2006 Processor of the Year: Kellogg Co.

The $4.5 billion Keebler acquisition taught Kellogg lessons in manufacturing efficiency and to look to employees for ways to cut plant costs.

By Mike Pehanich, Plant Operations Editor

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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.
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.

 

A Matter of Measure

Kellogg employs key performance indicators to measure:

  • Safety
  • Quality
  • Throughput
  • Waste
  • Cost per pound

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.
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."

Sustaining that culture is a record of worker longevity few processors can match. The accompanying institutional memory has enabled the company to transfer countless efficiencies.

 

Technology in the service of cost and quality

Without question, the SAP enterprise resource planning system that Kellogg acquired with the purchase of Keebler has been the most influential technology the company has added in recent decades. It has enabled the company to understand and manage assets and costs in a way impossible prior to the advent of the system.
Other influential technologies include:

Automatic guided vehicles - They are used in three of the company's warehousing operations.

Process controls - Include some of the latest available to the industry. Alarm systems alert operators when systems have gone outside operating parameters. "We know exactly where a problem is immediately," says Marty Carroll. "This has radically reduced downtime." The company has also shifted "more toward continuous control rather than batch control," according to Carroll.

In-line quality measurement - Quality control has come out of the lab down to key points of manufacture.

Energy utilization - Kellogg is "actively and aggressively reducing energy consumption," says Carroll. Efforts have included the move to more energy-efficient illumination options.

High-speed packaging - Kellogg has added high-speed conveying, packaging, bagging and cartoning systems.

 

"You don't see a lot of turnover at Kellogg. But you do see natural attrition," says Carroll. "We forecast that attrition and adjust our training accordingly. We are proud of our people."

Recently, Kellogg's Memphis, Tenn., plant hosted a 25-Year Club dinner. One of the attendees had worked at the 48-year-old plant for all 48 years. Workers there average 27 years with the company. "We have an incredibly active retiree community, too," adds Carroll. "They still come back to the plants and want to know who's running things."

An engineering partnership

Over the past 15 years, no manufacturing function has gone through more turmoil than engineering. Kellogg was no exception. Given the corporate pride in workforce longevity, downsizing engineering was particularly painful.

Kellogg had a bold plan that shifted a significant portion of engineering duties to a third party, Jacobs Engineering, based in St. Louis.

"One advantage we had in the transition was that a lot of the members of our engineering group went to work for Jacobs," says Carroll. "So we didn't have all of our engineering expertise walk out the door.

Also, a succession plan was always in place. We took a realistic approach during this process, so ours went more smoothly than it did for a lot of companies. The transition was accelerated, but we managed it effectively."

Though Kellogg has tweaked and shuffled the arrangement, the Jacobs alliance has proven effective. Kellogg maintains its corporate engineering group, which tends fundamental packaging, processing, electrical and mechanical capability. It also has strengthened engineering capability at each of its plants. Each facility has an engineering director responsible for projects and maintenance.

SAP as MVP

Among the most valuable players in the Keebler acquisition was its SAP system for enterprise resource planning (ERP). It has been a critical tool in manufacturing management for the expanded Kellogg.

Recognizing that Keebler may have had a leg up on the acquiring company in understanding of the asset management tool, Kellogg built a unified ERP program around the Keebler SAP system. In fact, Kellogg's IT department is still headquartered in the former Keebler headquarters in Elmhurst, Ill.

"We relied on Keebler's expertise in implementing the system throughout Kellogg operations," says Carroll. "We called it 'Sister Plant Resourcing,' and it broke down barriers quickly. We understand the importance of that integration today."

One of the many ways the system has proven its worth is on the maintenance front. "We can track the run hours of an asset and know exactly what to do to keep that equipment running effectively," says Carroll. "It gives us a huge advantage."

Asset utilization has become one of Kellogg's greatest strengths. It has helped the company improve manufacturing effectiveness, setting maintenance and sanitation schedules for all the plants, most of which operate 24/7. "Honestly, our facilities are all high-performance plants today," says Carroll.

Teams and talent management

Indeed, managing and training for success has been a Kellogg trademark. Global supply chain teams set manufacturing strategies, succession plans, training and disciplines within RQT. The company takes pride in its talent management process, which includes training, performance feedback and discourse on engineering objectives.

Kellogg's technical programs are linked to local colleges. Maintenance personnel must pass an apprenticeship program that includes computer-based training. "We have not backed off of training programs over the past 10 years," says Carroll.

Although Kellogg does not employ self-directed work teams, it has pushed decision-making down the ladder. The role of the supervisors has changed, too. "They are facilitators rather than foremen," says Carroll. He expects plant mangers today to be "more strategic, thinking about next year."

Kellogg encourages and assists workers who wish to expand their experience and expertise within the company. Carroll, for example, managed three plants and was international supply chain lead prior to assuming his current senior VP supply chain position. He requested experience in training, logistics and human resources at various points in his career and got it.

Although Kellogg employs several co-manufacturers, the vast majority of its production takes place in-house. That makes that all-important matter of business alignment more effective.

"We are a branded products company that makes most of what we market," says Carroll. "We talk a lot about alignment. We innovate around the consumer and around platforms. Our ideation sessions involve the manufacturing plants. And when we see opportunities for manufacturing, marketing and innovation will be involved as well.

"All of our employees know where we play, why we play," he sums, "and our objectives."

 

Pilot plant/test lab brings ideas to market

The William Keith Kellogg Institute (WKKI) for Food and Nutrition Research, Kellogg's 150,000-sq.-ft. pilot plant and R&D facility, has been translating product concepts into high-quality packaged foods since its creation in 1997.

The facility includes a 9,000-sq.-ft. process lab where ideas are tested by food scientists and staff and contract chefs. "It's an industrial-strength kitchen," says Chris Keller, operations manager for the pilot plant. It features small-scale equipment and 3,000 to 4,000 ingredients at any given time.

"We may need 30 or 40 different vanilla flavors alone for different hues, flavors and forms," notes Keller, noting that the company tests an average of 150 products per month in the pilot plant and 200 products per month in the test lab. About 70 to 80 percent are new products. Reformulations are similarly tested.

The facility teams all the brains needed to take a product from pure idea to satisfied consumer.

The pilot plant consists of mostly modular equipment approximating that used in Kellogg plants. Equipment can be configured and reconfigured for different manufacturing approaches and products.

Test lines include a cereal bar line for cold-formed product such as Kellogg's Rice Krispies Treats. A "continuous coating" line simulates coating applications on products like Frosted Flakes. Extruded and puffed cereals are tested on both pilot-scale and full-scale extruders.

The plant acquired a cookie/cracker line with the consolidation of operations following the Keebler acquisition in 2001. "We had three weeks to unbolt the equipment in Elmhurst, bring it here, upgrade the controls and get the line up and running," says Keller. "We have a 'can-do' group."

Scale-up is critical. A rotary cooker for traditional cereal products may make about 25 lbs. of corn flakes in the process lab, then the product moves to 200- to 300-lb. batch production in the pilot plant in preparation to 2,000- to 3,000-lb. commercial batches in the plants.
A 200-foot APV oven simulates the long bake times of key products. "Some of our bakeries have even longer ovens," says Keller. "We try to duplicate the line process as best we can."

In addition to scale-up and test production, the pilot plant conducts cost-of-goods runs. "We make sure that any ingredient change to help reduce costs doesn't impact the consumer's experience - taste comes first," says Keller.

The plant has its own receiving area and docks as well as a machine shop.

"We also test novel machinery here," says Keller. "We look for every opportunity to add profitable value for our shareholders."

 

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