A BITTER SWEET TRUTH

Press Conference

The Hershey Company is the largest chocolate manufacturer in North America, with its headquarters in Pennsylvania.

 It was founded by Milton S. Hershey in 1894 as the Hershey Chocolate Company and is one of the oldest chocolate companies in the United States.

The Hershey Pennsylvania plant is the largest chocolate factory in the world.

Its revenue for the year 2011 was $6.1B. It is an American icon for its chocolate

bars and is also the maker of Twizzlers and Reese’s.

Hershey also acquired the rights to manufacture, distribute and market Kit Kat, Rolo and many Cadbury-branded products in the United States.

Previous State

The legacy systemsLate 1996 the company started to update its hardware and software infrastructure Mainly because of Y2K problemsEnterprise 21 was the new system implemented and according to management:“We redesigned the whole business process

with the customers in mind.”

Y2K Problem Existed in old mainframe systems Programs recognized dates till 1999 Dates beyond that would be recognized as

starting from 1900 again

Due to the way the programs were coded, many would fail to function properly from the 2000’s

Creating a need for change

Implementing ERP system

Replace existing mainframe based legacy systems by SAP R3-Accenture.Approved in 1996 under project name “Enterprise 21”

Enterprise 21 ERP

Order Managem-ent

Inventory

Managem-ent

Warehouse

Managem-ent

Financial

Managem-ent

CRM

Billing System

Implementing ERP system

AIM Modernise hardware and software used by Hershey

Upgrade and standardise the hardware 

Provide better customer service

Implementing ERP system

SAP AG's R/3 ERP completed with companion software from two vendors :

Manugistics- Transport and logistics management Siebel- Customer relationship management

Installation of bar-coding system in 6 U.S Plants to improve stock control system.

Implementing ERP system Overall cost estimation of new project US$ 110 million.

Estimated time completion Within 30months, by the end of April 1999.  Why APRIL?  However, 3 months lag in implementation.

Solution Adoption of Big Band approach

Benefits of Enterprise 21

One of the reasons to implement ERP system was to overcome the expected Y2K problem in the existing system.

The ERP system was supposed to allow Hershey to change and streamline its business processes.

If implemented correctly, the ERP system would have helped eliminate redundancies and improve accuracy.

Different employees can access data simultaneously in ERP systems.

Benefits of Enterprise 21 (cont…)

The execution of the ERP system was to improve the quality of the operation and also to reduce operation costs.

ERP implementation would have enabled the organization to analyse the value chain as a system, from supplier to firm to customer.

With the help of ERP, Hershey aimed at better coordinated deliveries of its products.

How it went wrong

Poor timing

Unrealistic timelines

Lack of IT understanding

Glitches in existing system during implementation

Inability to complete project on time (Spring 1999)

How it went wrong

Lack of co-ordination between operations & technical people

‘BIG BANG’ approach

Lack of proper infrastructure to support upgrade

Lack of integration between ERP developers

No CIO in place prior to implementation problems

How it went wrong

Lack of experience in software implementation of this magnitude

No adequate training

No proper communication with top management

Effects of Hershey ERP failure

Credibility

Product substitution

Shelf space

Sales (short and long term)

•Order fulfillment time doubled •15 days delay on orders•Accumulating inventories (+25%)

Sept

embe

r Announcement of ERP failure

-Stock price decline 8% in 1 day

Quar

ter 3

-Profits 19%-Sales 12%-Stock price 35%-Failed to deliver $100 million worth of Kisses and Jolly Ranchers for Halloween

Quar

ter 4

- 0.5% market share

THE COMEBACK

Hershey's efforts Stabilized and updated to new SAP systems Redesigned the entire process Software updates timed accurately (during off peak

periods) Rigorous testing of software before implementation Updates implemented in parts rather than Big Bang Upgrading project completed earlier than projected

and at 20% lower cost

Getting it right Project tenure included time to identify and fix existing glitches

Employees received thorough training before using using software

New software/upgrades developed by consulting all the departments involved

Appointed new CIO to overlook the entire operation

Literature on Critical Success factors in Enterprise Systems

Hong and Kim (2002)

• Organizational fit of Enterprise System

• Enterprise System adaptation level

• Process adaptation model

• Organizational resistance

Parr et al. (1999)

• Management support

• Balanced team• Commitment to

change• Best people• Empowered

decision makers• Deliverable dates • Champion• Vanilla ERP• Smaller Scope• Definition of

scope and goal

Somers and Nelson (2001)

• Top management support

• Project team competence

• Interdepartmental cooperation

• Clear goal and objectives

• Project management• Interdepartmental

communication• Management of

expectations• Project champion • Vendor support• Careful package

selection• Data analysis &

conversion• Dedicated resources• Use of steering

committee• Business process

reengineering• Partnership with

vendor• User training on

software• Education on new

processes• Minimal

customization• Architecture choices• Change management• Use of vendors’ tools• Use of consultants

Skok and Legge (2002)

• General projects • Planning and

Control• Project Champion• Top management

commitment• Teamworking• IS projects• User involvement

and acceptance• Hybrid skills• ERP projects• Cultural and

Business Change• Managing

Consultants• Managing

Conflicts• Staff retention

Source: Hedman, 2010, pp. 7.

Critical Success Factors*

Critical Success Factor (Strategic) HERSHEY’STop management commitment and support

Visioning and planningBuild a business case

Implementation strategy and timeframeProject managementChange management

* As identified by Finney & Corbett (2007)

Critical Success Factors

Critical Success Factor (Tactical) HERSHEY’SBalanced teamCommunication plan Project cost planning and managementBPR and software configurationIT infrastructureClient consultationSelection of ERPTraining and job redesignTroubleshooting/crises managementSystem testingPost-implementation evaluation

Hershey’s Updated Status (Mar 2012)

As per Hershey’s Annual Report of last Quarter 2011

Hershey’s share price and revenue have sweetened by nearly 20% and 7% respectively over the past year.

ENJOY THE CHOCOLATY GOODNESS!

The only kissWith no StringsAttached.

Ok, Maybe one!

References Finney, S. and Corbett, M. (2007), “ERP implementation: a compilation and analysis of

critical success factors”, Business Process Management Journal, Vol. 13 No. 3, pp. 329-47

Hedman, J (2010). “ERP Systems: Critical Factors in Theory and Practice.” Available from: http://www.cbs.dk/caict (Accessed 02 March 2012).

Hong, K. K. and Y. G. Kim (2002). "The Critical Success Factors for ERP Implementation: An Organisational Fit Perspective." Information and Management 40(1): 25-40.

Parr, A. and G. Shanks (2000). "A Model of ERP Project Implementation." Journal of Information Technology 15(4): 289-303.

Skok, W. and M. Legge (2002). "Evaluating Enterprise Resource Planning (ERP) Systems using an Interpretive Approach." Knowledge and Process Management 9(2): 72-82.

Somers, T. and K. Nelson (2001). The Impact of Critical Success Factors across the Stages of Enterprise Resource Planning Implementations. Hawaii International Conference on Systems Sciences.