Herseys Enterprise System - the Implementation Process - Essay Example

Linda Beckett Consultant Hersey’s Enterprise System Report to the Chief Information Officer, George David, Hershey Foods Corporation Table of Contents Page Introduction ……………………………………………………………3 Reasons for implementation of Enterprise 21 ……………………….3 The implementation process of Enterprise 21 ……………………….4 Problems faced due to failure …………………………………………5 The chocolate market in the USA …………………………………….5 Reasons for failure …………………………………………………….6 Benefits of an ERP system ……………………………………………6 How to implement an ERP system …………………………………...7 Conclusion ……………………………………………………………..8 Introduction: Hershey Food Corporation, the largest manufacturer of chocolates in North America had failed in implementing their much awaited implementation of the Enterprise 21 project due to several reasons. This report analyses the implementation process, the factors that led to its initial failure and the solutions to correct the problem. The company is widely respected and has more than 12,000 employees and had achieved a turnover of more than 4.5 billion 1998, at the time of implementation. The long and successful history of the company (started in 1894) has received a major setback due to this, but is something that can be corrected with dedication and hard work. It appears that the company is sincere about living up to its mission statement – “Bringing sweet moments of Hershey happiness to the world every day”.1 1. Reasons for implementation of Enterprise 21: The company has several mission statements: Bringing sweet moments of Hershey happiness to the world every day. This relates to the following groups: Consumers – Delivering quality consumer-driven confectionery experiences for all occasions Employees – Winning with an aligned and empowered organization … while having fun Business Partners – Building collaborative relationships for profitable growth with our customers, suppliers and partners Shareholders – Creating sustainable value Hershey made a decision to up date their hardware and software with a four-year plan. The company set goals which included standardizing the hardware and changing from mainframe to TCP/IP network. The company-reviewed information from Grocery Manufactures’ of America and this showed they were well behind on system updates, and expenditure on systems compared with similar companies in the industry. The upgrading proved to be a bittersweet lesson2 for the company and cost them considerably in sales and credibility over nearly a 12-month period. The food and beverage industry in the country works on low profit margins and high volumes due to extensive competition. As a whole, investment in modernization of IT systems is low. But the Y2K threat required them to make major changes in their systems, and hence the Hershey management decided to go in for a major overhaul instead of tuning and adjusting the current system consisting of mainframes to client server environment. Many distributors and retailers felt that the delivery system of the company could be better tuned in order to reduce inventory costs. At that time, orders for peak time demand (Halloween) needed to be placed several months in advance for timely delivery. Unless Hershey complied, there was a chance that retailers and distributors may switch over to other manufacturers. Moreover, rising competition and low margins required higher turnover and a better equipped IT infrastructure was the only solution open. Customer loyalty is not high in the industry and they will switch over to other brands if Hershey’s products became unavailable. It will also enable Hershey to tackle high seasonal demand. 2. The implementation process of Enterprise 21: Due to peak demand during Halloween, Hershey decided to cut short the four year implementation plan to 39 months, nearly three quarters of a year ahead. The choice was to resort to the direct cutover strategy. This involves switching over to the new system in one single step by the entire organization. The problem with this strategy is that is time to test the system. Once put in place, there is no chance of resorting back to the old system in case of any problems and bugs. There is also a chance of resistance to change from the employees3 3. Problems faced due to failure: The risks mentioned above materialized at Hershey and distributors found their shelves empty of the company’s products when Halloween arrived. The only option was to buy from other manufacturers and they did so, resulting in reduced sales to the tune of 100 million USD in the last quarter of the year. Moreover employees were not trained to use the system properly resulting in communication issues with the warehouses and factories. This became the primary reason why the company could not send the supplies on time. The company only belatedly acknowledged that there was an issue and requested retailers to extend the delivery period from the usual six days to twelve. But the company could not even stick to this schedule (it took more than two to three weeks). Its VP, Michael Pasquale admitted that customer relations had been strained. The company also admitted that there had been a major logistics failure. 