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Report Card for Supply Chain Matters Predictions for Industry and Global Supply Chains- Part Three


While industry supply chain teams continue efforts in achieving their various 2015 strategic, tactical, and operational line-of-business business and supply chain focused performance objectives, we continue with our series of Supply Chain Matters postings looking back on our 2015 Predictions for Industry and Global Supply Chains that we published in December of 2014.  Supply Chain Matters Blog

Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. Our approach is to view predictions as an important resource for our clients and readers, thus we do not view them as a light, one-time exercise. Thus, not only do we publish our annualized predictions, but every year in November, look-back and score the predictions that we published for the year. After we conclude the self-rating process, we will then unveil our 2016 predictions for the upcoming year.

As has been our custom, our scoring process will be based on a four point scale. Four will be the highest score, an indicator that we totally nailed the prediction. One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different. Admittedly, our self-rating is subjective and readers are welcomed to add their own assessment of our predictions concerning this year.

In the initial posting of this Predictions Score Card series, we looked back at both Prediction One- global supply chain activity during the year, and Prediction Two- trends in overall commodity and supply chain inbound costs. In our Part Two posting, we revisited Prediction Three- the momentum in U.S. and North America based production and supply chain activity, as well as Prediction Four- wide multi-industry interest in Internet of Things.

We focus this commentary on our prediction for industry specific supply chain challenges.

2015 Predictive Five: Noted Industry Supply Chain Challenges

Self-Rating: 3.5 (Max Score 4.0)

Our prediction called for specific supply chain challenges in B2C-Retail, Aerospace and Consumer Product Goods (CPG) sectors. Additionally, we felt that Automotive manufacturers would have to address continued shifting trends in global market demand and a renewed imperative for corporate-wide product and vehicle platform quality conformance measures while Pharmaceutical and Drug supply chains needed to respond to added regulatory challenges in 2015.

B2C and Retail

In 2015, global retailers indeed were challenged in emerging and traditional markets and in permanent shifts in consumer shopping behaviors. Consumers remained merciless in their online shopping patterns seeking value and convenience. The price tag of the U.S. West Coast Port disruption was pegged at upwards of $5 billion for the industry and the inventory overhang effects remain as we enter this year’s holiday surge period. In August, we contrasted the financial results of both Wal-Mart and Target that presented different perspectives on the importance of integrated brick and mortar and online merchandising strategies and strong, collaborative supplier relationships. Both of these retailer’s performance numbers pointed to an industry that continues to struggle with balancing investments in both online and in-store operations and a realization that significant change has impacted retail supply chains.

A stunning announcement during the year was the October announcement from Yum Brands that after a retail presence since 1987, the firm will split-off all of its China based Kentucky Fried Chicken, Taco Bell and Pizza Hut restaurant outlets into a separate publicly traded franchisee based company. The move came to insulate the company from the turbulence that has beset its China operations from food-safety scares, stronger competition and Yum’s own operating missteps, which provide important learning for other retailers. Other general merchandise retailers continue to struggle with the inherent challenges of China’ retail sector, especially in the light of a possible contraction in China’s economic climate. Global current shifts have further dampened global retailer attempts to gain additional growth from emerging market regions.

Amazon, Google and Alibaba continued their efforts as industry disruptors with Alibaba setting a new benchmark in one-day online sales volume, processing and fulfilling upwards of $14.3 billion in online sales during the 2015 Singles Day shopping event across China. Last year, online retailers acquired important learning on the higher costs associated with fulfillment of online orders, which will be crucial in managing profitability during this year’s holiday surge period.

Consumer Product Goods

Consumer’s distrust of “Big Food” continued front and center this year. We predicted that the heightened influence and actions of short-term focused activist equity investors, applying dimensions of financial engineering or consolidation pressures among one or more CPG companies would continue to have special impacts on consumer goods industry supply chains with added, more troublesome cost reduction and consolidation efforts dominating organizational energy and performance objectives. The year has featured quite a lot of consolidation and M&A activity as larger CPG producers attempted to buy into smaller, health oriented growth segments. One of the biggest announcements that rocked the industry was the March announcement that H.J Heinz would merge with Kraft Foods, orchestrated by 3G capital and financed in-part by Berkshire Hathaway. In a article, The War on Big Food, published by Fortune in June, a former Con Agra executive who now runs a natural foods company is quoted: “I’ve been doing this for 37 years and this is the most dynamic disruptive and transformational time that I’ve seen in my career.”

