Procurement is expected to become a strategic weapon for Kraft Heinz.
Beset by poor management and financial misconduct, procurement had become an embarrassment for Kraft Heinz. Under the direction of Marcos Eloi, the new Chief Procurement Officer, the department is being revamped and repositioned as a major cost savings contributor within the supply chain. Centralization, automation, and collaboration are the main characteristics of the transformation that Kraft Heinz touts as game changing, but that skeptics view as perhaps insufficient to deliver the results expected by the company.
Video Spotlight: Kraft Heinz’s CEO Describes the Shift in Strategy
This post is based on the Supply Chain Dive article, The Kraft Heinz Procurement Overhaul Is Here, by E. Cosgrove, September 24, 2020, and the YouTube video, Heinz CEO Discusses Selling off Cheese Business and the Company’s Reset Strategy, by Yahoo Finance, September 16, 2020. Image source: Comstock Images / Alamy.
1. Describe the major aspects of the overhaul. Are they aligned with Operations’ competitive priorities (cost, quality, delivery, and flexibility)?
Guidance: The overhaul involves: 1) a decrease in transactional sourcing, 2) a reduction in internal manufacturing capacity and a heavier reliance on outsourcing, 3) a value-based expansion of the product portfolio with cross-functional collaboration, and 4) centralization and control of procurement operations.
In principle, the overhaul should increase the capabilities of the organization in all competitive areas. On the cost front, a stronger emphasis on analytics and e-auctions, lower expenditures related to manufacturing capacity, a more disciplined approach to product design, and a consolidation of spend should yield considerable savings. In terms of quality, Kraft Heinz’s move away from 55 categories to 6 platforms seems better aligned with customers’ tastes, and it is possible that external manufacturers will have more expertise in setting high standards for the new product lines. As for mix flexibility, outside expertise will certainly spur innovation and the addition of new, more exciting products, leading to the sell-off or rejuvenation of old ones. Finally, a stronger cross-functional approach in design with fewer “re-dos” will bolster the company’s ability to deliver new products faster.
2. Why are some experts skeptical of Kraft Heinz’s new strategy?
Guidance: They do not view Kraft Heinz’s new approach as something that will fix all the problems. The structural and cultural problems that plagued the company for years may not have been resolved. For example, automation will not improve faulty procurement processes. Furthermore, a cultural reinvention must complement the procedural one to avoid the ethical missteps of the past. E-auctions will cut costs and expand the supplier base, but the strategy could backfire as the cut-throat approach may yield a lack of collaboration and poor quality. Finally, some experts fear that cutting costs may constrain R&D’s ability to innovate.
3. Describe the make-or-buy methodology that Kraft Heinz wants to create.
Guidance: The company wants to evolve from a purely transactional make-or-buy approach to a collaborative one. The decision to outsource aims at expanding capabilities, especially in new product development. Whereas cutting costs while expanding production capacity underpins a traditional make-or-buy approach, capitalizing on the sharing of product development skills and rapid release of new products is a bolder strategy that could help Kraft Heinz differentiate itself not only from competitors, but also from its aging self.