Table of Contents
IT Evolution – Manufacturing Industry
In recent years, U.S. Manufacturing continues to be transformed and disrupted by not only the evolution of digital technology, globalized logistics, and partnerships, but also an accelerating need for organizational agility specifically in regards to ERP software (Gerenyi 2017). Even though 5.7 million manufacturing jobs were shed between 2000 and 2011 according to Caroline Gerenyi of GlobeNewswire, overall manufacturing productivity experienced a boom at the same time. Six distinct trends have been identified in regards to such a transformation with more automation and less labor leading the way (Gerenyi 2017). Other trends include an increase in outsourcing and leasing, services, globalized manufacturing, strategic partnerships (globally), and finally reshoring U.S. manufacturing jobs (Gerenyi 2017). Interestingly, all six trends suggest that today’s manufacturers cannot succeed without a digital platform that supports both agility and expansion (Gerenyi 2017). ERP systems are playing a significant role in the digitization trend.
ERP essentially automates and optimizes business functions that were either previously done manually, or simply not efficiently (Gerenyi 2017). With recent developments in cloud ERP, manufacturers have the ability to outsource their IT to the cloud allowing them to conduct their IT departments with fewer in-house resources as well as less on-site infrastructure (Gerenyi 2017). In regards to additional services, manufacturers are partnering with ERP vendors for more than just software – vendors are helping businesses “analyze and improve, making the most of their ERP systems as well as helping them automate, digitize, mobilize and modernize their facilities, reporting and process” (Gerenyi 2017). With globalization becoming the norm whether a business produces, procures, and/or sells abroad, ERP systems are required to manage multiple sites effectively (Gerenyi 2017). Globalization in producing leads to global partners. Not only do ERP systems integrate key business processes into one system for better management for one’s own company, they help coordinate efficient operations between multiple partners (Gerenyi 2017).
Finally, with US manufacturers having to consistently deal with change and uncertainty, an ERP system that provides agility and easy integration with upcoming technologies (i.e. robotics, mobile apps, business process management, global logistics, and international strategic partners) is not only beneficial, but vital to success (Gerenyi 2017). More jobs are coming back in to the US as evidenced by a statistic reported in 2016 by the Reshoring Initiative that states that US manufacturing jobs created by reshoring and foreign direct investment surpassed the number of jobs that were offshored (Gerenyi 2017). Hershey recognized the need and was right on trend in 1999 with ERP systems, but extensive operational issues lead to one of the biggest recorded failures in the last several decades.
127 our experts are availableright now
Due to such a poor deployment, they were unable to satisfy more than $100 million worth of orders for products that they actually had in inventory (Accent Software 2015). Unfortunately, their stock dipped because of the misstep and analysts, customers, and stakeholders alike did not trust the company to properly deliver on promises again for nearly nine months (Accent Software 2015). What ultimately lead to Hershey’s demise in 1999 were three factors: executives rushed the process, too many systems were deployed at once, and the company was just too busy (Accent Software 2015).
Even though they were given a time line of 48 months as a suggested deployment period, Hershey executives insisted on 30 months (Accent Software). They additionally attempted to launch three different resource planning technologies at the same time using a ‘big bang’ implementation approach that lead to shortcuts in regards to systems testing, data migration, and training (Accent Software 2015). Lastly, “Y2K” hysteria lead to a rushed implementation before the new year which just happened to be their busiest sales and distribution period of the company’s fiscal year (Accent Software 2015). Hershey worked to stabilize SAP, and in July 2001 they began a second upgrade attempt after a careful redesign (Carr 2002). According to Hershey and its partners, they were able to complete the project this time in 11 months without a disruption to customers, while coming in at 20% under budget (Carr 2002).
They were admittedly able to consolidate processing of more than 95% of their revenue and business transactions with a single system as well as utilize the business warehouse for analytic applications for marketing and brand managers (Carr 2002). In doing so, Hershey was able to enhance business processes central to their order management process (Carr 2002). During the second go around, Hershey worked to correct the inventory inaccuracies and ensured that all storage locations were properly recorded in the system (Carr 2002). They put the data first as well worked to educate the involved parties in both systems development and organizational change (Carr 2002). Part of this new understanding was the development of a very-high powered steering committee which involved the CEO himself (Carr 2002). They have, and continue to put more emphasis on close executive oversight of systems projects (Carr 2002).
