General Mills Focuses On Supply-Chain Savings Following Its Plunge In Profits
By Sam Lewis
The food-making giant says it needs to counterbalance inflation costs while widening its cost savings throughout the supply chain.
Back in 2005, General Mills launched its “Holistic Margin Management” (HMM) program. HHM, according to the company, is a protective measure against inflation in costs of commodities and market volatility. The company planned to remove business costs that did not create or add value to consumer products. Moving forward through next year, the company wants to see HMM applied to all areas of its supply chain.
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Last week, General Mills announced it first-quart financial results for the period ending on Aug 24. The quarter was not kind to General Mills as net profits declined by nearly 25 percent from 2014’s first quarter. According to the company, a tough environment and soft retail trends were to blame for the decline. During the earnings’ call, General Mills’ executive VP of global supply chain, John Church, said HMM will play a big role in how the company will fair in the future. “We find ways to reduce or eliminate waste from our process, allowing us to deliver more value to the consumer,” says Church. “HMM is truly holistic. It encompasses cost of goods savings, mix, and pricing. We also work to drive waste out of our marketing programs and our admin processes. Savings are used to offset inflation and boost brands.”
Church continues, “We believe the demand-driven increases in input costs will be a reality for our business for this foreseeable future. We expect inflation to average 4 to 5 percent per year. We are currently estimating input costs inflation of 3 percent in fiscal 2015, and we're roughly 55 percent covered for the year at this point. Clearly, the demand for HMM to offset inflation is not subsiding.”
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General Mills hopes to secure another strong year of HMM delivery in 2015. “We are targeting another year of strong delivery in 2015, with more than $400m in COGS HMM in this year’s plan,” says Church. “Our HMM plans for 2015 include contributions from all areas of our supply chain. We are taking the same expertise we’ve developed in our internal supply chain to our external partners through an initiative we call GEOS (General Mills End-to-End Optimization Solutions). By broadening our HMM scope up and down the value chain to suppliers and customers, we expect GEOS to deliver an incremental $10m in savings for General Mills this year.”