Pillsbury: Customer Driven Reengineering

Company

• Founded in 1869 as a flour milling firm in Minnesota.

• Operations soon extended into branded bakery goods products.

• Grand Metropolitan (GrandMet), a diversified UK-based consumer goods and retailing corporation , purchased The Pillsbury Company for $5.8 billion.

Pillsbury Capabilities

• The Efficient Consumer Response (ECR) effort was a multi-industry project, involving food processors, manufacturers, distributors, wholesalers, brokers, and retailers.

• ECR's goals were to reduce costs and drive inventory levels down throughout the system, while simultaneously enhancing capabilities to meet the needs of diverse consumer market segments.

Activity-Based Costing

• Launched an activity-based cost (ABC) initiative to examine the group's high cost structure.

• The traditional cost system in these plants had been reporting a constant labor and overhead cost per case across all the cake mixes produced in a plant.

• The ABC analysis indicated a more than 3:1 cost variation in the various cake mixes.

Launching the Reengineering Program

• The proposal identified a process which would complement Pillsbury's existing strategic plan to achieve top quartile financial performance amongst its strategic peers.

Reengineering: Phase I

Three core business processes that offered targets for improvement:• Customer Supply Chain• Brand Management• New Product Commercialization

• The Customer Supply Chain since this process accounted for more than 85% of operating expenses.

• The Customer Supply Chain (CSC) was decomposed into three sub-processes:– Total Customer Development.– Fast Flow Demand Replenishment .– Value Based Sourcing and Supply.

Total Customer Development

Fast Flow Demand Replenishment

Value Based Sourcing and Supply

The system encompassed:• 1200+ different material specifications (recently

reduced from more than1900)• 260 vendors (recently reduced from more than

400)• Complex recipes and ingredient specifications• Arm's-length, price-sensitive relationships with

vendors; virtually notechnology or information integration with vendors

Reengineering: Phase II

• Launched in January 1994• Business case developed in Phase I was feasible

and realistic.• Re-engineering the customer supply chain

could provide upwards of $100 million in benefits.

• About half would come from working more closely with customers and other from managing Pillsbury's entire supply chain.

• Other companies cut people first and then attempt to re-design their processes.

• Pillsbury will start will clean slate by understanding its existing process and then re-design.

• To achieve $300 million improvements, approach organization with open mind.