BI in FMCG Industry — Raj Basu Company

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BI in FMCG Industry - Raj Basu ©Company confidential 1

Major changes in FMCG industry • Indian Consumer changes • Larger disposable income • Middle class segment bulging • Greater global exposure • Greater appetite & demand for global products • Differentiated product & service requirements • FMCG space dynamics • Explosion of products • Explosion of markets (Kirana & Organized Retail) • Rush of new players • Global players bringing process and intelligence maturity • Increasing competition • Supply chain bottlenecks • Impact on FMCG strategy & operations • Increasing Flexibility • Outsourced Contract Manufacturing • Demand driven supply chain • Improving Customer service • Retail outlet segmentation • Customized Retail service • Supply Chain segmentation • Greater Organizational Alignment • EPM, Divisional Scorecards • Integrated Sales & operations planning • Greater Customer focus • Demand analysis • Product charateristics ©Company confidential 2

EPM/BI needs of the FMCG Industry • Rapid EPM adoption for Org Alignment & strategy management • Balanced Scorecards (Strategy Maps, Business Scorecards) • Budgeting, Planning & Consolidation systems • Operational performance management • Financial Analytics for greater ROCE • Working Capital Optimization (C 2 C Cycle) • Debtor Analytics • Payables Analytics • Inventory Optimization • Treasury Cash Analysis • Operations Analytics • Plant Performance Management • MES Analytics • Customer Analytics • Trade Promotion Analytics • WD Profitability • Outlet performance • Channel Analysis • Integrated Consumer Demand & market performance visibility • Supply Chain Analytics • Supply Chain Performance Management • Product Cost & profitability analysis • Operational Planning efficiency • Inventory visibility & optimization • Supply Network efficiency • Spend Analytics ©Company confidential 3

Key BI Trends in the FMCG industry • Major Indian FMCG players are making rapid strides in enabling Business & Competitive intelligence as a key differentiator • Most of the large FMCG companies are centralizing BI as a shared service on a common platform across it’s businesses and brands with a razor like focus on getting Best-In-Class service • Most of them are already deep into state of art Business Intelligence • ability to check on an outlet consumption pattern on a handheld before meeting the owner • ability to analyze secondary sales based promotions rather than primary uptake • ability to provide outlet based actionables rather than market level inputs like OOS, poor AVF scores etc • Global players are even further ahead • Trade Promotion Analytics, Segmentation based promos, supply chain bottleneck alerts, route optimization and advanced forecasting and predictive demand models ©Company confidential 4

EPM Objectives Adopt New Technology For Develop Superior Manufacturing Flexibility Consumer Insight FMCG majors are interested in implementing a Performance Management (PM) program across the enterprise, in order to align goals and strategies with operational objectives, plans and responsibilities within the organization. Incr Share Holder value Effective Model To Identify Capability Measure Performance Development Needs Sustained Profitable growth Improve Productivity Accelerate Organic Growth Key Business Benefits HR Effectiveness Process Efficiency Organizational Alignment Customer Satisfaction Strategy Communication Financial Performance Objective Measures Initiatives Business Performance ©Company confidential Level 0 : Corporate Strategic Objective Level 1 : Business Functional Objectives Unit Objectives Individual Objectives Strategy Communication Closed Loop - Feedback Vision Level 2 : Units 5

Classic Balanced Scorecard Framework Key Imperatives Perspective Key Questions Vision & Strategy Results Effect Financial “Profitability” “Return on Capital Employed” To Satisfy our shareholder, what financial objectives must we accomplish Customer “Consumer Satisfaction” “Market Share” To achieve our financial goals, what customer needs, must we satisfy Internal Process “Efficiency” To satisfy our customers, what internal business processes, must we excel in Cause Action Learning & Growth “Knowledge” “Innovation” To achieve & maintain our competitive position, how must the organization the Organization learn & improve Balanced Scorecard incorporates a double loop feedback around both internal business processes and external outcomes ©Company confidential 6

Decision-making challenges at ITC Businesses Organizational Alignment • Business Performance Mgmt – Executive, Functional, Unit Level Scorecards • Employee Performance Mgmt – Personal Scorecards Fact Based Decision-Making / Actionable Intelligence Tactical • Targeted Promotions & variable pricing • Outlet Segment specific service packages • Profitability based supply routes • Demand driven inventory management Performance Visibility • Promotion & marketing impact tracking • Supply Chain bottlenecks • SKU velocity • Logistics impact on operating margins • Store Allocation efficiency • Reservation Pipeline vs Forecast • 360 deg Customer Views • 360 deg Supplier views • Cost variance tracking • Order-To-Fulfillment, Cash –To-Cash, Procure-To-Pay cycle times Operational • Exception based operations at the Factories • Stock optimization across supply chain nodes • Fast tracking complaints from High Value Cust • Personnel workload mgmt across stores Analytical Capability • Outlet Service Route Optimization • Outlet Segmentation • Analytical Forecasting • Six Sigma Analytics • Price Elasticity Analysis • BCG Portfolio Analysis • Human Productivity Analysis • Loyalty Analytics Integrated Analysis across value chains • Impact of Food FG Warehouse location on Food Categories operating margins • Impact of Leaf stock at ILTD on price elasticity at ITD • Impact of potato sourcing bottlenecks on Bingo Freshness ©Company confidential 7

