Kraft Foods Supplier Network Initiative Chicago August 2009

Kraft Foods Supplier Network Initiative

ChicagoAugust 2009

Agenda

• Kraft Overview• Catalyst Project Introduction• External Manufacturers (EM)• Supplier Managed Inventory (SMI)• Supply Network Collaboration (SNC)• Benefits & Lessons Learned• Questions

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3

Fast Facts

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2008

$41.9 billion in revenue

Sales in approximately 150 countries

Operations in more than 70 countries

Approximately 98,000 employees

Nearly $100 million in charitable contributions

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An Amazing Brand Portfolio

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9 Brands with more than $1 billion in revenue

50+ Brands with more than $100 million in revenue

40+ Brands over 100 years old

Agenda


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Introduction to Catalyst

• Catalyst is the name of our multi-year program to streamline and standardize how we work throughout the company and do business with customers, suppliers and other external partners

• Catalyst will provide Kraft with access to better information that we can use to respond more effectively to opportunities in the marketplace while helping us to better support business growth and address business challenges

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Enabling Responsive Supply NetworksManage collaborative business processes end to end

End-to-End Processes

Collaborative Demand and Supply Planning

SOUCE SUPPLY MAKE SELL MOVE SERVICE CUSTOMER

Logistics and Fulfillment management

Manufacturing Network Planning & Execution

Customer DemandResponse & Execution

Supply Network Strategy and Design

Supply Network Traceability

Tactical

Strategic

“ Responsive Supply Networks enable companies with fluctuating demand and high product complexity to sense and respond faster and smarter to demand, supply and compliance dynamics across a globally distributed environment.

Delivered in 2008 Future Value Scenarios

Customer places order with

customer service team

1

Order is verified, fully priced and credit check

applied based on standard rules

2Integration with logistics enables Available to

Promise (GATP)

3Demand forecast is updated with actual orders to integrate

with Manufacturing

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From forecasts product supply plans a

2 year horizon

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Suppler demand is visible in SNC,

Suppliers confirm replenishment, Alerts

signal changes

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Finished goods are shipped to buffers/mixing centers & made

available for GATP

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’’

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Catalyst North America

Status: 1 Aug st 2009

Today End state28 54

$24B

Plants (% of COGS)

Ext MFG(% of Spend Value)

Revenue

2009 2010

2009 2010

63%

82%

1502009 2010

69%

2008

2008

2008

30,000Users

2009 2010

30%

2011 2008

9,000

*(Revenue numbers based on 2007 figures)

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$20B

Catalyst NA went live in October 2007 with releases planned through 2011.

2009 20102008

Agenda


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Kraft SAP External Manufacturing objective is standard business practices

• Standard Purchase Order Process– Eliminate manual cost and purchase tracking

processes with SAP contracts and Purchase Orders • Supplier Collaboration

– Replace the historic manual process of e-mails / phone calls with a system driven solution to communicate and collaborate on requirements

• Receipts into Kraft Distribution Network – Transition from inventory at the vendor location to

initial receipt at the Kraft warehouses

• System Driven Three Way Match Payments– Transition from manual invoice coding and receipt

matching process to an automated match between the PO, Receipt, and Invoice

– Automated payment after matching within the terms on the contract

Purc

hase

Ord

er P

roce

ss

Supp

lier C

olla

bora

tion

Kraft

Rec

eipt

s

Paym

ent

EM Program

Four Pillars of the Kraft EM Program

External Manufacturing Design Summary

• EM’s divided into two groups – will have 2 designs:– Subcontracting (Tolling/Converters)

• Plants that have Kraft owned materials (1 or more)– Vendor (Finished Goods)

• Vendors that buy all materials – Kraft does not own ANY material

• All Purchases for Kraft owned / vendor ordered items at subcontracting EM’s will utilize a Standard SAP PO

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Purchase Order Collaboration

• External Manufacturers access PO data via the SNC tool

• Standard Tasks:– Review Purchase Orders– Confirm Delivery Dates– Update Delivery Quantities– Review Long Term Demand via Demand Monitor

• Sub Contractors Create R&P POs– Portal Access enables EM to Order Materials via

Kraft Contracts– Kraft owned materials used at EM location to

produce Kraft Products

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Agenda


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Kraft enabled its SMI Business Model by implementing processes and systems focused on four capabilities

