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What Executives Need to Know about Total Cost Management and Cross Functional Integration Moderator: Robert Martichenko Founder and CEO LeanCor Supply Chain Group Panelists: Jill Broschard Vice President, Americas Supply Chain Solutions The Hershey Company Ryan Hanson Senior Director Domestic Transportation Target Tonya Jackson Vice President, Global Supply Chain Operations Lexmark International Adam Michaels Head of NA Integrated Business Planning Mondelez International

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Supply Chain Excellence The Hypothesis As supply chain professionals, we have done an excellent job in eliminating supply chain waste that is within our span of control. Supply chain waste and opportunities for increased operational excellence still exist as a result of business decisions being make outside of the order fulfillment process. These cross functional processes include product development, sales, marketing and merchandizing and overall business strategy. Our goal as supply chain professionals is to identify these cross functional drivers of waste, and to develop and execute operational plans that create an integrated approach to managing the supply chain. If we can accomplish this, the results will be reduced lead times, improved working capital position, reduced operating costs and increased sales.

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The Eight Wastes WASTE THEME Defects (Correction) Waste that is created when we are doing things over because they were not done right the first time. Overproduction The king of waste. Many of all the other wastes are created when we produce more than the market demands. Lean focuses on building to takt time which means the beat of the customer in order to avoid overproduction. Waiting All waste that exists because we are waiting for material, people, upstream processes, customer orders and all other dynamics that result in waiting time before we can perform our work. Not Engaging Employees (Knowledge) Waste is created when we fail to engage our team members, fail to share best practices and fail to work collaboratively. Transportation Transportation in excess of what is required if inventory and flow exist in the network. This includes underutilized equipment, interplant shuttles, trailer demurrage and other transportation wastes. Inventory Waste created by carrying inventory in excess of what is required to service the customer. This is caused by overproduction, forecasting errors, long lead time and batch thinking based on economies of scale paradigms. Motion All motion that does not add value to the product or process walking around, searching for materials or tools. Excessive Processing The waste that is created when we do more than is required to meet customer needs.

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The Challenge & The Goal

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Integrated Business Planning: The Trojan Horse for Building Business Capabilities Adam L. Michaels Head of North American Integrated Business Planning

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Significant number of SKUs, formats and formulas Fragmented supplier base Sub-scale plants with low efficiency assets 1990 2000 2010 Acquisitions drove supply chain complexity

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Game Changer building capabilities by changing our behaviors 1.Portfolio Management (PMR): reach consensus on sufficiency & performance; make decisions, optimize resources 2.Demand Review (DR): reach consensus on unconstrained, unbiased, time-phased demand plan; risks & opps to plans 3.Supply Review (SR): how we plan to meet demand & address capacity gaps; ensure critical resources are available 4.Integrated Reconciliation (IR): quantify financial implications of the portfolio; make required trade-offs across portfolios 5.Mgmt Business Review (MBR): Approve the call; engage the Category and Regional leadership teams for decisions or direction Integrated Business Planning (IBP) is a decision- driven, exception-based process, executed monthly The Category Presidents own and lead the IBP Process, with each IBP Review Step having an executive champion and process leader The idea is to move beyond this quarter, extending the horizon to 24 months We measure IBP progress and outcomes by one, uniform set of measures, x-country & x-category Five Steps of IBP

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Before IBP With IBP Horizon Roles and Responsibilities Behaviors Meeting Focus Current year, current quarter Rolling 24 months Inconsistent Ownership, Roles and Responsibilities leading to Attendee Overload in meetings Clear Roles and Responsibilities with Process Champions and Process Leads Principles not formally established Some good Mondelez values shown Fostering Mondelez values: Making decisions Act like owners Tell it like it is Review meetings with limited decision making Decision making; credible plans, resolving issues, exploit opps, aligning w/ strategy Business Process Inconsistent mgmt processes across categories & countries IBP will be the way we run the Business We are embarking on new ways of working, across the end to end business

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Our journey is just beginning; but this is now the way we run our business More robust conversations during the meetings Better understanding of the full business and broader business discussions Better visibility We are talking about the right issues We improve every cycle Consistency across brands We are speaking the same language We are working cross functionally

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IBP start-up is all about changing behaviors & building capabilities Initiation Develop a common understanding of what IBP is and what it means to the success of the company (decision statement, executive summaries, etc.) Train leaders on the IBP process and objectives, and set expectations about their collaborative participation 200+ co-developers!!! Identification Determine change impacts of the process start-up based on the current state diagnostic and recos; develop plans to address impacts via leadership Onboard and engage leaders to take on their roles in the process #1 cause of failure is senior management change Integration Share successes of improved collaboration and visibility in monthly planning cycles; e.g. IBP Ambassadors/ Cycle Celebrities Stay connected to opportunities for improved effectiveness across the entire business work IBP into our performance management and metrics

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Shared Services Overview Tonya Jackson VP, Global Supply Chain Operations

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BUSINESS CHALLENGE: Legacy Operations Infrastructure Lexmark has undergone strategic business transformation and we needed to transform Lexmarks back office and customer management infrastructure Multiple Divisional Organizations Strong Regional Organizations, Subsidiary Model High Cost Sites Distributed IT Decentralized Back Office, Multiple Systems and Instances, Customized O2C, Disparity of Processes & Data Cumbersome and Expensive to Implement Changes and New Business Needs

