Hershey Chocolate Factory

1. Hershey Chocolate Factory Final Production and Operations Management Project Seong-Hun AHN, YoonJuHWANG, Byung-Im KIM, So Jeong Yoo

2. Outline of Hershey Chocolate Factory • Pennsylvania Plant built in 1992 • Makes milk chocolate in the traditional fashion of Hershey • Old video  old strategies • Limited amount of information

3. Index • Problems from Video • Additional research: ERP • Solutions • Additional suggestion

4. Problems from Video • Additional research: ERP • Solutions • Additional suggestion

5. Supply chain of Milk and Sugar • Milk: one of the most fundamental supply chain • Sugar: essential for sweetening the main product, chocolate

6. Inefficiency Layout (1) • Milk is carried through pipes that are located outside of the milk receiving building • Milk leaves the receiving building  flows through the pipes to chocolate processing are

7. Inefficiency Layout (2) • Too much unnecessary movements of products within the lab • Machines located inefficiently – loss in time and costs

8. Inefficiency Layout (3) • Repetitive stages of alignment and misalignment • Useless transfers of final product around the plant

9. Unnecessary labor input • People measuring the temperature of the milk

10. Unnecessary labor input • Is the temperature information reliable?

11. Unnecessary labor input • Is the product clean and safe?

12. Problems from Video • Additional research: ERP • Solutions • Additional suggestion

13. Hershey’s failure • Invested 10million on SAP R/3 program • Error in ordering and shipping process before the 1999 Halloween • Inventories20% increased,19% decrease in profit as a result of sales reduction

14. So what is ERP? • Build Database • Unify the boundaries among functions, business units, regions, process lines • Information distribution among processes • Scheduling function • Forecasting sales/ demand function • Accounting function

15. So what is ERP? Accounting & Financial Information Supply Chain Human Resource Management Consumer Information

16. Benefits of Usage • Increase in average profit rates by 29% • Improve the launching of products on time by 95%, • inventory reduction by 10~40% • Cost Reduction by5~10% • Reduce unnecessary labors in assemble lineby25~40% • Reduce overtime work by50%

17. Hershey’s Lesson • Adopted hasty methodology • Confusion of managers Upgrade • Reduction in process time and costs • Decrease in defects • by improving working environment

18. Problems from Video • Additional research: ERP • Solutions • Additional suggestion

19. Solution • What is primary directing point for Hershey’s?

20. Details in process • Layout :  Rearrange equipments effectively • Additional automation

21. Layout : More effective arrangement • Example 1) : Milk truck and pipeline • Example 2) : Milk balancing tank and dryer • Example 3) : Process before packaging

22. Additional automation • Automated process to reduce errors or cost from human • Safer

23. Solution for ERP • Elite human resource : Get more reliable workers who can treat equipments and process

24. Elite human resource • How to get more trained worker who can control the process and automated equipments? 1. Training 2. Outsourcing

25. Problems from Video • Additional research: ERP • Solutions • Additional suggestion

26. Suggestion - Forecasting demand • Product trait : Milk Chocolate 1) Short retention period 2) the demand boom in specific periods Exact demand forecasting is most important to Hershey’s!

27. Suggestion - Forecasting demand • To get cost reduction, making exact forecasting demand model must be preceded. • Collecting historical data is essential.

28. Suggestion - Forecasting demand • Demand is very fluctuating and seasonal

29. Forecasting demand : additional operation • Sharing demand / producing information • From supplier to sale department

30. Cost balance • Cost up VS Cost down

31. Expectations • Managing quality • Managing inventory : leansystem

32. Any Q & A?? Thanks for watching!!