General Mills

General Mills' Strategy Delivers

Food company employs 'holistic margin management' to drive out non-value-added costs.

On page 56 of its 2011 corporate social responsibility report, General Mills Inc. shares several successful efforts the food company has made to reduce its environmental footprint by means of "holistic margin management."

The efforts include such examples as:

  • Installing energy meters on several pieces of equipment at its Covington, Ga., plant. The additional data gathered via the meters allowed operators to optimize production and led to annual savings of more than $600,000.
  • Reducing to one the number of lid colors used on Yoplait yogurt varieties. The move allowed the food company to improve buying efficiency. It saves the brand $2 million annually.
  • Partnering with a can supplier in France to move its manufacturing plant closer to (in fact, adjacent to) General Mills' Green Giant plant. The transport efficiencies equate to savings of $1.5 million per year and reduce transportation distance by 220,000 kilometers.

As the examples suggest, holistic margin management has to do with savings -- but not simply savings. It's also about creating more value.

Holistic margin management, explains John Church, General Mills senior vice president of supply chain, is about removing non-value-added components, from a customer's perspective, and reinvesting those savings in value-creating opportunities. It's holistic in that the strategy crosses all functions and disciplines rather than focusing solely on the supply chain.

"It involves virtually everything from product development to packaging innovations, convenience to product placement, from manufacturing to logistics to marketing to sales and all of our internal business processes," according to Church.

Similarly -- and maybe not surprisingly -- holistic margin management calls on cross-functional teams to understand the value drivers of General Mills' brands and remove the waste. Church says the cross-functional teams may include sourcing, finance, operations, engineering, packaging, law, sales, research and development, marketing and consumer insights. The business units determine participation, he explains.

General Mills introduced holistic margin management in 2005.

A key to its success is understanding the customer, his or her relationship with General Mills' brands, and the value equation. "It is driven by consumer and customer needs. Focusing on what is valued by the people that matter most to our business is helping us challenge the way we do things," Church explains.

The senior vice president provides an example of holistic margin management to explain another of its key components, that of examining whether product specifications or formulations add unnecessary complexity "and thus costs" to suppliers. In the case of Old El Paso, 17 different customized caps required suppliers to stock a wide array of inventory and make frequent equipment changes. Customer research, on the other hand, showed that customers did not value the variety of caps.

Ultimately, General Mills reduced the number of cap styles it required down to five. The efficiencies gained allowed the company to better leverage and streamline its cap buying.

Such cost savings not only allow General Mills to offset inflation and maintain margins, but also Church says the savings are reinvested back into the brands "in the form of marketing support, which in turn, drives top-line growth."

General Mills says it is on target to meet its goal of achieving $1 billion in savings by 2012 from its holistic margin management strategy.

 

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