Quality at Kellogg’s Company

Quality term paper presented by

Lakshman K Koti

Abstract

Total quality management (TQM) is “a management approach of an organization, centered on quality, based on

the participation of all of its members and aiming at long-term success through customer satisfaction, and

benefits to all members of the organization and too society”. Modern society has a higher demand for quality

than it had before. In this paper, I will analyze the way in which Kellogg Company, the world’s leading producer

of cereal uses total quality management. TQM is a key feature of Kellogg's way of working. Kellogg’s TQM

involves making customer satisfaction top priority. Given this goal, everything the organization and its people do

is focused on creating high quality. Kellogg Company did not achieve this status by merely adopting tools or

techniques. They got there because of they were very good at fundamentals. They understand their customers,

products, employees, competitors, markets and technologies. In 2009, Company delivered strong, high-quality

results while continuing to build an even stronger Kellogg Company for the future. Kellogg grew internal net

sales, operating profit and earnings per share at, or above, our long-term annual targets.

Kellogg's: People, Passion, Pride

The Company began with only 44 employees in Battle Creek, Michigan, in 1906. Today Kellogg Company

manufactures in 18 countries and sells its products in more than 180 countries. It has historically been a leader

in industry, innovation and marketing.

Its founder, W.K. Kellogg, had a strong commitment to nutrition, health and quality. His vision continues to drive

improvement in the products and processes, with the goal of providing great-tasting, nutritious products that

meet the most rigorous quality standards.

Despite its huge growth, the Company has retained many of the values instilled by Mr.Kellogg in those early

years.

Kellogg Company, together with its subsidiaries, engages in the manufacture and marketing of ready-to-eat

cereal and convenience foods. Its principal products include cookies, crackers, toaster pastries, cereal bars, fruit

snacks, frozen waffles, and veggie foods. The company sells its cereal products under the Kellogg’s brand name

principally to the grocery trade. It also markets cookies, crackers, and other convenience foods under the

Kellogg’s, Keebler, Cheez-It, Murray, Austin, and Famous Amos brand names to supermarkets in the United

States through direct store-door delivery system and other distribution methods. Kellogg Company sells its

products in North America, Europe, Latin America, and the Asia Pacific. The company was founded in 1906 and is

headquartered in Battle Creek, Michigan.

With 2009 sales of nearly $13 billion, Kellogg Company is the world’s leading producer of cereal, as well as a

leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles

and vegetarian foods

The Strength of K

Their people Committed to excellence, passionate about achieving goals, eagerly embracing new challenges

Their strategy Focused and consistent, delivers sustainable and dependable performance

Their business model Resilient and proven, relevant in all economies, drives long-term health of the company

Their brands Recognized and loved around the world, in strong categories, responsive to advertising and brand

building.

In 2009, Company delivered strong, high-quality results while continuing to build an even stronger Kellogg

Company for the future. Kellogg grew internal net sales, operating profit and earnings per share at, or above,

long-term annual targets.

• Company posted 3 percent growth in Internal Net Sales, driven by a particularly strong year in cereal and a

solid year in snacks.

• Company delivered a 10 percent improvement in Internal Operating Profit, reflecting the success of cost

savings and productivity initiatives.

• Kellogg’s generated $3.16 Earnings per Share, a 13 percent increase on a currency neutral basis.

• Company generated record cash flow of nearly $1.3 billion.

• Kellogg’s fulfilled commitment of returning cash to shareowners by increasing dividend by 10 percent and

returning nearly three-quarters of a billion dollars through dividends and share repurchases.

Vision, Mission, and Quality

When W.K. Kellogg started manufacturing his original corn flakes in 1906, he had a goal: to provide his

customers with a high-quality, nutritious product that was enjoyable to eat. Today, Kellogg Company still follows

this basic philosophy – every Kellogg employee has a responsibility for maintaining the high quality of Kellogg

products.

Vision - “To be the food company of choice.”

Mission - “To drive sustainable growth through the power of our people and brands by better serving the needs

of our consumers, customers and communities.”

