Managgging and Imppgroving Coca Coca--Cola Cola Bottling in … · 2018-04-14 · • Between mid...

TOCICO 2009 Conference

Managing and Improving CocaImproving Coca--Cola Cola g g p gp gBottling in Brazil with TOCBottling in Brazil with TOC

Presented By:Presented By: Bill TaylorBill Taylor Taylors Of Curitiba

1© 2009 TOCICO. All rights reserved.

Presented By: Presented By: Bill Taylor Bill Taylor Date:Date: November 18. 2009November 18. 2009

Taylors Of Curitiba

BILL TAYLOR BILL TAYLOR –– TOKYO PRESENTATION OUTLINETOKYO PRESENTATION OUTLINE


Managing and Improving Coca-Cola Bottling i B il ith TOC

Sunday June 7

in Brazil with TOCIncluding:

The challenge of navigating through substantial changes over the past 16 years; a personal narrative of experiences improving competitiveness in the dynamic beverage business in Brazil as a CEO and as a consultant

Improvement approaches used and results obtained as CEO of the SPAIPA bottling Group 1993-2001.

TOC at the heart of the Coke Brazil turnaround 2002-2003.

The turnaround story at the Coca-Cola Bottler in the state of Maranhão in 2004-2006

A personal view of how TOC can be at the heart of a success in “The Road


to Market” for ready to serve beverages in the third millenium

The CocaThe Coca--Cola Worldwide SystemCola Worldwide SystemTOCICO 2009 Conference

Th C C l C Th C C l B ttlThe Coca-Cola Company• Brands• Concentrate Formulas

The Coca-Cola Bottlers• Franchise Territories• Beverage Production

• Concentrate Manufacturing Plants

• Quality Assurance

• Sales• Distribution• Market Assets

• Advertising• Coordinate Worldwide

Supply Chain

• Market Assets• Asset Investment• “Grass Roots” Marketingpp y

• Worldwide/Transnational Customers

• ~10% of System Personnel

• Local Customers• ~90% of System Personnel


y

VALUE FROM EVAVALUE FROM EVA VALUE FROM FREE CASH FLOWVALUE FROM FREE CASH FLOW

COCACOCA--COLA FRANCHISE TERRITORIES COLA FRANCHISE TERRITORIES BRAZIL BRAZIL -- 20022002


17 Bottler Groups17 Bottler Groups

Andina

CBOs (3)

Panamco

( )

Norsa

Simões

Spaipa

Vonpar

Andre Biagi

Monteiro

Osorio Adriano

Vieira

Alexandre Biagi

Bandeirantes

CVI

Renosa

São PauloCuritiba

Rio de Janeiro


CMR

Luiz Biagi

SKU DiversificationSKU DiversificationIncreased ComplexityIncreased Complexity


187

PARANÁ REF. S.A./SPAIPA S.A.Stock Keeping Units (SKU´s) Over the Years

Increased ComplexityIncreased Complexity

160

180

200

135

187

120

140

160

103

135

KU

´S

80

100

57

SK

20

40

60

1 1 1 1 4 5 12 16 19

36


0

20

1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1993 1996 1999 2002

1 1 1 1

SKU ProliferationSKU ProliferationTOCICO 2009 Conference

FLAVOR VARIETIES

PACKAGE TYPES

PACKAGE SIZESPACKAGE SIZES

PROMOTIONAL PACKAGES

MULTIPACK VARIETIES

ETC


ETC.

SPAIPA BUSINESS FOCUS CHANGESPAIPA BUSINESS FOCUS CHANGEFromFrom: Soft Drink Bottler: Soft Drink Bottler ToTo: Beverage Distributor: Beverage Distributor


Coca-Cola CSD. 1946 Prod. Distr.Fanta Orange CSD 1965 Prod. Distr.Sprite CSD 1975 Prod Distr.Schweppes CSD 1998 - Distr.Kaiser Beer 1983 - Distr.Heineken Beer 1994 - Distr.Kapo “Juice” 2001 - Distr.pNestea Tea 2002 - Distr.Burn Energy 2001 - Distr.


gyMinute Maid Juices 2006 - Distr.


PRSA/SPAIPA PRSA/SPAIPA –– 19931993--20012001


Development of Value Flow Management Concept8

Strategic situation 1994Strategic situation 1994TOCICO 2009 Conference

• BAESA (Pepsi Bottler) Attack−Successful in Puerto Rico and Argentina

−Entering Brazil in 1994

• Brasil moves from hyperinflation (40% per month) to stability (Plano Real)

• The Coca-Cola Company Strategies:−Consolidate 34 Bottling Groups into StrongerConsolidate 34 Bottling Groups into Stronger

Groups

−Accelerate move from returnable glass bottles (RGB)


g ( )to one way packaging (PET and Cans)

Paraná Paraná RefrigerantesRefrigerantes S/A CultureS/A Culture19461946--19941994



Silo Management PRSASilo Management PRSA


Ad iAdmin.

OperOper.Mkt.

Fin.


CONSUMERSTOCICO 2009 Conference

+ THIRSTCUSTOMERSCUSTOMERS

= $$$$$Front Line Team

SupervisorsSupervisors& Managers

C LevelC LevelC LevelC Level“Tree”Holistic Model


Holistic Model

SHAREHOLDERS

SPAIPA S/A SPAIPA S/A –– Merger Merger –– April 1995April 1995TOCICO 2009 Conference

Rio de Janeiro (ANDINA)

São Paulo (SPAL)

Curitiba (SPAIPA 1995)

Porto Alegre(VONPAR)

Merging 4 Bottling Groups and 10 FranchiseTerritories

West of São Paulo State + State of Paraná: thei f G(VONPAR) size of Germany

GNP of Franchise Territory = US$ 50 Billion 13 MM Urban Consumers + 2.3 MM Rural

Consumers > Population of ChileConsumers Population of Chile 110,000 Customers Annual Sales Volume: 750 MM liters 1995 Investment: US$60 MM


1996 Sales – US$ 700MM One of the top 150 companies in Brazil 1996 EBITDA – US$ 45MM

IT INITIATIVESIT INITIATIVESTOCICO 2009 Conference

•ABC Costing - 1996

•ERP – SAP/R3 - 1997


14

SPAIPA Reorganization by ProcessesSPAIPA Reorganization by ProcessesTOCICO 2009 Conference

