Food giant Mondelez recently updates it plans and results for a major supply chain transformation, saying it could reduce its operating costs by billions of dollars amidst a veritable blizzard of operating initiatives. The company is just the latest in a long list of food and consumer packaged goods companies to dramatically change their supply chain networks and more over the past few years, a list that would include Kimberly-Clark, Hershey Foods, ConAgra and several others.
The Mondelez update came at a recent financial conference in Boston, during presentation's by both CEO Irene Rosenfeld and relatively new EVP of integrated supply chain Daniel Myers, who came over from Procter & Gamble. Some of the strategy and targets had already been released by the company earlier in 2013, but there were more specifics during this new presentation.
Rosenfeld said that Mondelez had substantial opportunities to use supply chain transformation to improve its bottom line and shareholder value.
"In North America, we're targeting a 500-basis-point [5%] improvement in operating income margin, and we now expect to reach that target by 2016, a year earlier than originally anticipated," said Rosenfeld. "In Europe, we're targeting an improvement of 250 [2.5%] basis points in OI margin, which we also expect to reach by 2016."
That will come largely from supply chain improvements, which in total are expected to deliver over the next three years $3 billion in gross productivity savings, $1.5 billion in net productivity and $1 billion in incremental cash, according to Rosenfeld.
Following Rosenfeld, Myers later added that the company "had made progress on margins before I joined two years ago, but we were well aware that significant opportunity remained. We knew that improvements in our supply chain could drive higher margins, increased productivity and generate more cash to reinvest in growth. In fact, that was the mandate I was given when I joined Mondelez."
Myers said the supply chain transformation program is called "Quest to be the Best," and embraces five core strategies:
(1) Create a step change the leadership talent and accelerate building key capabilities in supply chain staff.
(2) Transform the company's global manufacturing platforms.
(3) Redesign and restructure Mondelez's supply chain network.
(4) Drive productivity improvements through Lean Six Sigma, procurement transformation and simplicity to provide fuel for growth.
(5) Use all of the above strategies and more to improve free cash flow.
Mondelez was spun out of Kraft Foods in 2012, and is largely the old Nabisco operation that Kraft had acquired many years ago, focused more in the snack foods area, with brands such as Oreos and Ritz crackers. It has some $35 billion in sales, much of that in emerging markets.
After Kraft had spent years integrating the two networks, the spin-off left Mondelez with a "supply chain network today that is fragmented. It is complex and inefficient," Daniels said.
He also said the company's 170 manufacturing plants around the world are old, often sub-par facilities that "require significant on-going investment to maintain."
Daniels also noted that "in Europe, only about 15% of our 70 plants are A-rated, and in North America about 60% of our manufacturing lines are over 40 years old," and that "in many locations we have very high labor cost with significant variations within and across countries within a region."
But improvements have already been made, and more are coming.
"We wanted to be able to install new [manufacturing] capacity in one-third of the time, using a modular format focused on a 7-day start-up and using a Lego-like building block design approach," he said. "We do the engineering design once for the line or the building and for all facilities, so imagine what happens. These new platforms are becoming the basis for the reinvention of our supply chain."
He noted that the physical footprint of the company's new Oreo lines takes only about half the space as the previous generation of lines. Additionally, the new lines have doubled the capacity versus Mondelez's existing production equipment and require fewer people to operate.
(Supply Chain Trends and Issues Article - Continued Below)