The Hershey Company, a confectionery and salty snacks giant headquartered in Hershey, Pennsylvania, struggled to meet heightened customer demand for Halloween candy last year because of limited production capacity. Due to a new Hershey’s line and three new Reese’s lines, the problems of last season are now behind the manufacturer. As recently reported in Supply Chain Dive, the firm views its $1 billion investment “as a growth enabler rather than an expense to manage.” Hershey considers their “Sweet Spot” as being nimble enough to react to demand growth, while having the capacity needed to meet customers’ needs.
Hershey’s investment is expected to be a multi-year undertaking, which will allow the candy giant to balance existing capacity with future flexibility. Plans include an additional chocolate factory in Hershey, 13 new production lines and upgrades to 11 existing lines. Core brands will be in focus, with 60% of the investment allocated to the Reese’s brand. With flexibility and agility as an objective, Hershey’s is implementing modular advanced technology lines that use robotics and automation. These lines allow for smaller production runs and shorter changeover times.
In addition to adding capacity, Hershey’s has also found hidden capacity by using advanced analytics and AI. For example, an evaluation of the network of six KitKat production lines resulted in finding $35 million of capacity that could be leveraged without a substantial investment. The company also considered underutilized production lines and what products might be suitable to outsource to a co-manufacturer, rather than being made in-house. As a result, Hershey recently outsourced its production of Zero candy bars, and used that to free up capacity to make PayDay candy bars.
When determining what products to use a co-manufacturer for, Hershey had 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 consider shifting production to an outside manufacturer.
Classroom discussion questions:
1. Refer to Supplement 7 of the Heizer/Render/Munson text. Which of the tactics for matching capacity to demand is Hershey applying?
2. How has Hershey benefitted from taking a multi-faceted approach to manufacturing capacity, beyond simply adding capacity?