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Hershey's Enterprise System Creates Halloween
Tricks
W hen 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 centsor 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 GreenBay, 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 theirlegacy 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 andstandardizing 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 studyconcluded 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 withsoftware 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 marketingactivities. Management believed that Enterprise 21 would help Hershey better execute its
business strategy of emphasizing its core mass-market candy business.
A necessary piece of Enterprise 21 was the installation of bar-coding systems at all six U.S.
production plants in 1999. Bar coding was necessary so the company could track all incoming
and outgoing materials. In that way it would be able toimprove logistics management while
controlling production costs. Enterprise 21 was later modified and called for Hershey to switch
over to the new SAP system and its associated software in April of 1999, an annual period of low
sales. This new target meant the company had 39 months to complete the project instead of the
original 48 months. Although some SAP modules were actually been put into...