Hershey Chocolate Factory

Final Production and Operations Management Project Seong-Hun AHN, Yoon Ju HWANG, Byung-Im KIM, So Jeong Yoo

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

Index

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Problems from Video Additional research: ERP Solutions Additional suggestion

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Problems from Video

Additional research: ERP Solutions Additional suggestion

Supply chain of Milk and Sugar

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

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

Inefficiency Layout (2)

• • Too much unnecessary movements of products within the lab Machines located inefficiently – loss in time and costs

Inefficiency Layout (3)

• • Repetitive stages of alignment and misalignment Useless transfers of final product around the plant

Unnecessary labor input

• People measuring the temperature of the milk

Unnecessary labor input

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Is the temperature information reliable?

Unnecessary labor input

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Is the product clean and safe?

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Problems from Video

Additional research: ERP

Solutions Additional suggestion

Hershey’s failure

• Invested 10million on SAP R/3 program • Error in ordering and shipping process before the 1999 Halloween • Inventories 20% increased, 19% decrease in profit as a result of sales reduction

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

So what is ERP?

Supply Chain Accounting & Financial Information Consumer Information Human Resource Management

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 by 5~10% • Reduce unnecessary labors in assemble line by 25~40% • Reduce overtime work by 50%

Hershey’s Lesson

• Adopted hasty methodology • Confusion of managers • Reduction in process time and costs • Decrease in defects by improving working environment

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Problems from Video Additional research: ERP

Solutions

Additional suggestion

Solution

 What is primary directing point

for Hershey’s?

Details in process

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Layout :

 Rearrange equipments effectively

2.

Additional automation

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

Additional automation

 Automated process to reduce errors or cost from human  Safer

Solution for ERP

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Elite human resource :

Get more reliable workers who can treat equipments and process

Elite human resource

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How to get more trained worker who can control the process and automated equipments?

1. Training 2. Outsourcing

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Problems from Video Additional research: ERP Solutions

Additional suggestion

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!

Suggestion - Forecasting demand  To get cost reduction, making exact forecasting demand model must be preceded.

 Collecting historical data is essential.

Suggestion - Forecasting demand  Demand is very fluctuating and seasonal

Forecasting demand : additional operation  Sharing demand / producing information  From supplier to sale department

Cost balance

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Cost up VS Cost down Cost UP

Information sharing cost for managing quality of material Cost from additional automated process Training / outsourcing cost for advanced worker

Cost DOWN

Cost cutting from Inventory managing Benefit from additional automated process Benefit from achieving lean system Benefit from effective layout

Expectations

 Managing quality  Managing inventory : lean system

Thanks for watching!!

Any Q & A??