Kellogg Company CPO shares ingredients of their transformation strategy

Walter Charles

CPO

Kelloggs

Steve Hall

Editor

Procurement Leaders

Jennifer Sikora

VP Marketing

CombineNet

30 April 2013

3:00pm BST / 4:00pm CEST / 10:00am EST

April 30, 2013 Webcast

Copyright © 2013. CombineNet, Inc.

Next-Generation E-Sourcing for Today’s Procurement & Supply Chain Transformations

“Everyone engaged in strategic procurement activities – from a CPO down to a category manager or analyst – will learn something that changes how they think about sourcing from talking to CombineNet.“ - Jason Busch, Five Specialist Vendors You Must Talk to in 2013 (December 21, 2012)

CombineNet Named a Top 5 Specialist Vendor to Talk to in 2013

Tactical Events

•Fewer Items

•Fewer Locations

•Fewer Suppliers

•Emphasis Primarily on Price

Large Events

•100’s or 1,000’s of Items

•Many Locations

•Many Suppliers

•Aggregated/centralized spends

•Multiple Stakeholders

Complex Award Decisions

•Multiple price and non-price bid components

•Total supplier value and risk

•Complex cost models

•Competing Stakeholder interests

Where CombineNet Fits for e-Sourcing

CombineNet ASAP Differentiators

• Collect both detailed price and non-price bids from suppliers

• Solicit alternative item proposals, conditional offers, packages, etc.

• Drive competition and price compression with Expressive Feedback

• Suppliers put their “Best Foot Forward” in a collaborative bidding process

Expressive Bidding®

• Easily supports events involving larger #s of items, suppliers, and/or bid attributes (involving hundreds of thousands of bid data points)

• Support spend aggregation across item types, overlapping supply bases, locations, and/or business units.

• Support complex categories , such as transportation, packaging.

Scalability & Performance

• Create robust scenarios with unlimited # of rules per scenario

• Scenarios optimized and results returned in seconds

• Easy to collaborate with stakeholders

• Find the best scenario balancing innovation, value, and risk.

Analytics & Optimization

28% Savings on Packaging

6% Savings from Conditional Offers / Expressive Bids

45% Savings on Displays

8% Savings on Truckload

10% Savings on Ocean Freight

11% Savings on Direct Material Ingredients

10% Savings on Aggregated Facility Services

Sourcing Cycle Time Reduced by 3x

Analytics Time Reduced by 10x

Replaced 100s of Spreadsheets

“We are procuring on a higher level.”

Supply Base Optimized & Diversified

Awarded Supplier for Proposing a Better Material

Optimized Transportation Mode Allocation

Secured Seasonal Capacity

Re-Allocated Awards Based on Market Changes

Increased Spend Under Management by >2x.

Actual Results for Our Customers

Additional Savings

Increased Throughput & Efficiencies

Supply Chain Innovation & Optimization

Sampling of results reported by CombineNet customers. Data available in our online case studies.

CombineNet’s Customers Include…

Focused on the Needs of Supply-Chain Driven Global Companies

Food & Beverage Manufacturers

Consumer Goods & Pharma Manufacturers

Retailers & Restaurant Chains

Manufacturing

Logistics

Direct Materials & Ingredients

Indirect Materials Transportation Packaging Corporate & Aggregated Facility Services

Bakery Products Chemicals (Aromas) Chemicals (Flavors) Commodities Consumables Dairy Eggs Fats & Oils Food Ingredients Meats & Poultry Metals Produce Sauces/Condiments Raw Materials Resins Steel

Capital Expenses Construction Mat’s Displays Disposables Equipment (Kitchen) Equipment (Lab) Equipment (Mining) Equipment (Plant) Fixtures Fleet Vehicles Furniture Hangers Office Supplies Mannequins Price Tags RFID Tags Smallwares Telecom/IT Equip

Air Freight Drayage Freight Forwarding Ground/Truckload Home Delivery Inbound LTL Ocean Freight Outbound Rail/Intermodal Small Parcel Temp-Controlled Warehousing

Bags Bottles/Vials Cans Cartons Closures Corrugate Flexible Films Food Containers Labels Pallets Rigid Packaging Shrink Sleeves

Armored Cars Business Services Coffee Services Construction Elevator Maintenance Engineering Services Housekeeping HVAC Labor Landscaping & Lot Care Legal Services Marketing & Media Meetings Printing Remodels & Painting Roofing Security & Alarm Services Snow Removal Treasury/Finance Waste Removal

CombineNet Improves Your Sourcing for a Range of Spend Categories

Copyright © 2013. CombineNet, Inc.

CombineNet supports key Procurement Transformation and Sourcing Excellence Efforts

Copyright © 2013. CombineNet, Inc.

Aggregation & Centralization of

Spends

Supplier Collaboration & Supply Chain

Innovation

Stakeholder Collaboration &

Alignment

Re-Optimization of Supplier Awards Against

Market Changes

Staff Efficiency, Elevation, and Re-Allocation

Cost Reductions for the Supply Chain

Thank You

Copyright © 2013. CombineNet, Inc.

jennifer.sikora@combinenet.com Vice President, Marketing - CombineNet

Visit Our Online Resource Center:

www.combinenet.com

Walter Charles III Chief Procurement Officer Global Procurement

Agenda

• Setting New Stretch Target Goals

• Value Creation Successes Across

Business-Critical Direct and Indirect

Categories

• Solutions Toolset Re-evaluation

• Organizational Implications

• Call to Action on Shared Challenges

GOALS Deliver 1.5 times, (50%) improvement in negotiated cost savings in three years

Make long-term sustainable

Re-imagine Procurement’s operating model to:

