Romania Srl Together we win Analysis Presentation Summary for Rand Sherif Analysis Presentation Summary for Rand Sherif.

Romania Srl Together we win Analysis Presentation Summary for Rand Sherif Analysis Presentation Summary for Rand Sherif

Together we win Nestl Romania Srl Identify and analyse current Commercial Processes and recommend improvements The goal of Project Together we win is to improve the way of doing business in Nestl Romania with the following key objectives Analyse the current Distributor Management, identify the challenges and recommend solutions to improve coverage and necessary route to market by channel Analyse Product Portfolio and identify potential needs to improve and adapt to the consumer/shopper and channel needs Analyse Trade Terms and Conditions, establishing transparency about the customer and channel contribution and recommendation of a Commercial Policy adapted to the customers and channel needs Review and optimise the Sales Area within Nestl Romania, including reviewing the current way of doing business

Together we win Nestl Romania Srl Analysis of Foodservice Analysis of Nestl Purina Petcare (if not linked with route to market of Nestl Romania) Analysis of the activity of Medical Delegates Considering the tight timelines we did not cover the following areas

Together we win Nestl Romania Srl The tight timelines were only feasible because of the excellent support from Interbrands and within Nestl. We would like to especially thank the following people for their valuable support Nestl Romania Cristian Busu - National Sales Field Force Manager Antonio Matei - Key Account Manager Celina Mercone - Budget and Controlling Manager Calin Cristescu - IT specialist Stefan Alexandrescu Alina Moldovan Gabriela Benicky Mariana Ardelean Petre Manda Cristina Besciu Interbrands Rand Sherif - General Manager of Interbrands Anca Hrtopeanu - Country Manager of Interbrands Florentina Dobre - Budget and Reporting Manager Mihaela Iancu - Budget Analyst Gerald Gallagher - Logistic Manager Andreea Calin Dana Barbu Ioana Pielescu

Together we win Nestl Romania Srl StagesWho is involved? Provisional Timing Analysis of the current situation from a neutral perspective Together we win team works independently gathering facts from the organisation 4 April to 23 April ending with a presentation to and commitment from the Steering Committee Analysis Development of recommendations for the business Together we win team + part time local members work together in Change Management Teams (CMTs) 24 April to 16 May ending with a presentation to and commitment from the Steering Committee Recommendations Documentation of Action Plans and Project Summaries Together we win team plus local CMT leaders (part time) 17 May to 22 May Implementation Planning The recommendations become reality - training, coaching, changing habits Project Implementation Manager with part time support of local CMTs 23 May Implementation We are now at the end of Phase 1 after the first 2 1/2 weeks of the project...

Together we win Nestl Romania Srl For the analysis phase we have allocated our resources into 5 sub teams for the last 12 days Business Planning Review of current business planning process (MBS and OPL planning including Category, Brand, Channel and Customer) Mircea Boboc Sales Management Analysis of the current Sales Force, including Field Sales and KA Management Analysis of Sales Rep. territory management Customer Management Interactions and coordination between Sales and other departments Roles and Responsibilities Jrme Puget Calin Pop Jacek Slota Jaroslav Kollar Anuj Mathur Cosmina Oprea Cristian Cucos Distribution Management Analysis of the current distribution set up including a gap analysis versus the current distribution coverage Branch management analysis Alex Costa Valentin Dumitru Trade Investment Establishment of customer and channel contribution statements Analysis of current Trade Terms and Conditions (Commercial Policy) Analysis of the process of TTS allocation Promotion analysis Afrodita Blasius Product Mix Variety analysis Portfolio analysis Complexity cost analysis

Together we win Nestl Romania Srl The purpose of today is to share our findings with you Analysis Objective: Build a fact-based picture of the current situation. Understand the key opportunities for improvement. Outcome:Common understanding on what we will focus on in the next phase. Is NOT yet to provide solutions to the problems / opportunities identified. Is NOT yet intended to push decisions related to the Nestl Romania operation It will often be the case that you or the organisation already know about these findings - Our aim is more to build credibility than to reveal the unknown

