General Mills and Tesco: How Supply Chain Boosts Profits

Every once in a while it is interesting to conduct an internet search on the phrase “supply chain profits.” Here are two interesting stories from the fourth quarter of 2009 that I uncovered.

In a Wall Street Journal article by Ilan Brat and Anjali Cordiero published in September, supply chain initiatives were credited with helping General Mills raise its earnings forecast for its fiscal year and the company’s profit jumped 51 percent that quarter.  The biggest factor was lower commodity costs, but General Mills’ supply chain initiatives were clever. Here is an excerpt of the article:

In the recent quarter, General Mills reduced the gallons of fuel it used by 10% through changes in how it manufactures and distributes. In one case, the company increased the number of plants churning out its Honey Nut Cheerios cereal to four from two, allowing it to save gas by driving fewer miles to deliver the cereal to stores, said John Church, senior vice president of global supply chain. The company has also used new software to keep its trucks fuller, improving shipping efficiency.

The software that allows General Mills to pack out its trailers more efficiently is from ORTEC. The article highlights another example:

General Mills used to overproduce its Gushers and Fruit Roll-Ups fruit snacks by about 1% to 2% because of inefficiencies in the ordering and manufacturing process. It typically stored the extra fruit snacks, but last year it launched a new product of “mystery” fruit snacks that combines the once-warehoused Gushers, Fruit Roll-Ups and other snacks in one pouch. The new product has become the sixth-fastest selling fruit snack in the U.S., Mr. Church said.

Tesco, the large retailer headquartered in the UK, is renowned for its excellence in supply chain management. In a posting on its Supply Chain Management blog, Infosys highlighted how Tesco’s commitments to being ‘green’ are helping both its image and bottom line. Here is an excerpt of the blog posting by Suresh Patel:

Tesco is aware that climate change impacts its entire supply chain. It needs to minimize the carbon from cradle to grave of the products on its shelves.

This is what Tesco is doing to minimize its carbon footprint in [its] supply chain:

Most of the products are now transported by train and not by road. It is also looking at alternate ways of transportation. Tesco is cutting down 9 million miles a year by using the canal to transfer its good[s] from Liverpool to Manchester.

The way the goods reach the store is changing too. Most of the vehicles are powered by natural gas. It eventually wants to power all its vehicles using methane – which is produced by rotting fruits and vegetables. The waste that used to go to the landfill will now power Tesco’s fleet.

Operational data like average speed, braking etc. is processed for each truck and the driver receives a report with personal tips [for] efficient driving. Tesco predicts that the fuel bill will drop by 7% because of [these actions], resulting in less emissions and [better] fuel economy.

For most companies, excellence in supply chain management is not enough to ensure growth and profits, but it certainly is a key contributor to a company’s ongoing success.