This is one of three segments of Food Processing's December 2006 cover story on its "Processor of the Year," Kellogg Co. Read an overview of the processor; access the article on Kellogg's R&D operations.
Commodity inflation is a constant concern in the cereal and baking businesses. So are large and climbing fuel costs. Driving out cost has been the mantra of Kellogg Co. operations for more than a decade, and it remains so today.
"Our objective is to offset these costs with cost-savings initiatives," says Marty Carroll, senior vice president of supply chain for Kellogg's Morning Foods division and its approximately 4,000 employees. "We work with our manufacturing plants, engineering and RQT (research, quality and technology) to drive out costs, and we have strong processes to do so."
Duane Hunsicker and Butch Morel eye products on a conveyor at the Cincinnati bakery.
Kellogg inextricably connects manufacturing, engineering and the more traditional aspects of supply chain management. Anything less would not impact and manage all phases of manufacturing, according to the Kellogg philosophy.
Most processors plucked the low-hanging fruit of operational inefficiency years ago. Kellogg's cost savings initiatives compel the company to look more closely at the heart of manufacturing, procurement, distribution and virtually every aspect of operations. Management invites every employee to put in his or her two cents' worth of advice on how to shave yet more cost out of operations.
Operational Asset Effectiveness (OAE) is the ongoing initiative aimed at optimizing assets, reducing downtime and waste and improving throughput. "Discipline" is the key word, says Carroll. Capital is the last resort.
Managing cash well became imperative after the 2001 acquisition of Keebler Foods Co. The $4.5 billion purchase not only put Kellogg in debt, but brought the Battle Creek, Mich.-based company a new group of manufacturing facilities with a wide range of ages and abilities.
Kellogg employs key performance indicators to measure:
Its SAP system enables employees to review their financial performance each day. Daily meetings review past performance. ("We tell them what happened over the last eight hours and what will happen in the next," says Marty Carroll.) Many plants position electronic signs posting to-the-minute performance data of the plant.
Part of the discipline required to integrate the cookie/cracker giant was capital spending control. The company learned lessons then that it is not about to forget.
"Cutting costs is more challenging today," says Carroll. "That's why we stress the importance of all employees having a clear understanding of our business. We tell them whenever an opportunity to cut costs appears, take it! We have experts on the floor who have ideas we didn't tap 10 to 15 years ago…We do the appropriate capital spending, but we look for other solutions first."
A pick of practices
The cultural shift puts problem-solving and best practices before capital spending. Kellogg's plant network includes 27 North American plants and 19 manufacturing facilities overseas. That's a lot of models to draw from for solutions.
The OAE process invokes Charter Teams that are challenged to improve throughput on a given piece of equipment or segment of an operation. They are mandated to maximize effectiveness on the floor before considering capital investment for new or additional equipment to increase output.
Heather McNaughton has her hands full with Frosted Mini-Wheats.
After mining operational effectiveness for more than a decade, it must get harder to squeeze further cost or more output out of lines. "Is it difficult? Absolutely," admits Carroll. "But we are taking advantage of every opportunity. We have gotten very creative."
Where possible, Kellogg employs cookie-cutter lines and operating principles in its plants to replicate superior output and efficiency. Special K lines, for example, benefited from input from plants in Europe, Mexico and the U.S.
Kellogg was the first major cereal maker to go global, and a long record of international and cross-functional activity has seeped deeply into the corporate culture. Sharing experiences, particularly successes, is entrenched habit.
"We do run into cultural differences at individual plants," says Carroll. "But there is a Kellogg culture, too, that runs through all of our plants."