According to the business.com website, Kellogg Company consists of a group of companies. The group’s main activities revolve around manufacturing and marketing convenience and cereal food products, which are usually in the ready-to-eat form. These commodities include cereal bars, crackers, cookies, frozen waffles, toaster pastries among other commodities. The brand names under which the group’s products are marketed include Cheez-it, Keebler and Murray, Kellogg’s and Austin and Amar. The group’s manufacturing activities are undertaken in 17 countries while marketing of its commodities is carried out in about 180 countries in the glove.
Wal-Mart stores are the group’s biggest client and in 2006 only it accounted for about 18% of total net sales of the group.
The company’s accountants report the transactions of the company in a consolidated group accounts. Various members of the company have their accountants and it is after the completion of their accounts entries that these statements are reconciled for the purpose of the overall groups’ reported accounts.
Before embarking on the study it is vital to have a brief historical background of Kellogg Company. The company was founded in 1906 while its incorporation was carried out in Delaware in 1922. Its subsidiaries businesses are based on the manufacturing and marketing of ready-to-eat convenience foods and cereal products. The company started with just 44 workers in Michigan and today it employs around 32,000 workers. Kellogg Company has operated for more than a century now and through the commitment of its management together with their innovativeness it has grown a great deal. The name Kellogg is taken from its founder W.K. Kellogg, who had a very strong commitment toward health, nutrition and quality. The Kellogg Company is now the globe’s leading producer of convenient food and cereal products. (EDGAR online, Inc, 2008)
This study is going to analyze the Kellogg Company in the context of ERP and integration, Financial and the supply chain, shared and managed service, strategic enterprise management and integrated risk management and lastly the corporate governance aspect. The assessment of the Kellogg Company’s corporate governance aspect is going to test the readiness and also provide recommendations in line with the compliance with the Sarbanes –Oxley Act of the year 2002.
Firstly, the analysis will look at the Kellogg’s enterprise resource planning (ERP) and integration. Kellogg has chosen OB10 to ensure a provision of electronic invoicing for the purposes of making simple the company’s accounting processes and also to reduce its costs. According to Gregory J, who is the head of Kellogg’s finance shared services, Kellogg made the decision to pursue electronic invoicing since the task was closely aligned with the supplies initiative of payment. This is in the pursuance of making supplier payments automated. Gregory also says that the e-invoicing factor will streamline the payment and purchasing processes of the company group.
Jamie Gunn, the CEO of OB10 commented that by bridging the workflow system with the existing ERP of Kellogg, OB10 can ensure a very affective resolution which change the way in which the company interacts with the suppliers. He also concluded that the benefit will accuse to the company and its suppliers alike.
The OB10 will ensure the suppliers of Kellogg are able to; achieve an integrated system with regards to the invoice approval and the accounting system, reduce the invoice processing time since the invoice can within a short time be posted across a secure system of network to the Kellogg company’s ERP system, and lastly OB10 will involve suppliers in countries like Germany, Spain, France the UK, the Netherlands, Austria, Belgium and Scandinavia. OB10 however, has not be implemented as of date (edgedynamics.com 2008)
The OB10 is out of the enterprise planning concepts of Kellogg. This however should not excite the company toward an implementation without a secure system, with the growing information technology awareness across the globe. The IT system to ensure e-invoicing should be well secured to prevent high losses incurred by ‘theft’ through the funds transfer via the automated system.
In the third quarter of 2008 Kellogg Company reported on its financial position. In October 2008 Kellogg Company’s report indicated a sales growth of 9% to $3.3 billion and EPs growth of 17%. This was attributed to the high underlying momentum of business. Also the reported net earnings for the third quart were up by 12% compared to previous periods. The earnings were up from $305 million to $342 million. The company expressed a lot of confidence in achieving a high 2008 EPS with regards to the target.
