Case Study and Group Discussion*Ralcorp Holdings Inc. (NYSE:RAH)Food/CPG Industry

Effective Use of Information toDrive Business Performance

*Created from public information about Ralcorp and DecisionPath food industry consulting experiences. Ralcorp is not a DecisionPath client.

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Food Industry Background

• Grocery/food retailing = $600 billion market• Restaurant/foodservice = $540 billion market• Complex industry:

Thousands of products (SKUs)Tens of thousands of retail points of purchaseHeavy use of promotions distorts primary demandPowerful retailers with different business practicesEmergence of non-traditional channels

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Food Industry Background:General Challenges

• Product portfolio management - 1000s of products• Private label products vs. branded products• Retailer power, e.g. Walmart, Kroger's, Safeway• Shifting consumption patterns (health, value)• Supply chain complexity• Competitive intensity and consumer options

product qualitypriceavailabilitybrand equityfit with consumer preferences

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Food Industry Background:Specific business challenges

1. Moving to a demand pull value chain model2. Coping with rising input prices3. Coping with item proliferation4. Improving supply chain performance and reducing stock-outs5. Meeting customer service demands6. Optimizing assortments across regions, formats, and customer

segments7. Managing and optimizing inventory levels and costs8. Managing pricing and product lifecycles9. Improving forecasting, planning, and control of business processes

and performance10. Creating innovative products to meet dynamic consumer demands

Compiled from Ralcorp SEC Filings 5

About Ralcorp

• $3.8 billion manufacturer of branded and private label (store brand) foods• Four reportable business segments:

Cereals - $1.8 B (Post brand, plus private label)Frozen bakery products - $695 MM (e.g. pancakes, rolls, deserts)Snacks - $794 MM (e.g. crackers, cookies, nuts, and candy)Sauces/spreads - $530 MM (e.g. peanut butter, jelly, syrups, dressings)

• Competitors:Kellogg, General Mills, Quaker Oats (Pepsico), Nabisco (Kraft), Keebler (Kellogg), Frito Lay (Pepsico), Planters, Kraft Foods, Bestfoods (Unilever), Smuckers, Heinz, and private label manufacturers

• Strategies:Increased sales - existing and new productsAcquisitions Emulation of branded products, new product developmentEnhancing employee productivityCost controlImproving manufacturing and distribution efficiencyAggressive pricing and promotion

Compiled from Ralcorp SEC Filings 6

About Ralcorp

• Production & Inventory:35 plants encompassing 191 production linesUse some co-manufacturersMix of make-to-order and make-to-forecastHold some inventory, e.g. cereal products, predictable frozen items

• Channels/customers:Grocery, mass merchandisers, drug chains, clubs, supercenters, foodserviceWalmart = ~ 19% of revenues; no others > 10%

• Distribution:Company-owned warehouses3rd party distribution centersUse independent truck linesDirect ship from factoryDirect store distribution

• Sales:Internal sales staffIndependent sales agencyFood brokers

• Employees:9,350 worldwide (8,625 in U.S.)Numerous collective bargaining agreements

Compiled from Ralcorp SEC Filings 7

About Ralcorp

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Case Study Assignment

1) Create a high-level overview of an integrated business performance management (BPM) and business analytics (analytics) framework for Ralcorp

2) Identify the targeted business impact areas for the BPM/analytics system

3) Identify key performance indicators (KPIs) for key functions and Ralcorp as a whole

4) Identify analytics to improve business processes that drive KPIs

Case Study: Ralcorp

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Key questions to consider

1) What 5 to 7 aspects of business performance are most important to measure, and why?

2) What business information and business analytics do we need to improve those key aspects of business performance?

3) What are the targeted business impacts Ralcorp could achieve by using the BPM/analytics system?

4) What kinds of changes would be needed within Ralcorp to fully leverage the BPM/analytics system?

Case Study: Ralcorp

Business Analytics Fundamentals

Case Study Handout

ASMI - The Performance Conference 2010Las Vegas, Nevada October 12, 2010

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Ideas:

• Performance vs. company strategies (e.g. increased sales)• Performance vs company business design (e.g. low-cost)• Performance of business processes (e.g. customer service)• Performance vs. industry challenges (e.g. item proliferation)• Financial performance (e.g. gross margin)• Operational performance (e.g. order-to-ship cycle time)• Performance versus customer-established KPIs (e.g. fill rate)• Performance versus functional/departmental goals (e.g. yields)

Performance Measures:• Relevant, objective, fair, controllable, unambiguous

1) What 5 to 7 aspects of business performance are most important to measure, and why?

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1) What 5 to 7 aspects of business performance are most important to measure, and why?

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1) What 5 to 7 aspects of business performance are most important to measure, and why?

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2) What business information/business analytics do we need to improve performance?

Information ideas:

• performance measures/metrics/KPIs (as discussed)enterprise levelcascaded to business unit, function, plant, etc

• revenue - by product, customer, channel, category, month, etc• inventory - by product, customer, remaining shelf life, type, etc• case volume - by product, customer, channel, category• costs: by product, plant, production line, supplier, activity,

ingredient, packaging type, Ralcorp department, etc• orders - by customer, channel, plant, DC, etc• margin/profits - by product, customer, business unit, plant, etc• cycle times - by process/activity, plant, department, production

line• quality/yield - by product, plant, business unit, etc• service level - by customer, product, plant, etc

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2) What business information/business analytics do we need to improve performance?

Analytics ideas:• demand forecasting (predictive analytics)• scorecards and dashboards (enterprise and cascaded)• multi-dimensional analysis (revenues, costs, performance, etc)• variance analysis versus budgets, targets, etc• inventory aging/at risk inventory• order fill rates• price elasticity of demand• Pareto analysis (e.g. of product sales, customer profit

contributions, etc)• time-to-market of new branded and private label products• marketing campaign lift/ROI• trend analysis of various performance measures• customer profitability/lifetime value• purchasing price variance• cost-of-goods/margins

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2) What business information/business analytics do we need to improve performance?

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2) What business information/business analytics do we need to improve performance?

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2) What business information/business analytics do we need to improve performance?

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3) What targeted business impacts could Ralcorp achieve by using the BPM/analytics system?

1. Improved profitability - increasing revenues and productivity yields higher profits

2. Improved strategic performance - as measured by the enterprise and cascaded scorecards

3. Improved performance for customers & consumers:

• Customer service

• Brand loyalty

• Product value

4. Improved performance of key processes:

• Planning, budgeting, and performance management

• Sales, marketing, and product development

• Purchasing

• Supply chain and operations

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4) What kinds of changes would be needed within Ralcorp to fully leverage the system?

1. Align management compensation and individual and/or group incentives with the performance management framework and KPIsappropriate to managers’ roles (goal congruence)

2. Ensure enterprise adoption of the BPM/analytics system:• Top management led• Business led - put it in MBOs• Training• IT support• Track usage

3. Make business process changes to leverage analytics to drive increased revenues, reduced costs, or both

4. Institute programmatic approach to managing portfolio of BPM/analytics projects that need to be executed

5. Develop appropriate IT capabilities for design, development, deployment, and ongoing operation of an enterprise data warehouse combined with BPM/analytics applications

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Overview of BPM/analytics framework

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Overview of BPM/analytics framework