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Hersheys- An Overview
The Hershey Company, known until April 2005 as the Hershey Foods Corporation and
commonly called Hershey's, is the largest chocolate manufacturer in North America. Its
headquarters are in Hershey, Pennsylvania, which is also home to Hershey's Chocolate World. It
was founded by Milton S. Hershey in 1894 as the Hershey Chocolate Company, a subsidiary of
his Lancaster Caramel Company. Hershey's products are sold in about sixty countries worldwide.
Hershey is one of the oldest chocolate companies in the United States, and an American icon for
its chocolate bar. It is one of a group of companies established by Milton Hershey. Other
companies include Hershey Trust Company, and Hershey Entertainment and Resorts Company,
which runs Hershey park, a chocolate-themed amusement park, the Hershey Bears minor
professional hockey team, Hershey park Stadium and the Giant Center. Most of the employees
for the factory come from the surrounding counties, towns, and boroughs, such as Lebanon
County, Hummelstown, South Hanover, and Harrisburg.
by the company. At the turn of the century, Y2K problems were expected to crop
up in the company's legacy systems.
Hershey chose to replace the systems, rather than spending huge amounts on
solving the date related problems in the legacy systems.
The main goals of Enterprise 2l project were to upgrade and standardize the
hardware, shift to client/server environment from the existing mainframe based
environment, move to TCP/IPI network, etc.
Hershey's information systems division wanted to switch over to the ERP system
by April 1999.
Hershey selected SAP AG's R/3 Enterprise Resource Planning suite, along with
companion software from two vendors - Manugistics and Siebel.
Software
from
for
finance,
purchasing,
materials
By January 1999, some of the modules like SAP financial, materials management,
purchasing, and warehousing had been implemented. However, other modules like
the critical order processing and billing systems modules from SAP, the pricing and
promotions package from Siebel and planning and scheduling modules from
Manugistics were behind schedule.
Hershey planned to switch over to the new systems during April 1999, which was
a lean season for confectionery sales, these modules were added on only in July
1999 -three months behind schedule. At that time, Hershey was under pressure and
was not in a position to extend the implementation schedule, as the Y2K problem
was looming large. That was the time that orders from retailers for Halloween
started pouring in.
Hershey then decided on a Big Bang approach to ERP implementation. In this approach,
the software was to be implemented at one go, instead of a phased approach of
implementing one module at a time, testing it, and then taking up the next
module.
The phased approach allowed a company to find and correct bugs before moving
on to the next phase.
However, Hershey was of the view that the Big Bang approach would enable it to
meet all its Halloween orders.
Expected Outcome
By implementing new software, Hershey aimed at better coordinated deliveries of
its products, helping retailers maintain low inventory and reduce inventory holding
costs, and on the whole, providing better customer service.
According to Keith Costello, Project
Team
redesigned the whole business process with the customers in mind. They were
implementing thiso To enhance our competitiveness, and
o To enhance our customer service. In their corporate culture, the customer service
piece is highly visible. For example, when customers place orders, Hershey
July
1999,
for
the
Big
Bang approach
to
ERP
implementation, it had supplies for around eight days - this was higher than usual.
Hershey maintained more supplies in order to address any minor problems that
might occur during the implementation. But three weeks after the implementation of
the new system, it was evident that Hershey would not be able to meet its
deadlines as the shipments were delayed. As against the usual five days, that it
took to deliver the products, Hershey asked distributors for around twelve days to
deliver their orders. However, Hershey missed that deadline too. By August 1999, the
company was 15 days behind schedule in fulfilling orders.
Several of Hershey's distributors who had ordered the products could not supply
them to the retailers in time, and hence lost their credibility in the market
Hershey also lost precious shelf space, for which there was high competition in the
market.
Customers began switching to products of competitors like Nestle and Mars.
Retailers opined that not only short term sales but long term sales of Hershey too
would also be affected.
On the one hand, Hershey was unable to send the consignments on time due to
problems in order entry, processing and, fulfillment; on the other, the warehouses
were piled up with products ready to be shipped, as the manufacturing process was
running smoothly. Product inventory started to pile up and by the end of September
2000; the inventories were 25% more than the inventories during the previous year.
Hershey missed out on the deliveries, in spite of having enough products at its
warehouses.
Company's supply chain has ground to a halt, making it impossible to fulfill $100 million
worth of orders. For Hershey's confectionary manufacturing and distribution operations,
this nightmare came true in 1999.When it cutover to its $112-million IT systems,
Hershey's worst-case scenarios became reality.
Business process and systems issues caused operational paralysis, leading to a 19-percent
drop in quarterly profits and an eight-percent decline in stock price.
When the systems went live in July of 1999, unforeseen issues prevented orders from
flowing through the systems. As a result, Hershey's was incapable of processing $100
million worth of Kiss and Jolly Rancher orders, even though it had most of the inventory
in stock.
