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Driving Down Costs for Customers and KeHE

Driving Down Costs for Customers and KeHE. Strategic Anchors. Pre-Discussion “Pump Up”. There is an optional quiz after our presentation is over. Take quiz with you, complete it, and turn back in here before the end of the day.

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Driving Down Costs for Customers and KeHE

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  1. Driving Down Costs for Customers and KeHE

  2. Strategic Anchors

  3. Pre-Discussion “Pump Up” There is an optional quiz after our presentation is over. Take quiz with you, complete it, and turn back in here before the end of the day. If you get 100% on the 10 question quiz, we will mail you this awesome KeHE shirt.

  4. Driving Down Cost for Customers and KeHEDelivery ServicesChris Sieburg

  5. Discussion Objectives • #1 Priority = Align our delivery solution w/customers needs • Industry has changed dramatically • 60+% of customers -> MBP Programs • Many MBP solutions -> Delivery frequency optimization • Independent Channel: Fairway, Duane Read • Non-Traditional: Meijer • Regional Accounts: Rouses, Winn Dixie, Roundys • Chain Grocery: Publix, Jewel, Shaws • High-level review - KeHE fleet operations • Review cost components of our delivery routes • Understand the various strategies we can employ to optimize our outbound delivery cost • Value in a data-driven approach -> delivery frequency • Opportunity -> delivery windows/delivery sequencing

  6. Current Fleet Operations • FY 2013 $74M (Fcst 3.99% vs PY 4.24%) • Fleet Miles • Deliveries • 868 Routes Per Week (45K/YR) • 265 Drivers, 231 Tractors, 412 Trailers • Avg Cube Per Route = 702 • Optimal Cube = 1,320 • 53% of Optimal Cubic Capacity 325,000/WK – 17,000,000/YR 12,500/WK – 650,000/YR .6 Did you know? – Our average cost per delivery is $112

  7. Route Costing – Current Example $28K Quiz Did you know? – Over 92% of Delivery Cost is variable, meaning directly related to miles traveled and orders delivered.

  8. Route Costing – Optimized Example $47K Did you know? – At 1,066 cube, this route is only at 81% of full cubic capacity utilization

  9. Optimal Distribution Solutions – Delivery Services

  10. # 1 - Order Frequency From a retailers perspective, which customer is more profitable? Retailers Measure Avg “Basket Size” From KeHE’s perspective, which customer is more profitable? Higher Rec/AP transactions = Inc Indirect Labor

  11. # 1 - Order Frequency Customer Sampling Key questions to consider 1. What specific value proposition are we meeting when we deliver to a store 5 times per week, and there are no SKU’s being ordered even two times per week? 2. Are we at risk to competitive threats when we build this expense into our customers solution? 3. Retailer inventory increase is a potential “hot button” - Optimizing Delivery Frequency to these Stores: = $60K Delivery Cost Reduced/YR = $ 2.6K Increased Capital Carrying Costs

  12. # 1 - Order Frequency Using the Order Frequency Tool (Oak Reports) – which is a detailed analysis of store/sku velocity, we could eliminate 50+% of deliveries without adversely impacting sales. Reducing only 20% of our 12,500 orders/WK (40% of opportunity) have an estimated savings of $14.9M/Year

  13. # 2 - Delivery Windows If we were able to achieve the same average delivery window expectations with our customers as the “Benchmark Group”, we could eliminate nearly 10% of our DSD routes Savings through expanding delivery windows is estimated at $2.5M/Year

  14. # 3 - Delivery Sequence 10 Stops, 302 Miles 10 Stops, 276 Miles 9% Less Miles Today’s Key Challenges: 1. Customer delivery windows 2. Customer delivery day requirements Ex. No Wednesday deliveries 3. Sales schedule – full service accounts Saving 4.5% of DSD miles through better delivery sequencing = $1.1M/Year

