coe customer supply chain manual

Customer Supply ChainCenter of Excellence:

CUSTOMER SUPPLYCHAIN MANUAL

Birgit Patterer, CEEMAPablo Platero, LAEgi Situmorang, AP

Contents (1)

Part 1:CUSTOMER SERVICE BASICS:

• Introduction to CS&L

• Customer Service

• Order to Cash Overview

• Web Order

• Customer Supply

Part 2:MODERN TRADE:

• Modern Trade Overview

• Global Retailers Overview

• Customer Collaboration

• Best Practices

Contents (2)

Part 3:TRADITIONAL TRADE:

• Traditional Trade Summary

• Why distributors are important to our business

• 6-Step Process Distributor Development *

• Real life examples

• Platforms relevant for Distributor Development

Part 4:GENERAL INFORMATION:

• Useful Websites and Links

• CS&L Career Planning

* Focus on Supply Chain elements

Customer Supply Chain Manual:

PART 1:CUSTOMER SERVICE BASICS

Introduction to CS&L

• 11 brands with more than $1 billion in revenue

• 70+ brands with more than $100 million in revenue

• 40+ brands over 100 years old

• 80% revenue from #1 share positions

Kraft Foods is the world‟s second largest food companyand is #1 in global Confectionery and Biscuits.

6

Kraft Foods Developing Markets have a huge potential for business growth with millions of customers and billions of consumers.

Latin America Region

Central & Eastern Europe, Middle East & Africa Region

Asia PacificRegion

LA HQ: Miami, Florida

CEEMA HQ: Vienna, Austria

AP HQ: Singapore

Worldwide HQ: Northfield, Illinois

7

“The goal of Supply Chain Management is to linkthe marketplace, the distribution network, the manufacturing process and the procurement activity in such a way that customers are serviced at higher levels and yet at a lower total cost.”

Martin Christopher

Logistics and Supply Chain Management (1992)

Supply Chain Management is about

synchronizing the entire chain.

Purchase OrdersTrucks

Warehouses

Changing a paradigm or stereotype: CS&L consists of

much more than only trucks, warehouses and orders.

Product Flow

Consumer Purchase Information

CS&L has been expanding its scope according to the business needs and the level of maturity of each business unit.

Suppliers Factory Kraft Customer Store ConsumerWarehouse Warehouse

Historical scope

Scope last 7/8 years

Scope last 3/4 years

CS&L Scope

Manage Inventory, S&OP process and I2M

Forecasting I2M Inventory

Management Replenishment

planning

Manage physical network

Inbound / Outbound Finished Goods,

In / Out Copacking, Warehousing, Transportation

Manage the order entry and fulfillment

complete and on time

Order taking and processing,

Co-managed Inventory, Client master files Mgt, ECR Supply initiatives,

Role :

Activities :

CS&L Mgr

Logistics Operations Customer Service Product Supply

Country/Area Mgr Region CS&L Dir

The core functions within CS&L:

PS, LO, CS, PCM *), Business Process / Data Management *)

Stru

ctu

re in

CEEM

A

*) Note: Some regions have a slightly different structure. Click on the right tab to see the example

Regional CS&L Management

CS&L also supports countries through the

regional leaders and the COEs

Customer Service & Logistics

Management

Country

Priorities

Functional Leadership

Best Practices & Tools

Product SupplyCOE

Customer ServiceCOE

Logistics OperationsCOE

Customer Service & LogisticsNorth America

Logistics Operations

Trade maturity and product sourcing complexity drive

evolution and progress of the countries‟ core functions

From To

Local Production Sourcing

Product Scheduling

Inventory Control

Multi-country and external Manufacturing

Demand and Forecast Management

Project Management with category / sectors

Total Inventory Management

Customer Service & Logistics Country

Customer Service Product Supply

From To

Ad hoc distribution

Local suppliers and bids

Distribution network design

Leverage global 3PL supplier

All Finished goods incl Interco


Logistics Operations Customer Service Product Supply



Logistics Operations

From To

Order Processing

Ad-hoc product allocation

Order to Cash Management

Collaborative Forecasting

Quota Management / Promo

Customer Relationship Management (Kraft Plus CS&L tools)

Customer Supply Chain

Distributor Development


Customer Service Product Supply



Customer Service

Customer Service plays astrategic role within CS&L

Imagine if…

… you have to serve your customer with your eyes covered.

… you have to understand your customers, but they speak in a language you cannot comprehend.

… you don‟t know what your customers expect from you.

How good do you think the service you provide is going to be?

Customer Service has evolved from purely transactionalbusiness toward value added processes

Purely Transactional Process

Value Added Process

Orders generation

Reception

Customer

OTC Process

Preparation & Invoicing

orders

delivery

Orders generation

Data Sharing

Joint Business Plan

Reception

Customer OTC Process

Understand Customer RequirementsFull trucks completionFull pallets suggestionBackhauling / Customer pick upCentralized deliveriesPOS out of Stock identificationDistributor DevelopmentVMICPFRKPIs Analysis

Preparation & Invoicing

Transactional data sharing

Efficient delivery

Kraft Replenishment Suggestion

Orders

Customer RelationshipGeneral Agreement of Logistic Terms

and Conditions

Transactional business is handled by Back Office, value added processes by Front Office

Customer Supply

Front office

Back office

Order Planning

Order To Cash Overview

•Manage Customer Data

•Manage Pricing

•Process Sales Orders

•Manage Contracts

•Manage Customer Web Order Management

The Order To Cash Process comprises everything from an order to the related revenue

1: OrderManagement

2: OrderFulfillment

3: RevenueManagement

•Order Fulfillment for Warehouse, Product Supply and Transportation

•Order Fulfillment for Housekeeper (Methods and Applications)

•Manage Allocations & Global ATP

•Manage Accounts Receivables

•Manage Credit

•Manage Cash Application

•Manage Billing & Adjustments

•Manage Disputes / Claims

•Manage Rebates


•Manage Pricing


•Manage Contracts


An accurate order starts with correct Customer Master Data

1: OrderManagement

Manage Customer Data

Description:

• Setting up the Customer Master

• Extending Customer into a Sales Area

• Adding a contact person

Key Benefits:

• Accurate master data records

• Fewer changes to sales orders

• Faster processing time

Roles:

•Master Data Team

•Customer Service Clerks

•Credit Management

Integration:

Master Data is customer-related information that defaults into

sales orders when they are placed


•Manage Pricing


•Manage Contracts


1: OrderManagement

Manage Pricing

Description:

• Creating Pricing Condition Records

• Maintaining Pricing Condition Records

• Generating Pricing reports

Key Benefits:

• Fewer changes to sales order

• Processing time for Accounts Receivables decreases

Roles:

•HQ Master Data

•HQ Methods & Applications

•Field Customer Service Coordinators

•Credit

Integration:

Pricing takes into account any special deals, discounts and

allowances above and beyond the list price. These are applied

to sales orders to arrive at the correct customer price.

An accurate order continues with correct Pricing


•Manage Pricing


•Manage Contracts


1: OrderManagement

Process Sales Orders

Description:

• Process incoming sales orders

• Managing sales orders by exception – releasing blocks,

completing sales orders

• Correcting pricing

Key Benefits:

• Accurate sales orders creating accurate invoicing

• Fewer changes to billing documents

• Accounts Receiving processing time decrease

Roles:

•Customer Service Coordinator

•CSC Trainer

•CSC Team Lead

•E-commerce Manager

Integration:

Sales orders fulfill customer demand for product. Correct

product and quantities ensures proper shipping and customer

satisfaction for accurate order fulfillment and later accounts

receivable processing.

Accurate order processing ensures correct billing


•Manage Pricing


•Manage Contracts


1: OrderManagement

Manage Contracts

Description:

• Create and maintain contracts for customers

• Generate reports to track the fulfillment of contracts

Key Benefits:

• Accurate sales orders creating accurate invoicing

• Fewer changes to billing documents

• Accounts Receiving processing time decrease

Role:

•Financial Analyst

Integration:

Customers receive discounted pricing for specified quantities of

materials over a designated period of time. Correct pricing

must follow through to billing documents for expedited

Accounts Receivable processing.

Accurate contract management ensures customer satisfaction


•Manage Pricing


•Manage Contracts


1: OrderManagement

Manage Customer Web Order

ManagementDescription:

• Kraft process whereby external customers may place orders

via a web portal to Kraft’s internal order management system

•EZOrder has been replaced by Web Shop’s EZOrder-Plus

Key Benefits:

• EZOrder-Plus allows customers to view total order list pricing

once an order is placed, which reduces pricing discrepancies

Roles:

•External Customers

•Kraft Sales Force

•Kraft E-Commerce Managers

•Kraft Customer Service Coordinators

•Kraft Help Desk Support

Integration:

EZOrder communicated with the Kraft legacy. EZOrder Plus

takes this ability and communicates with SAP.

REMARK: Not available resp. needed in all countries / regions.

Web Ordering facilitates the customer‟s order placement process

Order Fulfillment

Order Fulfillment for Warehouse,

Product Supply and TransportationDescription:

•Inter- / Intra-company Movements

•Process Returns in the Warehouse

•Perform Outbound Processing without OM

•Manage Transportation

•Receive Finished Goods in a Non-SAP Facility

•Manage Finished Goods Inventory and Adjustments

•SAP IDoc Error Management and Handling

•Interface Management

Key Benefits:

•Impact of Catalyst on organizational roles

•Interface points and data flow between SAP and legacy

Product Supply, Warehouse and Transportation planning tools

Roles:

•OF Process Overview

•Inventory Management Reporting

Integration:

Legacy Warehouse, Product Supply and Transportation

systems (MATRICS/KWIC, COD, ICOM, and OTM) will

interface with SAP to ensure seamless integration of

information and processes. Legacy systems will be phased out

during future Catalyst releases.

2: OrderFulfillment




Order Fulfillment

Order Fulfillment for Housekeeper (Methods

and Applications)Description:

•Inter- / Intra-company Movements

•Process Returns in the Warehouse

•Perform Outbound Processing without OM

•Manage Transportation

•Receive Finished Goods in a Non-SAP Facility

•Manage Finished Goods Inventory and Adjustments

•SAP IDoc Error Management and Handling

•Interface Management

Key Benefits:

• Impact of Catalyst on organizational roles

•Interface points and data flow between SAP and legacy Product

Supply, Warehouse and Transportation planning tools

Roles:

•Logistics Execution Housekeeper

•Inventory Management Reporting

•Category Administration

Integration:

Legacy Warehouse, Product Supply and Transportation systems

(MATRICS/KWIC, COD, ICOM, and OTM) will interface with SAP to

ensure seamless integration of information and processes. Legacy

systems will be phased out during future Catalyst releases.

2: OrderFulfillment




Order Fulfillment

Manage Allocations & Global ATP

Description:

•New product launch allocation-early ship (listings & exclusions)

•Seasonal/special pack finished good product allocation

•Divested business

•“Official” Finished Good Product Allocation

•Each event requires a clear understanding of the level in which

we plan to allocate product to the customer – WH region, WH

Sub-Group, FS Region, or Ship-to.

Key Benefits:

•New tool for allocations

•New terminology

•Material Master Data maintenance

Roles:

•GATP

Integration:

•Allocations are created and maintained in SCM. Then, they are

moved from the planning area to the APO Available to Promise

(ATP) server.

•The data is then called and passed back to the main SAP ECC

server.

2: OrderFulfillment


•Methods and Applications


Revenue Management

Manage Accounts Receivables

Description:

Some of the responsibilities of A/R include:

•Account Research

•Journaling (offset debits and credits for clearing)

•Clearing residual items

•Item resets and reversals

Key Benefits:

•The recording of accounting data of all customers

•Postings in AR and GL keep both always in balance

•Tools to monitor open items, account analysis, and

due date lists.

