Using Supply Chain Redesign in the Processed Meat Industry
Most of us would like to imagine that even though our processed foods are not the healthiest, they are at least produced in an advanced way. This would ensure that health standards, such as temperature controls and contaminants, would be limited. Unfortunately, this had not been the case at Kraft Food Group’s Oscar Meyer plants. While the issues they encountered in this article were not in the health standards field, outdated processes still contributed to their struggles to remain competitive within the processed meat industry.
Prior to being purchased by 3G Capital LLC, a Brazilian company that specializes in taking over and optimizing companies, Kraft Food Group had produced their meat in a factory dating back to 1872. Within this antiquated environment, “A typical turkey breast required four rides between floors to get from raw meat to packaged slices. Breakdowns could slow production to a crawl.” These inefficiencies, along with shifts in consumer demand, had led to a 21% decrease in Kraft’s stock price.
Upon acquiring Kraft in 2015, 3G decided to redesign the company’s supply chain. The new factory they designed is outfitted with top of the line technology, cutting out the potential for the delays that had handicapped Kraft’s production in the past. Tellingly, the new plant can produce “17% more than the old factory, while employing 500 fewer people.” Reinvestments have also improved the technology used in curing meats, taking the throughput time from two days to a much more preferable two to eight hours, depending on the exact product. 3G has also introduced some lean aspects to the supply chain, such as holding less inventory for repairs to reduce costs. In a broader supply chain redesign, “the company used computer modeling to analyze where it sourced ingredients, where it needed to ship finished products, and the cost and availability of labor and other resources. The model spit out ideal locations for factories and warehouses.” By reducing the cost of logistics along the supply chain, Kraft and 3G are naturally able to save a lot of money. They also shifted production of products to different factories depending on similar inputs.
Despite these improvements to the supply chain, which have contributed to Kraft having “the highest operating profit margin among its peers in the U.S. food industry,” managing their demand is still a struggle. Many consumers are leaning away from processed meats in favor of locally sourced or naturally certified options, in other words, meat that is actually sliced and not simply pressed to look like it is sliced. According to Sarah Schmansky, a professional in the meat industry, “What’s on the label matters – 68 percent of consumers are willing to pay more for foods and drinks that do not contain undesirable ingredients. And lunchmeat companies are taking that seriously.” While the market for processed meats shrinks, efficiency improvements can only do so much. Looking to the future, Kraft will have to consider how they can adapt to changing consumer preferences. Certainly, being able to provide naturally produced meats at their current levels of efficiency will be a challenge. It may even require further supply chain alterations. But if they hope to keep up their market share, Kraft will have no choice.
https://www.foodengineeringmag.com/articles/96809-lunchmeat-trends-from-nielsen-fresh
From our discussions in class, one of the things I had not really thought about was how current trends could be putting pressure of companies to redesign or reengineer their supply chains. Food aside, it seems that consumer preferences are trending towards quality over price which is in large contrast from previous generations. As you quoted in your article, almost 70 percent of consumers prefer quality products over cheaper products. There must be a large amount of pressure on food companies, especially a low-quality company like Kraft Foods. Kraft cannot afford to have poor nutritional value and an increased likelihood of contaminants because of their processes. Many consumers don’t like to think about the idea of their food being manufactured, and a turkey that takes four hours to be processed in a factory that dates all the way back to 1872 certainty does not help that image. Based on recent market trends it may be time for Kraft Foods to change their competitive strategies as a whole, they may want to move away from cost and gravitate towards quality. Considering that point, I think this post shows how everything we have learned in operations management has to be integrated for a company to be successful. Supply chains are built from the bottom up, and if a piece of its foundation causes issues then the operations must be reevaluated and reengineered in order for the company to return to a successful environment.
If Kraft wants to really get into locally sourced or naturally certified options, they have to figure out an effective brand campaign. In my opinion, when I look at anything affiliated with Kraft or Oscar Meyer, my belief is that they are not bringing the highest quality food to the table.
The article I read below shows that, of March 8th, 2018, they are indeed trying to enter this category. It mentions that they are trying to partner with brands that are “certified organic, plant-based proteins, locally sourced, farm-to-table and/or nutrient-dense superfoods.” Developing a newer, premium brand is a smart move for them because that would leave the Kraft or Oscar Meyer brand off of the product.