• Statistically Driven Safety Stock– Utilize a statistical approach to defining material

stocking parameters, which leverages historical demand and supply characteristics

• Collaborative Replenishment– Transfer the responsibility for defining quantity and

timing of material inventory replenishments (shipments to Kraft and manufacturing of materials) to the supplier

• Inventory Consignment– Migrate from transfer of inventory ownership upon

receipt to transfer of inventory ownership upon consumption

• Payment– Migrate from transfer of liability to supplier upon

receipt to transfer of liability to supplier after consumption

– Weekly payment to supplier for consigned materials consumed during the period

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Stati

stica

lly –

Driv

en

Safe

ty S

tock

Colla

bora

tive

Repl

enis

hmen

t

Inve

ntor

yCo

nsig

nmen

t

Paym

ent

SMI Program

Four Pillars of the KNA SMI Program

NOTE: SMI Consumption: DefinedIssuance to Production Staging AreaPhysical Inventory AdjustmentsDamaged Material Write-offsObsolete Material Write-offs

Mapping

Kraft Supplier

SAP ECC SAP SNC

Current inventory positions, status,

parameters, & Gross

requirements

POD (material receipts)

Supplier’s Systems

Kraft Gross Requirements &

Inventory

Inventory alerts


Planned Replenishments

ASN’sASN’s

(Inbound Delivery)

B2B Hub

XML

EDI

852

Planned Replenishments

Kraft Gross Requirements,

Inventory &Stocking Parms

EDI852

ASN’s

iDocXML

XMLEDI

861


SMI EDI requirements

Supplier to provide following datato support SMI

XMLEDI

856

iDoc

XI

iDoc

XMLiDoc

Existing New

iDoc

iDoc

XI

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iDoc

Agenda


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Purchase Orders

Kraft’s MFG Network Planning and Execution Using SAP’s SNC

Kraft Foods

Internal ERP & APS environment

Gross Demand & Stock

Replenishment Plan (Min/Max)ASNs

SMI Process

EM

SMI

Confirmations

Sub Contractors

ASNs

Contract MfgConfirmations

EMPurchase Orders

Bill of Materials

Receipts

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Purchase Orders

Kraft’s MFG Network Planning and Execution Using SAP’s SNC

Kraft Foods

Internal ERP & APS environment

Gross Demand & Stock

Replenishment Plan (Min/Max)ASNs

SMI Process

EM

SMI

Confirmations

Sub Contractors

ASNs

Contract MfgConfirmations

EMPurchase Orders

Bill of Materials

Receipts

Web Browser

SAP ERP

Internet Internet

EM only

External Access and Security

ProvidesFront doorSecurity

ProvidesApplication

Access

Provides Content Security

SupplierKraft’s

Supplier Portal

Remote Connectivity

Backend SAP

Servers

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SAP SNC

SAP BW

Both

SMI only

Advance Shipment Notifications

• Prior to Shipments, EM/SMI Create Advance Shipment Notifications (ASNs) for each Truck Load– Document lists Materials and Quantities being Delivered– Interface to ECC creates an Inbound Delivery Document– Additional EM specific requirements:

• Linkage to Purchase Orders for Invoice Payments• Delivery Dates for GATP and Dock Scheduling• Bills of Lading for Freight Payments

– Additional SMI specific requirements:• Load Numbers in place of PO Numbers• Vendor Batch Numbers

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E-Mail Alerts

• Kraft and EM/ SMI Set Up Alerts– Used primarily by smaller volume vendors – User will go into SNC for further details– Additional EM specific requirements:

• Notification when POs are created or changed• E-Mail contains basic PO data

– Additional SMI specific requirements:• Min/Max Stock warnings• ASN Receipts differences

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Master Data

• CIF (Core Interface) process is how SAP sync’s Master Data between servers

• Both EM and SMI needs SNC Master Data– CIF Models define which records are sync’d on SNC

• ECC Plant Master become SNC Customer Locations• ECC Vendors become SNC Supplier Locations and BP Orgs• ECC Materials become SNC Products• ECC Contracts and Schedule Agreements become SNC

Transportation Lanes

• SNC User are linked to BP Persons which are linked to BP Org’s

• SNC BP Orgs limit what data content Users can access

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External Manufacturer – Example Message Flows

