Case Study

Kelloggs Cornflake Company

Introduction

The Kelloggs Cornflake Company began in 1906 with the Kellogg brothers who originally ran a sanatorium in Michigan, USA. They experimented with different ways to cook cereals without losing the goodness. Their philosophy was improved diet leads to improved health. Between 1938 and the present-day Kelloggs opened manufacturing plants in the UK, Canada, Australia, Latin America and Asia. Kelloggs is now the worlds leading breakfast cereal manufacturer. Its products are manufactured in 19 countries and sold in more than 160 countries. It produces a wide range of cereal products, including the well-known brands of Kelloggs Corn Flakes, Rice Krispies, Special K, Fruit n Fibre, as well as the Nutri-Grain cereal bars.

Kelloggs business strategy is clear and focused:

to grow the cereal business there are now 40 different cereals

to expand the snack business by diversifying into convenience foods

to engage in specific growth opportunities.

By acting responsibly, businesses win respect and trust from communities, governments, customers and the public. This enables the business to grow. In the community, Kelloggs is known for its approach to Corporate Social Responsibility (CSR). For example, its programme to promote the benefits of breakfast clubs has provided over one million breakfasts to

schoolchildren throughout the UK. Businesses focus primarily on the creation of profit but increasingly understand that their

social and environmental impacts are important. Kelloggs believes in acting responsibly in all sections of the supply chain. This is a better long-term business model for both the organisation and its customers. Amongst other activities, it aims to do this by reducing energy and emissions in manufacturing and distribution and improving packaging. Kelloggs Global Code of Ethics demonstrates a commitment to act respectfully and ethically. Our mission is to drive sustainable growth through the power of our people and brands by better serving the needs of our consumers, customers and communities. This case study shows how Kelloggs fulfils this mission in the later parts of the supply chain from manufacturing to shelf.

The supply chains

The industrial supply chain consists of three key sectors:

1. Primary (or extractive) sector - providing raw materials such as oil and coal or food stocks like wheat and corn. Some raw materials are sold immediately for consumption, such as coal to power stations. Others are used further up the supply chain to be made into finished goods.

2. Secondary (or manufacturing) sector industries make, build and assemble products. Examples include car manufacturers or bakers who use primary products. For example, Kelloggs purchases rice for Rice Krispies and corn for Cornflakes.

3. Tertiary sector industries do not produce goods. They provide services such as in banking, retailing, leisure industries or transport.

From start to finish of the supply chain a range of agencies or departments are involved. These include research, quality, purchasing, sales, and transport and distribution. As part of their business strategy, companies need to consider how best to acquire and distribute raw materials. Businesses such as Kelloggs recognize the importance of storing and transporting products effectively. Kelloggs seeks to organize transportation and storage of materials and finished products to minimize costs and environmental impact. Increasingly governments are working to encourage businesses and individuals to reduce their carbon footprint and the effects of global warming. In the supply chain, there are a number of areas where waste can be identified. Lean production is an inventory system enabling the streamlining of processes and elimination of waste. Kelloggs regularly evaluates its production methods to ensure that they give the required outcomes and that waste is reduced. This aids competitiveness and profitability by lowering overheads and unit costs. In the past, businesses thought it was more effective if they carried out several parts of the supply chain, like manufacturing and transportation, themselves. To meet requirements and provide customer satisfaction, this meant deliveries taking place frequently and often without consideration of impacts on the environment. An urgent order might result in a half-empty vehicle making the delivery to a waiting customer. If this happened regularly it would be a waste of time and fuel. Consumers and governments now look for more environmentally-friendly methods of production and distribution systems. It is therefore more efficient and cost-effective for Kelloggs to specialise in the area in which it is expert manufacturing. It does not have its own distribution fleet ybut uses partners for its transport needs.

Managing the supply chain effectively

Having the right marketing mix ensures businesses have the right product, in the right place, at the right time. Kelloggs manufactures the right products based on research into consumer needs. It manages the distribution channels to place its products in stores. Its focus on cost effective systems ensures its prices are competitive. It works with retailers to improve promotion of its products. Retailers want to hold limited stocks of products to reduce warehousing costs. Kelloggs uses a system called just-in-time to provide an efficient stock inventory system. Just-in-time means that just enough product is made to fulfil orders and limited stock is kept. Kelloggs needs to get the balance right at each section of the supply chain. Late deliveries or inability to deliver due to a lack of products might make retailers buy from competitors. Through its collaborations with TDG and by relocating some of its warehousing, Kelloggs now has a more efficient distribution system. Computerised stock holding systems ensure shelves are always full and orders are delivered on time. This helps Kelloggs to keep stocks to a minimum. It also helps customers like ASDA and Tesco to reduce their stocks too. This illustrates the effectiveness of Kelloggs supply chain management (SCM). This was achieved by a collaboration of industries within the supply chain. Each company works within their specialist area to provide products and services to consumers.

a) Distribution has improved through the collaboration of Kelloggs, Kimberley Clark and TDG. Storage, in itself, is investment without returns. Every day materials or products are on a shelf, they are costing money without earning any profit. Retailers do not want a warehouse that is unnecessarily full and neither do manufacturers. When deliveries are made, lorries need to be full to minimise unit costs of transportation. This collaboration has helped all of these aspects. Customers are guaranteed deliveries on time because stocks are monitored effectively. Deliveries are cost effective as lorry capacity is used effectively. Retailers like ASDA and Tesco benefit as they are kept stocked without storage costs. Therefore, their advertising yields good returns, as customers are always able to buy Kelloggs products.

b) The lean production system streamlines processes and eliminates waste. Computerised warehousing means that products are manufactured efficiently, then transported straight from the warehouse to retail customers. This avoids delay to customers. TDG keeps the warehouse costs low through computerised heating and specialist transportation skills. The computerised stockholding shows immediately when shelves are empty. This then automatically generates orders to the manufacturing base at Trafford Park to replenish stocks. This minimises waste and the lower costs have increased Kelloggs profits. This also helps the company to keep prices competitive, which keep customers happy and loyal. The effect on the environment is good too as heating and fuel costs are minimised.

Conclusion

The three sections of the industrial supply chain need to interact to ensure goods or services reach consumers. The efficient delivery of the product to the consumer at the right price, in the right place and at the right time will result in good business for each link of the chain. This takes strategic planning and effective collaboration with all partners. Specialisation is more cost-effective for Kelloggs and partnering with other industry specialists reduces costs to the business, the customer and the environment. Kelloggs champions socially responsible operations. Through effective supply chain management, it benefits itself, the environment and other businesses.

Question 2

Give three examples of how Kelloggs demonstrates good supply chain management.