DELIVERY DELIVERY PROCESSESPROCESSES

SALES SALES PROCESSESPROCESSES

PRODUCE/ PRODUCE/ SUPPLYSUPPLY

PROCESSESPROCESSES

SUPPORT SUPPORT PROCESSESPROCESSES


Process Flow FocusTOCICO 2009 Conference

Industrial Industrial ActivityActivity AdministrativeAdministrative ActivityActivityLogísticsLogístics ActivityActivityLogísticsLogístics ActivityActivity

IndustrialActivityIndustrialActivity


IndustrialActivityIndustrialActivity

AdministrativeAdministrative ActivityActivityDistributionActivityDistributionActivity

SynchronizationSynchronizationTOCICO 2009 Conference

VEHICLE VEHICLE


SUPPORTSUPPORT

INVOICINGINVOICING\\CONTROLSCONTROLS

TRANSFERTRANSFERLOADINGLOADING

((MOVING)MOVING)DELIVERYDELIVERY

((DISTRIBUTE)DISTRIBUTE)

V CV C

CONTROLCONTROL

ANDAND

MAINTENANCEMAINTENANCE

PLANNINGPLANNING



Just In Time/LEAN

For Coca-Cola Quality is more than somethingTOCICO 2009 Conference

For Coca-Cola, Quality is more than somethingwe taste, see, measure or manage.

Q lit i t i ll ti i l iQuality is present in all our actions, involvingeverything we do.

Starting from Processing, all the way throughConsumption, any result less than 100% is p y

unacceptable.Our Consumers deserve the highest QualityOur Consumers deserve the highest Quality

Beverages we can produce, all around the World. Al


Always

15.000.000 Consumers – 150 MM Drinks Per DayValue Strategies: Product, Pricing, Packaging, Promotion, Mass Media, Consumer Focused Actibities, Channel Marketing

C l V d t TOCICO 2009 Conference

Market Assets ReturnablesNon RefillablesMini Markets, Fast

Food &Schools, Hospitals Work

Cold DrinkSmall Stores, Very ryng

Coolers, Vendors, etc.

ChannelPlans

Mini Markets, Supermarkets, Hypermarkets

Food & Chains

Hospitals, Work, In Tránsit etc. “Horeca”

,Mom and Pops

CMA= Cooperative Marketing Agreements

Leadership MarketingCategory Management, ECR,"Market Vision”, Intercept,

BuyExclusives

Service,Returnables, Wholesalers

ClubCoca-Cola

“Ponto Econo-mico”

VerySmallStores D

eliv

er

Vend

in

Q40

Centrally Managed Locally Managed – “Empowerment”

g y g , , , p ,CAM, MET 3.0, etc.

Wholesalers Coca Colamico

Execution of Sell Supply and Deliver TRPOperations and Supply/Vaue Chain

“CashOperating

Execution of Sell, Supply and Deliver - TRP

“FreeSales, General

ReturnO

Gross Profit Growth

Process Support -Systemas - SAP R/3OperatingProfit”Cash

Flow”General

&Admin %

OnAssets %

Growth

1995 2000 Foc s on the


Economic ValueAdded

1995-2000Management Model

Focus on theCustomer and

Consumer

Impact of Improvements on Impact of Improvements on SpaipaSpaipa


p pp p

Cost ReductionCost Reduction

• Volume IncreaseX Volume Increase

• Profit IncreaseX

X• Profit IncreaseX


The Brazil volume problem 1998The Brazil volume problem 1998TOCICO 2009 Conference

• Between mid 1994 and mid 1996, Coca-Cola soft drink sales in Brazil almost doubledBrazil almost doubled.

• In 1996, BAESA, the new Pepsi bottler in Brazil went bankrupt, a >US$600MM loss on Wall Street.

• Between mid 1996 and 1998, Coca-Cola volume stagnated, as “Tubaina” soft drinks, priced far more cheaply than Coca-Cola soft drinks, captured most of the volume growth.

• As a consequence, Coca-Cola market share in Brazil dropped from 60% to 50%

• Coca-Cola soft drinks diminished sales volume in some bottlers• Coca-Cola soft drinks diminished sales volume in some bottlers who focused on cost reduction instead of market execution improvement.


CocaCoca--Cola Cost Structure BrazilCola Cost Structure BrazilPET 2 PET 2 LitersLiters –– 1995/961995/96


The TradeThe Trade

m A

KO - TCCCBottler/Distributor KO Value Added

Syst

emEB

ITD

A

DirectTaxes

I di tSales, Distribution & AdministrationMarketing


October 09

Ingredients&

Packaging

CocaCoca--Cola vs. Cola vs. TubaínasTubaínas CostCostPET 2 PET 2 LitersLiters –– 1995/961995/96


The Trade

Bottler/

The Trade

Perceived

KO - TCCCDistributor V.A.KO Value

AddedDirectTaxes

I di tSD&AMarketing

IngredientsSD&AThe TradeV.A. TUB.


Ingredients&

Packaging

Ingredients&

Packaging

Based On 1998 Prices, Over 60% of Consumers Based On 1998 Prices, Over 60% of Consumers Probably / Definitely Will Not Buy CocaProbably / Definitely Will Not Buy Coca--ColaCola


Future Consumption Channels Future Consumption Channels -- CocaCoca--Cola 2L PET Cola 2L PET -- São PauloSão PauloFuture Consumption Channels Future Consumption Channels -- CocaCoca--Cola 2L PET Cola 2L PET -- São PauloSão Paulo

100%Price

Price Rejection

40%

60%

80%Price

Resistance

0%

20%

40%

R$1 31 R$1 48 R$1 64 R$1 80 R$1 97R$1,31 R$1,48 R$1,64 R$1,80 R$1,97

Definitely not buy Probably not buy


October 09

Throughput Sensitivity Throughput Sensitivity -- 19981998TOCICO 2009 Conference

2 50

1.50

2.00

2.50PET 2 LiterSupermarkets(mark-up 10%)

P.V.A.

