Kraft Slices Purchasing Expense to Curb Costs

Currently sweet talking its way to acquiring Cadbury, Kraft Foods is radically cutting down its list of suppliers as another way to cut costs.


According to CFO Magazine, Kraft CFO Tim McLevish announced at the Barclays Capital Back-To-School Conference that his company is narrowing its number of strategic suppliers to fewer than half the current 70,000. He says the company will choose “those that offer sustained competitive advantage and who can grow with us.”


In its efforts to standardise, Kraft is also looking to make a deep cut in its current number of 40,000 raw material specifications, says the magazine. The company will only differentiate if there’s a difference that adds consumer value. McLevish believes that the cost savings from the reduction will be quite substantial.


CFO Magazine reports that Kraft has already gotten $1.3 billion in savings by closing 36 plants and eliminating 19,000 jobs. The company wants to cut overhead as a percentage of net revenue to about 12.5% in 2011 from 14% in 2008.

The company is also looking to cut costs by reducing its 46-day 2008 cash-conversion cycle by about five days by 2011. It also wants to streamline manufacturing.


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