Kellogg Company’s Vision and Mission statements define their focus upon sustainable growth, their broadened

definition of social responsibility and the true strength of company – their people and their brands. Kellogg’s

works not just for profit but as a social entity in service to its employees and customers. Vision and Mission do

not stand alone. They are integrated with focused strategy and operating principles as well as the foundations

of Kellogg’s business

Kellogg’s has a pyramid for strategic management which elaborates how the futuristic Vision and Mission form

the commanding core for the Operating Principles and the “K Values”, people and commitment to social

responsibility. The W.K. Kellogg Foundation works to provide health, nutrition and educational opportunities to

children and communities. (W.K. Kellogg Foundation, n.d.)

Social responsibility and Ethics

During its 100 years of history, Kellogg’s commitment to corporate social responsibility has been the key part of

its heritage and culture. Kellogg’s has had a worldwide expansion following many specific values as integrity,

accountability, passion, humility, simplicity and results.

Kellogg Company’s values, K Values, shape its culture and guide the way it runs its business.

The company has been chosen one of the World’s most ethical companies in 2007 and 2008 by Ethisphere, a

magazine that looks at the importance of the ethics-profit balance.

W.K. Kellogg believed in doing things the right way and built this company on integrity.” In business for 100

years, Kellogg’s has taken pride in its ethics and compliance program known as “K Values.” “It starts with the

values, which guide behavior and ethical choices.”

Founder W.K. Kellogg wanted to do good things for people, starting with nutrition and the environment, and

began promoting environmentally-friendly processes by producing the first boxes of cereal in recycled packaging

in 1906. Today, Kellogg’s uses 100% recycled packaging. In addition, Kellogg’s created a Social Responsibility

Committee in 1979 that now deals with environmental concerns, health & safety, addiction and abuse, and

other issues that impact employees and communities.

Kellogg’s see themselves as role models. Their commitment to ethics is absolutely non-negotiable. Kellogg’s

received an award from the National Association for the Advancement of Colored People for diversity in

compliance and ethics. Kellogg’s is also the 2007 national sponsor for Race for the Cure, and has a

comprehensive program for United Way’s Days of Caring, in which the entire company donates time.

Quality through “K values”

Kellogg Company’s values, K Values™, shape their culture and guide the way they run business. In 2005, the

company instituted the W.K. Kellogg Values Award, which is given annually to one individual and one team of

employees who best exhibit the K Values in their work. And the K values are: Integrity, Accountability, Passion,

Humility, Simplicity and Results.

Kellogg’s K Values set them apart as a company and form the basis of workplace culture. Kellogg employees at

all levels take the K Values seriously, and they refer to them regularly in their work. Most of new employees take

part in an orientation program – customized to each location – that includes training in the K Values. This

ensures that all employees understand what those values are and how to put them into practice.

In addition, employee performances reviews take into account an employee’s adherence to and demonstration

of the K Values. In these reviews, employees self-assess and are rated by their managers regarding not only

what they accomplished during the review period, but how they accomplished it – that is, how well they put the

K Values into practice in achieving the required accountabilities.

Product Quality and Food Safety

Consumers trust the Kellogg name – a trust earned by manufacturing their products to strict standards. Over a

century ago, founder, W.K. Kellogg, placed his name on every product as his personal assurance of quality.

The quality and safety of foods are highest priorities at Kellogg’s. Kellogg has extensive systems and processes in

place to ensure that products meet their strict food safety standards. Kellogg’s comprehensive food safety

platform includes robust employee training programs, external and internal supplier audits, and ingredient

safety and allergy control methods, among other components. Kellogg has a comprehensive and robust quality

model for monitoring the steps that are pivotal to ensuring product safety. These elements include:

• internal training programs

• internal and supplier audits

• periodic product testing

• environmental pathogen monitoring

• allergen controls

• labeling verification systems

• recall procedures and traceability programs

• benchmarking of industry best practices

Kellogg voluntarily participates globally in the Global Food Safety Initiative (GFSI) standards. In addition to the

third-party audits that are performed as part of GFSI, They have own internal audit system to conduct in-depth

reviews of Kellogg’s facilities around the world. Internal audits cover issues such as quality, food safety, hygiene

and sanitary design, environmental monitoring, and leadership commitment, among others.