Indeed, the winners or survivors in CPG will be those more nimble producers who can lead in product innovation, satisfying consumer needs for healthier, more sustainably based foods, while fostering continuous supply chain business process and technology innovation. This industry will remain challenged in 2016.

Commercial Aerospace

Our prediction was that Industry dominants Airbus and Boeing and their respective supply ecosystems will continue to be challenged with the needs for dramatically stepping-up to make a dent in multi-year order backlogs and in increasing the delivery pace for completed aircraft. Dramatically lower costs of jet fuel that were expected in 2015 would likely present the unique challenges of airline customers easing off on delivery scheduling, but at the same time insuring their competitors do not garner strategic cost advantages in deployment of newer, more fuel efficient and technology laden aircraft. These predictions indeed transpired and both aerospace dominants have now announced aggressive plans to ramp-up supply chain delivery cadence programs over the next 3-4 years for major new commercial aircraft programs. The lower cost of jet fuel indeed motivated some airlines to adjust or postpone certain aircraft delivery agreements but not in significant numbers. The other significant industry development was the continued struggles of Bombardier in its efforts to deliver its C-Series single aisle aircraft to the market, which could have provided an alternative for certain airlines. This aircraft producer recently sought a $1 billion loan from Canadian governmental agencies in order to sustain its development and market delivery efforts and complete C-Series global certification sometime in 2016.

We predicted that Middle East and Asian based airlines and leasing operators will continue to influence market dynamics and aircraft design needs and that indeed occurred. Emirates, Ethiad and Qatar clashed with American, Delta and United over the future of international air travel, competing aggressively with large fleets of new, lavishly appointed jets and award-winning service. But the US legacy carriers believe that competition with the Middle Eastern carriers has become inherently unbalanced with large government subsidies to fund such investments. Emirates is now the world’s largest operator of both the Airbus A380 superjumbo and the Boeing 777-300ER and continues to pit both Airbus and Boeing on developing newer long-haul, technological advanced aircraft, while other carriers seek faster delivery of more efficient single-aisle aircraft to service growing air travel needs among emerging markets.

Supply issues did manifest themselves in 2015 with reports of under-performance in the delivery of upscale airline seating, the continuous supply of titanium metals, and the effects of the massive warehouse explosions near Tianjin China. However, most were overcome.


At the time of prediction in December of 2014, an unprecedented and overwhelming level of product recall activity was occurring across the U.S. This was spurred by heightened regulatory compliance pressures, driving product quality and compliance as the overarching corporate-wide imperative. At the time, a New York Times article cited that about 700 individual recall announcements involving more than 60 million motor vehicles had occurred in the U.S. alone in 2014. Indeed General Motors and other global brands remained under the regulatory looking glass throughout 2015 and the one dominant issue remained defective air bag inflators. We predicted that supplier Takata would continue to deal with its ongoing quality creditability crisis and indeed in November, long-standing partner Honda announced that it would sever its relationship with the Japan based air bag inflator supplier.

While we predicted that GM would especially be under the regulatory looking glass in 2015, the big surprise turned out to be Volkswagen and the ongoing crisis involving the installation of software to circumvent air pollution standards in its automotive diesel engines. This crisis is still unfolding with implications that could amount to potentially billions of dollars, not to mention a severe credibility jolt to the Volkswagen name in the U.S. and globally. We may have erred on this particular prediction, but who would know that such a development would have such far-reaching global implications for product design and regulatory compliance for the entire industry.

Finally, China’s auto market was expected to grow by 6 percent or 20 million vehicles in 2015. However, economic events over the past few months and a far more concerned Chinese consumer may well mute such growth and market expectations. In November, GM announced that it would import a Chinese manufactured SUV sometime in 2016, the first to enter the U.S. market.

