Main image
Swee Leng Ng, FCMA, CGMA, CFO of Kraft Foods China since 2008, oversaw Project Eagle, which focused on driving gross margins, cost savings and improving productivity in the group’s China operation

Background: Just after we finalised our 2012 budget, and before we’d even started the financial year, we were hit by a severe external environment.

Inflation hit a record high, the price of raw materials such as oil, wheat, coffee beans, sugar and cocoa rose by between 15 and 30 per cent, while the cost of labour increased 20 per cent.

As a result, our P&L was at risk and we faced significant pressure on our gross and profit margins. We realised we had to act with a sense of urgency, otherwise profits would be adversely impacted by 20 per cent.

Project Eagle was subsequently formed and was tasked with finding opportunities to close the 20 per cent profit gap.

A board meeting was called to discuss the issues. Its recommendation was to form a cross-functional project team comprising members from finance, sales, marketing, manufacturing and R&D to tackle the issue.

Mapping out the process: We started with an assessment, identifying the root causes of the issues. A brainstorming meeting was held to gather ideas and resolutions, and to identify goals and strategies.

A set of milestones to achieve those plans were discussed and a clear action plan and timetable drawn up.

Action: Within a month, the project team came up with the following action plan:
1 Assessment of pricing. Adjust the size of selected products without impacting consumer uptake.
2 Rationalisation of stock-keeping units (SKUs are the main product lines in the business) – delisting low-margin and low-volume SKUs to improve the overall portfolio mix.

An ongoing process to eliminate wastage and drive productivity was run across the production line at the same time (I put in place a project team to look into this across every line of P&L when I started the role in 2008).

The project team then launched the implementation plan. A weekly meeting gauged its impact, monitoring and tracking progress.

Business segments involved: In my team, the financial planning and analysis manager led the project, while two analysts from finance were also involved.

Throughout the project almost every department manager in Kraft China – be it marketing, R&D, production or supply chain (all responsible for the P&L of the Chinese business) – worked together with the goal of achieving the productivity target.

Completion: The initial project, which had a significant impact on the company’s performance, was completed within three months, with another three months to completion.

A lot of details needed to be resolved during the second phase, with help from marketing, R&D and manufacturing.

The observation from Kraft Foods executives at the Chicago HQ was that the execution was flawless and was achieved in a fast and cost-effective manner.

This is in a business that has seen annual revenue in China increase three times between 2008 and 2012.

Photo: PlainPicture
Illustrations: Stuart Daly/Dutch Uncle

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.

Words

 
close

 

 

All future Financial Management online content will now be available through the FM app. Download the free app from the Apple App Store, Google Play or Amazon by searching for 'CIMA FM'.

Old issues will still be available in the archive.

  •  
  •  
  •