What Went Wrong #1: The Big Bang

The overriding problem appears clear: Hershey was simply trying to do too much at once. In cosmology, the Big Bang theory tells us the universe sprang into being in an instant, wiping out everything that went before. In Hershey's case, it was the old logistics systems that had allowed it to do business for years that were wiped out in a flash.

In late 1996, Hershey's management approved what came to be known as the Enterprise 21 project, which would largely replace legacy mainframe systems with new enterprise client/server software. Enterprise 21 was partly a Year 2000 project, allowing Hershey to scrap rather than repair legacy software that might not process date-related procedures correctly after the turn of the century. But the new systems were also supposed to allow Hershey to change and streamline its business processes.

Hershey selected SAP to provide the heart of the system, which would be complemented by planning and transportation management software from Manugistics, and new sales software from Siebel Systems. Siebel doesn't seem to have had much to do with what went wrong, though by including it Hershey put a third major systems implementation project on its plate.

Hershey wasn't inexperienced with Manugistics, having used mainframe versions of its software for years, but now it was switching to a client/server version that would be configured as a bolt-on to SAP. Much of the project's complexity was in the integration of the SAP and Manugistics software, which had to work together to manage orders and schedule shipments to customers.

Indeed, Alan Stenger, a professor at Penn State's Center for Supply Chain Research who has studied the 1999 mishap, says some Hershey executives wanted to supplement principal integrator IBM Global Services with another consulting firm that had more experience with the SAP-Manugistics interface. Hershey's management chose not to take that step.

Although the plan had been to switch on the new systems in April—an off-peak time for candy orders— the project ran behind schedule and wasn't completed until July. With Halloween orders already starting to roll in and the immovable Y2K deadline looming, Hershey decided in favor of a direct cut-over strategy in which all the new software would be turned on at once; it rejected another strategy in which the system would have been phased in one module at a time. The problems caused by this abrupt transition weren't immediately apparent, but essentially orders began falling through the cracks. Despite having plenty of inventory on hand, Hershey couldn't get it to customers.

By September 1999, in any event, it was too late for Hershey to backpedal. It had essentially demolished its old logistics systems to make way for the new one, and workers spent the next few months going through contortions to work around the problems and ship candy despite the system, rather than through it.

Lesson Learned: Go Slowly

To be fair, in 1999 Hershey was rushing to meet an immovable deadline, since it was trying to get off legacy systems that might not continue to work correctly as of Jan. 1, 2000. Still, Hershey has demonstrated success in the years since with a less-hurried, methodical approach that leaves time for testing.

After stabilizing SAP and the attendant systems, Hershey found itself with something that was merely acceptable. So after a careful redesign, it began work on the upgrade to mySAP in July 2001. The work was completed in 11 months, 20% under budget, and without disruption to customers, according to Hershey and its partners. With this release, Hershey says it has consolidated the processing of more than 95% of its revenue and business transactions within a single system. Hershey is also using SAP's Business Warehouse for analytic applications for marketing and brand managers. Besides upgrading to the latest SAP software, Hershey said it was able to enhance business processes central to its order management, such as generation of the "pick lists" used by warehouse workers to pull together all the products that make up a shipment to a particular customer.

There's another Hershey project that shows how its approach to big projects has changed. The opening in 2000 of a new Eastern distribution center, EDC III, was part of an initiative to strengthen the overloaded physical logistics infrastructure that exacerbated the systems problems of 1999, but it also had a systems component. For the first time, Hershey was dictating the choice of warehouse management software, a decision that previously had been left at the option of the third-party logistics companies it hired to manage its warehouses. Hershey picked a solution from RedPrairie (then known as McHugh Software).

Speaking at RedPrairie's user conference earlier this year, Kenneth D. Miesemer, director of Eastern distribution operations at Hershey, made the connection explicit. "Hershey had really come out of a bad ERP system implementation, so this project was very critical," he said.

This time, Hershey made sure to take the time and resources to thoroughly test the computer systems. Testing included putting bar codes on empty pallets and going through the motions of loading them onto trucks so that any kinks would be worked out before the distribution center opened for business. "If we had any problems, we wanted to keep it out of the press," Miesemer said.