Hershey – Publicly Available Information
Hershey does not have a clearly defined IT/IS budget published, but rather incorporates software expenses in both a consolidated statement of cash flows under investing activities and on a supplemental balance sheet under other assets (See Appendix A and B). According to their most recent annual report available, Hershey capitalizes costs associated with software developed or obtained for internal use when both the preliminary project stage is completed and when it is probable that the software being developed will be completed and placed in service (The Hershey Company 2016).
“Capitalized costs include only (i) external direct costs of materials and services consumed in developing or obtaining inter-use software, (ii) payroll and other related costs for employees who are directly associated with and who devote time to the internal-use software project and (iii) interest costs incurred, when material, while developing internal-use software” (The Hershey Company 2016). Once the project is considered substantially complete and “ready for its intended purpose,” capitalization of such costs is stopped (The Hershey Company 2016). The unamortized amount of capitalized software totaled $95,301 at December 31, 2016 and $68,004 at December 31, 2015 (The Hershey Company 2016). Software costs are amortized using the straight-line method over the expected life which is generally 3 to 5 years (The Hershey Company).
As of December 31, 2016, the accumulated amortization of capitalized software was $322,807, while it was at $304,057 at December 31, 2015. The amounts are recorded within other assets in the Consolidated Balance Sheets. Hershey measures computer software specifically in their Annual Report in terms of strategic objectives being met in 2016 in regards to focusing on customer brand engagement and continued refinement of marketing mix investments (The Hershey Company 2016). The objectives, in conjunction with improved analytics, operating efficiencies, and new information technology capabilities helped strengthen their business model as well as position the company for future growth (The Hershey Company 2016).
They attributed these advancements to solid operating cash flow totaling approximately $1 billion (The Hershey Company 2016). Hershey also describes information technology as being “critically important” to their business operations (The Hershey Company 2016). Information technology is used to manage all business processes including manufacturing, financial, logistics, sales, marketing, and administrative functions (The Hershey Company 2016). These processes are then used to “collect, interpret, and distribute business data and communicate internally and externally with employees, suppliers, customers, and others” (The Hershey Company 2016).
In order to protect such an integral part of their business operations, Hershey invests in industry standard security technology to protect the Company’s data and business processes against risk of data security breach and cyber-attack (The Hershey Company 2016). A data security management program has been developed which includes identity, trust, vulnerability, and threat management business processes as well as the adoption of standard data protection policies (The Hershey Company 2016). Data security effectiveness is measured using industry accepted methods, and major technology suppliers must be certified by Hershey (The Hershey Company 2016).
Any services that are outsourced must be done so through accepted security certification standards (The Hershey Company 2016). In terms of disaster recovery, backup systems are routinely tested and maintained along with the use of an independent third party to test external network security penetration (The Hershey Company 2016). Hershey recognizes that disruptions, failures, or breaches of their information technology infrastructure could have a very negative impact on all of their operations by way of transaction errors, loss of customers and sales, as well as negative consequences for the Company as a whole, their employees, and those with whom they do business (The Hershey Company 2016).
Effective/Innovative IT/IS Usage
Hershey places a large emphasis on social and environmental values, along with financial, and they do so effectively and innovatively. Milton S. Hershey, the founder of the corporation, established an enduring model of responsible citizenship while creating a successful business (The Hershey Company 2016). As noted in their annual report, driving sustainable business practices, making a difference in communities, and operating with highest integrity are vital parts of their heritage (The Hershey Company 2016). In order to continue such a legacy of providing high quality products in a socially responsible and environmentally sustainable manner, Hershey publishes an annual full corporate social responsibility (“CSR”) report (The Hershey Company 2016).
