-Ishan Galapathy

In 2009, global cereal giant Kellogg’s announced an aggressive three-year, $1 billion cost reduction scheme. The savings were to be delivered through overall supply chain improvements that focused on process optimisation, asset utilisation and waste management.

The scheme was christened Project K-LEAN (Lean, Efficient, Agile, Network), and it was primarily driven to replicate the success achieved at two North American Kellogg’s manufacturing plants.

Given the clear objective of Project K-LEAN (rapid cost savings), every initiative delivered exploited short-term, bottom line improvements like headcount reduction, maintenance budget cuts and plant shutdowns.

Although the organisation over delivered on its ambitious $1 billion promise, it left its teams with scars, bruises and loss of trust, which made it difficult to engage employees in any further productivity improvement initiatives.

This is not an isolated case. In September 2020, Kraft Heinz announced a $2 billion cut in costs over five years as a way of driving growth. Since the Kraft Heinz merger in 2015, the company has lost nearly half its stock value. An even harder pill to swallow for Kraft Heinz is that its stock keeps tumbling while the S&P 500 Index for the same category keeps rising.

When the cost-cutting plan was announced, analysts and investors didn’t buy-in that businesses such as Kraft Heinz could turn around its performance and increase shareholder value by ‘cutting’ costs.

In comparison, a company such as Proctor & Gamble (P&G) that focuses on processes that deliver cost reductions as an outcome truly operates with a world-class supply chain. Don’t take my word for it—Gartner’s latest 2021 global top-25 supply chain report lists P&G as one of five organisations in the ‘masters’ category, which means it has maintained a top-5 ranking for at least seven out of ten years.

In 2013, I was fortunate to visit one of P&G’s ‘best-of-the-best’ sites: the Pringles factory in Jackson, Tennessee. It is a world-class mega factory that spans 40 acres under roof and employs 600 workers. Most employees have a thorough knowledge of the site’s strategic journey and the initiatives being deployed to bring the strategies to life.

Senior operators deliver internal training programs that include fundamentals of machine mechanics, hydraulics, pneumatics, drive systems, sensors etc. Machine breakdowns are a non-event because they have resolved the root causes. The focus is on minor machine stops.

Aside from technical skills, employees develop interpersonal, communication and coaching skills as they progressed to higher levels. Problem-solving capabilities within the site are exceptional. Clearly, the workforce is highly engaged. This results in identifying and implementing initiatives to advance the site year-on-year while simultaneously reducing costs.

So why is cost cutting the wrong approach?

1. We foster the wrong culture: Cost cutting has a fear-driven mindset that leaves employees feeling uneasy. When the constant focus is on tightening the belt, you are likely to end up with a work culture that is neither engaged nor willing to explore opportunities that could result in sustainable change. Employees work in constant fear that jobs will be lost.
2. We don’t reveal hidden opportunities: Cost cutting is primarily about reducing expenses on a Profit and Loss (P&L) statement. Unfortunately, the P&L doesn’t reveal all opportunities to improve.

• A few years ago, an operator helped me to identify a $300,000 improvement during a conversation on the factory floor by simply repositioning a cheese sprinkler. All that was needed was a $20,000 customised sprinkler. This was not visible to me on the P&L.
• We only gain short-term results: You might get some quick results with low-hanging fruit, but once they’re gone, business leaders are forced to identify new opportunities. Typically, these are harder to implement and leaders get ‘stuck in the business’.

Instead, here’s how world-class companies focus on processes that deliver cost reductions as an outcome:

1. Reducing day-to-day chaos: Implementing systems such as daily huddles to reduce the fire-fighting.
2. Identifying real improvement opportunities: Regularly engaging employees to identify hidden opportunities that aren’t obvious on the P&L.
3. Creating strategic alignment: Working solely on initiatives that are strategically aligned to the 3–5 year objectives.

What approach will you take to improve business performance year-on-year?

Ishan Galapathy, author of ‘ADVANCE: 12 Essential Elements to Supercharge Productivity & Profitability’ (Bison Press), has a wealth of knowledge in the field of Operational Excellence (OpEx), having worked across six countries for over two decades.  Renowned for his simplified techniques, Ishan works with manufacturing businesses to help them move from Chaos to Excellence^TM. For more information on how Ishan can assist your business visit www.ishangalapathy.com