Kraft “One Number”

Supply Review - Training Materials

October, 2010
Table of Contents

 Integrated Business Planning Vision

 Vision Graphic
 5-Step Process
 Monthly Cycle (proposed)
 Outputs Linked to other Key Processes
 Listing of Recommendations (reference)
 Integrated Business Planning Design
 3.0 Supply Planning
– 3.1 Set / Revise Operational Policies
– 3.2 Complete Rough Cut Capacity Planning
– 3.3 Execute Master Scheduling
– 3.4 Evaluate Alternate Supply Options
– 3.5 Conduct Supply Review Meeting

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IBP One Number Vision
The vision for Integrated Business Planning (IBP) is to have One Plan
drive the business

Integrated Business Planning (IBP) Process

EDR -
2 Consensus
Sales
Input Demand
Marketing
Input
Planning
Historical
Demand Forecast

Unconstrained
One Plan
Forecast driving
1 PMR 4 5 MBR execution
Marketing
Marketing Portfolio Integrated Integrated Management
Consensus Sales
Plans
Management Forecast
Reconciliation Options & Business
Decisions Production
New/
Discontinued Reconciled Financial Review
Products P&L View Scenarios
CS&L

Constrained
Forecast

3 Supply
Review

Capacity
Plans
Supply
Inventory &
Planning
Supply Policies

3 Source: Kraft One Number Team; Booz & Company

IBP One Number Vision

IBP is a 5 step process requiring strong cross functional

collaboration

1.0 • Portfolio Management ensures that the category plans and innovation portfolio from
Marketing align with the business strategy
Portfolio
• It also provides key inputs on new product introductions and SKU rationalization to
Management
demand and supply planning
• Process Owner1: Marketing
• Demand Planning generates a consensus shipment forecast using inputs from Sales,
2.0
Marketing and CS&L
Demand • Output is unconstrained forecast for Supply Planning and R&O’s to be analyzed in Supply
Planning Review and IR
• Process Owner1: Sales, Marketing, Product Supply, Finance

3.0 • Supply planning defines the optimal approach to meet demand and identifies any
Supply capacity gaps
Planning • Supply policies are agreed and reviewed as needed to set operational boundaries,
guide execution, drive escalation and avoid surprises
• Process Owner1: Product Supply

4.0 • Integrated Reconciliation (IR) takes the gaps from Supply Planning and analyzes the
Integrated options and financial implications of closing the gaps
Reconciliation • IR provides recommendations to the MBR along with a BU P&L and DIOH implications
• Process Owner1: BU, Finance

5.0 • Culmination of the IBP process, the MBR process reviews the recommendations from
Management
IR and makes decisions to develop an integrated plan
Business
• MBR ensures the health of the business in both the short and long term
Review
• Process Owner1: BU
4 1) Detailed process ownership addressed in the later sections
IBP One Number Design:3.0 Supply Planning

3.0 The current Supply Planning process lacks formal processes for
policy changes

Current State Supply Planning Process

Inputs
Unconstrained Demand; DFC /
Inventory Policies; Cycle Times;
Inputs / Mfg capacities & utilization
Revised
Previously Agreed Policies Production
Policies CFR policies; Pre build Strategy; Supply Scheduling
Product optimization by ABC Plan
segmentation

Un- Initial
Constrained
constrained Supply
Plan
Plan
Plan
Weekly Plan
(NPP) blown MBR / MU /
down to a daily Supply Review Ad hoc
list of other
line schedule Meeting
Review of the supply plan Issues discussions
(Finite Scheduler)
mainly to review capacity
constrained situations

Current State Supply Planning Key Issues

• Policies are not formalized and documented for ongoing reference
• Policy adjustments are made at the lower levels and are not informed by
robust analyses and are not cross-functionally understood
• Scenario planning is conducted on an ad-hoc basis with lack of adequate
support from finance
• Decisions and outcomes of the supply review meeting are not documented
5 and communicated consistently
IBP One Number Design:3.0 Supply Planning

3.0 We recommend a set of changes to formalize Supply Review

process and consider financial tradeoffs (1/2)

