Hershey still haunts them.
True, CFOs whose companies are installing enterprise resource planning (ERP) systems try to avoid the cost overruns and other, even worse perils.
But the candy maker’s scary tale seems to have staying power. Maybe it’s because it all came down on Halloween, 1999.
By then, the installation of its $115 million ERP system had flopped so badly that Kisses and other Hershey sweets couldn’t be found in many trick-or-treat bags. Third-quarter sales plummeted by 12.4 percent compared with 1998, and earnings were off 18.6 percent.For Hershey’s tale of woe, click here.
Dan Brennan, chief operating officer of Gladwyne Software Surety, a King of Prussia, Pa.-based risk management consulting firm, thinks Hershey’s experience and other prominent ERP failures show how risky it’s become to disrupt a company’s supply chain.
“The risks in general for CFOs [are] increasing,” says Brennan. “Failed systems are starting to impact customer relationship [s].”
In the old days, before the E-economy, he recalls, “if you had system failures in the warehouse you could buffer customer reactions by having surplus inventories.” With today’s tight inventories, such buffers don’t exist anymore.
The anxieties also extend to less tangible industries, where delivering services as promised is crucial. In both cases, the most feared outcome is a damaged reputation.
That’s the case for the American Institute of Certified Public Accountants (AICPA), which is installing an ERP that’s slated for final launch by July 2002, says Clarence A. Davis. After two years as CFO, he became chief operating officer Nov. 14.
Like other senior executives, Davis is scrutinizing the hazards involved in assembling an ERP.
Davis estimates that the AICPA has 340,000 members, noting that with the ERP the institute will extend its reach to about 70,000 accountants who belong only to state CPA societies. Yet as big as the profession is, “it is very small in terms of [accountants] talking with one another,” Davis points out. “Once you get a bad rap it can travel through the network very quickly,” Davis tells CFO.com.
Davis says his biggest potential nightmare on the project would be if it wound up hurting the AICPA’s reputation by causing errors or delays in the delivery of its products and services.
Proper functioning of the ERP system, which will be used to run the institute’s sales processes “from order entry to fulfillment,” is crucial to meeting customer expectations, he notes.
“If you, as a member, ordered a course for construction and you got [one for] not-for profits, and I sent you a bill, you would find me very ineffective,” Davis says.