CHICAGO – Conagra Brands, Inc. plans to deliver $1 billion in cost savings over the next three years as it renovates and updates its supply chain. Dubbed “fuel for growth,” the initiative will encompass production, logistics, margin management and new capabilities.
“By implementing a fuel for growth program, we will accelerate productivity over the next three years,” said Alexandre O. Eboli, chief supply chain officer, during the company’s July 27 investor day presentation. “From a historical average of 2% to 3%, we expect to accelerate productivity to achieve 4% of cost of goods sold by fiscal year ‘25.”
Conagra’s supply chain encompasses 42 plants and 25 distribution centers with 15,000 employees that produce more than 5,000 products and account for 80% of the company’s volume. External partners make up the rest of the volume.
Five components will support the program, including optimization, productivity, agility, people and a focus on sustainability. Perhaps the most significant impact will be felt in logistics, said Mr. Eboli.
“Today, we have 25 distribution centers supporting our business,” he said. “We will reduce our distribution centers by 50%, while at the same time, leverage best-in-class logistics operators to provide automation that will allow facilities to run 24/7, service our customers and optimize our costs.”
Mr. Eboli used a distribution center in Atlanta as an example, noting that the site now combines a Conagra and former Pinnacle operation in the Southeast.
“This is a 24/7 fully automated distribution center operating with 50% fewer people than a traditional warehouse,” he said. “Only in this location we are expecting to deliver $3 million in savings in warehousing cost per year.
“Over the next three years, the consolidation of the network across both frozen and ambient networks across the country is expected to deliver $200 million total savings in logistics, with optimization not only of warehousing costs but also transportation costs by optimizing the number of miles we travel.”
To improve productivity, the company is enhancing its data and analytics capabilities. With the new tools, cross-functional teams will be able to better identify opportunities to reduce cost in materials, manufacturing and logistics.
At a baking plant in Indianapolis, the cross-functional team approach shows the benefits, Mr. Eboli said.
“This team is composed of resources across R&D, manufacturing, logistics, finance and procurement,” he said. “With every product design assessment, we begin by benchmarking our products against our competition, trading for alternatives for ingredients and packaging, while keeping the key attributes that our consumers love about our products. In this example, not only are we able to improve our material costs; we are also able to reduce repetitive manual labor, ultimately reducing our COGS by 250 bps.”
Digitization of systems has helped Conagra Brands tap into the benefits of computer analysis.
“We have built a data lake to take advantage of the vast amount of information being collected across these specialized applications,” Mr. Eboli said. “At the top layer, we have the intelligence and orchestration layers where we apply machine learning and artificial intelligence to drive insights and agility.
“The tools that we are now using provide us with greater visibility and allow us to make data-driven decisions on long-term capacity plans. … We expect these tools and capabilities to deliver an increase in revenue through improved service, decreased operating costs in our plants and distribution centers while reducing overall working capital.”
Using the tools has allowed Conagra’s Slim Jim meat snack business to identify and unlock 40% capacity over the past four years, according to the company.
“… and we will unlock another 20% over the next 12 months,” Mr. Eboli said. “With Slim Jim being the largest meat stick brand, our long-range demand forecast continues to be strong. We leverage our planning tool to define forward-looking capacity requirements across our network. And right now, we are evaluating future investments to support growth beyond 2025.”
The company also is in the process of digitally connecting its manufacturing operations. Called the “connected shop floor” the program will feature four pillars.
“The first pillar of the program is connected line,” Mr. Eboli said. “We will be connecting all equipment on production lines to the web, providing a constant flow of data to our teams. The second pillar is connected worker, providing an electronic way for the team to collect data on a mobile device.
“The third pillar is yield management, which allows the teams to attract material efficiency, supplier quality and adherence to the standards required to produce consistent and repeatable products minimizing waste. And lastly, we are investing in dashboards and alerts so that our frontline teams and site leadership can take timely actions on high-priority events.”
The initiative is expected to deliver $300 million in manufacturing savings over the next three years, according to Conagra Brands.“Our disciplined approach will accelerate capital spending over the next three years to between 4% and 5% of net sales compared to a baseline of 3.5% to 4%,” Mr. Eboli said. “We then expect this to moderate back to our prior capital allocation plans pre fiscal year '23. These investments will be deployed two-thirds to growth and productivity and one-third to foundational elements like quality, safety and infrastructure.”