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At The Hershey Company, Data Drives Supply-Chain Redesign

The company continues its relentless efforts to streamline and optimize its supply chain, deploying an application from LLamasoft to engage in predictive analytics and modeling.

At The Hershey Company, Data Drives Supply-Chain Redesign

The Hershey Company has a history of launching big supply-chain initiatives.

In early 2007, the company undertook a three-year supply-chain transformation program that combined a boost in manufacturing capacity with a sharp reduction in the number of production lines. (The move resulted in 1,500 job cuts across the supply chain.) At the same time, Hershey outsourced production of some lower-value items and built a new production facility in Monterrey, Mexico.

The idea, Hershey said at the time, was to “synchronize supply chain and go-to-market strategies,” even as the company introduced more complexity through more geographically dispersed sourcing.

Hershey backed up its commitment with substantial resources. Pre-tax charges and one-time implementation costs associated with the program were approximately $630m. The effort ended up yielding annual savings of some $185m.

Three years later, Hershey was at it again, announcing a “Project Next Century” initiative that aimed to further streamline its global supply chain and create a “competitive cost structure.” That time around, the company sank around $225m into the expansion of its West Hershey facility, and between $50m and $75m on new distribution and administration facilities at world headquarters in Hershey, Pa. Total capital expenditures were pegged at between $250m and $300m, with annual savings projected at between $65m and $80m at the program’s conclusion in 2014.

Operating a maximally efficient global supply chain, however, is more than a matter of shifting production lines and cutting overhead. Hershey was also determined to attack the beginning of the process: supply-chain design and analytics.

That desire brought Hershey to LLamasoft Inc., a vendor of supply-chain design software. It was the winner of a detailed evaluation process launched by Hershey approximately four years ago.

Time for a Redesign

Hershey’s latest attempt to overhaul its global operations necessitated a supply-chain redesign, says Toby Brzoznowski, executive vice president of LLamasoft. “They were starting to look at a couple of different initiatives within the company,” he says, “and were being asked some challenging questions by executives about how their supply chain stood up to certain strategic decisions they were making.”

LLamasoft’s customer base includes many of the world’s largest food and beverage producers. Some have been practicing supply-chain design and analytics as a business process for years, says Brzoznowski. Often they’re just looking to scale up existing efforts, as they wrestle with numerous cost variables and changing demand projections. “For those guys,” he says, “it’s a pretty quick transition to get them up and running. They just need a better technology.”

Others have more complex requirements. Hershey was among those customers that had yet to make supply-chain design an internal capability. As a result, LLamasoft found itself playing a more active role in guiding implementation and execution of the initial project. With Hershey, the vendor engaged in more hand-holding, helping the customer to understand its own capabilities and the questions it should be asking. “There was a lot of work around how they organize and develop their own resources, and put the business process in place,” Brzoznowski says.

As with any major software implementation, there was a need for accompanying process change. The biggest effort, says Brzoznowski, involved getting Hershey executives to understand the full impact of major strategic decisions, whether a new-product introduction, entry into a new market, merger or acquisition, or the phasing out of a key project. “They’re doing predictive, and in some cases prescriptive, analytics using [supply-chain] design technology,” he says.

The effort gave the company a high-level view of operations, allowing it to detect instances of potential conflict between internal disciplines.

For example, a transportation manager’s bonus might depend on that individual’s ability to reduce carrier spend, while operation personnel are incentivized to keep inventory levels low, and sourcing and procurement aims for the lowest possible price from suppliers. Yet costs in one or two of those areas might actually have to rise, for the company to achieve a net positive result. “To be optimal means that certain parts of the organization will be suboptimal,” Brzoznowski says.

It Begins With Data

It all starts with accurate data that is visible to all parts of the organization. A good part of LLamasoft’s initial interaction with customers involves the creation of visualization tools – dashboards, graphs, mapping schemes – that allow them to see “what is optimal, and what it means across the organization,” Brzoznowski says.

Introduced in May of this year, LLamasoft’s Data Guru application consolidates data from multiple sources “and transforms it into something that’s usable in a single supply-chain model,” he says. Access to clean, centralized data lets the user visualize its supply chain and create a baseline model that enables the running of multiple “what-if” scenarios.

“Data Guru reduces the time it takes to transform my data, and allows me to finally create repeatable processes to support business decisions,” says Stacy Orwan, supply-chain modeler for Hershey.

The tool allows Hershey to examine the impact of strategic decisions that are under consideration, says Brzoznowski. It also identifies opportunities for future cost avoidance or reductions – a major part of Hershey’s previous supply-chain overhaul initiatives. “The biggest benefit is knowing they have a data-driven model that can validate decisions before they make it,” he says.

Hershey appears to be moving in the right direction. It experienced compound growth of 6.8 percent in net sales, and 21.4 percent in net income, between 2009 and 2013. (Consolidated net sales for 2013 topped $7.1bn.) Results were up in both categories for the first quarter of 2014. In addition, Hershey ranked second in strength and resiliency among 20 food and beverage companies, in an index developed by Supply Chain Insights for the period of 2009-2012.

As for LLamasoft, it continues to sink more than a third of its total spend into research and development, searching for ways to optimize the complex process of supply-chain design. The vendor’s Supply Chain Guru application draws on cloud technology to allow users to run multiple scenarios simultaneously. The tool provides “the ability to sync with the cloud and collaborate with more people,” says Brzoznowski.

With a history of constantly reexamining its supply chain, Hershey stands to benefit from any tool that can guide it toward the right decisions. “One you have this as a business process,” says Brzoznowski, “you have these living models. Anytime a change occurs, you can go to them and see what’s the most optimal solution.”

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