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									   Together we win




   Analysis Presentation
  Summary for Rand Sherif


Romania Srl
                       The goal of Project “Together we win is to
Together we win



                      improve the way of doing business in Nestlé
                        Romania with the following key objectives
       Identify and analyse current Commercial Processes and
        recommend improvements
       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 Nestlé Romania,
        including reviewing the current way of doing business

      Nestlé Romania Srl                                            Slide 2
Together we win

                         Considering the tight timelines we did not
                                               cover the following areas

                 Analysis of Foodservice
                 Analysis of Nestlé Purina Petcare (if not linked with
                  route to market of Nestlé Romania)
                 Analysis of the activity of Medical Delegates




      Nestlé Romania Srl                                                  Slide 3
Together we win
                   The tight timelines were only feasible because of
                    the excellent support from Interbrands and within
                        Nestlé. We would like to especially thank the
                           following people for their valuable support
                           •   Rand Sherif - General Manager of Interbrands
                           •   Anca Hîrtopeanu - Country Manager of Interbrands
                           •   Florentina Dobre - Budget and Reporting Manager
                           •   Mihaela Iancu - Budget Analyst
          Interbrands
                           •   Gerald Gallagher - Logistic Manager
                           •   Andreea Calin
                           •   Dana Barbu
                           •   Ioana Pielescu
                           •   Cristian Busu - National Sales Field Force Manager
                           •   Antonio Matei - Key Account Manager
                           •   Celina Mercone - Budget and Controlling Manager
                           •   Calin Cristescu - IT specialist
                           •   Stefan Alexandrescu
       Nestlé Romania
                           •   Alina Moldovan
                           •   Gabriela Benicky
                           •   Mariana Ardelean
                           •   Petre Manda
                           •   Cristina Besciu
      Nestlé Romania Srl                                                            Slide 4
Together we win

                    We are now at the end of Phase 1 after the
                                                 first 2 1/2 weeks of the project...
                                                                                       Provisional
                             Stages                      Who is involved?
                                                                                         Timing
                                                                                    4 April to 23 April
                      Analysis of the current       “Together we win” team works         ending with a
                     situation from a „neutral      independently gathering facts     presentation to and
                           perspective‟                 from the organisation        commitment from the
    Analysis                                                                          Steering Committee

                                                                                      24 April to 16
                                                    “Together we win” team + part         May
                        Development of
                                                      time local members work            ending with a
                    recommendations for the
                                                         together in Change           presentation to and
                           business
Recommendations                                      Management Teams (CMTs)         commitment from the
                                                                                      Steering Committee


                    Documentation of Action
                                                    “Together we win” team plus
                       Plans and Project
                                                    local CMT leaders (part time)
                                                                                    17 May to 22 May
 Implementation           Summaries
    Planning

                     The recommendations
                                                       Project Implementation
                          become reality
                      - training, coaching,
                                                       Manager with part time           23 May …
                                                       support of local CMTs
 Implementation          changing habits

      Nestlé Romania Srl                                                                           Slide 5
Together we win
                             For the analysis phase we have allocated our
                              resources into 5 sub teams for the last 12 days
                           • Analysis of the current Sales Force, including Field
                             Sales and KA Management                                   Jérôme Puget
                           • Analysis of Sales Rep. territory management
           Sales                                                                         Calin Pop
                           • Customer Management
        Management         • Interactions and coordination between Sales and            Jacek Slota
                             other departments                                         Jaroslav Kollar
                           • Roles and Responsibilities

                           • Establishment of customer and channel contribution
                             statements
            Trade          • Analysis of current Trade Terms and Conditions               Alex Costa
         Investment          (Commercial Policy)                                       Valentin Dumitru
                           • Analysis of the process of TTS allocation
                           • Promotion analysis


                           • Analysis of the current distribution set up including a    Anuj Mathur
        Distribution         gap analysis versus the current distribution coverage
                           • Branch management analysis
                                                                                       Cosmina Oprea
        Management                                                                     Cristian Cucos

                           • Variety analysis
         Product Mix       • Portfolio analysis                                        Afrodita Blasius
                           • Complexity cost analysis

                           • Review of current business planning process (MBS
           Business
                             and OPL planning including Category, Brand, Channel        Mircea Boboc
           Planning          and Customer)


      Nestlé Romania Srl                                                                             Slide 6
Together we win

                   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 Nestlé
                           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

      Nestlé Romania Srl                                                          Slide 7
Together we win

                                                                         We have used a variety of tools to enable a
                                                                                                                                                                                    our analysis...
                                                                                  Vice President



                      Culinary business unit
                                                                         Assistant Vice President


                                                                                 Senior Manager
                                                                                                                                                            Issue Analysis
                                                                              Assistant Manager
                             Retail Business
                                                                           Senior Brand Manager


                                                                                  Brand Manager

    Retail Marketing                                    Retail Sales     Assistant Brand Manager

                                                                                                    0% 10% 20% 30% 40% 50% 60% 70% 80%90% 100%
                                                                                                                    Percentage of Group



           Structures
                                                                                                    Profiles                                     Mapping                                         Systems
                                                                                                                                                                    Trade Spend



                                                                       People                                                                     Process               Information


    AVA                                                                    SFAA                                                                   Ownership (ARCI)                               Portfolio
    (Added Value Analysis)                                                 (Sales Force Activity Analysis)
       Coordinate, prepare and attend internal meetings

            Visits to trade, store checks, branch, factory                                                                                              I      C
                                                                                                                                                                      Customers                  Review
                                                                                                                                                        A
                  Travelling (excl between home / work)

    Various administrative tasks (filing, translations, etc.)

