Sweetening customer profitability!

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Chocolate is considered by many as the ultimate “pleasure food”. In the US alone, more than $13Bn is spent annually on chocolate – with the average American consuming about 12 pounds of it each year, according to Real Simple Magazine. No one understands the love of the cocoa-based confection more than Hershey Foods Corporation, the US’ leading domestic producer of both chocolate and non-chocolate confectionery.

Founded in 1894, the company continues its long-standing tradition of consumer value and quality. Today, its brands are sold in two million-plus retail outlets in North America, and throughout the world.

While chocolate is considered one of life’s simple pleasures, its manufacturing, distribution and marketing can be anything but. For instance, Hershey Foods sells its brands through multiple classes of trade that range from chain grocery and drug stores to convenience markets, concessionaires and food distributors. Each of these trade classes – and the specific customers within each – require different brands, pack types and promotions.

At the same time, confectionery sales vary by season, with higher sales for specific products occurring in conjunction with holidays or events, such as Valentine’s Day, Easter, Halloween and Christmas. During these times, product packaging is often changed to promote seasonal sales.

Add to this the costs of raw materials required for manufacturing the different product brands – items such as cocoa, sugar and nuts – and the complexity becomes apparent.

Product analysis

To address the complexities of costing and analysing profitability of specific products and customers, Hershey Foods knew that it needed a solution that would help maintain its leadership position in this highly competitive market, while also helping to reduce the costs of individual business processes.

Hershey Foods chose Metify ABM from ALG Software based on its overall functionality, as well as the extensive professional consulting services provided. Using Metify ABM’s Multi-dimensional Profitability Analysis features, Hershey Foods can more accurately look at its profitability by product, customer and channel. Metify ABM extends profitability measurement beyond just the acquisition costs to cover all the costs incurred.

As part of this, it factors in variances in product pricing and the cost drivers for serving certain customers or classes of trade. In this manner, it calculates both the direct and indirect costs involved. By better understanding the profitability of customers and programmes, Hershey Foods can make better decisions to improve its overall profitability. These decisions can include:

Discontinue or reinvest in products.

Renegotiate customer contracts.

Change pricing models.

Re-prioritise marketing plans.

Data fed into Metify ABM for analysis comes from SAP, Siebel, and other systems inside the Hershey Foods organisation.

Process efficiency

Because traditional financial reports tend to focus on outcomes rather than causes, they provide managers with little insight into how to fix problems. As an Activity-based Costing tool, Metify ABM can be used to more accurately to link the costs of the organisation with the activities performed by its people and equipment. By moving from arbitrary to actual cost allocations, it then becomes easier to identify high-cost areas or inefficient processes within an organisation.

Within Hershey Foods, the marketing and operations groups are using Metify to examine the costs of individual business processes and find ways to be more efficient. Already, these groups have relied on Metify ABM to more closely analyse warehousing costs, as well as the costs related to seasonal product marketing activities, to pinpoint areas for improvement.

Sweet success

As a long-time confectionery market leader, Hershey Foods strives to continually deliver the superior taste and value that consumers have come to expect, ensuring that its brands remain favourites for decades to come. Using Metify ABM and Activity-Based Costing concepts, Hershey Foods is improving its bottom line without sacrificing its standards.

“We are becoming heavily engaged in customer profitability through our use of Metify ABM. We see it as a very valuable tool. Without Metify, we’d be lost. It has the power to do everything we need it to do,” says Steve Moyer, business cost and profit manager at Hershey Foods.

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