Dive Brief:
- Hershey is experiencing some operational headwinds amid its phased ERP upgrade, according to the company’s Q4 2023 earnings call last week, which comprised the period ending Dec. 31.
- Net sales for the company's North America salty snacks segment declined 24.6%, largely due to the company's planned inventory reduction during the SAP S/4 HANA implementation, said Steve Voskuil, SVP and CFO, during the call.
- The ERP implementation is also limiting the company’s ability to realize benefits from its automation initiative, though Voskuil said the related savings and productivity gains will get more traction in the second half of 2024 as the ERP rollout concludes.
Dive Insight:
Hershey is on track to implement the upgraded ERP system in several markets in early Q2 2024, including the U.S. and Canada, Voskuil said. But even with the end of the multiyear project in sight, the company still has some work on the road toward ROI.
The headwinds the company experienced during Q4, will continue somewhat into the first half of the year.
“When we think about the impact of future price increase, we're really challenged in the first half of this year just because of the ERP implementation,” said Voskuil during the company’s earnings call. “It puts some limitations on what we can do … so we're trying to keep things very stable during that period.”
The company’s focus on optimizing operations comes as food makers are encountering pressure from consumer spending cutbacks, according to Food Dive.
Hershey said its board of directors approved a multiyear productivity initiative Thursday, which would result in a reduction of staff. The company expects to incur costs from employee severance and separation benefits of up to $60 million.
With cost-cutting measures top of mind for food executives, Hershey plans to lean on technology upgrades as a way to unlock efficiencies and boost visibility. The company plans to spend $55 million to $70 million on implementation and technology capabilities associated with the productivity initiative, according to an SEC filing.
Once the ERP upgrade is complete, Hershey will have 95% of its business on one platform, enabling integrated demand planning, increased automation and visibility, Voskuil said. The project’s conclusion will also free up focus for other value-adding initiatives.
“We have been preparing for opportunities that could be seized post S/4 implementation and salty snacks integration, and we are accelerating a number of these initiatives that improve our agility and enhance our end-to-end connectivity,” CEO Michele Buck said during the call. “We are pleased with the enhanced insights and efficiencies our recent technology investments have enabled and we will continue to prioritize cost structure optimization moving forward.”
The company is carefully choosing where it directs its resources, according to Buck.
“A lot of that implementation won’t happen … until we get through the implementation, so [we’re] really measuring out when we do what to match with the organizational capacity,” Buck said.
