Headline: Hershey Foods Licks Computer Woes; Distribution System Back on Track

Source: The Patriot-News [Harrisburg Pennsylvania], 7 Sept 2000

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A month after beginning delivery of candies to retailers for the busy Halloween season, Hershey Foods Corp. says all is well with its computerized distribution system.

Last year, Hershey lost about $120 million in candy sales after experiencing problems with the computer system, which automates and links manufacturing, shipping, accounting and personnel operations.

The system, which uses SAP software, has been operating successfully this year, as has Hershey's new eastern distribution center in Derry and North Londonderry townships

Sales in the first half of the year are up 3.8 percent from the same period a year earlier, and "we expect second-half sales to increase dramatically" Investors apparently liked the news. Hershey stock rose

Last fall, Hershey was beset with distribution problems associated with the implementation in July of the final phase of its $112 million computer system. At the peak of the crisis, incomplete orders were shipped to retailers, and the candies that did make it out of Hershey's doors were delivered later than usual.

"We believe we now have it fairly well cleaned up," Christ said, referring to the distribution problems. Consequently, he said, "the back-to-school and Halloween season is shaping up very well."

Hershey acknowledged that sales for the second half of the year undoubtedly will be strong when compared with anemic sales in the same period a year earlier. But even in light of last year's problems, sales this year are "every bit as good as we expected," said Michael F. Pasquale, Hershey's executive vice president and chief operating officer. The new computer system "is functioning quite well," he said. "We fixed the glitches" and employees are more comfortable using the system.

The eastern distribution center near the company headquarters and a smaller center in Atlanta went online this year and have been "highly compatible with our interface system," Pasquale said.

Hershey began shipping candies directly to retailers from the eastern distribution center on June 30.

Before the center was built, Hershey had to transport candies from its production plants to storage facilities, then to retailers. Thanks to the distribution center, Hershey was able to eliminate two of its so-called surge storage facilities and plans to close several more by the end of the year, Pasquale said.

The company hopes to save $15 million to $20 million annually in distribution costs once the distribution center is operating at full capacity, perhaps by early next year, he said.

"Customers have regained faith in our ability to deliver the goods," he said.

The nation's leading candy maker reported sales of $2.32 million for the 52 weeks that ended Aug. 13, up 2.3 percent from $2.27 million during the same period a year earlier, according to Information Resources Inc. in Chicago.

Hershey controls 29.3 percent of the nation's candy market, followed by M&M Mars, at 19.6 percent, and Nestle USA, at 6.8 percent

Hershey executives seemed more confident yesterday than at any time since last year's debacle, said Terry Bivens, a candy industry analyst with Bear Stearns in New York. He said the company must continue to maintain its strong shipment pace through October to retain its strong market share

-- Andre Weltman (aweltman@state.pa.us), September 11, 2000