Together we win Nestl Romania Srl People Process Information We have used a variety of tools to enable a our analysis... Prepare for and attend sales conferences Monitor performance of products Monitor sales performance of accounts and territories Coordinate, prepare and attend internal meetings Visits to trade, store checks, branch, factory Travelling (excl between home / work) Various administrative tasks (filing, translations, etc.) Attend Nestl training courses Reading trade articles, magazines and press Develop and train direct reports Meetings with Nestle Sales Team Meetings with top management (division, market, centre) Meetings and communication with agency Develop promotional material Plan consumer promotion programs Develop new product development briefs Attend tastings Develop product specifications (packaging, recipes) Prepare new product business and project plan AVA (Added Value Analysis) Mapping Portfolio Review Issue Analysis I A C C R R Ownership (ARCI) 0%10%20%30%40%50%60%70%80%90%100% Assistant Brand Manager Brand Manager Senior Brand Manager Assistant Manager Senior Manager Assistant Vice President Vice President Percentage of Group Profiles Trade Spend Systems Customers Interviews PNS Wellcome CK 7-11 CRC GD(KK) Structures Retail MarketingRetail Sales Retail Business Culinary business unit SFAA (Sales Force Activity Analysis)

Together we win Nestl Romania Srl which has been thorough and comprehensive Group Discussions Internal group discussions 6 Individual Interviews Internal interviews External Interviews 38 20 No. Completed Source: Project Together we win Activity Analysis Scorecards (ARCI) 24 23 Added Value Activity Analysis (Nestl employees in head office) Sales Force Activity Analysis 63 Added Value Activity Analysis (Sales people at Interbrands) 20 = 1304 calls! Additional - various Entity File Nestl 585 Entity File Interbrands 225 Workshops (PPO, Trade Inv., IBP) 4 79 Branch observations 4 Customer contribution statements 83

Romania Srl Together we win Distributor Management

Together we win Nestl Romania Srl Some key findings for the Distribution Management Area Inefficient DC set up No essential KPIs in place like e.g. customer service, out of stock etc. 100% of our sales go through Interbrands with a fix gross margin of 20% and no financial risks for IBR Lack of clear distribution strategy and responsibilities / procedures Branches are not analysed as independent distribution set ups Insufficient coverage of impulse products, especially for foodstores and kiosks No activity based cost allocation from Interbrands to Nestl Source: Project Together we win interviews and analysis

Together we win Nestl Romania Srl We are paying a flat 20% on our sales to our national distributor, however we have not come across any KPIs suggesting a break-up of the commission by activity / expenses type Source: IBR P&L for Nestle Division (Jan-Feb03 YTD)

Together we win Nestl Romania Srl Our first step was to analyse the coverage of the Nestl products Branch Profitability Analysis Gap Analysis Vs Nielsen Universe Branch logistics set-up & operations DC Management

Together we win Nestl Romania Srl For our distribution drivers like Nescaf sticks, Seasoning and Wafers, the food stores and kiosks are very important for our coverage - based on AC Nielsen data however, we are only directly covering 51 % of the overall Food & General stores. 3,562 3,052 5,958 6,498 5,859 24,929 8,851 11,868 17,920 13,646 17,220 69,505 020,00040,00060,00080,000 BANAT CRISANA BUCURESTI MOLDOVA TRANSILVANIA VALAHIA COUNTRY ACN NESTLE 40% 26% 33% 48% 34% 36% Source ACN & IBR Nestle coverage Vs ACN universe On Nestle and BAT estimation only 1,000 from 6,300 Petrol Stations can carry Food products 36 % Nestle direct coverage Vs. ACN universe

Together we win Nestl Romania Srl 20-30% % Nestle direct coverage Vs. AC Nielsen Universe Source ACN & IBR Across 2/3rd of Romania, less than 50% of the outlets are DIRECTLY covered by Nestle - especially low in the Eastern and South Eastern region with the highest population density 80-100% 50-70% 40-50% 30-40%

Together we win Nestl Romania Srl Our second step was to analyse the branch profitability Branch Profitability Analysis Gap Analysis Vs Nielsen Universe Branch logistics set-up & operations DC Management

Together we win Nestl Romania Srl IBR provided us with Branch specific DIRECT costs (without their Head Office and other indirect expenses) to analyze infrastructure / break even. IBR forwarded us information by Branch for the Jan-Sep02 period. Analysis of this periods data reveals most IBR Branches did not reach the break-even as sales : efficiency ratio was not achieved. Manpower / Fleet accounted for nearly 80% of the total direct branch operating expenses. Source: IBR Branch info. for Jan-Sep02

