The Impact of Supply Chain Capability- The Kellogg Company’s Ongoing Challenges

The following commentary can also be viewed and commented upon on the Kinaxis Supply Chain Expert Community web site.

An important mission of the Supply Chain Matters blog, one that we continually focus upon, is to point out specific developments where supply chain capability has either enhanced or detracted from business or financial performance of an enterprise.

One company that we have been monitoring from time to time is the Kellogg Company. In 2009, its Eggo© Waffle product line was involved in a product recall that turned out to be an embarrassing situation of social media backfire.  The occurrence of factory flooding conditions and prior suspected listeria contamination were attempted to be hidden by a social-media campaign directed at consumers that lamenting the shortage of Eggo’s. A Huffington Post commentary at the time noted that news of the shortage spread quickly on Twitter as shoppers reported not being able to find their favorite breakfast food, and were also lamenting the scarcity on Facebook as well.  It was until ABC News reported the contamination story that consumers discovered the real story. Since that time, Kellogg was involved in another product recall involving 28 million boxes of cereals after consumers complained of a waxy smell and flavor coming from certain items.

Today’s Wall Street Journal features an article related to Kellogg which provides clearer evidence of the true impact of a troubled supply chain capability.   The article’s takeaway is that a newly appointed CEO is addressing multiple challenges of both increasing inbound commodity costs as well as a troubled supply chain. In fact, the actual article quote notes: “But problems stemming from two product recalls and a flooded Eggo waffle facility in the last couple of years will require that Kellogg put some time and effort into restoring investor confidence in its supply chain.”

Further into the article, an analyst from Telsey Advisory Group is noted as indicating that Kellogg faces too big of a challenge in restoring its supply chain for that particular analyst to get bullish on Kellogg stock.  That alone provides additional evidence of the importance that Wall Street places on negative supply chain news.

In terms of some quantifiable impact, the Journal notes that Kellogg’s fiscal second quarter net income was down 15 percent immediately after the recent cereal recall.  Fiscal Q3 earnings further declined by 6 percent.  Combining lost opportunity of both quarters equates to nearly $60 million. Kellogg stock is also down approximately 4.5 percent from year ago levels.

Also noted is that the Eggo© brand itself lost ground to both private label and smaller brands of waffles when supply was disrupted.  Some shoppers have yet to resume normal buying patterns.

John A. Bryant, the new CEO of Kellogg is most likely fully aware of the supply chain challenges facing his company, and like Boeing, Johnson and Johnson, and Toyota, a keen emphasis will be placed on proactive corrective action.

As we continue to note, supply chain capability and proactive management of potential supply risks do matter to bottom line results.

Bob Ferrari