Supplier Integration Transportation & Logistics Council 40th Annual Conference

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Kraft Network Overview

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Kraft Manufacturing and Distribution Locations

Fullerton

San Leandro

Tulare

Fresno - Planters

Houston

Garland Ft. Smith

Jacksonville

Champaign

Lehigh Valley

Walton

Campbell

Avon

Rochelle Suffolk

Coshocton

Kirksville

Columbia Springfield

Mason City Davenport New Ulm

Albany Beaver Dam

Wausau

Madison Woodstock

Kendallville

Lowville

Dover

Newberry

- Hot Dogs, Cold Cuts, Deli Meats & Lunchables

Sandwich & recipe cheese, Handi - Snacks

- Hot Dogs & Cold Cuts

Spray cheese

- cheese

- Cream cheese

- Pickles Marshmallows &

caramels

Dairy powder & cheese

Cream cheese

Cottage cheese & sour cream

A1, Grey Poupon

- Bacon

Planters

-

Pourables & cheese

Turkey, Cold Cuts & Turkey Bacon

- Coffee Dry & oil roasted

peanuts & Tree Nuts

Coffee, RTD, PSD's , , Sauces

- Cream cheese, Dinners

Hot dogs

Ham & bacon

Lunchables

Dairy powders

-

Coffee (Ground, GFIC & Soft Pods)

RTE Shelf - Stable Pudding

Jell - O Lunchables Pudding, Jell - O Refrigerated Snacks and RTE Jell - O

Ontario

Aurora

Ft. Worth

Bethlehem

Norcross

Stockton Columbus

Fullerton

San Leandro

Tulare

Fresno - Planters

Houston

Garland Ft. Smith

Jacksonville

Champaign

Lehigh Valley

Walton

Campbell

Avon

Rochelle Suffolk

Coshocton

Kirksville

Columbia Springfield

Mason City Davenport New Ulm

Albany Beaver Dam

Wausau

Madison Woodstock

Kendallville

Lowville

Dover

Newberry Newberry

- Hot Dogs, Cold Cuts, Deli Meats & Lunchables

Sandwich & recipe cheese, Handi - Snacks

- Hot Dogs & Cold Cuts

Spray cheese

- cheese

- Cream cheese

- Pickles Marshmallows &

caramels

Dairy powder & cheese

Cream cheese

Cottage cheese & sour cream

Coffee, A1, Grey Poupon

- Bacon

Planters

-

Pourables & cheese

Turkey, Cold Cuts & Turkey Bacon

- Coffee Dry & oil roasted

peanuts & Tree Nuts

Coffee, RTD, PSD's , Meals ,

- Cream cheese, Dinners

Hot dogs

Ham & bacon

Lunchables

Dairy powders

Coffee (Ground, GFIC & Soft Pods)

RTE Shelf - Stable Pudding

Jell - O Lunchables Pudding, Jell - O Refrigerated Snacks and RTE Jell - O

Ontario

Aurora

Ft. Worth

Bethlehem

AMPDC

Stockton Columbus

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Transportation is the largest component of logistics spend…

Scale

• 500,000 Annual shipments (primarily temp controlled)

• 3,800 ship to locations • 5 Protection classes (dry, refer, protected, conditioned, frozen)

• 8,500 Lanes (origin, dest city/ST, prot, mode)

• 6 Modes (truckload, intermodal, LTL, air, rail, backhaul)

• ~100 Carriers under contract • Increasing utilization of

intermodal

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Transportation Supplier Relationship Management

Becoming “Shipper of Choice” is imperative to improving service, stabilizing costs, and insulating against capacity risk

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Challenges

1. Become a Shipper of Choice

• Remove Kraft-driven inefficiencies • Unload and Dwell Time reductions

Reduce detention • Systems and processes that make it easy to do

business with Kraft • Listen to our suppliers input

2. Partner with Core Carriers • Largest carrier for Kraft today does only 6% of

volume • Assign lane ownership • Volume commitments • Leverage dedicated long term transportation

relationships

Kraft focus on Price versus Cost

Perception of Kraft as short term focused

shipper

Perception of Kraft as an

inefficient shipper

Perception of Kraft as slow

paying shipper (versus industry

average)

2012 – 2015 Actions

Shipper of Choice is led by Transportation Operations but the responsibility is shared across the supply chain

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Strategy Summary Shipper Of Choice to insulate Kraft from market conditions

TO

Strategic Partner

Total Cost

Predictable Cost

<100 Carriers

Long Term Agreement

Stable Network

Terra Forecast

Best In Class Service Level

Become again the “Shipper Of Choice” to ensure capacity at the best cost possible, while reinforcing strategic long term relationships with preferred carriers.

