Kraft-Heinz deal could lead to a new recipe for supply chain management

One of my first thoughts when news of the merger between food giants H.J. Heinz Co. and The Kraft Foods Group came out was “when you mix ketchup and mac and cheese, you end up with a complicated supply chain.”

Poor joke aside, there really is a lot going on with this deal, especially as it pertains to what will, or could, happen, in regards to supply chain and logistics operations under the umbrella, or more appropriately, in the cupboard, of this soon to be behemoth which under its new name–The Kraft Heinz Company-will become the fifth-largest food company in the world, and the third-largest in the United States, according to a March 25 press release issued by Heinz.

As for what a complicated supply chain, it is fair to say that the complexities could be abundant, given the ubiquity of each company’s respective brands and products, as well as things like streamlining related logistics IT efforts and managing assets, carrier bases and 3PL relationships, among many other things.

Another thing that falls under the supply chain purview as they relate to this deal include supplier relations, with the companies likely to undergo a massive consolidation of sorts to avoid redundancies.

When two companies of this size and scale become one really, really large enterprise, it stands to reason that data will be front and center of it all. That was made clear by Steve Steutermann, Vice President Research, Consumer Products at Gartner - AMR Research, said that master data management is both a significant challenge and an enabler to order, shipping and billing as one vendor (Kraft-Heinz).

He added that there is really no shortage of other challenges, too, including forecasting demand down into a new combined network, talent selection, and aligning strategies, which he described as hurdles. 

It is imperative for the joint entity to have a communication plan to affected customers, whereas re-negotiating lane rates, contracts can and should be viewed as an opportunity for improvement, he explained.

A commentary in Forbes by supply chain veteran Paul Martyn noted that from a supply chain management perspective this deal is logical, because “both firms have mature and sophisticated ‘supply chain cultures’ that will prove easy to integrate.”

Why is that? Well, according to Martyn, like analyst Steutermann, it goes back to data management, with Martyn observing that both Kraft and Heinz leverage advanced market clearing algorithms to regularly identify market based savings opportunities and to also challenge internal operating constraints, including quality and risk considerations.

In the aforementioned March 25 press release, it notes “The significant synergy potential includes an estimated $1.5 billion in annual cost savings implemented by the end of 2017. Synergies will come from the increased scale of the new organization, the sharing of best practices and cost reductions.”

While that savings sounds like a staggering sum on paper at least, Martyn said that it is actually modest, considering that each company has significant global transportation networks to get supplies to and from their factories along with delivering products to market. What’s more, he pointed out that each company antes up almost $1.5 billion per year on transportation alone, with the total transportation spend just shy of $3 billion annually (can you say HUGE shippers?). The optimization of these networks alone, he said, could trim that tally by 10 percent.

While this deal is not expected to be made official until the second half of this year, it is clear there is already a lot going on, when it comes to assessing the supply chain, logistics, and transportation-related facets that will be more clear over time to be sure. There are many moving parts and complexities, and that is not expected, but at the same time it will be worth watching to see how things are navigated going forward. Many industry experts often cite how a strong supply chain translates into a strong bottom line. Based on that thesis, Kraft and Heinz are doing fine, and should things be fluid in the integration process, this could end up being a supply chain that needs to be followed and studied on a whole host of levels. How will things play out? Stay tuned.