               Meetings and communication with agency
                                                                                                                                                        C
                                                                                                                                                               R
                                                                                                                                                               R      Interviews
                         Attend Nestlé training courses
    Monitor sales performance of accounts and territories

           Reading trade articles, magazines and press

                        Develop and train direct reports
                                                                                                                                                                                           PNS
                      Meetings with Nestle Sales Team

                Prepare for and attend sales conferences                                                                                                                     7-11
                        Monitor performance of products

                           Develop promotional material                                                                                                                              Wellcome
                     Plan consumer promotion programs

                Develop new product development briefs                                                                                                                        CRC   CK
                                         Attend tastings

      Develop product specifications (packaging, recipes)
                                                                                                                                                                         GD(KK)
 Meetings with top management (division, market, centre)

          Prepare new product business and project plan




                   Nestlé Romania Srl                                                                                                                                                                  Slide 8
                                            …which has been thorough and
 Together we win



                                                                         comprehensive
                                                                              No. Completed

            Individual               Internal interviews                           38
            Interviews               External Interviews                           20
              Group
                                     Internal group discussions                    6
           Discussions
                                     Added Value Activity Analysis (Nestlé         23
       Activity Analysis              employees in head office)
                                     Added Value Activity Analysis                 20
                                      (Sales people at Interbrands)
                                     Sales Force Activity Analysis                 63        = 1304
                                                                                              calls!
                                     Scorecards (ARCI)                             24
            Additional -             Entity File Nestlé                            79
                                                                                   585
             various
                                     Entity File Interbrands                      225
                                     Workshops (PPO, Trade Inv., IBP)              4
                                     Branch observations                           4
                                     Customer contribution statements              83
Source: Project Together we win

        Nestlé Romania Srl                                                                    Slide 9
   Together we win




      Distributor
     Management
Romania Srl
 Together we win

                             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
         Nestlé

Source: Project Together we win interviews and analysis
       Nestlé Romania Srl                                            Slide 11
 Together we win

                    We are paying a flat 20% on our sales to our national
                         distributor, however we have not come across any
                         KPI’s suggesting a break-up of the commission by
                                                   activity / expenses type
                              2.27%
                                                        Other Indirect Expenses
                     0.14%
                                                        Net Financial Cost
                       0.54%
                                                        Prof. Expenses
                          1.22%
                                                        Other Expenses
                             1.87%                      Logistics
                      0.33%                             Dep. Assets
                                2.55%                   Cars & Vans
                     0.30%                              Travels

                                       4.70%            Salaries

                                           5.80%        Discount




              0.00% 2.00% 4.00% 6.00% 8.00%
Source: IBR P&L for Nestle Division (Jan-Feb‟03 YTD)
       Nestlé Romania Srl                                                  Slide 12
Together we win

                     Our first step was to analyse the coverage of
                                               the Nestlé products
                   Gap Analysis Vs
                   Nielsen Universe

                  Branch Profitability
                      Analysis


                   DC Management


            Branch logistics set-up
                & operations




      Nestlé Romania Srl                                       Slide 13
 Together we win
             For our distribution drivers like Nescafé 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.
                                                                                  Nestle coverage Vs ACN universe


                                                                              COUNTRY
                                                                                                                   69,505
                                                                                                  24,929          36%
         100%
 100%                             36 % Nestle direct                                            17,220
                   90%                                                       VALAHIA
                                   coverage Vs. ACN                                         5,859            34%
  80%                                  universe
                                                                         TRANSILVANIA
                                                                                               13,646
                                                                                             6,498          48%
  60%                      51%
                                                                             MOLDOVA
                                                                                                17,920
                                       37%                         36%                      5,958      33%
  40%

                                                                            BUCURESTI
                                                                                               11,868
    On Nestle and BAT estimation                                                                      26%
                                                                                            3,052
  20% only 1,000 from 6,300
      Petrol Stations can carry                          5%
                                                 3%                                           8,851
           Food products                                                       BANAT
                                                                              CRISANA
                                                                                                      ACN
   0%                                                                                       3,562 40%
      C&C    HYP & SM & FOOD &    KIOSK &    PETROL    OTHERS   TOTAL
                                                                                                      NESTLE
                MM      GENERAL    OPEN     STATIONS
                                  MARKET                                                0    20,00040,00060,00080,000
Source ACN & IBR
        Nestlé Romania Srl                                                                                         Slide 14
Together we win
                   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
% Nestle direct coverage
Vs. AC Nielsen Universe


 80-100%


 50-70%


 40-50%


 30-40%


 20-30%


Source ACN & IBR
      Nestlé Romania Srl                                               Slide 15
Together we win

                       Our second step was to analyse the branch
                                                      profitability
                   Gap Analysis Vs
                   Nielsen Universe

                  Branch Profitability
                      Analysis


                   DC Management


            Branch logistics set-up
                & operations




      Nestlé Romania Srl                                      Slide 16
Together we win

                            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-Sep’02 period.
           Analysis of this period’s 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-Sep‟02
      Nestlé Romania Srl                                              Slide 17
Together we win

                            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.

In Full Time Equivalents:


                                                                            Other
                                PC                                          Logistics Branch
                     Pre-       Opera-          Store    Delivery Delivery Func-      Super-
         VSR         seller ASS tors   Cashiers Keepers Preseller Drivers tions       visor  Total
TOTAL             41     76   18 68.44    30.32    45.35        54    25.28    119.22       2 480.61




Source: IBR Branch info for Sep‟02 for Mass and NPP
      Nestlé Romania Srl                                                                     Slide 18
 Together we win

                    Payroll & vans accounted for nearly 80% of
                                                                  the Total Expenses.
      Breakdown of Total Expenses                            Expenses as % of Net Sales

                   7% 2%
                                          Jan-Sep’02:              0%
        12%                                                         1%
                                                                      2%
      2%                                                           0%
                                              47%
                                                                               5%
                                                                  0%
                                                                                      8%

          29%                                                  0%            5%            10%
                              1%


                    Payroll   Travel   Vans    Dep. Assets    Logistics   Other Expenses   Prof. Exp.


Source: IBR Branch info. for Jan-Sep‟02
       Nestlé Romania Srl                                                                        Slide 19
Together we win

                   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.

