The maker of Betty Crocker, Bisquick, Cheerios, Häagen-Dazs, Nature Valley and Yoplait launched its ‘holistic margin management’ (HMM) program in 2005, calling it a defense against commodity cost inflation and volatility.
General Mills aimed to eliminate costs in business activities which were not adding value for consumers.
In 2015 the company wants to see contributions from ‘all areas of the supply chain’.
Executive warns of 4-5% rise in input costs
Last week General Mills announced its Q1 FY 2015 results for the period ending August 24. A tough operating environment with softer retail trends saw net profit plunge to $345.2m – down 24.8% on the previous year. Net sales fell 2.4% year-on-year to $4.27bn.
Speaking during the earnings call, John Church, executive VP, global supply chain, General Mills, said HMM looks at the company’s end-to-end processes to find costs that are not valued.
“We find ways to reduce or eliminate waste from our process allowing us to deliver more value to the consumer,” he said.
“HMM is truly holistic. It encompasses cost of goods savings, mix, and pricing. We also work to drive waste out of our marketing programs and our admin processes.”
Savings are used to offset inflation and boost brands, he added.
“We believe the demand driven increases in input costs will be a reality for our business for this foreseeable future. We expect inflation to average 4-5% per year.
“We are currently estimating input costs inflation of 3% in fiscal 2015, and we're roughly 55% covered for the year at this point. Clearly, the demand for HMM to offset inflation is not subsiding.”
From internal supply chain to external partners
In fiscal 2010, General Mills pledged to achieve $4bn of HMM savings by 2020.
“We are targeting another year of strong delivery in 2015, with more than $400m in COGS HMM in this year’s plan,” said Church.
“Our HMM plans for 2015 include contributions from all areas of our supply chain. We are taking the same expertise we’ve developed in our internal supply chain to our external partners through an initiative we call GEOS or General Mills End-to-End Optimization Solutions.
“By broadening our HMM scope up and down the value chain to suppliers and customers, we expect GEOS to deliver an incremental $10m in savings for General Mills this year.”
General Mills has around 25,000 supply chain employees around the world, he added.
Stripping out small volume SKUs
In Pouso Alegre, Brazil, a General Mills factory has reduced the number of ingredients used. As an example, it now uses two types of salt instead of six.
It has improved production scheduling by removing small volume SKUs, reducing changeover downtime, as well as automating many packaging systems, the company reported.
The Helper pasta brand has reduced the different types of pasta shapes from 20 to 10, creating purchasing and manufacturing efficiency. It also looked at increasing the density of some pasta shapes to fit closer together, meaning it could reduce the size of the box.
Energy meters have been installed at General Mills cereal production plants, so that workers can understand the impact of system changes on energy consumption.
“Our HMM efforts have enabled us to hold our overall gross margin relatively steady in recent years, despite inflation and volatility in our input costs,” said Church. “In fact, our reported gross margin in fiscal 2014 is in line with the levels from 2008 and 2009.”