Key changes to Supply Planning

Key Activities Current State Future State
• Planning policies are not formalized and • Planning policies will be reviewed on a regular basis and
Set / Revise documented adjustments will be made and formalized as needed to ensure they
Operational are in sync with business needs
Planning Policies • Policies will be published to ensure they can be referred to on an
ongoing basis and adhered to as designed
Inventory & Mix • Recommendations coming out of the • Policies and rules will be configured within the tools to allow for
Planning planning tools are overridden and maximum plan optimization and thereby requiring manual
compliance to agreed policies is not tracked intervention only on an exception basis
• Metrics will track compliance and evaluate impact on business to
make adjustments as needed
Evaluate Alternate • Specific escalation rules are not defined, • Sr. Supply Chain Manager and Product Supply Directors will define
Supply Options resulting in non critical issues being specific criteria for escalation of issues to the Supply Review &
elevated to the MBR and certain key ones further on to the MBR
being left out
• Scenario planning is conducted on ad-hoc • Scenarios to be tested will be defined coming out of the Supply
basis with lack of adequate support from Review meeting and operations finance will provide adequate
finance support to conduct robust analyses to understand risks and
opportunities (as part of the IR step)

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IBP One Number Design:3.0 Supply Planning
3.0 We recommend a set of changes to formalize Supply Review
process and consider financial tradeoffs (2/2)
Key changes to Supply Planning
Key Activities Current State
• Sales & Marketing attend every meeting
• Agenda tailored to address sales & marketing
concerns e.g. how do we meet demand?
• Logistics is not adequately represented in the
supply review meetings
• Supply Review is followed by the MBR
Supply Review Meeting
• There is lack of a consistent feedback loop
• Several metrics are discussed in the supply
review meeting making the process complex
and cumbersome
- Observed CFR, schedule adherence, waste
(Food Bank & Liquidations), forecast accuracy & - DFC translated into dollars
bias, DIOH, DFC, Capacity charts as needed
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Future State
• Sales & Marketing will attend Supply Review meetings
on an as-needed basis
• Agenda tailored to address sales and operations
concerns e.g. What are the inventory implications of
increased cycle times?
• Logistics development directors will be invited to the
Supply Review meeting on an as-needed basis
• Supply Review will be followed by Integrated
Reconciliation where other non-supply functions
(marketing, sales, finance) will attend resolve and
escalate outstanding demand and supply issues
• Output from the meeting including an Action Log will
be posted on the shared team site and the link
emailed out to all participants to ensure decisions are
documented and communicated consistently
• Discussion will be focused around a handful of key
metrics that will help evaluate the supply plan and
ensure emphasis on key business drivers
- Projected CFR, DIOH, Cost, Waste
IBP One Number Design: 3.0 Supply Planning

3.0 Best practice principles were utilized to drive the future

state design

Supply Planning Design Principles

• Differentiate service targets based upon demand characteristics, priority and cost (stratification
practiced by some BU’s and not others)
– ABC items
– Base vs. promotional or pre-build items
– Other segmentation (runners vs. seasonal)
• Set analytical inventory targets based on forecast error, response/cycle time and pre-build
requirements
• Make other supply policies for frozen horizons, producing in excess, supply policies for promoted
and seasonal items, breaking cycles, and expediting explicit and more transparent
• Develop alternative scenarios for constrained supply plans to evaluate financial trade-offs and
risks

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IBP One Number Design: 3.0 Supply Planning

3.0 In the future state, Supply Planning should enable upfront policy
setting and rigorous scenario analysis
Production
Scheduling
Future State Supply Planning Process
3.1 Initial Supply
Plan
Set / Revise
Operational
Policies Revised
3.3 3.4 3.5 Supply Plan

Issues that
require
tradeoff
3.2 Master Scheduling Supply Review analysis
Evaluate Optional Meeting
Rough Cut Scenarios
Capacity Planning

Changes from Current State Supply Planning Integrated

Reconciliation
• Policies will be published to ensure they can be referred to on an ongoing basis
and adhered to as designed
• Policies will be reviewed on a regular basis and adjustments made will be
supported by robust analysis, formalized and published
• Specific criteria will be set to define supply issues; supply options will be
developed and supported by robust analysis
• Decisions coming out of the supply review meeting will be published to the
team site to ensure consistency

