should not be done in any case else it will decrease the efficiency until it is adapted in a systematic manner (Mala, 2015).
It is seen never to schedule cutover during a busy season. Even in the cases of best implementation practices, companies should expect highs and lows in the operational performance marked by the installation of a new integrated system. During the periods of slow business, the company can allow itself for a more resilient time to iron out deviations within the system. Also, it gives employees the to adapt and learn more about the system they are going to use, and continuous assessment and feedback had been worked upon (Invoicera, 2016).
Cutover Activities and Go-Live was scheduled in Hershey’s busiest business periods. Learning from Failure An ERP implementation project should not be forced into an unreasonable timeline. Over-squeezing implementation schedules is a sure-fire way to overlook critical issues. Testing phases are safety nets that should never be compromised. In some cases, even orders are being reduced to manage the cutover period. This strategy is used to minimize the exposure of the damage caused due to undetected errors and lesser trained employees for the new system.
The year 1999 was a very difficult and disappointing year for Hershey’s food corporation, there was a slow start because of overburdened inventories and instead, a strong finish at the end of the year, the installation of the final enterprise-wide ERP information system led to problems and difficulties in the field of services, warehousing, and fulfillment of orders. Also, the recent growth years led to the constraint in the logistics and shipping capacity. Resultantly Hershey sales for the year drastically of what was expected.
Nike’s ERP Failure
Nike is an American athletic apparel multinational corporation engaged in manufacturing, designing, sales of footwear, apparel, accessories, and types of equipment on a worldwide scale. Nike is the largest supplier of apparel and athletic accessories earning revenues of 38 billion dollars in 2020, with total assets of 32 billion dollars. Its employing 76,000 people as of 2020 (Arora & Agarwal, 2012).
In the year 2000-01, Nike spent around 400 million dollars on the new supply chain management system and the real-time information based ERP system. Nike implemented a new solution for its grid management without testing it appropriately and making efficient and appropriate changes to suit their needs. Thus instead of supporting Nike matching its demand and supply fulfillment ana managing their manufacturing cycle, it ended up in a collapsing of the supply chain, with a dip of 100 m dollars in sales and a 2-% dip in the stocks (Arora & Agarwal, 2012). This resulted in the company giving another 5 years and millions of dollars to correct the problems and manage the software which was supposed to manage the Nike.
Reasons for The Failure
Nike outsourced the integration of the ERP system with the help of a third-party integration which was not well known for the systems it.
Inexperienced consultants were hired by Nike.
Customization techniques were not well defined and their forecast so far has not met the desired results of Nike.
There was no pilot testing of the information system and it was adopted in a hurry and adequate time was not given to the adaptation and integration of the new system.
Changing market conditions had to be kept in mind while integrating the systems and all the focus was put into system integration, management had to adapt to the changed market conditions which had nothing to do with the ERP implementation.
How Nike Corrected the Failure
It took 5 years and a considerable amount of money to correct the failures caused by the mismanaged implementation of the new ERP management system. Nike defined a business goal and re-engineered the real-time management system according to that goal and dedicated a part of the management in the implementation process which it missed earlier (Efthymiou, 2014).. Nike kept an eye on the whole process and cost was managed according to it. Nike understood the importance of the pilot test and the phased manner in which the ERP system should be availed according to the time and space it needs. Nike put efficient emphasis on the factor of adaptability and given adequate time to it.
The Key Learning of Nike from The Failure
ERP project implementation should not be forced upon impractical deadlines and be given adequate time and resilience to fit into the system and produce efficiency.
The testing phase should be given adequate space and that they are the safety valves that cannot be compromised (Bach & Algrem, 2014).
Not to cutover in the high seasons. Scheduling in the off hours gives it a more relaxed time to eliminate undetected issues in the system.
The organization management actively takes part in the systemization of the new ERP and that a part of the management is determined on to support and assist the vendor for the successful implementation of the project (Efthymiou, 2014).
Several questions need to be assessed to the successful implementation of ERP in a firm-
What are the primary and sub-primary systems which need the system?
What is the degree of effect on key processes?
The specification of the data and the locations that will be impacted.
Is there a need for additional technology and the time necessary to adapt it to the organization?
Which approach needs to be put upon when installing the system, it depends on the organization.
What are the business capabilities that are going to be affected by it?
Conclusion on Nike Operations Management
The case studies of three organizations have been discussed and their success and failure and the benefits made out by the rectification processes have been discussed. The case of Nike was the most severe and costly in the successful installation of the system design. Factors like customer experience, employee engagement, innovation in the business processing, advancing operations and optimum affiance in productivity on the part of organizations, transforming the real-time working of the organizations, facilities made available to customers and employees have been discussed. It can be said that adopting the ERP system for an organization is lesser a technology up-gradation but more like a need to effectively manage the increasing business of the organizations. A few studies were discussed In which failures were noted due to certain mistakes described throws light on the fact that such a huge and core solution needs its space and time install and be adapted to the organization to produce efficiency and effectively handle the data and information thus support to handle the increasing business needs and effectively flow the real-time data to all the concerned departments and sections. However, the increased awareness of the clients and vendors led to the elimination of program loopholes which helped the system being a boon instead of a bane for the organizations.
References for Nike Operations Management
Arora, R. & Agarwal, G. (2012). Operations management at nike: from breakdown to achievement. International Journal of Management Research and Review 2(7), 1293-1300.
Bach , C. & Algrem, K. (2014) ERP systems and their effects on organizations: a proposed scheme for erp success. Asee 2014 Zone I Conference. Retrieved from http://www.asee.org/documents/zones/zone1/2014/Student/PDFs/6.pdf
Efthymiou, I. (2014) Case study on failed implementation of erp systems. Retrieved from https://www.academia.edu/28508065/CASE_STUDY_ON_FAILED_IMPLEMENTATION_OF_ERP_SYSTEMS
Igi-golbal.com (n.d.) What is enterprise system. Retrieved from https://www.igi-global.com/dictionary/enterprise-systems/10003
Mala, S. (2015). Focus on critical success factors in erp implementation. International Journal of Engineering Research and Development, 11 (11), 68-74.
Managementstudyhq.com (n.d.) Enterprise system. Retrieved from https://www.managementstudyhq.com/enterprise-systems.html
Matende, S. & Ogao, P (2013). Enterprise resource planning (erp) system implementation: a case for user participation. Procedia Technology, 9, 218-226.
Poranki, K., Parvez, Y. & Akhtar, M. (2015). Integration of scm and erp for competitive advantage. Research Journal of Science and It Management 4(5), 17-24.
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