Question and Answer: Hostess Brands’ Supply Chain Comeback
Hostess Brands has a long tradition of creating iconic products loved by consumers young and old. In 2012, Hostess devotees feared the Twinkie might disappear forever, but Hostess Brands executed what many consider one of the most successful re-launches in history. How did they launch a company from the ground up in just a matter of months? It took a combination of a new customer-centric philosophy, the right people and a new and improved supply chain supported by advanced technology.
Recently, I had the pleasure to moderate a webinar with David Hovey, senior manager, supply and inventory planning for Hostess Brands, where we discussed how they broke from tradition and reinvented their supply chain using a warehouse-direct model. (Watch the full replay: Hostess: The Sweetest Supply Chain Comeback in History)
The webcast Q&A covered several great topics but unfortunately, we were not able to answer all of the questions. David Hovey was kind enough to answer a few of the additional questions for us here on the Voyager Blog.
Q: How is the inventory managed at the store level? Is it vendor managed or store managed? Who delivers to the small mom and pop grocery stores?
A: Great question. As part of our transformation, inventory is store managed rather than managed by us. We found this significantly helped improve operational efficiency and keep costs down. For the “Mom and Pop” stores, they can order directly from Hostess as long as they meet our minimum requirements. Additionally, we will work with them to find a distributor they can source from if they don’t meet the minimum.
Q: Who has forecast responsibility in Hostess? Sales or Supply Chain?
A: Our supply chain organization has ultimate responsibility and the final say over the forecast. That said, the input from sales is very important. Sales will provide a high-level forecast which is fed into Logility Voyager Solutions to develop our forecast. The supply chain team will then create a baseline statistical forecast and synchronize the demand plan with supply.
Q: How do you track forecast accuracy in Logility?
A: Within our planning hierarchy, we track forecast accuracy at the SKU level (level 2) and use weighted MAPE to compare to plan-to-orders. Due to the speed of our inventory turns and demand volatility week to week, we pay a great deal of attention to the weekly forecast for the next 3 weeks. To make Labor, Capacity, and Capital decisions on a longer horizon, we run our models out 18 months including forecasts for all known seasonal programs and new items.
Q: What is your process for forecasting items such as displays? Do you treat these displays as made-to-order?
A: Display items are made-to-order with a longer lead time of 20 days. This longer lead time allows us to ensure we can schedule bakery production and distribution to meet the delivery date without having to stock excess inventory. Some items have been deemed “everyday items” which have a 7-day lead time, and these items are always in stock and can be used to fill a display order. All of this is managed with longer-term forecasts to help assist with inventory builds and capacity planning. Nearer-term forecasts are generated from the sales team on a program-by-program basis.
Q: What are Hostess’ next supply chain challenges?
A: To date, the planning of the display business has been one of our biggest challenges and the greatest differentiator from how demand was met in the traditional Hostess model.
There are a lot of amazing innovations coming out over the next year which could prove to be transformative for the business. Moving into new sectors like food service, schools, international, and in-store bakery will each create a different form of complexity which will impact how we forecast, plan and distribute products. Additionally, we have just moved to the frozen aisle with the launch of the Frozen Fried Twinkie which is an entirely new supply chain model. A lot of exciting things are on the horizon so we evaluate each new opportunity and plan for our business to provide the product introductions and limited time offers (LTO) with the great service our customers expect from Hostess.
To learn more about Hostess Brands supply chain transformation make sure to watch the webcast, The Sweetest Supply Chain Comeback in History.