BATTLE CREEK, MICH. — Kellogg Co. plans to close two plants and expand another as part of its Project K four-year efficiency and effectiveness program. The cost-cutting plan, which was unveiled in early November, is expected to result in the elimination of about 7% of Kellogg’s global workforce over the next four years and entails spending as much as $1.4 billion by the end of 2017 to relocate production lines and globally integrate internal business services.
The most recent changes include the closing of the company’s ready-to-eat cereal plant in London, Ont., by the end of 2014, and the closing of a snacks plant in Charmhaven, Australia, by late 2014.
Meanwhile, Kellogg said it plans to expand its cereals and snacks facility in Rayong, Thailand, by early 2015. The plant opened in 1997.
“As with any project of this scope and one that impacts people, these are difficult decisions,” said John Bryant, president and chief executive officer of Kellogg. “We are very mindful of the impact these changes will have — particularly to our employees. As our employees and others would expect from Kellogg, we will help those who are impacted through their transitions.”
Mr. Bryant said Kellogg has “a compelling business need” to better align its assets with marketplace trends and customer requirements.
“To that end, we are taking action to ensure our manufacturing network is operating the right number of plants and production lines — in the right locations — to better meet current and future production needs and the evolving needs of our customers,” he said.
With Project K, Kellogg Co. plans to rebuild brands in four key areas: cereal, snacks, frozen foods and emerging markets.
“Project K is a very different kind of efficiency and effective program,” said Alistair Hirst, senior vice-president of global supply chain, during a Nov. 4 call with financial analysts to discuss third-quarter earnings. “The primary source of savings will be from consolidating facilities and eliminating excess capacity. It will not be from reducing head count in our operating plants. It is designed to drive a more effective organization. It will reduce complexity while increasing our ability to execute. And we will maintain the levels of empowerment we worked so hard to development in supply chain.”
The program is projected to cost between $1.2 billion and $1.4 billion. Cash savings are expected to reach an annual run-rate of between $425 million and $475 million in 2018.“Our goal with this program is to reinvest back in our business and to gain momentum in our business and get back on our sustainable growth model, and we will continue to reinvest back in the business until we see that happen,” Mr. Hirst said. “And so I think that's going to be over the next few years. So I think it is very hard for us to predict today what might be happening in 2017, 2018. We haven't given 2014 guidance yet. . . . It is fair to say because these are structural cost changes, they take time to execute and see the savings come through. So the 2014 savings will be meaningfully lower than the normal run rate savings that we will achieve in later years.”