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Firms counting on Jimmy Carter budget method to cut costs

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Former US President Jimmy Carter. Photo: Reuters

Former US President Jimmy Carter. Photo: Reuters

REUTERS

Former US President Jimmy Carter. Photo: Reuters

The number of US companies using a budgeting tool made famous in the 1970s by former US President Jimmy Carter is surging as they turn their spending habits upside down to boost profits and to re-invest in their businesses.

The upswing in zero-based budgeting (ZBB) signals that a broader cross-section of US companies anticipate turbulence in their revenue growth.

They face more pressure on profits too, as wages and interest rates increase, and a stronger dollar makes their products more expensive overseas.

In consumer staples, where sales growth is often capped in the low-to-mid single digits, Campbell Soup, Kellogg, and Oreo cookie maker Mondelez International have already rolled out ZBB programs that promise billions of dollars in savings. Other industries, including finance, energy and manufacturing. Use of ZBB in 2017 is expected to increase dramatically around the globe, according to consulting experts. Bain & Company reported last year in a survey of 406 North American companies that 38pc of that group would use ZBB, up from just 10pc in 2014. "ZBB has taken on a life of its own," said Greg Portell, a partner at consulting firm AT Kearney.

A ZBB approach requires corporate managers to justify each line item of spending in their budgets, or even build their budgets from scratch.

ZBB first gained widespread attention in the late 1970s, when Carter, as US president, said he would apply the budgeting principles to federal spending. However, Ronald Reagan abandoned it when he became president in 1981.

Its recent resurgence is due in part to Brazilian buyout firm 3G Capital, which used ZBB when it combined Heinz with Kraft Foods in 2015. (Reuters)

Irish Independent