Together we win Nestl Romania Srl Nearly 365 non-sales staff at IBR Branches in 2002 existed and were allocated to our P&L for the Mass and Petcare division without having a clear understanding on how many were really required to do the job. Nestle operated through a dedicated set-up through 30 IBR Branches. Source: IBR Branch info for Sep02 for Mass and NPP In Full Time Equivalents:

Together we win Nestl Romania Srl Payroll & vans accounted for nearly 80% of the Total Expenses. Expenses as % of Net Sales 47% 1% 29% 2% 12% 7% 2% PayrollTravelVansDep. AssetsLogisticsOther ExpensesProf. Exp. Breakdown of Total Expenses 8% 0% 5% 0% 2% 1% 0% 5%10% Jan-Sep02: Source: IBR Branch info. for Jan-Sep02

Together we win Nestl Romania Srl Steps were initiated in July 2002 to improve the profitability of IBR without specific emphasis on either... The long term coverage perspective Impact on Nestle distribution coverage and sales (coverage sank drastically after change) SHARED coverage division formed to jointly distribute products with P&G, Gillette, Kotanyi, Flit with a view to... Improve profitability of the IBR Branches. Primarily service the low end of the trade.

Together we win Nestl Romania Srl The set-up definitely improved profitability of IBR but it hasnt brought us closer to achieving the coverage objectives that will provide us an edge in the market Pre - July 02 NESTLE Division MASS Division SHARED Division Nestle exclusive: Bigger retailers including Key Accounts Shared along with other companies: Smaller retailers. 30 IBR Branches 28 IBR Branches 26 IBR Branches Source: IBR Branch Head count info. for Jan-Sep02/Jan-Feb03 Mainly personnel costs / van expenses have resulted in higher profitability.

Together we win Nestl Romania Srl Creation of the SHARED division has helped most branches reach the break-even (considering impact of DIRECT expenses only) 4 Branches closed (Buzau, R. Valcea, Slobozia, Tulcea). Jan-Feb 03 : Break-even analysis across Branches 2790 2411 414 291 0 500 1000 1500 2000 2500 3000 Gross Sales Net Sales Net Margin Total Expenses Net Margin = Gross Sales X 20% - (Gross-Net) Sales Avg. Sales/Month (Jan-Sep02) Source: IBR Branch P&L Jan-Feb03

Together we win Nestl Romania Srl The third step was to analyse the current DC approach Branch Profitability Analysis Gap Analysis Vs Nielsen Universe Branch logistics set-up & operations DC Management

Together we win Nestl Romania Srl Route to market - the long and winding road - > 2000 pall spots Nestle ownership IBR ownership InterCompany - 1850 pall spots - 5200 pall spots Bucharest Timisoara IBR DC Welz 22,500 outlets 80 trucks /mth 50 trucks /mth 26 branches - 23 factories, in 13 countries Source: Supply Chain

Together we win Nestl Romania Srl IBR DC costs are high and not transparent as we only receive a total amount without tracking the DC costs separately IBR DC - relatively fixed costs, same infrastructure could cope with a higher volume IBR DC cost - not tracked separately [eur/month] IBR DCTOTAL # palleur/palTotal IBR STORAGE12,500 37,731 Petfood750 7.15,357 19,470 Nestl1,000 7.17,143 18,261 HANDLING3,500 16,544 Petfood1,255 1.3 1,646 7,876 Nestl1,414 1.3 1,854 8,668 TOTAL DC16,000 54,274 [Based on OP 2003 volumes] Benchmark: < 5 eur/pall (handling + storage) Source: Supply Chain and IBR

Together we win Nestl Romania Srl And finally we looked at the branch management Branch Profitability Analysis Gap Analysis Vs Nielsen Universe Branch logistics set-up & operations DC Management

Together we win Nestl Romania Srl Branch Operations Supervisor, shared among principals, is the key logistic person in a branch... Key responsibilities supervise daily activities (warehouse, office) reporting to IBR head office control banking transactions safety & security implement procedures coming from IBR head office recruitment (warehouse staff), performance evaluation main branch contact for Principals maintenance, office administration Limited decision making, mainly supervisory & administrative tasks Source: job description; branch visits