Roles:

•AR Processor

•AR Manager

Integration:

Begins the process of settling AR invoices that is

continued by Managing billings, Disputes, Rebates and

Credit


•Manage Accounts Receivables•Manage Credit•Manage Cash Application•Manage Billing•Perform Billing Adjustments •Manage Disputes and Claims•Manage Rebates

Revenue Management

Manage Credit

Description:

Managing Credit includes :

•Customer Master & Credit Master

•Perform Credit Line Review

•Process Blocked Sales Documents

•Manage Credit Exposure

•Review Credit Management Reports

•Imaging and Credit Association

Key Benefits:

•Credit limit reviews reduce delivery delays

•A proactive approach to customer credit limits reduce the

number of blocked orders

•Customer credit levels can be maintained by individual

account - Credit level can be adjusted for seasonal business

•More real-time reporting tools

Roles:

•Credit Manager

•Credit Processor/Analyst

Integration:

Accounts Receivables (New Customer, Customer fails credit

check, maintenance of the customer master)


•Manage Accounts Receivable•Manage Credit•Manage Cash Application•Manage Billing•Perform Billing Adjustments •Manage Disputes and Claims•Manage Rebates

Revenue Management

Manage Cash Application

Description:

•Managing Cash Applications includes;

Validating the cash clearing account

•Reviewing and processing lockbox exceptions

•Reviewing lockbox posting

•Resolving unprocessed payments through manual posting

using SAP transactions

Key Benefits:

•Central data depository for all customer information

•Customer notes to be entered by all processors

•Customer information to be viewed and edited by all

•Deletions tracked by system and user ID

Roles:

•Cash Application Manager

•Cash Associate

•CDO Finance

Integration:

Credit and Accounts Receivables



Revenue Management

Manage Billing

Description:

• Identification and release of blocked billing documents

•Creation and Maintenance of billing documents

•Release of billing documents blocked for payment to

accounting

•Correction of invoices due to retroactive price changes

Key Benefits:

• Daily review and correction of billing log errors

•Ability to apply blocks at both the master data and transaction

level

•Terms Effective Date is now the date the customer picks up

the product and takes ownership

Roles:

•Financial Controls – BTC (Bill to Cash)

•Financial Controls – Field

•Customer Service Coordinator – Supply Chain

Integration:

Goods receipts and delivery orders are reviewed and analyzed

to prevent creation of incorrect invoices. Corrective actions

can be taken, applied blocks removed and documents released

for processing.



Perform Billing Adjustments

Description:

•Identification of required billing adjustments

•Creation of required sales orders to complete the adjustment

•Creation of required follow-on documentation

Key Benefits:

•Creation of new sales order will trigger all required document

flow

•Proper authorization required to create new sales documents

•Exception only handling of issues will reduce time from

identification of a billing issue to resolution and receipt of

payment from customer

Roles:

•Financial Controls – BTC (Bill to Cash)

•Financial Controls – Field

•Customer Service Coordinator – Supply Chain

Integration:

•Manage Billing

•Manage Disputes and Claims


•Manage Accounts Receivable•Manage Credit•Manage Cash Application•Manage Billing•Perform Billing Adjustments•Manage Disputes and Claims•Manage Rebates

Revenue Management

Manage Disputes and Claims

Description:

•Manage customers disputes, deductions and complaints.

•The creation, monitoring, escalation, assignment, work-flow

notifications, closing and writing-off of the Dispute Cases.

Key Benefits:

•Report on a post to General Ledger Accounts

Report on and post to Cost Centers

Roles:

•Accounts Receivable Processors

Accounts Receivable Managers

Integration:

•Portal

•FSCM

•FI Legacy Systems (KARS, A/P Workflow, Tax Robot, LIS/

LPR, Vista, COGS, Matrics)

•Sales Systems (KOSTARS, STHS )



Revenue Management

Revenue Management

Manage Rebates

Description:

•Maintain Rebate Agreements for Post-Pay Programs

•Settlement of Rebate Agreement

- Issuance of credit / check

- Issuance of statement billing

•Retroactive Rebate Processing

Key Benefits:

•Ability to make refunds for legitimate reasons

•Streamlines process and reduces manual effort

•Separation of non-compatible roles/SOX compliance

Role:

•Financial Controls BTC

Integration:

•Data Maintenance

- Create Rebate Agreements

- Create Pricing Conditions

•Financial Accounting

- Maintain accrual balances for rebates

- Rebate settlements create credit/debit entry to A/R

account



Web Order

EDI stands for Electronic Data Interchange. EDI is the computer-to-computer exchange of business documents between companies.

This model was generally adopted by the big retailers in both the Developed and Developing Markets. However …

EDI Messages facilitate the data exchange between Kraft and our customers / suppliers

Example: Orders by month in Latin America

Source: GCI Survey 2009

Order by Month % of EDI orders

ARGENTINA 6383 46%

URUGUAY 380 21%

BRAZIL 9207 38%

CARICAM 1326 43%

MEXICO 7800 70%

PERU 940 60%

ECUADOR 3836 20%

VENEZUELA 4542 9%

Total Latin America 34414 41%

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

ARGENTINA URUGUAY BRAZIL CARICAM MEXICO PERU ECUADOR VENEZUELA

not EDI

EDI

However, in the Developing Markets a big percentage of the business is based on Distributors who have very limited possibilities to use EDI technology.

take

type

Sales takes the order personally.Sometimes, orders come by telephone.Some customers fax their orders, or E-mail them

Generally Customer Service people type the orders into the system.

Sometime Sales people type them into Siebel (Saturn project).

Manual order taking is the most common processin Developing Markets

ERP

Web Order

Tool

(Customer, Item, Price) PRICAT?

ORDERS

Order Entry

(Web form or standard Excel)

Order Validation

Order Tracking

Return requestCUSTOMERS or

SALES REP

Order Status

1

2

5

6

4 4

7

The proposal is to create a Web environment where customers can log in and create their orders to be integrated automatically into the Kraft ERP System.

8 Return order9

A Web Order Tool can facilitate the order taking process and reduce manual errors

42

Some solutions implemented in LA have already proven to work well and generate efficiencies

24 hours operation Very easy to use Totally integrated with Kraft ERP system On-line Logistic Catalog Category filters and product availability visualization Ability to save favorite orders Ability to manage order suggestions Order upload from Excel files Desired delivery date input by customers On-screen pallet / layer converter to help user Updated on-line order status for customers Quota management Generates standard EDI orders Mail confirmation circuit (i.e. to Sales persons)

Basic Interfaces needed between Kraft ERP and Web Order

ERP (JDE-PRISM-SAP)

PURCHASE ORDERS

RETURN REQUEST

PAYMENT ADVICE (COLLECTION)

PRICAT (items – customers – prices)

LIST OF INCLUSION/EXCLUSION

QUOTAS (maximum quantity available)

ORDER STATUS

INVOICES

6

WEB ORDER TOOL

7

8

1

2

3

4

5

Interfaces detail in Back-up

1

2

3

4

5

6

7

8

PRICAT: Master data for items, customers and prices.

LIST OF INCLUSION & EXCLUSION: Will allow the identification of which product would be shown or hidden for each customer.

QUOTAS: Maximum quantity of each SKU each customer can buy. This is prepared to avoid a few customers taking all when the offer is limited (i.e. by production restrictions).

ORDER STATUS: To show customers the status of each pending order while it goes through the OTC process. Detailed line by line.

INVOICES: Line by line detailed to allow customers‟ returns and payment declaration.

PURCHASE ORDERS: Line by line PO.

RETURN REQUEST: Return (negative) line by line order.

PAYMENT ADVICE: The customer or Sales person informs that a certain invoice was paid detailing amount paid, transaction number, method of payment (bank, cash, etc).

Interfaces details

Usage of a Web Order Tool brings advantages for Kraft and our customers

List of potential benefits for both Kraft and our distributors: (Benefit stream may vary from country to country)

Benefits to Kraft:• Significantly reduce cost of Sales and Customer Service (less Call Center / Data entries incoming communication)• Reduce manual workload, less errors due to typing • Eliminate manual update of Customer Order Form• Significant decrease of customer refusals, occuring due to typing errors• Smoother, faster and more efficient order process with less manual intervention• Reduce workload due to less order changes• VMI process simplification (Customer can review and approve order proposal online)• Sales reps focused on sell out business rather than loading orders on Siebel / other systems• Reduce pricing discrepancies

Benefits to Customers:• Totally cost-free solution• Place comments about receipt online and speed up claims resolution process• Able to track all orders through the web portal, leading to greater customer satisfaction• Able to optimize orders (ie. full pallets / layers), leading to optimized unloading and warehousing• Ability to visualize product status and make changes online (i.e. substitute SKUs)• 24/7 available portal for order entry and tracking• Kraft OTC Process transparency

Brazil Mexico Peru /Ec Venezuela

Headcount

Cost of the people assigned to the order entry process (including call center). Company

cost of each person must include salary plus taxes and other charges related to the

employees (i.e. lunch, training, etc) 16,836$ 41,508$ 18,545$ 45,080$

Systems (fill in only in the case you foresee a system optimization)

Annual Cost of keeping system working support the current manual or "semi-automatic"

order entry process. -$ 260,000$ -$ 250,000$

Siebel

Refusals

Costs of the reverse logistics -$ -$ -$ -$

Cost of the out-in at the warehouse -$ ? -$ -$

Cost of the labor to process the return and generate the credit note. -$ 9,455$ 1,265$ -$

Logistics

Increase in the full layer / full pallet orders for giving on line visibility to customers 16,350$ -$ -$ 74,186$

Increase order to reach full truck load -$ 12,298$ -$

Waste

Write off reduction as by giving visibility of available products to Sales -$ 191,250$ -$ -$

TOTAL 33,186$ 502,212$ 32,108$ 369,266$ 936,773$

Savings (USD)

Benefits Example

Example extracted from the business case prepared for LA

Plan to Cash Training:

http://lcs.kraft.com/elearning/plan_to_cash/index.asp#topModule 1: IntroductionModule 2: Data Quality Module 3: Supply Chain PlanningModule 4: Ordering ProductModule 5: Order FulfillmentModule 6: Product Shipping and ReceivingModule 7: Financial Processing

Web Order:

Supply Guidelines:This document provides a framework for Kraft to collaborate with our Distributors. The main objective is to establish clear roles and responsibilities for the two parties and to manage expectations as we look to build sustainable long term relationships with Distributors.

More information about this chapter

http://lcs.kraft.com/elearning/plan_to_cash/index.asp

http://lcs.kraft.com/elearning/plan_to_cash/p2c_introduction/launcher.html

http://lcs.kraft.com/elearning/plan_to_cash/p2c_data_quality/launcher.html

http://lcs.kraft.com/elearning/plan_to_cash/p2c_planning/launcher.html

http://lcs.kraft.com/elearning/plan_to_cash/p2c_ordering/launcher.html

http://lcs.kraft.com/elearning/plan_to_cash/p2c_fulfillment/launcher.html

http://lcs.kraft.com/elearning/plan_to_cash/p2c_shipping_receiving/launcher.html

http://lcs.kraft.com/elearning/plan_to_cash/p2c_financial_processing/launcher.html

Customer Supply

Managerial alignment with Customers: moving from the fragility of a butterfly to the hardness of a diamond.

Sales

Supply Chain

Marketing

Finance

Sales Support

The old butterfly scheme

Supply Chain

Marketing

Finance

Stores execution

Procurement

Ventas

Supply Chain

Marketing

Finance

Sales Support

The diamond scheme is a more modern, efficient and strong way to approach our customers

Procurement

Supply Chain

Marketing

Finance

Stores execution

The role of Customer Supply

Customer Supply is the part of CS in charge of meeting the customers in representation of the CS&L area.

Generally it‟s structured by channel and customers but this may vary according to the size of the business.