      Nestlé Romania Srl                                               Slide 20
Together we win

                        The set-up definitely improved profitability of IBR but it hasn’t
                               brought us closer to achieving the coverage objectives that
                                                     will provide us an edge in the market

   Mainly personnel costs / van                    Pre - July „02
                                                                              30 IBR
    expenses have resulted in                           NESTLE               Branches
       higher profitability.
                                                        Division


           26 IBR                                                           SHARED                 28 IBR
                               MASS Division                                                       Branches
          Branches                                                          Division

            Nestle exclusive: Bigger retailers                     Shared along with other
            including Key Accounts                                 companies: Smaller retailers.
                       VSR     Pre-   ASS     PC    Cashi Store Delive Delive Other Branc Total
                               Seller         Opera ers   Keepe ry     ry     Logist h
                                              tors        rs    Pre-   Driver ics    Super
                                                                seller        Functi visor
                                                                              ons



             '03-'02     -29       -6       -3 -11.38   -2.16   -4.75   26 -21.43 17.49   -2 -36.23
Source: IBR Branch Head count info. for Jan-Sep‟02/Jan-Feb‟03
      Nestlé Romania Srl                                                                                 Slide 21
                   Creation of the SHARED division has helped
Together we win



                                                        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

                                                      3000    2790
                                                                     2411
                      Avg. Sales/Month (Jan-Sep‟02)




                                                      2500
                                                      2000
                                                      1500
                                                      1000                         414
                                                                                            291
                                                      500
                                                        0
                                                                     Net Sales




                                                                                          Expenses
                                                             Gross




                                                                                 Margin
                                                             Sales




                                                                                  Net



                     Source: IBR Branch P&L Jan-Feb‟03                                      Total
                    Net Margin = Gross Sales X 20% - (Gross-Net) Sales

      Nestlé Romania Srl                                                                                Slide 22
Together we win

                     The third step was to analyse the current DC
                                                        approach
                   Gap Analysis Vs
                   Nielsen Universe

                  Branch Profitability
                      Analysis


                   DC Management


            Branch logistics set-up
                & operations




      Nestlé Romania Srl                                      Slide 23
 Together we win

                               Route to market - the long and winding
                                                                                                          road
                                                Bucharest
                            Welz                                       IBR DC
  InterCompany                                                                                         22,500
                                                                                                       outlets



                          - > 2000 pall spots               - 1850 pall spots

 - 23 factories, in 13
 countries                                                   50 trucks /mth

                                                                                   26 branches



   Timisoara                       80 trucks /mth


                                                                                   - 5200 pall spots




                           Nestle                                        IBR
                         ownership                                     ownership
Source: Supply Chain
        Nestlé Romania Srl                                                                                   Slide 24
 Together we win
                    IBR DC costs are high and not transparent as we only
                         receive a total amount without tracking the DC costs
      [Based on OP 2003 volumes]                                   separately
               [eur/month]                          IBR DC                              TOTAL
                                      # pall        eur/pal         Total IBR

             STORAGE                                                       12,500         37,731
                Petfood                       750             7.1           5,357         19,470
               Nestlé                      1,000              7.1           7,143         18,261

             HANDLING                                                           3,500     16,544
               Petfood                     1,255          1.3                   1,646      7,876
               Nestlé                      1,414          1.3                   1,854      8,668

             TOTAL DC                                                      16,000         54,274



                    Benchmark: < 5 eur/pall
                     (handling + storage)



         IBR DC - relatively fixed costs, same infrastructure could cope with
          a higher volume
         IBR DC cost - not tracked separately

Source: Supply Chain and IBR
        Nestlé Romania Srl                                                                      Slide 25
Together we win

                                  And finally we looked at the branch
                                                         management
                   Gap Analysis Vs
                   Nielsen Universe

                  Branch Profitability
                      Analysis


                   DC Management


            Branch logistics set-up
                & operations




      Nestlé Romania Srl                                          Slide 26
 Together we win

                                 Branch Operations Supervisor, shared
                    among principals, is the key logistic person
           Key responsibilities                   in a branch...
                  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

       Nestlé Romania Srl                                                  Slide 27
 Together we win

                                    No overall responsibility for branches
                                                                            management
       Sales force (IBR + Nestlé)                                Operations staff


                                                                   Branch Operations
           Area Sales Mgr (*) / KAM                                  Supervisor (IBR)
                    (Nestlé)


                                                            Area Operations Mgr (IBR)
                   Nestlé Sales Mgmt
                                                                  Logistics Mgr (IBR)
                                           Distributor Operations Team -
                                         interface between Nestlé and IBR
   (*) except for shared divisions
Source: job description; branch visits
       Nestlé Romania Srl                                                               Slide 28
 Together we win

                                   High number of sku’s, and warehouses’
                                  layout leads to relatively high space needs
              pall        pall             needs                                  pall      pall                needs
                                                      capacity                                                          capacity
  MAIN       spots       spots     sqm      vs.                         MINI     spots     spots       sqm       vs.
                                                     utilization                                                       utilization
             needs       avail.            avail.                                needs     avail.               avail.
Bucuresti          900      959     2300       94%          42%     Alba Iulia        50          50      113     100%        44%
Bacau              187      290      576       64%          50%     Arad              68          63      139     108%        45%
Baia Mare          155      185      374       84%          49%     Bistrita          52          70      132      74%        53%
Braila             223      185      371      121%          50%     Focsani           74         100      252      74%        40%
Brasov             312      330      594       95%          56%     M Ciuc            54          97      233      56%        42%
Cluj               259      360      780       72%          46%     Resita            35          48      128      73%        38%
Constanta          248      285      608       87%          47%     Satu Mare         62          70      157      89%        45%
Craiova            178      204      332       87%          61%     Tg Jiu            31          44      134      70%        33%
Deva                89      100      155       89%          65%     Tr Severin        34          45       84      76%        54%
Iasi               253      265      463       95%          57%
Oradea             164      171      306       96%          56%
Pitesti            159      146      231      109%          63%     TOTAL          4,570       5,195   10,647      88%        49%
Ploiesti           236      240      489       98%          49%
Sibiu              154      294      548       52%          54%
Suceava            112      130      217       86%          60%         7.7% of 2002
                                                                       IBR expenses,                            Needs = 1
Tg. Mures          181      181      307      100%          59%
Timisoara          300      283      624      106%          45%
                                                                       or 1.5% out of                          avg. mth of
                                                                      With few
                                                                         20%margin                           sales, to cope
Branches whs. cost/mth [eur]               42,644                   exceptions,                               with peaks,
                                                                   Despite low rent per sqm,
                                                                      available                               except Buch
Max capacity [pallets]                      5,195                   storage cost per pallet
                                                                     space fits
                                                                         is significant
                                                                                                               and Timi (3
Storage cost [eur/pall]                        8.2                   our needs                                   weeks)
Source: IBR P&L 2002; branch data
       Nestlé Romania Srl                                                                                                Slide 29
 Together we win

