Texas-based Fortune 500 food and beverage company Dean Foods has said that its leadership team will present core strategies and plans the company is pursuing to build on its advantaged position in the dairy industry and drive operating results over the next three to five years.
Over the next three to five years, Dean Foods management plans to execute against specific plans to drive cost reductions across the business, targeting $300 million in cost savings. These initiatives fall under five broad areas of opportunity. The majority of the specifically defined initiatives target the DSD Dairy Segment.
The first area of focus is lowering conversion costs across the manufacturing network of over a hundred plants. Because Dean Foods is the product of the consolidation of many businesses, varied business practices continue to exist across its operations. Historically, the company had no systematic way of measuring and improving its manufacturing operations.
Through implementing tools and processes to systematically measure and improve operations in an integrated way, the company expects to drive meaningful savings over the next several years. These tools have been piloted in several locations, driving significant efficiency improvements, and are currently in the process of being rolled out across the entire manufacturing network.
The second improvement area is extending its low cost position by optimizing its supply chain network. Dean Foods operates a network of over 100 manufacturing facilities acquired over the past fifteen years as the company led the consolidation of the industry. As a result, the Dean Foods manufacturing network has historically operated more as a collection of local businesses, rather than as a cohesive optimized network.
The third area of focus is in driving distribution efficiency across the DSD Dairy's network of over 5,800 company-owned delivery routes. The company is investing in routing and monitoring technologies across its national Direct-Store-Delivery network to drive increased performance and efficiency.
The fourth area of opportunity to drive savings across Dean is standardizing and simplifying its product portfolio to reduce complexity and achieve scale-based procurement savings. These efforts will be driven against a total spend base of nearly $4 billion of direct material and indirect purchases. By pursuing SKU simplification and centralizing purchasing, the company expects to continue to reduce costs in this area for the foreseeable future.
Also included in the $300 million productivity program are specific plans to achieve approximately $50 million of savings across all areas of the supply chain in the WhiteWave business platform.
These cost savings will reportedly drive the company's core business systems and brand franchises, provide investment for future growth, and help fuel earnings growth going forward. On a divisional basis, management expects mid-single digit operating income growth at DSD Dairy and high-single to low-double digit operating income growth at WhiteWave-Morningstar.
Based on the list of initiatives in the company's strategic plan, management plans to spend approximately $300 million in capital expenditures in 2009, up from $257 million in 2008.