Manager,Customer Service

Analyst MT – Customer 1

Manager, Customer Supply MT

Manager, Customer Supply TT

Manager, Order Planning

Order Support & master files

Order Process

Analyst MT– Customer 2

Call Center Analyst MT – Customer 3

Analyst MT – Other customers

Analyst TT

Analyst TT

ORGANIZATION EXAMPLE

The role of Customer Supply

Traditional Trade Modern Trade

Customer visitsLogistic Agreements

Dispatch frequencies to customers optimizationService KPIs calculation

OTC process follow up – action during exceptionsData alignment with customers

Order pattern Analysis & Cost to Serve

Training to distributors Logistic Agreements (EBP)

Distributor assessments Information sharing (EDI – GDS)

Development plan for distributors VMI –CMI - CPFR

VMI – CMI OSA analysis

KIDS

Typical list of tasks:

Basic Customer Service KPIs

=CFR% X 100 Cases received by customer

Cases ordered

=Qty of orders dispatched complete

Total qty of orders

OSC%

X 100=IA%[ Invoices - Credit Notes

InvoicesConsidering only the Credit Notes generated by discrepancies in price or quantity between what the customer ordered and what he received

X 100Qty of orders delivered on time

Total qty of orders

OT% =

X 100


PART 2:MODERN TRADE

Modern Trade Overview

Modern Trade: An overview

• The Modern Trade share in Developing Markets continues to grow.

Business with international customers is growing above average growth.

New Modern Trade formats (e.g. Discounters) are increasing.Their rapid expansion over the last years has created an extremely face-pacedand dynamic market environment for the Retail sector. This growth is not without challenges, however.

• Modern Trade requires capabilities in several coreareas to win in this changing environment (see right).

• The extensive display of products, an increased level of merchandising, the changing nature ofpromotions and the continuous bevy of newlylaunched products, stimulate a continuous shiftin the consumer‟s product preferences – thusaffecting unanticipated swings in the brands‟Market Shares.

• Modern Trade expects from their suppliers:

- Excellence in Supply Chain Management

- Delivery of operational efficiencies

- High service levels

- Innovative programs for joint business growth

Hypermarkets / Superstores& Supermarkets

Discounters

Cash&Carry/Warehouse Clubs

Drugstores

Department Stores

Market Outlets

Kiosks / Pavillions

Small Grocery Stores

C-Stores & Petrol Stations

Duty Free Stores

Other(Bakeries, Delicatessen, etc.)

Retail Channels

from 100 m² to > 5.000 m²; 7.000 – 70.000 SKUs

from 400 m² to > 1.500 m²; 900 – 1.500 SKUs

> 5.000 m²; appr. 4.000 SKUs

from 35 m² to 400 m²; up to 1.500 SKUs

varying size; focus on non-food

< 100 m²; limited assortment

10 - 50 m²; very limited assortment

< 40 m²; limited assortment

200 – 1.000 m²; limited food assortment

varying size; special SKUs

59

Modern Trade – some store examples

60

Modern Trade – more store examples

Differences between Modern Tradeand Traditional Trade Retailers

MT Retailer TT Shop Owner

Profit oriented Revenue oriented

Growth oriented Survival oriented

Economies of scale Economies of shelf

Has a business plan Has day-to-day money

Visits trade fairs Visits wholesalers

Regular meetings … Regular visits …

… in an office … in his shop

… looking at data. … looking around.

Goes home after work.

May sleep in his shop.

Global Retailers Overview

Top Ten Global Retailers

POS RETAILER NAME in BN US$

1 Walmart (USA) 428,490

2 Carrefour (France) 152,343

3 Metro Group (Germany) 104,216

4 Tesco (UK) 97,538

5 AEON (Japan) 95,803

6 Schwarz Group:Lidl (Germany) 86,269

7 Seven & I (Japan) 86,193

8 Kroger (USA) 83,075

9 Rewe Group (Germany) 79,977

10 Costco (USA) 79,123

(Source: Planet Retail)

(Figures: FY 2009)

#1 Walmart: $428.5Bn

VISION: Respect for the individual, Service to our customers, Striving for excellence

Strategy: Number 1 or 2 in market, lowest price in market

– EDLC to deliver EDLP

– Win, Play, Show

– Fast, Friendly, Clean

– Multi format retailing

Focus Areas: 1. US / 2. UK, CAN, MEX / 3. Bra, Rus, Ind, China

MISSION: Save money, live better

#2 Carrefour: $152.3 Bn

VISION: Making Carrefour the preferred retailer wherever it operates

Strategy: Achieving organic, sustained, profitable growth in excess of the broad market growth rate by:

– Client-oriented culture: getting to know our customers better in order to serve them better

– Transformation: increasing agility, execution quality and competitiveness

– Innovation: regaining initiative and leadership

Focus Areas: 1. France 2. Spain, Italy, Belgium 3. Developing Markets

MISSION: At the heart of our customers lives

#3 Metro: $104.2Bn

VISION: high-performance, international retail company focused on sustainable, profitable growth

• Binding corporate principles that apply to all sales divisions as well as joint business goals and concepts for achieving goals

• The shared commitment of profitable growth and the pursuit of market leadership in each segment

• The international focus of the METRO GROUP and an intense commitment to innovation as supporting pillars of business success

Strategy: SHAPE 2012, ensuring profitable growth

– Customer orientation

– Position and expansion

– Efficient processes and structures

Focus Areas: 1. The Individual Sales Divisions

MISSION: Decentrally as possible, as centrally as necessary

#4 Tesco: $97.5 Bn

VISION: Multi Format retailing to drive sustainable & profitable growth

Strategy:

• To be a successful international retailer

• To grow the core UK business

• To be as strong in non-food as in food

• To develop retailing services - such as Tesco Personal Finance, Telecoms and Tesco.com

• To put community at the heart of what we do

Focus Areas: 1. UK 2. Asia 3. USA

MISSION: Create value for customers to earn their lifetime loyalty

Other Global Customers

• Aldi (German): $74.8bn, #1 discount, #11 Global, 90% Food 17 Countries – Europe, USA, Australia

• Auchan (French): $74.5bn, #2 Fra, #12 Global, 69% Food 16 countries - South & Central Europe,North Africa, Russia, China, Vietnam

• Casino (French): $70.3bn, #3 Fra, #1 Brazil, 71.7% Food 20 countries - LA, N&W Africa, France, Germany, SE Asia

• Ahold (Dutch): $60.7bn, #1 Sweden, #20 Global, 89% Food 10 Countries – USA, Scandinavia, Baltics

Customer Collaboration

Customer Collaboration

Personal Commitment

Shared Decisions

Shared Risk

Speaks as One

Cooperation

Understanding customer business needs

Link solutions to customer needs

Creativity and insight

Proactive sharing of information

Foundation

Product and service knowledge

Listening skills

Responsiveness

Act responsibly

Reliability

Key steps for an effectiveGlobal Customer Management

2) Prepare Customer Segmentation

1) Understand the Customer (Vision, Priority, Strategy, Needs, Metrics, SC structure)

3) Sell and Align With Customers (Customer contact, JBP, Joint KPIs/Scorecard)

4) Develop joint Solutions /Initiatives (Roadmap)

5) Execute Initiatives & track progress (Monthly KPI/project review)

5 steps to plan, implement and track Supply Chain initiatives with Modern Trade

Foundational Developing Advanced / Strategic

Fusion - EDI

OSA

C2S + EB

Distributor Management (VMI)

Network Design

RFID

Market development stage

CPFR/JEM

KIDS

Tools to be developed and implemented as enablers, according to market maturity, customer needs, and Route-to-Market strategy

GDS – Industry Standards

JVC

Scorecard

Example for scorecard criteria:Their definition and assessment

TOPIC DEFINITION CRITERIA ASSESSMENT

Sales Maturity

Indicates the openness of the Sales

team in relation to Customer Supply

(internal relation at Kraft)

0No contact between Customer Supply and KAM

1

CS knowing some commercial tactics regarding the account, No supply contact with client.

2

CS knowing some commercial strategy regarding the account, Supply contact with client.

3Full independency to contact client for Supply Chain topics

Client

Collaborative

Style

Refers to the customer's openness to

work in collaboration with Kraft

0No collaboration with client apart from Order to cash topics

1Basic collaboration at logistic level (KPIs, SKU Data exchange)

2Supply Collaboration for more advanced programs (CMI/VMI/CPFR, OSA)

3

Commercial and Logistic Collaboration, Joint Business Plan including Logistic and Commercial

projects.

Meeting

Customer

Frequency of meetings with customer

(weekly / 15 days / monthly) to

discuss project development and

follow up, replenishment process,

skus management, etc.

0No contact at supply level

1Time to time contact

2Monthly meetings at supply level (incluye T2T)

3

Joint Value Creation meetings between companies.

Joint review de

KPI's:

Joint reeview of KPIs with customer

oriented to agree and align the

measurement, understand the

reasons and set corrective action

plans.

0Client doesn´t calculate KPIS

1No common KPIs review

2Sharing of KPIs from time to time, methodology & result not aligned.

3

Monthly comparison meetings, methodology/results aligned including gap analysis and corrective

action identification.

Forecasting/CPF

R

Indicates if the customers calculates a

forecast and how it is used internally

or by Kraft for the replenishment

process.

0

Forecasting not in place in the client, Replenishment of client based on historical sales, Forecasting at

Kraft based on Client/sku Sell in

1

Forecasting in place in the client, Replenishment of client based on forecasting, Forecasting at Kraft

based on Client/sku Sell in

2

Forecasting in place in the client, Replenishment of client based on forecasting, Forecasting at Kraft

based on Client Forecast

3

Forecasting of client made in collaboration with Kraft, Forecasting /production of Kraft based aligned to

client Forecasting

Visility Stores

Information shared by the customer

with POS data by store and by sku

(inventory and sales)

0No information available

1

Some data from time to time (wekly, monthly), not complete information (ex. No data regarding daily

sales or transits)

2

Daily Data sharing, not complete information (ex. No data regarding daily sales or transits)

3

Daily Data sharing, automated and complete, including store sales, transit, inventories, safety stock,

etc.

Promotional

Process

Level of co-ordination between

customer and Krat for promotional

events.

0Not in place

1

JEM in place for big Events to distribution centers, no responsibility for store replenishment.

2

JEM in place for big Events to distribution centers, Kraft responsibility for store replenishment.

3

All Functions -commercial/logistic- involved in initial forecasting quantity and replenishment process.

OSA: On Shelf

Availability

Level of information (transactional ,

physical or both) of the OOS at stores

and level of collaboration of the

customer for improvement of this KPI.

0No iniative / no measurement

1Pilot or on going measurement not shared with client.

2

Pilot or on going measurement shared with client, no corrective actions setting in place.

