The recently completed private equity-driven acquisition of Kraft Foods Group by HJ Heinz Co. has illustrated an emerging cost-cutting practice that will surely be challenging to these newly merged operations. This new practice is being emulated by many industries and operations personnel will be tasked with accommodating the rigorous new cost-cutting efforts. Here’s what you need to know about the new practice and how your TMS solution and other Logistics IT tools can help ease the pain.
Private equity firm 3G Capital Partners bought Heinz two years ago and just completed a $49 billion deal to acquire Kraft. 3G now seeks to strengthen the profitability of their acquisitions by cutting waste and redundancy, focusing on process improvements. They’ve begun with large strokes like eliminating hundreds of redundant management jobs and luxuries like corporate jets. They’ve also instituted drastic cost controls – down to the penny – including requiring employees to gain permission to make color photocopies.
According to the Wall Street Journal this new practice dubbed “Zero-Based Budgeting”, “requires managers to plan each year’s budget as if no money existed the previous year, rather than using the typical method of adjusting prior year spending.” Zero-based budgeting forces planners to justify the costs and benefits of every dollar over a 12 month window with the goal of ensuring that once-thriving divisions don’t continue spending at robust levels when/if their market success dwindles. This is particularly salient in the food production industry where shifting consumer tastes have been impacting on the profitability of entire segments (think: the emerging consumer preference for fresh alternatives to frozen foods).
WSJ suggests zero-based budgeting is here to stay as evidenced by similar cost-cutting activities recently implemented at Anheuser-Busch (after its acquisition by InBev) and those implemented at chicken processor. Pilgrim’s Pride which notoriously drilled into costs as granular as the amount of paper used to print in their offices and how much hand soap employees were using in the rest room!) Even Coca-Cola has embraced zero-cost budgeting as part of its plan to cut $3 billion in costs by 2019.
These proven solutions provide visibility into even the most granular cost drivers of transportation like those examined by zero-based budgeting. While supply chain management has long been viewed as a trusted method for controlling/reducing costs, the transportation piece has come under renewed scrutiny thanks to the savings potential inherent in supply chain logistics automation.
So what role can logistics IT solutions like Transportation Management Software, Rate/Route Optimization tools and Yard Management Systems play in helping companies achieve zero-cost budget goals and remain competitive in a brutal environment? These proven solutions provide visibility into even the most granular cost drivers of transportation – often regarded as among the top 2 to 3 costs associated with bringing products to market. While supply chain management has long been viewed as a trusted method for controlling/reducing costs, the transportation piece has come under renewed scrutiny thanks to the savings potential inherent in supply chain logistics automation.
TMS software is proven to help reduce costs by improving lead times and pickup delivery scheduling. Decreasing dwell times, missed delivery times and other assessorial fees levied against inefficient shippers is just one example. TMS is also great for driving down the shipper’s reliance on the spot market by effectuating better planning and execution.
Rate/route optimizers are proven to produce more consolidated loads while at the same time modeling highly efficient moves using the least amount of miles/fuel. These tools are also great at reducing the number of empty miles by promoting better visibility into backhaul opportunities.
Yard management systems are another tool for capturing often-overlooked efficiency savings. Better management of yard resources – tied in to TMS, WMS and ERP systems for upstream and downstream visibility – help reduce waiting times for loading and unloading by providing control over equipment availability and readiness. They also eliminate product lost to theft, damage claims and misplacement on the yard.
While more forward thinking companies have leveraged logistics IT solutions like TMS, YMS and optimizers for some time, the environment is now demanding that these efficiencies are treated more as “must haves” and not so much as “nice to haves”. Is your supply chain fully optimized to accommodate zero-based budgeting coming soon to a company like yours?