The only issue I have with the “Springboard” program that is referred to in the article is how little they are spending towards developing startups. Kraft is only dedicating $50,000 to enhancing possible health focused startups, which does not seem like enough is they truly want to enter the category. More funds could lead to higher potential earnings for a growing category, as younger consumers become more health and environmentally focused.
(http://www.meatpoultry.com/articles/news_home/Business/2018/03/Kraft_Heinz_launches_platform.aspx?ID=%7B67234AFE-EAEB-4F97-ADEF-E391F5A664CF%7D&cck=1)
I agree that in order for Kraft to move forward they must adjust not only their supply chain process but also their product mix. Public sentiment appears to have turned very much against the kinds of processed meats the Kraft produces. The article below describes a current proposal in New York City, which will ban processed meats from school lunches. According to the article this issue is being very seriously considered and if more cities and towns begin to implement similar changes it could greatly impact the overall processed meat market.
https://www.thedailymeal.com/healthy-eating/new-york-city-lawmakers-ban-baloney-public-school-lunches/032318
Nicholas talks about how Kraft has made improvements to its supply chain, and how it is looking into improving its product mix as well. I think the improvement of the product mix will mean improving the supply chain even more. In order to get high quality products that the consumers are asking for, Kraft will either need to get new suppliers that have higher quality animals/meat or renegotiate contracts/regulations with the current suppliers so the suppliers know that they need to supply better quality meat. This article (http://www.sgs.com/en/news/2014/03/improving-the-meat-supply-chain-from-farm-to-retailer) talks about the process of improving the supply chain between farmers and retailers. The article stresses the importance of communication, something we’ve talked about a lot in class. Not only does there need to be communication between the levels of the supply chain, but there also needs to be communication between the supply chain and the consumer. Right now, consumers tend to have a bad attitude towards the meat industry because there has been a lot of negative things that have come out (animal cruelty, low quality, etc.) Even if companies are successful in improving their supply chains to fix these problems, they need to be able to convey the results to the consumers so that they can win back consumers trust and keep consumers’ business.
Good point, Nicolas. Kraft is a company with a large amount of inventory at hand which means they need to really nail down their demand forecasting or they will lose millions of dollars in inventory on the shelf. As you quoted, they are an industry leader in operating profit margin. This is the epitome of supply chain strategy. 3G has allowed Kraft to increase production while employing fewer people. As we discussed in class, a supply chain strategy is designing a firm’s supply chain based on competitive priorities of the firm’s operation strategy.
Kraft rebranded their goods based on the customer needs. “68 percent of consumers are willing to pay more for foods and drinks that do not contain undesirable ingredients.” Like you said, it’s hard to completely adapt to a change in customer demands. Over the past decade ago, the customer is more focused on organic and green foods. This is why Kraft needed to make a change. Not only did Kraft adapt to the demand of customer, but it increased supply chain efficiency.
This blog post and article were extremely interesting to read. I am surprised that a food company, of all types of companies, would continue producing in a building more than a century old. With all the health dangers that are accompanied with this old aged facility, the lack of technological advancement clearly would have an impact on the quality of their goods. With such a long throughput time, Kraft probably found that processing their goods would be the only way they could maintain the quality of their foods. We know that processed foods include chemicals that extend its lifetime, but as the blog post says, consumers are veering from processed foods to natural ingredients and chemical-free foods. It cannot and should not be acceptable for the sake of their quality strategy for an item to travel throughout the system for as long as it was in the old system. The throughput time of a manufacturing company involving the production of raw foods should be one of the smallest figures compared to other manufacturing companies that produce clothing and other items that do cannot cause sickness if not properly stored. In order to ensure food safety and food quality, I believe that this shift in supply chain design will improve Kraft’s processes and efficiencies greatly.
I continue to be amazed at the various topics that people choose which teach me and have relevance! My best friend who is pre-vet actually applied for and got to visit one of the meat packing plants with the Brazilian company 3G Capital LLC. That is such an interesting coincidence!
Firstly, the improvement to the equipment within the processing plant was crucial. And much like my other peers, I agree that it was a necessary move. I also think Kraft should adapt with the change in consumer preference in order to decrease its operating margins and be able to be more profitable. It could potentially use this opportunity to market itself to a position in which it is dedicated to more health conscious cuts of meat. Even though there is a lean towards wholesome organic, local farms, the general populace still purchases meat in grocery stores and from companies like Kraft.