To total 2007 sales were nearly $12 billion for the group. This made Kellogg company group the leading producer of cereals and convenience foods. However, the total costs pressure is anticipated to stagnate at 9% of the total cost of goods. The year 2009’s expectations from this third quarter report are that the company will have a sustainable performance.
Business disruptions by acts of terrorism or political unrest are becoming common in the day-to-day business operations. The suggestion put across towards these anticipations is that these should be put into account while making the report. Also the impact and exposure to different members of the group should be an issue to look at in detail before presenting the financial report. (Kellogg’s, 2008)
A company’s supply chain refers to the whole system involved in the process of moving a product to the consumer from the supplier. The system may include people, activities technology and resources among others. Thus, the supply chain transforms a raw material into a finished good, ready to be delivered to the client.
Kellogg Company’s raw materials are the principally agricultural commodities. The packaging materials used include corrugated, carton board and plastics. Supplies to the work and the prices of the commodities are monitored regularly to match with the government’s regulations. The packaging and raw materials used in nations outside the US are usually available in the US, but sometimes they are imported from countries other than those manufacturing the products.
In its quest to enhance a stable supply chain, Kellogg plans to remain as a superior world food company in the current century (21st century) by using the largest possible factors of production to ensure the anticipated growth. A method that Kellogg is planning to use is the obtaining of raw materials from the best and the best base of factors of production so as to build this base. The company is also very committed to come up with an innovative diversity for the suppliers program. Also through the making of the best relationships with the best operated and controlled businesses that distribute their products, the company will promote a long-term growth strategy of the group. (Kellogg, 2008)
The recommendation at hand to ensure a big supply chain is to open up distribution stores in other growing nations other than the 180 mentioned countries. With a widely spread customer base and a better renowned brand the supplies of the company will escalate. Also the task of the operations of these newly opened up chains should be decentralized to avoid delays in the decision making process and also better informed decisions by the management.
Strategic enterprise management offers the tools and concepts needed for the setting of a strategic direction and also the achievement of a strategic visions benefit. (Daum J., Norton, D.P, 1999). Kellogg’s company is based on snacks expansion and growth of cereals besides the pursuance of selected growth opportunities. Under snacks expansion, the company states that it has a strong business based on snacks, both in the US and other countries where it does its business. Therefore, the focus is on the strong brand-building and also innovation. The strategy about cereals growth is drawn from the company’s believe that the cereal-business is not only an essential factor but also a success determinant of the overall business undertaking. Thus, the aim of the company is to a major investment in the research and development besides brand building. The selected growth opportunities to be pursued include small, possible, complementary acquisitions, and expansion of the existing structure among others. (Kellog.com, 08)
An apt suggestion or recommendation is for the company not to place all its eggs in one basket. To ensure spreading of risks the company should have a strategy to undertake other closely (or otherwise) related business undertakings. For example; opening up dairy stores, such that a slow performance on once side of the business can be offset by the other section of the business. Also expansion of one kind of business like that of the cereals may lead to diseconomies of scale and especially in one area like the US thus, the company should have an expansion strategy to other areas or countries other than the 180 countries which constitute the market and the 17 countries forming the manufacturing sections.
The expression integrated risk management (IRM) refers to the incorporating of various risk pieces of information in to the strategy of a business. Risks are the uncertainties regarding future outcomes or events. It helps establish each department’s risk tolerable levels. The essence o applying IRM is to help the management of any given company to advance in development while at the same time managing risks. (Office of IRM, Canada, 2008)
Integrated risk management must be well linked with the business strategy of a company to make it effective in protecting the shareholders’ interests.
Integrated risk management must be well linked with the business strategy of a company to make it effective in protecting the shareholder’s interest. James E. Blair, Kellogg’s president for integrated risk management solutions looks at the field of Risk management as a unique one. He also looks at it from a business point of view and comments that the higher the risk the more the reward expected. Also according to him, those who manage risk apply that their competitors are the ones who win in the whole ordeal.
