- Nestlé has saved more than half of the 2.0 billion to 2.5 billion Swiss Francs ($1.99 billion to $2.49 billion) the company set out to save by 2020 by streamlining its procurement and operations, CFO François-Xavier Roger told The Wall Street Journal.
- Since the savings initiative began in 2016, Nestlé has simplified recipes, rightsized its manufacturing network and condensed procurement teams. Procurement consolidation contributed 65% of the savings, while manufacturing shifts made up 35%.
- The CPG giant closed 24 factories in the last two years, according to a February investor presentation. "This means that we have accelerated the re-structuring, we are closing about one plant a month," said Roger.
At a time when many global CPG players are shedding lines of business in the name of efficiency, Nestlé is opting to do the dirty work of streamlining its massive multinational operation.
A few sales may still occur — Nestlé is shopping for a buyer for its skin health segment. But the way to bring up margins and drive growth, according to Nestlé USA CEO Steven Presley, is to streamline procurement and operations — a monster of a task for a company with $90.7 billion in 2018 sales.
Streamlining the procurement function extends from changing strategy to cutting suppliers. The company's overall supplier count decreased by 10% from 150,000 suppliers to roughly 132,000 since 2016.
"We will reduce even further so we have less people and we buy more from them with better terms for us," Roger said.
Despite the additional 24 plant closings Roger mentioned, Nestlé's fixed costs in manufacturing decreased by just 2% in the last two years. Roger said more work to consolidate Nestlé's manufacturing footprint is on the way. These efforts combined with the procurement changes are on track to deliver 150 to 250 basis points of added margin. The first two years of the savings program saw a 100 basis point gain in margin.
Nestlé plans to massively overhaul its U.S. distribution model later this year and into 2020, ending its direct delivery of temperature-controlled products and closing eight frozen distribution centers.
All this change does not come for free — the cost is approximately $700 million Swiss Francs ($696 million) just this year, which Roger said is a reasonable expectation for next year as well.