Developing world-class manufacturing facilities

Investing in excellence in our manufacturing operations is a critical foundation for Tiger Brands' success. Through our operations support strategy and capex programme, we are striving to build agile, fit-for-purpose operations that deliver continuous improvement in productivity as efficiently and safely as possible, ensuring product quality and enhanced environmental performance. We are placing a particular focus on implementing and progressing manufacturing excellence custom and practice (MECP) across all our plants, prioritising our activities this year on ten sites with the greatest need for improvement. Our investment in plant and equipment is supported by investment in competency-based training, talent attraction and retention, and building a pipeline through management trainees and apprentices.

This year, our capital expenditure amounted to R961 million, covering numerous projects aimed at expanding capacity, optimising efficiency, replacing ageing equipment, upgrading infrastructure, ensuring compliance, and realising innovation opportunities. Specific projects included the multi-year investment in the relocation and upgrading of our peanut butter plant, improving reliability at our pasta facility, improvement in aerosol lines within Personal Care, and various automation and digitalisation initiatives across our categories. In August 2022, we signed a power purchase agreement with an independent power producer to introduce solar power at four of our sites, with solar power generation expected to come on line at all of these sites by March 2023. This forms an important step towards our goal of sourcing 65% of our manufacturing electricity requirements from renewable energy by 2030.

Our investment in plant and equipment is supported by investment in safety performance, competency-based training, talent attraction and retention, and building a pipeline through management trainees and apprentices. Capital expenditure of R1,6 billion has been earmarked for FY23, of which R403 million has already received the prerequisite approvals. These investments are underpinned by replacement and maintenance aimed at optimising efficiencies and realising innovation opportunities while supporting our commitment to health and safety compliance. The most significant projects include the relocation and upgrade of our peanut butter plant, upgrade to the aerosol canning line, a new oats flaking plant and structural improvements at the Sorghum facility.

The focus at the ten priority plants is to sustain the momentum of achieving improvements in OEE, with a clear focus placed on safety performance, entrenching MECP practices, filling priority vacancies and developing competencies and ensuring effective maintenance practices. It is pleasing to report that we have achieved a 9% improvement in OEE across our focus sites over the past three years, with Tiger Brands now inside the "Best in Class" definition area for overall OEE. In addition, over the same period, we have achieved R354 million in savings through MUV.

Despite our various occupational safety training, assessment and auditing initiatives, it has been a disappointing year in terms of safety performance, with the tragic fatality of one Albany driver and two contractors reflecting a broader increase in employee injuries with our lost-time injury frequency rate (LTIFR) of 0,45. This year we have improved our internal safety monitoring and reporting process, and changed our methodology for calculating LTIFR to ensure greater consistency with our peers for benchmarking and assessment purposes.

Embedding a product quality approach

Although we have continued to make progress this year in embedding a strong quality culture, supported by qualified people and robust integrated management systems, we recognise that more still needs to be done in our drive to ensure world class product quality and consumer safety practices.

Our overall quality performance improved significantly this year, with a 14% reduction in consumer complaints. This progress, off the back of significant improvements in the prior year, was unfortunately overshadowed by a recall of certain baby powder products. The recall was instituted as a precautionary measure in the best interests of consumers after trace levels of asbestos were detected in test samples from a batch of
pharmaceutical-grade talc powder used as a raw material in the production of our baby talc powder products. The trace levels of asbestos detected in the test samples were so low that it could not be quantified by the standardised testing methodology used. We have undertaken a root cause analysis and are implementing various corrective actions.

Last year we introduced a new supplier quality assurance (SQA) protocol – informed by a detailed supplier, raw material, and packaging risk matrix – as part of a structured process to strengthen the management of our supplier quality assurance. We introduced a more robust supplier audit programme and have been working with suppliers to proactively identify and address areas of potential risk. We have prioritised a number of suppliers and third-party manufacturers to be physically audited next year, based on an assessment of potential risks.