                                             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 sku’s stocked in all branches (*), while on some (infant, imported
              confectionery) sales can be below 10 units/month!
                              [2002 sales in units]     Jan      Feb    Mar    Apr    May     Jun
                       Bacau
                       PIURE-LEGUME CU PUI 125G           41       1       1     19     37          27
                       PIURE-LEGUME CU SUNCA 125G          6      11      75      8      2           6
                       PIURE-CARTOFI CU CARNE 125G        11      27      11      6    -             6
                       Deva
                                                          52
                       NESTLE - GRAU CU 3 FRUCTE SI LAPTE 250G    59      38     53    54           30
                       NESTLE - OREZ 200G                 58      61      42     45    61           41
                       NESTLE - OREZ CU 3 FRUCTE 200G     59      72      50     43    54           54
                       NESTLE - GRAU CU MIERE 200G        40      64      34     37    39           38
                       AFTER EIGHT 200G                    4      34      18      9    10       -
                       Tg. Mures
(*) exception infant   SUC BANANA,PORTOCALA 200G          21       6      3      10    15           7
specialties, only in   SUC MAR SI STRUGURE 200G           19       2      5      10    10       -
branches with Pharma   SUC MAR 200G                       18       8      1       7    14           1
division
Source: IBR            AFTER EIGHT 200G                   15      16      2       4     9           3

       Nestlé Romania Srl                                                                    Slide 30
 Together we win

                              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
       Nestlé Romania Srl                                             Slide 31
   Together we win




   Sales Force Analysis

Romania Srl
Together we win

                                                           Key findings from Sales team


                 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 Nestlé orders for 1/3 of all customers visited by Shared division




Source: Project Together we win interviews and analysis

       Nestlé Romania Srl                                                           Slide 33
Together we win

                            We conducted a Sales Force Activity
                                       Analysis across our 3 Divisions




                     Sales Force
                   Activity Analysis


                       Territory
                      Management




      Nestlé Romania Srl                                          Slide 34
Together we win
                            Our study covered 1304 calls performed
                                                               over 2 weeks
   Sales Force Activity Analysis (SFAA) is a systematic observation and analysis
                       of the daily activity of our sales people.

                                S C O P E OF THE STUDY
             Sample Size                  Divisions            17 Branches
                                  • Mass Division
                                                               in 7 Regions
    • 63 observations -
                                  • Shared Division      Brasov, Ploiesti, Pitesti,
      representing 31% of                                Alexandria, Slobozia,
      the total Field Sales       • Pharma Division
                                                         Suceava, Targu Mures,
      Reps                                               Bacau, Constanta,
                                                         Tg. Jiu, Bucuresti, Iasi,
    • 1304 outlets visited                               Timisoara, Oradea,
                                         Functions
                                                         Craiova, Cluj, Arad
                                  •   7 KAE
                                  •   23 Mass PSR
                                  •   4 Mass VSR
                                  •   24 Shared VSR
                                  •   5 Pharma VSR




      Nestlé Romania Srl                                                         Slide 35
Together we win

                         The number of visits per day varied across
                                                    the types of Sales Reps


                           Number of Visits / Day
                                                                   PSR perform
                                                                only 8% more calls
                  KAE                10                              than VSR


            MPSR                                           26

            MVSR                                      22
                                                                  Equal for VSR
             SVSR                                     22        in Mass & Shared
                                                                    Divisions
             PVSR                              16




     Source: SFAA

      Nestlé Romania Srl                                                           Slide 36
Together we win
                   Overall, 83% of the Sales Reps did not visit
                                 the same amount of outlets as they
      In 75% of observation,
                                 planned at the beginning of the day
        at least 1 customer
                                                                          Measuring only
       was visited twice, to
                                                                        successful calls, we
           collect money         % of Reps who did not follow         do not have a consistent
                               the # of visits planned for the day         tracking of this

                   KAE                                       67%


                  MPSR                                                 82%


                  MVSR                                       67%


                  SVSR                                                       92%


                  PVSR                                                80%


                         0%    20%         40%         60%           80%      100%



      Nestlé Romania Srl                                                                Slide 37
Together we win

                    The Hand Held Computer was used in 81%
                             The hand Held computer
                           is used only to take orders,
                                                                                of the calls
                            which explains the lower
                                  usage by KAE
                   100%
                                                            91%              89%           90%
                   90%                           84%
                                  81%                                     80%         81%
  A decision       80%                        73%               73%
maker is met in
                   70%
85% of the calls
                   60%
                   50%
                   40%        37%

                   30%                                                 24%
                                          21%             19%                      22%
                           19%
                   20%
                   10%
                     0%
                              KAE            MPSR          MVSR          SVSR        PVSR
                           Use customer file                    Use a Hand Held Computer
                           Talk to decision maker
      Source: SFAA

      Nestlé Romania Srl                                                                    Slide 38
Together we win

                            Our 7 day credit policy generates a high
                           frequency of visits in all the types of outlets
                                     and limits our potential coverage
  6.2 on
 average          # Days since
                                           Every store
                    last visit
                                         is on the route
                                         plan each week
                                                               # Days since
                                                                 last visit                        10


                    9.0                                                          6.8   6.9   7.1
                                                                           6.7
                                  6.7                          5.6   5.7
            5.7             5.8                          5.1
   4.3                                             4.8
                                             4.1


 KAE      MPSR MVSR        PVSR   SVSR




 Source: SFAA

      Nestlé Romania Srl                                                                     Slide 39
Together we win

                   From our snapshot, Sales Reps on average
                                             spend 5 hours in-store per day
                                              Total Time Allocation
                                      100%   26                        14     18
                           Breaks                      34        23
                                             34                        31     39
                            24 m                       43        55
                                      90%
    Reps go                Private
to branch every            Travel     80%
                            40 m             198                 245   241    271
  morning and                                         230
    evening                           70%
                           Working
                            Travel
                              4h      60%
                                             126                 127          129
  More than 2                         50%                              138
                           Admin                      141
   hours in                 Time
                           2h14 m     40%
   Admin.
                                      30%

  Reps spend               In store          304                 371          353
                             Time
                                      20%
                                                      267              287
   on average              5h12 m
                                      10%
  41% of their
  time in store                        0%
      Source: SFAA                           KAE      MPSR      MVSR   PVSR   SVSR

      Nestlé Romania Srl                                                       Slide 40
Together we win