Together we win Nestl Romania Srl No overall responsibility for branches management Distributor Operations Team - interface between Nestl and IBR Nestl Sales Mgmt Logistics Mgr (IBR) (*) except for shared divisions Branch Operations Supervisor (IBR) Area Sales Mgr (*) / KAM (Nestl) Area Operations Mgr (IBR) Operations staffSales force (IBR + Nestl) Source: job description; branch visits

Together we win Nestl Romania Srl High number of skus, and warehouses layout leads to relatively high space needs Needs = 1 avg. mth of sales, to cope with peaks, except Buch and Timi (3 weeks) With few exceptions, available space fits our needs 7.7% of 2002 IBR expenses, or 1.5% out of 20%margin Despite low rent per sqm, storage cost per pallet is significant Source: IBR P&L 2002; branch data

Together we win Nestl Romania Srl Some of the inefficiencies are generated by us Almost 600,000 stickers to be put monthly (promotions not included), in order to comply with legal regulations, workload equivalent of 10 full time employees All skus stocked in all branches (*), while on some (infant, imported confectionery) sales can be below 10 units/month! (*) exception infant specialties, only in branches with Pharma division Source: IBR

Together we win Nestl Romania Srl Lack of measurement and control at branch level No customer service measurement (to start in April) No tracking of missed orders, just a statistical calculation of out of stock No performance measurement FIFO not consistently applied Branch performance depends on Branch Operations Supervisor capability rather than on system efficiency Lack of consistent work processes and central coordination Poor quality of co-packing activities Limited training for Operations staff Unclear cost allocation (ex. wrapping machines) Source: IBR, Field visits

Sales Force Analysis Romania Srl Together we win

Together we win Nestl Romania Srl Territory Management is not adapted to customers type and potential High amount of administration time for Sales Representatives No consistent incentive scheme Substantial overlap of customers between Shared and Mass division No Nestl orders for 1/3 of all customers visited by Shared division Key findings from Sales team Source: Project Together we win interviews and analysis

Together we win Nestl Romania Srl We conducted a Sales Force Activity Analysis across our 3 Divisions Territory Management Sales Force Activity Analysis

Together we win Nestl Romania Srl Our study covered 1304 calls performed over 2 weeks S C O P E OF THE STUDY 63 observations - representing 31% of the total Field Sales Reps 1304 outlets visited Functions Divisions 17 Branches in 7 Regions 7 KAE 23 Mass PSR 4 Mass VSR 24 Shared VSR 5 Pharma VSR Mass Division Shared Division Pharma Division Brasov, Ploiesti, Pitesti, Alexandria, Slobozia, Suceava, Targu Mures, Bacau, Constanta, Tg. Jiu, Bucuresti, Iasi, Timisoara, Oradea, Craiova, Cluj, Arad Sample Size Sales Force Activity Analysis (SFAA) is a systematic observation and analysis of the daily activity of our sales people.

Together we win Nestl Romania Srl The number of visits per day varied across the types of Sales Reps Number of Visits / Day 10 KAE 26 MPSR 22 MVSR 16 PVSR 22 SVSR Equal for VSR in Mass & Shared Divisions PSR perform only 8% more calls than VSR Source: SFAA

Together we win Nestl Romania Srl Overall, 83% of the Sales Reps did not visit the same amount of outlets as they planned at the beginning of the day % of Reps who did not follow the # of visits planned for the day 80% 92% 67% 82% 67% 0%20%40%60%80%100% PVSR SVSR MVSR MPSR KAE Measuring only successful calls, we do not have a consistent tracking of this In 75% of observation, at least 1 customer was visited twice, to collect money

Together we win Nestl Romania Srl The Hand Held Computer was used in 81% of the calls 19% 21% 19% 24% 22% 37% 73% 91% 80% 81% 84% 73% 89% 90% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% KAEMPSRMVSRSVSRPVSR Use customer fileUse a Hand Held Computer Talk to decision maker The hand Held computer is used only to take orders, which explains the lower usage by KAE A decision maker is met in 85% of the calls Source: SFAA