3On going measurement with jointly decided actions following -up

Example for customer segmentationand Supply Chain initiatives

Examples for Customer Development Programs

Fundamental Programs

• Internal sales alignment

• Report fill rate

• Report Days on Hand

• WM supply terminology

understood e.g. Assembly,

Order Type

• Regular Supply Review

• WM/Kraft Route to

Market understood

• Defined roles for WM &

Kraft Supply

• Deliver acceptable KPI’s

• Direct delivery to WM

• Order pattern understood

• Manual data alignment

• Retail Link access & use

• Understand vendor

scorecard

• Commence 30/60/90

collaboration meetings

• X Docking/Assembly used

Development Programs

• EDI Orders used

• Joint agreed KPI’s &

CS&L customer plan

• Supply priorities in JBP

• Review lead times

• Reduce inventory level

• Forecast by customer

• EDI Invoicing

• Fill Rate Bridge Complete

• Global Replenishment

System Implemented

• Access to CPFR tool in

retail link

• Cost to serve understood

• Logistics Discount/EBP

• Gold standard CPFR

• Packaging scorecard

complete

• Backhaul or CPU

• PO Transformation

implemented

Aspirational Programs

• Understand WM 5 year

country supply chain focus

• Flow Decision Tool Used

• Global Data Synch

• Joint Value Creation

• No touch orders

• 7 day order processing

• 24 hour lead time

• KIDS 2 Forecasting

• One truck

• One Inventory

• One Shelf/Shelf centred

supply chain

• One Network/ Integrated

Network Plan

• One product

• RFID technology /EPC

Strategic Programs

• Joint Event Management

process in place

• Local SCB member

• Optimize inventory

• Electronic item file

exchange

• Measure OTD or MABD

• Logs terms driven by CTS

• AS2 replaces EDI

• Display ready pack/ PDQ’s

• OSA measurement

• Phantom Inventory pilot

• Strategic sustainability

• Jt CPFR/Replenishment

Analyst in WM

• Increase freshness

• Implement ASN for delivery

• 7 Day delivery

• Implement OSA solutions

• Retail ready packaging

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Example 1:Russia Strategic Development Model: Modern Trade

Fundamental programs

• Alignment internal

position

• Move from scheme sales –buyer to scheme leading by sales & buyer

• Scorecard definition

• R2M review and agreement

• Cost to Serve

Development

• EDI

• TLT review and optimization

• Product freshness improvement

• JBP:• Scorecard• CFR improvement• Reduce / optimize inventory level• C2S

Strategic

• GDS

• CPFR / VMI, including JEM (promo activities evaluation)

• OSA monitoring and improvement

• Shelf ready packages

•Promotional planning

• Supplier collaborative board (top2top)

Aspirational

• One network

• JVC

• Understand and influence on Customer‟s Supply Chain strategy

• KIDS

• RFID

Development programs vary between Modern Trade and Distributors, according to customers„ capabilities.

Fundamental Programs

• Internal sales alignment

• Track and Report KPI’s

• Regular Supply Review

• Local KA/Kraft Route to

Market understood

• Manual data alignment

• Understand vendor

scorecard

• Collaboration meetings

Development Programs

• EDI full cycle

• Joint agreed KPI’s &

CS&L customer plan

• Supply priorities in JBP

• Review lead times

• Reduce inventory level

• Access to CPFR tool

• Cost to serve understood

Aspirational Programs

• Understand 5 year

strategic plans for

replenishment,

transport/DC’s, supply

chain, technology

• Global Data Synch

• No touch orders

• Category management in

“HOT” zone based on Kraft

expertise

• 24 hour lead time

• Joint Value Creation

• Collaborative forecasting

on Kraft factory level

•RFID

Strategic Programs

• Optimize inventory level

• Display and deliver ready

pack

• OSA in “HOT” Zone

Example 2:Russia Strategic Development Model: Local Key Accounts

Development programs vary between Modern Trade and Distributors, according to customers„ capabilities.

79

Example 3:Russia Strategic Development Model: Traditional Trade

Fundamental programs

• Internal alignment sales/

CS&L

•Distributor assessment (2 times a year)

•(Manual) master data alignment

•Excel order tool

•Order schedule (fixed order/delivery days

•Sales Force Automation

Basics

•Order size/structure agreement

•Web order tool

•EDI order implementation (b2b or internet EDI)

•SFA implementation

•Joint agreed KPIs

•Distributors‟ data (stock, sell out) on weekly basis

Developing

•KPI alignment with distributors

•Annual T2T supply meeting

•Regular meetings with customers

•Agreed development pans & roadmaps

•Promotional planning

•Distributors‟ data (stock, sell out) on daily basis

•Distributor scorecard•EDI rolling out of DESADV, RECADV, Invoice, Sales & Invent.Reports

•Distributors P&L agreement

•Cost to serve

Strategic

•Distributors as a part of Supply chain

•Collaborative Forecasting

•Joint Event Management

•VMI

Customer initiatives should be monitored with a Project Tracker

Country

Supply Chain Priority Project Owner/ Leader Project Description Project Objective Key Milestones Estimated Benefits Next steps Deadline

CHINA Optimize Inventory Rosaline/ Stephanie Optimize Inventory Improve DOH metrics without sacrifice Instock Understand current inventory structure and identify

opportunities for reduction

Improve DOH Review Master files

and Identify problem

SKU

Q1-Q4

Constantly Monitoring of Instock and DOH

Measure the impact of this change and the impact

on business

Joint Event

Management

Collaboration

Rosaline/ Stephanie Work Collaboratively with Sales and

WM on promotion planning

Improve availability for promotional items and

manage DOH

Work with Sales team to work out a joint event

management process

More accruate forecast to

increase sales without

higher DOH

Work out a joint event

management process

with sales

Q1-Q4

Involve into promotion planing and translate the

promotion effect and sales strategy into promotion

forecast

Review the process and work out the COE

regularly

Tactical Sustainability

- Local EDI

- Customer Pick

Up/Backhaul

Rosaline/ Stephanie Understand the capbility of local EDI

and determine wether implement it.

Make the best of local EDI to improve the order to

cash process efficiency.

Get the EDI go-live schedule Improve order to cash

process efficiency.

Get the schedule of

Local EDI go-live

Q4

Indentify which function could be used by Kraft and

bring benefit to Kraft.

Share EDI info. with the related dept and collect

the comments on implenmenting EDI from them.

Discuss the feasibility with the related team.

Customer Pick Up Pilot Find a way to improve sustainability without big

impact on daily business

Prepared plan and processes and align internally Improve sustainability CPU proposal to WM Q1

Agreement with WM on process and Rate

Launch pilot and follow up

Evaluate the benefit and impact on business

Customer Pick Up Roll Out Evaluate CPU pilot and expand to other RDC Prepared plan and processes and align with WM Improve sustainability Evaluation on Pilot Q1-Q4

Roll out to all WM DC

Measure the impact of this change and the impact

on business

C2S reduction

GRS - Global

Replenishment

Solution

Rosaline/ Stephanie The Implementation of GRS in

Walmart China

Pay attention to the progress on the GRS

implemention in WM

Get the related info. from Replenishment team Improved supply chain

efficiencies

Follow up the

Implementation of GRS

and manage the impact

Q2

Follow up and understand the impact on us

Attend related training if there is any training for

Supplier

Best Practices

82

Customer Collaboration:Best Practices and their definitions

• Electronic Data Interchange (EDI)

• Global Data Synchronization (GDS)

• Cost To Serve (C2S)

• Efficiency Bracket Pricing (EBP)

• Key Performance Indicators (KPI)

• Joint Value Creation (JVC)

• Vendor Managed Inventory (VMI)

• Collaborative Planning, Forecasting and Replenishment (CPFR)

• Kraft„s Integrated Demand Signal (KIDS)

83

Implementation of EDI messages offers multiple benefits

EDI provides speed:

EDI is the tool that can enable businesses to achieve increases in speed, with accompanying decreases in document cycle time.

EDI improves accuracy:

Electronic transfer of data eliminates the need for copying data from one paper document to another, or for keying the data into a business application screen. With manual data transfer, errors are likely. In the typical manual purchase order, a person enters or copies information from the paper form at least once. With EDI, improved accuracy is obtained in several different ways:

• Electronic data is usually derived from a database, where data has been subject to prior validation.

• Electronic documents are transferred accurately, regardless of size. If transmission of a large document is not successful, users can invoke re-transmission procedures rapidly.

• Even if several different parties process the electronic document, with each party adding data to the existing document, none has the ability to alter previously entered information.

84

Implementation of EDI messages offers multiple benefits

EDI provides security:

The communication via Value Added Network (VAN) or directly via Internet (AS2) allows to exchange electronic data between sender and recipient in a reliable, secure and traceable way. The VAN handles all transfer of information from the sender‟s mailbox into the receiver‟s mailbox. This allows trading partners to be certain that they can freely exchange information but at the same time they can avoid giving direct access to their own internal systems.

Benefits for Kraft:Reduced manual workload through electronic documents import (e.g. ORDER).Less errors than by manual order entry.Less returns through more exact ordering.

Benefits for the customer:More reliable communication, faster document flow, no retype errors. Reduced manual workload through electronic documents import (e.g. INVOIC).

Mutual benefits:Improved customer service through quicker order placement and fulfilment.Less errors through joint Master Data alignment.

85

EDI share is highly diverse across Kraft regions,and also across countries within the same region

(Source: GCI Survey 2009.)

You want to get started, and don„t know how?Here„s a guide.

June 2010

CS&L CENTER OF EXCELLENCE:

EDI ORDER Implementation -Why to do it, and how to start.

Birgit PATTERER

Manager Customer Supply Chain

Development, CEEMA

Implement customer facing data exchange tools (EDI-Web Order-GDS) to drive efficiency and business visibility.Objective

Evolution Stages

Foundational Developed Advanced

MS Office files (ie. txt, xls,

mdb files loaded into an

application). Used for:

Master Data Alignment, Order

Process, Inventory reports,

Sales Out, etc.)

EDI is basically used for order

entry purposes.

Kraft EDI Standard or

Kraft Web tool mostly used for

order process (ie. Order

Receipt, Shipping Advice, etc.)

but also to make public Kraft

master data for customers.

EDI/Web limits manual

intervention, reduces costs and

enhances value added CS&L

activities.

GDS used for interactive

exchange and alignment of

master files with customers.

Master Data Alignment,

including pricing and

promotions, using GDS

enabling high level of visibility

and speed to shelf.

EDI & Web Order Processing

fully automated – paperless

process implemented.

Order receipt, confirmation,

Advanced Shipping Notice,

Dispatch Advise, Receipt

Advise, EDI invoicing, payment

Advise from customer etc...

Reduce data entry administrative cost, avoid double order entry, improve service level, improve collaboration with customers and speed to shelf. Align master files and reduce / eliminate price disputes.

Benefits

All channels and customers. Depends heavily on technological capabilities. Scope

Best practice definition

Customer Information Linkage: EDI, GDS, …

(Back to Best Practices overview.)

87

EBP: Use Efficiency Bracket Pricing to optimizetrade investments and manage Net/Net pricing.

Prevent unexplainable gaps in Terms & Conditions (T&C) among Retailers.

Prevent financial threats because of retrospective demands from customers.

Prevent inconsistency of T&C structure between categories and clients.

Prevent unexplainable gaps in shelf prices in the market.

Reduce administrative complexity with heavy manual rework in Customer Service.

Prevent possible legal and compliance issues.

88

EBP: Terms & Conditions are structured in various buckets

Temporary PriceAdjustment

Efficiency Buckets

Payment Terms

BusinessBuilding

Other

Allowances that are generally given to reflect changes in raw materials without changing the list price.

Includes the deals that are linked to Supply Chain and administration. These deals must be set up in line with a strict set of guidelines and principles.

Includes the agreed payment terms and the deals linked to them.

Includes all the deals that we give to a retailer and that serve to grow our business. Only the deals that are fully reflecting the Pay For Performance principle can be included here.

Includes all the deals that are not impacting the sell-out as they are granted to the retailer without a real return or benefit for Kraft. Our Vision is that this bucket should be kept at the lowest possible level and ideally deleted.

89

C2S: Cost To Serve is an enabler for cost transparencywhich can drive efficiency and profitabilitythroughout the Supply Chain.

Cost To Serve provides support in budgeting, network changes and evaluation of supplier competitive offers in tenders.

Scenario modeling capabilities open possibilities to identify out-of-the-box solutions, and assist in the understanding of cost trends and drivers.

Its collaborative framework can be used to define customer P&Ls and support collaboration with global Log Ops for efficient unit load design.

Cost To Serve is a strong negotiation tool in our toolbox for the developing Modern Trade environment, enabling proactivity and speed in response to customers‟ requests.

Cost To Serve will impact transportation, enabling a clearer visibility of transportation-related costs.