In our own operations, we have ensured that HACCP risk and control measures are in place across our facilities. We have identified high-risk areas and implemented the necessary critical control measures, introducing new automation and in-line inspection technologies where needed, and validating our quality testing, sanitation and finished good release protocols. We are continuing to conduct quarterly self-assessments against the Global Food Safety Initiative (GFSI) requirements, as well as self-assessments against Tiger Brands' quality standards. All but three of our manufacturing units are certified to the global FSSC 22000 standard, a GFSI-recognised food safety certification scheme; the three remaining units are currently on HACCP certification and will progress to FSSC 22000 certification next year. All 23 of our external warehouse facilities (Tiger Brands facilities and third-party warehouses) were externally audited this year and certified against the Brand Reputation through Compliance (BRCGS) Global Standard for Storage and Distribution.

Tiger Brands has been a member of the European Hygiene Engineering and Design Group (EHEDG) since 2019 and we use their detailed guidelines and expertise to enable best practice across our operations on hygienic design and food quality safety. We also renewed our sponsorship of the Centre for Food Safety, an applied food-science research consortium at Stellenbosch University that works with the food industry and other stakeholders on food safety challenges. Our teams have continued to benefit from the centre's valuable technical support and advice on food safety and microbiological risk assessments.

Enhancing the centralised procurement capability

This has been a challenging year for procurement, with continuing global supply chain constraints and increasing inflationary pressures resulting in the procurement team having to focus all its efforts on securing supply rather than unlocking new value. Together with the need to adequately resource the team, these challenges have hampered our ability to deliver on our ambition of transitioning to a world-leading procurement function that drives an improved bottom-line and serves as a key source of competitive advantage for the group.

Globally we have seen some significant changes in corporate procurement priorities in recent years. While cost savings remains the strongest priority, there has been a heightened focus on supplier risk management and ensuring strong ESG/sustainability practices across the supply chain, with issues around digitisation, talent management, and innovation also gaining importance.

Within this context, we have been working over the past few years to centralise our procurement function into a single hub that manages the strategic sourcing of major spend items – such as ingredients and fresh produce, packaging, and logistics – as cost effectively as possible, leveraging scale both internally and externally with the aim of establishing the group as a price maker and not a price taker.

We recognise that much needs to be done if we are to match the procurement performance of leading local and global peers. We believe there is an opportunity to unlock value of around R500 million within the next two years, if we strengthen our core procurement capabilities, complete the realignment of our centralised operating model, and ensure priority investment in the right digital tools and technology. We are working to redefine our governance and processes to significantly increase capacity, using digital tools to drive a step-change in operational efficiencies, risk remediation and improved sourcing effectiveness. We will be strengthening the commonality of processes – such as category management, supplier management and operating process – centralising our investment in talent, and ensuring more effective collaboration with our business units to optimise costs and drive growth.

Transforming our logistics activities

Last year we launched an ambitious logistics transformation programme aimed at positioning the logistics function as an important source of strategic advantage, realising significant costs savings and improving overall efficiencies. This programme covers 12 broad focus areas and several individual projects with the goal of developing a function that is self-sufficient and agile, where we have full ownership of the intellectual property and data, as well as improved overall visibility and management of the logistics process, delivering a significant reduction percentage in logistics costs.

Through this initiative we have brought in a new warehouse management system that has already been implemented at one of our warehouses, with implementation imminent at other sites next year. We are currently reorganising our customer support centre, which will start operations in March 2023. We have introduced a pallet optimisation initiative at some of our facilities, which is expected to yield material savings in transport costs as soon as next year; the business case for additional opportunities is being assessed in other operations for potential launch next year. The first phase of a project to improve the management of logistics providers, and integrate forecasting with replenishment planning, has been completed. We are confident that these various initiatives will deliver significant savings by getting the basics right, ensuring full ownership of intellectual property and data, freeing us from potential hold-ups by service providers, and improving overall visibility and management of the logistics process.