Together we win Nestl Romania Srl Our 7 day credit policy generates a high frequency of visits in all the types of outlets and limits our potential coverage 4.3 5.7 9.0 5.8 6.7 KAEMPSRMVSRPVSRSVSR # Days since last visit 6.2 on average Every store is on the route plan each week # Days since last visit 4.1 4.8 5.1 5.6 5.7 6.7 6.8 6.9 7.1 10 Wholesalers Cash&Carry HM & SM Mini-market General Store Food Store Phamacy & Hospitals Petrol Station Kiosks & Open Market Subdistributors Source: SFAA

Together we win Nestl Romania Srl From our snapshot, Sales Reps on average spend 5 hours in-store per day Total Time Allocation 304 267 371 287 353 126 141 127 138 129 198 230 245 241 271 34 43 55 31 39 26 23 14 18 34 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% KAEMPSRMVSRPVSRSVSR Breaks 24 m Private Travel 40 m Working Travel 4h Admin Time 2h14 m In store Time 5h12 m Reps spend on average 41% of their time in store More than 2 hours in Admin. Reps go to branch every morning and evening Source: SFAA

Together we win Nestl Romania Srl Invoices Payment, briefings and truck loading (for VSRs) are the main components of the administrative time Source: SFAA % of total Administrative time

Together we win Nestl Romania Srl The MPSRs show the most balanced time allocation between order taking and merchandising / display activities 8% 33% 9% 6% 10% 2% 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% MPSR % of Other Tasks % of Preparing delivery & delivering Total % of Checking stock storage / Warehouse Total % of Checking stock shelves Total % of Managing shelf-displays Total % of Managing shelf-NON displays Total % of Money collection Total % of Order taking Total % of Hard selling Total Merchandising & display activities 24% 9% on collecting money, although this activity is in theory handled by delivery drivers Source: SFAA

Together we win Nestl Romania Srl SVSR spend more time on order taking & money collection than MVSR, at the expense of display 40% 29% 40% 24% 19% 13% 12% 6% 5% 3% 5% 9% 6% 1% 3% 2% 5% 12% 21% 12% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% SVSRPVSRMVSR % of Other Tasks % of Managing shelf-NON displays Total % of Managing shelf-displays Total % of Checking stock storage / Warehouse Total % of Checking stock shelves Total % of Hard selling Total % of Money collection Total % of Order taking Total % of Preparing delivery & delivering Total Handling orders for several principles Stronger focus on money collection in the Shared Division Source: SFAA SVSR spend no time on products visibility

Together we win Nestl Romania Srl In 32% of their calls, SVSR spend 0 time on Nestl products Source: SFAA 32% 25% 51% 38% 20% 44% 0 Time Nestl0 Time P&G0 Time Gillette SVSR PVSR % of calls with 0 time spent on... Better result for P&G Even higher for PVSR

Together we win Nestl Romania Srl Time spent on Nestl products by Shared Reps is not proportional to our share of the fixed costs In Store Time per Principles 47% 22% 14% 13% 4% PVSR 46% 31% 13% 8% SVSR Waiting & Pleasantries Other Kotany Gillette Nestl P&G Shared VSR dedicate an average of 5 minutes per call to Nestl 4 min. for PVSR The time spent on Nestl is proportionally higher than our share of fixed costs (24.2%) In pharma, we pay 30.4% of the fixed costs Source: SFAA / IBR data 2003 Probably increased by the presence of a Nestl observer

Together we win Nestl Romania Srl The Nestl success rate of calls is low across Mass and Shared division % Successful calls per principle 63% 48% 56% 70% 27% 53% MPSRMVSRSVSRPVSR Nestl P&G Gillette SVSR: 71.5 % in total SVSR: 70 % in total For Nestl, success rate is 23% lower with SVSR vs. MVSR or MPSR Source: SFAA

Together we win Nestl Romania Srl Shared VSRs sell on average 2.3 Nestl SKUs per call Average Number of SKUs Sold Per Call 7.8 6.5 2 2.3 7 6.4 2 1 MPSR MVSR PVSR SVSR NestP&GGillette but the same average # of SKUs for P&G MVSR sell on average 2.8 more Nestl SKUs than SVSR per call... Taking into account all visits, with or without orderSource: SFAA

Together we win Nestl Romania Srl Orders generated by Shared Sales reps include a limited number of SKUs 26.3 12.2 10.4 4.7 3.6 11.3 10.1 3.8 3.7 KAEMPSRMVSRSVSRPVSR Nestl P&G Gillette Average Nestl 9.3 SKUs Although the outlets covered are able to hold a wider portfolio for P&G The shared division SVSRs have made their own ranking: In top 5 SKUs: 68% indicated bulk wafers 11% indicated Nescaf Sachet

