The biggest mistake a manufacturer can make is to focus on cost cutting
-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 […]