Hershey is undertaking multi-million dollar supply chain and manufacturing projects to improve agility and efficiency across its operations.
In February, Hershey’s CEO Michele Buck told a group of consumer analysts that the company would spend up to $250 million by 2026 on advanced agility and automation initiatives to build “much greater agility and efficiency in the way we operate.” Announced plans to spend $10 million. Annual event in New York.
The goal of this investment is to increase visibility and streamline operations by digitizing and automating Hershey’s processes, optimizing procurement and manufacturing, and accelerating R&D and planning. This initiative will allow Hershey to better integrate demand planning and bring more automation to its supply chain.
“We used to have a vision, but now we’re much closer to making it happen,” CFO Steve Voskuil said at the CAGNY event.
This reality is possible thanks to the multiple steps Hershey has taken to unify its business through integrated technology and allow visibility from suppliers to retailers.
“It’s consolidating more technological firepower within the organization,” Erin Lash, Morningstar’s director of consumer wealth research, said of Hershey’s AAA initiative. “This is the next step in the journey.”
The core of technology that unites Hershey’s diverse brands
Before AAA was announced, Hershey had invested $1 billion in its supply chain network, including new chocolate facilities, additional production lines and upgrades to existing lines.
Hershey has also begun acquiring salty snack brands, including acquiring Amplify Snack Brands for $1.6 billion in 2017 and continuing to purchase Pirate Brands, Dot’s Pretzels and Pretzels Inc. “We operated almost in silos,” Lash said.
The lack of visibility led Hershey to use software provider SAP’s S/4 platform to integrate new business units under one umbrella through ERP integration.
“S/4 was an important foundation,” Buck told CAGNY. “This allows us to better identify where redundancies exist and remove redundancy and complexity from our systems with end-to-end connectivity.”
by numbers
250 million dollars
How much Hershey plans to spend on agility and automation advancement initiatives through 2026
1 billion dollars
Hershey’s Previous Supply Chain Investments
10 million dollars
Supply chain savings expected this year
95%
Hershey’s Global Transaction Rates Operate on One System
With 95% of Hershey’s transactions globally operating on one system, this technology platform has enabled Hershey to increase visibility across its supply chain, revealing multiple benefits.
“We will have greater inventory visibility,” the CFO said. “We will have greater ability to connect demand signals at one end with supply chain responses at the other end in automated systems.”
Technology is at the heart of Hershey’s current strategy, and the company has appointed its first chief technology officer in 2023. Deepak Bhatia joins Hershey after 12 years at Amazon, where his most recent role was Vice President of Supply Chain Optimization Technologies.
“He has deep technical skills and, importantly, understands how supply chain businesses like ours operate,” Buck said.
Improved visibility improves efficiency.
Increased visibility across Hershey operations improves procurement and inventory management efficiencies.
Jim Salera, an equity research analyst for packaged foods and beverages and restaurants at Stephens, pointed to Reese’s as an example. On the demand side, Hershey needs to know how much Reese’s to produce, which in turn tells it how much peanut butter and cocoa to procure. Without visibility, Hershey may over- or under-order materials and supplies.
“If we can really match the demand from our retail partners with the sourcing from our suppliers, we can reduce the amount of food waste,” Salera said. Meanwhile, undersourcing can lead to shelf gaps or missed sales opportunities, he added.
Visibility and real-time data also enable plant managers to proactively maintain lines and advance the initiative’s goal of optimizing manufacturing. Data analytics can help you know when it’s best to clean equipment so it doesn’t disrupt production runs, or when to replace parts before they break and cause long-term problems.
“To maintain this edge, we must always invest in the latest manufacturing innovations and resource planning software.”
Jim Salera
Equities Research Analyst for Packaged Food Beverages and Restaurants at Stephens
Lash also said real-time data allows Hershey greater manufacturing flexibility. “Smaller production runs and shorter line changeover times can be particularly advantageous given the speed at which consumer trends are evolving,” she said.
Hershey was able to run small-scale tests of new products, gather consumer feedback, and then make adjustments based on the feedback before launching them at scale. This accelerates the innovation cycle, achieving one of Hershey’s goals:
“Whether you’re making chocolate bars or potato chips, the way to drive efficiency out of your factory is to limit downtime,” Salera said.
The AAA initiative is scheduled to be completed in 2026. Hershey estimates this will save the company $300 million annually, 30% of which will be through supply chain productivity savings. This year alone, Hershey expects to save $100 million. Of those, $10 million comes from supply chain savings and the remainder from SG&A.
But even if it saves millions of dollars, the snack and candy giant won’t continue to see success.
“To maintain this edge, we must always invest in the latest manufacturing innovations and resource planning software,” Salera said.
