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Sweetening the Deal: How Hostess Improved its Supply Chain

Friday January 15, 2016

If you live in the United States, you probably remember that grim time in 2012 when Hostess ceased its production of such American favorites as Twinkies, CupCakes, Ding Dongs, and Ho Hos. Major news outlets reported the corporate bankruptcy and resulting dearth of snack cakes. Consumers clamored in the stores and at online auctions for what they thought were the last yields of the beloved brand. But, Hostess had a “second act” under new ownership, and Forbes Contributor Steve Banker reports that its new model incorporates an entirely new supply chain.

The company was relaunched as Hostess Brands LLC in July 2013 after its brands and some of its factories were purchased by private equity groups Apollo Global Management and Metropolis & Co., which now do business as Hostess Brands LLC. Previously, Hostess worked like others in the fresh bakery market segment and used direct store distribution. This fulfillment model uses merchandizers, employed by the manufacturer, to manage and replenish store inventory. “For fast moving, perishable items, it was believed that this was the only practical way to keep fresh product on the shelf,” Banker writes.

Leaders at Hostess Brands LLC sought a different route to keep costs down. Banker reports that the company was the first in its segment to use a warehouse-direct fulfillment model, seeking to “drive a significantly less expensive supply chain while providing best-in-class service to its valuable customers.” The new model required retailers carrying Hostess items to forecast demand, order goods, receive goods at their distribution centers, ship goods from their distribution centers to stores, and stock their own shelves. Retailers signed on to this new approach because their customers wanted Hostess goods.

There were plenty of challenges and difficult decisions. For example the article quotes Matt Kunz, senior vice president of supply chain at Hostess Brands LLC. “We had to figure out what portion of the products’ shelf life was in their supply chain versus ours,” he explains. For its best customers, the company implemented a collaborative forecasting process, which facilitates limited-time offers, new product launches, and other promotions.

During the relaunch, changes had to be implemented quickly, Kunz says. Hostess Brands LLC also turned to supply chain partners, such as a managed transportation service to handle day-to-day transportation and logistics. In order to choose the right service provider, Kunz says company leaders sought detailed answers to the following questions regarding the integration of the enterprise resources planning and the service’s systems:
  • How would you do it?
  • What would your approach be?
  • How long would it take?
Kunz reports the new model is successful because of the company’s strong partnerships with customers and third-party providers. “Our customers have hit their stride,” he says. “They understand their demand and timelines. We understand ours as well. Our inventory turns are way up and much better than many traditional [consumer packaged goods] businesses.” 

Leaning on partners

The new model for Hostess may have applicability in the broader manufacturing world as well. Consider the definition of collaborative planning, forecasting, and replenishment (CPFR) from the APICS Operations Management Body of Knowledge Framework: “CPFR is a process in which trading partners jointly plan key supply chain activities, from production and delivery of raw materials to producers and final products to end customers. CPFR encompasses the functions of business planning, sales forecasting, and operations required to replenish raw materials and finished goods.”

Is your company meeting its full potential with its customers? Do your forecasting and planning processes have reliable results? For its ninth year, APICS is proud to co-host the Best of the Best S&OP Conference. This year’s conference—June 16–17 in Chicago—will help you implement or improve sales and operations planning (S&OP) within your organization. Its sessions will include information about effectively utilizing forecasting and demand planning. Now is the time for you and your colleagues to commit to improving sales and operations planning. This conference will show you how. Visit the APICS website for more information. 
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