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TRANSFORMATION: Lexmark Shared Service Structure Lexmark adopted a Shared Service Model, centralizing, off-shoring and near-shoring the majority of its operations support functions. LA Regional SSC Buenos Aires/Montevideo Numerous Process Improvements Service Delivery Customer Order Management Order entry cycle time reduction Sales & Marketing Operations Finance Technical Support Accounting Procurement Regional sourcing leadership Mfg & Quality Control Engineering support in region Support +20 Countries Spanish, Portuguese Global & NA,AP SSC Cebu, Philippines Support +10 English Countries WW Non-language dependent processes Europe Regional SSC Budapest Support +30 Countries +10 Languages Global Mfg Operations Shenzen Planning Alignment with regional customers and suppliers Global HQ Lexington

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RESULTS: Process and Cost Improvement G&A Cost Down Dramatically >25% Office Square Footage Down 40% Acquisition Back-Office Integration SIMPLIFIED Order to cash 95% in SSC Planning, Procurement 75% in SSC Process Transition Progress Productivity Labor Savings 40% Reduced time to process orders 65% Order accuracy >99.6% Benchmarking and External Recognition 2014 Best Global In-house Shared Service Center

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LEARNING: Key Success Factors Establishing Shared Service Center approach requires: SELECTING LOCATIONS & FACILITIES RECRUITING TALENT DEVELOPMENT INFORMATION TECHNOLOGY CHANGES AND MORE Approach focused on Business Process Optimizatio n not business process outsourcing Centralize Processes Standardize Offshore / Near-shore Automate (ECM,BPM) Improve Processes Engagement that allows the legacy locations to enable change Defined Stakeholders / Global Process Owners C-Level & Management Support SSC Management Talented Employees

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Minis Line Launch: Supply Chain and Commercial Partnership For Product Innovation Jill Broschard VP, Americas Supply Chain Solutions

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Hershey is global company with +80 brands 19 Mexico India $7.4 billion net sales in 2014 ~ 13,000 employees around the world Products available in over 80+ countries 23 manufacturing plants in 7 countries 70+ strategic partners globally

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BUSINESS CHALLENGE: Meet growing consumer need with Hershey brands Objective: Get to market quickly with minimal investment AND meet consumer expectations Consumer preference, price point, innovative Feasibility, capital, cost, speed to market CommercialSupply Chain Hand-to-Mouth was an important occasion and an expanding segment (+8%) Hershey was under-indexed for this occasion Where to play Leading Options

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FORK IN THE ROAD: REESES & KIT KAT Iterative process & common goal Consumer feedback (piece size/shape, texture, flavor) Manufacturing capabilities Challenge Could not manufacture the desired consumer size with current technology Reeses needed to deliver flavor & texture consistent with larger formats KitKat technically most challenginghad 14 months from capital funding to delivery to customers Novel & adapting thinking Evaluate non-traditional manufacturing methods Extend collaboration with equipment design partner Developing break-through technical solution of Kit-Kat minis

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RESULTS: Marketplace and Financial Success Annual Sales Delivered Reese 60% above Plan Kit Kat 26% above Plan Fillrate >99.6% #5 Most Memorable New Product Launch of 2011 USA Today ranked MINIS as the About.com rated MINIS as the Most Memorable Product Launch of 2011 Kit Kat Minis 2013 Retailer Choice Award Best new product by NCA Biggest launch in confection category in 2013 First Delivery to Customer Adherence Met launch date

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LEARNING: Key Success Factors Shared Leadership Solving Together Alignment & accountability Marketing & Supply Chain on major commercial deliverables Flexibility & Speed was the expectation and new normal Transparent and Iterative process around capabilities and consumer needs Core cross-functional team from concept to execution (limited personnel changes) Strong thought leadership with a selected external partner Early contingency plans to handle potential growth Communication across functional team was critical for success

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Inbound Freight Flow Leveling Ryan Hanson Senior Director, Domestic Transportation. The focus of your supply chain (and overall business) planning is primarily centered on Closing the current quarter The current calendar year you are in 12 to 18 months out 24 months+ out

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Problem Statement: MP Operations and Transportation were not working together to remove waste and drive in- stocks. Storage Dept. - Sterilite 274Analyst ordered 274 Truckloads to be picked up in a 2-day window without notice to Transportation

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Targets Distribution Network

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Impact (high cost, high workload, low in-stocks & potential lost sales) We scrambled and picked up all 274 loads in 7 days. 135% cost to normal Frustrated teams (both Trans and MP) Loss of trust of MP team of Transportation Frustrated carriers

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Solution(s): Educated new MP director Aligned goals (drive sales at lowest cost / repeatable processes) Re-trained entire MP department Annual planning/forecasting for this product Load plans for 15+ loads Rolled out to all other MP departments Next steps: Monitor Review data for smaller examples (i.e. Advanced loads into consoles) Build into MP analyst training and review wins/opps routinely to build habit strength.

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Jill Broschard, VP, Americas Supply Chain Solutions The Hershey Company Ryan Hanson, Senior Director Domestic Transportation Target Tonya Jackson, VP, Global Supply Chain Operations, Lexmark International Robert Martichenko, Founder and CEO LeanCor Supply Chain Group Adam Michaels, Head of NA Integrated Business Planning, Mondelez International

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a.Thought it was great b.Very Satisfied c.Slightly satisfied d.Dissatisfied How satisfied were you with this session?