                             Invoices Payment, briefings and truck
                                   loading (for VSRs) are the main
                             components of the “administrative” time
                           % of total Administrative time
                                             Function Observed
Data                                         KAE       MPSR      MVSR    PVSR    SVSR    Grand Total
Average of Payemt invoices                          6%       22%     24%     26%     22%        21%
Average of Filling return goods forms               0%        0%      0%      7%      1%         1%
Average of Handling custom queries                 11%        8%      8%      5%      3%         6%
Average of Day planning                             6%        9%      6%      6%      7%         8%
Average of Establish Calls Objectives               8%       10%      3%      6%      6%         7%
Average of Review/ Record Call achievements         8%        8%      3%      7%      6%         7%
Average of Briefing from supervisor                10%       17%      7%      6%     11%        12%
Average of Discussions/meetings/phones              4%        6%      4%      3%      5%         5%
Average of e-mail& other correspondence             6%        1%      2%      1%      1%         2%
Average of Order transmission                       5%        4%     18%      1%      3%         4%
Average of Truck unloading/loading in branch        0%        0%      8%     13%     22%        10%
Average of Stock Management in branch               0%        1%      4%      2%      2%         2%
Average of Truck maintenance                        0%        0%      2%      8%      9%         4%
Average of Admin. work at home                     35%       10%      0%      6%      2%         8%
Average of Others                                   2%        3%     10%      4%      0%         2%




      Source: SFAA

      Nestlé Romania Srl                                                                               Slide 41
                              The MPSR’s show the most balanced time
Together we win



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

      Nestlé Romania Srl                                                                  Slide 42
Together we win
                      SVSR spend more time on order taking &
                                  money collection than MVSR, at the
                                                   expense of display
      SVSR spend           100%
       no time on                  12%    12%              Handling orders
    products visibility    90%                   21%    for several principles
                                    5%    5%
                           80%      3%    5%     2%      % of Other Tasks
                                    3%           1%
                                    6%                   % of Managing shelf-NON
                           70%            13%    9%
     Stronger focus                 5%                   displays Total
                                                 3%
  on money collection               6%                   % of Managing shelf-displays
                           60%                           Total
 in the Shared Division                          12%
                                                         % of Checking stock storage /
                           50%            24%
                                   19%                   Warehouse Total
                                                         % of Checking stock shelves
                           40%                   24%     Total
                                                         % of Hard selling Total
                           30%
                                                         % of Money collection Total
                           20%     40%    40%
                                                         % of Order taking Total
                                                 29%
                           10%
                                                         % of Preparing delivery &
                                                         delivering Total
                            0%
                                   MVSR   SVSR   PVSR
      Source: SFAA

      Nestlé Romania Srl                                                           Slide 43
Together we win

                            In 32% of their calls, SVSR spend 0 time on
                                                                           Nestlé products


                                     % of calls with 0 time spent on ...

              Even higher                                          51%
               for PVSR                      Better result for             44%
                                                  P&G
                                 38%
                           32%
                                               25%                                   SVSR
                                                     20%                             PVSR




                           0 Time Nestlé        0 Time P&G         0 Time Gillette


      Source: SFAA

      Nestlé Romania Srl                                                               Slide 44
Together we win

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

      Nestlé Romania Srl                                                   Slide 45
Together we win

                            The Nestlé success rate of calls is low
                                       across Mass and Shared division
                                 % Successful calls per principle

           For Nestlé, success rate
                                                                           SVSR: 70 %
           is 23% lower with SVSR
                                                   SVSR: 71.5 %              in total
              vs. MVSR or MPSR
                                                     in total   70%
                                63%      63%
                                                    56%       56%
                                                                       53%
                                                48%                               Nestlé
                                                                                   P&G
                                                                                  Gillette
                                                        27%




                                MPSR    MVSR        SVSR            PVSR
      Source: SFAA

      Nestlé Romania Srl                                                                     Slide 46
Together we win

                       Shared VSRs sell on average 2.3 Nestlé
                                                                   SKUs per call

                            Average Number of SKUs Sold Per Call




                              7.8
                                                                   7
       MVSR sell on                   6.5         6.4
     average 2.8 more
     Nestlé SKUs than
      SVSR per call...


    …but the same                           2.3
   average # of SKUs                                          2         2
        for P&G                                         1


                             MPSR MVSR    SVSR         PVSR
                              Nesté    P&G     Gillette
      Source: SFAA                     Taking into account all visits, with or without order

      Nestlé Romania Srl                                                                 Slide 47
Together we win

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




                                   KAE    MPSR    MVSR         SVSR               PVSR

      Nestlé Romania Srl                                                                         Slide 48
Together we win

                              We have also analysed our territory
                                           management approach




                     Sales Force
                   Activity Analysis


                       Territory
                      Management




      Nestlé Romania Srl                                      Slide 49
Together we win

                                   Average turnover by salesman type is
                       unbalanced due to the customers size on
           Monthly average sales value by
                                                  their portfolio
          salesman type Q1 2003 (Rol mio)                              Very low average
                                    174.                               for shared VSR.
                   94.
                                                   432.
                                                                           Sales areas are still
             2,560.                                589.
                                                                            unbalanced even
                                                                            within each sales
          Pharma       Mass VSR   Mass PSR   KAE    Shared                      division.

 Minimum and Maximum sales value by salesman type Q1 (monthly tarcking)
    Branch                 Min                         Max
               Value (Rol mio)   # cust    Value (Rol mio)     # cust
KAE                       1,024       29               7095           15
PSR                          242      107              1228          113
VSR                          283      112               599          114
VSR Shared *                 51       108               600          109
Pharma *                      75        72              352           92
Source: IBR Database

       Nestlé Romania Srl                                                                   Slide 50
Together we win

                                     We have a major coverage overlap
                                between the Mass and Shared divisions

         30% of Mass customers                                                The exact number
                                                                             is not yet available
        universe & 36% of Shared
            customers universe



             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.
Source: IBR Database

       Nestlé Romania Srl                                                                     Slide 51
Together we win

                             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               Visit frequency is
                                                                       not linked to customer
                          low level of available cash/out of stocks    potential and order
                                                                              frequency
                          easy to measure/check
                          initiatives execution (i.e. new product launch, price
                           increases)



Source: Sales management

       Nestlé Romania Srl                                                              Slide 52
Together we win