0 00

0.50

1.000,65

0.00

Trade 0.20 0.18 0.16 0.15 0.12 0.11Government 0.66 0.62 0.59 0.55 0.51 0.47System 0 82 0 69 0 59 0 48 0 35 0 21

R$2.10 R$1.90 R$1.75 R$1.60 R$1.40 R$1.20

System 0.82 0.69 0.59 0.48 0.35 0.21Product Cost 0.41 0.41 0.41 0.41 0.41 0.41


October 09


“P j t Sh ”“P j t Sh ”“Project Share”“Project Share”1999 – 2001

INJECTION:Reduce Price of 2 Liter PET Coca-Colafrom R$1.83 to R$1.39, Impact Tubaina Growth


Impact Tubaina Growth and Recover Market Share

27

COCACOCA--COLA FRANCHISE TERRITORIES COLA FRANCHISE TERRITORIES SOUTH BRAZILSOUTH BRAZIL


São Paulo(SPAL)

Curitiba(SPAIPA

1995)

Porto Alegre


Porto Alegre(VONPAR)

SPAIPA S/A SPAIPA S/A –– The change in numbersThe change in numbers1995 1995 -- 20012001


1995 2002

Coca-Cola 2L PET Price R$1.95 R$1.55Inflation Index 100 240R$/US$ 0.80 R$/US$ 3.75 R$/US$Returnables Mix 85% 20%Products (SKUs) 62 187Products (SKUs) 62 187Factories 10 3Distribution Centers 27 9Route Trucks 650 300Employees 6000 1850Direct Distribution (%Volume) 60% 52%


Direct Distribution (%Volume) 60% 52%


TheoryTheory ofofConstraintsConstraintsConstraintsConstraintsTOCTOCSystemic and HolisticManagement

“The Solution is in heresomewhere”


Bill Taylor, September 1999

Undesirable Undesirable Effects” for Coke in Effects” for Coke in Brazil Brazil -- 20022002


KO UC net revenues are extremely low, and not increasing

Introduction of new products does not achieve target coverage and volume

System disadvantage versus Ambev in scale, unity of command returnable packages command, returnable packages mix, joint execution of beer and carbonated softdrink (CSD) and system profitability

Loss of market leverage thru reduction of bottlers direct store distribution (DSD) – (trucks)Bottler growth in high margin

immediate consumption packages is insufficient

Orchestration between bottlers is

Low margin future consumption packages cannibalizing high margin packages

Bottlers profitability is extremely low

Tubainas continue to survive at very low prices, blocking Coke

is insufficient

almost impossible Trans shipment undermining the franchise territories, discouraging bottlers investment

from transferring cost increases to consumers

Molson is new partner in the

CCIL profits are the lowest in the major international Coke markets

Extreme conversion of mix to non returnable packages creates foreign exchange vulnerability (due to the high content of i t d t i l)

Bottlers market execution capability is very uneven and generally insufficient

Molson is new partner in the system and not yet coordinated

Franchise territories structure inadequate to current needs of the


imported material)inadequate to current needs of the market

Bottler investment in brand building is insufficient

Bottler investment in market assets is insufficient


If you cannot verbalize your If you cannot verbalize your If you cannot verbalize your If you cannot verbalize your intuition, you only succeed in intuition, you only succeed in communicating your confusioncommunicating your confusiong yg y

Eli Goldratt – as applied to “IT Management”


COKE Current Reality Tree COKE Current Reality Tree -- 20012001210 We are pressured to accept the

t ti f t titi 200 We are pressured to change the

TOCICO 2009 Conferencecurrent unsatisfactory competitive beverage market status quo

current unsatisfactory competitive beverage market status quo

185 Current 2L PET prices leave little margin for additional investment

160 We cannot take volume from Tubainaby further reducing 2L PET prices

170 Ambev is buying exclusivity in high visibility accounts, strengthening

190 Current economic conditions do not allow a significant increase in PET prices 180 C PET i i strengthening

competitive branded CSDs (Pepsi)

in PET prices system wide

150 We must recover system 140 We must grow system volume 155 Tubainas

j

180 Current PET prices incorporate a large portion of all possible synergies in taxes and productivity

150 We must recover system economic health and resources

140 We must grow system volume and profit ahead of competitors

enjoy an insurmountable cost advantage from tax evasion

130 Future growth requires that the system generate the economic resources needed for i i

120 Good performance vs

110 Investors value KO shares

100 We desire to increase

135 At current prices the Coca-Cola system depends heavily on the


33

investment in production, brand building and market assets

pcompetitors is a predictor of superior system results

on the basis of projected volume and profit growth

Brazil contribution to market value for KO shares

depends heavily on the continuity of tax incentives to generate positive cash flow

COKE Current Reality Tree COKE Current Reality Tree -- 20012001450 Franchise territories structure inadequate to current needs of the market

550 Loss of market leverage thru reduction of bottlers direct store distribution (DSD) – (trucks)

650 Bottlers market execution capability is very uneven and generally insufficient700 Bottler growth in high

margin immediate consumption TOCICO 2009 Conference

350A E t i f i

400 Low margin future consumption packages continue cannibalizing

500 Bottlers profitability is extremely low

needs of the market margin immediate consumption packages is insufficient

520 Bottlers continue to reduce asset base and personnel to recover margins

440 Franchise territories were

t d

255- Although we would like to h th t ti f t

300 Tubainas

350A Extreme conversion of mix to non returnable packages

continue cannibalizing high margin packages

created on a returnable bottle concept

350B Foreign exchange vulnerability due to the high content of imported materials

210 We are pressured to accept the current unsatisfactory competitive

200 We are pressured to change the current unsatisfactory competitive

change the current unsatisfactory competitive beverage market status quo we continue to accept it to maintain volume

continue to survive at very low prices, blocking Coke from transferring cost increases to consumers

260 Prices per oz of 2L PET are significantly lower than high margin immediate consumption

185 Current 2L PET prices leave little margin for additional investment

y pbeverage market status quo

current unsatisfactory competitive beverage market status quo

160 We cannot take volume from Tubaina by further reducing PET prices 170 Ambev is buying exclusivity

in high visibility accounts 190 Current economic conditions do not allow

consumption packages

in high visibility accounts, strengthening competitive branded CSDs (Pepsi)

conditions do not allow a significant increase in PET prices system wide

150 We must recover system economic health and resources 140 We must grow system volume and profit ahead of competitors

155 Tubainas enjoy insurmountable cost advantage from tax evasion

180 Current PET prices incorporate a large portion of all possible synergies in taxes and productivity


34

130 Future growth requires that the system generate the economic resources needed for investment in production, brand building and market assets

