Supply chain from manufacturing to shelf A Kellogg's case study
Page 3: The supply chain - the secondary sector
Kellogg's is a secondary sector business. It obtains its raw materials of wheat, corn, cocoa, rice and sugar from primary suppliers around the world. These materials help make over 40 different breakfast cereals and snacks to sell to customers through the tertiary sector. It is a large-scale manufacturer and stores sufficient stocks to meet customer orders. As part of its Research and Development (R&D) programmes, it develops recipes to extend its range of cereals and snacks.
Large-scale manufacturers like Kellogg's need to consider many different aspects of their operations:
Where to locate the business - this could be near to materials' suppliers. For example, power stations are often sited near to coal sources to reduce delivery costs. Frozen peas factories may be near farms to ensure the product is fresh. Kellogg's ingredients are grown in many countries. It is more important for its manufacturing sites to be near to distribution channels and customers so products can reach shelves quickly.
Size and scale - they need large factories with adequate space for equipment and production processes. They also need to accommodate the frequent delivery of incoming materials and outgoing finished goods.
Where and how materials and finished goods are to be stored until needed for sale - as part of Kellogg's manufacturing process it packages products ready for immediate distribution.
Where its customers are - Kellogg's does not sell its breakfast cereals directly to consumers. It uses intermediaries like wholesalers, supermarkets, high street stores and hotels. Transportation and storage occur between all stages of the supply chain.
Kellogg's largest UK production plant is at Trafford Park in Manchester. One of its storage depots was 15 miles away at Warrington. Kellogg's moved this storage to a new warehouse site in Trafford Park, only one mile away from its production base. This provides specialist energy efficient warehousing of stock 24 hours a day. To improve its distribution, Kellogg's collaborates with TDG, alogistics specialist. This reduces transport costs considerably and is energy-efficient. Kellogg's has reduced both its carbon footprint and costs as a result.
The Food and Drink Federation (FDF) is an umbrella organisation for food and drink manufacturers and has called on its members to improve their environmental performance by reducing:
levels of packaging to consumers
use of water during production
impact of transportation
waste to landfill
energy use during production.
Through the FDF, Kellogg's has signed an agreement with 21 major companies to improve water efficiency, reduce wastage and cut CO2 emissions. Together these companies aim to save 140 million litres of water per day. This will reduce their water bills by £60 million each year. Kellogg's has also joined with the international company Kimberley Clark, which makes paper products like tissues, to reduce carbon emissions by sharing delivery services.
Kellogg's now has targets in these areas and where possible builds these aspects into Service Level Agreements with partner companies in the primary, secondary and tertiary sectors.