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SAP ICH 5.0 ERPSAP NW 2004s

SupplierKraft

EAI

Create or Change a PO

PORDCR1PORDCR102

IDoc XML

RON

Receive ASNReceive ASN or create in

Web UI

DESADV DELVRY 03

IDoc XML XMLPublish

ASNDDN DDN

Receive delivery and post goods

receipt

Display GR information

STPPOD DELVRY 03

IDoc XML

RDN

Display PO

iDoc

DESADV

SAP ECC 6.0

No M

appi

ng

Map

ping

Map

ping

SAP NW 2004s

Change PO Confirm PODESADV DELVRY 03

IDoc XML

DDN

Supplier Managed Inventory – Example Message Flows

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SAP ICH 5.0 ERPSAP NW 2004s

SupplierKraftEAI

Publish current stock status and gross demand

PROACT PROACT 01

IDoc XML

PAN

Receive ASNReceive ASN or create in

Web UI

DESADV DELVRY 03

IDoc XML XMLPublish

ASNDDN DDN

Receive delivery and post goods

receipt

Display GR information

STPPOD DELVRY 03

IDoc XML

RDN

Display current stock

status

iDoc

DESADV

SAP ECC 6.0

No M

appi

ng

Map

ping

Map

ping

SAP NW 2004s

SNC Upgrade Plan

• Kraft is planning on upgrading from SCM 5.0 to SCM 7.0 next year.• New features we are looking at are:

– The “PO Work List” is a new screen in SAP SNC 5.1/7.0. The purpose of the PO Work List is to increase usability and the business users productivity when processing PO’s.

– The “File Transfer” feature enables external partners to download data that they would otherwise see on the given SAP SNC Web screens, edit the downloaded file locally on the PC and update SAP SNC with latest changes by uploading the modified file to SAP SNC.

– Quickview (Entry Screen)– Gives comprehensive “at-a-glance” view of the users work and helps the

user to focus on most critical items– Allows user to take immediate action by drilling-down to the detailed SNC

screens.

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Agenda


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EM & SMI Catalyst Design Summary

• EM’s divided into two groups:– Subcontracting (Tolling/Converters/IMSC)–Accounts for 20% EM Spend

• Plants that have Kraft owned materials (1 or more)• 18 EM and 20 Re-packers (Plant Managed and IMSC)

– Vendor (Finished Goods) – Accounts for 80% EM Spend• Vendors buy all materials consumed+• 110 locations

• Supplier Managed Inventory (SMI) – Materials owned by our partners until just prior to their use in the manufacturing process:– Demand visible through the SNC tool– Materials are brought in and systematically segregated and staged– Once materials are consumed, Kraft will pay for the materials w/out PO

or Invoices– Benefits of costs savings shared between Kraft & Partners

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External ManufacturerKraft

Kraft – External Manufacturing Process Benefits

• Integration of planning & costing processes for external manufacturers

• Harmonized material and product master files

• Enable supplier evaluations and security access controls

• Standard Reporting capability to drive business improvements

• Retirement of legacy systems • Reduced contract complexity • Variance analysis and cost

tracking • Improved External manufacturing

Invoice matching and payments

• Standard process used for Kraft purchased FGs.

• Secure access to Kraft systems for sub contract material ordering.

• Simplified delivery scheduling process.

• Improved payment cycle

Kraft – Supplier Managed Inventory Process Benefits

• Reduced working capital investment due to transfer of inventory ownership

• Reduced costs associated with material waste and obsolescence

• Less effort required to manage raw/pack inventory

• Lower payment processing costs• Reduced contract complexity

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SupplierKraft• Greater control of inventories

throughout the supply chain• Improved and expanded supply

relationship with Kraft• Flexibility in meeting Kraft material

requirements• Enhanced ability to optimize

operations through improved planning

• Greater visibility to Kraft material usages and variances

SNC Lessons Learned

• Alert Process– User defined Notification Profiles need to be monitored

• Access– Varies by company and user and therefore can complicate the

startup and support model• Demand monitoring functionality limited

– PO updates are not real time (once Daily)• EDI Process

– Timing of jobs on both sides (inter-dependencies)– Commercialization synchronization– Validating cross-references– Accuracy and timing of ASN’s

• CIF Process– Defining the models to dynamically adapt to business– Queue issues sending data to SNC

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Agenda


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Kraft Foods Supplier Network Initiative

Thank You

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Documents

Kraft Foods Supplier Network Initiative Chicago August 2009