Last week, Kraft provided some acquisition synergy details around its announced £10bn bid to sweeten its own business by taking over Cadbury. According to Procurement Leaders, Kraft claimed that it "could deliver pre-tax cost savings of at least $625m annually by streamlining distribution, marketing and product development". It would do this primarily through increasing "operational efficiencies over and above the current performance improvement" programs at both organizations. I suspect sourcing and supply chain improvements would be a major component of these savings synergies if the deal goes through. But what areas would Kraft most likely focus on?
Given the activities of some of the Spend Management leaders in the food and CPG markets, I'd suspect that in addition to more traditional supply chain cost reduction initiatives (e.g., inventory, working capital, etc.) that much of the potential savings would come from the following three areas: consolidated and improved sourcing, supplier development and engineering (especially in such areas as packaging and flexible packaging) and commodity risk mitigation and hedging strategies. Spend Matters analysis suggests that Kraft is one of the more sophisticated companies when it comes to overall procurement and technology acumen within the food/CPG community. In fact, on the Geoffrey Moore scale, based on our own market segmentation ranking criteria, Kraft scores as one of the few Innovators in the segment (the other possibilities are Early Adopter, Early Majority, Late Majority and Laggards).
While we have not ranked Cadbury in our analysis, based on anecdotal evidence, they would most likely be further down the list than Kraft when it comes to all of the key areas and levers that can drive game-changing savings for food and CPG companies. Let's hope, however, that Kraft does not change one thing. And that's the fact that Cadbury, especially in its home market, uses sugar as its primary sweetener rather than corn-derived products. Trust me, it tastes better. Alas, in deference to consumers who make the ultimate confectionary buying decisions, I suspect that no amount of commodity aggregation or commodity substitution in this area will come to pass.