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IBP One Number Design: 3.0 Supply Planning..3.1 Set Ops Policies

3.1 Set and review policies on a regular basis to ensure

they are aligned with business requirements

INPUTS 3.1 OUTPUTS

• Annual Operating Plan
Policy Setting
• Capacity and Operating
targets Purpose - Set policies to be
•DIOH followed on an ongoing basis
•DFC Work Steps
•CFR A - Identify issues / opportunities
• Recommended policy
•Line utilization B - Analytically calculate the
• SKUs stratified by operating envelope adjustments
• Understanding of
volume (cases) C - Conduct tradeoff analysis
• Existing policies performance envelope
D - Recommend policy adjustments
• Review calendar for (operating cost,
E - Communicate changes inventory & service)
policies
• Issues / Concerns /
Pain points from Mfg. & Responsible Accountable
Distribution • Sr. Supply Chain Manager • Director of Product Supply
• Changes to capacity • Continuous Improvement
and productivity Consulted Informed
• COE • Category Team
• Operations Finance
• NPP / Plant Managers
• Marketing / Sales
• Materials Planner
KEY PARAMETERS METRICS
Frequency Annual (AOP) or when required to 1. DIOH
address changes in operating / marketing 2. DFC
environment or as calendared for pre- 3. CFR
build planning 4. Unit cost
Level of discussion Category or Aggregate Capacity Group
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IBP One Number Design: 3.0 Supply Planning..3.1 Set Ops Policies

3.1 Publish policy adjustments to enable visibility on an

ongoing basis

3.1.A 3.1.B 3.1.C 3.1.D Make

3.1.E
Analytically Conduct analysis to
Identify Issues / recommendations to Communicate
calculate Operating determine tradeoff
Opportunities modify / reset changes
envelope options
policies

System (s) / Policy adjustments

Excel Models / DIOH tool / KFT Inventory Model / Automated Boundaries (AB) formalized, documented
Tools
and communicated
consistently across the
• Assess outputs of user group
Develop operating
Sr. Supply envelope (operating cost, analyses
Chain inventory and service • Authorize Publish updated policies
Manager levels to operate within) recommended on KFT team site &
policies communicate broadly
Evaluate tradeoffs
decisions around
• Utilization vs. inv
• Target safety stock
• Cycles vs. inv.
• Total op. costs vs. • Target cycle times
Issue /
opportunity list WC • DIOH / DFC
AOP, op. • Sensitivity of • Batch length
COE / CI targets, commodity
existing commitments • Target line utilization
policies, • Sensitivity of demand • Target Operating
current scenarios cost
issues • CFR vs. Inv.
• SS vs collaboration
(high volatility
items)
Policy adjustments
Provide supporting Provide supporting analysis supported by detailed
Operations analysis - impact on - impact on working capital, tradeoff analysis
Finance DIOH / DFC, inventory revenue / OI impact, mfg.
and operating cost cost
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IBP One Number Design: 3.0 Supply Planning..3.2 Complete Rough Cut Capacity Planning

3.2 Utilize Rough Cut Capacity Planning to identify any aggregate

supply / demand imbalances and options to close them

OUTPUTS
INPUTS
3.2
Recommendations on
• Current capacity by line • Re-allocation of lines
Rough Cut Capacity
/ Planning Level based on capacity and
• Planned capital Planning
demand imbalances
investments Purpose - Align capacity with • Crewing plan
• External manufacturing projected demand • Level and type of usage
constraints / options Work Steps of external mfg
• Long range demand A - Develop 0-18 mnths capacity view • Pre-build strategy
plan C - Develop scenarios • Overtime policies
• Product Portfolio plan - D - Test sensitivities / develop plan • External manufacturing
New / discontinued policy / strategy
products + products to • Planning requirement
be emphasized for promotions e.g.
Responsible Accountable
order lead times
• NPP • Director of Product Supply
• Sr. Supply Chain Manager
Consulted Informed
• Plant Managers • Sales & Marketing teams
• Plant Materials Managers
• Business Development
Directors
KEY PARAMETERS METRICS
Frequency Monthly 1. Utilization by capacity group
Horizon 0 - 18 months out 2. DIOH / DFC
3. CFR
Level of discussion Aggregate Capacity Groups 4. Manufacturing Cost per Unit
(line/location) / lbs
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IBP One Number Design: 3.0 Supply Planning..3.2 Complete Rough Cut Capacity Planning