Overall, the Cost To Serve concept enables harmonization of business processes, cost budgeting, and logistic contract structures such as Efficiency Bracket Pricing.

90

C2S: Cost To Serve is an enabler for cost transparencywhich can drive efficiency and profitabilitythroughout the Supply Chain.

Cost drivers:

Transportation:

Lane rates, truck load, delivery frequency, order size and structure

Warehousing:

Weight, pallet, cases, picking ratio

Waste:

Direct costs, promotional, Seasonals

Administration:

Overheads

Order To Cash:

Claims, returns

EB PRICING / COST TO SERVE

Develop a common process to track and optimize “Cost to Serve” for country level organizations, enable EB pricing and ultimately creating a sustainable competitive advantage in the market through collaboration with customers.

Objective

Evolution Stages

Foundational Developed AdvancedAd hoc undertaking with

selected C2S elements (ie

outbound only).

Order pattern analysis

calculations in place.

Understanding of tariff rate

structure increase impacts.

Manual model to validate 3

PL charges.

Offline C2S excel based

measurement tool used for

reporting.

Limited customer influencing,

using only partial cost

information

Limited customer ordering efficiency (selected customers only).

Limited or no supply chain collaboration in place

Formalized C2S solution installed &

generating data using all C2S variables.

Auto data feeds from base ERP systems

at order level.

Aggregated data by customer, product,

channel, period.

Sharing of data with customer base to

unlock efficiencies based on C2S

scorecard reports.

Benchmarking across customer and

channels.

Scenario capabilities used to simulate

customer-specific costs further used as

support in logistic discount / admin rebate

(EB) negotiations with customers

EB pricing being used with select

customers, rewarded for reaching targets.

Supply chain collaboration in place

leading to creating greater price

separation and reducing supply chain

costs

C2S solution installed, best practices in

place, country experts leveraging and

evolving model, savings delivered.

Leveraging of scenario capabilities to

chase productivity initiatives and support

customer/supplier negotiations.

CS&L teams driving industry

competitive advantage via supply

chain cost intelligence.

EB standardized automated process

including logistic discounts in invoice.

End to end supply chain approach

through customer integration leading to

cost reduction. Partnering for revenue

and profit growth with customers

Benchmarking across countries and potentially industry.

Reducing Kraft total system costs

-Improve service and cost, achieve EB accurate agreements leading to competitive advantage

-Better leverage customer price structure and improve ROI.-Drive out costs via benchmarking across customers, markets and channels.

Benefits

-Accurate information available in ERP or any other support system -Commitment to end to end supply chain; visibility and efficiency across supply chainScope



92

KPI: Key Performance Indicators are used to assess ourservice levels and to support improvement plans

1

.Fill Rate

KPI measures the share of

articles delivered correctly

concerning quantities. Only

short deliveries have a negative

influence (no over deliveries).

2

.

Lead Time Reliability –

Too Late Deliveries


articles delivered late in the

concerning period. Too early

deliveries are not considered.

3

.

Order to Delivery Lead

Time = date of delivery – date of order generation

KPI measures the average lead

time between order and delivery.

4

.Stock Coverage

KPI answers the question, which

timeframe (days) is covered with

the actual stock.

5

.Stock Service Level

KPI measures the share of days

with stock and sales compared

to all sales days in the

requested period.

6

.Customer Returns

KPI measures the number of

returned goods, though

evaluating the quality of

products.

100*_

deliveriesshort - quantitiesorder

quantitiesorder

100*___#

____#

unitsdeliveredtotal

unitsdeliveredlatetoo

colliin sales storedaily of average

colliin period of levelstock daily of average

supplierper articles of # total

issuesquality todue returned articles of #

100*days sales #

sales no andstock no with days of # - 1

93

KPI: Key Performance Indicators are used to assess ourservice levels and to support improvement plans.

7.Rate of pre-labeling by

supplier

KPI measures the number of

products not being labeled

properly by the supplier.

8. Invoice Accuracy


invoices considered as correct in

reference to all invoices received

from supplier

9.EDI Process Type

AvailabilityORDERS; INVOIC; DESADV; DESADV NVE;

RFID; SINFOS; RECADV

KPI measures the EDI capability

of a supplier, per certain

message types.

supplierper articles of # total

labeledproberly not or not articles of #

supplier from received invoices of # total

rejected)(not correct as consideres invoices #


JointValueCreationCreating a culture of collaboration and innovation between Kraft and its Customers

Brainstorming

Prototyping

AnalogousObservations

95

What is a “JVC” workshop

A methodology

For collaboration and innovation

Using a defined process and toolkit

Designed in collaboration with the “empathic design” firm IDEO

Widely recognized best practice

Inaugural GMA (Grocery Manufacturer Association) Innovation Award Winner

CSCMP (Council of Supply Chain Management) Award Winner

ECR Europe GMA IS/LD Conference GMA “New Ways of Working Together”

Conference Ten Faces of Innovation by Tom Kelley Penn State University Masters Program Stanford University Masters Program Copenhagen Business School Numerous periodicals such as Time

Magazine, Fast Company, and Business Week have referenced the work

Widely applied with consistently strong results

65 Customer Workshops worldwide over past 5 years

40 Internal Workshop All Top 10 Customers in the U.S. Top 3 Customers in Canada Top 2 Customers in UK Other Customer activity in Europe,

Latin America, Asia as well

98

A 6 Step Process for Driving Collaboration and Innovation (1 or 2 Day Programs)

1.Alignment

2.Empathy

3.Sense Making

4.Brainstorming (Divergent and Convergent)

5.Prototyping

6.Action Plan

99

1. Alignment

Understanding the “as is” condition Discuss and Align Strategies and Goals Compare motivations for session Cover off ground rules for session


100

2. Empathy

At the beginning of the innovation journey, we identify problems and opportunities, and seek inspiration for solutions from various sources.

We look to stories and observations to inspire us to design better experiences for people

Analogous Observations – Visiting other industries to observe parallel or like process. Real examples (there have been 80 globally) have included;

• Blood Bank• Car Manufacturer• Newspaper• Ice Cream Store• Milk Delivery Service• Hotel Cafeteria• Brewery• Airport Baggage Claim System• Coupon Redemption Centre• Flower Shop• Traffic Control Centre• Green Market• EBay Super Seller• Grain Mill


101

3. Sense Making

Sense Making is the act of making sense of what we‟ve seen and heard during the Empathy activity

Drawing conclusions and analogies from the observations made in the Empathy phase

“Scrapbooking” of findings as a group Connecting the dots and finding

relevance to what we observed in our own industry or relationship

It‟s a process that takes us from inspiration to ideas, from stories to solutions

By aggregating, editing and condensing down what we‟ve learned, sense making enables us to establish a new perspective and identify opportunities for innovation

Sense Making is crucial to providing a good direction for the rest of the


102

4. Brainstorming

A multi layered Divergent and Convergent Process – going from the many to the core

To many people, brainstorming is synonymous with an undisciplined conversation

We‟ve found that conducting a really good brainstorm involves lots of discipline and takes preparation

While brainstorming, you should be fearless in coming up with out of the box ideas, because it‟s often the far reaching ideas that lead to breakthrough solutions

1

VisionActionsDivergent

Brainstorming

Convergent

Brainstorming500

Ideas

6 “Burning”

Platforms

16

1

4

32

6

5


103

5. Prototyping

Prototypes are often thought of as a way to test whether a concept works or as a way of validating a concept

We like to think of prototypes as something broader

They can be tangible as in products, or more business processed focused

They are disposable tools that are used throughout the concept development process, both to validate ideas and to

help us generate them


104

6. Action Plan Development

Implementation is an iterative process that will likely require many prototypes and mini-experiments to perfect the solution and support system

This process invites us to work in the belief that new things are possible, and that you can evolve both the solutions that you deliver and the way your organization is designed simultaneously.

An action plan activity will provide time to plan mini-experiments that will be executed after the workshop by participants

In each case, we ask that the teams go out and implement a version (small pilot) of their prototypes within 45 days

to gain insight


105

We employ the use of a Graphic Recorder to capture all activities and dialogue from start to finish of our JVC Workshops

All participants are provided with a “reduced size” version which becomes the roadmap for our relationship moving forward

Integration of Visualization

Joint Value Creation

To develop a culture of Supply Chain Innovation and Collaboration between Kraft Foods and its Customers, focusing on strategic alignment, visibility and joint growth.Objective

Process?

Instead of working in a vacuum, we are now working collaboratively on what matters most to our customers and in the most efficient manner.

Benefits

Can be adapted for direct customers or used for internal alignment.Scope

•Senior managers in cross-functional teams from both Kraft and the retailer gather for a two-day open innovation session.•Together they take a holistic approach to the entire supply chain from manufacturer‟s plant to store shelf and explore breakthrough rather than incremental ideas. •The methodology employs divergent and convergent brainstorming, including such applications as graphic visualization, analogous observations, and prototyping to support the focus on innovation. •The end result is a shared short, medium and long term roadmap to drive growth.

Best used with strategic customer or partners, when seeking to makestep changes in supplier/retailer relationship with desire to movebusiness forward (win/win).

When?



107

VMI: The Vendor Managed Inventory process enablesto optimize inventory levels and lower costs.

Share daily POS and inventory data at store level.

Analyze and optimize the customer„s buying patterns.

Establish efficient replenishment processes.

Thus optimize inventories, reduce warehouse space, transportation costs, out of stocks and waste.

Vendor- / Co-Managed Inventory

Develop an efficient customer replenishment process that results in optimal customer inventories, improved Service Level and generates logistics efficiency.Objective

EvolutionStages

Foundational Developed Best In Class

Timely Info exchange (sell

out and inventories).

Data accuracy validation.

Inventory and service level

target alignment.

Processes performed

manually (Excel).

Customer sends order

based on Kraft proposal.

Well defined customer

inventory and replenishment

parameters.

Semi-automated process

with system tool being used

for turn replenishment, but

promotions pushed manually.

CMI process linked with

OTC system (Interface) and

with customer (web-EDI)

Senior Management Buy-in:

Sales focused on sell-out and

CS&L driving replenishment

process.

Sales focused on sell out,

communication of promo

(planning + quantities) and

managing customer relation.

True VMI practice (no

customer intervention).

Price list change smoothing

(no impact on customer

inventory).

Measurable service level and

efficiency improvements.

Integration of VMI into S&OP

process.

MT: increase Service Level, reduce logistics costs, improve cash flow, Visibility.TT: improve inventory management, cash flow and service to consumers.

Benefits

VMI-lite (EWR) solution for Emerging Markets (TT)VMI applicable for MT Customers

Scope



109

CPFR: Collaborative Planning, Forecasting and Replenishment is a further tool to optimize inventories and reduce out of stocks.

CPFR is a concept that aims to enhance Supply Chain integration by supporting and assisting joint practices.CPFR seeks cooperative management of inventory through joint visibility and replenishment of products throughout the Supply Chain.Information shared between suppliers and retailers aids in planning and satisfying customer demands through a supportive system of shared information.This allows for continuous updating of inventory and upcoming requirements, making the end-to-end Supply Chain process more efficient.Efficiency is created through the decrease expenditures for merchandising, inventory, logistics, and transportation across all trading partners.


110

KIDS: Shared demand data is a cornerstone toward acustomer-focused, demand-driven supply network.

Historically, the customer demand signal has been defined as the customer‟s purchase order while data sharing from Retailer to Manufacturer was limited to customer warehouse level insight (VMI). Over the past few years, several Retailers have invested in the capability to share store level data on a daily basis. Wal-Mart has been the clear leader in this area as they have offered the Manufacturing community access to a wide variety of daily information not previously available.

With visibility all the way through to the store checkout, we can add more power to our partnership.

By using actual customer demand data, we can discover distribution voids, target out of stocks, optimize replenishment, improve forecasting and promotional execution, and plan and execute against real market intelligence.

