Driving cost leadership is a key strategic thrust for delivering on our ambitions. It is critical to ensuring continuous improvement, driving efficiencies and maintaining our competitiveness. This will ensure that we
produce affordable and relevant products for increasingly value seeking consumers, while driving growth and improving our profitability.
DRIVING CONSUMER RELEVANCE, AFFORDABILITY AND IMPROVING PROFITABILITY THROUGH COST LEADERSHIP
Given the particularly tough economic environment, there is
an obvious imperative to be as cost competitive as possible
and to ensure that we drive sustainable growth and
profitability.
Our identified six key levers of cost leadership aimed at
improving gross and operating profit margins, enhancing
returns on invested capital and increasing total shareholder
returns are unchanged.
We have retained a strong focus this year on each of these
six cost leadership levers (listed below), delivering progress
across all of them. We have made significant progress in
particular through our continuous improvement initiatives
relating to value engineering, supply chain optimisation
including logistics and manufacturing efficiencies,
contributing to total savings this year of R525 million.
- Value engineering: We are looking to improve margins
by designing for value and reducing costs across our
activities. We have made progress this year in optimising
product and recipe formulations across our portfolio –
without compromising product quality or taste – as well
as delivering cost through innovations in recipe and
product packaging, including moving from glass to
recyclable PET in certain key categories and optimising
product formulations informed by a thorough appreciation
of our targeted consumer needs. Key achievements
include Black Cat moving to PET, packaging and recipe
value engineering across KOO, Cross & Blackwell,
Albany, Tastic and Fatti's & Monis.
- Procurement optimisation: We are continuing to
realise opportunities to reduce spend on a prioritised set
of raw material ingredients and packaging through
renegotiations with suppliers and improved sourcing and
purchasing of commodities. Our ability to realise these
procurement savings has been enhanced through the
decentralised decision-making and reduced bureaucracy
associated with our new federated operating model, as
well as by improved insights delivered through digital
enablement and AI tools.
- Stock keeping unit (SKU) rationalisation: By reducing
the number of our SKUs, and minimising the complexity
of our recipes, product processes and packaging, we are
continuing to deliver valuable top-line and bottom-line
benefits, enhancing manufacturing efficiency, reducing
procurement and inventory costs, and optimising our
sales and marketing spend. We have delivered ahead of
our 20% target at 27% reduction in SKUs since the start
of FY24. Having achieved our target, going forward, we
will continue to manage the optimal balance of SKUs
across the respective business units, using our SKU
rationalisation framework.
- Process innovation and automation: We are
progressing with various process innovations; these
include automation projects to reduce conversion costs
and wastage, as well as delivering workforce efficiencies
through our strengthened time-in-motion analysis.
- Manufacturing footprint: We have identified
opportunities for considerable savings through optimising
our overall manufacturing footprint, as well as improving
the productivity and efficiency of our sites by enhancing
the manufacturing synergies between different categories
and products and implementing various energy and
water efficiency projects.
- Supply chain optimisation: We are continuing to realise
opportunities to optimise our logistics network including
consolidation of our warehouses into "technology-enabled
super sites" or "Mega-DCs", strengthening
our dispatch and route management activities, and
enhancing our digital tools and skills.
These cost savings have been underpinned by the valuable
efficiency and productivity gains associated with our
federated operating model.
