Hershey Executive Summary

Distribution Channels and Strategy of Hershey

The majority of Hershey’s products have a short shelf life. Generally, these product categories have low profit margins so importance is given upon volume. At the same time, an infrastructure of warehousing and distribution centres in order to efficiently move the product is critical. With poor material flow network, a company might create large unnecessary costs which can limit the potential profit of the product.

Hershey realized the significance of downstream material process flow as a global supply chain from the beginning. The original location of Hershey factory was near local ports. This helped the company purchase and transport sugar and cocoa beans from overseas farmers. Many local farmers

Thanks to the new model, a new centralised distribution was able to cut Hershey’s order cycle time in half. The company could increase service level with better order fulfilment by improving inventory accuracy and creating a more transparent system for inventory monitoring, which is not easy for a large facility with 165000 palleted products. The central supply chain of Hershey was overseen by a new single management team. A diverse team from Marketing, Logistics, planning and manufacturing was made in order to develop a material process strategy.

Focusing on fast moving product in store display packing was another key aspect to improve customer demand fulfilment and profitability of Hershey. For many products of Hershey, in-store displays is used to influence customer impulse buying. In the new model, displays are packed at the distribution center and replenishment occurs as needed since product is already on-hand. Five specific selling and shipping zones were created in the central distribution center to fulfill orders in 24 to 48

The new system works in this way. First, the order is received by SAP either from a customer EDI transmission or a field sales representative. For orders that are free from errors, SAP books the cleared orders, allocates the inventory based on availability and in-stock levels, issues a delivery note for cleared orders and sends a note to 3PL partners for transportation. Another use of the software is order bundling. As individual customers send purchase orders, the software used can track delivery request dates to combine orders for shipping. This importantly is directly connected to all 3PL providers, so transportation requirements can be identified and trucks can be scheduled. A 3PL provider can either choose to accept or decline the shipment, whereby others are offered the opportunity. In the case of Hershey, 96% of orders are accepted because they are such a strong customer. Once the logistics of shipping are determined, the order passes on to the distribution center and is assigned to a picker, with the specific route for picking already determined. After the order is assembled, the system is notified again, where an invoice and shipping documents are prepared. The 3PL also receives an electronic transmission that the product is ready to be