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

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

Index 1. Problems from Video 2. Additional research: ERP 3. Solutions 4. Additional suggestion

1. Problems from Video 2. Additional research: ERP 3. Solutions 4. Additional suggestion

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

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 (1)

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

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

Unnecessary labor input People measuring the temperature of the milk

Unnecessary labor input Is the temperature information reliable?

Unnecessary labor input Is the product clean and safe?

1. Problems from Video 2. Additional research: ERP 3. Solutions 4. Additional suggestion

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 Hershey’s failure

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

Accounting & Financial Information Human Resource Management Supply Chain Consumer Information

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% Benefits of Usage

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

1. Problems from Video 2. Additional research: ERP 3. Solutions 4. Additional suggestion

Solution What is primary directing point for Hershey’s?

Details in process 1. 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 Elite human resource : Get more reliable workers who can treat equipments and process

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

1. Problems from Video 2. Additional research: ERP 3. Solutions 4. 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 Cost up VS Cost down Cost UPCost DOWN Information sharing cost for managing quality of material Cost cutting from Inventory managing Cost from additional automated process Benefit from additional automated process Training / outsourcing cost for advanced worker Benefit from achieving lean system Benefit from effective layout

Expectations Managing quality Managing inventory : lean system

Any Q & A?? Thanks for watching!!