Monday, October 8, 2012
Hershey’s Foods: A Bitter Taste of ERP
I came across an article recently that said:
“Imagine waking up one day to find out that your company's supply chain has ground to a halt, making it impossible to fulfill $100 million worth of orders.”
This sounds like an operation managers worst nightmare. Unfortunately for Hershey’s manufacturing and distribution this was their reality during the Halloween of 1999.A failure in the implementation of ERP systems alone had a catastrophic impact on Hershey’s Confectionary. Hershey’s saw a 19% reduction in a quarter’s profit and an 8% reduction in stock value.
To backtrack a little, Hershey’s Foods was a $5 billion dollar company as of 1999. Being an industry leader in confectionaries Hershey’s received numerous orders from a number or retailers every year. However, Hershey’s had not continued to invest or innovate in the use of their IT systems. Soon enough, the retailers pressurized Hershey’s for systems that can perform better delivery scheduling. Succumbing to this pressure, Hershey’s decided to roll out an ERP system that should have ideally taken 4 years within 30 months. A perfect recipe for disaster, Hershey’s ended up being behind on schedule during Halloween season and lost out on sales to Mars and Nestle. While Hershey’s had both the supply in form on stock and strong demand, it was a failure of implementation that caused this catastrophe. Most of the analysis behind this case stresses on the fact that Hershey’s tried implementing too many changes without a well-planned change management.
While a whole lot has been discussed about how Hershey’s failed I was more curious to learn about how they recovered from this loss. Being unable to fulfill orders worth $100 million during the busiest time of the year would have certainly affected the relationships they shared with their retailers and customers. I believe this could have potentially hampered their brand image, goodwill and trust from both their retailers and customers. In 2000, Hershey’s spent a great deal of time and resources to scrupulously test their systems before deploying them. They ensured that all faults and bugs were fixed before opening a distribution center. As of now, Hershey’s Foods has a turnaround time of 24-48 hours after an order is placed. They have also managed to reach an inventory location accuracy of 99%, which is commendable.
An interesting observation of this case is the importance of IT in the supply chain industry. IT now plays a very significant role in the successful implementation of a business strategy. I wonder if there will be a point where IT is no longer the competitive advantage or disadvantage in the industry. With advancement in technology and the ability of purchasing solutions of the shelf will everything become standardized? How will companies then continue to differentiate themselves from one another?