Tag: flexible manufacturing

Guest Post: Hershey’s $1 Billion “Sweet Spot” Supply Chain Investment

Dr. Misty Blessley is Associate Professor of Supply Chain Management at Temple University.

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.

Reese’s candies funnel through a Hershey production line

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?

OM in the News: Companies Retool Operations to Assist in Coronavirus Fight

From a Kentucky distillery to a French bluejeans maker, companies are retooling to produce medical equipment for overloaded hospitals and slow the spread of coronavirus, writes The Wall Street Journal (March 19, 2020). Christian Dior perfumes has started making hand sanitizer. A car-parts company is producing hygienic masks. Luxury hotels are becoming makeshift quarantine shelters. An earthmoving-equipment maker and other manufacturers are examining whether they can help make ventilators, the key life-support machines.

As the pandemic grips the West, global demand for a range of goods and services has faltered—from handbags and tourism to cars. That has freed capacity for industries to produce medical equipment in short supply. World leaders have framed the crisis as a wartime struggle, and hark back to World War II, when nations on a much larger scale repurposed factories to make weapons and supplies. “We are at war,” says the French President.

Both GM and Ford are examining whether they could put their idled factories to work making medical equipment. Tesla’s Elon Musk stated: “We will make ventilators if there is a shortage.” The German government is considering redeploying unemployed workers such as waiters to harvest its fields. French whiskey giant Pernod Ricard is making sanitizer at plants in Kentucky, W. Virginia, and Texas.

The French bluejeans producer, 1083, saw demand plummet when stores across the country were forced to shut last week. Within hours of the government proclaiming a shortage of sanitary masks, 1083’s sewing machines were stitching together masks. “It’s much easier to make masks than jeans,” says the CEO. With tourism drying up, Israel has repurposed two luxury hotels to serve as quarantine shelters, the oceanfront Dan Panorama in Tel Aviv, and the Dan Hotel overlooking Jerusalem’s ancient skyline.

Classroom discussion questions:

  1.  How can companies that specialize in logistics redeploy their workforces to help fight the epidemic?
  2.  Why is it hard to shift manufacturers to produce the needed medical equipment?

OM in the News: Harley Goes Flexible

Our Global Company Profile that opens Chapter 7 describes the manufacturing process at Harley-Davidson’s plant in York, PA. The Wall Street Journal (Sept. 22-23, 2012) writes that “until recently, the company’s sprawling factory here had a lack of automation that made it an industrial museum. Now, production that once was scattered among 41 buildings is consolidated into one brightly lighted facility (see photo) where robots do more heavy lifting. The number of hourly workers, about 1,000, is half the level of three years ago and more than 100 of those workers are “casual” employees who come and go as needed.”

This revamping has allowed Harley to quickly increase or cut production in response to shifting demand. Harley got serious about cutting costs when Keith Wandell became CEO in 2009. On his first visit to the York plant, he declared the layout and working methods unsustainable and began scouting sites for a new plant to replace York. When the company notified its union that the plant would move unless it approved a new contract giving Harley more control over costs, union members voted overwhelmingly to make concessions, and Harley stayed in York.

Instead of 62 job classifications, the plant now has 5, meaning workers have a wider variety of skills and can go where needed. A 136-page labor contract has been replaced by a 58-page document. The pace of work is faster now, but managers and workers work together more smoothly, according to the Journal. In the paint department, for example, people used to do the same chore all day but now rotate through several tasks to avoid body strain and boredom.

Some items formerly made in York, such as brackets and screws, come from outside suppliers. Production fluctuates depending on day-to-day sales, so the company doesn’t have to stock up well ahead of the spring peak-selling period and guess which models and colors will be popular.

Discussion questions:

1. What major OM changes did Waddell make to turn Harley around?

2. What is the impact of job classification changes (a topic of Ch.10)?