A winning scenario for any Retailer!



PART 3:TRADITIONAL TRADE

Distributor Development –It„s all about Collaboration

Traditional Trade Summary

• Traditional Trade in Developing Markets is a 1.8 trillion US$ market; with 15.4 mio. stores (Nielsen) it represents 99% of the store universe in Developing Regions.

• With about 3.2 US$bn revenue and a growth of 43% (‟08 vs. ‟06), Traditional Trade stores in Developing Regions are KI‟s most valuable customers, e.g. revenue is 8 times higher and growth 11pp higher than KI‟s business with WalMart.

• Efficiently building quality distribution in TT stores in a multi-stage Route-to-Market is boththe key challenge as well as one of the biggest growth opportunities in Developing Regions.

• While Kraft Foods is in line with or even outperforming main competitors in TT distribution in key markets, analysis shows that double digit revenue growth in key countries through further extension of quality distribution is a realistic goal.

• There are five key enablers to exploit distribution potential:

• Affordable portfolio at relevant price points

• Strengthened distributor networks

• Optimized direct outlet coverage

• Upgraded POS Excellence

• Leverage Best Practices between KI Regions / Countries supported by newly established KI Sales TT Council

* KI Sales Traditional Trade Council, 2009. Figures do not include Cadbury’s.

Why distributors areimportant to our business

Traditional Trade is an important segment in Developing Regions

• 1.8 trillion US$ in size in Developing Regions; 15.4 mio. small stores (around 25–60 sqm, but can range between 7–100sqm).

– LA: 151 bn US$ 1.8 mio stores

– CEEMA: 429 bn US$ 1.2 mio stores

– AP: 1235 bn US$ 12.4 mio stores

• Usually called kiosks, pavilions, small food or grocery stores, food specialists; has also other format names based on country or region.

• Includes selling stands which are part of an Open Market.

• Selling a very limited portfolio with a focus on food.

• Independently owned, decisions are taken on outlet level; not part of a chain.

• Usually located in residential areas to serve daily needs.

• Usually over the counter Sales; although sometimes self-service with one check-out.

• Long Route-to-Market; the store sources goods from a wholesaler and/or from a distributor.

• Sells small, affordable units.


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95 95 9084 79

70 68 67 64 62 61 58 57 56 55 52 50

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

India Egypt Vietnam Morocco Ukraine Indonesia Russia Turkey Venezuela China Romania Argentina Philippines Thailand Mexico Brazil Malaysia

% Traditional Trade % Modern Trade

Sources : AC Nielsen / M+M / IGD / Public Presentation to Investors

Channel mix 2006 per region - ACN

Traditional Trade is big and importantfor Developing Markets

MT and TT retailers are different in almost everything

MT Retailer TT Shop Owner

Profit oriented Revenue oriented

Growth oriented Survival oriented

Economies of scale Economies of shelf

Has a business plan Has day-to-day money

Visits trade fairs Visits wholesalers

Regular meetings … Regular visits …

… in an office … in his shop

… looking at data. … looking around.

Goes home after work.

May sleep in his shop.

117

Traditional Trade - Store Types

Kiosk in Russia

Kiosk in Argentina

Abarrote in Mexico

Mercearia in Brazil Mom‟s & Pop‟s in China

Floating shop in Cambodia

Open market of Angola

Sari-Sari in the Philippines

118

1. Traditional Trade development is a high priority on their agenda.

2. Relevance is driven by years in market, scale and portfolio (categories).

3. Power brands are a key success factor.

4. Innovation focused on satisfying local needs / tastes and tackling nutrition issues. (deficiencies of energy/calories, protein, iron, zinc, iodine, and vitamins)

5. “Less is more”: focused portfolio.

6. Availability, Visibility and Affordability are commonalities in all strategies.

7. “Distribution, Merchandising and Pricing” is the mantra of POS Execution.

8. Solid sales and distribution systems: strong distributor network, high discipline behind processes, effort focused on sustainable goals, large sales teams in the street, simplicity in operations.

Our peer FMCG / Competitors put strong focus on Traditional Trade

* KI Sales, Winning in Traditional Trade Seminar 2007

Retail

Shopper Consumer=

Extending quality distribution is both challenge and key

opportunity in the “long” Route-to-Market in Traditional Trade

Food Stores/ Self

service stores

Hypermarkets/

Supermarkets

Kiosks / Groceries/

Pavilions

Others e.g. Open

Markets

Kraft Foods

Wholesalers

Consumer

Sales Reps (pre-selling)

Merchandisers

Sales Reps (van-, pre-selling)

Merchandisers

Key Account Managers

Distributor Managers

Distributors

Sub-distributors

* KI Sales Traditional Trade Council, 2009.

Strong distributor management is one of the key factors to further build quality distribution in Traditional Trade…

• Offer relevant portfolio at affordable price points

• Strengthen Distributor Network

• Optimize outlet coverage

• Upgrade POS excellence

• Leverage TT best practices across regions and countries (supported by KI Sales TT Council)

* KI Sales Traditional Trade Council, 2009.

Region/Country No of distributors Ratio covered TT stores/distributor

„06 „08 Index „06 „08

LA

Brazil

1‟953 1‟543 79 464 706

237 261 110 849 985

CEEMA

Russia

358 331 92 1263 1358

125 84 67 543 536

AP

China

962 1‟001 104 222 410

900 861 96 17 19

Total KI 3273 2‟875 88 480 678

Very diverse distributor networks across KI regions, consolidation is on-going in all regions

Internal data – Best estimatesAP: w/o Australia, Japan, S. Korea, Thailand, Vietnam, IndiaCEEMA: w/o MEA DM, Central Asia


Source: AC Nielsen 2006 Benchmarking study for TT

Distributors are our “face” to the Trade

…these become Kraft Foods opportunity even if the stores are served by Distributors

Distributor SWOT analysis

Strengths• Network to & relationship with

traditional trade (TT), where most consumers shop• Cost to cater to TT

Weaknesses• Scale limited resources

• Lack of skills required• Lack of access to best practices: process, technology

Threats• Trade dynamics financial

pressures• Failure to upgrade people, process, tool/technology to match Principal‟s pace competitive

disadvantage

OpportunitiesDistributor-Principal collaboration to develop Distributors capability to jointly improve• revenue• supply chain cost• cash flow/CCC• service to trade

Thus, Distributor Development is a mustto “Grow and Win with Customers”!

Distributors are important to us, but they have room for improvement and face some threats

Objective:

A win-win partnership between Kraft Foods and Distributorswith sustainable profitability and growth for both

Cross functional Collaboration

Kraft Foods-Distributor Shared Goals:

• Revenue growth via improved Service level to Distributors and their retail customers

• Improved Cash Conversion Cycle via improved inventory management and forecasting

• Eliminated non-value added supply chain Cost (warehousing, transportation, waste)

• Improved customer satisfaction

Distributor Development is a win-win partnership to improve capability and deliver joint benefits

But..HOW?

Distributor Development:The 6-Step Process

The “6 Steps Process” was introduced to improve Distributors Supply Chain Capability

“6 Step Process” to plan,

implement, track and improve Distributor

Supply Chain Development

initiatives

1. Internal Alignment & Planning

2. Distributor Capability Assessme

nt

3. Develop Programs/ Roadmap Planning

4. Sell to/Get

Distributor Commitme

nt

5. Execution & Tracking

6. Celebrate Success & Continual Improvem

ent

126

Kraft is striving for continual improvement by leveraging global best practices internally and externally.

Revenue Growth

Reduced Cost to Serve Improved CCC Customer Satisfaction

Best Practices/Tools can be found athttp://teamwork.na.kraft.com/sites/Distributor%20Supply%20Chain%20Development/default.aspx

http://teamwork.na.kraft.com/sites/Distributor Supply Chain Development/default.aspx

INTERNAL ALIGNMENT & INITIAL PLANNING

Align each roles Align success measures

Prioritize target Distributors

Draft Project plan

Get BOM support!

127

Internal Alignment: Design Distributor Development as part of our “Go-to-Market” strategy1

Sales:

•Lead the cross-functional Team

•Customer planning/forecast

•Coverage, availability, visibility

•DMS/SFA/Sales tools

CS&L:

•Order mgt

•Inventory mgt

•Demand planning

•Warehouse practices

Finance:

•TDs financial health

•Capital for growth

•Terms & Condition (T&C)

Distributor:

•Resources (people, WH, office, truck fleet)

•Management support

•Capital for growth

•Investments (capability, system, etc)

- Time line- Meeting frequency- Rules of Engagement with Distributor

- Project Tracker - Team Bulletin/web site- Team training plans

Sales Finance

CS&L

Joint KPIs (example)

• Revenue

• Service level

• Inventory level

• Forecast accuracy

• Cost to serve

• Customer

satisfaction

PREFERRED

STRATEGIC

TRANSACTIONAL

Basic service & partnership

Supply Chain Collaboration- Distributor Development

programs: Basic Intermediate Advanced

Integrated Supply

Chain initiatives

Distributor segmentation model – click here

Be well prepared prior to the Assessment

-Send advance notice

-Prepare Questionnaires form

-Bring known/available data

-Market visit prior to meeting

128

Distributor Capability Assessment: Explore areas of opportunity where we can add value

2

Practices Classification See only top Distributors (50% Vol/Rev) NO

Distributors Scorecard - LH Sales & Marketing Sdn Bhd Volume weighting NO

Total Quantity of Distributors 1

Malaysia

Area Practice Basic Intermediate Advanced

Warehouse Capacity Base Warehouse Capacity Sufficient Warehouse Capacity

Quality & Safety requirements Quality & Safety Control Aw areness Quality and safety requirementsWH, storage, handling, and transport

expectations

Training & Audit Distributor Training Audit plan

Inventory management Inventory control Manual Lot control & traceability Advanced WMS

OOS Management Stock rotation, ageing stock OOS tracking on "A" products OOS tracking on full assortment

POSM storage POSM storage

Waste Management Damaged goods control Waste management Efficient Waste management

Delivery to Distributor Delivery to Distributor Deliveries as to agreed leadtimes Scheduled deliveries Central DC delivery

Delivery to Trade Effective Delivery Effective Delivery w ith Route Planning

Cost to serve Cost to serve calculation Cost to serve disclosed to Kraft

Truck fleet Good Truck Fleet Condition Perfect Truck Fleet Management

Trade complaints Trade complaints Trade complaints prevention

Forecasting Promotional input for the forecast Marginal baseline input for the forecast Collaborative forecasting

Distributor Stock Management Limited Distributor stock level information Distributor Inventory level overview Distributor stock management and control

Sales phasing Sales phasing monitored Sales phasing aligned to IMS

Order generation Kraft Sales Team involved Collaborative process

Order management Regular orders Co-managed inventory Vendor Managed inventory

Order entry Automated order entry EDI Orders

Order analysis Order pattern analysis EB agreement

Payment Satisfactory payment history Strict adherence Clear payment history

System capabilities Limited system capabilities Advanced system capabilities High system capabilities

Product data alignment Manual product data alignment Electronic product data transfer Electronic data catalogue

Distributor Inventory Information

SharingManual Inventory report Detailed stock data, timely delivered Automatic Inventory report

Distributor Sales Information

SharingTop line sales data Detailed sales data, timely delivered Automatic IMS report

KPIs Shared KPIs Calculate KPI from Distributor to trade

Management alignment Ad hoc functional meetings Business teams

Legal contract Logistics requirements in the contract Supply Chain performance

Staff training and development Staff Position descriptions Staff evaluation Staff Training program

Organizational Aspects

Warehousing and Inventory

management

Demand planning and

Forecasting

System capabilities,

information exchange, KPIs

and reporting

Order & Supply

Distribution to retail

Joint on-site Assessment-Show empathy, not finding faults-Remind the intent for continual improvement

Use Assessment Tool (Questionnaires form)-Focus on descriptors, request for evidences

