Path-to-Market for Hostess Brands
June 1, 2011
by Shane Whitaker
Over the years, the direct-store delivery (DSD) business has become increasingly more demanding. Consumer’s fast-paced lives translate to retailers requiring enhanced, accurate and reliable service from vendors. To provide the best possible service to its customers, Hostess Brands, Irving, TX, is rolling out a new way to operate its distribution system called Path-to-Market.
Hostess’ reason for adopting a new distribution method is to leverage an improved DSD system to achieve superior customer service and volume growth. This allows it to manage service more professionally at large-volume stores seven days a week, reducing in-store out-of-stocks by 50% at supermarkets, but still use its own sales force. “Hourly delivery drivers now deliver to the backrooms of these stores, and the sales force focuses on in-store execution and customer service,” said Steve Olsen, vice-president of warehouse solutions, Hostess Brands.
The company’s Path-to-Market strategy relies on a new route segmentation system, with traditional, pre-sell and direct routes. Besides addressing megastores, its new strategy uses a similar DSD format to serve smaller stops where route salespeople deliver, merchandize and sell. In addition, Hostess continues to deliver to institutions such as prisons and schools, leveraging a call center and Web portal for orders.
Another crucial component of the company’s Path-to-Market initiative is the warehouse management system (WMS). Hostess needed a method to pick customers’ orders to each level prior to delivery. This is where the company’s new WMS began. Hostess partnered with Pcdata, Inc., East Granby, CT, to execute the WMS. The company chose three distinct operational environments to pilot the system.
For its first pilot site, Hostess selected its Jacksonville, FL, bread bakery, where it both manufactures product and assembles deliveries within the plant for routes to deliver to depots or customers. Next, it instituted WMS at a Memphis, TN, mixing center, a stand-alone warehouse that receives product from multiple locations.
“The final model we piloted was a large cake plant,” Mr. Olsen said. “We chose Columbus, GA, and developed a method where we could distribute our cake products from that facility using WMS. The system knows what the order is, and if we are producing that item that day, we can ship it directly versus putting it into storage.”
Although WMS is still in its beginning implementation at Hostess facilities, the goal is a 24-month return on investment for the project. “Some sites are doing it in a lot less time,” Mr. Olsen said. “We have one site where the return is going to be less than a year.”
WMS permits Hostess to better track its product inventory on a daily or weekly basis; therefore, unaccounted inventory is substantially reduced. This provides significant cost savings in lost products and transportation. It will also prove to be a valuable tool for the company to track all product SKUs daily to see which ones aren’t pulling their weight on the P&L. When it comes to SKU rationalization, the company now has a much better database that it can refer to by site and by facility.
As an industry leader, Hostess’ customers are its first priority, and that’s why the components of Path-to-Market are crucial to the company’s success. Route segmentation allows the customer to be taken care of seven days a week. WMS ensures the customer’s order is fulfilled accurately — the first time. “Rather than a couple of customers not getting any product, we can allocate a shortage, if any, across the entire customer base, so that everyone gets at least 95%-plus of what they ordered,” Mr. Olsen noted. Adjustments are automatically sent from the WMS to the sales force’s handhelds.
Hostess has seen immense satisfaction from its customers in the Path-to-Market areas. The change allows the company to provide tailored service to each customer, therefore giving them a competitive advantage. One of its largest customers said, “I appreciate the extra service that I’m receiving from Hostess Brands; we’re not receiving the same attention from the other vendors, especially on Sunday.”
In moving forward with Path-to-Market, Hostess recently implemented WMS at bakeries in Orlando and Tampa, FL. Next, it has plans to install WMS at a mixing center in Miami, FL, to complete the Southeast rollout. The warehouse management team has become so efficient with instillations that it doesn’t intend to use Pcdata staff for the next WMS startup. “Our plan moving forward is to internalize the training and do a lot of upfront training the week prior to going live,” Mr. Olsen said. Eventually, the company plans to roll out Pcdata’s systems at most of its facilities, including approximately 40 mixing centers, 30 bread plants and five cake bakeries.