                            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

       Nestlé Romania Srl                                            Slide 53
Together we win
                        Only 50% of the customers of Mass division
                         were invoiced in each of the 3 months of Q1
                                                                            All are
                                                                      visited on weekly
          Common customers                                                   basis
       represents 83% out of the
    total turnover of Mass Division

                                                    Total customers per Q1
                                      Cust size       KAE       PSR      VSR Grand Total
                                      A                260        805       35      1100
                                      B                190      7308       547      8045
                                      C                 43      1748       202      1993
                                      D                 33      1876       288      2197
                                      Grand Total      526     11737     1072      13335
    + 3000 customers were                    Common customers on monthly base Q1
     customers invoiced only          Cust size       KAE       PSR      VSR Grand Total
     once per Q1                      A             88.8%      81.1%    82.9%      83.0%
    + 3000 customers were            B             39.5%      67.9%    54.5%     66.3%
     invoiced in 2 different          C             11.6%      22.4%    17.3%     21.6%
     months of Q1                     D              0.0%       2.5%     2.4%       2.4%
Source: IBR Database
                                      Grand Total   59.1%      51.6%    34.4%      50.5%
       Nestlé Romania Srl                                                         Slide 54
Together we win

                                      In Shared division only 34% of the
                            customers are working on a monthly basis
                                                             with us
     Lowest level of stability in                Common customers
     coverage is coming from                accounts for 66% of the sales of
                                                    the division‟s
      the smallest customers.
                                                   Nestle turnover
      Most constant ones are
           B customers.


            Common customers during Q1 2003 - Shared division
                                             Common
                            Total                            Working 2     Working 1
                                        customer each
                       customers                               months         month
                                               month
         A                      15                47%              13%          40%
         B                    2867                56%              22%          22%
         C                    3348                41%              28%          31%
         D                    5228                18%              28%          54%
         Total               11549                34%              26%          39%
Source: IBR Database

       Nestlé Romania Srl                                                        Slide 55
   Together we win




   Trade Investment

Romania Srl
Together we win

                             Some key findings for the Trade Investment
                                                                                            Area

                 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)




Source: Project Together we win interviews and analysis

       Nestlé Romania Srl                                                                   Slide 57
                            We did a comprehensive review of the drivers
Together we win


                             behind current performance and transparency
                                                     across Cost to Serve



                                      Establishment groundwork
                  Groundwork          Cost to Serve




           Cost to Serve Analysis     General View of all channels




              Commercial Policy       Nestlé and Competitors Commercial Policy Analysis
                 Analysis             Bad goods / Delayed Payments




      Nestlé Romania Srl                                                                   Slide 58
                                We are covering a significant part of the
 Together we win



                                     business split in the channels as below:
                                                                               Customers - CCS   GPS/CCS

        The information for the CCS                                              Carrefour        1,1%
              is collected from                                                    Mega           1,2%
                  direct and                                   in % of GPS
       indirect sources (through IBR)                                               Billa         2,5%
                                                                               + 12 Customers     2,6%
                                                                               26 Customers       0,5%
                                             Hyper and Super     8%
                                                                                5 Customers      0,02%
                                            Food and G. Stores   32%
                                              Petrol Station     1%            18 Customers       0,5%
                                              Kioks and OM        6%              Selgros         2.4%
                    Indirect                                     16%
   Nestlé                                         C&C                              Metro          14%
                      (IBR)
                                               Wholesalers       25%             RomGros          0,1%
                                             Subdistributors     7%
                                                                               4 Customers        2,3%
                                                 Pharma          4%
                                                                               3 Customers          1%

                                                                                9 Customers        0.3
Source: Market / Not included Pet Food,
FoodServices and others / Kiosks and Open               Sales Covered by CCS                      29%
Markets included Retail Division - 2002

       Nestlé Romania Srl                                                                         Slide 59
                         The channels that we are covering are split
 Together we win



                                                                                                       as below...
 2002 - in % GPS                                                 Others
                                                  Pharma
                                                                  1%             Hypermarket and
                                                    4%
                                                                                  Super Market
                   Cash & Carry
                                                                                       8%
                      16%

                                                                                                  Food, General
                                                                                                 Stores and Mini
                                                                                                     Market
                         Wholesalers                                                                  32%
                           25%

                                                                                               Petrol Station
                                                                                                    1%
                                                                    Kioks and Open
                                      Subdistributiors                  Markets
                                           7%                             6%

Source: Market / Not included Pet Food and FoodService/ Kiosks and Open Markets include Retail Division - 2002

       Nestlé Romania Srl                                                                                        Slide 60
Together we win
                      It is very hard to get the numbers because
                                    they come from different sources

        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 ...




            Nestlé             IBR       Customer Consumer




Source: Market

      Nestlé Romania Srl                                                       Slide 61
  Together we win
                                   The CCS data was collected from 8 sources
                                                                                                           (not only Nestlé)
CUSTOMER CONTRIBUTION STATEMENT                                                                   Source

                                                                                 Time                             Employees                  COGS System
                                                             IBR                                     Customer                      PPO
                                                                    Nezoom    Allocation   SFAA                     Cost                         and
                                                            (WIZ)                                   Agreements                 Spreadsheet
                                                                             Spreadsheet                         Spreadsheet                 Spreadsheet
    GROSS PROCEED OF SALES
./. General Price Reduction
    NET PROCCED OF SALES
./. Performance Trade Expenses
       Space
       Trade Promotional Activities
       Specific Target Incentives
    Non Performance Trade Expences
       Ad-Hoc Expenses
       On-Going Expences
    Cash Discount (Settlement Discount)
    Total Deals, Allowances and Payment
  REVENUE AFTER TRADE FUNDS
    Bad Debts
    Bad Goods (Sales accountability)
    GROSS CUSTOMER CONTRIBUTION
./. Other direct Customer related Expenses and Allowances
    Distribution Costs Allowances & Expenses
        Distribution Costs
        Distribution Allowances
    Selling Expences
        KAM Team / Trade Marketing
        Field Sales Force
        Cost of other Selling Activities
        Commissions to Agents / Sales Persons
        Merchandising Expenses and / or Allowances
        Cost of Sales Support Fixed Assets
        Cost of Credit
    Product Customisation Costs
    CUSTOMER CONTRIBUTION
./. Variable Cost of Good Sold
    NET CUSTOMER CONTRIBUTION


