The Fresh Connection

Introductions Hans Kremer, CPIM, CIRM, CSCP, partner of Involvation Interactive Involvation Interactive is a spin off of Involvation, a consultancy firm specialized in supply chain design and control based in The Netherlands In 2008 they developed The Fresh Connection

Introduction round Who are you? Your background, company and role? What is your experience with The Fresh Connection? What are your expectations?

The program The Train-the-Trainer program covers How the simulation software works Learning points of the simulation Coaching tips for struggling teams Available support material Back office functionalities and support

Program day 1 09.00 - Introductions & Kick off 11.00 - Short break 11.10 - Round 1 of The Fresh Connection 12.30 - Evaluation Round 1 and introduction SC Strategy 13.00 - Lunch 14.00 - Round 2 of The Fresh Connection 15.15 - Evaluation Round 2 and introduction S&OP 15.45 - Short break 16.00 - Round 3 of The Fresh Connection 17.00 - Evaluation of Round 3 17.15 - Wrap up of the day 17.30 - End

Program day 2 09.00 - Kick off 09.15 - Introduction SCRM and round 4 of TFC 10.30 - Evaluation Round 4 10.45 - Short break 11.00 - All role settings/decisions in TFC 11.30 - Introduction of Market Dynamics, CO2 and round 5 of TFC 12.45 - Lunch 13.45 - Evaluation of Round 5 14.00 - Back office: calculation, scores, users, reports 15.00 - Intro External collaboration and round 6 of TFC 16.00 - Evaluation of Round 6 16.15 - Evaluation and Certification 16.45 - Wrap up 17.00 - End

Voting session Hello, my name is Bob, Bob McLaren, CEO of The Fresh Connection. You probably expected a guy up here, called Hans Kremer. Well sadly for him, I fired him, him and the whole management team. Why? Because our company is in trouble and we need a new management team now, will you help me? Repeat if necessary: WILL YOU HELP ME? Or shall I perhaps first tell you who we are?

The Challenge The Fresh Connection is a producer of fruit juices In NW Europe suffering severe losses in the last year because of poor performance A new management team has been appointed The assignment is to make the company profitable again By making strategic and tactical choices Poor performance: 1. Unhappy customers because we do not meet promised service levels 2. Inventories either too low or too high 3. Obsolescence 4. Production costs are too high 5. Questionable supplier selection. A new management team has been appointed, well that is you, since I just did that, and you need the make the company profitable again Strategic and tactical choices, the simulation in the background pretends half a year goes by, daily operations are taken care off automatically

The Roles VP Supply Chain Components Finished product Supply Production Distribution VP Purchasing VP Operations VP Sales

Assortment Two packaging types Three flavors 1L carton 0.3L PET bottle Three flavors Orange Orange C-Power Orange/Mango Shelf life of finished products is 20 weeks

The Fresh Connection’s Supply Chain Components pallets Finished product pallets SRM Mixing Bottling CRM tankyard Three warehouses and overflow warehouses when needed Two stage production: mixing and bottling Bottling line(s) and mixer(s) for all products MtS, leadtime customers of 1 day (delivery next day)

Shelf life agreement= 75% If the shelf life agreement is 75%, the internal shelf life becomes 25% In other words, if the customer is promised a remainder of shelf life of 15 weeks at the moment of delivery, inventory of finished products may not rise higher than 5 weeks Finished products are NOT distributed to a customer if the shelf life agreement is violated Shelf life agreement= 75% Internal shelflife Shelf life is 20 weeks

Market Three customers Retailer Food & Groceries Retailer Land market 500 stores Supply chain leader Retailer Land market 300 stores Discounter Chain of gas stations Dominick’s 50 stores Only PET bottles

Contract index Price setting You cannot negotiate directly on sales/purchasing prices Negotiate on supply chain performance (SLA’s) This leads to a ‘contract index’ Contract index determines the sales/purchasing price Example (sales) Promise Contract index Basic price Sales price Much 1.1 1.50 1.65 Little 0.9 1.35 We will see in more detail how this works, once we get to Sales and Purchasing decisions

Performance evaluation Costs Operational costs Improvement projects highest ROI Revenue Price: Customer satisfaction Volume: Portfolio Investments Working capital Equipment Buildings 1. Explain that revenue  = price x volume. Actual sales price can go up and down influenced by contract index (note, that if you do not deliver on your promises, you get penalties) 2. Sales promotions have an effect on volume, the more promotion pressure you accept, the more your volume will grow

Quick Tour testgig3 1. Cockpit: negative ROI, all other kpis 2. Finance: revenues, penalties (solve them!), direct costs (purchasing and production), stock (overflow warehouse inbound), handling (flex manpower), investments 3. Information tab: basic pricing, unit 4. Roles only high level testgig3

The Challenge – The Start Make this company profitable again You have one round (half a year) to prove you can do this job How? We make pairs of two people Each pair has one vote Hand out ABCD forms Majority rules All roles are played in a very limited format Explain the set up

Where do we start? Purchasing Operations Sales Supply chain management Results

Purchasing - PET Current supplier, no change Current supplier, high quality More reliable supplier, high quality and FTL Nearby top supplier, high quality and FTL Trio (current) Trio (high quality) Plantin Philyp Jones Leadtime in days 10 15 5 Service level % 94% 96% 98% Certified No Yes Price (contract index) 0.9620 0.9660 0.9860 1.022 Component price 0.0289 0.0290 0.0296 0.0307 Price (relative) 100 100.4 102.5 106.2 1. Go to Purchasing 2. Show current contract with supplier 3. Show Component report, purchase value is in the Component report and in Finance (it includes transport costs and rejection rate). 4. Notice delivery reliability, rejection rate AND transport costs)

