Kraft Foods to Slash Supplier Base
In a move expected
to drive more than $300 million in annual savings, Kraft Foods is cutting
the number of suppliers it uses by more than half. The food giant is reviewing
everything from ingredients to packaging materials as part of a plan to
An article in Reuters noted
that in March Kraft told suppliers it was undergoing a thorough purchasing
review that put existing suppliers in competition both with each other
and with potential new suppliers.
Speaking at Barclays
Capital Back-To-School Conference last week, Kraft CFO Tim McLevish said, “We’re
narrowing our number of strategic suppliers to fewer than half the current
70,000. We’ll select those that offer sustained competitive advantage and
who can grow with us.”
“This is probably
the first truly holistic view we’ve taken,” Julia Brown, senior vice-president
of procurement at Kraft, told Reuters. “We’re
essentially taking a white sheet of paper and saying: ‘What is the right
number of suppliers to support this particular category, who are they,
what is the capability we need for now and in the future, and does the
current supplier base have that?’"
Ms. Brown said
that, in some cases, an individual Kraft brand may buy its own items if
it’s necessary to meet shopper expectations. But the world’s second largest
food manufacturer is also looking to determine areas where it can use its
leverage to make better buys on items – such as packaging materials – that
can be used across brands.
has more than 40,000 different specifications for its supplies throughout
the world. “So we’re looking at where does it make sense to be more standardized,” Ms.
review comes as the company tries to simplify a procurement framework that
evolved as Kraft acquired numerous companies over the years. Kraft has
already realized $1.3 billion in savings over the last few years from closing
36 plants, divesting non-core brands and eliminating 19,000 jobs. At the
same time, it’s invested more into advertising and product development
to boost sales.
with brands such as Oreo, Chips Ahoy, Oscar Mayer, Cool Whip and A-1 Steak
Sauce, said it feels that purchasing is the biggest area where it can cut
costs. Its goal is to cut overhead as a percentage of revenues to about
12.5 percent by 2011 from 14 percent in 2008.
What are the pros and cons of Kraft dramatically reducing its supplier
base? What risks may this present to Kraft’s brands? Do you expect other
suppliers to make similar moves?
- Kraft looks to slash supplier base – Reuters/Canada.com
- Kraft Finds a New Place to Cut Costs: Purchasing
– CFO Magazine