120 Good performance vs competitors is a predictor of superior system results

110 Investors value KO shares on the basis of projected volume and profit growth

100 We desire to increase Brazil contribution to market value for KO shares

135 At current prices the Coca-Cola system depends heavily on the continuity of the tax incentives to generate positive cash flow

COKE Current Reality Tree COKE Current Reality Tree -- 20012001960 CC UC net revenues are extremely low, and not increasing

990 CCIL profits are the lowest in the major international Coke markets

930 System disadvantage versus Ambev in scale, unity of


400 Low margin future consumption packages continue cannibalizing high margin packages

g , ycommand, returnable packages mix, joint execution of beer and carbonated softdrink (CSD) and system profitability

420 CC UC price linked to bottler price through incidence formula

830 Molson is new partner in the system and not yet coordinated

900 Introduction of new products does not achieve target coverage and volume

800 Bottler investment in brand building is insufficient

860 Bottler investment in market assets is insufficient

700 Bottler growth in high margin immediate

750 Orchestration between bottlers is

coverage and volume

margin immediate consumption packages is insufficient

between bottlers is almost impossible

600 Trans shipment undermining the franchise territories, discouraging bottlers investment

650 Bottlers market execution capability is very uneven and generally insufficient

investment


35500 Bottlers profitability is extremely low

450 Franchise territories structure inadequate to current needs of the market

520 Bottlers continue to reduce asset base and personnel torecover margins

560 Bottlers receive cash incentives to practice low 2L PET prices

AB D

D’C

SurfacingSurfacing thethe AssumptionsAssumptionsBehindBehind thethe BB--DD RelationshipRelationship


We mustRecover system

Accept current unsatisfactory

To... Because...system economic health and resources

unsatisfactory competitive beverage market status quo

B DBD1) Attacking the competition in the current competitive battlefield has exhausted our

resourcesBD1) Attacking the competition in the current competitive battlefield has exhausted our

resourcesBD2) Current economic conditions do not allow a significant increase in PET prices

systemwide (190)BD3) TCCCo will not accept the volume loss associated with a price increaseBD4) We cannot aggressively combat Ambev with uncoordinated bottler systemBD5 We are not ready to conduct joint beer and CSD market action

BD2) Current economic conditions do not allow a significant increase in PET prices systemwide (190)

BD3) TCCCo will not accept the volume loss associated with a price increaseBD4) We cannot aggressively combat Ambev with uncoordinated bottler systemBD5 We are not ready to conduct joint beer and CSD market actionBD5 We are not ready to conduct joint beer and CSD market actionBD6) Current PET prices incorporate a large portion of possible synergies in taxes and

productivity and leave no margin for additional investment (180/185)BD7) We continue with some system inefficiencies in production, logistics and fixed costsBD8) Unilateral price increases by individual bottlers may lead to trans shipment of products

BD5 We are not ready to conduct joint beer and CSD market actionBD6) Current PET prices incorporate a large portion of possible synergies in taxes and

productivity and leave no margin for additional investment (180/185)BD7) We continue with some system inefficiencies in production, logistics and fixed costsBD8) Unilateral price increases by individual bottlers may lead to trans shipment of products


36

from other territories) p y y p p

from other territories

Injections Injections -- 20022002TOCICO 2009 Conference

• The Coca-Cola Company stop incentives for Price Reductions

• TCCC support increases in the price for 2 liter PET

• TCCC monitors minimum prices for 2 Liter PET

Combat Territorial invasions by TCCC fines• Combat Territorial invasions by TCCC fines

• SPAL sold to FEMSA

• Four Bottlers sell out to ConsolidatorsFour Bottlers sell out to Consolidators

• De-Emphasize ABC Costing

• Re-introduce Returnable Glass Bottles

• Introduce Multiple Non Refillable Packages

• Incentivate Market Execution


• Introduce new Carbonated Soft Drinks and Still Beverages

BRAZIL DIVISION 2003BRAZIL DIVISION 2003--20092009TOCICO 2009 Conference

• The Best Performance in Volume, Share, Profit, , , ,Quality and Innovations among all the Coca-Cola Operating Divisions in the World

• The role of TOC, a well kept secret


38

Strategy and TacticsStrategy and TacticsTOCICO 2009 Conference


Strategy and Tactic TreeStrategy and Tactic TreeTOCICO 2009 Conference


Level 2 Level 2 –– Six Sigma on the Value FlowSix Sigma on the Value FlowTOCICO 2009 Conference



ABOUT CMRABOUT CMRABOUT CMRABOUT CMR

Companhia Maranhense de Refrigerantes


COCACOCA--COLA FRANCHISE TERRITORIES COLA FRANCHISE TERRITORIES BRAZIL BRAZIL -- 20022002


17 Bottler Groups17 Bottler Groups

Andina

CBOs (3)

Panamco São Luis

( )

Norsa

Simões

Spaipa

Vonpar

Andre Biagi

Monteiro

Osorio Adriano

Vieira

Alexandre Biagi

Bandeirantes

CVI

Renosa

São PauloCuritiba

Rio de Janeiro


CMR

Luiz Biagi

CMR CMR –– Exclusive Franchise TerritoryExclusive Franchise TerritoryTOCICO 2009 Conference

FranchisorFranchisor

Concentrate and Juice

DistributorsDistributor

Point of Sale

Distributor Consumers

São LuisSão LuisSugar Bottling Logistics

City 1 Direct Sales

City 1 Point of Sales

City 1 Consumers

PackagingCity 2 Direct City 2 Point City 2 Beer,

ImperatrizImperatrizg g Direct

Sales of Sales ConsumersOther

BreweryBrewery Other Franchisor Other Franchisor BottlersBottlers


THE CMR OPPORTUNITY SUMMARYTOCICO 2009 Conference

Volume Per Capita Share

49%Indireto 37 43.6DISTRIBUTORS

11%Imperatriz 125

OpportunityOpportunity

8 311%Imperatriz 125

DIRECT STORE DISTRIBUTION

58.3

40%São Luis 158 70.4


61 53.2TOTAL CMR

October 2003October 2003TOCICO 2009 Conference

• The Good News• The Good News− Good Carbonated Soft Drinks Volume Growth− Good Market Share in São Luis− Economic Development Growth Opportunities− Tax Incentive for Beer Filling Plant

