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Kellogg looks to boost production with $45M investment

Following a lackluster sales report in the compared to its peers last year, Kellogg is looking to readjust its long term strategy for its cereal business with a $45 million investment into its production over the next three years, according to a filing with the U.S. Securities and Exchange Commission on Sept. 3.

While this investment is subject to collective bargaining obligations and has not yet been finalized, Kellogg’s plan is intended to increase production capacity and offset cost inflation pressures that the company has faced in recent months.

As a part of the proposed long term restructuring plan, the company said it anticipates some job cuts, although it said that it does not foresee any facility closures. Food Navigator reported that the plant at the company's headquarters location will be one of the most affected with Kellogg confirming that more than 200 jobs will be cut over the next two years.

Kellogg is setting aside $4 million of the $45 million planned expenditures for employee-related costs such as severance and termination benefits.

It is not surprising that Kellogg is looking to alleviate some of the pressures associated with rising manufacturing costs through optimizing its supply chain to increase productivity. Across the food and beverage industry, there has been widespread inflation due to higher costs of raw materials, labor and freight to customers. At the same time, demand for CPG products rose 8.7% in the second quarter, the Consumer Brands Association reported.

While increased purchasing seems like a boon for manufacturers on the surface, the reality is that current supply chains are struggling to support consumer demand. Part of the reason for this scramble is the lack of labor. Even as wages have risen for manufacturing employees, only a fraction of the open positions have been filled in recent months. The result is that the CPG industry is facing a labor crisis.

Kellogg’s consolidation of its production could be an effective response to this by bringing those employees it does have together thereby reducing the number of points in the supply chain while helping increase overall production at the facilities it chooses to invest in.