Kraft to cut suppliers to save millions

9 September 2009

10 September 2009

Kraft Foods plans to halve its supply base in a bid to save $300 million (£182 million) a year, according to Reuters.

The move, outlined by senior vice president of procurement Julia Brown in an interview with the news agency, would affect more than 30,000 suppliers.

It forms part of wider undertaken begun in March to overhaul its procurement for everything from ingredients to packaging.

Kraft, whose products include Dairylea and Kenco, aims to consolidate its purchasing operations, which have become increasingly complex as the company has expanded and acquired other firms. It is looking to standardise its 40,000 different product specifications for supplies globally.

Brown said: "This is probably the first truly holistic view we've taken. We're looking at where it makes sense to be more standardised.

"We're essentially saying: 'What is the right number of suppliers to support this particular category, who are they, what is the capability we need for now and in the future and does the current supplier base have that?'"

The world's second largest food maker will offer some vendors longer contracts in an effort to build stronger relationships and benefit from exclusive access to new products.

The news follows Kraft's proposed £10.2 billion acquisition of Cadbury earlier this week, which the company said could lead to total savings of at least $625 million a year. Up to $300 million a year of this would be delivered from procurement, manufacturing and logistics cost reductions (Web news, 8 September 2009).

Cadbury rejected the offer, but Kraft CEO Irene Rosenfeld said it will "continue to assess the opportunity and consider progressing to a formal offer".

SMsep2009

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