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Kellogg’s Latin America — In pursuit of a demand-driven supply chain

Kellogg’s Latin America — In pursuit of a demand-driven supply chain

Executive Summary
With Latin America’s accelerating pace of change, companies such as Kellogg’s constantly need to adapt their go-to-market strategies, and the logistics resources and capabilities necessary to support end-consumer demand. According to Victor Muñoz, Kellogg’s LatAm’s Continuous Improvement Manager, a particular challenge for them was to build capability to effectively meet the needs of a fast-changing consumer profile. The following case study illustrates how Kellogg’s LatAm approached this and other challenges in its pursuit of an end-to-end demand driven supply chain.

RESULTS
  • Unplanned orders and change requests reduced by 94.5% through adherence to planning discipline, value-added metrics and visibility of impact to scheduling
  • Plant service rates improved on average by 10 percentage points, with Brazil showing a dramatic turnaround of over 50 percentage points
  • Customer demand is increasingly being anticipated and met “on time and in full”

 

Situation
As a developing economy, the Latin American region boasts 571 million consumers, a rising middle class and a strong growth in the female workforce. The cereal and snack market, in which Kellogg’s is a major global player, is still underdeveloped in this region yet growing at a rapid pace. Kellogg’s Latin America has eight plants in total — four in Mexico, one in Colombia, one in Venezuela, one in Ecuador and one in Sao Paulo. Distribution is done mainly through third party logistics (3PLs) and some distribution centers owned by Kellogg’s itself.

One of the key supply chain questions that the Kellogg’s leadership team faced was whether their competitive advantage in terms of manufacturing was enough to meet the challenges from competitors. “An assessment revealed that we were inwardly focused on operational efficiency and weren’t closely linked to the actual business strategy. As a result, we were losing out on opportunities to accommodate the requirements from customers, consumers and sales channels,” said Victor Muñoz of Kellogg’s LatAm.

The assessment, which was based on the first four management processes of the SCOR model — Plan, Source, Make, and Deliver — revealed that the least developed practice in the region was that of planning. Sourcing, manufacturing and distribution were all highly developed practices owing to Kellogg’s global presence, but the planning component turned out to be the single biggest cause of bottlenecks in the supply chain.

The challenge for Kellogg’s was to build capability to effectively deliver the company’s products across the region to suit different markets, different consumer needs and through different channels. A TRACC assessment highlighted the lack of a clear strategy and connectivity across the various nonmanufacturing functions, most notably those in the supply chain environment.

Kellogg’s Latin AmericaDuring the transition period, the LatAm leadership team — with the exception of the supply chain leader — were all new to the Kellogg’s group, which means there were different maturity levels, different expectations and different backgrounds. One of the first limitations the leadership team identified was the lack of customer segmentation. The various consumer channels each needed to deliver different service levels in keeping with a single burning platform — the improvement of margins.

One of the key supply chain questions that the leadership team faced was whether their competitive advantage in terms of manufacturing was enough to meet the challenges from competitors.

Action
The evolution in manufacturing started four years ago through the implementation of K-Lean — Kellogg’s continuous improvement program supported by the TRACC Integrative Improvement Solution. The main focus of K-Lean is on the fundamentals of food safety, people safety, and regulatory and product quality.

A strategic imperative was that once Kellogg’s LatAm had these fundamentals in place, the focus would shift to how to win (customer service, financial excellence, product network and elevating the Customer Service and Logistics role) and how to lead its category and industry (creating an end-to-end supply chain, manufacturing excellence, and customer service and logistics as a competitive advantage).

According to Victor, the integrative approach of TRACC proved crucial in this second leg of the continuous improvement journey. Introducing the Administrative Excellence TRACC (AE TRACC) to the nonmanufacturing side of their operations was made much easier as the Lean principles of identifying and eliminating waste were already entrenched in their manufacturing sites. And although the application of Lean tools in an office environment may have seemed foreign at first, it turned out to be a powerful way of introducing a proven operations standard to people processes.

Kellogg’s Latin AmericaIt was decided to move the supply chain closer to the customer and channel interfaces, as one of Kellogg’s LatAm’s new strategic objectives was to improve go-to-market excellence by building stronger channel and customer capability. This includes demand, supply, sales and operations planning, and supply chain alignment The recent acquisition of the Pringles potato crisp brand from Procter & Gamble also offered Kellogg’s a golden opportunity to benchmark against one of the top continuous improvement performers in the world.

Similar to the implementation structure on the manufacturing side a Steering Committee, comprising functional leads and headed by the Planning Director, was established to identify and analyze the bottlenecks in the planning process.

Results
Having already established internal capability on the manufacturing side, Kellogg’s found that Lean principles are highly applicable to supply chain planning. Aspects of the implementation road map such as continuous improvement, teamwork, reducing lead times in people processes, etc., were already instilled, which made the Lean transition from manufacturing to supply chain rather straightforward and structured. As a result, plant service rates are already showing a strong upward curve, reflecting an average improvement of 10 percentage points, with Brazil recording a dramatic turnaround of over 50 percentage points.

The implementation of the Administrative Excellence TRACC is encouraging cross-departmental cohesion and cooperation, and ensures that there is a total view of all processes. Equally, the introduction of Lean in administrative processes is proving to not only make it more efficient and effective, but that it is also an essential ingredient in achieving a truly Lean supply chain — one where customer demand is anticipated and met “on time and in full” with lower overall resource requirements. This is illustrated by a 94.5% reduction on unplanned orders and change requests over an eight-week period — through adherence to planning discipline, value-added metrics and visibility of impact to scheduling.

Although the application of Lean tools in an office environment may have seemed foreign at first, it turned out to be a powerful way of introducing a proven operations standard to people processes.

Says Victor, “Creating an end-to-end demand driven supply chain and value network is the goal and ultimate source of competitive advantage. For a global manufacturing organization such as Kellogg’s, we believe that the AE TRACC completes the ‘Make’ piece of this end-to-end supply chain.”

Company Background
Ranked by Forbes as one of the world’s most powerful and innovative brands, the Kellogg’s Cornflake Company began in 1906 with the Kellogg brothers who originally ran a sanatorium in Michigan, USA. Headquartered in Battle Creek, Michigan, Kellogg’s has a presence in 180 countries, with eight plants in Latin America; four of them in Mexico. In 2012 Kellogg’s had net sales of US$14.2 billion for flakes, cookies, cereal bars, breads, waffles and alternative food.
Kellogg’s is now the world’s leading breakfast cereal manufacturer and the second largest snack company globally. It is also the leading producer of frozen foods. It produces a wide range of cereal products, including the well-known brands of Kellogg’s Corn Flakes, Rice Krispies, Special K, Fruit ‘n Fibre, as well as the Nutri-Grain cereal bars. The recent acquisition of the Pringles potato crisp brand from Procter & Gamble has, for the first time, given Kellogg’s a snacks-specific commercial and supply chain model in Latin America.

 

Disclaimer
This resource has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained herein without obtaining specific professional advice. Competitive Capabilities International (CCi) does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this resource or for any decision based on it.

 

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