Kraft Heinz spends on AI and robots to cut costs

Can a business pursue costly innovative technology, while aggressively cutting costs? Francesco Tinto, Kraft Heinz’s chief information officer, says it can, if you invest in the right technology.

Tools powered by artificial intelligence, he says, can identify waste, inefficiencies, and areas ripe for trimming in manufacturing, supply chains, sales, and even IT departments themselves. Likewise, robots can be used to ramp up efficiencies in the production process, he said.

“We take only these two spaces, but go very deep,” he told CIOs and other senior IT managers at Gartner’s recent annual IT industry conference in Orlando, Florida. “That is our bet.”

Tinto two years ago became global CIO of the company formed by the merger of food industry giants Kraft and Heinz in 2013. He was previously a senior IT manager at Kraft for more than a decade.

Kraft Heinz is run by executives from Brazil­ian firm 3G Cap­i­tal Part­ners LP, which is known for aggressively stripping costs out of slow-growth busi­nesses.

In August, the maker of Jell-O pud­ding and Velveeta cheese reported that its sec­ond-quar­ter rev­enue fell 1.7% to $6.68-bil­lion glob­ally, while US sales fell 1.2%.

It’s not the only food company struggling amid changing consumer tastes and habits. Kel­logg, maker of Frosted Flakes and Pringles, last month said quar­terly sales fell 2.5% to $3.19 bil­lion, in­clud­ing a 2% drop in North America.

To rein in costs, and boost sagging profits, Kraft Heinz set out a strict cost-cutting strategy dubbed zero-based budgeting, or ZBB — what Tinto calls “The Monster”.

It requires department heads to justify all expenses for each new period, meaning every function or project is continually re-evaluated for needs and costs, as new budgets are hashed out for the next cycle.

“ZBB says last year is gone and we start from scratch, from the bottom up, and try to understand the cost of running the company,” Tinto says.

That can make investing in projects without clear, near-term results difficult, especially in the area of technology.

But it also instills discipline and focus, he says.

Tinto said over the past year he focused spending on artificial intelligence and robotics, two areas he says can prove their worth by identifying inefficiencies company-wide, and automating processes where appropriate.

It helps that they can also be leveraged to develop new, revenue-generating products and services, he said.

Kraft Heinz is working with AI across all areas: Starting with sales and marketing, and more recently in the supply chain and manufacturing, to identify inefficiencies and optimize performance. Instead of working with five or six variables in these processes, “AI can handle 20 variables to achieve optimisation,” he said.

Likewise, it is testing robotics and automation in all areas of production, aiming to find process that are better — and more cheaply — handled by robots.

Tight budgeting forced the company to prioritize IT spending, shifting it away from funding legacy systems it no longer needed, he said.

“Business as usual doesn’t exist anymore,” he said.

Source: The Wall Street Journal