  Source: Analysis of Trade Investment Team

          Nestlé Romania Srl                                                                                                                 Slide 62
                              The TTS and Cost to Serve not goes only
 Together we win



                                         from IBR to the customer but also from
                                                                         Nestlé
                                                                                   6.7 % not
                                                                                    directly
                                                                                  attributable

                                                                                   5.2 % TTS
                                                  20% Gross
                          IBR
    Nestlé                                          Margin                                       Customer
                      (100% Sales)
                                                     of the                        8.1 % CTS
                                                  Nestlé Sales




                                                                                     Nestlé
                                                                                    X% TTS

                                                                                     Nestlé
                                                                                    X% CTS



Source: Interview/Finance/IBR/Trade Investment Team Analysis/All Nestlé Business Included

       Nestlé Romania Srl                                                                           Slide 63
                        Interviews and workshop were conducted to
 Together we win



                                                                 clarify TTS in the CCS

    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
Source: Workshop with National Sales Manager and 1 Key Account

       Nestlé Romania Srl                                                         Slide 64
                     Cost to serve was difficult to analyse as there is no
Together we win


                                                activity based costing in place




                                     Establishment groundwork
                  Groundwork         Cost to Serve




           Cost to Serve Analysis    General View of all channels




              Commercial Policy      Nestlé and Competitors Commercial Policy Analysis
                 Analysis            Bad goods / Delayed Payments




      Nestlé Romania Srl                                                                  Slide 65
Together we win
                            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
      Nestlé Romania Srl                                                   Slide 66
                           We (Nestlé and IBR) used some criterias to split
Together we win



                                     the Distribution Cost as drops and 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.
                                                            Number of drops - We
   Time spend with the                                        took the number of
    customer/channel                                      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
     Managing                                              by channel through the
 damage/good returns                                      SFFA and applied it to the
Source: Trade Investment Team/SFAA
                                                               Distribution Cost
      Nestlé Romania Srl                                                    Slide 67
Together we win

                                                  Selling expenses - we tried to identify the real
                                selling expenses by customer using a template we
                                             did for Nestlé Romania and the SFAA
                          Current situation:                                                                         - No Activity Based Costing

                          Action taken:                                                                              - Template for KAM & Sales
                                                                                                                      Administrative time allocation (69
                  Channel

  Hypermarket and Super Market (All customers)
                                                             Customers
                                                                         Cristian Busu Costel Burcea Cristian Cucos
                                                                             NFSM
                                                                              8%
                                                                                           PCM
                                                                                            0%
                                                                                                           DOM
                                                                                                          10.0%
                                                                                                                      people)
         Hypermarket and Super Market                                         2%            0%            3.0%
                                                 Billa Romania                1%            0%            0.4%
                                                 Mega
                                                 Carrefour
                                                 Gimrom                       0%
                                                                                            0%
                                                                                            0%
                                                                                            0%
                                                                                                          0.4%
                                                                                                          0.4%
                                                                                                          0.3%
                                                                                                                      - SFAA to measure
                                                 La Fourmi                                  0%            0.3%
                                                 Nic Supermarket
                                                 Alfa Beta
                                                 Univers
                                                                              0%
                                                                              0%
                                                                                            0%
                                                                                            0%
                                                                                            0%
                                                                                                          0.3%
                                                                                                          0.3%
                                                                                                          0.3%
                                                                                                                         the time the Field
                                                                                                                         Sales Force
                                                 Artima                       0%            0%            0.3%
                                                 Interex                      0%            0%            0.0%
                                                 Intermacedonia               0%            0%            0.0%
                                                 Diana Com                    0%            0%            0.0%
                                                 TREI G
                                                 Promoterm
                                                 Naturvita
                                                                              0%
                                                                              0%
                                                                              0%
                                                                                            0%
                                                                                            0%
                                                                                            0%
                                                                                                          0.0%
                                                                                                          0.0%
                                                                                                          0.0%
                                                                                                                         spend with the
                                                 Oncos                        0%            0%            0.0%
                                                 Grand
                                                 Profi
                                                 Piramida
                                                                              0%


                                                                              0%
                                                                                            0%
                                                                                            0%
                                                                                            0%
                                                                                                          0.0%
                                                                                                          0.0%
                                                                                                          0.0%
                                                                                                                         channels
                                                 Mignon Mini Trix             0%            0%            0.0%
                                                 Alimrom                      0%            0%            0.0%




                         Impact on IC3:                                                                              - The selling expenses in the CCS are
                                                                                                                      better allocated than before but still not
                                                                                                                      100% accurate!
Source: Time Allocation/SFAA/Market
            Nestlé Romania Srl                                                                                                                              Slide 68
                       There is great variance in Cost to Serve between
Together we win


                                                                           the Channels




                                     Establishment groundwork
                  Groundwork         Cost to Serve




           Cost to Serve Analysis    General View of all channels




              Commercial Policy      Nestlé and Competitors Commercial Policy Analysis
                 Analysis            Bad goods / Delayed Payments




      Nestlé Romania Srl                                                                  Slide 69
 Together we win
                             Based on IBR numbers we calculated the directly
                                                                      attributable costs per channel

                                Total Trade Spend IBR               Cost to Serve - IBR         Total TTS +
                                                                                                   CTS
 Hyper and Supermaket               6%                 4%                                          10%
 Cash and Carry                          8%                 1%                                      9%
 Wholesalers                         7%               2%                                            9%

 Food and General Stores     2%                                   18%                              20%
 Pharma                      2%             6%                                                      8%
 Subdistributors                          10%                      3%                              13%
 Petrol Station            1%                              16%                                     17%
 Kiosks/Shared (Nov-Feb)    2%                          14%                                        16%

 Total                            5.2%                     7.5%                                    13%

                        0%                                                                20%


Source: Market CCS 2002 and IBR numbers - (Kiosks - Nov 2002 - Feb 2003)

         Nestlé Romania Srl                                                                        Slide 70
 Together we win
                       The size and the payment has a strong impact in the
                                                                                                            results
                           Total Trade Spend IBR            Cost to Serve - IBR

Billa                                        4%                                              2%

Mega Image                        4%                                              5%

Carrefour                                              6%                                              2%

Gimrom                                                 8%                                              2%

La Fourmi                                   8%                                              6%

