mas has published a white paper on the importance for Consumer Packaged Goods Companies to invest in Zero-Based Budgeting (ZBB) initiatives
The recent aborted approach by Kraft Heinz to buy Unilever has highlighted the importance of embracing ZBB to reduce waste, improve profit margins or to fund top line growth. ZBB has positively contributed to Kraft Heinz’s profit margins, which currently sit ahead of many food industry peers (see figure) but have not contributed to sales growth which is far behind competition (see figure)
Mondelez International, General Mills, Kellogg, Unilever and Danone have all, started ZBB initiatives (often coupled with other strategic initiatives) to strengthen profitability. All these companies have set targets to reduce annual costs with amounts varying from EUR 600m to EUR 1 Billion.
Why is there so much interest in Consumer Packaged Goods (CPG) companies for ZBB?
CPG companies are facing a period of disruption that has hampered sales growth and dampened profits. Continuous increasing market shares for discounters and private labels have led to further commoditisation and increased competition. Changing consumer preferences for fresh and sustainable products across developed markets have seen the pulling power of legacy brands eroded.
What is Zero-Based Budgeting?
ZBB is an analytical, data-based and repeatable process to eliminate waste and using resources more effectively. At its heart it is an elegantly simplistic concept – but complex to implement. Rather than using last year’s budget as a starting point and then adjusting up or down to formulate projections, ZBB requires expenses to be rationally justified over each new budget period. There is a danger that ZBB is executed exclusively within the defined cost packages. A broader approach to ZBB leaves nothing out of scope, pursuing fresh efficiencies in contracting practices, make-versus-buy tradeoffs, demand reduction, requirement simplification, operational efficiency, applied analytics, rules and policies, and much more.
mas provides elegant solutions for complex issues. mas advisors provide a critical review on where to apply pragmatic programs to drive value creation with the highest returns. This can include initiatives for complexity reduction, process standardisation and simplification, broad Zero-based Budgeting, Strategic Sourcing, Spend better and Buy better initiatives. This pragmatic approach reduces the risk of failure and by reducing complexity and ensuring better alignment motivation of staff is increasing.
See details: ZBB feb 2017-1