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Starbucks Cited in a $2.8 Billion Arbitration Award

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If our community needed any additional reinforcement regarding how important, and perhaps how expensive, open contract management terms and supplier relationships have become, than today’s headlines involving Starbucks and Kraft Foods should be the reminder. (Paid subscription or tiered free viewing) Yesterday an arbiter ordered Starbucks to pay Kraft’s new spinoff, Mondelez International a total of roughly $2.8 billion dollars after the early termination of a Kraft’s supply coffee agreement with Starbucks. The coffee supply agreement dates back to 1998 when Kraft was contracted to market and distribute Starbucks branded coffee among U.S. grocery and supermarket channels. In a November 2010 Supply Chain Matters commentary, we noted reports that the deal with Kraft was designed as an indefinite arrangement subject to certain conditions and limitations. In order to terminate the supply arrangement, Starbucks accused its partner of failure to actively market the brand and not maintaining appropriate promotional campaigns. Notice […]

Mondelez International- When Cost Savings Pressures Reach Extremes

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This week, the Wall Street Journal reported that Mondelez International, the snack foods spinout of Kraft, has set expectations of a large revamp of its complex supply chain.  The goal of this latest effort is to facilitate a 5 percentage point improvement in operating income margin by 2016. The effort itself has large expectations for overall savings which include $3 billion in gross productivity, $1.5 billion in net productivity and $1 billion in incremental cash over the next three years, all stemming from supply chain improvements. At face value, this type of concentrated supply chain cost savings initiative would probably be perceived as challenging. For the supply chain related teams associated with this chocolate, biscuit and candy producer with brands such as Nabisco, Trident and Cadbury it is doubly challenging because of earlier cost-saving efforts initiated when Kraft purchased Cadbury Foods. At the time of the Cadbury merger announcement, Kraft management […]

Nestle is Cited for Cocoa Supply Chain Labor Abuse

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Supply Chain Matters has had a number of commentaries pointing out that supply chain risk mitigation not only includes the threat of physical supply disruption, but also matters of social responsibility and fair labor practices.  The risk is fundamental, it involves the reputation of your business and your brand. There have been a number of previous high profile past examples including Nike, who’s brand came under enormous pressures with discoveries of child labor violations involving offshore manufacturing.  Then there are top of mind examples, including Gartner’s number one ranked supply chain Apple, who continues to both react to and respondto audit findings regarding labor practices at its prime contract manufacturer as well as some of its suppliers. In our prior and other subsequent commentaries, we noted that when a company like Apple is deservedly ranked number one on nearly every researcher’s top supply chain listing, the ranking comes with a […]

Kraft Announces New Management Structures for Split Companies

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In August of 2011, consumer goods provider Kraft Foods made a surprising announcement that included global supply chain implications.  The company announced that it would split into two independent public companies, one to be focused on a global snacks business with the other being the company’s core grocery business.  The timing of this split is slated for late this year. The snacks business unit will have responsibility for $32 billion in global revenues while Kraft Foods (Grocery) will be responsible for half that amount, namely $16 billion in revenues. At the time of this announcement, Supply Chain Matters provided a commentary with an open question, namely how will the company respond with its corresponding supply chain and distribution strategy alignment. The essential challenge is that the global snacks business is driven by fundamental different performance metrics and investment needs than grocery. The former is high touch, complex channels driven while […]

Kraft Foods’s Pending Corporate Split Has Global Supply Chain Implications

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This week, consumer goods provider Kraft made a surprising announcement that comes with global supply chain implications. The company announced that it would split into two independent companies, one focused on the global snacks business, with the other being grocery.  The announcement was reported as a reversal from Kraft’s previous bigger-is-better growth approach.  The Wall Street Journal in its reporting of the story noted that just 18 months ago, CEO Irene Rosenfeld told investors that “scale is a source of great competitive advantage.” Financial media are reporting that under the proposed split, the snacks business and confectionary business may consist of Kraft’s European business and developing markets groups, along with the North America snacks and confectionary businesses, amounting to a $32 billion annual business. Brands that could be included are Oreo cookies, Cadbury chocolates and Trident chewing gums. The grocery division is initially planned to include Kraft’s current North America […]

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