As I’ve also said in my prepared remarks, we believe this program will be largely completed by the end of 2024 from an expense perspective and the benefits will continue into 2025 and beyond. I just want to make sure 1 other thing, and we think about restructuring, I just want us to also think through this is — and I want you all to know, this is how we work. And this is not a series of one-time actions. And I know a lot of investors have asked us, show us the break between benefits and costs. So we are definitely trying to do that the best we can. In 2023, it made all the sense because these were new actions, it was good to show it as individual. But as it becomes the way we work, my request to all of you is focus on the total margin of the company, which is demonstrated in 2024, where our guide is saying we’ll improve margins, another 75 to 100 basis points in total.
So, for example, and the reason I bring this up is you have to look at all of this in totality. For example, we announced that we were going to change our distribution model in 27 countries. The savings of the rooftops, the head count is shown as a benefit in our restructuring program. But as you all know, there’s a corresponding impact on the revenue, and the action has to be looked at in totality versus standalone events. And I just want to make sure we bring that out, too. But we’ll continue showing what it helps you all, and that’s what we have tried to do with this go-round. So hopefully, I cleared that question, Andy, that you had.
Operator: Our next question comes from the line of Scott Davis with Melius Research.
Scott Davis: Guys, can you help us understand the ebb and flow when you go to an export model for 30 countries and — maybe help us understand the materiality of that, it could be 30 really small countries, could be a mix, I don’t know. But if you think about kind of the revenue headwind versus the cost tailwind, is it — is there some numbers we can talk around or any perhaps even some color on how that ebbs and flows?
Monish Patolawala: Yes. So Scott, the total impact of geographic prioritization and portfolio actions that Mike mentioned is around 100 basis points for the company. Of that, 60% is product portfolio optimization. The balance is geographic prioritization. And overall, when you look at the margin rate in these smaller countries, they were at lower margins than the average for 3M. So that’s when you refocus, what happens is, since you’re going through a distributor, you basically have to drop price to some extent because now they’re picking up your cost. And so that’s why you see the revenue headwind. But on a margin rate perspective, this is beneficial for us to do. It helps us focus on the bigger countries. It also allows us to reinvest in those bigger countries, while at the same time, making sure that in the smaller countries where we are changing the model, we can continue to serve those customers well with what we would call internally as an export-led model, which is we’re going to ship our product out from the United States or wherever our end manufacturing is into those countries.
So we are still taking care of the customers. We’re just following a more efficient way to transact with those customers. So hopefully, that answers, Scott.
Scott Davis: I think it does. And just separately, working capital has been a real source of benefit for you folks and particularly in ’23. But are we — as an entity, are you learning to run at lower working capital levels? And more specifically, really, what I’m talking about is inventory. And I think historically just having covered you guys for a while, inventory levels kind of went up and down based on demand, you’re not expecting much demand in ’24. So explicitly, I suppose that means you can run at lower inventory levels. But if demand were to start to snap back at better levels than you’re expecting, would you still be able to run at relatively low inventory levels? Have there been enough structural change, I guess, is what I’m asking to 3M where you can run more productively and efficiently from a working capital perspective?
Monish Patolawala: I would say so, Scott, as the team has done, Peter and the supply chain team have done a great job. One is learning through the pandemic on how do you manage the ebbs and flows as you go through supply chain disruptions. Two is we have spent a lot of time and energy investing in digital resources that allow us to more efficiently look at demand plans, look at where our inventory is and we have continued to keep working on dual sourcing, et cetera, that helps us get alternate sources of supply whenever you could have a disruption in one place. My view is this inventory still has ways to run using data and data analytics. We can keep reducing inventory. Working capital is going to continue to be a source of 3M’s cash generation machine, along with a good EBITDA that we generate.
And at the same time, I would tell you that volume — if you see volume come back up, the factories are ready and we have the capacity and we’ll act accordingly. So I would say the team has done a really nice job, but there’s always more we can do and we’ll keep doing.
Mike Roman: Scott, just to add, the actions that we have been talking about all through ’23, the actions to streamline our supply chain operations, simplify our go-to-market model, that streamlining supply chain operations. It was more than a restructuring. This was about aligning our global supply chains to our go-to-market models, really optimizing what we do across plan, source, make, deliver, with a focus on — and an expectation that we’re going to drive improvements, improvements in service, improvements in costs, improvements in working capital and cash. Monish said earlier, it’s the actions we’ve taken about the way we operate, and it’s an expectation we’re going to continue to improve our execution. So there’s a plan and strategy in data and data analytics gives us a basis for driving better visibility and improvement as well.