• The Bad News− Negative Net Worth− Insufficient Cash Generation


DefineDefineTOCICO 2009 Conference


ValueValue FlowFlow Management Management -- BottlerBottlerTOCICO 2009 Conference

PhysicalProduct

Stocks

Stocks WIP

Stocks

ChannelsBottling and

Stocks

Bottler

Stocks

RawMaterials, Commis‐sionas and

Final Purchaser

andConsumer

CanningTaxes

Cash Output(Variable Cost)

Cash Input (SPAIPA Sales)

Cash Throughput Cash

R$ 56,80 R$ 43,20R$ 9,30R$ 47,50 R$ 100,00


OperatingExpense Profit

MeasureMeasureTOCICO 2009 Conference


STANDARD VS. THROUGHPUT STANDARD VS. THROUGHPUT ACCOUNTING ACCOUNTING -- CMRCMR


STANDARD ACCOUNTING

GROSS REVENUE

THROUGHPUT ACCOUNTING

GROSS REVENUE- TAXES PAID+ TAX CREDITS AND INCENTIVES

NET REVENUES- CONCENTRATE COSTS- PACKAGING, SUGAR, ETC. (COGS)

- TAXES PAID+ TAX CREDITS AND INCENTIVES- CONCENTRATE COSTS+ FRANCHISOR INCENTIVES- PACKAGING, SUGAR, ETC. (COGS)PACKAGING, SUGAR, ETC. (COGS)

- FIXED PRODUCTION EXPENSE- PRODUCTION DEPRECIATION

GROSS PROFIT- VARIABLE SALES EXPENSE

FIXED SALES EXPENSE

PACKAGING, SUGAR, ETC. (COGS)- VARIABLE SALES EXPENSE- VARIABLE DISTRIBUTION EXPENSE

THROUGHPUT (GROSS REVENUE – ALL VARIABLE)

- FIXED SALES EXPENSE- FIXED SALES EXPENSE- VARIABLE DISTRIBUTION EXPENSE- FIXED DISTRIBUTION EXPENSE- MARKETING EXPENSE- ADMINISTRATION EXPENSE+ FRANCHISOR INCENTIVES

FIXED SALES EXPENSE- FIXED PRODUCTION EXPENSE- FIXED DISTRIBUTION EXPENSE- MARKETING EXPENSE-ADMINISTRATION EXPENSE

EBITDA (THROUGHPUT – CASH EXPENSES)+ FRANCHISOR INCENTIVES- OTHER DEPRECIATION- AMORTIZATION

OPERATING PROFIT+ PRODUCTION DEPRECIATION

EBITDA (THROUGHPUT – CASH EXPENSES)- PRODUCTION DEPRECIATION- OTHER DEPRECIATION- AMORTIZATION

OPERATING PROFIT (EBITDA – DEPR./AM)


+ OTHER DEPRECIATION+ AMORTIZATION

EBITDA

AnalyzeAnalyzeTOCICO 2009 Conference


Flow of Volume and Throughput Flow of Volume and Throughput -- CMRCMRTOCICO 2009 Conference

Sales Volume

Concentrate and Juice

DistrinutorsDistributor

Point of Sale

Distributor Consumers

49%Volume49%Volume18% Th h t18% Th h t

Sugar Bottling LogisticsCity 1 Direct Sales

City 1 Point of Sales

City 1 Consumers

18% Throughput18% Throughput

PackagingCity 2 Direct City 2 Point City 2

40%Volume40%Volume70% Throughput70% Throughput

Throughput

g g Direct Sales of Sales Consumers

11%Volume11%Volume12% Throughput12% Throughput

Soft Drinks 96%Soft Drinks 96%B 4%B 4%


Throughput Beer 4%Beer 4%

Volume Paradigm vs.Volume Paradigm vs.Throughput ParadigmThroughput Paradigm

TOCICO 2009 Conferenceg p gg p g

lative

Price/L

iter

hroughput/L

iter

of BTC Volume

% of BTC

ThroughputThroughput Data

BTC

Relat

Thro

% of T

King Size Returnable Glass Bottle 1.54 0.97 11% 23%

12 oz. can 2.14 0.83 12% 21%

600 l l ti b ttl 1 96 0 59 4% 5%600ml one way plastic bottle 1.96 0.59 4% 5%

1 liter one way plastic bottle 1.20 0.41 9% 8%

2 liter one way plastic bottle 0.94 0.30 59% 38%

1 lit t bl l b ttl 1 00 0 31 2% 1%

Cross ChannelCross ChannelCommoditizationCommoditizationCost ReductionCost Reduction

FocusFocus1 liter returnable glass bottle 1.00 0.31 2% 1%

Post mix dispensers - cup 1.14 0.55 3% 4%

100% 100%

FocusFocus


Improve and LeverageImprove and LeverageTOCICO 2009 Conference


The “Strategic Navigation” Model The “Strategic Navigation” Model ©©

©Copyright H. William Dettmer, 2003Used with permission.


Step 1Define Paradigm


Step 7Review strategy

Step 7Review strategyParadigm

shift

Mapa IOBoundaries, Goal &Necessary Conditions

Step 2Step 2

Measurement, results evaluation, correction

Measurement, s, results evaluation, correction

Major strategy Step 2 Analyze the mismatchesCurrent Reality Tree

Step 2 Analyze themismatchesCurrent Reality Tree

change

Step 3Create a transformation


C fli t Cl d

Step 6Deploy the strategy


L d hi d l ti t bilit

Refinetactical solution

Conflict CloudConflict Cloud

Step 4f

Step 4P j t th f t

Step 5Pl th ti

Step 5Plan the execution

Leadership, delegation, accountabilityinitiative and trust

Leadership,, delegation, accountabilityinitiative and trust

Minor execution correction


Project the future

Future Reality Tree

Project the future

Future Reality Tree

Plan the execution

Pre-Requi PreTree; Critical Chain

Plan the execution

Pre-RequisiteTree; Critical Chain

November 2003 RealityNovember 2003 RealityTOCICO 2009 Conference

Temos dificuldade em Ganhar Dinheiro

Hoje e Mais no Futuro

Temos dificuldade em Reduzir as

despesas

Temos dificuldade em ter garantia de Sucesso do Projeto de Envasar

Cerveja

Temos dificuldade em Aumentar Volume

Rentavel de VendasNão conseguimos ter os objetivos certos,

compartilha-los e cumpri-los

Mantemos o compromisso social e

importancia economica para o Maranhao

.

