AOSI Caso E: Hershey

Transcription

1 AOSI 2008 Caso E: Hershey Paul Maia Mapa conceptual do caso :55 1

2 1. Model Hershey s Supply Chain, end-to-end, using a figure similar to Figure 9-2 of the Text. Describe textually each of the components (boxes) used, indicating clearly the inputs (materials, information), the outputs (materials, information), and the functional processing within each component. DO NOT ADDRESS ANY INFORMATION SYSTEMS OR IT ASPECTS OR PROBLEMS!!! Suppliers Suppliers Suppliers Hershey Distributors Retailers Customers Raw material extractors (e.g. Sugarcane extractors). Ingredient suppliers [1]: Sugar Cocoa Sweeteners Nuts Raisins Specialty ingredients (flavors, colors, food grade chemicals). Examples: Great North Food Lowes Food Eby Brown Co. Examples: Wal-Mart Upstream Figure 1 Hershey s Supply Chain (Laudon, page 360) Downstream As illustrated the upstream portion of Hershey s supply chain (Laudon, page 361) involves: Suppliers Suppliers: o Output raw materials. o Processing extraction of raw materials. o Input demand for a specific material (orders from Hershey s suppliers). Suppliers (mostly raw material): o Output: Ingredients (raw material for Hershey s products). Orders to suppliers suppliers. o Processing transformation of raw materials into ingredients and extraction of ingredients. o Inputs: :55 2

3 Demand for a specific ingredient (orders from Hershey s). Raw materials. Hershey: Outputs: o Its products (its candy) to distributors. o Orders for ingredients to its suppliers. o Advertising to its customers. Processing transformation of ingredients into final products. Internal Supply Chain (figure 2). Inputs: o Ingredients form suppliers. o Demand for products (orders from distributors). o Customer information (as a result of market analysis marketing). Ingredients Orders Inbound Logistics Manages the transmission of ingredients and orders between Suppliers and Operations Ingredients Orders Operations Transforms Ingredients into products Orders Products Sales and Marketing Sells and promotes products. Analyzes customers. Outbound Logistics Manages the transmission of products between Operations and Distributors Orders Customer Information Advertising Product s Finally, Hershey s supply chain s downstream portion (Laudon, page 361) involves: Distributors: o Outputs: Figure 2 Hershey s internal supply chain (Laudon, page 361) Hershey s products to retailers. Orders for products to Hershey :55 3

4 o Processing distribution of products. o Inputs: Retailers: o Outputs: Orders from retailers. Products from Hershey. Products to customers. o Processing: o Inputs: Customers: o Outputs: Sells products. Contacts with customers. Orders from customers. Products from retailers. Information to Hershey. Orders to retailers. Product returns are infrequent in this industry. o Processing make use of the product (eat the candy). o Inputs products from retailers. 2. List and analyze Hershey's problems prior to the decision to adopt an ERP. Clarify the NATURE of the problems! Use your previous knowledge about business analysis using the competitive forces and value chain models. To better understand Hershey s problems I will use Porter s competitive forces model (Laudon, page 96): :55 4

5 Substitute products strong: Enormous variety of candy. Suppliers average: Hershey is extremely selective with suppliers, because the options are vast [2]. A delay in supplier s distribution may render Hershey incapable of producing its products. Competitors strong: Shelf space is intensely fought for. If a customer wants to buy chocolate he ll buy what s available. Hershey has a strong reputation and brand name, but so do other competitors (e.g. Mars). New Market Entrants weak: Many strong companies already established, making entry difficult. Customers tend to prefer known brands and will only opt for new brands, if the usual ones aren t available. Customers strong: If one brand doesn t fill the retailer s shelves, another one will. Switching cost is low. Customer s buy whatever is available. Their rush for candies in the Halloween and Christmas generates most of Hershey s logistics problems because of the pushbased model (Laudon, page 366). Figure 3 Porter s Competitive 5 Forces Model for Hershey :55 5

6 To better understand the situation its best to complement this with a value chain model [3] (Laudon, page 105): Administration and Management: inexistent centralized information application (e.g. ERP), makes it difficult to obtain accurate information about the whole firm. Human Resources: inexistent ERP and ERM (Laudon, page 371), makes it difficult to obtain accurate information about employees. Technology: Low IT firm within a Low IT industry. Procurement: difficult due to inexistent B2B e-commerce (Laudon, page 410), which increases information asymmetry, reducing price and cost transparency and increasing search costs (Laudon, page 395) towards suppliers. Inbound Logistics: logistics problems, due to lack of data sharing with suppliers (because of inexistent SCM. Operations: production is based on inaccurate demand forecasts, due to inexistent SCM. Sales and Marketing: lack of information due to inexistent CRM system. Service: no information Outbound Logistics: logistics problems, due to lack of data sharing with customers. Suppliers Suppliers Suppliers Hershey Distributors Customers SCM: Inexistent. Lack of integration along the supply chain, which results in a pushbased model. CRM: Inexistent. Lack of integration with retailers which it more difficult to obtain customer information. Figure 4 Value chain model for Hershey From these analyses one may conclude that Hershey s problems are: The need to fill retailers shelves to keep up with competitors (or customers will switch). This is currently done with a push-based model (Laudon, page 366), resulting in extreme logistics costs. Optimizing logistics is crucial to achieve Operational Excellence (Laudon, page 8). Lack of customer demand information may lead to excessive inventory, due to the bullwhip effect (Laudon, page 362). Old IT needs to be fixed or replaced due to Y2K problems. Candy industry was a Low IT industry starting to increase its investment in IT :55 6

