Improving cash flow is top of mind for everyone these days. But for Kraft Foods, it is also a corporate mandate. The food and beverage giant sharpened its focus on cash when its chief financial officer promised Wall Street that the company would improve its cash flow by more than $1 billion over three years.

Presenting at CSCMP's Annual Global Conference, Philippe Lambotte, senior vice president of global customer service & logistics, outlined how the $24 billion company encourage its business units to start freeing up cash now. For Kraft the answer came in two parts: provide people with an incentive and provide them with tools.

Just as every manager has an incentive linked to revenue, they now also have incentives linked to cash flow.

Kraft also provided its business units with tools to accomplish this goal. The following are just a few:

• Monitor the number of stock-keeping units (SKUs) that you have. The fewer you have, the less inventory that you need to carry (and therefore the less cash tied up in inventory).
• Create a fixed production schedule where every week you produce the same sequence of SKUs for the same length of time. And then produce only as much as you exactly need and stop—even if this means that workers do not have something to do while you switch over to producing the next product. This results in a more regulated flow of finished goods and reduced raw material and packaging costs.
• Evaluate each SKU's revenue and volatility. Phase out those SKUs that have low revenue and high volatility. While this means that you will be giving up some revenue, it will be outweighed by the increase in cash.
• Consider lowering service level. Stepping down the service level for some of your product lines (say to 98 percent) will allow you to operate with less inventory coverage.