In our next posting in our look back on 2015, we will review Predictions Six through Eight

In the meantime, feel free to add to our dialogue by sharing your own impressions and insights regarding these specific industry challenges in 2015.

Bob Ferrari

Nestle Steps-up Efforts to Combat Seafood Industry Labor Abuse Practices


Global consumer goods producer Nestlé S.A. plans to start cracking down on slavery and human rights labor abuses identified during a recent year-long investigation of the firm’s seafood supply chain.

According to a published report by Food Safety News, the abuses concern impoverished migrant workers from Asian countries who are reportedly sold or induced into virtual slavery to catch and process fish, which then ends up in seafood supply chains via fish farms and other manufactured products. The stated abuses are rife among Asian suppliers which provide Nestlé with raw materials for the company’s shrimp, prawns and Purina brand pet foods.

Verite, an independent investigation firm that focuses on supply chain labor conditions looked into six production sites in Thailand. Three were noted as shrimp farms, two were ports of origin, and one was a docked fishing boat. According to the investigative report, these sites were identified as being linked with the fishmeal (or fish feed) used on farms producing whole prawns for Nestlé. There were reportedly indications of forced labor, trafficking and child labor, as well as deceptive recruitment and pay practices and exploitative and hazardous working conditions. Many of the fishermen were from Myanmar, Laos and Cambodia.

Verite has conducted ongoing investigative efforts directed at fishing and aquaculture supply chains and a general overview of supply chain labor conditions can be reviewed in a published research report.

For its part, the global consumer goods giant indicated on Monday that mitigating the situation would not be quick or easy, but that the company was hoping to make significant progress in the months ahead. The plan will focus on ten key activities designed to prevent suppliers from engaging in practices leading to labor and human rights abuses. Nestle pledged to immediately implement the plan, continue activities through next year and publicly report on the progress in its annual report.

The FSN report further cites The Associated Press as recently reporting that more than 2,000 “fishing slaves” from several Asian countries had been rescued from a remote island in Indonesia, some after being held for years, beaten and kept in cages. The AP tracked the fish to supply chains used by Walmart, Kroger, Sysco and others and involving pet food brands such as Iams, Meow Mix and Fancy Feast. In addition, nine people were arrested in connection with that incident, and two cargo vessels were seized.

No doubt, with one of the world’s largest and most prominent consumer packaged goods producers implicated in an independent investigation for alleged slavery and labor abuse practices deep within its fisheries and seafood supply chain, there will be attention brought to resolving such practices over time. Nestle has been lauded for taking active proactive stances in addressing a number of supply chain sustainability and social responsibility challenges, and Supply Chain Matters believes that seafood will be another example of such proactive efforts.

The key, however is recognition that the problem came about because certain producers sought out lower-cost sources of seafood supply, particularly for pet food purposes. It resides in deeper tiers of seafood supply chains in certain parts of Asia. The rest of the global CPG industry and fisheries stakeholders themselves need to come together in a concerted industry-wide effort to add more light to intolerance for such labor abuse practices, with focused efforts and incentives directed at resolving such practices as quickly as possible.

Consumers themselves need to be aware that such labor abuses exist in certain fishery-focused supply chains within Asia and to favor human and pet food producers  producers who are taking positive actions to label food origin and who are actively committed to eliminating any supply sources that harvest food with abusive labor practices.

Are Mega Acquisitions Toxic for Product, Process and Supply Chain Innovation?


In just a few days, certain industries have been rocked by the announcement of mega acquisitions, with many pending implications.

First was the announcement of Dell’s planned acquisition of EMC Corp. for a reported $67 billion. The sheer size and complexity of these two high tech providers will surely present major challenges in the rationalization of products, sales channels and supply chains.  Some could rightfully argue that both of these companies were struggling with long-term growth strategies in their respective segments. Dell needs to move away from PC’s while EMC is mostly a collection of data management products that have yet to spur significant growth. The reported crown jewel is that of VMware, which activist investors have pressured to be spun-off as a separate unit.