Testing phases are safety nets that should never be compromised even if testing sets back
the launch date. The potential consequences of skimping on testing outweigh the benefits
of keeping to a longer schedule. In terms of appropriate testing, analyst advocates
methodical simulations of realistic operating conditions. The more realistic the testing
scenarios, the more likely it is that critical issues will be discovered before cutover.
With respect to the Hershey's case, many authors have criticized the company's decision
to roll out all three systems concurrently, using a "big bang" implementation approach. In
our view, Hershey's implementation would have failed regardless of the approach. Failure
was rooted in shortcuts relating to systems testing, data migration and/or training, and not
in the implementation approach. Had Hershey's put the systems through appropriate
testing, it could have mitigated significant failure risks.
ERP Implementation Scheduling
Hershey's made another textbook implementation mistake - this time in relation to project
timing. It first tried to squeeze a complex ERP implementation project into an
unreasonably short timeline. Sacrificing due diligence for the sake of expediency is a
sure-fire way to get caught.
Hershey's made another critical scheduling mistake - it timed its cutover during its busy
season. It was unreasonable for Hershey's to expect that it would be able to meet peak
demand when its employees had not yet been fully trained on the new systems and
business processes. Even in best-case implementation scenarios, companies should still
expect performance declines because of the steep learning curves.
By timing cutover during slow business periods, the company gives itself more slack time
to iron out systems kinks. It also gives employees more time to learn the new business
processes and systems. In many cases, its advisable to reduce incoming orders during the
cutover period.
Apart from these two reasons industry analysts also concurred that problems in project
management were to blame for the debacle. According to Tom Crawford, General Manager,
Consumer Products unit, SAP America Inc., "There are really no software issues per se,
in terms of bugs or fixes that need to be applied to make (R/3) work any differently that it
is now. The SAP workers are just making sure they're using the business processes (built
into the software) correctly.
Another reason cited for the debacle was Hershey's lack of experience in implementing
software solutions of this magnitude. Hershey had earlier implemented a few customized
systems, but they were on a much smaller scale. The top management did not conduct
enough groundwork before going ahead with implementation of this company-wide ERP
solution. Since the groundwork was inadequate, the top management also fell short in
guiding the company's technical and business managers. These two levels of management
were working towards different goals. An analyst commented, "The thing Hershey can be
faulted for was to announce that they had blown ERP as justification for missing earnings.
Conclusions
In closing, any company implementing or planning to implement ERP can take away valuable
lessons from the Hershey's case. Two of the most important lessons are: test the business
processes and systems using a methodology designed to simulate realistic operating scenarios;
and pay close attention to ERP scheduling.
Industry experts said that with three different vendors working on the system, it would
have been better if Hershey had chosen to roll out each system successively and then
check the integration issues. For a project to be implemented in a company as big as
Hershey, each component had to be rolled out cautiously, ensuring that the system
worked according to the plans. But with such a short time-frame to implement the ERP, it
was not possible to test each of the components carefully. In this case, a big bang was not
the right approach.
The Company:
Pacific Dunlop Garments, in business for over a century, owns the production and distribution
rights for many well-known international brands and is the largest garment retailer in Australia.
It currently operates seven factories in Beijing, Shanghai and Guangdong.
A decade ago the Group became over-extended and had operational problems which led to
insolvency. It used information technology to strengthen production management and control
costs, reduce inventory, and shorten production cycles. As a result Pacific Dunlop returned to
profitability and acquired additional well-known European and American brands and general
merchandise groups as its customers.
In 2002, Pacific Dunlop invested US$ 30 million to build a new factory in Zhongshan. This
enables it to react more rapidly to world markets and customer needs. Recently, it purchased
Sara Lee Courtaulds, a large UK garment manufacturer and merchandiser with operation in
England, Sri Lanka, and Morocco.
Second, they had confidence in the MAE implementation consultants and business analysts.
They all had strong garment industry backgrounds and impressive skills and experience.
Third, MAE is versatile and expandable. They can be configure and customize it to meet the
requirements of any type of operation. That is important to them because they are always adding
new businesses and continuously improving their business processes.
Fourth, Parellax has the most advanced technology and uses the worlds leading database,
Oracle, as its technology platform. They wanted the reliability and stability that that platform
offers them.
Finally, the MAE development team impressed them. They demonstrated the ability to extend
their product and add new modules and functionality to meet their projected needs. They can
provide solutions such as e-commerce, ERP, and SCM to integrate their system with those of
their suppliers and their customers. For example, when their inventory of certain raw materials
falls below replenishment level the system informs suppliers directly. This is a feature which
shortens their production cycles considerably.
Before, overseas import distributors needed to stock inventory for about six months.
