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- Sept. 18, 2013 -  

Supply Chain News: Food Giant Mondelez in Midst of Dramatic Supply Chain Transformation

Improvements Expected to Increase Cash Flow by $1 Billion Annually; How Many Projects Can One Company Manage at the Same Time?

by SCDigest Editorial Staff  

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.

SCDigest Says:
Using a variety of simplification tools, Myers says Mondalez, for example, was able to reduce SKU counts in one line of business in Europe from 4000 to a planned 2500 by 2016.

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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)



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In addition, Daniels said Mondelez's total capacity must increase about 25% over the next three years. To get there, the company is planning to build eight new flagship plants, including the recently announced facilities in Southern India and Northern Mexico. Subject to discussions with unions and work councils, it also plans to consolidate a number of other "sub-scale" facilities.

"This will change our footprint considerably," Myers said. "This year in fact we have already announced a dozen plants and distribution centers that will be closed around the globe."

By 2020, Mondelez expects to build another five Greenfield sites and double capacity at 16 existing strategic sites, in addition to the consolidating other sub-scale plants and distribution centers mentioned above.

Over that period, Mondelez expects product volumes manufactured on low cost global "advantaged assets" will increase from about 15% to date to about 50% by 2016 and 80% by 2020.

SKU Bloat also an Big Issue

Myers said that Mondelez has a SKU base of about 74,000 items - a huge number. That has led to the company's average revenue per SKU to be about just one-third of the leading food and consumer packaged goods companies, a giant weight on its comparative profitability.


Fixing that challenge is going to take a combination of procurement changes to reduce the company's number of suppliers and a more laser focus on true customer needs, Myers said.

To reduce SKU counts, "We started by reviewing our portfolio of brands in product forms against the needs of consumers and retail customers," Myers said. "Now by really zeroing in on key consumer needs we can simplify product formats, packages and recipes."

Using a variety of simplification tools, Myers says Mondalez, for example, was able to reduce SKU counts in one line of business in Europe from 4000 to a planned 2500 by 2016.

One key to fix all this is better supply chain talent at the company. Myers said that "In the last 12 months, Mondelez has put the right people in the right places, including 30 vice presidents and director levels staffing changes," recruiting from more than a dozen different CPG companies. Our quick math says that is about two to three new hires from each outside company from which talent was poached.

Myers added that Mondelez has already driven down organizational siloes to build a truly integrated supply chain structure.

He also stressed the importance of looking externally at performance comparisons.

"I say all the time look first through a window, then in a mirror. Focus externally to benchmark and learn from best in class performance across any industry anywhere - that's what is driving us," he said.

Clearly an incredibly ambitious agenda that is already moving the needle at Mondelez, with even more improve results for the business and shareholders coming over the next few years.

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