Prediction Five of our Supply Chain Matters 2014 Predictions for Global Supply Chains outlined three industry-specific supply chain challenges.  One was Consumer Product Goods (CPG) sector challenges, specifically the heightened appearance of activist investors who actively advocate measures of either financial engineering or added cost controls on one or more CPG companies to extract more perceived investor value. These efforts will place added cost reduction burdens on the targeted company supply chain, burdens that could possibly impact operations.

This week provided yet another dynamic update on this trend.  Business media reported yesterday that Nelson Peltz of Trian Fund Management has won a board seat at Mondelez International. However, Peltz has agreed to relinquish his active efforts to seek the merger of Mondelez with the snacks division of PepsiCo but reserves the right to continue to advocate that PepsiCo split out its snacks business as a separate entity.

The Wall Street Journal characterized this development as a qualified victory for Mr. Peltz who has lobbied for months that Mondelez improve its profit margins, specifically improving profit margins to 18 percent from the current 12 percent. The WSJ reported that Mondelez management agreed to this move to quell public criticism of the company as well as avoid a public proxy fight. Now having a board seat, Peltz can escalate his calls for added profit margins.

Mondelez was formed with the split of the cookies and snacks businesses of Kraft Foods, and was preceded by Kraft’s controversial acquisition of global snacks provider Cadbury. The cumulative effect of all these moves was to extract hundreds of millions of cost savings from supply chain operations, including capacity consolidation and facility closings. The savings garnered from supply chain cost reduction were channeled to fund new sales and marketing initiatives as well as stock buyback. Late last year, Mondelez management called for a 5 percent margin improvement by 2016 which amounted to $3 billion in savings. That initiative may now be the subject of further board discussion as to amount and timetable.

Peltz has previously accumulated a large stake in DuPont, which in October announced that it would split-off its performance-chemicals business.

Meanwhile, activist investor Daniel Loeb is pressuring Dow Chemical to split itself into two companies, one bring petrochemicals and the other specialty chemicals.  Dow management had laid out a plan in December to exit some low-margin chemical businesses amounting to about $5 billion in current revenues, but Loeb is advocating that the entire petrochemicals business is hindering margin performance.

The chemicals business has high exposure to supply chain costs and efficiencies since transportation and logistics are higher cost components.

Thus, not only are certain CPG supply chains under activist pressure, we should consider adding certain chemical industry supply chains as well.