Dive Brief:

• Kraft Heinz's new approach to manufacturing has allowed the company to increase the production of supply chain-stressed SKUs by 20% YoY, said U.S. Zone President Carlos Abrams-Rivera on an earnings call Thursday. Production capacity is up in the low single digits across SKUs, he said.
• The company will direct "triple-digit investment dollars to improve capacity in 2021," he said, reporting progress on the effort to employ more third-party manufacturers. Based on Q3 progress, the company raised its full-year guidance to project mid-single-digit sales growth, largely based on improved ability to meet market demand.
• The company adapted its product mix to the raw materials available in the third quarter, said Abrams-Rivera, which he offered as evidence of the company's increased agility as it adopts a new operating model with procurement, production, distribution, marketing and R&D working within one "Ops Center."

Dive Insight:

Increased at-home eating during the pandemic has boosted demand for Kraft Heinz products, but the company has struggled to meet all of that demand in part due to the unanticipated shift in customer behavior and partly because of longstanding inefficiencies in its supply chain management.

Manufacturing productivity and supply chain agility are two key tenets of the new operations strategy CEO Miguel Patricio and other executives rolled out at an investor day presentation in September to fix those shortcomings. The company expects to glean 40% of the $2 billion it aims to save in the next five years from manufacturing efficiency efforts.

The plan is to reduce the amount of Kraft Heinz product produced internally while increasing collaboration with the hundreds of third-party manufacturers the company currently employs.

Moving beyond transactional vendor relationships has been a theme in the pandemic. Real talk that facilitates win-win situations is essential when buyers and suppliers are stressed.

"Our external manufacturers should be an extension of our company, but we have been dealing with them in a very transactional way," Chief Procurement Officer Marcos Eloi said in September.

When the supply chain is constrained, sometimes the solution is to up capacity where possible, but another tactic is to redirect demand, explained Patricio. On Thursday's call, he gave the example of Kraft Macaroni & Cheese. The only supply constraint facing that line of products is the plastic cups used in the individually portioned microwaveable SKUs, he said. So the company collaborated with retailers to market the boxed product instead.

"That kind of segmentation and focusing with our partners into the places where we do have a lot of capacity, that actually has worked well. And it also is part of the reason why you're seeing that translating to improved share performance," Patricio said.