Kraft Foods Supply Collaboration

Network Initiative

Fast Facts about Kraft

2

Approximately $49 billion in revenue

World’s #2 food company, #1 in North America

#1 in global confectionery and biscuits

Sales in approx. 170 countries, Operations in more than 75

countries

Approximately 127,000 employees

Donated more than one billion servings of food since 1997

Figures are for the combined Kraft Foods and Cadbury businesses as at December 31, 2010

3

• 12 brands with more than $1 billion in revenue

• 70+ brands with more than $100 million in revenue

• 40 brands over 100 years old

• 80% revenue from #1 share positions

An Amazing Brand Portfolio

Agenda

• External Manufacturers (EM)

• Supplier Managed Inventory (SMI)

• Supply Network Collaboration (SNC)

• Benefits & Lessons Learned

• Questions

4

5

Kraft SAP External Manufacturing objective is standard business practices

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

processes with SAP contracts and Purchase Orders

• Supplier Collaboration – Replace the historic manual process of e-mails /

phone calls with a system driven solution to communicate and collaborate on requirements

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

initial receipt at the Kraft warehouses

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

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

– Automated payment after matching within the terms on the contract

Purc

hase

Ord

er P

roce

ss

Supp

lier C

olla

bora

tion

Kraf

t Rec

eipt

s

Paym

ent

EM Program

Four Pillars of the Kraft EM Program

External Manufacturing Design Summary

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

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

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

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

6

Purchase Order Collaboration

• External Manufacturers access PO data via the SNC tool

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

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

Kraft Contracts – Kraft owned materials used at EM location to

produce Kraft Products

7

Agenda

• External Manufacturers (EM)

• Supplier Managed Inventory (SMI)

• Supply Network Collaboration (SNC)

• Benefits & Lessons Learned

• Questions

8

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

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

stocking parameters, which leverages historical demand and supply characteristics

• Collaborative Replenishment – Transfer the responsibility for defining quantity and

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

• Inventory Consignment – Migrate from transfer of inventory ownership upon

receipt to transfer of inventory ownership upon consumption

• Payment – Migrate from transfer of liability to supplier upon

receipt to transfer of liability to supplier after consumption

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

9

Stat

istic

ally

–Dr

iven

Sa

fety

Sto

ck

Colla

bora

tive

Re

plen

ishm

ent

Inve

ntor

y Co

nsig

nmen

t

Paym

ent

SMI Program

Four Pillars of the KNA SMI Program

NOTE: SMI Consumption: Defined Issuance to Production Staging Area Physical Inventory Adjustments Damaged Material Write-offs Obsolete Material Write-offs

Mapping

Kraft Supplier

SAP ECC SAP SNC

Current inventory positions, status,

parameters, & Gross

requirements

POD (material receipts)

Supplier’s Systems

Kraft Gross Requirements &

Inventory

Inventory alerts

POD (material receipts)

Planned Replenishments

ASN’s ASN’s

(Inbound Delivery)

B2B Hub

XML

EDI

852

Planned Replenishments

Kraft Gross Requirements,

Inventory & Stocking Parms

EDI 852

ASN’s

iDoc XML

XML EDI

861

POD (material receipts)

SMI EDI requirements

Supplier to provide following data to support SMI

XML EDI

856

iDoc

XI iDoc

XML iDoc

Existing New

iDoc

iDoc

XI

10

iDoc

Agenda

• External Manufacturers (EM)

• Supplier Managed Inventory (SMI)

• Supply Network Collaboration (SNC)

• Benefits & Lessons Learned

• Questions

11

12

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

Kraft Foods

Internal ERP & APS environment

ASNs

Contract Mfg

Purchase Orders

13

Kraft Foods

Internal ERP & APS environment

ASNs

Contract Mfg

Purchase Orders

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

Web Browser

SAP ERP

Internet

External Access and Security

Provides Front door Security

Provides Application

Access

Provides Content Security

Supplier Kraft’s

Supplier Portal

Remote Connectivity

Backend SAP

Servers

14

SAP SNC

SAP BW

Both

Advance Shipment Notifications

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

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

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

15

Interpretation of EDI 856 ASN EDI X12 Format Interpretation

ISA*00* *00* *01*048999448 *ZZ*KFNATEST *080807*0907*U*00501*000000009*0*T*:~ Envelop Header