3.2 Conduct robust scenario analysis to develop options to close

supply / demand imbalances

3.2.A 3.2.B 3.2.C

Develop 0 - 18 months capacity view Develop scenarios to
Review scenarios / test
based test options to meet
sensitivity / agree on plan
on current capacity demand

System (s) /
Excel Models / Capacity Charts / APS
Tools

Business Planned
investments
Development

Curr. Mfg. Updated overall Agree on set of

Product constraints capacity view supply scenarios •Updated
Supply & capacity (internal / external / to test; run capacity plan
crewing) scenarios Review scenario •Updated crewing
outcomes; test plan
sensitivities; •Updated
AGREE on path
Provide required external mfg. /
forward
Operations financial inputs co-pack plan
and analysis
Finance
support

Marketing / Provide product

portfolio plan (New /
R&D
Discontinued items)
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IBP One Number Design: 3.0 Supply Planning..3.2 Complete Rough Cut Capacity Planning

3.2 Ensure that impact on key operational metrics are fully

understood and articulated when closing gaps
Capacity charts to be created
ILLUSTRATIVE: Only include in capacity constrained and
required information / data Future State Capacity Chart
in situations with spare
capacity

DIOH
CFR
Cost To
Serve
% Utilization

Year to Date (YTD) Year Ago (YAG) AOP Target Key

DIOH Metrics
DFC
Lbs produced
Utilization
Utilization >= 85%
Inventory turns
Utilization between 70% & 85%
Cost to Serve
14 Utilization <= 70%
IBP One Number Design: 3.0 Supply Planning..3.3 Execute Master Scheduling

3.3 Develop weekly supply plan by following previously defined

rules and policies

3.3
INPUTS OUTPUTS
• Consensus forecast Master Scheduling • Weekly production plan
(planning level) (including co-man) by
• Current capacity Purpose - Develop detailed line and SKU
(including constraints) production / supply plans • Material requirements
• Utilization targets Work Steps plan
• CFR targets by SKU A - Create unconstrained plan • Predicted DIOH, DFC &
(stratified) B - Create constrained plan CFR by period
• DIOH / DFC targets • Predicted manufactured
C - Generate materials
• Run rules (light before requirements / delivered cost by
dark) period (depending on
• Cycle times / schedule maturity)

Responsible Accountable
• National Production Planner • Sr. Supply Chain Manager
Consulted Informed
• Director of Product Supply • Plant Scheduler
• Plant Managers

KEY PARAMETERS
Frequency Weekly METRICS
1. DIOH / DFC
Horizon 0-18 months with primary focus on 0- 2. Inventory Health (Act vs.
3 months (24 month long range plan Ideal)
for some BU’s like Cheese) 3. CFR
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Level of discussion SKU / case and/or pounds 4. Schedule compliance
15 5. Mfg. cost (per unit)
IBP One Number Design: 3.0 Supply Planning..3.4 Eval. Alt Supply Options

3.4 Perform robust scenario analysis to evaluate alternate

supply options

3.4
INPUTS Alternate Supply OUTPUTS
• Consensus forecast Options • Detailed assessment of
(planning level) – SKU Purpose - Evaluate alternate supply scenarios including
level if needed options in case of exceptions impact on:
• Demand/Supply Work Steps • CFR
Imbalance A - Identify supply issues • DIOH / DFC
• Current capacity B - Develop alternate plans • Mfg. Cost
(including constraints) C - Analyze options / develop reco. • Inventory balance
• Demonstrated • Utilization
D - Present options in supply review
utilization rates • Sensitivities - based on
• CFR targets by SKU demand
(stratified)
• DIOH targets Responsible Accountable
• External mfg. options / • Sr. Supply Chain Manager • Director of Product Supply
capabilities
• Commodity Consulted Informed
commitments • NPP • Full Category team
• Ops / Category Finance • Marketing Team
• Logistics Directors • Sales Team
• Category Sales Planning Mgr.
(as needed)
• Brand Manager (as needed)

