Mondelez Reveals Supply Chain Strategy, Details Progress
Executives of Mondelez International have outlined the company's long-term growth strategy and detailed its progress on expanding margins through supply chain reinvention and overhead cost-reduction initiatives.
"In the current challenging environment, we're executing against our transformation agenda by controlling what we can control, reducing costs, pricing to protect profitability and driving our Power Brands and innovation platforms in key markets," says chairman and CEO Irene Rosenfeld. "By executing these strategies, we're well-positioned to continue to deliver strong shareholder value through sustainable, profitable growth over the long term."
Long-Term Growth Strategy
Rosenfeld noted the company's long-term targets of organic net revenue growth, adjusted operating income growth, and double-digit adjusted EPS growth. "In 2015, however, we'll continue to prioritize margin expansion and earnings growth while delivering modest organic revenue growth, as we progress our transformation agenda to focus our portfolio on snacks, reduce costs and invest for long-term growth," Rosenfeld says.
In terms of its portfolio, the company is expected to close a joint venture with D.E Master Blenders 1753 later this year, as well as two acquisitions, including Kinh Doh in Vietnam and U.S.-based Enjoy Life Foods.
Rosenfeld also shared examples of how the company continues to invest for growth by increasing support behind its Power Brands, innovation platforms and routes to market. In 2014, Power Brands represented more than 60 percent of net revenue and received about 80 percent of the company's A&C investment. And through successful innovation platforms such as belVita biscuits, Bubbly and Marvellous Creations chocolate, the company has quickly expanded products across multiple geographies to accelerate growth.
Supply Chain Goals
Daniel Myers, EVP Integrated Supply Chain outlined how the company will transform its manufacturing processes to develop more efficient, modular designs for global product platforms, which the company refers to as "Lines of the Future." These advantaged lines are cutting conversion costs by 30 percent in biscuits and 20 percent in chocolate and in gum as they replace older, more inefficient assets.
"Our Lines of the Future are driving significant savings in reduced engineering, installation and start-up costs. And we're reducing conversion costs through increased throughput, less waste and lower staffing per line," says Myers.
Mondelez is also restructuring its end-to-end supply chain network. Over the past two years, the company will have funded and built 11 new or expanded manufacturing plants around the world. By 2018, another five sites are planned to be built.
"When we started our journey, only 15 percent of our Power Brands were produced on advantaged assets," says Myers. "By 2018, we expect that number to be about 70 percent." Myers added that the goal is to have all of the company's Power Brands produced on advantaged assets in advantaged locations at advantaged costs.
Targeting Overhead Reduction Through B-I-C Cost Management
"Overhead savings will also be a major contributor to margin gains," says Brian Gladden, EVP and CFO. "Using a zero-based-budgeting approach, we significantly reduced overhead as a percentage of revenue in 2014. This puts us well on our way to reduce overheads by at least 200 basis points by 2016."
As a result of cost reduction progress in both the supply chain and overheads, adjusted operating income margin increased by 80 basis points to 12.9 percent in 2014, despite absorbing a 50-basis-point headwind from mark-to-market accounting.