Nic SM                            5%                                              7%
Univers all                                           6%                                              2%
Artima                                 4%                                              4%
Interex                                      3%                                              2%
Intermacedoria                               8%                                              4%
Trei G                                           6%                                              3%
Naturvita             2%                                             9%

              0%                    25%                     50%                    75%                           100%


Source: Market CCS 2002 and IBR numbers

          Nestlé Romania Srl                                                                                 Slide 71
 Together we win
                     Due to the size RomGros has a bigger Cost to Serve


                                     Total Trade Spend IBR     Cost to Serve - IBR




  Metro                                             8.6%                              1.4%




  RomGros                                  7.2%                            5.8%




  Selgros                                         7.7%                               1.8%




                   0%                     25%            50%            75%                 100%


Source: Market CCS 2002 and IBR numbers

       Nestlé Romania Srl                                                                     Slide 72
 Together we win
                    There were a big shift in the Cost to Service due to the
                                                                      shift in to the Shared Division



                                % of GPS                             2002     Nov-Feb

                                                                 Mass          Shared
                                     GPS
                                                                     100        100
                                 Bad goods                           0.06       0.02
                             Distribution costs                      12.1        7.7
                              Selling Expenses                       16.1        6.1




Source: Customer contracts and CCS by Trade Investment Team - 2002

       Nestlé Romania Srl                                                                      Slide 73
                            We also analysed the commercial policy of our
Together we win


                                                                       major competitors




                                       Establishment groundwork
                  Groundwork           Cost to Serve




           Cost to Serve Analysis      General View of all channels




              Commercial Policy        Nestlé and Competitors Commercial Policy Analysis
                 Analysis              Bad goods / Delayed Payments




      Nestlé Romania Srl                                                               Slide 74
Together we win
                    Some competitors have different behavior in the Trade
                                                                               Terms area


              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...)




Source: Trade Marketing Department Nestle Romania

       Nestlé Romania Srl                                                                 Slide 75
                                Part of the analysis were also the delayed
Together we win


                                                   payments and the bad goods




                                       Establishment groundwork
                  Groundwork           Cost to Serve




           Cost to Serve Analysis      General View of all channels




              Commercial Policy        Nestlé and Competitors Commercial Policy Analysis
                 Analysis              Bad goods / Delayed Payments




      Nestlé Romania Srl                                                                    Slide 76
 Together we win
                       Creating transparency in the Bad Goods can
                           bring opportunities to deal with this important
                                                                     topic

                                                E-mail is                      Sales
                        Sales check                         Supply chain
   Bad Goods                                     sent to                     receives
                            and                             approves the                 Sales changes
  informed by                                    supply                     email and
                          approve                            bad goods                   the bad goods
 the customers                                    chain                    agrees with
                       the bad goods                          by e-mail
                                                                            customer



       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

                                                                           The process finish
                                                                             with the Bad
                                                                           Goods being given
                                                                              to the sales
                                                                                people!!
Source: Finance and Supply Chain / IBR information
       Nestlé Romania Srl                                                                       Slide 77
 Together we win
                            The main chunk of delayed payments in 2002 - lies
                                                                                            in Cash and Carry
  Delay Payments   Days over agreed
                                                                                                      in '000 Euros
  from the         time limit (due
  customers to IBR date)
 Hyper & Super                                                                         13                      31

 Mini, Food & GS                                                        8                                      75

 Petrol Station                                                              9                                 1,5

 Kiosks and Open Mktg                                        6                                                  11

 Subdistributor                                                          8                                     15

 Wholesaler                                                              8                                     59

 Cash & Carry                                                                                    16            74

 Pharma                                                          6                                               8

 Average                                                                          10
 IBR*                                            3.5

                           0                          5                          10         15          20
  * - Delay form IBR to Nestlé
                                                                                                              274.5
   - Money transit - 2 days
Source: Finance/IBR system//Trade Investment Team/(Include PetFood)/Interviews

       Nestlé Romania Srl                                                                                    Slide 78
 Together we win
                              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


                            Romanian Inflation (2002)                         18%


                            Romanian Interest (2002)                          33%


                            Nestlé Discount (0 days)                          4%


                                                                      A change in the policy
                                                                       will impact the net
                                                                       contribution of IBR

            This policy was made in April 2000 when the interest was 50% and the
            inflation in 2000 was 40.7%
Source: Finance, Customer contracts, interviews

        Nestlé Romania Srl                                                                     Slide 79
   Together we win




  Moving forward...
Romania Srl
Together we win
                         We will be involving more members of staff
                                          in Change Management Teams


                 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




      Nestlé Romania Srl                                                   Slide 81
Together we win
                             In general CMTs will focus their work on
                                                                       three things...




         Processes                    People                   Tools


                  Detailing           Detailing             Detailing key
                  processes,          structures, skills,   templates,
                  including           roles &               meetings to
                  determining who     responsibilities      support the
                  does what, & when                         processes (&
                                                            structures)


        The three areas overlap - change management teams will look at 1, 2 or all 3

      Nestlé Romania Srl                                                           Slide 82
Together we win
                              …within our suggested 9 key areas of
                     development in the recommendations phase
                                                                           = potential
                                                                           impact on IBR

                                             Sales Roles
                                                  &
                                           Responsibilities
                        Sales Force
                        Territory and
                                                              Branch Grading
                       Route to Market
                        Management
                                             Customer
                                            Management

                                                                Commercial
                       Product Portfolio
                                                              Policy and Trade
                         Optimisation
                                                                Investment
                                             Promotion
                                              Planning
                                                 &
                                             Evaluation
                           Business
                                                               DC Efficiency
                           Planning



      Nestlé Romania Srl                                                              Slide 83
Together we win
                     Overall timelines will include key involvement
                                     steps and work that continues when the
                                                         internationals leave
       04.04                   23.04                     16.05


           Intro                    Analysis

                   Analysis phase
                                      Recommendations

                                     Recommendations
                                          phase                            Implementation

                                                               Action
                                                               Plans
                                         Change
                                       Management                   Change Management Teams
                                         Teams


       Project team works           Part-time involvement of
          independently               key people via CMT
            to keep the                 for the transition
       "neutral" perspective               of ownership

      Steering Committee presentations
      Nestlé Romania Srl                                                                      Slide 84
   Together we win




 Thank you for your
     attention
Romania Srl

								
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