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  1. Supplier Relationship ManagementSupplier Engagement StrategiesMaria Velissariou6-25-08 FINAL DRAFT FOR JUDITH

  2. Revenue must grow Profitable Growth Costs must be reduced = • Determine that the thing can and shall be done, and then we shall find the way. • Abraham Lincoln “Unleash supplier power to drive profitable growth” SRM Mission Enable Procurement, aligned with cross-functional stakeholders, to lead and facilitate supplier engagement strategies that drive profitable growth and margin enhancement for the BUs.

  3. Total supplier power = • Best innovative ideas to deliver consumer and customer value • Maximum cost efficiencies without sacrificing quality • Speed to market • Supplier resources and capabilities • Preferred Customer status among suppliers SRM creates …a sustained environment where Procurement engages suppliers and gains total value that enables profitable growth for Kraft. … and better positions Suppliers to grow their business by meeting Kraft’s needs

  4. Supplier Elevate Kraft-supplier relationship to a collaborative or alliance status, which enables suppliers to achieve sustained business gains Growth in business size Training / support from Kraft “Badge” value among peers • Kraft • Strong SRM strategies position us to gain suppliers’ best ideas & resources first • Delivering more total value • Driving profitable growth • Creating a competitive advantage for Kraft as part of How do we achieve Kraft = Preferred Customer?

  5. 1st Multi-supplier Challenge Supplier collaboration training First Supplier Challenge showcase Brand Value Challenge Productivity entrenched in Kraft culture First Supplier Summit 50+ Supplier Challenges 200 ideas, 20+ launches (worldwide) Growth metrics RSA Supplier Assessment tool Supplier collaboration concept introduced in 2004 Kickoff Alcan, Cargill Alliances Since 2004 SRM launch, we’ve made great strides … Kraft SRM milestones from a business deliverables and organization standpoint 2004 2007 - to date 2005 2006 Collaboration launches Open Innovation SRM roll outs (e.g. IM&S)

  6. Quick Meals Health & Wellness Snacks Growing Cohorts Growing Customers Growing Channels Kenco footprint Sonoco 3Rs Premium Philly Gourmet Terrine* … and results in new ideas for Kraft SRM starts with the consumer or business need … *Italy: Multi-supplier challenge idea (2008)

  7. Supplier Collaboration: Supplier helps Kraft develop new prebiotic fiber cereal, which is the category’s biggest new product launch for 2008 External Manufacturing Innovation Session: Utilized suppliers’ development resources, minimizing Kraft R&D support, to launch new line extension in 6 months Suppliers are helping us deliver innovations … Supplier Challenge: New super premium coffee launched with innovative consumer pack and in-store display in 6 months R&D Innovation Day: Supplier showcased new lid technology, used in personal health products, which ultimately becomes EZ Grip Maxwell House

  8. And suppliers are driving down costs, without compromising quality Supplier Challenge: Supplier identifies innovative packaging solution that satisfies consumer’s easy-to-open and reclose needs while providing significant cost reductions projected at $5MM. Supplier Collaboration:Supplier worked closely with Banbury plant personnel and identified seven unique ideas to reduce energy on the freeze-dried process – saving $5MM or more across the coffee network Supplier Expertise Optimized Inbound Shipping: Supplier fills a long-standing internal capability gap to explore shipping efficiencies. Using the suppliers’ comprehensive system to control, manage and optimize inbound supply chain shipments saves $2.4MM annually Service Solutions:Supplier suggests ways to reduce, reuse and recycle at Kraft facilities, which saves the environment and an estimated $5MM annually for better bottom-line brand value

  9. SRM Shared ServiceLinkages within Procurement and across functions will ensure effective supplier engagement and drive total business value BU BU Procurement Leads BU RDQ Leads Direct communications, lead interface Broad strategic communications Suppliers RDQ / Open Innovation End to End Buyers Legal SRM

  10. Continuing to follow the 80/20 rule: Focus on suppliers of highest potential Alliance: Tailored and highly integrated business relationship between Kraft and the supplier that advances functional and technological challenges via co-development. ALLIANCE COLLABORATIVE RELATIONSHIP Compatibilities Collaborative: Cooperative business relationship between Kraft and the supplier that allows the supplier to develop for Kraft ownable product and/or supply chain solutions. TRANSACTIONAL RELATIONSHIP Transactional:One-time exchanges. Economic Value Drivers