GS*SH*048999448*KFNATEST*20080807*0907*9*X*005010~ Document Header

ST*856*90001~ EDI Transaction Header

BSN*00*01384500*20080807*0847*0002~ "00" = Create or "01" = Cancel, "01384500" = Supplier ASN, Date/Time, "0002" = SOI Structure

HL*1**S~ Shipment Level Loop ID

TD1**600****G*21600*LB~ Shipment content details: "600" = Lading Quantity (example 5 pallets), "G" = Gross Weight, "21600"

Weight value, "LB" = ISO UoM

TD5**2*RDWY*J******CD*1~ "2" = SCAC Qualifier, "RDWY" = SCAC code, "J" = Truck or "R" = Rail, "CD" = Calendar Days, "1" =

Transit duration (in Days).

REF*BM*01384500~ Bill of Lading Number (Max of 12 Characters)

REF*CN*302421~ Carrier Reference Number (Load ID for Transportation reservations)

DTM*011*20080807~ Ship Date (CCYYMMDD)

DTM*371*20080808~ Expect Receipt Date (CCYYMMDD)

N1*SF*PLASTICS SUPPLY ABC*92*2000999~ Ship From Vendor Name and Kraft (SAP) Vendor#

N1*ST*NEW ULM MN MU*92*8303~ Ship To location Name "NEW ULM MN MU" and related Kraft Code "8303"

HL*2*1*O~ Order Level Loop ID

PRF*5500000002~ Kraft Schedule Agreement

REF*CO*01270421~ Suppliers generated Sales Order (Does not flow back to SAP ECC)

HL*3*2*I~ Item (Material) Level Loop ID

LIN**BP*999991067600400~ Kraft Item (Material Code) Leading Zeros not required.

SN1**384000*EA~ Quantity "384000" and ISO UoM "EA"

REF*BT*5031274183~ Supplier Batch Number (Max 10 characters)

HL*4*2*I~ Item (Material) Level Loop ID

LIN**BP*99999067700400~ Kraft Item (Material Code) Leading Zeros not required.

SN1**336000*EA~ Quantity and ISO UoM

REF*BT*5031274192~ Supplier Batch Number (Max 10 characters)

CTT*4~ HL Loop Count

SE*24*90001~ Transaction Footer

>>>>>>>Rows 29 to 53 (hidden) reflects send ASN in same Envelop<<<<<<<

GE*2*9~ Document Footer

IEA*1*000000009~ Envelop Footer 16

ITEM

ORDER

SHIPMENT

ITEM

HEADER

E-Mail Alerts

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

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

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

17

Master Data

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

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

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

Transportation Lanes

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

• SNC BP Orgs limit what data content Users can access

18

CIF Models for EM and SMI

19

•T-code CFM1, select object and define filter •For Vendors, EM needs Pur. Org. KF04 (EM) and Account Group “ZVOA” OA Vendors

•SMI needs Purchase Org. KF02 (Raw and Pack) •Jobs run daily to include new records in the Integration Models

CIF Vendor Master – CFM2

20

•CFM1 defined the filter, CFM2 activate or deactivates the Model •Set the Create Business Partner flag to 2 Below to create both the Supplier Location and BP Org.

SNC BP Definitions

21

•SNC BP Org shows linkage (relationship) to BP Person •This limits what content each User gets to see •Internals are linked to Company and Plants •Suppliers are linked to Vendor Numbers

SNC Transportation Lane

22

•SNC t-code /SAPAPO/SCC_TL1 shows the transportation lane which includes the contracts (EM) or schedule agreements (SMI).

