After the sudden announcement of the resignation of former SAP AG CEO Leo Apotheker, and new Co-CEO executive leadership arrangement involving Bill McDermott and Jim Hagemann Snabe , last week featured additional senior executive fallout.

SAP additionally announced that COO Erwin Gunst has resigned due to health consideration. SAP also indicated the resignation of John Schwarz, head of the recently formed business intelligence unit and former CEO of acquired provider Business Objects.

Mr. Gunst’s COO role will be assumed by Gerhard Oswald, executive board member in charge of services and support. Oswald is a 30 year veteran of SAP and has been a member of the senior executive board since 1996. He has a no nonsense style and has been managing one of SAP’s most sensitive business areas for many years. In my view, the announcement of Oswald as COO is add stability to SAP’s day-to-day operations while maintaining German home office control. Oswald has had significant success in streamlining global customer and support service processes, but interesting enough, was in the epicenter of the previous decision to increase customer software maintenance fees in the middle of one of the most severe economic recessions in recent time. The appointment is more likely to assure Waldorf-centered control in day-to-day operations.

The resignation of John Schwarz came with little surprise to this author. No doubt, Schwarz may have seen his next executive move as CEO of SAP, and with the announcement of the new co-CEO structure, that option was taken off the table for awhile. As noted in previous Supply Chain Matters commentary, business intelligence and specifically Business Objects had become the singular market messaging for SAP these past months, instead of SAP’s traditional core messaging related to industries and business process needs. The resignation of Schwarz may well be the first sign that SAP will need to seriously revisit its product innovation and go-to-market strategies. While the SAP press release includes a very gracious public statement by Schwarz, my assumption is that there will be additional executive fallout from the previous Business Objects ranks.

Also included in the recent executive changes is the elevation of Peter Lorenz as corporate officer, reporting to co-CEO Jim Hageman Snabe. Mr. Lorenz is the primary executive responsible for small and midsized business strategy including the turbulent SAP Business By Design suite, SAP Business One, and SAP Business All-In-One. His appointment for me is a sign that SAP is about to get rather serious in accountability for progress in this business application area. Supply chain and procurement capabilities are a rather critical component for SAP’s revamped Business by Design release.

There is certain to be additional collateral executive fallout from these changes at the top level of SAP. How all of these changes will have any impact on the current and future manufacturing, procurement and supply chain application needs for SAP’s installed customers, if any, remains an open question. All of these changes at the top will need to filter down to application areas.

For the time being, if you were previously frustrated in finding the right decision-makers at SAP for alliance, development or collaboration needs, your task has become even more complex as existing teams head for the “bunkers” to avoid tops-down organizational fallout and power shifts.

Yet another sign of the times in the current dynamic world of enterprise software.

Bob Ferrari

This commentary on Kraft Foods is divided into two separate Supply Chain Matters postings.

Background

If you have been staying current on business headlines these past weeks, you no doubt have heard a lot about Kraft Foods, specifically its acquisition of global confectionary company Cadbury.  Much has been written and opined regarding the acquisition, and this author does not portend to be a commentator on the financial advantages or shortcomings of this particular acquisition.  Supply Chain Matters does, however, provide commentary related to global supply chain business process and IT matters, and I believe it is timely to add a present perspective on the future supply chain challenges facing Kraft, which I believe to be rather challenging.

Before I begin, I should add a disclosure.  I own Kraft stock, and have so since Kraft split away as an independent company.  Thus, I tend to follow the company closely.

To provide some perspective, the last Supply Chain Matters direct commentary on Kraft was back in April of 2008. At the time the CP industry was facing considerable challenges in exploding inbound commodity costs.  I shared some observations on how important supply chain strategy in sourcing, inventory management, business process and IT systems would be in navigating not only that current set of challenges, but ongoing as well.

Situation

Today, Kraft formally reported both its Q4 and total 2009 annual results.  While the current headline reads that Q4 revenue results beat Wall Street expectations, I would not categorize the supply chain of Kraft in terms of stellar performance.  Once more, with the potential for disruption relative to the consolidation and integration of Cadbury operations in the coming months, added to the recent sale of Kraft’s North America pizza business to Nestle, the agenda looks rather complex.

While Q4 net revenues increased 3.2%, 2009 net revenues declined by 3.7%.  Operating income margin has increased to 13.7%, but is far below the mid-teens income margin goals that Kraft senior management established for the next two years.  Overall total inventory levels reflect 1.8 annual turns, with slightly less than 200 days inventory outstanding (DIO) by my calculation.   That is not anywhere near top performance in inventory management.  While total inventories were decreased $108 million from 2008 levels, DIO has actually increased.  I find that a bit perplexing since Kraft had previously invested in advanced inventory management technology.

On the sourcing and procurement side, Kraft has been hard at work in further consolidation of its supply base, along with practicing active commodity price hedging.  Positives have been noted in transportation cost savings as well as leveraging green supply chain initiatives in packaging and transportation.  But the sobering fact is that the challenge stakes have now been dramatically increased.

Current Structure

It is rather important to take a step back and reflect on Kraft’s operating model.  The company itself has grown through a series of companies that have been bought and sold involving high profile consumer brands.  They include General Foods, who then acquired Kraft, and Kraft’s subsequent acquisitions of businesses such as Oscar Meyer, Nabisco and others.  Kraft today includes a stellar listing of consumer brands in food, dairy, meats and convenience foods, and has grown its brand presence across the globe.

The company previously found itself in a rather top-heavy centralized corporate structure, and has been transitioning to a more de-centralized operating business unit structure.  This transition includes a corporate-wide shared services structure where functions such as IT and human resources reside.  Supply chain functions however, such as supply chain planning, manufacturing, procurement, distribution and logistics seem to reside in either business or shared services, and it is not clear to me whether Kraft has really solidified its supply chain organizational structure during this transition.  Kraft’s goal was to move decision-making regarding product development and manufacturing to lower levels of corporate hierarchy. The backbone ERP system for Kraft is SAP, but select supply chain best-of-breed applications reside among various functions. Some of Kraft’s IT functions are outsourced to third-party providers.

In our Part Two posting, I will comment on the future challenges facing Kraft under the combined Kraft-Cadbury operating model.

In the meantime, feel free to share your own comments and observations regarding Kraft’s current and future global supply chain challenges.

Bob Ferrari

Disclosure: The author of this posting is a current shareholder of Kraft Foods Inc.