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Hershey’s Enterprise System Creates Halloween Tricks

By Laudon and Laudon, copyright Prentice-Hall, Inc.

Accessed at http://wps.prenhall.com/bp_laudon_essmis_5/0,,155354-,00.html

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When someone says "chocolate," many of us think of Hershey's---their chocolate bars, their Kisses, their many other candies. Hershey Foods Corp. of Hershey, Pennsylvania was founded in 1894 and recorded $4.4 billion in sales in 1998, including its other brands such as Reese's Peanut Butter Cups, Milk Duds, and Good and Plenty. Altogether the company sells approximately 3,300 candy products including variations in sizes and shapes. Candy is a very seasonal product, with Halloween and Christmas recording about 40% of annual candy sales, making the fourth quarter calendar crucial to Hershey's profitability. Hershey's largest continuous challenge may be that it must rack up its multibillion dollars in sales of 50 cents or one dollar at a time, requiring huge numbers of its products to be sold. Such quantities means Hershey must have very reliable logistics systems.

Traditionally the food and beverage industry has had a very low ratio of information technology (IT) spending to total revenue, ranging between 1.1% and 1.5%, according to Fred Parker, senior vice-president of IS at Schreiber Foods Inc. in Green Bay, Wisconsin. The last great technology advance in the industry was the bar-code scanner, which arrived about 1980. Parker believes the reason for the low IT spending ratio is the very low profit margin in the industry. However, the industry's stingy approach to IT began to change as the year 2000 approached. Many companies chose to solve their Year 2000 (Y2K) problems by replacing their legacy systems rather than spending a lot of money to retain them by fixing the Y2K problems within them.

According to Hershey vice-president of information systems, Rick Bentz, Hershey began to modernize its software and hardware in early 1996. The project, dubbed Enterprise 21, was scheduled to take four years (until early 2000). Enterprise 21 had several goals, including upgrading and standardizing the company's hardware, and moving from a mainframe-based network to a client-server environment. The company replaced 5,000 desktop computers and also moved to TCP/IP networking based on newly installed network hardware. Bentz noted that benchmark studies by the Grocery Manufacturers of America show that Hershey's IT spending trailed that of most of its industrial peers. The study concluded that Hershey needed to be able to use and share its data much more efficiently. More and more retailers were demanding that suppliers such as Hershey fine-tune their deliveries so that they could lower their inventory costs.

Hershey's information systems management set as a goal a move to an ERP system using software from SAP AG of Walldorf, Germany. SAP was to be complemented with software from Manugistics Group Inc. of Rockville, Maryland. Manugistics would support production forecasting and scheduling, as well as transportation management. In addition, the company decided to install software from Siebel Systems Inc. of San Mateo, California. Siebel's software would aid Hershey in managing customer relations and in tracking the effectiveness of its marketing activities. Management