  11. Primary role:Leading and enabling organizational change • Idea leadership • Idea leader of SRM best industry practices • Communications • Agent of change to maximize supplier engagement • Driver of SRM communication internally and externally with suppliers to draw the best ideas and resources • Main Procurement link with stakeholders, such as RDQ/OI • Business alignment • Enabler of aligning the best of supplier expertise with the Kraft business and corporate priorities to get joint value creation • Community of practice • Owner and custodian of tools, best practices and training worldwide • Recognition • Driver of internal and supplier recognition and awards

  12. Collaborating with Suppliers Natural instincts Innovators & early adopters High understanding of supplier collaboration Low understanding of supplier collaboration Laggards High potential Not Collaborating with Suppliers Currently …We’re in a position of high potential

  13. However, supplier consolidation is causing a shift from a buyers’ to a sellers’ market • More than 75% of companies give access to Preferred Customers of vital resources: production capacity, product/service innovations, productivity. • Corporate Executive Board Procurement Council, March 2007 Innovations Productivity Production capacity Kraft competing for best supplier resources and ideas

  14. Suppliers report delivering an average of 49% more value to their most collaborative key customers compared to their least collaborative key customers. • Vantage Partners Leaders are embracing Open Innovation & Strategic Alliances • New Trends are emerging … • From Strategic Alliances to Alliance Strategies • 2. Balance global partnerships with local executions • 3. Ecosystems the blueprint for future collaborations

  15. Escalating commodity prices Sustainability, the new transnational societal and industry phenomenon of the ’00s – like the Quality movement in the ’80 Supply Chain efficiencies at the heart of cost management Commodities and Sustainability:Major external forces of industry transformation More than ever cross-functional integration of strategies and supplier partnerships are imperative

  16. How do we accelerate adoption of supplier engagement strategies for profitable growth?

  17. COMMUNICATIONS NEW VALUE CREATION TOOLS BU GOAL ALIGNMENT Promote internally and externally the urgent need of SRM strategies as a means to enable innovation and margin enhancement. SRM EXPANSION Engage the business and Shared Services to connect supplier expertise with business needs. Migrate from ad hoc tactical projects to aligned strategies. Promote/refine existing tools and develop new efficacious approaches to maximize efficiency of SRM. Engage Shared Services to leverage SRM to drive corporate priorities, such as sustainability, beyond brand- driven initiatives. Over the Strat Plan timeframe … Four strategies will poise supplier engagement to help drive profitable growth We will connect world-leading supplier expertise and resources with our business priorities in a framework that builds relationships and creates win-win gains.

  18. BUSINESS GOAL ALIGNMENT Engage the business and Shared Services to connect supplier expertise with business needs. Migrate from ad hoc tactical projects to aligned strategies. • Align SRM with BU Strat Plans • Support Procurement BU leads to identify BU priorities and create SRM plans • Promote an optimized supplier networkin line with BU innovation funnel • Longer term, champion Supplier Portfolio Management (SPM) • Strengthen cross-functional alignment with key stakeholders • Enable Procurement BU leads and buyers to maximize SRM value to the BUs • Act as the primary Procurement contact with RDQ / OI • Establish approach for Kraft – Supplier Joint Value Creation • Joint goals and metrics • Roles and responsibilities • Resources

  19. SRM EXPANSION • Continue to expand SRM application in new areas beyond brand-driven initiatives • Sustainability • Commodities • IM&S (e.g. MES, Transportation) • Proactively engage suppliers in helping us achieve specific goals (e.g., Sustainability pilots) • Adapt SRM approach and methodologies as needed per business and/or region Engage Shared Services to leverage SRM to drive corporate priorities, such as sustainability, beyond brand-driven initiatives.