KEY PARAMETERS METRICS

Frequency Monthly (only on an exception basis) 1. DIOH / DFC
2. CFR
Horizon 0 - 18 months 3. Ongoing mfg. cost / unit
Level of discussion Aggregate Capacity Group / SKU /
16
lbs
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IBP One Number Design: 3.0 Supply Planning..3.4 Eval. Alt Supply Options

3.4 Collaborate with Ops Finance to ensure that trade-offs are

clearly understood and are transparent

3.4.A 3.4.B 3.4.C 3.4.D

Analyze scenarios /
Develop alternate Present scenarios in
Identify issues Develop
supply plans to test the Supply Review
Recommendation

Excel Models / Capacity Excel Models / Capacity Excel Models / Capacity Recommendations
System (s) / charts / DIOH tool / IH charts / DIOH tool / IH charts / DIOH tool / IH supported by
Tools analysis analysis / CPP / APS analysis
robust analyses

• Analyze scenarios based

on key criteria defined Compile scenarios /
Sr. Supply
• Recommend optimal analyses /
Chain
supply plan recommendations
Manager for Supply Review
• Define issues to further
escalate to the MBR
• Review output from
• Develop
alternate supply
Step 3.3 plans
• Identify policy • Leverage
NPP violations / supply external mfg /
issues alternate lines / Perform robust
• Develop a prioritized list co-pack / analyses to test
of issues overtime
different scenario
Business Provide input / options
Dev. / Plant support to develop
Mgrs. supply options

• Provide input on OI
Operations implications
Finance • Provide support on analysis

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IBP One Number Design: 3.0 Supply Planning..3.5 Conduct Supply Review Meeting

3.5 Focus on developing a revised supply plan and identifying issues to

elevate to IR during the Supply Review meeting

3.5
INPUTS OUTPUTS
• Constrained supply Supply Review • Revised constrained
supply plan
plan
• Projected DIOH / DFC Purpose - Review supply plan / • Documentation of R&O,
• Capacity charts discuss and resolve issues / elevate decisions and
• Supply options major issues to IR communication plan
Work Steps • Recommended policy
including risks &
A - Develop meeting materials adjustments or
opportunities for
B - Hold the meeting exceptions
escalated issues
• List of specific issues to
C - Communicate meeting outcome
to all key stakeholders be elevated to IR
• Scenarios to be
modeled for IR
Responsible Accountable
• Sr. Supply Chain Manager • Director of Product
Supply
Consulted Informed
• Business Development / Network Leads
• Ops Finance
• Sales & Marketing

METRICS
1. DIOH / DFC
KEY PARAMETERS
2. CFR
Frequency Monthly 3. Line utilization
4. Per unit manufactured /
Horizon 0 - 18 months
delivered cost
Level of discussion Aggregate Capacity Group / Resp. 5. Waste
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Category
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IBP One Number Design: 3.0 Supply Planning..3.5 Conduct Supply Review Meeting

3.5 Document and communicate the outcome of Supply Review

to all stakeholders

3.5.A 3.5.B 3.5.C

Prepare materials for Hold Supply review Communicate outcome of
meeting meeting Supply Review meeting

Use DIOH tool Key outcomes /

System (s) / Capacity Charts / DIOH Tool / Excel to predict decisions published
APS / Qlikview
Tools Models (scenario analyses) inventory impact to ensure
consistency and to
drive accountability
• Publish outcomes to KFT
Sr. Supply Compile outputs team site
Chain from analysis of
supply options • Review supply plan • Email minutes of the meeting
Manager to all SR participants
• Agree on supply
options to pursue • Escalate issues to IR
• Agree on issues to
Update capacity escalate to the IR /
charts for MBR Enter revised supply plan
NPP constrained & into APS
underutilized
resources

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