EPM driven BI at a US Food Distribution Major Strategic Goals Demand Initiatives Some Analysis Areas Sourcing Initiatives Some Analysis Areas • General Analysis • Sales Force Effectiveness • Trade Promotion • Spend Analysis • Supplier Performance Effectiveness • Marketing Effectiveness • Market Analysis • Item & Brand Analysis • Bid Analysis • Competitive Analysis Strategic Metrics/Scorecards Supply Chain Initiatives Customer Initiatives Some Analysis Areas • Delivery Effectiveness • SKU rationalization • General Analysis • Segmentation Analysis • Contract Compliance • Business Review Analysis • Customer Profitability Effectiveness • Backhaul Effectiveness • Carrier Performance Analysis Business Functions - Functional Metrics, Reports, Alerts, Scorecards, What-If Analysis, Guided Analysis IT Functions - Dashboards, BI Tools, Databases, ETL, Data Models, Metadata ©Company confidential 8

A single BI System should support the EPM Model Performance Management Model A common data set populates the entire model enabling : - • • Scalability • EPM, Data, BI Model • System Performance Integration • data linkages • business rules BI Layer (Business logic, number crunching, metric/report generation ) Outlet Sales, Invoices, Purchase Orders Inventory, Transport Orders, Stock Tr Orders, Salary Advice, re-distribution Costs Business Plan, Forecast, A/R, A/P, Visual Merch Audit, Production Plans, Market Research, Production Jobs Data Warehouse (Data Storage) Data Extraction, Cleansing, Staging, Transformation & Loading ETL Layer Source Systems SAP Visual Audits ©Company confidential Sales Force & CRM WD System Excels PLM HRMS 9

Some benefits of integrated modeling for FMCG • Impact of raw material shortage on retail offtake • Analysis of a request for a short runner on • Factory productivity vis-à-vis customer service • Correlate/factor-in market demand (IMRB) into AE performance • Decision on extending Promotions based on raw material availability • Analyze impact of sales strategies/norms on Market standing • Analyze synergy opportunities like sharing warehouses, transportation sharing and backhauling, reverse logistics etc across categories ©Company confidential 10

Typical BI Transformation Roadmap Major Organization Transformations…. . Brand Management Transformation Process Improvement Transformation Supply Chain Transformation …Need a Performance Mgmt & BI Transformation to empower & measure effect of transformation !! BI Transformation Roadmap EPM & BI Workshops Awareness Creation Appreciation of Best Practices Intent Generation Define Performance Mgmt Model Define BI Strategy Framework Metrics Models Scorecards Alerts Linkages/Alignments Analysis Flows Dashboard Designs Biz Case/ Info Needs Get Mgmt Buy-In Technology Drivers App Architecture Data Architecture Platform Selection Vendor Selection Initiatives Roadmap Effort Estimation ©Company confidential Create BI Governance Model Identify Sponsor Create Steering Comm Create Execution Comm to all stakeholders Set expectations/Time Create Project Plan BI Implementation Business Requirements System Requirements Design Development Testing Deployment BI Change Mgmt Training Communication Biz Process Changes Expectation Mgmt Usage Monitoring BI Support Processes Risk mgmt BI Value Mgmt KPO Customer Service Business Impact BI Perf Mgmt BI Ro. I BI Enhancements 11

BI Program Change Mgmt Challenges & Strategy An effective Change Management strategy for BI Program starts at the Kickoff and ends at satisfactory system adoption and positive customer feedback. However, Change Management is an ongoing process and is part and parcel of an effective BI Governance Model. bringing people on board, convincing them of the value, goading them to use it the right way, measuring business improvements. BI, being a non-critical business application needs cultural process changes to leverage the investment, which makes it even more challenging and critical aspect of achieving success Change Key Questions for Change Mgmt Planning What will change ? Why will it change ? How will it change ? Who will change it ? Change is enabled through 4 key change perspectives People Participation • • • Business Sponsorship Business Buy-In, Ownership Identify Business Change Agents Remove Business IT gaps Remove fear of Retrenchment Create Senior Mgmt Champions to spread the message ©Company confidential Processes • • • Identify and Plan for process changes early on Create effective communication channels and joint project plans with other process owners Cultural and governance change needs to go along with process changes Systems • Identify & Plan all system changes early on (Frontline systems may need to have more checks and measure to improve data quality) • Create effective communication channels and joint project plans with other System owners • Communicate all system changes to the Organization Culture • • • Business Driven Program Showcase Business Benefits Keep business in loop during change in scope Embed in biz processes like sales review etc Pre-empt business needs Communicate effectively Repeated Multi-media training Measure adoption, usage and publish figures Publish success stories 12