Together we win Nestl Romania Srl We have also analysed our territory management approach Territory Management Sales Force Activity Analysis

Together we win Nestl Romania Srl Average turnover by salesman type is unbalanced due to the customers size on their portfolio Very low average for shared VSR. Source: IBR Database

Together we win Nestl Romania Srl We have a major coverage overlap between the Mass and Shared divisions Approximately 3,000 customers (*) are visited by both Mass and Shared divisions Pharma division is not overlapping with others due to their specialized customers (*) In coming weeks, a database alignment will be done, for automatisation purposes. Manual analyses will be done in the meantime, at the branch level. The exact number is not yet available 30% of Mass customers universe & 36% of Shared customers universe Source: IBR Database

Together we win Nestl Romania Srl VSRs & PSRs have the same theoretical base for territory coverage split & visit frequency Territory coverage takes into consideration driving time (all PSR, VSR have areas in and out of the cities) Territory coverage is built on a weekly coverage base for VSRs & PSRs, due to some constraints: commercial policy: 7 day credit low level of available cash/out of stocks easy to measure/check initiatives execution (i.e. new product launch, price increases) Visit frequency is not linked to customer potential and order frequency Source: Sales management

Together we win Nestl Romania Srl We have no formal tracking of the number of actual visits made by our sales reps for VSR and PSR We only measure successful calls in our system At branch level, ASS check which customers have been visited on a daily basis If a customer does not order, we have no way to know if he has been visited or not, if he has no potential or a specific reason We do not have a consistent use of the customers history Source: Sales management

Together we win Nestl Romania Srl Only 50% of the customers of Mass division were invoiced in each of the 3 months of Q1 + 3000 customers were customers invoiced only once per Q1 + 3000 customers were invoiced in 2 different months of Q1 Source: IBR Database Common customers represents 83% out of the total turnover of Mass Division All are visited on weekly basis

Together we win Nestl Romania Srl In Shared division only 34% of the customers are working on a monthly basis with us Source: IBR Database Lowest level of stability in coverage is coming from the smallest customers. Most constant ones are B customers. Common customers accounts for 66% of the sales of the divisions Nestle turnover

Romania Srl Together we win Trade Investment

Together we win Nestl Romania Srl Very strict and transparent commercial policy not adapted to channel needs Shift from performance to non-performance caused by International Key Accounts No activity based allocation of cost to serve (selling and distribution expenses) Some key findings for the Trade Investment Area Source: Project Together we win interviews and analysis

Together we win Nestl Romania Srl We did a comprehensive review of the drivers behind current performance and transparency across Cost to Serve Groundwork Cost to Serve Analysis Establishment groundwork Cost to Serve Commercial Policy Analysis Nestl and Competitors Commercial Policy Analysis Bad goods / Delayed Payments General View of all channels

Together we win Nestl Romania Srl 0.3 We are covering a significant part of the business split in the channels as below: Indirect (IBR) Hyper and Super Food and G. Stores Petrol Station Kioks and OM C&C Nestl 2,5% Carrefour Mega Selgros Metro Billa 1,1% 1,2% 14% 2.4% in % of GPS Wholesalers Subdistributors Pharma Source: Market / Not included Pet Food, FoodServices and others / Kiosks and Open Markets included Retail Division - 2002 + 12 Customers GPS/CCS 26 Customers 5 Customers 18 Customers 4 Customers 3 Customers 9 Customers RomGros 8% 32% 1% 16% 25% 7% 4% 6% 2,6% 0,02% 2,3% 0,1% 0,5% 1% Sales Covered by CCS 29% Customers - CCS The information for the CCS is collected from direct and indirect sources (through IBR)

Together we win Nestl Romania Srl The channels that we are covering are split as below... Source: Market / Not included Pet Food and FoodService/ Kiosks and Open Markets include Retail Division - 2002 2002 - in % GPS

Together we win Nestl Romania Srl It is very hard to get the numbers because they come from different sources Source: Market The information of IBR is not activity based costing but on reliable estimations and checked by our project team that utilised some tools like: SFAA, Time allocation, Interviews... Nestl IBRCustomer Consumer