Purchasing - Oranges Back to roles Current supplier, payment term 4 weeks Current supplier, payment term 6 weeks (contract index + 0.21%) Current supplier, payment term 8 weeks (contract index + 0.51%) Current supplier, payment term 2 weeks (contract index – 0.13%) Interest rate is 15% annually 1. Go to Purchasing 2. Show current contract with supplier, highlight the payment term 3. Show Component report, calculate purchase value minus transport costs is component costs. Divide by current CI (1.0040) and multiply by CI when payment term is 8 weeks (1,0091), the difference is extra costs of less than 2 K 4. The upside is 4 weeks extra money in the bank at annually 15% or 7.5% per round. In other words, 402 K x 15% divided by 13 (4 weeks out of 52 weeks) is less than 5 K 5. No brainer Back to roles

Operations – Inbound Warehouse Warehouse size 750 pallet locations Warehouse size 1,000 pallet locations Warehouse size 1,250 pallet locations Warehouse size 1,500 pallet locations Inhouse: 200 per location per year Overflow: 3 per location per day 1. Show Warehouse report: capacity, usage, overflow of 10.0%, whilst on average cube utilization is 92.5% (833/900) 2. Show Finance report: overflow warehouse costs Actuals: 900 pallet locations and 5 people, no incoming inspection and rather long intake time Warehouse is very flexible in adjustments, upward and downward Explain costs

Operations – Bottling Back to roles Increase speed Go to three shifts Introduce SMED Introduce preventive maintenance Increase speed, costs: 15 K, 10% more speed Extra shift, costs: 200 K annually SMED, costs: 10 K, 30% less changeover time Prev maintenance, takes 3 hours/week, 50% less downtime 1. Show Production report: capacity, usage, overtime, breakdown, change over, production plan adherence 2. Run time + Change over + Breakdown + Unutilized = Available capacity + Overtime Actuals: 2 shifts = 80 hours and no additional measures Operation is very flexible in adjustments, upward and downward Explain costs Back to roles

Sales – Shelf life Shelf life for all customers to 70% Every 5% increase gives 75 K extra revenue Every 5% increase means 1 week less time internally 1. Show existing contracts, shelf life promise 2. Show Customer report, especially attained shelf life Q: Do we want to be ambitious or conservative? 3. Show kpi Obsoletes (and in Finance Pur and Prod costs, obsolete costs sit there, they are a percentage of demand and need to be repurchased, reproduced and delivered as a backorder) 4. Show Product report: obsoletes per product

Sales – Service level Back to roles Service level for all customers to 90% (- 545k) Service level for all customers to 92.5% (- 119k) Service level for all customers to 95% (current promise) Service level for all customers to 97.5% (+ 68k) 1. Show existing contracts, service level promise 2. Show Customer report, especially attained service level, then show Finance (penalties) Challenge: Either do what you promise: now we are underperforming, so promise less or perform better, or a combination of the two Remember, what did we do with shelf life already 3. Enter decisions in negotiations screens, show how contract index works 4. Write decisions on flip chart for a complete overview later Back to roles

SCM – Frozen period Frozen period to 4 weeks Frozen period to 3 weeks 1. Explain the effects of a frozen period

SCM – Production frequency All products every day All products every two days All products every week All products every two weeks 1. Show Product report from SCM, service level and inventory over time 2. Obsoletes are related to stock height Safety stocks are fixed for now Back to roles

SCM – Batch size raw materials Which raw material do you want to give a batchsize of 1 week ? Carton PET bottle Orange Vitamin C 1. Show component report from SCM Back to roles

Results Predictable financial results are important. What do you expect for the next half year? Increase of the ROI Decrease of the ROI

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Get Started

Strategy into action Levels in version 2013 Theme Sales SCM Operations Purchasing Level 1 Reliability Service level Order deadline Shortage rule Safety stocks # Shifts # Pallet locations # FTE Delivery window Delivery reliability Level 2 Batches and frequencies Shelf life Trade unit Lotsizing in production and purchasing SMED Increase speed Level 3 Speed and quality Payment terms Frozen period Intake time Preventive maintenance Solve breakdowns training Raw materials inspection Supplier selection Quality Transport mode

Extensions in version 2013 Theme Sales SCM Operations Purchasing Extension a S&OP Promotional pressure Category management Forecasting Production interval tool Resource selection Dual sourcing Extension b External collaboration Promotion horizon VMI Outsourcing warehouse (MCC) Inflate PET Supplier development Extension c CO2 footprint Sustainabilty CO2 sla Decrease of water usage Decrease of energy usage Decrease of start up productivity loss Extension d KPIs and targets KPI selection Extension e Supply chain risk management Risk events Relaunch (horizon) Scenarioplanner Tracking & tracing Quarantine Pooling warehouse FTE Contract duration

Getting started Divide roles within your team Go to http://game.thefreshconnection.eu/2013 and log in with username/password, usernames and passwords are case-sensitive During game save new settings (deal in Purchasing and Sales) Calculating results is done centrally

Good luck!