3M Eyes $260 Million Annual Savings, Mostly via Supply Chain Efficiency
3M Co. plans to lean heavily on its supply chain to generate tens of millions of dollars in annual savings as new CEO Bill Brown and his team try to refire the manufacturing powerhouse’s growth and innovation engines.
Speaking to analysts after reporting third-quarter net profits of $1.37 billion on $6.29 billion in sales, Brown said he wants Minneapolis-based 3M to improve its overall productivity by 2% annually net of inflation. That, he added, will include its supply-chain operations, which works with about 25,000 direct suppliers, about 4,000 of which are contract manufacturers. Those numbers are set to shrink in coming years.
“Our teams are working hard to consolidate that [and] drive performance. And we continue to do a good job on this,” said Brown, who stepped into 3M’s top job earlier this year. “We are at the front end of what I would say to be a long journey.”
3M spends about $13 billion annually on its cost of goods, with its supply chain accounting for a large share of that figure. Brown said the conglomerate’s push to improve the efficiency of that spending—hitting his 2% target would net $260 million—has produced “some opportunities to drive better supplier performance.” But he added that 3M’s manufacturing operations also must improve, particularly when it comes to forecasting and planning for demand.
“If your forecast accuracy is not good, you cannot run your factory very well,” he told analysts on an Oct. 22 conference call. “Your inventory will be high, your suppliers won’t perform, your logistics providers won’t be available. So it has to run like a smooth-running clock. […] Clearly, we have opportunity to do better here.”
Brown added that 3M is starting to move the needle on several fronts, including in delivering product to customers on time and in full. That metric, he said, finished the third quarter at 89%, five points higher than at year-end 2023 and 10 points higher than at the end of 2022. To keep moving that number higher, teams have begun measuring equipment efficiency more rigorously and improving maintenance practices, among other things.
Other items of note from 3M’s Q3 report and call included:
- Executives have begun work on divesting some small business units, a move Brown discussed in September. Any deals that result from that process won’t move 3M’s needle much, he noted, and should be considered part of a large organization’s normal pruning process.
- New product introductions, a topic Brown focused on this summer in his first public comments as CEO, have risen 10% this year and that pace should accelerate to 25% in coming quarters. But Brown reiterated that reinvigorating 3M’s R&D and product launch processes will only really start bearing fruit by late next year at the earliest.
- To help kickstart product development, 3M is shuffling about 100 R&D professionals and adding more than 50 engineers to teams focused on specialty materials and films for the automotive, aerospace, electronics and semiconductor markets.
Shares of 3M (Ticker: MMM) slipped on the heels of the company’s Q3 report and conference call and were down another 3% to about $127 in midday trading Oct. 23. They have still risen about 35% over the past six months, however, a move that has pushed the company’s market capitalization to nearly $70 billion.
