Kellogg's Supply Chain Overhaul Is Hurting Its Bottom Line — Temporarily
By Bob Johns
Food-manufacturing company is implementing a four-year supply chain improvement program that should create long-term savings
Kellogg’s Project K is a four-year program designed to streamline the company’s supply chain through plant consolidations, equipment and traceability upgrades, and the planned opening of its Global Business Services center in Grand Rapids, MI. However, the program designed to improve supply chain efficiencies and strengthen core businesses comes with a near-term cost, according to its latest earnings report.
The project is heavily impacting the company’s bottom line. However, in Kellogg’s 2013 annual report, John Bryant, Kellogg’s president and CEO says, “We are executing our strategy, and we are progressing very well with Project K, our four-year efficiency and effectiveness program. Our expectations are that, over time, Project K will begin to provide us the fuel we need to drive growth in our categories… in the years to come.” The company reported 2013 net earnings of $1.8 billion and a 4.2 percent net sales increase, substantial numbers in a struggling world economy. Once Project K is complete, Kellogg’s brands will begin saving more than $400 million annually.
Focusing On Supply Chain Improvements
Project K focuses on creating an optimized supply chain infrastructure. At a recent Consumer Advocates Group of New York (CAGNY) conference, Bryant points out, “We had some issues in our supply chain. The combination of those events took us off that sustainable growth model and our goal is very much to get back onto that sustainable growth model. In 2011, the company took the position of we're going to make whatever investments are required to ensure that we have a high performing supply chain.”
In 2013, the company had its best safety record regarding keeping people within the supply chain safe. According to Bryant, worker safety is a direct reflection how well the supply chain is working. It shows improved efficiencies and a closer attention to detail by the workers in the food stream. Additionally, the company is increasing capacity in 2014 and 2015 for growing categories, with several new plants set to open worldwide, some existing plants will be upgraded, and several others will be consolidated. The company is also, creating global category teams to look at opportunities such as next generation packaging and centralized sourcing. The goal is to have the right capacity, at the right location, at the right cost structure.
Learn how Kellogg’s managed the challenges of a major systems conversion
Kellogg’s is using its Jackson, TN Pringles facility — acquired in 2012 — as a model for the supply chain. “When we had our issues in supply chain, we looked at what was best in class for running supply chain in the food industry, and we identified the Jackson, TN Pringles facility as a best-in-class facility. Within that facility, they had something called integrated work systems that P&G has done a tremendous job of driving across a lot of their manufacturing footprint. We can take that operating model, make it Kellogg specific, and then roll it out across our plants around the world, and we are in the process of doing that,” Bryant says.