And what about the scope of the added debt burden required in the financing this combination?  One can only imagine the “cost savings synergies” that are being promised to investors in order to favor a positive opinion. As the Wall Street Journal just reported, Dell which was once a supply chain icon has transformed its supply chain from a predominant consumer to one of a business to business focus.  The addition of the complexity of EMC’s broad product lines will add additional challenges of channels and complexity. Rival HP remains in the process of splitting itself into two separate companies, each having to manage its own product innovation, business systems and supply chain fulfillment capabilities.

Of even greater significance is the announced takeover by AB InBev of SABMiller for a sweetened sum of $104 billion.  Business media reports indicate that this proposed tie-up, representing the fourth-largest takeover in history, is sure to trigger regulatory scrutiny in multiple geographic regions, including perhaps Africa, China, the European Union and the United States. According to reporting from The Wall Street Journal, in the U.S. alone, InBev commands roughly 45 percent market share while SABMiller brands command a further 25 percent. Such scrutiny is likely to lead to the shedding of existing brands and/or facilities to other industry players as well as concerns for too much market leverage.  SABMiller’s board of director’s was able to negotiate a reported $3 billion break-up fee if the proposed deal cannot be consummated. Some indicate that regulatory review can take up to a year to complete.

The other important consideration is the global beer market itself, which for the first time, is showing signs of a global decline. Growth however, remains in low-volume specialty craft beers and in emerging markets such as Africa, China and Russia.

InBev parent 3G Capital and its recent orchestration of the coming together of Heinz and Kraft Foods has already sent tremors across consumer product goods supply chains with its zeal for zero-based budgeting techniques and shedding of thousands of employees and across the board cuts in all forms of “unnecessary” expenses. However, the sheer size and scope of bringing together two global beer giants is sure to provided added challenges in rationalizing product innovation, consolidation of business systems, supply and demand fulfillment capabilities on a global scale.

At the recent APICS 2015 conference, Dr. Steven Melnyk of Michigan State University shared his insights on the topic of supply chain performance in a superior presentation.  One statement that hit the mark for this analyst was that: “innovation requires slack time, time for failure and experimentation and time for timely response to market opportunities.” Dr. Melnyk further opined: “slack time dies with a lean process.

This is the current challenge surrounding high tech, consumer product goods along with food and beverage supply chains and the stakes have escalated even more with this week’s mega-acquisitions. While companies continue to struggle to achieve growth in maturing or emerging markets, they turn to value chains for needed innovation and/or cost savings opportunities. Maturing markets require added product and process innovation and/or forced consolidation for pricing and channel distribution leverage.

Acquisitions of the dizzying scope announced in the last few days leads to months of organizational disruption and changing management strategies. Many of such past mega acquisitions have admittedly mixed results as to overall long-term success.

The open question is whether such acquisitions are likely toxic for required needs for product, process and supply chain focused innovation and capability efforts. We have our views, but we are more curious as to our readership views of this dilemma.

Chime-in and express your insights, especially if you reside in the affected industries surrounding this new wave of mega-acquisitions.

Bob Ferrari


The Culmination of the 2009 Peanut Corporation of America Salmonella Incident


When it comes to certain cases related to food safety, the wheels of justice turn mighty slow.  But recently, the judicial system has sent a powerful and far-reaching message to the food and other consumer products focused industry and to their respective supply chain partners.

In early 2009, there was an incident involving a salmonella outbreak linked to peanuts and peanut butter products distributed by Peanut Corporation of America (PCA).  That salmonella outbreak sickened over 700 people and led to the liquidation of PCA.

Four former executives of PCA and a related company faced criminal charges for covering up information that peanut butter produced was contaminated with salmonella bacteria.  The 76 count indictment included charges of conspiracy, mail and wire fraud, obstruction of justice, among others related to distributing adulterated or misbranded food. Federal officials alleged that certain executives at PCA were aware of salmonella testing results, failed to alert consumers, and lied about test results to inspectors from the U.S. Food and Drug Administration (FDA).