The scenario of Kellogg company is that of Risk takers as evidenced by the comments of Blair and therefore the recommendation is that a Risk avert kind of management would be more apt. This is since taking less risk has a bigger assurance and this is especially applicable in the current world of economic crises.
A lot of media attention has been focused on the issue of risk management. Corporate leaders are not being seen to duplicate the attention, though; the Sarbanes Oxley act of 2002 was passed because of these events of mismanagement and fraud of the body corporate. The Sarbanes – Oxley act of 2002 (sometimes referred to as sox or sarbox), is a US act in the federal law which was enacted in July 2002. As aforementioned, various major accounting and corporate scandals led to its enactment. For example; those scandals which affected workcom, addphia, Tyco International, among others. The scandals cost the shareholders of these companies a great deal of money.
Corporate governance is a field in the economics subject seeking to motivate an efficient management of body corporate by the application of incentive mechanisms. The corporate governance structure also specifies on the distribution of responsibilities as well as rights among the various participants in an organization. In the modern world the expression is deemed to imply the promotion of a corporate transparency, accountability and fairness. (Encyco gov.com, 2008)
One of the Kellogg’s outsourced services is the recruitment services. In the year 1998 the company wanted to upgrade its recruitment function. Therefore, the company in its bid to implement a strong vender relationship besides the full outsourcing of the recruitment process was searching for a vendor who was capable of doing these tasks. The major aspects that Kellogg was looking for about the vendor company was, a company that could reduce the total recruitment costs, ensure timeliness and also improve on factors like quality, reporting capabilities, diversity and management changes in hiring volumes. It also wanted a company with recruitment specialists and that which could bring in technology to improve on the operations’ efficiency. The company that won the bid was the recruitment enhancement services simply known with the initials R.E.S, which is an Omnicom group members company. Therefore, one of the major services outsourced by Kellogg Company is the recruitment process (Burkholder, N.C, et al, 2003)
Another shared service by Kellogg is the distribution of its products. This quite provable since it has a supplier diversity program where Kellogg has a procurement relationship with W/MBES. W/MBEs are enterprises and some of which are involved in the supplying of Kellogg’s products and also services. (Kellogg, 2008)
Among Kellogg’s company managed services are the IT services. Kellogg has contracted parity company for the purpose of provision of services for both contracted and the permanent workers. It operated under the Kellogg’s operations department. This is one of the managed services in Kellogg among others.
Even though Kellogg has both managed and outsourced services, one of major recommendation to be given to it is that it should not rely a lot on outsourcing virtually every other service apart from its major business of cereals and convenience foods. Although it’s recommendable for any given company to outsource services which are not readily available by the company’s departments, caution should not be thrown to the wind. The company should therefore outsource half and manage internally half of its services.
Kellogg Company has some corporate governance guidelines which have been adopted by the governing Board of Directors. Among the various guidelines are the Directors qualifications, responsibilities election and also Director Orientation and continuing education. In the orientation all new directors are supposed to (within two months after their election) familiarize themselves with the accounting and risk management issues, strategic plans, the significant financial, compliance programs and other of the company. These guidelines aforementioned are subjected to modification by this board.
The recommendation to this corporate governance issue with regard to Kellogg Company is that the shareholders, who are directly impacted by the boards’ actions, should also have a stake. That is, the shareholders should also be involved in the rectifications if any should happen to avoid a scenario where the directors change the guidelines to favor their own welfare, selfishly. This ensures that the main aim of transparency, accountability and also fairness is felt by all the stakeholders of the Kellogg Company. The allowance to deviate from the guidelines by the directors beats the whole logic of their adoption, (Kellogg’s, 2008)
The sponsors of the Act, Paul Sarbanes and Michael G. Oxley, led to the naming the act using the name indicated. The act was signed into law by President George Bush. Its felt in the US that the act has had a far-reaching impact as regards the reforms of the American trade practices since President Franklin d. Roosevelt’s time.