Paradigmshift


Mapa IO


Boundaries, Goal &N C diti


Measurement, results evaluation, ti


Measurement, s, resultsevaluation, correctionNBR1 NoNBR1 NoNBR2 NoNBR2 No

Blocked Blocked GoalGoal

S1.1 Não temos definição clara e compartilhada das

informações necessarias para agir no mercado

S1.3 Falta cultura e regras adequadas de tomada de

decisão de mercado e investimentos baseada no

volume rentavel

S1.7 Não somos proativos em definir e implementar novos modelos de negocios

Temoos difculdade em Desenvolver os mercados do interior

Temos dificuldade em Fortalecer nossa

distribuição direta

Temos dificuldade em Capturar valor

do cliente

Vendemos produtos que dão ganho (RL-

CVP) positivo

Temos dificuldade para Viabilizar

garrafa retornável

Temos dificuldade em Distribuir efetivamente

ao mais baixo custo

Temos difculdade para Trabalhar em

equipe

Mantemos qualidade excelente

Temos dificuldade para Ter agilidade

operacional e estrategicaTemos difculdade em Fidelização do

cliente

Temos dificuldade em utilizar efetivamente os

recursos

Geramos riqueza para nossos

parceiros

Temos dificuldade em “C-Ter resultados cada vez melhores, aproveitar as oportunidades e maximizar ganho de maneira

harmonica e eficaz

Ha dificuldade em “ B – Preservar os componentes

positivos do modelo de gestão atual e dar continuidade as

operações e projetos

DD'1 Sabemos o que

Objetivos bloqueiados

Sintomas

Major strategy change

Necessary Conditions correctioncorrectionNBR1 No NBR1 No Continuity Continuity

without without ChangeChange

NBR2 No NBR2 No Change Change without without

ContinuityContinuityBlocked Blocked

ObjectivesObjectives

S1.8 A politica salarial atual não motiva o volume rentavel

S1.9 Temos capacidade para definir e analisar os problemas mais não para

resolve-los.

S2.1 Ha falta de parceria entre as areas

de operações, e suporte

S2.2 Não temos um modelo de gestão

adequado norteando as atividades da empresa

S2.3 Não ha proporção entre a energia gasta em

cada assunto e a sua importancia

S2.4 Todos trabalhamos muito em Maranhense em

comparação com os resultados obtidos

Acreditamos que

DD'2 As regras, premissas e paradigmas existentes na cultura da companhia e os

individuos não nos dão excelencia na gestão

DD’5 – Apesar de estarmos pressionados para procurar excelencia

na gestão e conseguir mudar regras existentes quando necessario, aceitamos que não conseguimos mudar as regras e

B preservamos os componentes positivos do modelo de gestão atual e damos continuidade as operações e projetos

A mudança põe em risco o status

das pessoas

Não estamos operando em

forma harmónica

Sem mudanças as coisas tendem a

piorar

Para aproveitar as oportunidades é necessario mudar

Continuamos numa cultura

reativa

A mudança põe em risco a segurança

das pessoas

Ficamos passivos frente a necessidade

da mudança

Os resultados não estão ruins.

DD’6 – Apesar de aceitar que não conseguimos mudar as regras e temos

uma qualidade de gestão aquem da desejavel estarmos pressionados para

procurar excelencia na gestão e conseguir mudar regras existentes

DD 1 Sabemos o que precisamos fazer e não

conseguimos faze-lo com nosso modelo

Nosso modelo não resulta em gestão

excelente

Nosso modelo atual não se adapta as facilmente

as necessidades da realidade futura

As pessoas não estao satisfeitas Nossos parceiros

não estao satisfeitos

DD’1 –Aceitamos que não conseguimos mudar regras

existentes quando necessario

DD’2 –Aceitamos que temos uma qualidade de

gestão aquem da desejavel

Nosso modelo atual e muito ineficaz para mudanças

Ha Muita pressão para mudar o modelo

de gestão

As pessoas percebem risco nas mudanças

Step 2 Analyze the mismatchesCurrent Reality Tree

Step 2 Analyze themismatchesCurrent Reality Tree

Somos pressionados a D não mudar regras existentes ainda quando necessario e aceitar

uma qualidade de gestão aquem da desejavel

Conflito

Somos Pressionados a D' ter excelencia na gestão e

conseguir mudar regras existentes quando necessario

CD’1-O negocio precisa evoluir e adaptarse para

sobreviver num mercado e ambiente que mudam cada vez

mais rapidamente

CD’2- Queremos corrigir continua e

gradativamente o rumo aos nosssos alvos

BD2- As experiencias negativas com mudanças no passado nos tornam

cautelosos BD1- Não e facil mudar na situação de hoje na Maranhense

Não conseguimos consenso

Acreditamos que chegara um “momento mágico” para comecar

as mudançasFalta clareza na definição dos

problemas

Foco nas

Ha falta de foco e prioridade perante as exigencias do dia a dia

Pensamos em

Ha percepção de vulnerabilidade na

companhia

Nos falta tempo

Atacamos as consequencias e não as causas

podemos melhorar ainda mais com o

modelo atual

que não conseguimos mudar as regras e temos uma qualidade de gestão aquem

da desejavel

Ja experimentamos muitas coisas

diferentes

Não temos clareza sobre os possiveis

beneficios da mudança

Não temos avaliado suficientemente o risco de mudar vs não mudar

Não conhecemos uma metodologia para fazer as mudanças de uma form

mais segura

3. Não analisamos nem consensuamos quais os

componentes positivos no nosso modelo

Temos muitas oportunidades inexploradas

Um processo de melhoria continua responde as

conseguir mudar regras existentes quando necessario,

Refinetactical solution


Conflict Cloud


Conflict Cloud


Leadership, delegation, accountabilityinitiative and trust


Leadership,, delegation, accountabilityinitiative and trust

ConflictConflict

Desejamos A Ganhar dinheiro hoje e mais

no futuro

Desejamos B preservar os componentes positivos do modelo de gestão atual e dar continuidade as operações e

