Inside Mondelēz's supply chain renovation

by Monica Watrous
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BOCA RATON, FLA. — In 2012, Mondelēz International began what company executives call the “quest to be the best.” The Deerfield, Ill., maker of Ritz crackers and Oreo cookies initiated an ambitious reinvention of its supply chain to increase productivity, expand margins and generate cash to fuel growth.

As a result of a series of strategic acquisitions, Mondelēz’s supply chain had become complicated by a significant number of stock-keeping units with different formats and formulas, a fragmented supplier base and inefficient plants.

“We set three goals for ourselves: $3 billion in gross productivity savings, $1.5 billion in net productivity and $1 billion in incremental cash flow,” said Daniel Myers, executive vice-president of integrated supply chain, during a Feb. 17 presentation at the 2015 Consumer Analyst Group of New York conference in Boca Raton.

To deliver the goals, the company focused on five priorities: reshuffling the leadership team, transforming global manufacturing platforms, redesigning the supply chain network, driving productivity programs to fuel growth, and improving free cash flow.

As part of its first priority, the company upgraded talent in nearly half of its key 115 leadership roles.

“About 40% of these changes have been internal moves, while the remaining 60% came from hiring the very best talent we could find from more than a dozen C.P.G. companies,” Mr. Myers said.

Additionally, the company changed 75% of the senior leadership team to include people with diverse backgrounds and operating experience in both emerging and developed markets.

With a new team at the top, the company set out to improve its production processes, which hadn’t changed much over the past 40 or 50 years, Mr. Myers said. To transform the old manufacturing platform, management began documenting present-day best practices and developing a modular design to allow for quick installation and modification of production lines.

The company also identified breakthrough processes in production and equipment design and leveraged low-cost suppliers to standardize and source equipment. Mondelēz piloted the new integrated design lines to qualify and optimize before rolling out globally.

“‘Lines of the future’ like these are driving significant savings,” Mr. Myers said. “The development process results in reduced engineering, installation, startup costs, and we're significantly driving conversion cost savings through increased throughput, less waste, and lower staffing on every line.”

Since 2012, Mondelēz has invested $1.5 billion in network transformation, which includes the addition of 11 new greenfield and brownfield sites around the world. By 2018, the company expects to build another five sites.

“Our goal is to have our power brands like Oreo, Cadbury, Milka, Trident produced on advantaged assets in advantaged locations at advantaged costs,” Mr. Myers said. “When we started our journey only about 15% of our power brands were being produced on what we would really call advantaged assets. By 2018 we expect that number to be about 70%.”

Per plant, revenue is expected to increase by more than 50% from the 2012 baseline, increasing from $200 million to more than $300 million by 2018.

“On top of the new platforms and these new footprints, we've been stepping up our base productivity by applying the best practices of three key initiatives: adopting integrated Lean Six Sigma in our manufacturing plants and across our whole supply chain; transforming procurement, the function from a series of local organizations to a global center of excellence organized around spend towers; and by dramatically simplifying the complexity within our supply chain,” Mr. Myers said.

With 43 sites around the world using best practices in Lean Six Sigma, Mondelēz delivered more than $300 million of conversion savings last year and has reduced safety incidents by 75%.

The company also has improved productivity by transforming procurement and simplifying its portfolio, beginning with its European biscuits operations. By eliminating stock-keeping units and streamlining technology on fewer production lines, the company is on track to deliver a 60% reduction in complexity in the biscuit business by 2016 and plans to apply learnings from the pilot to the European chocolate business next.

“So we committed to step-change our productivity, and … I am happy to report we are now operating at world-class performance levels,” Mr. Myers said. “In 2014, we delivered net productivity of 2.8%, up dramatically from our base just a couple of years ago, and we're targeting a similar level ongoing over the next few years. And we've accomplished all of this while we've also improved our product quality.”

As for the fifth and final strategic priority, Mondelēz aggressively has been improving cash management to fund future investments in capital and growth with a target of $1 billion in incremental cash over three years. The company generated about $600 million in incremental free cash flow last year.

“Now we have further opportunity across receivables, payables and inventory on our way to be best-in-class across all three levels over the next three years,” Mr. Myers said. “We've been very focused on five priorities that I've outlined today, and you can see that we are making excellent progress. As a result, we're on track to achieve the goals and provide our company a demonstrable competitive advantage by expanding margins and freeing up cash to reward you, our shareholders, and fuel our future growth.”
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