FoodCo* is a large and complex global manufacturer. As it grew over the years, costs crept up, but executives lost sight of where and why. As a result, FoodCo was looking for help to not only contain existing costs, but to revisit its operating model and fix some of the root causes of the inefficiencies.
When Bain took a baseline of current spending, we learned that there were sufficient opportunities to optimize many back office and support functions:
- IT costs were above industry benchmarks, in part because of the complexity of the business and in part because of the sheer volume of users and locations.
- There was minimal visibility into indirect purchasing, such as T&E reimbursements, phone and car bills and legal fees. This category comprised 40% of the company's overhead in the U.S., yet there was little consistency in oversight or even policies across business units.
- Research & Development (R&D) spend was below industry benchmarks and there was significant opportunity to improve return on investments.
- Marketing spend was also below industry benchmarks and limited due to slowed growth.
- Each of the 50-plus manufacturing locations had its own P&L and onsite HR staff, minimizing the scale efficiencies they could achieve.
Bain's focus was to collaborate with the company team to help fix root cause issues. Together, we looked at the broad cross-functional picture as well as specific functions. The end goal was for the company to spend what it needed—but not more—in the G&A area. To that end, we started by creating a baseline of the initial situation:
- Catalogue what each function does, and where it resides.
- Assess the company's investment stance on support functions: which needed to be best-in-class and which could simply be good or even slightly below-average?
- Analyze affordability of each function: what do activities cost compared to benchmark data, how can they be improved and what should new budget targets be?
With this information in hand, executives were in a much better position to make sustainable change.
FoodCo chose the more challenging, and unique, transformational approach for this project:
The overarching theme of the work was to help FoodCo invest more intelligently in G&A. To do so, it was important for executives to make some trade-offs between efficiency and effectiveness without compromising either one.
Some specific recommendations included:
- Reduce demand for IT services by rationalizing applications and business complexity.
- Refine customer segmentation and differentiate sales tactics
- Set new and consistent policies around major indirect purchase areas such as air travel and wireless phone reimbursements; get finance and procurement to work together on enforcement.
Working together, the Bain and FoodCo teams achieved substantial results that will have both an immediate and long-term impact on the company:
- Redesigned operating model, including changes to regional and corporate roles and shared service centers.
- Projected savings of 20% in overhead costs, 15% in headcount.
- Identified an additional $500+ million savings from increased organizational efficiency and effectiveness.
- Most importantly, shifted more spending to R&D, creating new world-class innovation capabilities and other improvements.
Fully implemented, this project will result in substantial overhead reduction rates for FoodCo:
* We take our clients' confidentiality seriously. While we've changed their names, the results are real.