If you haven’t heard Heinz and Kraft have recently stuck a deal to merge. There are a few manufacturing implications for this major shake-up in the food industry:
1) This will give one company significant control over the market for the segments they serve – the new company will have greater leverage with retailers and other marketing channels. This will drive down the new company’s cost per item sold.
2) It will allow for lower production costs by shrinking to a relatively smaller manufacturing footprint for each division – Capitalizing on unused capacity at existing facilities will allow for some other facilities to be downsized or shut down completely without hurting service levels. The incremental benefit will be eliminating duplicate costs such as overhead and shared labor.
3) It will allow for lower freight costs (and lead times) since strategically located plants for one brand can be leveraged by the other brand to serve key markets. This will help to cut down on longer and more expensive freight operations, resulting in overall shorter lead times and lower costs for both brands.
Overall, the new company’s operating costs will be reduced by a ton of money. If you are a competitor in this space, your job just got a bit tougher. The new company will probably give you a few years to get your operating costs down just to remain competitive. What I mean by this is that they will probably use the first few years of savings to pay for the merger and the changes that come with it. Then they can start to pass some of those savings on to their customers in the form of lower prices, making it more difficult for you to compete. Now is the time to turn up the turn up the heat on cutting waste from your operations.
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