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Founded in 1894 by Milton Hershey, The Hershey Company has seen their share of ups and downs. Not only have they survived major world events, they have also bounced back from failed system implementations and the challenge represented by stiff competition and rising costs.
10 percent of Hershey’s candy sales are tied to Halloween, so when they announced in July 2022 that there would be shortages, people were shocked. To be fair, they weren’t out of stock completely, but the company had to make the difficult decision to prioritize year-round products and packaging over anything seasonal.
The company took the experience to heart, and they have spent the last year looking for ways to prevent a repeat. With Halloween 2023 creeping up on us, we are about to put their plan to the test. In this week’s Dial P for Procurement, I look at the efforts Hershey has made as they fight back from last year’s challenges.
2020: Chocolate Therapy
In 2020, the stress and isolation of COVID led most people to think (in unison apparently), “I need a piece of chocolate.” Data from the NPD Group indicates that snack consumption increased by 8 percent and at-home snack breaks went up by 4 percent.
People also started buying their Halloween candy earlier. Hershey’s chief sales officer Phil Stanley said, “…We saw almost 38% of our Halloween growth happen in August. This might have posed a nightmare for manufacturing and fulfilling all those unexpected orders.”
But Hershey had been investing in their supply chain, and it was about to pay off. One key metric that he discussed is “case fill to customer,” or the ratio of customer orders placed to customer orders shipped. Despite the spike in demand, Hershey’s case fill to customer was almost 99 percent, ahead of the typical range (92-98 percent) for inventory fulfillment.
2021: Demand (and Waistlines) Grow
Although much of the world started to settle down in 2021, for supply chain professionals the challenges continued to mount. Hershey managed to hang on through 2021, but they were not out of the woods yet.
Bottlenecks and sourcing constraints that had been elevated during the pandemic continued, but were exacerbated by sharp increases in demand. According to the National Confectioners Association, chocolate and other candy sales surged 11 percent in 2021, after increasing 15.4 percent in 2020, two consecutive years of considerable increases.
2022: Year of Reckoning
Hershey’s hard work got them to 2022, but it did not necessarily prepare them for the additional complexities still to come.
Russia’s invasion of Ukraine impacted Hershey and their suppliers directly. As Europe made efforts to isolate Moscow by restricting its oil and gas imports, Germany’s energy and manufacturing sectors were affected. Hershey’s ability to source equipment and supplies were diminished.
During The Hershey Company’s second quarter earnings call on July 28, 2022, CEO Michele Buck warned investors that the company “will not be able to fully meet consumer demand” for Halloween candy.
Demand for year round and holiday specific treats was up, and the company was facing supply chain issues with dairy and other key ingredients like cocoa, edible oil and other food ingredients.
In addition, Hershey uses the same production lines for regular and seasonal candy, meaning that tough decisions had to be made. They decided to prioritize a regular product because it had a longer undiscounted shelf life.
The outcry was widespread and immediate.
A few days after the earnings call, Hershey made a statement to clarify that there was nothing wrong with their operation or finances, but demand was so high that even producing more candy than the year before would leave the market in short supply.
2023: The Candy Man Can
Hershey’s response to the disappointment of 2022 tells us everything we need to know about them.
They were done making incremental improvements, and they were done making apologies. They went on a mission – a 10X mission you might say – to increase the availability of snacks worldwide, starting with how they think about their supply chain.
Will Bonifant, Hershey’s Vice President of U.S. and Canada Supply Chain, shared with investors that changes in consumer demand led Hershey’s to rethink their supply chain strategy, seeing it as a “business enabler” rather than a cost center. They went on a tear, improving their capacity in a number of ways.
SVP and Chief Supply Chain Officer Jason Reiman spoke to Supply Chain Dive earlier this year to describe the company’s investments and the impact they are expected to have on the company’s production capacity:
- A new factory was built in Hershey, Pennsylvania, bringing their total number of manufacturing plants to 24.
- They made a $1 Billion investment, adding 13 new production lines and upgrading 11 existing ones
- They doubled down on their core brands, dedicating 60 percent of their investments to Reese’s brand products alone
Hershey also used advanced analytics and AI to help them find “hidden capacity,” streamlining production lines and rethinking how and where production was handled on a product by product basis.
For instance, they analyzed the six-lane KitKat production network and found $35 Million worth of capacity they could reallocate.
Products on underutilized production lines that couldn’t be reassigned were transferred to co-manufacturers rather than being made in-house, and products that were on the rise got the opposite treatment.
Hershey’s decisions about co-manufacturing (or outsourced production) were based on a few factors. Production for core products with sensitive IP is kept in-house. If a product is less in demand or new enough that the company hasn’t committed to it yet, Hershey will evaluate shifting production to an outside manufacturer.
They also shifted from traditional production line approaches to modular units that are better positioned to leverage robotics and automation. These changes weren’t limited to chocolate production either. They were also applied to the company’s salty snack and popcorn production.
Will Halloween 2023 be sweet?
Hershey pursued multiple opportunities in parallel, and their collective changes led to a 5 percent increase in capacity this year.
We won’t know for sure until mid-October how successful Hershey was, but here’s what we can say for now:
- They learned from their past mistakes (listen to the podcast audio for more on this) and made a concerted effort not to repeat them.
- They pursued operational efficiency, strategic third party relationships, and automation… leaving no stone unturned.
- They brought the full capabilities of procurement and supply chain to bear… starting by thinking about them differently before making process and execution changes.
Personally, I’m looking forward to a holiday season where Hershey’s is restored to its former abundant, in stock, and calorie-intensive glory… although I’d prefer not to see the Christmas candy come out until Halloween is successfully over.