1. Best people, best process, best insights

2. Maximize global spend leverage

3. Minimize redundancy

4. Operationalize Procurement best practices with KWS

5. Be Relentless in our application of Best Practice & Continuous Improvement

6. Go Bigger, Go Bolder & Highlight Different Strategic Approaches

Procurement Transformation

Stretch Targets, Goals & Approaches…

Diagnose &

Design

Phase 1 Rollout Rollout to rest of the organization

Multiple Categories

Clean Sheets

Cost-based Negotiation

Global Categories

Global Execution

Multi-regional categories

Regional execution

Capability Building

Playbook Design

Procurement & Supplier Tools Workshops Performance Management

Procurement Transformation

Focused on Three Main Work Streams

Wave 3 - Global

Aug - Dec

Wave 2 - Global

Feb - July Wave 1 – North America

Sep - Jan

WAVE 1

Lessons Learned Lessons Learned

Savings

Projects

People

Development

Organizational

Structure

Timeline

Kellogg’s Procurement Transformation Delivered $113MM in the First 120 Days

Ingredients 200+ Specifications

80+ Suppliers

Clean-sheet modeling

Capability building

Risk Management Huge Commodity Spend

4-12 Financial tools

Focus on Speed of Decision Making

New / Robust Governance Model

Expanded Financial Toolset

Maintenance &

Repair (MRO)

~30 plants in NA Network

All plant buying in scope

Aggregated Spend Across Plants

Consolidated & Standardized key

Category

Logistics ~4600 lanes

Inbound & Outbound

Fuel in scope

New CombineNet Solution

Value Lever or

Focus Area Scope

Tools and

Approaches

CombineNet Solution Mitigates

Traditional Constraints

FROM

Facing $10MM in Inflationary Headwinds in September 2012

Constrained by traditional limitations:

• Headcount

• Amount of data to be analyzed

• Complexity of Quantitative & Qualitative Data

• Robust Feedback Mechanism

• Largest Bid Historically at ~40MM and 1/10th of our Network

TO

$23MM in favorable budget move with the largest logistics bid in

Kellogg History

We Asked: How do we do the Largest Bid in the history of our business?

Should we consider technology solve to mitigate our traditional limitation list?

How do we action:

• 4600 lanes

• Full US network, with inbound lanes

• 155+ suppliers

• 95,000 bid results

Get actionable award scenarios to make the analytics doable!

CombineNet Solution Mitigates

Traditional Constraints

FROM

Facing $10MM in Inflationary Headwinds in September 2012

Constrained by traditional limitations:

• Headcount

• Amount of data to be analyzed

• Complexity of Quantitative & Qualitative Data

• Robust Feedback Mechanism

• Largest Bid Historically at ~40MM and 1/10th of our Network

TO

$23MM in favorable budget move with the largest logistics bid in

Kellogg History

We Asked: How do we do the Largest Bid in the history of our business?

Should we consider technology solve to mitigate our traditional limitation list?

How do we action:

• 4600 lanes

• Full US network, with inbound lanes

• 155+ suppliers

• 95,000 bid results

Get actionable award scenarios to make the analytics doable!

Questions We Asked to Inform our Organizational Design Process

We asked the leaders globally: what would be the best way to manage

the spend we had?

Specifically, what should be managed Globally, Regionally or Locally?

Are we structured today to effectively drive behaviors in an increasingly

global and cross-regional paradigm?

What structural changes should we be considering to best deliver the

aspiration of a sustainable 1.5X?

How do we protect with Regional Priorities (What) and how can we

Functionally own the process (How) to deliver on the business

priorities?

Procurement Organization from Regionally to Globally Managed

Str

ate

gy E

xe

cu

tio

n

Local Regional Global

Global

Regional

Local

Strategy Development

Local Regional Global

Global

Regional

Local

Current strategic sourcing matrix

% of total spend

Future strategic sourcing matrix

% of total spend

6

2

22

66

4

33

22

1

41

1 Str

ate

gy E

xe

cu

tio

n

Strategy Development

2

Organizational changes to improve focus on strategic sourcing

All operational activities will be transferred to a newly formed procurement operations

function to free up 30-40% of category managers’ time

Global and lead category manager structure enables strategy setting at global level and

allows procurement to pull a more holistic set of levers and capture synergies globally

Future Procurement Organization will move from

~85% Regionally Managed to ~60% Globally Managed

Procurement Organization from Regionally to Globally Managed

Str

ate

gy E

xe

cu

tio

n

Local Regional Global

Global

Regional

Local

Strategy Development

Local Regional Global

Global

Regional

Local

Current strategic sourcing matrix

% of total spend

Future strategic sourcing matrix

% of total spend

6

2

22

66

4

33

22

1

41

1 Str

ate

gy E

xe

cu

tio

n

Strategy Development

2

Organizational changes to improve focus on strategic sourcing

All operational activities will be transferred to a newly formed procurement operations

function to free up 30-40% of category managers’ time

Global and lead category manager structure enables strategy setting at global level and

allows procurement to pull a more holistic set of levers and capture synergies globally

Future Procurement Organization will move from

~85% Regionally Managed to ~60% Globally Managed

Call to Action on Shared Challenges

If you believe as I do, that key procurement value levers are the

following:

1. Having a robust, large and increasingly global supply base that should

be universally available – “Global Supplier Information Database”

2. Having robust systems to quadruple the number of RFPs that your

strategic resources are working on…….

3. Develop better systems for the industry to standardize around quality,

delivery, issue mitigation & continuous improvement

If any of you are interested in potentially partnering on any of the three

above opportunity areas, contact Jessi Olivarri at jessi.olivarri@kellogg.com