-Rate level of capability, -Take notes of improvement areas

Document Assessment results in the Distributor

Capability Scorecard

Take notes of continual

improvement for next cycle Assessment

Area Practice Level 1 = Basic Level 2 = Intermediate Level 3 = Advanced

Warehouse Capacity Base Warehouse Capacity Sufficient Warehouse Capacity Exceeded Warehouse Capacity

Racking & pick phase System Basic Racking Good Racking Complete Racking

Material Handling Equipment (MHE)

used Basic MHE Sufficient MHE Perfect MHE

Sanitation & Pest Control Program Basic Cleanliness Good Cleanliness Perfect Cleanliness

Fire & Security Program Basic Fire & Security Good Fire & Security Excellent Fire & Security

Quality and Training Requirement Quality & Training Control Awareness Quality and Training Requirements WH, Storage, Handling, and Transport Expectations

Operating Procedure Simple Process Complete Process Strong Process

Inventory Management Inventory Control Manual Lot Control & Traceability Advanced WMS

Inventory Accuracy Inventory Count Inventory Accuracy Inventory Accuracy – IA >98%

Aging Stocks Management & OOS

TrackingStock Rotation OOS Tracking on "A" Products OOS Tracking on Full Assortment

Point of Sale Material Handling Basic POSM Storage Good POSM Storage Complete POSM Storage

Waste Management Damaged Goods Control Waste Management Efficient Waste Managemenrt

Delivery to Distributor Deliveries as to Agreed Leadtimes Scheduled Deliveries Central DC Delivery

Delivery to Trade Basic Delivery Effective Delivery Effective Delivery with Route Planning

Cost to Serve Basic Cost to Serve Calculation Cost to Serve Calculation Cost to Serve Disclosed to Kraft

Truck Fleet (own / outsource) Truck Fleet Condition Good Truck Fleet Condition Perfect Truck Fleet Management

Trade Complaints Trade Complaints Trade Complaints Trade Complaints Prevention

Forecasting Promotional Input for the Forecast Marginal Baseline Input for the Forecast Collaborative Forecasting

Distributor Stock Management Limited Distributor Stock Level Information Distributor Inventory Level Overview Distributor Stock Management and Control

Sales phasing Inconsistent Monitoring of Sales Phasing Sales Phasing Monitored Sales Phasing Aligned to IMS

Order Generation Kraft Sales Team Involved Collaborative Process Automation of Replenishment Order

Order Management Regular Orders Co-Managed Inventory Vendor Managed Inventory

Order Entry Automated Order Entry EDI Orders

Order Analysis Order Analysis Order Pattern Analysis EB Agreement

Payment Satisfactory Payment History Strict Adherence Clear Payment History

System Capabilities Limited System Capabilities Advanced System Capabilities High Performing Capabilities

Product Data Alignment Manual Product Data Alignment Electronic Product Data Transfer Electronic Data Catalogue

Distributor Inventory Information

SharingManual Inventory Report Detailed Stock Data, Timely Delivered Automatic Inventory Report

Distributor Sales Information Sharing Top Line Sales Data Detailed Sales Data, Timely Delivered Automatic IMS Report

KPI (For Distributor) KPI’s Shared KPI’s Calculate KPI from Distributor to Trade

Management Alignment No Functional Meetings Ad Hoc Functional Meetings Business Teams

Legal Contract Logistics Requirements in the Contract Logistics Requirements in the Contract Supply Chain Performance

Experience Basic Distributorship FMCG Medium Distributorship FMCG Advanced Distributorship FMCG

Staff Training and Development Staff Position Descriptions Staff Evaluation Staff Training Program

System capabilities,

information exchange,

KPIs and reporting


Warehousing and

Inventory management

Demand planning and

Forecasting

Order & Supply

Transportation and

Delivery

Example for distributor capabilities assessment

Area Practice Basic Intermediate Advanced

Warehouse Capacity Base Warehouse Capacity Sufficient Warehouse Capacity Exceeded Warehouse Capacity

Racking & pick phase System Basic Racking Good Racking Complete Racking

Material Handling Equipment (MHE)

used Basic MHE Sufficient MHE Perfect MHE

Sanitation & Pest Control Program Basic Cleanliness Good Cleanliness Perfect Cleanliness

Fire & Security Program Basic Fire & Security Good Fire & Security Excellent Fire & Security

Quality and Training Requirement Quality & Training Control Awareness Quality and Training Requirements WH, Storage, Handling, and Transport Expectations

Operating Procedure Simple Process Complete Process Strong Process

Inventory Management Inventory Control Manual Lot Control & Traceability Advanced WMS

Inventory Accuracy Inventory Count Inventory Accuracy Inventory Accuracy – IA >98%

Aging Stocks Management & OOS

TrackingStock Rotation OOS Tracking on "A" Products OOS Tracking on Full Assortment

Point of Sale Material Handling Basic POSM Storage Good POSM Storage Complete POSM Storage

Waste Management Damaged Goods Control Waste Management Efficient Waste Managemenrt

Delivery to Distributor Deliveries as to Agreed Leadtimes Scheduled Deliveries Central DC Delivery

Delivery to Trade Basic Delivery Effective Delivery Effective Delivery with Route Planning

Cost to Serve Basic Cost to Serve Calculation Cost to Serve Calculation Cost to Serve Disclosed to Kraft

Truck Fleet (own / outsource) Truck Fleet Condition Good Truck Fleet Condition Perfect Truck Fleet Management

Trade Complaints Trade Complaints Trade Complaints Trade Complaints Prevention

Warehousing and Inventory

management

Transportation and Delivery

Example for distributor capability scorecard

• Analyze Assessment results

• Create action plan for chosen initiative/s

• Prioritize initiatives based on biggest benefits (Customer satisfaction, financial, de-complexities, compliances, etc)

• Summarize capability level & development needs

• Draft potential initiatives

• Estimate benefits for each of initiative

• Align plans with Sales / Customer Team/Cross-function

• Get Management buy in resources, time line

• Integrate plans into Joint Business Plan (JBP)

Plan Distributor Development Programs:Focus on few, big initiatives 3

Analyze Data Identify Opportunities

Prioritize Initiatives

Develop Roadmap

Sign-off Plans

Route to Market & Network Design

Distributor Development Areas

Distributor Selection / Contractual Supply Guidelines

Distributor “Supply Chain” Assessment

Ware

ho

us

e &

Inv

en

tory

Man

ag

em

en

t

Syste

m, In

form

atio

n

exch

an

ge, R

ep

ortin

g

Dis

tribu

tion

to R

eta

il

Deliv

ery

to D

istrib

uto

r

Dem

an

d P

lan

nin

g &

Fo

recastin

g

Ord

er &

Su

pp

ly

Org

an

izatio

nal

Develo

pm

en

t

Segmentation

Practices/ Platforms

Strategic Consultative / Preferred Transactional

Warehousing & Inventory Management

Advance capabilities:-Advanced Warehousing quality-WMS implementation

-Basic-intermediate level on Warehousing quality-Intermediate level on inventory control, accuracy, ageing/OOS stock tracking and POSM handling-Efficient Waste Management (advanced level)

Introduce to basic / ”must-have” requirements

Transportation & Delivery

-Transparent Cost to serve-Trade complaints prevention program

-Basic – Advanced Delivery & Truck fleet level-Basic – Intermediate Trade complaints handling

Delivery from KF and to customers as to agreed leadtimes

Demand Planning & Forecasting

Collaborative forecasting -Joint forecasting -Transparency on IMS and stock level-Sales phasing = IMS phasing

Monitoring of sales phasing

Order & Supply -Vendor Managed Inventory and automated order replenishment based on IMS and agrees stock boundaries-Efficiency Bracket (EB)

-Collaborative order generation-Co-Managed Inventory (CMI)-EDI ordering-Order Pattern Analysis-Payment: no delays

-Basic ordering process/too;-Adherence to Payment term

System Capabilities, Information Exchange, KPIs and Reporting

-Advanced system capability (EDI beyond ordering, GDS, SFA)-KPIs to include Distributor to Trade

-Good system capability (DMS linked with KF‟s for product data update, IMS and inventory reports)-Transparent KF-Distributor joint KPIs

-Manual product data update and IMS and inventory reports


-Joint Business Team to explore “new ways of doing” for supply chain efficiency-Joint effort for Staff training & development (full access to “Distributor Academy”)

-Regular business planning & reviews-Supply chain requirements in Legal contract-Ad-hoc Staff training & development

-Remote engagement/ contact

Recommended Supply Chain initiatives considering Distributor Segmentation

133

JBP Presentation

JBP Workshop Signing of JBP Commitments

BEEHIVE

2010

Customer

Team

Workshop Presentation

Get Distributor commitment on action plans via “Good Selling” and JBP process

4

Project Plan - LHSM, Malaysia

Country

Supply Chain

Priority

Project

Owner/ Leader Project Objective Project Description

To reduce manual calculation of

replenishment orders

Orders &

Supply

John Chiow /

Evangelyn

To improve in order efficiency &

reduce manual intervention of

order process

MALAYSIA

(LHSM)

Quality &

Safety

John Chiow /

Evangelyn

Ensure LHSM is aware of Kraft

warehouse quality & safety

requirements and comply with

the "Major QPE requirement"

Delivery to

Distributors

John Chiow /

Evangelyn

To provide better delivery service

to LHSM

Ensure LHSM warehouse

personnel are aware & complying

with Kraft's requirements on areas

of product safety, pest control and

temperature

Waste

Mangement

To analyse the reason for trade

return and implement action plans

to reduce waste

To reduce trade returns from

LHSM

John Chiow /

Evangelyn

To ensure delivery is within the

window time and inventories

delivered are stacked properly

SWOT Analysis

Joint Goals & Business Strategy

Kraft:

TD:

Kraft:

TD:

Strategy #1

Strategy #2

Supply Chain action plans built into JBP will ensure aligned goals, strategy and resources availability

Joint Action Plans

Ensure Resources Availability

135

Execution & Tracking: Execute plans excellently to maximize benefits delivered

5

-Hands-on -Knowledge Transfer for Program Continuity-Leverage available process, tool, experts globally

-Project Tracker + Regular Review-Contingency Plans, if Needed

Keep the Focus on Delivering the Benefits

Pay as you go

Link to tools

Celebrate Success: “Keep the Winning Momentum”

• Internal Kraft Foods:– Informal

– Learning Trip

– Recognition

– Award

• Distributor– Informal

– Award

Continual Improvement: “Continually Raise the Bar to Grow and Win with Customers”

• Internal Kraft Foods:– Benchmarking (Internally, vs. Industry)

– Subject Matters Expert/COE

– Region-Country-COE Linkage

• Distributor:

136

Celebrate successes and plan for continual improvement6

How do we improve this next year to “green” to be the customer’s preferred supplier?

Examples for initiatives and benefits generated

Region Country Initiatives (focus area) Benefits

AP Malaysia Warehousing, Waste

Management, Inventory

Management in 2 pilot TDs

Reduced man-hours on order processing and picking, reduced trade return (waste) by

more than 50%, improved inventory accuracy leads to lower OOS

Indonesia Improved delivery pattern

to key TDs control 40% of

total BU revenue

3-5% revenue growth due to improved CFR from 70% to 90+, better truck utilization,

improved TDs on-time payment1-2 days CCC impact

Philippines CMI and JBP with all TDs 2-3% revenue growth, better truck utilization, shortened order/payment cycle1 day

CCC impact

LA Argentina Warehousing improvement Several Distributors’ warehouses were modified in order to be in compliance with basic

/ advanced requirements.

Brazil VMI - DPS programs 9 Distributors are being supplied directly from plant generating warehousing and

transportation savings by USD 0.2 MM.

Mexico Capabilities assessment The Capabilities assessment Scorecard has been the key for the development of the

Octopus Distributors network delivering an improved service to the points of sale.

