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 tradi-

tional fashion of Hershey• Old video old strategies• Limited amount of information

Outline of Hershey Chocolate Factory

Index

1. Problems from Video2. Additional research: ERP 3. Solutions 4. Additional suggestion

1.Problems from Video2. 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 choco-

late 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 informa-tion 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 be-fore the 1999 Halloween

• Inventories 20% increased, 19% decrease in profit as a result of sales reduction

Hershey’s failure

ERP

Back

Of-fice

Shop

Front Of-fice

Manufacture

• Scheduling function

• Forecasting sales/ demand function

• Accounting function

• Build Database

• Unify the boundaries among functions, busi-ness units, regions, process lines

• Information distribu-tion among processes

So what is ERP?

So what is ERP?Account-

ing & Financial Informa-

tion

Human ResourceManage-

ment

Supply Chain

Con-sumer

Informa-tion

• 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 method-ology

• Confusion of managers

• Reduction in process time and costs

• Decrease in defects by improving working environment

Up-grade

Hershey’s Lesson

1. Problems from Video2. Additional research: ERP

3.Solutions 4. Additional suggestion

SolutionWhat is primary directing point

for Hershey’s?

Details in process

1. Layout : Rearrange equipments effec-tively

2. Additional automation

Layout : More effective ar-rangementExample 1) : Milk truck and pipe-

line

Example 2) : Milk balancing tank and dryer

Example 3) : Process before packaging

Additional automationAutomated 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 resourceHow to get more trained worker

who can control the process and automated equipments?

1. Training

2. Outsourcing

1. Problems from Video2. Additional research: ERP 3. Solutions

4.Additional suggestion

Suggestion - Forecasting de-mand

Product trait : Milk Chocolate 1) Short retention period 2) the demand boom in specific pe-

riods

Exact demand forecasting is most important to Hershey’s!

Suggestion - Forecasting de-mand

To get cost reduction, making ex-act forecasting demand model must be preceded.

Collecting historical data is es-sential.

Suggestion - Forecasting de-mandDemand is very fluctuating and

seasonal

Forecasting demand : additional operationSharing demand / producing in-

formation

From supplier to sale department

Cost balance Cost up VS Cost down

Cost UP Cost DOWNInformation sharing cost for managing quality of material

Cost cutting from Inventory man-aging

Cost from additional auto-mated process

Benefit from additional automated process

Training / outsourcing cost for advanced worker

Benefit from achieving lean sys-tem

Benefit from effective layout

Expectations Managing quality

Managing inventory : lean sys-tem

Any Q & A??

Thanks for watch-ing!!