  15. Optimal Distribution Solutions - Delivery

  16. Why optimize our delivery model? Customer Value: • Lower cost of goods @ retail • Fewer transactions • Back door • Accounts payable • Easier to do business with • Reduces retailers indirect costs • Proactive supplier who provides solutions • Are retailers pushing us to provide a more efficient supply chain or are we proactively driving the conversation? • Supplier who recognizes that store-specific solutions drives optimal retail performance • Competitive advantage that will win in the market KeHE Value: • Priced to win new business • Marginalize competitors price advantage • Reduce customers going direct to manufacturer • Savings generated can be used to invest in; • Acquisitions • Technology • Aggressive pricing • Equipment (trailers/liftgates) • Ownership value: • $18.5 X 7.5 Multiple = $110M

  17. Discussion Recap • Delivery operations can be a competitive advantage when optimally engineered to customer needs • Driver wages, fuel, equipment = 92% of delivery cost • Strategies we can employ to optimize our delivery expense: • Delivery frequency optimized to customers needs • Maximize time we can deliver to customers • DC cross-functional teams will prioritize delivery cost optimization • Utilize order frequency tool to optimize delivery frequency • Key Success Measure: Sales/Delivery • Look for opportunities to expand delivery windows • Key Success Measure:Avg Del Hours/Store • #1 Priority = Balanced approach to creating Great Customer Experience and a Smart Supply Chain

  18. Driving Down Cost for Customers and KeHEOperational EfficienciesCraig Turner

  19. Current KeHE Operations Data • FY 2013 $80M (Fcst 4.39% vs PY 4.52%) • 1.8M Picks Per Week • $37M Gross Sales Per Week • 16,500 Orders Per Week • 9 Facilities, 3M sq ft, 1150 Employees • $11,500 Avg Sales per SKU

  20. Current KeHE Operations Data

  21. Current KeHE Operations Data 227,000 Miles Traveled 9X $60M

  22. KeHE Cost Drivers Order Frequency Order Value SKU Productivity -Product Portfolio Perfection

  23. SKU Productivity – Sustainable Inventory Reduction • Creating disciplines to optimize the (mix/sales) SKU and Brand profitability going forward is now a Company priority. Post Warehouse Consolidation Merger 225K YE FY12 205K Current 163K 160K TTM SKU Movement PPD/Yr. $11.5K $11.1K $9K $8.7K

  24. SKU Stratification SKU productivity $11,500 SKU Prod SKU Count SKU Prod $0.45 $0.75 $1.40 Cost/Case

  25. A SKU vs. C SKU A C

  26. A SKU vs. C SKU

  27. A SKU vs. C SKU

  28. SKU Stratification SKU productivity $11,500 SKU Prod SKU Count SKU Prod $0.45 $0.75 $1.40 Cost/Case

  29. SKU Stratification SKU productivity 142,525 $13,000 SKU Prod 12 C SKUs Upgrade to B = $2.0M in EBITDA 8 C SKUs Upgrade to A = $2.0M in EBITDA $4M in Inventory Reduction

  30. Dallas DC SKU productivity 327,000 SF 30,000 SKU $300M in Sales

  31. Central Market #61 SKU productivity

  32. Cox Farms SKU productivity

  33. Why is SKU Productivity Important? Increased SKU Productivity Benefits - KeHE: • Lowers Operational Labor Cost • Lowers Working Capital • Lowers KPD impact • Increases Warehouse Capacity • Increases Company Profit • Increases Company Valuation • Increase Share Value Increased SKU Productivity Benefits - Customer: • Lowers financial impact allowing us to offer better pricing and compete against competition • Allows you to introduce new items • Upgrading can increase customers sales

  34. Key Takeaways • Perfect your product portfolio • Know your SKU Productivity impact • Eliminate dead/stagnant items • Upgrade items when possible • Collaboration • Utilize your cross functional teams to improve SKU Productivity • Metrics • Think Big Picture

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