CEEMA Ukraine Improve order pattern of

key TDs

Annual transport savings of 60 TUSD generated due to increase of minimum order size

Russia Reduction of customer

claims / Warehousing

Improved customer claims handling by speeding up leadtimes for original documents

return from 3PL to KF. Increased picking accuracy by promoting layer picking with key

TDs

For Distributors

• Improved service level

• Optimized inventory level

• Customized solution fulfilling their needs revenue growth, customer satisfaction

• Improved Cash Flows

For Sales

•Focus to drive sell-out and in-store presence

•Get dedicated support team to satisfy Customers

•Shared accountability to deliver Company goals on revenue, cost, cash

•Experience cross functional learning

For CS&L


•Visibility to Customers to enable driving end to end supply chain excellence


For Finance


•Improved Cash Conversion Cycle


Cross-functional Distributor Development generates benefits for ALL

Meeting and being engaged directly with the distributor is fun and has to be created as fun…

In Summary

• Kraft Foods has an amazing product portfolio, but one of the challenges is how to reach the huge potential of shoppers and consumers.

• Distributors play an important role in the Distribution Network, primarily to reach Traditional Trade, but their capability has to be developed by leveraging our best practices and experts.

• The “6 Steps Process” is a practical Distributor Development Step-by- Step Process, and will evolve for continual improvement.

• Distributor Development delivers significant benefits to all parties, to include Financials (Revenue growth, Cost reduction, Cash Flow improvement), Customer Satisfaction, Process De-complexity, Employee Satisfaction, and Fun!

139

140

We have gained plenty of insights. Action time has come now!

Customer Segmentation Method

• The common method used for segmentation is primarily based on value, i.e. top 10, top 20, or top 100 etc., based on revenue sold.

• KI Sales created a “Customer Segmentation Model”, applied for Distributor segmentation by considering three elements:

– Value

– Skill

– Will (Willingness to collaborate)

And the scoring is easy: Each criteria will receive a score between 1-3, with 3 always being the highest score.

141

Customer Segmentation Model: A Formula for winning with all customers (and distributors)

(Value + Skill + Will) = (People + Time + Money)

ExternalDistributor

InternalKraft

An Excel tool has been developed as a guide to assist in the Distributor segmentation process.

Customer Classifications

• Transactional – Treats us on equal terms with all other vendors. Total focus is on price, sees no value in services we offer other than product or is too small to warrant any personalized attention.

• Preferred – Some special treatment or higher expectations usually derived from scale or importance of our brand.

• Consultant – Actively seeks our advise in generating incremental demand, efficient supply of products or use of insights.

• Strategic B2B – Involves us in the strategic planning of the business and provides insights not really shared with other competitors.

Back

Best Practices/Tools can be found athttp://teamwork.na.kraft.com/sites/Distributor%20Supply%20Chain%20Development/default.aspx

Tools are available at “Distributor Supply Chain Development” Site to enable CS&L to deliver improved Service, Cost and Cash


List of available tools (1)

Folder Title of Tool Tool description

Step 1 – Internal Alignment Start Distributor Supply Chain Development with internal alignment

-

Step 2 – Understand the Distributor

2a. Customer Survey Customer Service Survey Model Survey to get Distributor feedbacks on Customer service Dept, Distribution channel, Kraft products, Claims/adjustments/CN, Distributor – trade, Other process/inputs Country could select relevant topics

Customer Service Survey Model - Spanish Same as above (in Spanish)

2b. Distributor Supply Chain Capability Assessment

Distributor Capability Assessment -Questionnaires (master)

Questionnaires used to gather information from each Distributor to define their Supply Chain capability level Country could choose Supply Chain areas to focus on

Distributor Capability Assessment -Questionnaires (Spanish)

Same as above (in Spanish)

Input your Distributor Capability Assessment into this Scorecard

Capability Scorecard where capability level of each Distributor for each Supply Chain area (Basic – Intermediate – Advance) inputted

Distributor Capability Scorecard 2010 (NEW) Updated version of Distributor Capability Scorecard with more practices

Step 3 – Create Development Roadmap

Use this Roadmap template to document Distributor Supply Chain initiatives

A simple template where we can document Supply Chain areas to work on, success measures, initiative leader/owner and detailed initiatives by month

3a. Warehousing & Inventory Management

Global Warehousing, Handling, Storage, Re-packing and Transportation Quality Expectations

Kraft Global standards Country can choose relevant parts of to implement with Distributors

Distributor Warehouse Capacity CALCULATOR Simple excel tool to calculate warehouse capacity for different temperature tier of products

Warehouse Auditing Checklist Checklist can be used for Distributor warehouse audit aligned with Kraft standard

Distributor Warehousing Practices Poster A simple 10 poster type good warehousing practice for Distributor to follow


3b. Demand Planning & Forecasting

Forecasting Overview An overview explains how important forecasting to ensure product availability at lowest cost possible and 6 forecasting drivers

Distributor Basic Forecasting Tool Simple forecasting tool based on past 12 month IMS trends used in manual CMI process

3c. Order & Supply CMI - Introduction A “white paper” explains CMI/VMI implementation with Distributors in Kraft Foods (benefits, platform, process)

CMI General Overview (folder) VMI Country assessment, VMI process template, VMI project plan example, Distributor selection criteria for VMI, KPIs to track success, Protocol document

CMI Process using Excel (folder) CMI calculation file V2: excel CMI tool which applies EWR5 (VMI-Lite) concept

CMI Process using VMI-Lite Application (folder) Contact and links to Kraft Foods‟ VMI-Lite (automated CMI tool) sites

CMI Process – Real Live examples and Success Stories (folder)

A sharing of CMI in the Philippines

3d. Retail Distribution Distributor Truck Fleet Quality Requirements Some requirements on trucks, product handling (during loading, unloading, delivery) and employee personnel Distributors need to follow when transporting Kraft Foods products to trade/retail

3e. Information System, KPIs and Reporting Capabilities

KPI Summary for Distributor Management v1.0 List of “minimum to have” KPIs Distributor to track (why important, formula)

Step 4 – Alignment with Distributor

Leverage Supply Guidelines to bind alignment with Distributors on Supply Chain Capability development

Original complete Supply Guidelines that can be integrated with Distributor contract to bind alignment with Distributors on Supply Chain initiatives

Supply Guidelines – V16.3 – LA,

Supply Guidelines – V16.3 – LA Spanish

Modified Supply Guidelines, tailor-fitted with specific LA needs (in English and Spanish



4a. Selling the Initiatives to Distributor

Persuasive Selling Format (PSF) tool for CSL A Guide how to use PSF concept to develop presentation to Distributors

4b. Joint Business Planning Distributor JBP template v1 A template to develop Kraft Foods-Distributor JBP, includes Supply Chain initiatives

Step 5 – Execute and Track

5a. Project Tracking & Evaluation

Project Tracker form to monitor progress on Distributor Supply Chain projects

A simple form to monitor progress on Distributor Supply Chain projects/ initiatives

5b. Distributor Capability Scorecard

Track Distributor Supply Chain Capability with this Scorecard

Capability Scorecard template that will allow us to track progress on Supply Chain capability level by Distributor and provides total pictures at Country or Region level

Distributor Capability Scorecard 2010 (NEW) Updated version of Distributor Capability Scorecard with more practices

Step 6 – Celebrate Success Celebrate success and recognize winning performance Guiding principles and examples of Reward programs



PART 4:GENERAL INFORMATION

CS&L: Useful Websites and Links

Customer Service & Logistics Website:http://intranet.na.kraft.com/sites/CSL/Pages/Default.aspx

Global I2M Website:http://intranet.na.kraft.com/sites/I2M/Pages/Default.aspx

Sales & Operations Planning Website:http://lcs.kraft.com/tools/s&op/default.asp

Customer Service COE Website:http://teamwork.na.kraft.com/sites/Customer%20Service%20COE/default.aspx

Joint Value Creation:http://teamwork.na.kraft.com/sites/Customer%20Service%20COE/jvc/default.aspx

Distributor Supply Chain Development:http://teamwork.na.kraft.com/sites/Distributor%20Supply%20Chain%20Development/default.aspx

Customer Logistics COE and BPM:http://teamwork.na.kraft.com/sites/globalproductsupplycoe/default.aspx

Kraft Foods Acronyms:http://wikis.na.kraft.com/sites/KraftAcronyms/Wiki%20Pages/S.aspx

http://intranet.na.kraft.com/sites/CSL/Pages/Default.aspx

http://intranet.na.kraft.com/sites/I2M/Pages/Default.aspx

http://lcs.kraft.com/tools/s&op/default.asp

http://teamwork.na.kraft.com/sites/Customer Service COE/default.aspx

http://teamwork.na.kraft.com/sites/Customer Service COE/jvc/default.aspx



http://teamwork.na.kraft.com/sites/globalproductsupplycoe/default.aspx

http://wikis.na.kraft.com/sites/KraftAcronyms/Wiki Pages/S.aspx

Good Career Planning can deliver top-tier results

Career Planning Principles:

• Development is a career-long process and is most effective when it includes diverse experiences and focuses on doing the work of the organization

• Career development is a shared responsibility between the manager, the employee and functional leaders

• It is important to gain and demonstrate full experience to drive development of relevant competencies & skills before moving from one assignment to the next

• Critical experiences and competencies will continue to evolve as the needs of the organization change; employees must continually review and adapt their career plans

• Employees must keep their skills and experiences relevant to business needs

To deliver top-tier results, Kraft must continue to pursue the strategy of Building a High Performing Organization.“When you do well, Kraft Foods does well. As you improve your skills and expand your

capabilities, both you and the company benefit.” Irene Rosenfeld

Career Framework is based on people‟s experience

• Building capabilities through experiences

• Mastery of skills and competencies before moving up to the next potential assignment

• Gaining experience that adds up to or improves one‟s capability (movement does not always equate to promotion)

• Developing broad leadership skills that ensure success in a variety of jobs

• Providing the right balance of technical and non-technical experiences

Your development is a key priority for both you and Kraft. Realizing your potential drives your job satisfaction and engagement. The CS&L Career site provides some of the key ingredients you need to help you create your own recipe for career success. The tools and information on this site, combined with the guidance and support of your manager and others, will help you define and pursue experiences that advance your career goals and make your job richer and more satisfying. As you explore and navigate through the site, you might want to consider taking the following approach to get you started:- Look back at your career by completing the Career Planning Template.- Look forward and use the tools and information on the site to educate yourself and take ownership of your career.- Discuss and confirm your aspirations with your manager and agree on what the next steps will be.

http://lcs.kraft.com/career_exp/default.aspx

Check out the CS&L Career Experiences Website

http://lcs.kraft.com/career_exp/default.aspx

Check out the available Training Resources

• Internal:

– CS&L Academy 89+ courses http://lcs.kraft.com/csl_academy/

– CS&L Functional & Technical http://hr.kraft.com/map/competencies/functional/custServLogistics/default.htm

– Leadership Competency http://hr.kraft.com/map/competencies/

• External:

– APICS Classes & Certification http://intranet.na.kraft.com/sites/CSL/AreasandFunctions/ProdSuppCOE/Pages/ToolBox.aspx

– CSCMP: Council of Supply Chain Management Professionals• On-line Certification Programs http://cscmp.org/Default.asp

– Bundle approach

– Manager recommended/approved

• On-line Supply Chain Management 101

• Applicable Webinars

http://lcs.kraft.com/csl_academy/

http://hr.kraft.com/map/competencies/functional/custServLogistics/default.htm

http://hr.kraft.com/map/competencies/

http://intranet.na.kraft.com/sites/CSL/AreasandFunctions/ProdSuppCOE/Pages/ToolBox.aspx

http://cscmp.org/Default.asp

coe customer supply chain manual

Documents

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