Thinking outside the Cereal Box

General Mills' far-flung search for efficiency ideas

As the economy has unraveled over the past three years, managers desperate to prop up profits have been beating the bushes for new ways to cut costs. Few, however, have wandered further afield in pursuit of smart ideas than General Mills (GIS ) Inc. chief technical officer Randy G. Darcy. He has participated in predawn raids with a U.S. Marshals Service SWAT team, hung out with a NASCAR pit crew, and watched Air Force mechanics fix Stealth bombers. Darcy's unlikely goal: to make his operation "the best supply chain in the world."

It's more than just a theoretical ambition. CEO Stephen W. Sanger has given Darcy an epic challenge: cut $1 billion out of General Mills' supply chain in 10 years. By getting the company into fighting trim, Sanger hopes he'll be able to dig out from under a staggering $8.9 billion in debt from his $10.1 billion acquisition of Pillsbury from Diageo (DEO ) PLC in 2001. That's no small task for a company with $10.5 billion in sales that has already cut hundreds of millions of dollars over the last decade.

Slashing costs is just one of many challenges General Mills faces. It needs to regain market share that it ceded to archrival Kellogg (K ) Co., which became the No. 1 U.S. cereal maker last year. And it's fighting off fierce competition from Campbell Soup (CPB ) Co. and ConAgra Foods (CAG ) Inc. in canned soups and ready-to-eat meals. Says Sanger: "We can't get by doing what we did yesterday."

Darcy is confident that he can save $800 million of the $1 billion target by adapting lessons in efficiency learned elsewhere. But money-saving ideas from pit crews and SWAT teams? Don't laugh: He has already made considerable progress. Darcy targets groups that routinely take performance to the extreme, studying them for efficiency secrets that might benefit General Mills -- either by applying those secrets directly or by jolting employees into thinking of new ways of doing their jobs. By observing how a NASCAR pit crew was able to work with blinding speed simply through better organization, General Mills was able to cut the time it took workers to change a production line at a Lodi (Calif.) factory from one Betty Crocker product to another from 4.5 hours to just 12 minutes. And by watching the way that Stealth bomber pilots and maintenance crews cooperated, the company was able to improve its own teamwork, helping to cut cereal production costs by 25% at a plant in Buffalo.

Such gains, while impressive, may represent only a fraction of what's possible for General Mills, the maker of Cheerios cereal, Betty Crocker cake mixes, and Hamburger Helper. Anand Sharma, the CEO of TBM Consulting Group Inc. in Durham, N.C., who specializes in efficiency, says the company should be able to triple its cost-cutting goals -- aiming for annual productivity improvements of 15% and profit gains of an additional 4% by aggressively applying what it learns. Moreover, experts say that seeking inspiration outside one's industry, as General Mills is doing, is the only way to leapfrog ahead of rivals. "Given how efficient many organizations have become, the next big idea won't come from internal thinking," says Ravin Jesuthasan, principal at Towers Perrin's reward and performance management consulting practice in Chicago. "It has got to come from revolutionary, outside-the-box thinking."

But even with all of General Mills' efforts to borrow management ideas from the unlikeliest of places, reaching the $1 billion savings goal won't be easy. Companies like General Mills, which has been cutting costs for years, may find future efficiency gains harder to come by.

And while Darcy believes the benefits from his excursions outside the cereal biz are real, some are impossible to measure. For example, the SWAT team's cooperative approach to nabbing fugitives inspired General Mills to replace separate performance goals for engineering, purchasing, and production with a single set of goals for all departments, eliminating the incentive for one department to cut corners at another's expense. Darcy cites a purchasing manager who met cost-cutting goals under the old system by buying thinner cartons -- even though they jammed up the production lines, raising manufacturing costs. Gross margins have improved in the four years since the new incentives were implemented -- from 44% to 47% -- but it's unclear how much of the improvement can be attributed to the change.

Finally, not all the efficiency lessons that Darcy brings back from the field can be adapted throughout General Mills. While the company was able to use the NASCAR lessons to transform the Betty Crocker plant -- by replacing standard bolts with those requiring only a quarter turn and stocking toolboxes with the specific gear needed to switch product lines -- efforts to duplicate much of that success elsewhere failed because many plant functions were unique.

Darcy isn't giving up, though. Lately, he's been working with Erik Weihenmayer, a blind mountaineer who has scaled the seven greatest summits. The goal: to understand his method for assembling expedition teams based on personality traits, instead of climbing skill, insights that Darcy says will prove critical to the success of the Pillsbury integration. "The only way to cross a glacier is on a rope to which your entire team is tied," says Weihenmayer. "You either all plunge together or succeed together." Darcy and his team are betting they won't be falling into the abyss any time soon.

By Pallavi Gogoi in Minneapolis

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