Hershey emphasizes savings from multiyear ERP transformation
- Mid-2018, The Hershey Company added two enterprise resource planning (ERP) modules, trade promotion and marketing expenses. The launch is proving to be "a key enabler to our broader digital transformation efforts," CEO Michele Buck said during the company's Q4 2018 earnings call Thursday.
- The implementation is multiyear and will replace Hershey's existing operating and financial systems, according to the company's September 2018 SEC filing. Initial changes in Hershey's consolidated financial reporting occurred in Q2 2018, though overall rollout will be done in phases.
- Hershey expects capital expenditures in the ballpark of $330 million to $350 million. However, as a percent of net sales, the projection is "higher than our long-term targets" as advancements in ERP transformation are underway, according to CFO Patricia Little during the call.
ERPs touch on multiple operations in a company, and because the software is so intertwined with an array of back-office functions, finding the right system takes time. Choosing an ERP also means companies may have to reassess their uniqueness.
Hershey "relies extensively" on its IT systems to manage its business, but the ERP implementation on its financial reporting platform did not lead to "significant changes" in the internal controls of financial reporting, according to the report.
In May, the company turned to Accenture to implement SAP S/4HANA to help streamline manufacturing and supply chain processes while providing real-time customer analytics.
The partnership with SAP has allowed Hershey to make faster decisions based on analytics; the company also relies on Microsoft Azure and Office 365 for extracting data and uploading it to the cloud.
When it comes to optimization, Hershey runs the risk of increasing spend "to get impact," Buck said, "and other times we go for efficiency."
The candy manufacturer reported $369 million in adjusted operating profit during Q4, and expects its operating profit margin to increase above its average, Little said during the call.
Hershey projects the remaining savings "to flow through into 2020," a result of the ERP implementation, Little said. The company expects its margin for growth program savings to be between $150 million and $175 million.
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