At Kellogg, they don’t view food safety as a competitive issue. When one food company experiences a product

safety problem, consumers lose confidence in the entire industry. They actively engage with other food

manufacturers and industry groups to ensure that they all are in line with best practices to produce the safest

products for consumers.

Quality Control Tests

Before raw materials are unloaded into storage silos or warehouses, they are carefully checked, making sure

they are within specifications. Samples are collected at several steps through the production process and are

evaluated. Quality control tests do not stop once cereals are in the package and on supermarket shelves.

Packages are periodically collected from stores throughout the world and sent back to Kellogg Quality Assurance

for thorough analysis.

Quality departments in each plant calculate the quality of products and implement the quality policies. The

quality groups also serve in a problem-solving role.

The Quality Division in Battle Creek performs several functions. In an auditing function, it helps ensure that all

plants use the best technology available and produce uniformly standard products. The group also assists in

analytical and technical problem solving by drawing from the collective expertise of the many Kellogg

manufacturing locations. The department establishes the quality practices that are carried out by the

manufacturing facilities.

Packaging and Labeling

Every product package is designed to help maintain nutrient levels, freshness and flavor; protect the products

during handling, shipping and storage; identify the product; and provide important consumer information.

Packages are made from various materials that are selected after extensive testing. Moisture and/or air

permeability, the effect of aging and various storage conditions on product protection, and consumer

acceptability are key factors in selecting packaging materials.

Ready-to-eat cereals are packaged in several sizes to meet the preferences of different families. Packages are

sold by net weight of the food contents. The nature of finished cereal products (flakes, puffs, shreds, granules,

biscuits and flakes plus fruit) can cause them to vary greatly in volume and weight. Therefore, the same package

size can have two different weights.

It is always Kellogg Company’s objective to provide the consumer with full packages. However, because products

are packaged on automated equipment, space is needed at the top of the package for proper sealing of the

inner liner. If the inner liner is sealed imperfectly, moisture may penetrate the food and product freshness may

decrease. Some settling of the product in the package may also occur due to handling in transit.

Numerous techniques are used at Kellogg Company to continually assess the reliability of its quality systems.

Since Kellogg Company feels strongly that quality must be an essential part of its products, each employee has a

responsibility for maintaining quality.

Edge over Competitors

Cereal and snack producer Kellogg will have the edge over arch-rival General Mills over the next few years as

superior innovations in the premium health sector and a more focused product portfolio drive the firm forward.

Kellogg is expected to increase its lead on General Mills over the next three years after consistently

outperforming its rival in America's two largest product segments for breakfast cereals - adult, premium/health

and kids, fun - according to a new report from financial analysts Goldman Sachs

Both companies spend 1.4 per cent of their sales revenue on research and development, yet Kellogg has

achieved vastly higher sales than General Mills from new cereal products launched in the last five years, except

for last year when both firms got $36 million.

Kellogg overtook General Mills at the top of the North American ready-to-eat cereal sector back in 2001 and

now holds a 34 per cent share compared to General Mills' 32 per cent.

General Mills may pull some ground back in 2005 with its switch to using wholegrains in all Big G cereals, but

Kellogg's more focused product portfolio means it is still able to spend twice as much ($18 million) as General

Mills on product innovations per category.

Kellogg has the second most concentrated portfolio among its cereal sector rivals - sales in its top three

categories make up 66 per cent of total turnover, compared to 52 per cent for General Mills.

So far the firm's strategy has done well. Both Kellogg and General Mills have witnessed declining cereal volumes

since 1999, yet Kellogg has managed to maintain prices whereas General Mills has not.

And this focused strategy has also provided a good platform for growth in a demanding retail market.

"This focus provides a competitive advantage for Kellogg in key areas such as consumer targeting, product

innovation and retail-partner relations. Focus is becoming increasingly important due to a broadening mix of

retail channels, including smaller-scale formats such as convenience stores," says the report.

Training and Education

The most rigorous safety measures are only as effective as the employees who execute them. They have an

extensive training program for Kellogg’s employees based on the Hazard Analysis Critical Control Point (HACCP)

Program, a systematic and preventive food-safety approach encouraged by Health and Food Inspection Agency

(CFIA).

