Kellogg Embarks On Multi

Kellogg Embarks on Multi-Year Supply Chain
Efficiency and Effectiveness Initiative

Comments Off on Kellogg Embarks on Multi-Year Supply Chain Efficiency and Effectiveness Initiative
Posted by Bob Ferrari on Nov 6, 2013 in Consumer Goods Focused Supply Chain, Controlling
Supply Chain Costs, Supply Chain Business Process, Supply Chain Performance, Supply Chain
Strategy | Comments Off on Kellogg Embarks on Multi-Year Supply Chain Efficiency and Effectiveness
Initiative
The Kellogg Company, a consumer goods icon with brands such

as Kellogg cereals, Cheez-Itc rackers, Keebler cookies and Eggo waffles, earlier this
week announced a billion dollar cost cutting plan that would extend over the next
four years.
This effort is reported by business media to be motivated by increased competition
in the breakfast and snack food industry segments along with softer demand from
economically distressed consumers. Business media reports that these cutbacks
would result in the estimated loss of 2000 jobs, however, with the four year
window, Kellogg management aims to achieve headcount reductions through
normal attrition. From our Supply Chain Matters lens, the new Project K efficiency
program looks more like an effort to drive global supply chain wide efficiencies and
create more integrated supply chain business processes and services across global
product lines.
In its most recent fiscal third-quarter financial results , Kellogg reported
essentially flat revenues and decreased operating profits. While global net sales are
increasing, North America based sales declined by 1.3 percent. The company has
been forecasting sales growth of between 4-5 percent for the current fiscal year.
According to a report published in the Wall Street Journal, the new Project
K initiative involves a complete re-tooling of the companys supply chains that
includes spending $1.4 billion by the end of 2017 to relocate production lines and
globally integrate business process services. Kellogg is targeting upwards of $475
million in annual cost savings as of 2018, as an outcome from this latest announced
initiative.
Supply Chain Matters calls reader attention to our June 2012 commentary
regarding the acquisition by Kellogg of the Pringles snacks business
from Procter and Gamble. In 2012, Kellogg was handed a fortunate
opportunity to acquire the Pringles business after the deal to sell that line
to Diamond Foods was undone because of certain revelations. Kellogg quickly
agreed to a $2.7 billion all-cash deal to acquire a global, well-run brand and
become a top player in the global savory snacks industry segment. However,
Kellogg had to bring on a high debt load in order to pull off the financing of this
deal, reported to be upwards of $2 billion. In the latest fiscal quarter that ended in
September, the Kellogg balance sheet reported $6.3 billion in long-term debt.
At the time of our 2012 commentary, the combined synergies of the existing
Kellogg and Pringles snack businesses were reported to be $10 million in 2012 and
a range of $50-$75 million after 2013. In 2012, Kellogg has been in the process of
re-implementing SAP within its U.S. operations, and the addition of
the Pringles business presented an added opportunity to integrate within the SAP
environment. P&G itself has committed ongoing service arrangements to
transition Pringles and was a very sophisticated user of SAP applications. We
speculated that Kellogg teams would gain valuable learning and insights
particularly regarding deployment and use of SAP advanced supply chain related
applications.
Prior to 2012, Kellogg had some previous supply chain related quality setbacks
related to past product recalls involving its Eggo product line prompting its CEO to
declare that the company had to restore investor confidence in Kellogg supply
chain capabilities. The Pringles integration again offered opportunities to revisit
needs in this area.
Of late, CPG companies continue to feel the Wall Street based reverberations of the
previously announced $23 billion acquisition of HJ Heinz by Berkshire Hathaway
and 3G Capital. Heinz, a stalwart of global brand identity was acquired to harvest
the cost savings synergies of its global operations, and that tremor seems to haunt
existing CPG manufacturers since activist investors continue to want to play-out
the next cash generating opportunity. We have opined that In the light of
challenging revenue headwinds, company senior executives have launched
aggressive stock buy-back programs with available cash to ward off hostile
takeovers. Alternatively, Wall Street analysts conclude that previous efforts at cost
cutting and headcount reductions have run their course and the new path to growth
lies in more industry consolidation and financial engineering. Thus another era of
mega acquisition activity seems at the ready, and the psychology of CPG senior
executives shifts. These pressures naturally flow to supply chain leaders who must
deliver more cost savings to fund other business investment needs. Some supply
chain analysts chastise supply chain teams for not delivering industry leading
metrics of performance. We believe that the realities of current or future business
outcomes have more to do with performance goal setting.
The new Project K multi-year cost saving effort presents opportunities to
rationalize global production capacity, consolidate category product management
to a regional focus and provide common supply chain related business processes
across multiple regions. It is probably another response to ward-off mega
acquisition industry pressures. This effort probably should have pre-ceded efforts
to adopt a standardized systems platform. None the less, Kellogg is now a global
CPG branded company and must demonstrate market and supply chain response
capabilities that exhibit responsiveness to changing consumer needs across global
markets.
The Kellogg corporate mission statement includes the following: We are a
company of promise and possibilities.
From this authors perspective, the success of Project K needs to be firmly
grounded in the above principle.
Bob Ferrari

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Kellogg Embarks on Multi-Year Supply Chain

Efficiency and Effectiveness Initiative

The Kellogg Company, a consumer goods icon with brands such

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