$1 billion saved and counting
Today the Labor Department released its Consumer Price Index for April. As the headlines and information in several posts suggest, a trip to the supermarket has gotten more expensive.
Reuters reported that the Consumer Price Index increased 0.3 percent last month as food prices rose for a fourth consecutive month. While U.S. consumer prices recorded their largest increase in 10 months in April, pointing to some inflation in the economy.
For a quick primer on inflation statistics, check out this blog post in today’s Wall Street Journal.
Holistic Margin Management
One of General Mills’ strategies to offset rising input costs is a disciplined focus on Holistic Margin Management, or what we refer to as HMM both when talking internally and to investors.
“Without a doubt, commodity cost inflation and volatility have ranked among the packaged food industry’s biggest challenges in recent years,” said Don Mulligan, our chief financial officer, at the Consumer Analysts Group of New York event in February.
“HMM savings are our first line of defense to offset input cost inflation and protect gross margin and we see HMM as a powerful, ongoing source of cost savings in the years ahead.”
What is HMM?
Simply put, HMM call on us to understand the drivers of value in our brands and to eliminate non-value added costs and activities. These cost savings allow us to protect our margins and reinvest in brand building and innovation, fueling growth.
HMM has really become a “way of life” for us at General Mills and it’s proven to be a success.
Cumulative savings in our cost of goods through 2013 have totaled $1.4 billion dollars, accelerating progress against our stated goal to achieve $4 billion dollars of HMM savings by 2020.
A “holistic” approach
Often companies focus their efforts on “supply chain productivity,” and years ago, we might have defined our productivity efforts in much the same way – but they did not always encompass all aspects of a business.
In 2005, General Mills started on a path of continuous improvement that would eliminate costs in our business activities that weren’t adding value for consumers.
Across the business, teams re-evaluated total product offerings, production processes, even the financial assessment of their brands. They sought to understand “What is the consumer looking for? What do they truly value? And what are they willing to pay for a product that meets or exceeds those expectations?”
General Mills’ “holistic” approach to productivity and margin management crosses functions and disciplines. It involves virtually everything – from product development to packaging innovations, convenience to product placement, from manufacturing to logistics, to marketing to sales – with business units taking the lead coordinating role.
General Mills has already identified hundreds of ways to drive value by focusing on what matters most to consumers and reducing waste across its operations. Here are few examples.
At one time we used 20 different pasta shapes in different varieties of Helper. We now use 10 pasta shapes, a move that created purchasing and manufacturing efficiency. We also reduced the size of several Helper packages by 20 percent while keeping the same amount of product in each box. We did this by increasing the density of some of the pasta shapes to fit closer together in a smaller box, and reducing the number of spice and ingredient pouches that need to be packaged. Extensive testing proved that these changes did not have an impact on product quality or consumer preference.
Often many of these HMM savings have an environmental benefit. In more than 250 of our Häagen-Dazs shops around the world, we have installed “scoop showers” to save water and money.
The “scoop shower” keeps ice cream scoops clean without running the water tap all day. The innovation, which reduces water use by 75 percent, saves an estimated $1 million per year.
Across General Mills cereal production plants we have installed energy meters on several pieces of major equipment, enabling plant personnel to better understand the impact of system changes using real-time energy consumption data.
Thanks to the energy meters and their real-time tracking abilities, in Fiscal 2013 General Mills reduced its energy usage rate at seven locations by 6 percent, saving $3.7 million. This energy savings accomplishment was recognized by President Obama earlier this week.
We’ve learned a lot from this disciplined focus on HMM, and in 2008 we transferred this continuous improvement mindset and best practices to the state of Minnesota through an innovative public/private partnership supporting the state’s Enterprise LEAN initiative.
This partnership is focused on business process improvement and has already paid dividends for the state, generating millions in savings.