The Kellogg Company Optimizes Production, Inventory, and Distribution

For over a decade, the Kellogg Company has used its planning system (KPS), a large-scale, multiperiod linear program, to guide production and distribution decisions for its cereal and convenience foods business. An operational version of KPS, at a weekly level of detail, helps determine where products are produced and how finished products and in-process products are shipped between plants and distribution centers. A tactical version of KPS, at a monthly level of detail, helps to establish plant budgets and make capacity-expansion and consolidation decisions. Operational KPS reduced production, inventory, and distribution costs by an estimated $4.5 million in 1995. Tactical KPS recently guided a consolidation of production capacity with a projected savings of $35 to $40 million per year. T he Kellogg Company has been using a large-scale linear program, the Kel-logg Planning System (KPS), for more than a decade to guide its operational (weekly), production, inventory, and distribution decisions for breakfast cereal and other foods. In addition, KPS helps Kel-logg to make tactical decisions on budgeting , capacity expansion, capacity reassign-ment, and other similar issues. KPS models Kellogg's operations in the United States and Canada, with global operations under study. These operations include the production, inventory, and distribution of hundreds of items from Kellogg-owned and contracted plants out