External Manufacturer – Example Message Flows

23

SAP SNC 7.0 ERP SAP NW

Supplier Kraft

EAI

Create or Change a PO

PORDCR1 PORDCR102

IDoc XML RON

Receive ASN Receive ASN or create in

Web UI

DESADV DELVRY 03

IDoc XML DDN

Receive delivery and post goods

receipt

Display GR information

STPPOD DELVRY 03

IDoc XML RDN

Display PO

SAP ECC 6.0

No M

appin

g

Mapp

ing

Mapp

ing

SAP NW

Change PO

Confirm PO

Confirm PO

PORDCH PORDCH02

IDoc XML RON

ORDRSP ORDERS05 ROC

EM PO Definitions

24

• Doc Type: ZENB = Send to SNC Confirmation Control Key: ZIC1 = PO confirmations without ASN’s ZEM1 = PO confirmations and ASN’s

PO process to trigger iDocs

25

• ZENB drives the message process to send iDocs to SNC when PO saved on ECC

Inbound iDocs on ECC for Confirmation and PO Change

26

PO on ECC reflects the Confirmation

27

• Auto adjustment Quantity/Dates, adds deliveries

Supplier Managed Inventory – Example Message Flows

28

SAP SNC 7.0 ERP SAP NW

Supplier Kraft

EAI

Publish current stock status and gross demand

PROACT PROACT 01

IDoc XML PAN

Receive ASN Receive ASN or create in

Web UI

DESADV DELVRY 03

IDoc XML XML Publish

ASN DDN DDN

Receive delivery and post goods

receipt

Display GR information

STPPOD DELVRY 03

IDoc XML RDN

Display current stock

status

iDoc DESADV

SAP ECC 6.0

No M

appin

g

Mapp

ing

Mapp

ing

SAP NW

Planned Receipts

create EDI or Web UI

XML Publish Planned Receipts

PAN iDoc

PROACT

Demand and Stock sent from ECC to SNC

29

Schedule job to send MRP data to SNC by Plant

Min/Max, Stocks and Demand shows on SNC

• SMI Monitor on SNC shows the Product (Material) info

• The Planning Grid shows customizable time buckets

30

Supplier can edit Planned Receipts in SNC

• Or they can send Planned Receipts daily in the form of EDI

31

Agenda

• External Manufacturers (EM)

• Supplier Managed Inventory (SMI)

• Supply Network Collaboration (SNC)

• Benefits & Lessons Learned

• Questions

32

EM & SMI Catalyst Design Summary

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

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

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

– Includes Brazil and Cadbury

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

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

33

34

External Manufacturer Kraft

Kraft – External Manufacturing Process Benefits

• Integration of planning & costing processes for external manufacturers

• Harmonized material and product master files

• Enable supplier evaluations and security access controls

• Standard Reporting capability to drive business improvements

• Retirement of legacy systems

• Reduced contract complexity

• Variance analysis and cost tracking

• Improved External manufacturing Invoice matching and payments

• Standard process used for Kraft

purchased FGs. • Secure access to Kraft systems for

sub contract material ordering. • Simplified delivery scheduling

process. • Improved payment cycle

Kraft – Supplier Managed Inventory Process Benefits

• Reduced working capital investment due to transfer of inventory ownership

• Reduced costs associated with material waste and obsolescence

• Less effort required to manage raw/pack inventory

• Lower payment processing costs

• Reduced contract complexity

35

Supplier Kraft

• Greater control of inventories throughout the supply chain

• Improved and expanded supply relationship with Kraft

• Flexibility in meeting Kraft material requirements

• Enhanced ability to optimize operations through improved planning

• Greater visibility to Kraft material usages and variances

SNC Lessons Learned

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

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

startup and support model

• Demand monitoring functionality limited – PO updates are not real time (once Daily)

• EDI Process – Timing of jobs on both sides (inter-dependencies) – Commercialization synchronization – Validating cross-references – Accuracy and timing of ASN’s – Validating the GR process

• CIF Process – Defining the models to dynamically adapt to business – Monitor Queue issues related to sending data to SNC 36

Agenda

• External Manufacturers (EM)

• Supplier Managed Inventory (SMI)

• Supply Network Collaboration (SNC)

• Benefits & Lessons Learned

• Questions

37