Hershey plans to spend $1 billion to strengthen its supply chain for the long term, but don't call its operations a cost center.
The confectionery and salty snacks giant views its supply chain as a growth enabler rather than an expense to manage, SVP and Chief Supply Chain Officer Jason Reiman told Supply Chain Dive in an interview earlier this month.
"We enable growth by the availability of our product, consistency and the delivery of high quality, and then also making sure that we bring capabilities that fit the unique needs of our customers and our customers," Reiman said.
The company's multi-year supply chain investment is focused on adding production capacity. It's going toward a new chocolate factory in Hershey, Pennsylvania, 13 new production lines and upgrading 11 existing lines. Core brands are the focus, with 60% of its investment addressing Reese's alone.
The undertaking will help Hershey maintain the supply chain "sweet spot" it's found, according to Reiman. That means being nimble enough to react to demand growth while also having enough capacity to meet customers' existing needs.
"We're in a much better spot than what we have been," he added.
Finding 'hidden capacity' minimizes overhaul costs
Hershey expressed concerns over meeting heightened customer demand last Halloween — particularly for Reese's — due to capacity limitations. But things are now looking up amid its supply chain investments.
Chairman and CEO Michele Buck said in April that Hershey anticipates supply constraints will be behind it by this Halloween, aided by an anticipated 5% increase in production capacity this year. That jump includes the installation and start-up of three new Reese's lines and a Hershey line.
"The recovery that we anticipate is really driven by the increasing investments that we've continued to make over the past several years in capacity," Buck said.
Adding new lines isn't the only way Hershey has unlocked additional production muscle. The company uses advanced analytics and AI to help find "hidden capacity," Will Bonifant, VP of Hershey's U.S. and Canada supply chain, said in an investor day presentation in March.
"We did that with our KitKat production network of six production lines, and as a result, found opportunities in schedule and item changes that found $35 million of capacity just sitting there that didn't require a whole lot of investment to get after," Bonifant said.
The company also considers what production lines are underutilized, with products better suited to be made by a co-manufacturer rather than in-house. Hershey recently outsourced its Zero candy production from its Illinois factory to a third party in Canada, after which it used that freed up capacity to make PayDay candy bars.
"PayDay capacity grew by over 25%, and PayDay was about a fifth of our overall retail sales growth last year as a result of these moves," Bonifant said.
When determining what products to use a co-manufacturer for, Reiman highlighted two considerations. If it's a core product with intellectual property Hershey wants to protect, production is kept in-house. If it's a product at the end of its lifecycle or a new product the company doesn't want to commit a large investment in yet, Hershey will look into shifting production to an outside manufacturer.
Employee buy-in critical for transformation plans
While Hershey's emphasizes scale and efficiency for most of its production lines, it is also creating lines that focus more on flexibility and agility. The company is implementing modular "advanced technology lines" that use robotics and automation. These lines allow for smaller production runs and shorter changeover times, Reiman said.
"That can really help us enable and spur some innovation, especially in some smaller markets, but also be able to trial things without the expense of doing that on a line that is set up to be highly efficient and scaled," Reiman said.
Despite technological innovation, people will still be involved in Hershey's supply chain of the future. While automation may take out some redundant tasks, there are plenty of upskilling opportunities for its employees, Reiman said.
Still, companies implementing similar supply chain overhauls shouldn't underestimate the change management necessary to ensure a smooth transition, according to Reiman. Businesses should make sure employees know why the initiative is happening, what impact it will have on their job and feel empowered to help make those changes a reality.
"If you're getting people engaged around the vision that you're trying to accomplish, they'll do wonderful things, and they're going to take it beyond your wildest expectations," Reiman said.