Together we win Nestl Romania Srl The CCS data was collected from 8 sources (not only Nestl) Source: Analysis of Trade Investment Team

Together we win Nestl Romania Srl The TTS and Cost to Serve not goes only from IBR to the customer but also from Nestl Source: Interview/Finance/IBR/Trade Investment Team Analysis/All Nestl Business Included IBR (100% Sales) Nestl 5.2 % TTS 8.1 % CTS 20% Gross Margin of the Nestl Sales Customer Nestl X% TTS Nestl X% CTS 6.7 % not directly attributable

Together we win Nestl Romania Srl Interviews and workshop were conducted to clarify TTS in the CCS Source: Workshop with National Sales Manager and 1 Key Account The workshop brings transparency, shifting some figures from Performance to Non-Performance Through the contract analysis and Workshop we defined the Performance and Non-Performance

Together we win Nestl Romania Srl Cost to serve was difficult to analyse as there is no activity based costing in place Groundwork Cost to Serve Analysis Establishment groundwork Cost to Serve Commercial Policy Analysis Nestl and Competitors Commercial Policy Analysis Bad goods / Delayed Payments General View of all channels

Together we win Nestl Romania Srl Distribution costs - Allocation the right cost per customer and channel is of paramount importance to get a clear cost transparency in all areas Current situation: No Activity Based Costing in place Action taken for Trade Investment: We assessed the distribution cost by customer through an excel database based on the information by IBR. Impact on Trade Investment: Decisions should not be based on numbers below Net Contribution Source: Market

Together we win Nestl Romania Srl We (Nestl and IBR) used some criterias to split the Distribution Cost as drops and SFAA Source: Trade Investment Team/SFAA We access the IBR P&L and split the distribution cost according to the some key parameters. Number of drops and time spend in each channel. Managing damage/good returns Time spend with the customer/channel Number of drops - We took the number of invoices by customers by day and considered just it as one drop when there were more than one invoice (to eliminate the coffee-double invoicing impact). Time Spend - We collected from time spend by channel through the SFFA and applied it to the Distribution Cost

Together we win Nestl Romania Srl Current situation:- No Activity Based Costing Action taken: - Template for KAM & Sales Administrative time allocation (69 people) Selling expenses - we tried to identify the real selling expenses by customer using a template we did for Nestl Romania and the SFAA Impact on IC3:- The selling expenses in the CCS are better allocated than before but still not 100% accurate! Source: Time Allocation/SFAA/Market - SFAA to measure the time the Field Sales Force spend with the channels

Together we win Nestl Romania Srl There is great variance in Cost to Serve between the Channels Groundwork Cost to Serve Analysis Establishment groundwork Cost to Serve Commercial Policy Analysis Nestl and Competitors Commercial Policy Analysis Bad goods / Delayed Payments General View of all channels

Together we win Nestl Romania Srl Based on IBR numbers we calculated the directly attributable costs per channel Source:Market CCS 2002 and IBR numbers - (Kiosks - Nov 2002 - Feb 2003) Hyper and Supermaket Petrol Station Food and General Stores Wholesalers Subdistributors Total Cash and Carry Pharma Total Trade Spend IBR Kiosks/Shared (Nov-Feb) Total TTS + CTS 17% 10% 16% 9% 20% 8% 13% Cost to Serve - IBR

Together we win Nestl Romania Srl The size and the payment has a strong impact in the results Source:Market CCS 2002 and IBR numbers Total Trade Spend IBRCost to Serve - IBR Billa Carrefour Interex Mega Image La Fourmi Gimrom Artima Univers all Intermacedoria Nic SM Naturvita Trei G

Together we win Nestl Romania Srl Due to the size RomGros has a bigger Cost to Serve Source:Market CCS 2002 and IBR numbers Total Trade Spend IBRCost to Serve - IBR Metro Selgros RomGros

Together we win Nestl Romania Srl There were a big shift in the Cost to Service due to the shift in to the Shared Division Source: Customer contracts and CCS by Trade Investment Team - 2002 % of GPS Shared GPS Bad goods Distribution costs Selling Expenses 100 0.02 7.7 6.1 Mass 100 0.06 12.1 16.1 2002 Nov-Feb

