Halloween less haunting for Hershey this year

Thanks to improvements in what initially was a balky order-processing and enterprise resource planning (ERP) system, Halloween doesn't appear to have been as nightmarish for Hershey Foods Corp. this year as it was in 1999.

During last year's Halloween season -- the peak sales period for Hershey's candy products -- the Hershey, Pa.-based company was waylaid by major order-fulfillment problems that were caused by start-up difficulties with a $112 million set of ERP and supply-chain applications installed earlier in the year (see story).

The problems in getting candy out the doors of its warehouses resulted in a 19% drop in Hershey's profits for last year's third quarter and saddled the company with sharply increased product inventories. But after a series of fixes to the system, the story was different this time around, according to Hershey officials.

Hershey last week reported that profits in this year's third quarter rose 23% to $107.4 million, up from $87.6 million in the same period of 1999. Revenue increased 12% year to year to $1.197 billion, up from $1.097 billion.

"Admittedly, we were in the depths of our shipping difficulties during last year's third quarter," making it relatively easy to top the 1999 results, said Kenneth Wolfe, Hershey's chairman and CEO. But, he added in a statement, the ERP system as well as a revamped distribution facility in the eastern U.S. were both "much improved during this period of high demand for our domestic confectionery business."

Last spring, while reporting its first-quarter financial results, Hershey said its order cycle times and other customer service metrics had returned to normal levels after last year's problems were addressed. However, Wolfe noted at the time that successfully getting through this year's Halloween season would be "the final determinate of our success."

Hershey officials this week declined to elaborate on the steps the company took to straighten out the system, which is built around SAP AG's R/3 application suite and also includes products made by San Mateo, Calif.-based Siebel Systems Inc. and Manugistics Group Inc. in Rockville, Md.

Included are SAP's finance, purchasing, materials management, warehousing, order-processing and billing modules, plus promotions management software from Siebel and a production forecasting and scheduling application from Manugistics.

A year ago, SAP said the initial problems felt by Hershey weren't due to any problems with R/3 itself. An SAP source this week noted that Hershey tried to implement "a complex [system] on a very aggressive project plan" -- one that was accelerated from an original four-year installation schedule to just 30 months. But Hershey is now a "happy customer," the source said.

Hershey went live with the full system in July last year, just as retailers were starting to order large amounts of candy for back-to-school and Halloween sales. Such a rapid implementation at a critical point in the company's business cycle was the most likely cause of the problems Hershey experienced, said Joshua Greenbaum, an analyst at Enterprise Applications Consulting in Daly City, Calif.

"Bad software doesn't kill companies, bad management does," Greenbaum said. "Generally speaking, blowups just need to be straightened out by a more realistic implementation and a more reasonable plan."

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