The report provides progress updates in regards to food safety, responsible sourcing of ingredients, corporate transparency, their focus on improving basic nutrition to help children learn and grow, as well as their continued investment in the surrounding communities (The Hershey Company 2016). In regards to IT specifically, in 2012, the company unveiled a new plant in Hershey spending $200 million in infrastructure (Melby 2012). Then President and CEO Terry O’Day commented that the plant employs technology “never been seen in candy manufacturing” including highly automated IT systems designed to keep Hershey’s Kisses rolling off the lines 24 hours a day (Melby 2012).
“New IT systems include automated, real-time diagnostics systems, new high-speed production lines and the most technologically advanced, automated chocolate syrup production lines in the world” (Watson 2012). Hershey invested a large amount into logistics, employee facilities, and computer-controlled manufacturing processes (Watson 2012). Along with the new plant, technology is also being used by means of a proprietary system to place orders for retailers during peak candy season times (Valentine’s Day, Christmas, Halloween), so they know how much of each Hershey’s product they should purchase (Melby 2012).
Retailers even trust the system so much that Hershey is able to use the system to order competitors’ products for their retailers as well (Melby 2012). The Research and Development segment at Hershey embraces new technologies mentioning in Hershey’s Annual Report, “we develop new products, improve the quality of existing products, improve and modernize production processes, and develop and implement new technologies to enhance the quality and value of both current and proposed product lines” (The Hershey Company 2016). According to Steve Hargreaves of CNN, 3D Systems made a deal with Hershey in 2014 to collaborate on the development of a 3-D printer to make chocolate and other edible products (2014).
At the industrial level, 3-D printers are used to make manufacturing operations more efficient and could potentially cut out the need for expensive transportation (Hargreaves 2014). Actionable Strategies Hershey is unique in that they have experienced some trials and tribulations with IT/IS in regards to SAP the first time around, but clearly they have learned from valuable from that experience that they continue to utilize today. When it comes down to it, they put their focus on value – always putting the customer first. After learning their lesson in regards to accurate inventory data, they put a huge emphasis on data accuracy while protecting it with adequate privacy and security measures.
Disaster recovery and backup plans have been detailed and practiced in the event that the unexpected would occur. All major projects now have a steering committee and include the CEO himself which emphasize a productive partnership between IT executives and their functional counterparts. Careful planning is what the made the difference between their first and second attempt at deploying SAP. Hershey knows and understands the role that IS plays in their business operations by means of not only collecting information, but utilizing that information to drive success. For them, IS enables communication, establishes responsibility, and guides future decision making. They fully understand the purpose of aligning their IT strategy with their business strategy. Hershey uses technology as a competitive advantage.
They lead candy manufacturing with their innovative ideas and efficient processes. In terms of actionable strategies, Hershey is at the top of their game, so they need to work hard to stay there. They’ve recently been placing a large emphasis on sustainable ingredients which will help them in the long run as consumers are willing to pay for products and services with a commitment to positive social and environmental impacts. Using IS/IT, they are making information transparent to consumers through annual CSR reporting. They also continue to re-engineer processes to be more sustainable. By focuses on core sustainability capabilities in all products, processes, and supply chains Hershey is working towards a sustainability vision which will show its effects externally in the future.
By always looking to improve, Hershey once again turned to SAP in 2016 to improve enterprise connectivity by means of empowering its employees and partners with insights, customized to context, whenever and wherever they need it utilizing SAP S/4 HANA (Somers 2016). In order to stay effective, ERP systems need to be continually updated and transformed. SAP S/4 HANA will provide them with integration across data, tools, and processes that will drive value and superior enterprise connectivity (Somers 2016).
Hershey’s strategy focuses on three areas: process to process, people to process, and people to people (Somers 2016). Process to process involves wiring and optimizing core processes across the enterprise to improve flow of information and insights effectively, while people to process connects the right people to the right processes at optimal decision nodes to support smart decision-making (Somers 2016). Finally, people to people fosters cross-functional collaboration (Somers 2016). As a result, real-time analytics and predictive modeling will be used as a competitive advantage (Somers 2016). According to Somers, the broader organization will be able to “further leverage disruptive technological advancements such as artificial intelligence and machine learning, so stay ahead of the curve” (2016).
