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Kraft Heinz to unite supply chain in ‘Ops Center’ to save $2B in 5 years

Dive Brief:

  • Kraft Heinz will join together historically disparate supply chain functions under a new operating model, which executives say will save the company $2 billion over the next five years. “Integrated Business Planning is not new to the world,” CEO Miguel Patricio said at the company’s Investor Day event Tuesday. “But it is new to Kraft Heinz.”
  • The integrated strategy will run through what Kraft Heinz calls the Ops Center, which will join the company’s procurement, production and distribution teams along with marketing and R&D.
  • The strategy will include an unspecified SKU reduction that is already in progress. In the last few months, Kraft Heinz has reduced its SKU count by approximately 20%, according to Carlos Abrams-Rivera, the U.S. zone president.

Dive Insight:

Patricio said the supply chain is to blame for Kraft Heinz’s dwindling profitability in recent years. The company posted a $12.6 billion net loss in February 2019 accompanied by a procurement scandal and a Securities and Exchange Commission investigation. It’s been crawling back to black ever since.

Patricio took over the CEO post in July 2019 and stated early that supply chain would be at the heart of the company’s turnaround. He brought in new supply chain talent and began a SKU-by-SKU review. Tuesday’s presentation was the pep rally for that turnaround and a rollout for the strategy he’s been developing for the last year.

“We were not able to implement productivity initiatives, to offset cost inflation,” he said. “So, we lost efficiency in procurement, manufacturing, and logistics.”

Kraft Heinz’s supply chain previously operated in siloes without sharing information or seeking efficiencies through collaboration.

“We needed a framework to integrate our operations with the rest of the organization,” he said. The Ops Center is that framework.

Many firms have started to move beyond sales and operations planning to an integrated model, bringing the financial and demand sides of the business together for planning purposes and allowing a granular level of forecasting, at times down to the SKU level.

The addition of marketing and R&D to Kraft Heinz’s Ops Center scheme is notable — in combination with the company’s plans for further SKU reductions — as SKUs tend to originate from R&D or marketing at the outset.

“SKU increases when marketing strategies aim to grow market share. I personally see SKU proliferation decisions as an area in which the supply chain has to be included to avoid the detrimental impact,” Simon Croom, professor of supply chain management at the University of San Diego, said in June.

Joining together all of these functions could help the company keep a closer reign on SKU count and therefore less-productive operational effort and expense.

“I truly cannot say enough about how Ops Center is transforming our operations and our mindset,” Patricio said. “We are creating a fast, adaptable, and integrated supply chain with greater end-to-end visibility to drive continuous improvement.”

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