M6 Consultancy

298 Fauxaddi Ave.

New York, NY 10260

December 14, 2010

To: George Davis, CIO

From: Eric Scalice

Subject: Consultancy Report-Hershey Foods

Hershey Foods is one of the oldest chocolate manufacturers in the United States.
The company and brand are considered iconic institutions of Americana and their wide
variety of products are sold all over the world. The publicly traded company employs
more than 14,000 workers and relies on a multitude of suppliers and distributors to
deliver their products. The business of selling chocolates and various confectionaries is a
high volume-low profit margin undertaking with important seasonal deadlines. The
company operates over a dozen manufacturing plants located domestically and
internationally. Hershey had been trailing industry standards of information technology
and needed to upgrade their technological resources to provide reliable and competitive
service.

In 1996, Hershey initiated a plan to modernize its hardware and software to

upgrade its service capabilities. The plan, Enterprise 21, was designed and initiated to be
implemented incrementally over the coming four years. The goals of the project were to
upgrade and standardize company hardware, move from a mainframe-based network to a
client-server network, and use these advancements in the firm’s IT infrastructure to
support better efficiency with suppliers and customers. Industry demands had increased
the importance and need for more efficient and reliable data sharing between the
company and its retailers, and Hershey’s ability to meet these demands would allow them
to increase both operational effectiveness in their primary activities and promote
customer and supplier intimacy.

The plan for Enterprise 21 was to replace the firm’s existing legacy systems with
more modern enterprise resource planning software from SAP AG and complementary
software from Manugistics and Siebel Systems to better execute its core strategies and
support its business processes. The plan also recognized the need to upgrade its
production plant processes by installing bar coding systems and devices to improve
management logistics, monitor inflow and outflow of products, and effectively reduce
costs related to production.

Hershey recognized some of the risks associated with implementing the ambitious
and costly transition to new Enterprise 21 systems. The firm was aware that its IT
expenditures were lower than the industry standard and that failure to initiate upgrades
could jeopardize their competitive position if competitors had more efficient and
supplier/distributor friendly processes. Hershey was aware that implementing the new
systems would be a laborious undertaking and needed to be executed incrementally over
a period of four years, with the bulk of transitory training and implementation processes
occurring during “down periods” of lower sales that would not conflict with key periods
of peak seasonal sales that occur throughout the fiscal years of the project. However,
competitive pressures and an awareness of potential impending Y2K conflicts and issues
implored the Enterprise 21 project managers to expedite implementation of the new
systems. Hershey failed to recognize the complexity of the various systems and the risks
associated with a rushed transition that would later create confusion and inefficiency
which carried over into seasonal order periods of vast importance.

“Although the plan had been to switch on the new systems in April—an off-peak
time for candy orders— the project ran behind schedule and wasn't completed until July.
With Halloween orders already starting to roll in and the immovable Y2K deadline
looming, Hershey decided in favor of a direct cut-over strategy in which all the new
software would be turned on at once.” (Carr) This decision to “go live” in one fell swoop
turned out to be counterproductive to the system’s original purpose. Efficiency suffered,
orders were slipping through the cracks and deliveries weren’t being made or were
coming in late, inventory was piling up and the company couldn’t effectively distribute it.
Workers were contorting, trying to get orders filled and serviced by working around the
problems despite the system rather than through it. Another issue that plagued Hershey
in its implementation of the Enterprise 21 ERP initiatives was poor data management.
Failure to understand the new systems and their overarching data models made inventory
management futile. “"We'd had a real problem with inventory accuracy, and a lot of the
time we didn't have the right inventory to the right place according to our records,"
Hershey's Miesemer acknowledged in his speech at the warehouse management
conference.” (Carr) Also, the plan and its execution were poorly governed and monitored
by management. While the project managers were backed into a corner via an
unmovable deadline presented by Y2K, effective leadership could have minimized the
impacts of the transition’s shortcomings and been prepared with serviceable
contingencies to combat the disaster scenario. “Business and technology managers
aligned with different parts of the business were pulling in different directions, and no
one at the top pulled these demands together to guide the creation of a system that would
work for the whole business.” (Carr)

External problems that occurred due to the Enterprise 21 debacles saw Hershey
losing market credibility exponentially as issues continued to affect its distributors.
Retailers were bemused and inconvenienced by poor service and unreliable orders and
deliveries and eventually filled shelf space with competitor’s products instead. While
already between a rock and a hard-place with piling inventories and lost sales,
competitors were now getting more benefits from Hershey’s absence. The way the crisis
was handled publicly by top company brass also caused confusion and backlash.
Executives publicly blamed employees for the mishaps and failed to acknowledge any
culpability for the management of the project implementation. The convergence of all of
these factors caused sales and earnings to drop continuously, the stock price plummeted,
and customer relations were at an all time low. Industry analysts were baffled;
employees were still confused, and investors, distributors, and customers were angered.

Hershey could have approached the project much differently and avoided the
pitfalls that were experienced in their implementation of Enterprise 21. First, an effective
project management team or outside consultancy could have helped Hershey make
transitions more effectively, developed contingency plans, and evaluated the
effectiveness of the initiatives as they were put into place. Significant planning and
tailoring ERP systems to suit the business processes of the firm is a must. Additionally,
the project would have been better served by choosing one ERP system from a single
vendor. By implementing a triad of different components from different vendors, the
already complex transition is made even more difficult and creates integration problems.
Barring that, an incremental approach of system integration would have allowed training
and process execution to be managed more effectively. Since the project was ill-
managed with complex systems and unmanageable deadlines, the efficacy of training and
implementation suffered and the consequences carried over into important seasonal sales
periods. A more rigid management structure and an adequate timing buffer to allow
employees to become familiar with the new systems would have minimized the ill effects
and curtailed prolonged durations of service issues to avoid crippling consequences
during important sales quarters.
Carr, David. "Hershey's Sweet Victory - Projects Enterprise Planning." Information
Technology Planning, Implementation and IT Solutions for Business - Baseline. Baseline
Inc., n.d. Web. 16 Dec. 2010. < http://www.baselinemag.com/c/a/Projects-Enterprise
Planning/Hersheys-Sweet-Victory/1/ >.

"Hershey's Enterprise System Creates Halloween Tricks." Additional Cases. Prentice

Hall, n.d. Web. 11 Dec. 2010.
< https://esc.angellearning.com/AngelUploads/Content/EMPU
87XUJB/_assoc/c4024607c22726a95590cfb039390003/Hershey%27s%20Failure.htm >.

Laudon, Kenneth C., and Jane Price Laudon. Instructor resource center on CD-ROM,
Management information systems managing the digital firm, 10th edition. Upper Saddle
River, N.J.: Pearson/Prentice Hall, 2007. Print.