Mondelez Drives Margin Expansion Through Supply Chain Redesign
Mondelez International, Deerfield, Ill., announced initiatives to redesign its supply chain, which over the next three years, will bring in about $3 billion in gross productivity savings, $1.5 billion in net productivity and $1 billion in incremental cash. These savings will be the primary driver of an approximately 60-to-90 basis-point annual improvement in base operating income margin.
Mondelez plans to pay for these investments primarily by expanding margins in North America and Europe to levels at or above the average of peer companies.
"In North America, we're targeting a 500-basis-point improvement in operating income margin, and we now expect to reach that target by 2016, a year earlier than originally anticipated," says Irene Rosenfeld, chairman and CEO. "In Europe, we're targeting an improvement of 250 basis points in OI margin, which we also expect to reach by 2016."
Driving supply chain productivity savings to reinvest in growth
"We're building an integrated supply chain organization that's laser-focused on delivering a demonstrable competitive advantage and generating savings we can reinvest in our growth," says Daniel Myers, executive vice president, integrated supply chain.
Myers detailed the company's journey to reinvent its complex supply chain, beginning with upgrading leadership talent and capabilities. Leveraging experience from more than a dozen leading CPG companies, the team is transforming manufacturing processes and partnering with suppliers to develop more efficient, modular designs for global product platforms.
To support expected demand, the company will invest in 14 Greenfield plants by 2020, to be built on advantaged platforms in locations with optimized logistics. By 2020, the volume produced on advantaged assets will rise from 15% today to about 80%. Similarly, revenue per plant is expected to more than double by the end of the decade.
The company is also driving major productivity improvements through Lean Six Sigma, procurement transformation and simplification programs. Several examples include $400 million of conversion productivity savings over the past two years, largely from Lean Six Sigma work; a 20% reduction in procurement costs by partnering with strategic suppliers; and simplification of the European biscuit portfolio that is expected to reduce complexity by 60% and save $100 million in costs.
Finally, Mondelez plans to improve cash management by addressing all of the levers of the cash conversion cycle, including Days Sales Outstanding, inventory levels and suppliers' payment terms. In doing so, the company delivered a $400 million step-up in cash flow last year and expects to deliver incremental cash of $1 billion over the next three years.
"We're well-positioned for success," says Dave Brearton, executive vice president and CFO. "We're bullish on the future and in our ability to deliver top-tier financial results and superior shareholder returns."