Hershey plan targets supply chain efficiencies

By staff reporter

- Last updated on GMT

Related tags Hershey Management

Hershey's three-year restructuring plan provides an example of the
moves food companies are making to sort out their supply chains.

The company's strategy is a bid to cut costs by making its supply chain more efficient, further increase the company's global footprint, and allow it to outsource production of its low value-added products. The strategy, announced last week by Hershey president and chief executive Richard Lenny, will involve the loss of 1,500 jobs. Hershey will also move 80 per cent of its production volume to Canada and the US. "When completed the transformation programme will deliver a flexible, advantaged supply chain designed to meet a diverse range of consumer and customer needs while generating significant resources available to invest behind our strategic growth initiatives,"​ Lenny stated in a press release. Hershey expects margins to swell significantly as a result of the restructuring, predicting savings of between $170m (€129.7m) to $190m (€144.9m) by 2010. The plan aims to boost use of the company's production capacity to 85 per cent by 2010 from the current 65 per cent. With the excess revenue generated from the programme Hershey plans to invest in the growth of its core brands, new product development, selling, and global expansion. To achieve that aim Hershey said it will outsource operations and reduce its number of production lines by over a third. Production will be focused on a small number of factories rather than scattering manufacturing across North America. "Finished products will be sourced from fewer facilities, each one a centre of excellence specialising in Hershey's proprietary product technologies,"​ Lenny stated. "Increase access to borderless sourcing will further leverage the company's manufacturing scale within a lower overall cost structure."​ Hershey also plans to leverage new ingredient and and packaging technologies to achieve cost savings. Moving further into worldwide markets has been high on the agenda for the owners of the Hershey Kisses brand after disappointing results last month showed a €13m fall in net income through its US operations. In order to target the lucrative potential of the burgeoning Chinese market, Hershey formed a partnership with Korean confectioners Lotte in January this year with production expected to be underway by the summer.

Related topics Processing & Packaging

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