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How Kellogg Uses Standardized Benchmarks to Boost Cost Savings -- WSJ

The Wall Street Journal · 01/06/2023 06:00

By Mark Maurer

Kellogg Co. is working to reap additional cost savings by relying more heavily on standardized performance benchmarks, a move that could prove particularly useful as the economy slows.

The Battle Creek, Mich.-based cereal giant is among hundreds of thousands of businesses across industries that use the same benchmarks not only to reduce costs, but also to boost revenue and better see how they compare with peers.

Kellogg began using the benchmarks in 2019. Its global business services unit generates cost savings representing about 6% to 7% of its annual run rate, the cost structure used to operate the unit, said Diana Morehouse, director of performance excellence, technology and data for Kellogg's GBS. The efforts help the company standardize its customer invoicing, processes for bringing on new workers as well as strengthening its supply chain.

The standards date to 2004, when a group of 14 corporations, government organizations and consultants partnered with the American Productivity & Quality Center, a Houston nonprofit group, to share and standardize thousands of measures of business processes, such as purchasing inventory and managing a supply chain. The partners devised common ways to measure, for example, the costs of processing a purchase order and budgeting and the amount of waste on a factory floor.

Companies estimate the business value of benchmarking represents nearly 7% of their average revenue, according to a survey of about 2,000 executives globally released in October by APQC and International Business Machines Corp., one of the group's founding members.

WSJ's CFO Journal talked to Ms. Morehouse and Debra Nave, manager of process intelligence, about how their approach to benchmarking has changed over the past few years. Their answers have been edited for length and clarity.

WSJ: What led Kellogg to start using standardized benchmarks in 2019?

Ms. Morehouse: We knew that internal metrics would not be enough for us to truly understand how our business was running. We looked at the marketplace and saw these open benchmarking standards with APQC and did a partnership there. We use it quite extensively at this point throughout our global business services. It is part of our annual metrics process as we reset our objectives and goals and strategies for the year. And it is something that we integrate into our target-setting for all of our metrics to understand performance across the organization.

WSJ: Many companies had already adopted these benchmarks by this time. Why did you wait?

Ms. Nave: At that point, Kellogg's global business services had existed for five years and so we recognized that it was time to take a step back and say, "Are the processes we're doing robust and how do we correctly measure them?" It was the first dive into benchmarking, where we truly were looking at how standard we are against our peers. Kellogg has used benchmarks in various ways throughout our history, but as we created GBS in the mid-2010s, it was apparent that a more formal method to review performance was required.

WSJ: How many benchmarks were you using at first?

Ms. Morehouse: We used 25 to 30 benchmarks in 2019 in pockets of the organization. We weren't really digging into peer groupings, which is something else we've really matured into. That allows us to have a deep review into each of the processes. When we started, we couldn't use many of the benchmarks because our process didn't match the industry standard enough to even benchmark against it. It was at times a struggle to understand how our process was different from the industry standard and how we needed to change and adjust to be able to use more benchmarks.

WSJ: How many benchmarks do you currently use?

Ms. Morehouse: We use over a hundred on at least an annual basis. Anytime we have a process change or process improvement, the process happens all over again. It's a continuous process to look at those benchmarks. As we have matured in our global process standards, we've been able to incorporate more.

WSJ: How have you boosted efficiencies from using benchmarks?

Ms. Morehouse: You're always looking for waste in the process, potentially adding technology and automation. Over time, we've added in some process-intelligence software to help us understand when our processes are done many ways and that we can drive to one standard way of operating. When we marry the benchmarking along with the process intelligence, we've really been able to drive a lot of waste out of the organization. A lot of that is wait times.

WSJ: How did wait times change?

Ms. Morehouse: In some cases it was a few weeks to fill out paperwork or get something approved. With technology automation, each process that we improve has a different solution. In one instance, for one of our master data areas, which could involve a company's customers and products, we put in technology versus email queues. That helps automate the approvals and the wait times and the verification that we were doing to that master data to make sure it was accurate before it was entered.

WSJ: What would this paperwork be for?

Ms. Morehouse: The instance I'm thinking of is in accounts payable, maybe a request for a vendor master, which is a full record of supplier data. For example, we have a new vendor in North America that's coming in. At one point, that was largely an email queue. It took up to two weeks to get that approval through to understand the appropriate banking information, etc. We've lowered that cost to operate, by putting in technology, to a couple of days.

WSJ: Are you aiming to increase the savings from your current estimate?

Ms. Morehouse: Always and of course. I don't have a target that I can share. Generating productivity savings is critical at any time in order to drive shareholder value, but is increasingly important amid economic uncertainty to offset high inflation and to offset reduced revenue potential during recessions.

WSJ: What are your next steps in benchmarking?

Ms. Morehouse: For us, a lot of it is in marrying that process intelligence technology with our processes so that we become even more data-driven and then continuing to iterate and mature against our benchmarks with that. There's certainly always a road map for technology and growth as we go forward.

Write to Mark Maurer at mark.maurer@wsj.com

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January 06, 2023 06:00 ET (11:00 GMT)

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