This week, a U.S. District Court judge sentenced two former plant managers at the PCA Georgia peanut processing plant identified in the 2009 incident to six year and three year prison sentences. Both would have probably faced higher sentences if they had faced trial and not pleaded guilty. Both made deals with prosecutors to testify against Stewart Parnell, the owner of PCA. The Georgia plant’s quality control manager received a five year prison sentence.

Last week, Parnell was sentenced to 28 years in prison after being found guilty on 67 criminal counts. Some noted that the Parnell sentence was too harsh, especially in the light of convictions in similar salmonella related cases.

According to a published AP report syndicated on

Investigators discovered the Georgia plant had a leaky roof, roaches and evidence of rodents, all ingredients for brewing salmonella. They also uncovered emails and records showing food confirmed by lab tests to contain salmonella was shipped to customers anyway. Other batches were never tested at all, but got shipped with fake lab records stating that salmonella screenings turned out negative.”

Once more, tainted peanut products were shipped up the supply chain to other producers who used them to make snack crackers and other products.

Parnell’s attorneys blamed the scheming on the two former plant mangers. They argued Parnell, who ran the business from his home, was a poor manager who failed to keep up with his employees’ actions.

It may indeed seem that the wheels of justice do turn slow, six years in this case.  But a strong and powerful message has been administered, one that will reverberate across food and consumer goods supply chains.  Food safety is paramount and knowingly and willingly supporting or advocating the shipment of tainted food or improper quality monitoring processes will have a consequence, one that has taken on even more meaning.

A Report of Some Push Back from Wal-Mart Suppliers


In prior commentaries, Supply Chain Matters has highlighted reports indicating that Wal-Mart had once again focused on its suppliers for sharing the burden of needed higher margins.  Wal_Mart Store

In April a front page published article by The Wall Street Journal reported on Wal-Mart’s increased pressures on North America based suppliers to squeeze costs. The retailer informed suppliers involved in a wide range of purchased categories to forgo any additional investments in joint marketing and focus the savings on lower prices to Wal-Mart. In July, Reuters reported efforts to impose added fees affecting upwards of 10,000 U.S. suppliers. Contract renegotiation letters were mailed to respective suppliers that included amended contract terms along with added fees to warehouse products at Wal-Mart DC’s. At the time, a Wal-Mart spokesperson indicated to Reuters that these fees were a means for sharing costs of growth and keeping consumer prices low. Not all of the 10,000 suppliers would face the higher charges due to existing payment arrangements afforded these suppliers to utilize existing Wal-Mart distribution centers.

Last week, Bloomberg reported that Wal-Mart’s Suppliers Are Finally Fighting Back, indicating that some of the larger suppliers are saying no to these new cost squeezing measures. Some suppliers reported that the new fees are impacting their own bottom lines, while several firms are reportedly hiring attorneys to further pursue matters. The Bloomberg report indicates that two large, unnamed suppliers have refused to accept such terms. A senior vice president at Kantar Retail, which advises some Wal-Mart suppliers, is quoted as indicating: “It looks as though they (Wal-Mart) are trying to have it both ways and trying to pad their own margins where they are facing cost pressure.”

Regarding the report, a Wal-Mart spokesperson indicated to Bloomberg that the global retailer is willing to now negotiate with suppliers and will take into account prior history with a supplier, as well as quality of the products. The spokesperson further indicated that the retailer may encourage some suppliers to seek low-interest loans through an existing financing program, implying that those suppliers that do not agree to new terms may find their Wal-Mart business affected.

The report observes that smaller and even larger suppliers have the most at-stake in their ability to be able to push-back. “A smaller supplier, notified of the fees late last month and given two weeks to accept, said it won’t be able to make a profit on its Wal-Mart business under those terms unless it fires workers or cuts wages and benefits.”

From our Supply Chain Matters lens, these ongoing supplier developments related to Wal-Mart are indeed part of the realities for certain retail industry players who can leverage their sheer scale of buying power. On the other hand, it defeats more positive initiatives.

Wal-Mart’s ongoing initiative to purchase an additional $50 billion in U.S. sourced products over the next ten years could be a casualty of its ongoing supplier management efforts. Many of these newer suppliers will not only need the retailer’s long-term buying agreements and shared distribution facilities, but the ability to make meaningful profit in order to sustain their presence in the U.S.