7 Firms within this industry will have to keep up their IT investments for survival (Laudon, page 13), because IT accelerates competition [4]. Low profits generated by each product demand an enormous amount of sales characteristic of economies of scale [5] and lowering the total cost of each product. This involves distributing enormous amounts of products with great efficiency. The demand is irregular throughout the year reaching its peek on Halloween and Christmas. Therefore it is critical to succeed in this time of the year. The need to process enormous amounts of orders. If customers wish to buy candy and can t find a Hershey s product, they will opt for a competing brand. Inexistent normalized information about the whole firm to support decision making. Difficulty in knowing customers and targeting them. Difficult to control and select suppliers increasing the ingredients costs. 3. How would the adoption of the proposed IT/IS solutions contribute to solve the problems addressed above? If well implemented Enterprise 21 would solve these problems because: SAP s ERP (Laudon, page 360): o Automates many business processes allowing for extremely efficient order processing (Laudon, page 360). This would contribute to: Diminish the response time to customer orders. Keep retailers shelves always full of Hershey s products avoiding customers to switch to other brands. Reduce the necessary inventory space and therefore the total cost of each product. o Centralizes the firm s data allowing the Hershey to analyze it, take conclusions (e.g. forecasting demand crucial to satisfying clients), and make better decisions. Manugistics SCM would allow to (Laudon, page 368): o Match supply to demand and speed product time to market: Solving the irregular demand for candy :55 7

8 Keeping retailers supplied. Reducing customer churn rate (Laudon, page 375). Increasing sales. Allowing a shift from the push-based model to the pull based model (Laudon, page 366). Reducing the bull whip effect. Optimizing logistics. o Reduce inventory reducing the total cost of each product helping achieve Operational Excellence. Siebel s CRM would allow for greater marketing and customer knowledge (Laudon, page 375): o Reducing churn rate. o Increasing sales. It would solve the Y2K problems because it was a new software product. Bar codes at production plants allowed better tracking of Hershey s products and supplies. This was crucial to implement the Enterprise 21 and fed the SCM, ERP and CRM systems with the necessary data. It would allow Hershey to survive because of keeping up with the IT investments occurring within the candy industry [4]. Notice, not all problems are solved. Procurement related problems (supplier selection) won t be solved with Manugistics SCM system. To solve these problems B2B e- Commerce would be a possible solution (see figure 4). This would make suppliers a weak force, because, in case of a delay, Hershey could easily switch from one supplier to another giving Hershey greater bargaining power. 4. What management, organization, and technology issues do you think explain the failure of the Enterprise 21 project? The issues that explain the failure are: Management (Laudon, page 18): o The decision of launching the system in a high sales season, reveals poor risk management, especially with: A system that involved changes in the way the firm processed orders a crucial task for Hershey :55 8

9 Referências The decision of using the direct cutover strategy, which implied insufficient testing, employee training and business process analysis. Once again, risky in such a complex system that transversally integrates various business processes and IS (SAP, Siebel and Manugistics systems), allowing for many details to remain overlooked [6]. An innovative business process should be tested in one location. Then embedded in the enterprise application and propagated to the rest of the firm [4]. Organization (Laudon, page 17): o Inadequate strategy for organizational change [7]. This is necessary when making technological changes, because of the resistance they generate (Laudon, page 88) and the fact that IS are sociotechnical (Laudon, page 27) systems that involve an organizational component (Laudon, page 17): Lack of employee education a powerful method to reduce resistance to change, because it satisfies employees drive to comprehend. It also avoids the demotivation that other methods for dealing with resistance to change do (e.g. coercion that conflicts with the drive to defend) [8]. Lack of employee training with the new business processes and IS. This is truly a problem because once employees were better trained the order processing problems were reduced. This is also a method for dealing with resistance to change. o Inadequate business process transformations. Not only within the firm but with the firms along Hershey s supply chain (SCM systems demand this). This is crucial in the implementation of Enterprise Applications (Laudon, page 359, 372, 376). Technology (Laudon, page 19): o Application changes (customization) to adapt the application to the firm s business processes, which deteriorates its performance (Laudon, page 359). This could have been avoided by doing the adequate business process transformations (explained above). o Complex task of integrating three different systems from three different vendors. [1] Suppliers What we buy, by Hershey, consulted in: 18 th October [2] Suppliers Who is Eligible?, by Hershey, consulted in: 18 th :55 9

10 October [3] Value Chain, by Wikipedia, consulted in: 18 th October [4] Investing in the IT That Makes a Competitive Difference, by Andrew McAfee and Erik Brynjolfsson, HBR, July-August [5] Economy of scale, by Wikipedia, consulted in: 18 th October [6] In Search of Business Value & ROI: Achieving IT Benefits Realization, by Eric Kimberling, consulted in: 19 th October [7] Choosing Strategies for Change, by John P. Kotter and Leonard A. Schlesinger, HBR, July-August [8] Employee Motivation A Powerful New Model, by Nitin Nohria, Boris Groysberg, and Linda-Eling Lee, HBR, July-August Palavras: :55 10