  20. You communicate, you communicate, and then you communicate some more. Consistency, simplicity and repositioning are what it’s all about. -- Jack Welch • Behaviors and culture • Assess spectrum of mindsets to SRM • Uncover perceived barriers/accelerators to success via auditing internally and with suppliers • Step up communications to drive adoption & effectiveness 2. Community of Practice • Share SRM best practices with world-wide Procurement community • Model best practices through peer-to-peer case study endorsements/testimonials 3. Training • Procurement Training Academy: Migrate Procurement staff through understanding “the what” and “the how” • Support suppliers navigate Kraft 4. Communications • Internal cross-functional; Intranet workzone • External (Suppliers, Media/Industry); Extranet 5. Incent behavior • Reward and recognition internally and for suppliers • Goals / MAPS alignment COMMUNICATIONS Promote internally and externally the urgent need of SRM strategies as a means to enable innovation and margin enhancement.

  21. Toolkit management • Refine existing tools • Supplier Collaboration • Supplier Segmentation (RSA) • Supplier Challenges (single and multi-) • Innovation Days (with RDQ/OI) • Supplier evaluation tools (e.g. Clareo Index) • Simplified contractual agreements and forms • MOR/PDR Procurement inputs (exploratory & development) • Introduce new tools • SRM metrics • Joint Value Creation (jointly with OI) • Benchmarking (jointly with OI) • Supplier Ecosystem as part of 2. “One-stop shop” library and helpline • Centralize all tools and communications on the Intranet 3. Continued education • Stay abreast with academia and industry NEW VALUE CREATION TOOLS Promote/refine existing tools and develop new efficacious approaches to maximize efficiency of SRM.

  22. 5 Supplier Collaboration Imperatives Kraft • Aligning with ’09 BU Strat Plans 1 Align with corporate & business strategies • Gaining executive reinforcement 2 Secure executive endorsement • Creating common language, goals and metrics 3 Share goals, metrics & language • Developing alliance manager leadership competencies and credentials 4 Appoint Alliance Manager & ensure governance 5 • Balance the “what” & how” • The right business arrangement & working relationship • Ends Metrics and Means Metrics • Eliminating and Embracing Differences • Enabling formal systems and collaborative behavior • Managing external partners and internal stakeholders • Focus on hard and soft enablers, measures and cultivating relationships Ensuring we’re in-step with industry best practice

  23. Supplier engagement roadmap Rewire Reframe Exploit sales Drive down costs

  24. SRM will provide regional focus based on individual needs

  25. Promote an optimized supplier network against BU innovation funnel • Champion Supplier Portfolio Mgmt • Strengthen cross-functional alignment • Maximize SRM value to BUs • Primary contact with RDQ, linkage with E2E SRM strategies deliver against the three Procurement priorities … BUSINESS GOAL ALIGNMENT NEW VALUE CREATION TOOLS SRM EXPANSION COMMUNICATIONS • Enable Tool kit optimization • Introduce next generation of tools • Support contract simplification • Drive continued education • Explore Ecosystem • Step up Internal & External Communications • Drive behaviors and culture • Incent behavior (internally & with suppliers) Instruments of Growth • Align with BU Strat Plans • Establish approach for Kraft-Supplier Joint Value Creation (goals, metrics etc) • Expand SRM application in Sustainability & Commodities Drive Extraordinary Scale • Lead Community of Practice • Revamp SRM intranet • Develop Supplier Extranet • Lead toolkit roll out and facilitate adaptations as needed • Expand SRM application in IM&S Masters of Service • Develop “One-stop shop library” and helpline • Adapt approach/ methodologies to regional needs • Launch SRM Procurement Training Academy

  26. How can supplier engagement help the business accelerate the drive for profitable growth? • New ideas SRM can engage suppliers’ best innovative ideas to deliver against your consumer and business growth priorities • Cost efficiencies SRM can maximize supplier cost efficiencies without sacrificing quality • Gain speed to market SRM can deliver ideas faster than traditional approaches • Sustainability solutions SRM can leverage supply chains to deliver against sustainability goals • How can you help? • Share business priorities with SRM • Work with RDQ to identify technology enablers • Work with Procurement to link priorities with supplier capabilities and identify collaboration strategies • Share with suppliers our needs and invite their ideas for win-win gain • More resources SRM can leverage supplier resources and capabilities

  27. In summary,SRM Supplier Engagement Strategies … • Connects world-leading supplier expertise and resources with our business priorities in a framework that builds relationships and creates win-win gains • Over the three year strat plan, our SRM approach will help us earn “Preferred Customer” status among suppliers to get their best ideas first • We’re committed to four strategies to drive the change in culture and mindset within Kraft • We’ll begin by aligning our supplier networks with the business priorities • It’s the right thing to do, and it starts with you! What can you do to unleash supplier power to drive profitable growth for Kraft?