Together we win Nestl Romania Srl We also analysed the commercial policy of our major competitors Groundwork Cost to Serve Analysis Establishment groundwork Cost to Serve Commercial Policy Analysis Nestl and Competitors Commercial Policy Analysis Bad goods / Delayed Payments General View of all channels

Together we win Nestl Romania Srl Source: Trade Marketing Department Nestle Romania Transparent Terms - Most of the suppliers do not show the trade terms on the invoice (Kraft, Unilever, Elite) Cash Discount - is not uniform in the market (Elite - 2%, Kraft - 1%-2%, European - 3%, Amigo - 2%) Payment Terms - Some competitors have a better trade terms than we have (Elite - 7/14 days, Unilever - Up to 30 days for Key Accounts and 14 days for the Wholesalers, Alka - 14/21 days...) Some competitors have different behavior in the Trade Terms area

Together we win Nestl Romania Srl Part of the analysis were also the delayed payments and the bad goods Groundwork Cost to Serve Analysis Establishment groundwork Cost to Serve Commercial Policy Analysis Nestl and Competitors Commercial Policy Analysis Bad goods / Delayed Payments General View of all channels

Together we win Nestl Romania Srl Creating transparency in the Bad Goods can bring opportunities to deal with this important topic Source: Finance and Supply Chain / IBR information There is no formal tracking of bad goods (we do not know how much we pay by channel/customer) There is no clear rules in the Bad Good policy Bad Goods informed by the customers Sales check and approve the bad goods E-mail is sent to supply chain Supply chain approves the bad goods by e-mail Sales changes the bad goods Sales receives email and agrees with customer The process finish with the Bad Goods being given to the sales people!!

Together we win Nestl Romania Srl The main chunk of delayed payments in 2002 - lies in Cash and Carry Source: Finance/IBR system//Trade Investment Team/(Include PetFood)/Interviews Hyper & Super Mini, Food & GS Cash & Carry Wholesaler Subdistributor Pharma Kiosks and Open Mktg IBR* Petrol Station Average Days over agreed time limit (due date) 74 in '000 Euros 31 8 75 1,5 11 15 59 Delay Payments from the customers to IBR * - Delay form IBR to Nestl - Money transit - 2 days 274.5

Together we win Nestl Romania Srl The settlement discounts are transparent although they hide the non-performance discount Big customers understand and get the 4% discount Immediate - 4% discount 7 days - No discount Source: Finance, Customer contracts, interviews Romanian Inflation (2002)18% Romanian Interest (2002)33% Nestl Discount (0 days)4% This policy was made in April 2000 when the interest was 50% and the inflation in 2000 was 40.7% A change in the policy will impact the net contribution of IBR

Romania Srl Together we win Moving forward...

Together we win Nestl Romania Srl Time commitment from team members meetings twice per week for 2-3hours each selected team member must attend - no substitutes Team members should be open to change Local team leaders take over as soon as possible with Project Together we win International members mentoring We will be involving more members of staff in Change Management Teams

Together we win Nestl Romania Srl ToolsPeople In general CMTs will focus their work on three things... Detailing key templates, meetings to support the processes (& structures) Processes Detailing processes, including determining who does what, & when Detailing structures, skills, roles & responsibilities The three areas overlap - change management teams will look at 1, 2 or all 3

Together we win Nestl Romania Srl within our suggested 9 key areas of development in the recommendations phase Promotion Planning & Evaluation Business Planning Product Portfolio Optimisation Branch Grading Customer Management Sales Roles & Responsibilities Sales Force Territory and Route to Market Management Commercial Policy and Trade Investment DC Efficiency = potential impact on IBR

Together we win Nestl Romania Srl Overall timelines will include key involvement steps and work that continues when the internationals leave 04.04 Action Plans Intro Analysis phase Recommendations phase Analysis Steering Committee presentations Recommendations Change Management Teams Project team works independently to keep the "neutral" perspective Part-time involvement of key people via CMT for the transition of ownership 16.05 Change Management Teams Implementation 23.04

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Romania Srl Together we win Analysis Presentation Summary for Rand Sherif Analysis Presentation Summary for Rand Sherif.

Documents

business slide

nestl romania srl stageswho

rand sherif slide

analysis phase

manager calin cristescu

current way

provisional timing analysis

current situation