Wal-Mart stated goals are to simplify supplier relationships and develop a broader U.S. supplier base. However, from our lens, cost-sharing tactics for having it both ways defeats such strategic objectives and places supplier relationships in the context for always on the ready for the next shoe to drop.

Ugliness of Big Food and CPG Industry Supply Chains Far More Visible and Apparent

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This week’s edition of Bloomberg BusinessWeek features a timely but sober update indicating that: Things Are About to Get Ugly at Kraft.

Not only does this report indicate that change is already already underway for Kraft, it provides more sobering indicators of expected erosion in other associated industry business and supply chain capabilities in the months to come.

Some Background

We are Supply Chain Matters have featured a number of commentaries related to Kraft and its associated supply chain capabilities since our inception in 2008. That includes its split in 2012 into two separate companies, Kraft and Mondelez International. We have done so because of our belief that this global CPG giant was a true barometer of the significant market and industry forces impacting what is increasingly being termed as “Big Food” today.

In 2009, Irene Rosenfeld, the CEO of Kraft at that time, indicated to The Wall Street Journal that “scale is a source of great competitive advantage” in terms of industry growth and innovation. That motivation probably led to the acquisition of Cadbury. Eighteen months later, Ms. Rosenfeld, along with Wall Street partners, orchestrated a massive corporate split, carving out Mondelez as a $30 billion focused snacks company with the most attractive prospects for global growth, particularly in emerging consumer markets.

The $18 billion North America focused grocery brands business was to be Kraft Foods which literally was forced to develop its own separate supply chain and business support systems.

Prior to the split, Kraft corporate had reportedly invested $700 million in a global rollout of a singular SAP ERP system. All of the assumptions that made-up that implementation suddenly changed.

This corporate split further implied two different supply chain business support and distribution models. Snack food and cookie consumers are impulse buyers, with promotions, market timing and inventory deployment strategies requiring sophistication and proper timing. The distribution model is focused on higher touch including direct to store service needs of convenience stores and smaller retail, particularly when emerging consumer markets are considered. Grocery, on the other hand, was a model of conservative sales growth but high scale and distribution volume. Much of the grocery customer base was large supermarkets, with emerging penetration among smaller retail and convenience stores. Grocery implied a high dependency on vendor managed inventory and responsive replenishment business replenishment. We again bring these tenets out, because they provide more context as to what existed and to what is now occurring.

In September of 2013, we praised the positive transformation and new leadership that was underway at split Kraft Foods. Former Procter & Gamble supply chain executive Bob Gorski was recruited to lead a dramatic transformation. In an industry conference presentation we viewed at the time, Gorski described product demand and supply processes touching literally 60 different times with little effect on forecast accuracy. Supply chain wide metrics were at odds with individual plant and functional metrics, some in direct conflict. There was a lack of a fixed execution planning window with 60 percent of plan changes occurring in the execution window. Production lines, on average, were forced to shutdown every 4 minutes because of various maintenance or setup issues due to inconsistent process specifications. Gorski articulated a goal as moving from metrics in isolation to metrics as part of a performance culture. Oh yes, adding to the challenge was a need for Kraft grocery to adopt a new supply chain software support system and more responsive technology enabled decision-making.

Current Situation

In March of this year, the industry was taken back with the news that H.J. Heinz would merge with Kraft Foods in a combined public company that was named Kraft Heinz Company. It creates what is anticipated to be the world’s third largest food and fifth largest beverage company featuring many well-known consumer brands. This deal was backed by infamous private equity firm 3G Capital Partners, and the financing of Warren Buffet’s Berkshire Hathaway, which each contributed $5 billion in financing. Together, bot investors own 51 percent of outstanding equity.

