Kellogs Optimization

The Kellogg Company Optimizes Production,
Inventory, and Distribution
Gerald Brown
gbrown@nps.navy.mil

Joseph Keegan
joe.keegan@kellogg.com

Brian Vigus
brian.vigus@kellogg.com

Kevin Wood
kwood@nps.navy.mil

Operations Research Department
Naval Postgraduate School
Monterey, California 93943
Kellogg Company, P.O. Box 3599
Battle Creek, Michigan 49017–3599
Kellogg Company, P.O.Box 3423
Battle Creek, Michigan 49016–3423
Operations Research Department
Naval Postgraduate School

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 determinewhere 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.
TacticalKPS 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 Kellogg 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 helpsKellogg to make tactical decisions on budget-

ing, capacity expansion, capacity reassignment, 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

Copyright 2001 INFORMS0092-2102/01/3106/0001/$05.00
1526–551X electronic ISSN
This paper was refereed.

INDUSTRIES—AGRICULTURE, FOOD
PROGRAMMING—LINEAR, APPLICATIONS

INTERFACES 31: 6 November–December 2001 (pp. 1–15)

BROWN ET AL.
to distribution centers (DCs) and to
customers.
Many large companies like Kellogg employ some sort of enterprise resource planning system (ERP) to coordinate rawmaterial purchases,production,
distribution, orders, and forecasted demand. Kellogg’s ERP is largely a custom,
in-house product, and KPS is a custom
tool to complement that system. Models
like KPS are also attractive within the
commercially available ERPs of SAP, Oracle, JD Edwards, and others. Indeed, these
ERP systems offer plug-in features for
planning production, distribution, and inventory, for example, SAP’sAdvanced
Planner and Optimizer [SAP 2001]. However, even these features may be inadequate [Hsiang 2001]. For instance, they
may use rule-based heuristics to attempt
to meet demand while ignoring capacity
constraints and then iteratively refine the
solution, using heuristics, to attempt to
meet capacity constraints. These heuristics
take costs into account in their rules but
do not minimizecosts or maximize profits.
In current vernacular, KPS is a point solution because it is tailored to solve problems for particular functional areas of the
business. KPS uses optimization to find
the best long-term, cost-minimizing, integrated production, inventory, and distribution plan—within the limits of modeling assumptions and data accuracy. ERPs
account for the low-level influence ofindividual near-term transactions; in contrast,
KPS is a high-fidelity, prescriptive model
that is ideally suited to evaluating alternate systemwide scenarios.
The Kellogg Company is the largest cereal producer in the world and is a lead-

ing producer of convenience foods. In
1999, worldwide sales totaled nearly $7
billion. Kellogg began with a single product, Kellogg’s Corn Flakes, in 1906 and...