HERSHEY'S CHOCOLATE CASE STUDY

Hershey's Chocolate: Maintaining High Quality at Low Cost

Hershey's Chocolate: Maintaining High Quality at Low Cost

Introduction

Three types of dark chocolate, milk and white contrasting ingredients will determine the level of sweetness and nutritional value. The Food and Drug Administration of the United States has established standards that define the amount of key ingredients in chocolate. Black Chocolate has no per se standard set, however, there are standards of bittersweet chocolate, and chocolate is often called black. Sold in a variety of products, particularly dark chocolate can be found in Hershey kisses, cakes and biscuits. It is not the chocolate but the escalating costs which have source of the problem for Hershey.

Literature Review

Mass production is a low-cost, high-quality, strategy through which firm can achieve economies of scale. One way that Hershey can improve its cost is by expanding the product to new market which will bring more revenue and lower average total cost. Cost effectiveness is another strategy which the capability to make highly differentiated products without rising costs. As marketplaces become more segmented and aggregate demand remains constant or increases, firms must carry on designing and producing high volumes within the similar fixed asset base (Vonderembse, 2006).

Michael Porter defined generic strategies that companies may apply to achieve competitive advantage: differentiation, cost leadership, and focus strategy. A company applying a cost leadership strategy finds a low-cost producer in relation to its competitors. Hershey can apply cost leadership by manufacturing its products in countries with lower labour costs. A differentiation strategy needs that the company possesses a "non-price" characteristic that differentiates the company as better to its competitors. Finally, there is a "focus" approach which includes directing attention to narrower buyer segments, product lines, or regional markets. "Focused" strategy will use differentiation or cost to gain benefit (Waggoner & Inman, 2006).

Cost Cuts through Efficiency

Efficiency is the relation of inputs to outputs. Inputs are materials, labour and overhead used in the production of the product. The outputs are measured as the number of products manufactured. The company that can attain the maximum efficiency for the comparable product can broaden the gap between perceived value and associated costs. Hershey needs to improve its efficiency in order to catch up with rising costs (Waggoner & Inman, 2006).

There are ways a business can boost efficiency. One way is by reducing inputs; or by increasing outputs. Inputs can be condensed in various ways. Labour should ...