projetos

Desejamos C Ter resultados cada vez melhores, aproveitar as oportunidades e maximizar ganho de maneira harmonica e

eficaz

AB1 – Desejamos garantir a sobrevivencia

da compania

AB2 - Desejamos manter e proteger o

nosso status individual

AC1-Desejamos garantir melhor o

futuro

AC2 - Desejamos desevolvimento e

crescimento pessoal e sistémico

As mudanças feitas no tempo certo evitam

choques organizacionais no futuro

Podemos nos antecipar aos

problemasE necessario

mudar o que esta errado

Falta definição de objetivos conjuntos

O planejamento e pelas partes

Foco nas prioridade das

celulas

Pensamos emmudanças de forma isolada

Não sabemos fazer de outra

maneira

Não temos tecnicas para

resolver conflitos

Temos cultura reativa

Queremos cumprir melhor nosso dever social

Queremos ter parceiros satisfeitos

Gostamos de ganhar

Queremos ter um sistema sinérgico e

holístico

Temos investimento nos projetos em

andamento

Não queremos arriscar nossa

segurança

Cada um quer preservar o status

individual

Queremos manter o nosso espaço no

mercado

Queremos preservar os valores de nossa

companhia

Precisamos garantir o resultado de curto prazo

Conseguimos sobreviver epocas

dificeis com o modelo de gestão atual

Ja tivemos mâ eperiencia com

mudanças abruptas

A concorrencia esta cada vez mais agressiva

nossas aspirações e necessidades

ContinuidadeMudanças

Step 4Project the future

Step 4Project the future



Minor execution correction

initiative and trust


Árvore da Realidade AtualCía. Maranhense de Refrigerantes

Novembro 2003Future Reality TreeFuture Reality Tree Pre-RequiPreTree; Critical ChainPre-RequisiteTree; Critical ChainContinuityContinuity ChangeChange

NotNot enoughenough cashcash + + NotNot enoughenough ofof thethe rightright peoplepeople ==NO NO WAY OUTWAY OUT

TryTry thethe OODA OODA Loop Loop andandValue Flow ManagementValue Flow Management

CMR vs. KO conflict CMR vs. KO conflict –– February 2004February 2004TOCICO 2009 Conference

Past KO deals with CMR did not work

Executives protect their careers and

Protect the business of KO in KO seek a unilateral

CMR did not work their careers and income

KO SIDEKO SIDE

Make money now and in the

business of KO in Brazil solution vis-a-vis CMR

now and in the future

CMR distrust TheCMR not repeat the

CMR distrust The Coca-Cola Companycounterproductive

commitments of the past

KO executives can

CMR SIDECMR SIDE


Past KO strategies were changed and imposed without

regard to bottler history

move on, while their mistakes remain on the bottler balance sheets

CMR and KO against the problemCMR and KO against the problemTOCICO 2009 Conference


CMR does not trust KO CMR does not trust KO –– February 2004February 2004

CMR profit from the

opportunities for soft drinks and

b i th

CMR not repeat the counterproductive

commitments of the past

CMR distrust The Coca-Cola Company


CMR and KO against the problemCMR and KO against the problem

22

beer in the territory

CMR trust and cooperate with The

Coca-Cola CompanyCMR continue in the Coca-

Cola bottling business



KO does not trust CMR KO does not trust CMR –– February 2004February 2004

Conflict

Have a stable, efficient and prosperous Coca-Cola

system in Brazil

Protect the business of KO in

BrazilKO seek a unilateral

solution vis-a-vis CMR25

© 2004 TOCICO. All rights reserved.

58© 2009 TOCICO. All rights reserved.23

© 2004 TOCICO. All rights reserved.

KO give CMR a new deal

Treat all KO partners fairly

CMR and KO against the problemCMR and KO against the problemTOCICO 2009 Conference

KO protect its business in Brazil KO seek a unilateral

solution vis-a-vis CMR

CMR not repeat the counterproductive commitments of

the pastCMR distrust The Coca-

Cola Company

Be sure the mistakes of Distrust the system KO have a stable, efficient and

prosperous Coca-Cola system in Brazil

CMR and KO have a stable, efficient and

Be sure the mistakes of the past are not repeated

ypartner and take a defensive posture

efficient and prosperous partnership

Trust the system partner and seek a

Have a win-win solution that allows a successful partner and seek a

joint solutionthat allows a successful

futureCMR profit from the

opportunities for soft drinks and beer in the territory


KO give CMR a new support dealKO treat all its partners fairly

CMR trust and cooperate with The Coca-Cola

Company

CMR continue in the Coca-Cola bottling business

The Solution SetThe Solution SetTOCICO 2009 Conference

CMR pursues its own Strategy and Tactics, based on its Goal and Necessary Conditions, and aligned with its partners (The Coca-Cola Co. And Kaiser).

CMR h h ld t t ll ibl f CMR ti tCMR shareholders are totally responsible for CMR operating management, on the basis of the Projects and Processes model.

KO provides financial support to resolve the very short term financial needs

KO support is timely sufficient and without excessive conditioning of

KO provides financial support to resolve the very short term financial needs of CMR, providing resources for profitable volume growth.

KO support is timely, sufficient and without excessive conditioning of strategic and operational decisions


Bottleneck to Profitable Volume Growth: Bottleneck to Profitable Volume Growth: The Direct Sales TeamThe Direct Sales Team


Concen-trates

BTCBottling plant

BTCLogistics

BTCSales

Point of Sale

Consumer

Sugar, PET bottles, etc.

Brewery

BTC Bottleneck


Profitable Volume Growth in Direct Profitable Volume Growth in Direct SalesSales


• What to Change? – The volume metric, which results ing− Loss of control of outlets by CMR direct sales force

• What to change to? – The Throughput metric, combined with− Reinforced direct store sales & distribution, territorial approach,

commissions on throughput, increased number of salesmen (decreased # of outlets per sales route), definition and implementation of product/price/package bundles for variousimplementation of product/price/package bundles for various channels and outlets

• How to implement the change?IT P j t S l P l t d ERP− IT Projects on Salesman Palmtop and ERP

− Ongoing process in partnership with franchisor and brewery


Solving the IT BottleneckSolving the IT BottleneckTOCICO 2009 Conference

Why Are All Marketing I.T. Projects Delayed?

