Hershey Food Corporation, the biggest manufacturer of candy products in the United States, decided to implement a new Enterprise Resource Planning system titled Enterprise 21 starting in 1996. The ERP system consisted of many different software systems. These systems included SAP AG, Manugistics, and Siebel systems. With the implementation of these software systems, Hershey believed its mass market candy business strategy would be emphasized.
Hershey’s Expected Benefits of Enterprise 21
Hershey had many goals for Enterprise 21. In general, Hershey had a goal of upgrading and standardizing the hardware and software systems. In attempt to upgrade the hardware, Hershey moved from a mainframe-based network to a client-server network. This upgrade would allow for Hershey to use and share its information with people inside the company as well as distributors outside the company, a critical aspect of establishing good customer relationships.
The upgrade and standardization of the software system was a much larger goal. The SAP system, which allows for communication within company functions, was to be installed with other software systems. Manugistics software system would be used to forecast production and scheduling. Manugistics would also be useful as a transportation management system. The benefit of this system would greatly lower inventory holding costs and transportation costs, the two largest expenses in logistics management. Hershey also decided to implement Siebel systems, which is designed to aid in establishing and maintaining customer relationships, as well as a measuring device of the effectiveness of marketing strategies.
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Hershey’s Implementation Approach
The first part of Hershey’s implementation process started with the installation of a bar-coding system. A bar-coding system is necessary to improve logistic management by tracking inbound and outbound materials and products. Due to a modification of the SAP system, Hershey decided to move the target date of the installation of the system to April of 1999. This new date meant the company had only thirty nine months to complete the implementation instead of the forty eight months originally forecasted. Due to the delay of the implementation of the full SAP system, the Siebel and Manugistics systems were also delayed. Because of the delays, the implementation of the new ERP system immediately caused problems because by mid July, when Halloween orders were arriving, the system had just been installed.
Due to Halloween orders already arriving, Hershey’s information technology personnel decided to implement the ERP system using the cutover strategy, a very risky approach where all systems go into affect all at once. This approach failed, causing shortages with distributors of Hershey products. These shortages lead to bad customer relationships with distributors which further lead to bad relationships with their customers. Hershey could have used a much better implementation approach by slowly implementing their new system. The cutover strategy caused great confusion for employees who both entered orders and communicated those orders to production facilities and to employees who filled orders in warehouses.
Causes of the Problems and Who is Responsible
There are many different theories on the causes of the implementation failures of Hershey’s ERP system. Many believed that the software systems were not functioning properly. However, this was not the case, as these systems were operating smoothly in different units of Hershey. I believe the cause was directly related to the failure to use the systems properly. Due to the rushed implementation of the system, training and education of the new system was not properly or thoroughly conducted. Employees were confused not only how to operate the system but also did not see how the different software systems fit together. With better education and training, employees would have been able to process orders much more effectively and efficiently.
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The knowledge we have that the SAP system, along with Siebel and Manugistics, was working properly in other regions takes away the ability to blame the software companies for this ERP system failure. The blame has to be put in the hands of the information technology managers, as they were the personnel that decided to implement this system at such a fast pace. However, business managers and executives should have raised questions about the training of employees and potential disasters this system can cause. After all, the goal of an integrated ERP system is to link the different aspects of a business and to increase the communication between employees. Although IT personnel made the implementation approach decision, executives and managers should have had a larger role in the process before changing operations drastically as their busiest season was quickly approaching.
Impacts on the Hershey Organization
The largest impact that the Hershey organization had to deal with was the effect on the customer relationships. In an extremely competitive and global business world, customer relationships are one of the most important aspects of having a successful business. As noted in the article, distributors were unable to receive Hershey products, which further affected their customer relationships. This lead to a loss of distribution warehouse space as well as shelf space in stores, which forced customers to choose substitutes.
Conclusion
Although Hershey suffered huge losses in 1999 and part of 2000, they rebounded strongly in 2000. The reputation of quality products is what I believe to be the reason for their comeback. Without Hershey’s prior strong reputation and strong customer relationships, Hershey would not have been able to recover from this ERP system failure. All companies should use this failure as a guideline when implementing new software systems. Corporations must cautiously implement their systems in a manner that allows proper employee training and production efficiency while still maintaining customer relationships.
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