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Facing production constraints, Hershey turns to SKU rationalization

Facing production constraints, Hershey turns to SKU rationalization

Food and beverage manufacturers’ production challenges have clearly worsened, as the industry is facing rising expenses to manufacture and deliver items. This situation is also due to labor shortages and bottlenecks, all of which add to supply chain limitations. According to the Consumer Price Index from the United States Bureau of Labor Statistics, food costs have risen 7.4% since last year.

Besides, the unpredictability of the weather has resulted in a scarcity of significant crops. In addition, the sudden Russia Ukraine war has also forced major CPGs to suspend business operations.

Earlier in the pandemic, food and beverage manufacturers typically utilized the tactic of limiting SKUs. While the method’s popularity has waned over time, its efficiency and productivity remain unchallenged. Particularly as inflation and supply chain limitations mount.

Several corporations, including Hershey, are rethinking their product lines. As omicron cases surged earlier in January, Hershey saw a greater absence of employees and tightened productivity at their facilities and those of their vendors. Despite their efforts to expand their manpower and capacity, these challenges may hinder Hershey’s ability to replenish stocks.

As a result, Hershey is addressing omicron-related issues by rationalizing SKUs and using double- and triple-facing SKUs to place two and three of the same product on shelves. The chocolate and confectionery business has now focused on their most popular goods rather than those that aren’t performing well. That is what they call the SKU rationalization method.

Despite providing less variety, Hershey’s approach, according to Steve Voskuil, senior VP and CFO, has expanded shelf space while enabling capacity and lowering complexities.

“As a result of the COVID-19 epidemic, brands and producers are conducting more SKU counts. This is because of evolving customer needs, supply chain interruptions, and economic turmoil as a consequence of rising unemployment and inflation,” Tierney Wilson, January Digital’s SVP of client strategies and consultancy, commented.

“The quest of growth could often lead organizations to produce or release an excessive number of goods in their inventories for the primary intention of innovation,” Wilson added. “However, if there is not a thorough internal mechanism in place for assessing SKU’ effect on top and bottom-line revenues, these anticipated innovations may result in unfavorable business outcomes.”

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