Intuitive/Experience Based Solution:• Reorganize – Have I.T. Report To Marketing, Not FinanceReorganize Have I.T. Report To Marketing, Not Finance

TOC Solution: • Identify The Bottleneck - The IT Manager – Best ERP

expert• Exploit The Bottleneck - Refocus the IT Managerp g• Subordinate all IT activities based on Throughput• Elevate The Bottleneck – Hire Outside Service For

Network


TheThe CMR CMR Salesman’sSalesman’s GoalGoal: : I I makemake Money Money TodayToday andand More in More in thethe FutureFuture


yy yy

The CMR Salesman’s Wish List• I have attainable sales targets.I have attainable sales targets.

• The company pays me more money if it makes (andcollects) more money.

• I have guaranteed product availability

• It is possible for me to be the only supplier of ourp y ppbrands for my customer

• I have power to negotiate


• I have throughput margin information

The The Roof Flew Off!!Roof Flew Off!!TOCICO 2009 Conference

And The Bottleneck Moved!!

From: The Market

To: Filling Capacity

Prioritize Markets/Customers On Throughput per Hour of the filling line.


The Bridge Has Cracked!!The Bridge Has Cracked!!TOCICO 2009 Conference

And The Bottleneck Moved!!

From: The Market

To: Supply of Bottles and Cans

Prioritize Markets/Customers On Throughput per bottle or can.


The holidays are coming!The holidays are coming!TOCICO 2009 Conference

And The Bottleneck Will Move!!And The Bottleneck Will Move!!From: The MarketTo: ProductionTo: ProductionExploit/Elevate the bottleneck:

• Old approach: Pre-Produce low volume SKUs inOld approach: Pre Produce low volume SKUs in November, and reduce setups in December. Problems:

• Aging and expiration of low volume SKUs in January and February

• Uncertainty of forecast for high volume SKUs in December

• New TOC approach: Pre-produce high volume SKUs. Keep capacity for flavor and size changes for low volume


p p y gSKUs in December, and have sprint capacity for high volume SKUs if needed

Video Video –– CMR CMR –– TOCTOCTOCICO 2009 Conference


ControlControlTOCICO 2009 Conference


Processes and Projects ModelProcesses and Projects ModelTOCICO 2009 Conference

ProductsProductsMoney

DeliverDeliver SellSellProduce/SupplyProduce/Supply

FIVEFIVESTEPSSTEPS

OODAOODALOOPLOOP

SupportSupport

Critical Chain


Critical Chain

CMR CMR –– 12 Month Moving Totals12 Month Moving TotalsAs % As % vsvs Base Period October 2002Base Period October 2002--september 2003september 2003

TOCICO 2009 Conference600%

6X6XCreation of a new Creation of a new -- TOC aware TOC aware --management teammanagement team

400%

500%management teammanagement team

Further renewals of CMR bottling Further renewals of CMR bottling franchisefranchise

300%

200%

2X2X100%

20%20%


0%Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05

Volume in Liters/year Revenue in US$/year EBITDA (Cash Operating Inflow) in US$/year

CMR EpilogueCMR EpilogueTOCICO 2009 Conference

• CMR was purchased by Renosa, the Mato Grosso Bottler, in 2006.

• The TOC turnaround was US$60MM for CMR• The TOC turnaround was US$60MM for CMR

• Renosa, capitalized by association with South African Bottling Company (SABCO from Port Elizabeth) increased value further by US$100MM.US$100MM.

• The Coca-Cola Company refranchised the territory without political or financial undesired effects, increasing concentrate sales.

• In Summary:• In Summary:− A win for CMR

− A win for Renosa

− A win for SABCo

− A Win for the Coca-Cola Company

− Win-Win-Win-Win


The Challenge for CocaThe Challenge for Coca--ColaColaTOCICO 2009 Conference

After 123 years of success,

how does the world’s most successful push marketer

move to pull marketing

(replenishment and TOC distribution)(replenishment and TOC distribution),

as required to lead

the worldwide beverage market

for the next 100 years?


for the next 100 years?

About Bill TaylorAbout Bill TaylorTOCICO 2009 Conference

Bill Taylor has been associated with beverages Bill Taylor has been associated with beverages worldwide since 1969, with experience in flavor worldwide since 1969, with experience in flavor h i t d t d l t k ti dh i t d t d l t k ti d

[Color Photo of Presenter][Color Photo of Presenter]chemistry, product development, marketing and chemistry, product development, marketing and

general management. He has lived in six general management. He has lived in six countries, and executed projects in over thirty. countries, and executed projects in over thirty.

From 1993 to 2001 Bill was President and CEO of From 1993 to 2001 Bill was President and CEO of the SPAIPA Group, a large bottling and the SPAIPA Group, a large bottling and distribution company in Curitiba, Brazil.distribution company in Curitiba, Brazil.

Bill has been a TOC consultant since 2002, forming Bill has been a TOC consultant since 2002, forming his own company his own company –– TTaylors aylors OOf f CCuritiba, where he uritiba, where he has continued to work in the beverage industry, has continued to work in the beverage industry,

expanding his practice to include TOC projects in expanding his practice to include TOC projects in p g p p jp g p p jeducation, lumber, paper, transportation, logistics, education, lumber, paper, transportation, logistics,

banking, retail, NGO, heavy machinery, banking, retail, NGO, heavy machinery, agribusiness and consumer products.agribusiness and consumer products.

A native of Argentina, and resident of Curitiba,A native of Argentina, and resident of Curitiba,A native of Argentina, and resident of Curitiba, A native of Argentina, and resident of Curitiba, Brazil, Bill Taylor received a degree in Chemical Brazil, Bill Taylor received a degree in Chemical

Engineering from the University of Buenos Aires in Engineering from the University of Buenos Aires in 1967, and an MBA from Florida International 1967, and an MBA from Florida International

University in 1976. Bill is currently on the Board of University in 1976. Bill is currently on the Board of Directors of TOCICO, and is organized the first Directors of TOCICO, and is organized the first

TOCICO Regional Conference in Brazil:TOCICO Regional Conference in Brazil:


TOCICO Regional Conference in Brazil: TOCICO Regional Conference in Brazil: Curitiba 2009 Curitiba 2009 ––” The Door To The Future”” The Door To The Future”

in August of 2009in August of 2009

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