This legislation initiates new standards for all USA’s public company B.O.Ds, public accounting firms and also public company’s management. This act doesn’t apply to privately owned companies, though. The SOX act contains 11 sections. It requires the SECs (Securities and Exchange Commission) implementation of rulings on the compliance with the new law and also includes additional responsibilities to corporate boards toward the criminal penalties. However, the debate in the context of perceived benefits or costs of sarbox continues.
The act also establishes the new quasi-public agency, whose responsibility is to oversee the inspection, regulation and the disciplining of various accounting firms in their role of public company’s auditing. It also covers the aspects of the requirement of external auditors’ independence, internal control assessment, enhanced financial disclosures and the corporate governance. Each of the said 11 sections in the Act also contains subsections.
The Sox act also has some impact on foreign companies operating in the US. For instance, some businesses have been displaced from New York to the city of London. In London, its felt that the financial services authority has a lighter touch as regards the regulation of businesses. The effect on foreign companies cross-listed in U.S.A is also different on companies from developed countries as compared with those from less developed countries. (soxlaw.com, 2008)
To comply with the sox act Kellogg Company has an audit committee. The audit committee has a major tasks of assisting the Board of Directors in the monitoring of the compliance of the company with various legal and regulatory requirements, ensure the integrity of the company’s financial statements, the independence of auditor’s and their qualifications and also the performance of the Kellogg company’s internal audit function. Simply the work of the audit committee is oversight of these mentioned functions in the company.
Also under corporate governance there is the Board of Directors. The corporate governance section outlines the qualifications of directors, responsibilities, their elections, annual performance evaluation and also any other necessary guidelines concerning the board.
As from April 2008, Kellogg Company did away with the AOF (Accelerated Ownership Feature) from all the outstanding stock options. These stock options under the AOF were inclusive of the pre 2004 option awards to employees. Prior to 2008 the holders of the stock options were offered cash compensation in place of the AOF. About 900 workers of Kellogg are holders of the modified type of stock options.
The Kellogg Company also has a pension plan which constitutes a retirement plan, which is usually exempt from taxation. Under this plan the employer has the obligation of making contributions on behalf of the employee. There are also plans underway to replace the various pension plans with the company’s 401K (Kellogg, 2008)
While concluding, one cannot forget that the bigger the size of a business, the more the complications of its management. Sometimes a business can become too big. It doesn’t always end up lowering cost per unit of production, as has been believed before. Kellogg can grow too large that it might start experiencing a cost per unit rise. This is what is called in economics subject, the diseconomies of scale. Some of the reasons Kellogg can experience diseconomies of scale is a poor way of communication. Since Kellogg is a group of companies, the communication between various company members may become difficult. That’s the more the levels of hierarchy in the company; the more the messages are likely to be distorted. In case communication is written, the more the people communicated to in the company the less the likelihood of feedback, or even it might take time to take the necessary action after the feedback
The workers might also lack the motivation required to take the company to greater heights. The employees, since the company is too big may feel isolated and this may lead to the decline of the morale and their loyalty ness to the company. Therefore the bigger the company the less the output is expected per worker. Kellogg might experience this if it doesn’t put all its actions in check.
Also it will be harder for the management to make sure that all the employees are working toward the company’s common goal of success. Supervision of the workers once they are assigned their tasks will also become difficult and the managers might also delegate their tasks to much. This will lead to their actions becoming more and more hands off. This can leave the company experiencing problems since it is the management to decide the direction and the subordinates to follow. A company as big as Kellogg may experience this and thus the managers should avoid over delegation of their tasks.
Lastly, the company may experience a good number of complications since its accounts are reported on the format of group consolidated accounts. Thus the company may find it difficult and especially as regards the accountants when it comes to the consolidation. Some of the most prominent and highly likely hiccups may come in due to the differences in the currency used to report since foreign member-companies may use a different currency other than the US dollar.
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