The Transportation and Procurement strategy will evolve the “Gemstone Transformation”

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2009-2010:

Category RFP’s to ensure Best Price 2012-2014:

Best Price evaluation (use tools like Chainalytics) Targeted Bids as required Best Cost of Operation Go-to-market Strategies

2010-2011: Volume Concentration via

Mega-Bids. 2012-2014:

Carrier Base Optimization To increase volume leverage

2012-2014:

Reef to Dry conversion Carrier accountability

Inter-Modal for customer shipments

Guaranteed capacity

2010-2011:

Change refrigerated to dry. Inter-Modal conversion.

2012-2014:

Productivity/Innovation Gain sharing

Use of L6S as enabler for JPI.

2011:

2012-2014:

Long Term contracts Lane / Location Ownership

Launched Carrier Advisory Board to booster strategic

relationships

2011:

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CategoryPreferred 23Valued/Transactional 73Exclude 56

Total 152

# Carriers

SRM Carrier Segmentation recommendation is to include 96 carriers to support Kraft’s network

SRM selection criteria focused on service and cost: • Kraft Service Level (All Modes/Excludes Dedicated) 40%

• Cost to do Business 20%

• Kraft Customer Rank 10%

• Service Offerings 10%

• Maximum Revenue Growth Target 10%

• Financial Strength 5%

• Value Added Capabilities 5%

Supplier Relationship Management (SRM) Carrier Segmentation is the foundation for strategic relationships

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• Term

– Multi year – Potential renewal based on service and cost

• Service Level Expectations

– >90% / 100% tender acceptance

– >95% / 96% on time delivery to appointment

– >92% / 93% on time to ORDD

• Service and Productivity targets linked to price escalator

– Adjustments based on carrier scorecard results

– Network performance, not lane or location

SRM Event Bid conditions support the Shipper of Choice strategy, while supporting overall Kraft’s Service and Cost goals

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Kraft Supplier Integration

What Is Supplier Integration At Kraft?

Supplier and Kraft resources working seamlessly and collaboratively to deliver innovation and drive efficiencies across the supply chain via strong

integration and residency within Kraft

What is different this time?

NEW COMPANY, NEW LEADERSHIP, NEW CULTURE

TRUST AND COLLABORATION – INSIDE AND OUTSIDE

Suppliers And Kraft: FROM – TO

•~500 suppliers with 80% of spend

•Embrace our supply base as one of our most valuable collaboration platforms

• Integrated Kraft and Supplier focus on TCO, service, quality, innovation, growth, inventory, processes.

•Cashflow via Supply Chain Financing and Supplier Managed & Owned Inventories

•Targeted Supplier Innovation

From (up to 2012) To (2013-2015)

•>7300 contracted suppliers

•Varied supplier relationships, mostly transactional

•Aggressive bidding to drive “unit cost” productivity

•Cashflow via Payment Term

Extension

•Optional Supplier Innovation

How are we doing this at Kraft?

CATEGORY ADVISOR

PREFERRED SUPPLIER NOT A SINGLE SOURCE

STRATEGIC COLLABORATION ALIGNMENT

CULTURAL FIT TRUST

CATEGORY CAPTAINS

Category Captain Selection Process

Foundation • Internal

Assessment • Industry

Mapping

Engagement • Supplier

reviews • CC Candidate

Selection

Planning • Deep Dive

Assessment • Business Plan

Development

Implementation • On going

relationship • Implement

Business Plan • Culture Change

Category A: Candidate 1 Candidate 2 Candidate 3

Category A: Nominee

Business Plan Acceptance

End To End Deep Dive Category Assessment

Consumer Kraft Plants

Suppliers Customer Kraft & Customer Warehouses

Suppliers’ Supplier

Kraft & Supplier Warehouses

• Kraft / Supplier Knowledge of the Business

• Interviews/ Linkage with Supply Chain Resources

• Walking the Supply Chain

• Analytical Work

• Customer/ Consumer Information

Innovation Across the Supply Chain

THE OUTCOME IS A BUSINESS PLAN INCLUDING: Category Strategy for next 3 to 5 years

Short and long term: Productivity, Working Capital improvement, Simplification, Innovation, Resources and Investment requirements,

Systems / Processes recommendations, Balanced Scorecard

Aren’t Category Captains just preferred suppliers?

Yes, Category Captains ARE preferred suppliers, but they also: • Have access to internal / confidential information at Kraft • Have embedded resources inside Kraft’s organization • Jointly own the category strategy • Are responsible to develop annual business plans • Are accountable for reducing Total Cost of Ownership • Have goals outside price and service: innovation, growth,

process efficiencies, inventory, etc. • Have long term agreements (evergreen) • Have transparent cost models

ALL IN

In Summary: We Are Better Together

Collaboration

Embedded Resources

Mutual Value Delivery

Top to Top Relationships

Balanced Scorecard Metrics

Cost and Information

Transparency

Product and Process

Innovation

Joint Business Planning

Cross-Functional Business Leadership