The latest Bloomberg article essentially opines that in the end, the Kraft-Heinz deal has little to do with market growth and a lot to do with cutting costs. That includes targeting an additional $1.5 billion reduction in annual costs before 2018 and according to the article: “The company will lose employees, whole levels of management, and maybe a few brands, too.” It cites as a reference a February 2015 McKinsey report which describes 3G Capital’s strategy as acquiring marquee brands that need operational improvement, and then “purging existing culture and management teams” while employing zero-based budgeting techniques requiring departments to justify every expenditure, and squeezing suppliers for similar cost savings. McKinsey noted that Heinz itself has since its takeover, lost market share in 65 percent of its product categories, yet adjusted earnings have risen nearly 38 percent.

Bloomberg cites data indicating that with the prior Heinz merger, 90 percent of the senior executive team departed within three weeks and more than 7000 jobs, 20 percent of the then existing workforce was cut, along with closing of five factories. Thus far, after closing the Kraft-Heinz deal last month, 2500 job cuts have been announced including more than a third of the existing staffing at Kraft corporate headquarters. Further announced was that Kraft headquarters will be move from a 700,000 square foot complex of a Chicago suburb to a 170,000 square foot office in downtown Chicago. Travel has been restricted, conferences have been put on-hold and employees instructed to print double-sided.

To reinforce an overall industry concern, Bloomberg reminds us that Nestle Chairman Peter Brabeck-Letmathe had indicated earlier this year that Buffet and 3G have: “pulverized the food industry market, particularly in America, with serial acquisitions.” The Nestle executive additionally indicated that 3G’s “ruthless cost-cutting’, to improve profit margins has had a “revolutionary impact” on other food companies.

Parallel Impact- Mondelez

Today’s Business and Finance section of The Wall Street Journal features an updated report on Mondelez’s efforts at expanding market growth while attempting to reduce costs and improve margins. It observes that a second high-profile activist investor, William Ackman and his Pershing Square Capital Management firm revealed that it had built a $5.5 billion, 7.5 percent stake in the company, and cites sources as indicating a Pershing view that the snacks producer must cut costs significantly or sell itself to a rival. Activist Nelson Peltz of Train Fund Management joined the Mondelez Board in 2014 after a six month conflicting public debate on company strategy.

In emerging markets which currently account for 40 percent of existing Mondelez revenues, the company’s margins reportedly trail those of several rivals. The global snacks company has now reportedly engaged Accenture to implement zero-based budgeting techniques and a sweeping reorganization plan that is closing older factories in the U.S. and opening more efficient ones in lower-cost regions such as Mexico and Russia. The WSJ cites other equity analysts as engaging in debate as to whether the Nabisco brand use of direct-store delivery (DSD) in the U.S. should be curtailed or replaced for a lower-cost alternative.

Impact to Industry Supply Chain Capability

A fundamental belief in supply chain management is that supply chains exist to service customer needs and support required business strategic and tactical outcomes.

As activist actions continue to drive “Big Food” into modes of acute efficiency, cost-cutting and continued break-up and consolidation, the impact to supply chains invariable becomes destructive, risking the obliteration of previous gains in service, product quality, sustainability and process responsiveness. Once more, the tenets of supplier based product and process innovation are subsumed by other tactics to wring out additional cost reductions or more onerous payment terms.

While business and other industry media can for-tell of the pending ugliness that is circling Kraft, and perhaps Mondelez in the not too distant future, industry “Big-Food” supply chains risk a significant erosion of prior process, technology and other transformational gains as zero-based budgeting and wholesale cost-reduction efforts sap the energy of survivors. More importantly, the real objective for providing consumers with healthier, more sustainable food choices becomes subservient to an overriding short-term emphasis on increased margins and stockholder returns.

Hence is the legacy of activism, short-term results and the rest being damned. In the analogy of the wild kingdom, the weak in the herd are overtaken by predators, and soon the predators begin to overtake even the strong, as stamina is weakened.

One final editorial note: Our house has switched to French’s Ketchup. It is noted as free from high fructose corn syrup, artificial flavoring and preservatives and has a great taste. Hopefully, brands that have been around from the 1900’s will not succumb to the current madness surrounding “Big Food” and the wonton destruction of previous supply chain transformation initiatives, commitment to quality and commitment to talent and people development.

Bob Ferrari

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