Working Capital Management at Kraft

The CSCMP’s Supply Chain Quarterly just published their first issue for 2010. One of the articles deals with the rising interest in reducing working capital using the example of Kraft Foods.
As well as other companies Kraft already had prior cash flow initiatives, where they analyzed their WC positions: payables, receivables, inventory, and capital expenditures.
Kraft realized that especially high inventories tie huge amounts of cash flow, therefore Supply Chain Management had to be included.

Project outline

• Longterm, to make the changes sustainable
• Decentralized, due to the heterogeneous nature of the company
• each business unit has their own supply chain
• in some product categories Kraft also owns the inventory at the store shelfs
• Incentives, for managers at the business units to improve working capital
• Experts advise, internal consultants were employed to support the business units
• Three geographical phases, USA, Europe, World

Best practice

• Reduction of SKUs, especially low-revenue / high volatility
• Repetitive flexible manufacturing, producing a single product more frequently and lowering the produced quantity for each lot
• Evaluating the reduction of customer service levels to reduce inventory
• Software support, to forecast the best location for inventories

Conclusion

For companies without huge growth potential cash flow is one of the most important performance indicators available.
But reducing inventories nearly always also implies risks for the consumer service level and hence the revenues. As a result, the level of inventories and its dependent variables have to be tightly monitored and controlled.