This posting continues our Supply Chain Matters series of noting where specific supply chain initiatives have been cited as adding significant value for businesses.  ConAgra Foods is a consumer goods food manufacturer providing many recognized food brands including Healthy Choice, Chef Boyardee, Hebrew National, Hunt’s, among others.  The company also has a significant presence in providing commercial food products.

I find that the current outline of supply chain activity within ConAgra is a rather typical scenario of supply chain teams being called on to deliver significant cost-cutting initiatives for the needs of the overall business, especially through these extraordinary times of economic downturn.  Cost-savings derived from supply chain activities are often re-invested in other business priorities, or flow directly to the bottom line to insure continued profitability. 

During ConAgra’s fiscal second quarter of 2010 conference call, senior executives positively cited the contribution of supply chain teams within that company’s consumer foods supply chain.  In the quarter, consumer food sales increased 3% and volume increase 2%. Operating profit increased by a significant 31%, and this was the fourth consecutive quarter of profit growth for this operating segment.

The consumer goods supply chain team was specifically cited by ConAgra’s CFO for its long runway of cost reduction.  In the second quarter alone, approximately $90 million in savings was delivered.  The current estimate is that this team is on track to deliver up to $300 million in savings for the full fiscal year. 

The savings garnered from supply chain have allowed funding for other business priorities.  In ConAgra’s specific case, advertising and product promotional expenses increased by 25% or $24 million in the second quarter.  Savings also offset other potential product price increases.

Initiatives cited were a complete set of working capital savings initiatives including consolidation of inventory.  The company has an ongoing effort for SKU management and rationalization which was noted as working extremely well.  Longer production runs were cited as delivering higher efficiency gains.. Other cost savings initiatives include smarter sourcing strategies for commodities, such as wheat and potatoes. A net deflation in other inbound commodity costs has also contributed positively to cost savings.

Significant supply chain related cost cutting at ConAgra dates back to 2006 with far reaching plans to consolidate its network of manufacturing facilities. Of late, the company has also invested in advanced supply chain technology, including demand sensing and multi-echelon inventory optimization software.

thumps_upThe ConAgra supply chain team will continue in its efforts to sustain its efficiency and cost-saving initiatives. Supply Chain Matters extends a “thumbs-up” to this supply chain team for its impressive efforts.

 The open question however often remains as to whether the cumulative impacts of these cost cuts take their toll in supply chain agility and responsiveness, when the business demands that capability. Time will have the tell this story and we will certainly be observing.

How do you view ConAgra’s efforts?  Are they typical for your industry?

Bob Ferrari