4. The chocolate market in the USA: The market is analyzed using Porter’s five forces model. Supplier power is moderate to weak since the Company is highly selective with regard to quality of raw materials. Buyer power is extremely high due to lack of customer loyalty and competition. Competition is very strong. Threat of substitutes is also high due to the availability of other types of sweets and candies. Threat of new entrants is weak because of several large and established manufacturers4 (Maia 5). So supplier power and threat of substitutes were the primary reasons for loss of sales due to failure of Enterprise 21. 5. Reasons for failure: Problems of this magnitude do not arise due to one single reason. The system was introduced just prior to a peak season without any testing (direct cutover strategy). No proper training and education was given to employees in using the new systems. This is an ideal situation for resistance to change among employees. The fallout was a logistics breakdown, loss of customers, and loss of sales. The sudden switch from a low IT to a high IT company also created problems. The whole organizational change process was not planned properly. Moreover, the Company’s plant in Canada was already using SAP successfully showing that the failure was not due to the system itself. 6. Benefits of an ERP system Enterprise Resource Planning solutions is a means of streamlining and integrating operation processes and information flows in the company to synergize is will assist in gaining competitive advantage. In the ever-growing competitive business environment, continual high standards and demands are placed on corporations. Some of which are, cost control, having the flexibility to respond quickly to changes, informed management decision making and being able to change how business is conducted. Some of the major features and benefits for the business system are: ERP facilitates company-wide Integrated Information System covering all functional areas like Manufacturing, Selling and distribution, Payables, Receivables, Inventory, Accounts, Human resources, Purchases etc., ERP performs core corporate activities and increases customer service and improves the corporate image. ERP bridges the information gap across the organization. ERP is a solution for better Project Management. ERP allows automatic introduction of latest technologies like Electronic Fund Transfer (EFT), Electronic Data Interchange (EDI), Internet, Intranet, Video conferencing, E-Commerce etc. ERP helps to eliminate some business problems like Material shortages, Productivity enhancements, Customer service, Cash Management, Inventory problems, Quality problems and Prompt delivery . ERP not only addresses the current requirements of the company but also provides the opportunity of continually improving and refining business processes. ERP provides business intelligence tools like Decision Support Systems (DSS), Executive Information System (EIS), Reporting, Data Mining and Early Warning Systems (Robots) for enabling people to make better decisions and thus improve their business processes 7. How to implement an ERP system Implementing an ERP package has to be done on a phased manner. A systematic method of implementing will yield a better result than all at one implementation. MHT Global implemented the system following business changes5 and completed the changeover during the mid quarter period. The total time required for successfully implementing an ERP package will be anything between 18 and 24 months. The normal steps involved in implementation of an ERP are as below: Project Planning Business & Operational analysis including Gap analysis Business Process Reengineering Installation and configuration Project team training Business Requirement mapping Module configuration System interfaces Data conversion Custom Documentation End user training Acceptance testing Post implementation/Audit support   If the following phases are implemented it will alleviate any major problems Detailed Discussion Phase: Project initialization, Evaluation of current processes, business practices, Set-up project organization Provide deliverables that would include a project organization chart and identify the working teams Design and customization Phase: Detail the organization and the business process. Define the software configuration and required modifications. Produce the organization structure, flow diagrams and the basic function model Implementation Phase: Detail the go-live plan and documentation showing the integration of the applications. Test the ERP and train users. Report on the testing environment and implementation Production Phase: Run Trial Production, Maintain Systems Review conversion plan with successes and failures 8. Conclusion Hersey’s intention was good to update their system; however, enough reviews were not completed initially. The implementation time was not a good choice for such a major change with Halloween is one of the biggest selling times for the company. The implementation should have been completed during the quietest time of the selling year. Lack of foresight in training employees, and logistics challenges during peak time were not analyzed properly. The company had failed to manage the organizational change properly. Implementing the recommendations can correct the problem and make Hershey Foods, the best in terms of supply, customer relations, and logistics management in the United States. References “About The Hershey Company.” 8 Aug 2009 . Davis, William S., and David C. Yen. The information system consultants handbook. CRC Press, 1999.   Maia, Paul. “Caso E: Hershey.” 2008. 8 Aug 2009 . Wps.prenhall.com/bp_laudon_mis Hersey’s Enterprise System creates Halloween Tricks Koch Christopher CIO Supply Chain : Herseys Bittersweet Lesson (www.cio.com) Read More