Chocolate lovers may not realize that behind every smooth Hershey's bar lies a complex supply chain operation. Facing intensifying market competition and evolving consumer demands, this century-old confectionery giant is embracing digital transformation, with an Enterprise Resource Planning (ERP) system serving as the key engine of change.
In 2018, The Hershey Company launched a comprehensive ERP implementation project to optimize its operational and financial systems, aiming to enhance overall efficiency and profitability. This strategic move represents not just a technological upgrade but Hershey's commitment to future growth.
ERP: The Core Pillar of Hershey's Digital Transformation
Mid-2018 saw Hershey deploy the first two ERP modules focused on trade promotions and marketing expenses. CEO Michele Buck described the project during the Q4 2018 earnings call as "a key enabler of our broader digital transformation efforts." SEC filings from September 2018 revealed the implementation would occur in phases over several years, gradually replacing Hershey's legacy operational and financial systems.
While preliminary ERP impacts appeared in Q2 2018 consolidated financial reports, full deployment would proceed incrementally. Hershey projected capital expenditures between $330 million and $350 million. CFO Patricia Little noted this exceeded long-term targets due to ERP transformation.
ERP systems profoundly influence all operational aspects. Given the software's integration with various backend functions, system selection requires careful consideration. Choosing an ERP often necessitates business process reevaluation. Hershey's filings indicated "extensive reliance" on IT systems for business management, though ERP implementation didn't trigger "material changes" in financial reporting controls.
Strategic Partnerships: SAP and Accenture Drive Supply Chain Optimization
To enhance manufacturing and supply chain processes while delivering real-time customer analytics, Hershey partnered with Accenture in May 2018 to implement SAP S/4HANA. The SAP collaboration enabled data-driven decision making, supplemented by Microsoft Azure and Office 365 for cloud data management.
CEO Buck acknowledged optimization challenges, stating Hershey risked increased spending to "make an impact," adding "sometimes we pursue efficiency."
Tangible Benefits: Profit Growth and Operational Efficiency
Hershey reported Q4 adjusted operating income of $369 million, with operating margins expected to outperform industry averages. CFO Little attributed this primarily to ERP implementation, anticipating remaining savings would materialize by 2020. The company projected margin improvements between $150 million and $175 million from growth initiatives.
Key ERP objectives include:
- Enhanced operational efficiency: Automating critical business processes to reduce manual intervention while improving productivity and responsiveness
- Optimized supply chain management: Real-time inventory, order, and logistics tracking to reduce carrying costs and shorten delivery cycles
- Improved decision-making: Comprehensive data analytics and reporting capabilities for management
- Superior customer experience: Streamlined order processing and fulfillment to boost satisfaction
- Reduced operating costs: Resource and process optimization to lower overall expenditures
Implementation Challenges and Mitigation Strategies
Despite significant advantages, ERP implementation presents substantial challenges:
- High implementation costs: Significant investments in software licensing, consulting, and training
- Complex deployment processes: Requires meticulous cross-departmental planning and coordination
- Data migration risks: Potential for data loss or corruption during system transitions
- Employee resistance: Workforce adaptation to new systems and workflows
Hershey addressed these challenges through:
- Phased implementation: Gradual rollout to minimize disruption
- Strategic partnerships: Collaboration with experienced ERP providers and consultants
- Comprehensive training: Workforce education on new systems and processes
- Proactive communication: Transparent dialogue to address concerns
Strategic Insights: Digital Transformation as Competitive Imperative
Hershey's ERP journey offers valuable lessons for enterprises navigating digital transformation:
- Digital transformation inevitability: Technological advancement makes digital adoption essential for market relevance
- ERP's central role: Serves as the foundation for process automation, intelligent analytics, and data-driven decision making
- System selection criticality: Requires alignment with business needs, vendor capabilities, and implementation costs
- Implementation rigor: Demands detailed planning, partner selection, training, and communication
Hershey's ERP transformation exemplifies how century-old enterprises can rejuvenate operations through digital enablement, establishing foundations for sustained growth.
ERP Selection: Beyond Technology to Strategic Alignment
Hershey's case demonstrates that ERP selection transcends technical considerations, representing strategic alignment with business objectives. Key selection criteria include:
- Industry specificity: Solutions tailored to sector-specific processes and requirements
- Enterprise scale: System complexity and cost proportionate to organizational size
- Process compatibility: Alignment with existing workflows and optimization priorities
- Architectural integration: Compatibility with current IT infrastructure regarding deployment, data integration, and security
- Vendor capabilities: Provider experience, implementation expertise, and post-deployment support
ERP Implementation: Continuous Optimization Beyond Deployment
Successful ERP implementation requires ongoing refinement post-deployment. Organizations must establish robust management frameworks for continuous improvement, including:
- Data governance: Ensuring information quality and consistency through structured processes
- User training: Regular upskilling to maximize system utilization
- System maintenance: Periodic updates to ensure stability and security
- Process refinement: Continuous workflow optimization to leverage system capabilities
- Performance measurement: Quantifying ERP benefits to guide enhancements
Hershey's transformation illustrates how sustained ERP optimization drives operational excellence and business growth.