  28. Supplier Relationship ManagementSupplier Engagement StrategiesMaria Velissariou6-25-08 DRAFT

  29. APPENDIX

  30. Growth Platform Premiumize Health and Wellbeing Snacking Emotional Surprising Fresh & Packaging Act Nutrit, Portion Calorie Mental Mess free Consumer Need flavours Authentique and Formats Responsible improvem. control reduction wellbeing eating Convenience Portion size Existing Suppliers Type Easy Premium Reclosable opening Huthamaki Pack flow pack technology technolgy Natural Tate & Lyle Ingredients flavors Theobromin Cocoa Sustainable e Barry C. Raw Mat specialities Cocoa fractionates Encapsulatio Friesland Food Commodity n technology Fat replacer Hollow figure Brandt EME technology Cocoa Sustainable Cargill Commodity specialities Cocoa Fat reduction Sugar Südzucker Ingredients replacer Inline Random Technolgy printing New Suppliers Sugar National Starch replacer Spec. Novozymes Enzymes Bayer Schwartau Dried fruit Example Chocolate Growth Platform & Supplier Network

  31. Understand Growth Platforms Link capabilities to Growth Platforms Develop collaboration strategies • Understand Growth Platforms & underlying consumer needs • Build matrix displaying Growth Platform needs vs. supplier capabilities • Systematically screen for new suppliers and technologies • Engage suppliers to deliver solutions at reduced time to market • Select / recommend suppliers and most effective ways to engage them • Build Strategic Alliances to advance functional & technological challenges (co-development) • Foster collaborative partnerships to deliver "ownable" product / supply chain solutions SRM enables an optimized supplier network, aligned with BU innovation funnels Protect ideas for Kraft Fully understand Supplier Innovation Capabilities • Re-assess supplier base with focus on innovation capabilities for Growth Platforms • Further develop firewalls to protect Kraft innovations • Link ABU strategies with IP strategies with contract executions • IP, exclusivity & innovation development agreements • “First in market”

  32. Business Portfolio RESULTS STRATEGY New Alliances/ Collaborations Exit / Restructure Optimize SPM Ideal Individual Supplier Collaboration or Alliance Plan Explore Negotiate Form Manage Evolve Today Organizational Enablers Skills and mindset Organization Structure/Governance Alliance knowledge/ value added -- Vantage Partners SRM will champion Supplier Portfolio Management to integrate with BU priorities. Adopt BU pilot model. SPM = an instrument of growth and scale

  33. SRM intranet workzone

  34. CONSUMERS KRAFT What’s an ecosystem?An effective network of interdependent relationships that enables Kraft to deliver more total value to the market than its competitors with less effective relationships Trusted partner Suppliers • Consumer centric • Customer responsive • Leading edge • Trusted and relevant partner solutions and services • Communities of innovation • Dynamic • Industry focused excellence • Inter-dependent • Complex Customer responsive What ecosystem will do for Kraft (barriers to competition or expansion to new territories Sustainability Connected ti kraft and each other (show Kraft vulnerabilities) Commodity Growers / Producers Customers Interdependent Consumer centric Inclusive Government & Regulatory Communities of innovation Peers/competition Industry focused excellence Academia Others (e.g., Entrepreneurs) A strong ecosystem can help Kraft enable expansion into new areas and create barriers to competition Public Opinion / Lobbies

  35. KNOWKNOW KNOW THINKTHINKTHINK FEELFEELFEEL DODODO … and it continues to gain momentum I think changing the way we work with suppliers is important, but I don’t know how to apply that to my job. I feel I can make a real contribution to Kraft by working with my suppliers differently. I’m going to try to do this. I know new value creation is critical to Kraft’s growth, and the company wants to work with suppliers differently. I’m just not sure what that really means for my job. I’m creating new value for Kraft by engaging suppliers more collaboratively to enable their expertise to bring solutions to our business needs My job is to find productivity advantages Kraft spectrum We’re building on management reinforcement, role modeling, and expansion across and deeper in the organization