Kraft looks to slash supplier base
Sep 18 2009
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Kraft Foods Inc plans to cut its supplier base in half, a move that would affect more than 30,000 companies. As the largest North American food maker (with brands such as Oreo, Chips Ahoy, Oscar Mayer and Cool Whip) this looks to save the company more than $300 million a year.

Consolidating its purchasing of everything from ingredients to packaging materials is part of a plan to improve productivity that also will encompass logistics and manufacturing. The review of purchasing comes as the company tries to simplify a procurement framework that evolved as Kraft acquired numerous companies over the years.

Kraft this month also publicly disclosed its attempt at another large acquisition, a $16.7 billion bid for Cadbury that the British candy maker has so far rebuffed.

"We're essentially taking a white sheet of paper and saying 'what is the right number of suppliers to support this particular category, who are they, what is the capability we need for now and in the future, and does the current supplier base have that.'" Julia Brown, senior vice president of procurement at Kraft, said in an interview with Reuters.

The move comes after Kraft spent several years cutting costs via plant closings, divesting brands that did not fit its core categories and putting more money into advertising and product development to boost sales.

All told, Kraft's cost of goods sold was about $28 billion in 2008. Purchasing is the largest area where the company feels it can cut costs, spokesman Michael Mitchell said.

Kraft said it planned to cut overhead as a percentage of net revenue to about 12.5 percent in 2011 from 14 percent in 2008.

Kraft informed its suppliers in March that it was conducting the purchasing review. That review puts existing suppliers not only in competition with each other for Kraft's business, but also with potential new suppliers.

In some cases it makes sense for an individual Kraft brand to buy its own items, to meet the expectations of the shoppers that buy a product, Brown said. But Kraft is also trying to determine areas where it could save money by purchasing items -- such as packaging materials -- for the entire company.

Adapted from source: www.reuters.com, 9 September 2009