Today, they have reduced that to one or two months leading to a reduction of 65-80% in
inventories.
In the past, the factories had to order material in advance and hold finished products for
an average of four months. Today the factories order materials only when orders are
received. Storage time is reduced and finished products need to be held for only three
weeks. This has reduced inventory by 25%.
In the past, overseas designs required six months. They can now complete them in two to
three months, a 50-65% time saving.
In the past, production cycles took three to nine months; today they have shortened them
to fourteen days, as was their goal.
They have automated and simplified their complicated order management process and
have improved the communication between departments. Now employees enter
information into the order processing system once; MAE processes all relevant
information and documents automatically and greatly reduces losses caused by human
error. They can now process orders ten times more quickly than in the past.
The Group now has the confidence to implement further IT applications which will
enable each buyer to process 3,000 orders, each for only 300 pieces, at one time, thus
shortening the production cycle even more. Mr. Wu Wenhe believes that the technology
advantage of POS, the Internet, and Parellax's Electronic Data Interchange (EDI) system
will connect the whole supply chain of the industry, and make his plan come true.
In nutshell, with the help of Parellaxs technology, Pacific Dunlops management can see the
market situation at any point in time. They use this information to organize their resources to
meet the demands of the market. It has been instrumental in lowering costs and increasing
profits .Annual turnover has been increasing by 50%. The Group is now looking ahead and
believes that the solution provided by Parellax will serve as a foundation for Pacific Dunlop's
future development.
Conclusion
From this case we concluded that a successful implementation of ERP requires the better
understanding of its needs, careful selection of the ERP software based on feasibility study,
experience. Successful implementation also requires a prior systematic testing of the software
and making changes accordingly.
the
suppliers
in
an
endeavor
to
procure
new
stock.
Purchase always pumps store with oxygen and keep it alive. So that store can keep the other
departments alive. Purchase Module is fully integrated with related functional processes
including automated inventory replenishment, sales requests for non-stock and direct-ship items.
The Purchase module controls the inventory purchasing side of your business. You can track
Purchase Orders, supplier prices, and quantities on order. When used in concert with the
Inventory and the Invoicing/Order Entry modules, the Purchasing module can calculate
quantities to order to meet customer commitments. Built-in lead times will ensure that your
purchasing meets your customer or production due dates. With the usage of Purchase module
you will increase your inventory efficiency and eliminate costly shortages.
ERP Purchasing module streamlines procurement of required raw materials. It automates the
processes of identifying potential suppliers, negotiating price, awarding purchase order to the
supplier, and billing processes. Purchase module is tightly integrated with the inventory control
and production planning modules. Purchasing module is often integrated with supply chain
management software.
Features of purchasing module:
PO authorization
Quotation validity
MIS for vendor evaluation based on quality, price & delivery time
Purchase order entry with item details and other details like taxes, discounts, extra
charges like freight, P&F, octroi etc.
Advance adjustments
Bill of Entry
Complete import functionality with handling of custom details - Purchase Bill for import,
Excise consideration in imports
Reports for Order tracking for complete control on the procurement cycle
ERP Purchasing module aims at making available the required materials of the right quality, in
the right quantity, at the right time and at the right price, for the smooth functioning of the
organization. All purchasing and subcontracting activities such as inviting quotations, supplier
evaluation, placing purchase order, order scheduling and billing are covered in this module.
Import of goods is also handled by the system.
Strategic or Operational?
Repetitive or Non-Repetitive
Automatic generation of PR when the reorder level or min max levels are reached.
Delivery Schedules
Quotation Analysis
Other Features:
Specific reason codes for items returned to vendor to include; over shipment, quantity
rejected etc.
Order parametric components generated from the Product Configurator Module for
sizes, colors and options
Bibliography
http://members.home.nl/c.schalkx/Cases%20ARP/ERP%20Implementation%20Failure%
20Hershey%20Foods%20Corporation.pdf
http://www.icmrindia.org/casestudies/catalogue/IT%20and%20Systems/ITSY059.htm
http://www.scribd.com/doc/60138646/ERP-Implementation-Failure-Hershey-FoodsCorporation
http://www.hersheys.com/
http://en.wikipedia.org/wiki/The_Hershey_Company
http://pacificdunlop.iese.edu/background.html
http://www.referenceforbusiness.com/history2/90/Pacific-Dunlop-Limited.html
http://www.parellax.com/news.asp?parellax_ID=55
http://www.eresourceerp.com/Purchase-Order-Management.html
http://www.open-source-erp-site.com/erp-purchasing-module.html
http://www.vkinfotek.com/erp/erp-purchase-scm.html
http://www.open-source-erp-site.com/erp-purchasing-module.html
http://www.erp5.com/tiolive-purchase.Order.Module