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May 26, 2011

On the money: Heinz sets out productivity “quantum leap”

HJ Heinz today (26 May) said it would look to leverage its "global scale" to improve productivity as it raised its five-year savings targets.

HJ Heinz today (26 May) said it would look to leverage its “global scale” to improve productivity as it raised its five-year savings targets.

After delivering a 14.4% increase in net income for the 12 months to 27 April, the US ketchup group said it aims to deliver US$1.3bn in cost savings by 2016, up from its previous aim of $1bn. The group also indicated that it intends to drive productivity to 4% of goods sold over the next five years.

Speaking during Heinz’ analyst meeting, Heinz supply chain chief Bob Ostryniec said that these savings would be delivered through a focus on integrating and centralising the company’s global supply chain.

“Heinz is taking a truly global approach to reducing costs and driving productivity, margins and cash… and, quite frankly, this is a step-change for our company,” he said.

Over the past 12 months, Heinz has increased its gross margins by 70 basis points and, Ostryniec suggested, improved productivity was a “major part” of the group’s ability to drive improved profitability in the face of commodities headwinds.

According to Ostryniec, over the past 18 months the company has developed its “first global supply chain in our company’s history”.

“We are evolving to a global approach in everything we do… the days of taking a regional supply chain approach has become a thing of the past at Heinz,” he said.

Heinz revealed that it intends to drive margins by streamlining its management matrix in developed markets, intensifying its focus on “value engineering”, developing strategic alliances – such as the partnership with Coca-Cola Co., and “Project Keystone” – which aims to improve process, capabilities and systems.

As part of its productivity drive, Heinz announced plans to “exit” five factories across its Europe, US and the Pacific regions with the loss of between 800 and 1000 jobs.

“We as a company think we can build more productivity with lower capacity,” Heinz chairman, president and CEO Bill Johnson told analysts.

Describing the move as a “quantum leap”, Johnson hinted that the group planned to move production away from developed markets and into emerging regional markets in the long-term.

“The reality is our resources are still very concentric with the developed world,” he said. This, Heinz indicated, was in-line with its strategy to grow sales and profits in emerging markets.

Heinz also said that it will open a new European hub, based in the Netherlands, in order to develop a “much more efficient” supply chain in the region.

Over fiscal 2012, Heinz said that it will invest $160m in improving productivity plus an additional $40m in rolling out its Project Keystone initiatives.

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