BATTLE CREEK, MICH. – With Project K, a four-year efficiency program designed to drive earnings growth, the Kellogg Co. plans to rebuild brands in four key areas: cereal, snacks, frozen foods and emerging markets.
“Project K is a very different kind of efficiency and effective program,” said Alistair Hirst, senior vice-president of global supply chain, during a Nov. 4 call with financial analysts to discuss third-quarter earnings. “The primary source of savings will be from consolidating facilities and eliminating excess capacity. It will not be from reducing head count in our operating plants. It is designed to drive a more effective organization. It will reduce complexity while increasing our ability to execute. And we will maintain the levels of empowerment we worked so hard to development in supply chain.”
The initiative, he added, is not limited to supply chain organization.
“Project K is a commitment by the whole company and is a major step toward achieving our broader goals,” Mr. Hirst said. “This is not an easy process, but it is essential if we are going to recognize our potential and meet our strategic goals.”
In 2009, Kellogg rolled out an efficiency program called K-LEAN, or Kellogg’s Lean, Efficient, Agile Network. The project focused on driving process optimization, asset utilization and waste management.
While K-LEAN initiatives were “really a wide-ranging headcount reduction within the plants,” Mr. Hirst said, Project K targets assets, lines and plants.
“So, it is a very different point of entry from the previous initiatives that we’ve carried out as a company,” he said.
Kellogg said it anticipates Project K will alter the company’s infrastructure and reduce its global workforce by 7%. The program is projected to cost between $1.2 billion and $1.4 billion. Cash savings are expected to reach an annual run-rate of between $425 million and $475 million in 2018.“Our goal with this program is to reinvest back in our business and to gain momentum in our business and get back on our sustainable growth model, and we will continue to reinvest back in the business until we see that happen,” Mr. Hirst said. “And so I think that's going to be over the next few years. So I think it is very hard for us to predict today what might be happening in 2017, 2018. We haven't given 2014 guidance yet. . . . It is fair to say because these are structural cost changes, they take time to execute and see the savings come through. So the 2014 savings will be meaningfully lower than the normal run rate savings that we will achieve in later years.”