The management struggles to extract the diverse talent of the workforce. The Executive

Diversity Council regularly meets to suggest strategies for employee development and fostering of their

maximum potential. Employee development programs are made available to enhance the talent of the

workforce. The Office of Diversity and Inclusion, is supported by the Global Leadership Team which funds for the

resources required for employee training programs

Material Supplier and Food Safety

Businesses focus primarily on the creation of profit but increasingly understand that their social and

environmental impacts are important. Kellogg’s believes in acting responsibly in all sections of the supply chain.

This is a better long-term business model for both the organization and its customers. Amongst other activities,

it aims to do this by reducing energy and emissions in manufacturing and distribution and improving packaging.

All of suppliers must meet Kellogg’s stringent food-safety requirements, which are based on internationally

adopted food standards (www.codexalimentarius.net). Kellogg’s have a series of safeguards for each raw

material ingredient that goes into products, as well as the promotional items packaged with them. Kellogg’s

make sure that each of contracted suppliers maintain a documented quality management process for its

factories, agree to follow the Kellogg Code of Conduct for Manufacturers, and maintain a Social Accountability

program setting forth a policy for compliance regarding working conditions (including cleanliness).

Kellogg Quality Assurance personnel visit suppliers’ plants to make certain that raw materials meet rigid

specifications and that the suppliers are adhering to quality systems. Raw materials are checked before they are

unloaded to storage silos or warehouses and are assessed against a certificate of analysis or compliance.

Kellogg’s contracts provide that suppliers must also submit to third-party audits and conform to all applicable

laws and regulations governing product and quality requirements.

Effective Supply chain Management

The three sections of the industrial supply chain need to interact to ensure goods or services reach consumers.

The efficient delivery of the product to the consumer at the right price, in the right place and at the right time

will result in good business for each link of the chain. This takes strategic planning and effective collaboration

with all partners. Specialization is more cost-effective for Kellogg’s and partnering with other industry specialists

reduces costs to the business, the customer and the environment. Kellogg’s champions socially responsible

operations. Through effective supply chain management, it benefits itself, the environment and other

businesses.

Having the right marketing mix ensures businesses have the right product, in the right place, at the right time.

Kellogg’s manufactures the right products based on research into consumer needs. It manages the distribution

channels to place its products in stores. Its focus on cost-effective systems ensures its prices are competitive. It

works with retailers to improve promotion of its products. Retailers want to hold limited stocks of products to

reduce warehousing costs.

Kellogg’s uses a system called just-in-time to provide an efficient stock inventory system. Just-in-time means that

just enough product is made to fulfill orders and limited stock is kept. Kellogg’s needs to get the balance right at

each section of the supply chain. Late deliveries or inability to deliver due to a lack of products might make

retailers buy from competitors. Through its collaborations, Kellogg’s now has a more efficient distribution

system. Computerized stock holding systems ensure shelves are always full and orders are delivered on time.

This helps Kellogg’s to keep stocks to a minimum.

Marketing and Quality

The strength of Kellogg is long history of heavily investing in advertising and marketing to support new and

established brands. In 2009, they took advantage of the significant media deflation in a number of markets.

Rather than cutting back on advertising spending, Kellogg’s invested even more—over $1 billion in advertising—

resulting in more consumer impressions and a greater impact from each dollar spent.

To optimize brand building, Kellogg’s consolidated advertising agencies, market researchers and other vendors

to create greater scale across the globe, improving the effectiveness of advertising. Company realigned brands

and marketing strategies by geographic regions to create even more advantages from scale. Kellogg’s completed

a broad-based market research study in all of major ready-to-eat cereal markets. Kellogg’s global research found

that adult females across a variety of cultures share the same concerns and needs when it concerns health and

weight management. So when they had early successes in the United Kingdom with a Special K marketing

campaign “Moments of Truth,” they were able to roll it out across a variety of markets that were culturally very

different. Kellogg’s had great results—Special K continues to grow globally at nearly double-digit rates—triple-

digit in India. And, although only recently launched in South Korea, Special K is already a top cereal brand in that

country.

In 2009, Kellogg’s partnered with leaders in the digital industry, such as Facebook for social media and Microsoft

for technology architecture. Company began investing in new technology infrastructures within Kellogg,

increasing the ability to implement successful programs from one area of the world to another with ease and

speed.

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