Enterprise BI Strategy for ITC Business Intelligence Mission (SYSCO): Strategy BI Provide a single view of timely, Needs/ BI accurate, BI Business Case BI Vision consistent & actionable. Painpoints across information the enterprise through a common user interface accessible anytime, anywhere to Plan Execution authorized users, thereby enabling fact Execution Model Implementation based decision making. Scope Definition Roadmap & Project Plan (Inhouse/Outsource) Vendor Selection BI Budget Architecture (Data, System) Tool Selection BI Business Case Service & Maintenance Service Model (Outsource, Managed BI Svc) Customer Focus ©Company confidential • Unique Sales & Customer view Service Quality • Unique Spend Improvement & vendor view Management • Supply chain wastes • Asset utilization gaps • Higher employee productivity Governance Model • Greater IT ROI Organization Risk Value • Single Analysis Platform across biz Alignment Management Assessment areas • Excel intelligence democratization ! Service Vendor Selection 13

So What’s Driving Trade Promotions? § § § New product introductions. – In 2003, 33, 700 new FMCG items in the US marketplace alone – up from about 32, 000 in each of the previous two years. Declining shelf space. – Median US store size has declined since its 1999 peak of 44, 843 square feet, following nine consecutive annual rises. – Wider assortment range in both North American and European stores constrains shelf space yet more. Private-label products. – Private-label products now account for between 15% and 20% of items sold in US supermarkets, 22% in Europe, and a staggering 42% in the UK. Result - large and rising trade promotion spend – 10 FMCG firms interviewed by Forrester planned 2003/4 trade promotions at 16% gross revenues It all adds up to more than $100 Billion per year – Based on 2003 revenues, the 50 largest FMCG manufacturers. – It’s the single largest element of expense for FMCGs, but the least well controlled. Typically CFOs use a complex tangle of spreadsheets and enterprise app extracts to track trade promotion dollars but have no way accurately to estimate in advance the impact of a planned promotion. CRM based approaches typically just rely on sales estimates of trade promotion impact, thus ensuring that trade promotion accruals and supply chain preparations are based only on guess work Source : Forrester Research – No wonder senior execs get mauled by regulators and shareholders alike ©Company confidential 14

Closed Loop Process BEGINS with Analyzing Performance and Opportunities in the Business 2 1 Analyze Opportunities for Brands and Markets Analyze Performance - During and end of promotions FINANCE 7 Execute Deals 3 Plan, Simulate and Evaluate Scenarios TRADE MANAGEMENT SALES OPERATIONS MARKET INSIGHTS BRAND / CATEGORY MANAGEMENT Collaborate and Approve New Plans Generate new Promotions Plan/Forecast Negotiate & Sell in Deals 6 4 5 Analytics Operational Linking Insight and Performance Management with Decision Support ©Company confidential 15

Despite such large spends, not many manufacturers have succeeded in measuring promotion effectiveness Only 7% of Manufacturers say that they are highly effective at evaluating promotion productivity. • Of all investments, promotional spending is the highest whilst knowledge about their return and effectiveness is the lowest. • For promotions, the driver is what was done the previous year • Most promotions are NOT evaluated in an objective and systematic fashion • There are no management KPI’s to measure the business. “Half of all promotional expenditure is wasted …. . . the problem is nobody knows which half!” Source: Brandweek November 25, 2002/Cannondale Study ©Company confidential William H. Lever, Chairman, Unilever Corporation 16

Substantial Opportunity for Manufacturers Research suggests that FMCG manufacturers can achieve up to a 40% increase in return on sales through improved trade promotion management. § 80 -90% of promotions are not profitable for manufacturers § Consumers are unaware of 51% of items bought on sale § Only 50% of manufacturers measure event “Manage Promotion Driven Costs” “Redeploy Inefficient Spending” profitability 1. 5% 2. 5% Potential Manufacturer Value Chain Improvement (as a Percent of Sales). 4 -. 6% . 2 -. 3% 10. 0% ROS . 3 -. 6% Percent of Sales . 2 -. 4% Manufac-turing Labor Freight Fixed COGS Salesforce . 1 -. 2% . 2 -. 3% 0 -. 1% Up to 2. 5% Distribu-tion Inventory Diverting and labor Carrying Cost All Other Source: Accenture Industry Experience and Trade Promotion Study ©Company confidential 17

Some typical Trade Promotion Effectiveness KPIs Process Steps KPI Description Type of KPI Source of Information Role Impacted § Measure the efficiency of the entire supply network to ensure that product is available on the shelf at all times during the promotion § Shelf Availability § % of time that product is available on shelf in the correct shelf during the total time of the promotion § Operational § Retailer Inventory System by SKU by shelf location § Brand Manager § Account Manager § Supply Chain Planner § Retail Buyer/Merchandiser § Measure the profitability of each promotion for the entire lifecycle § Promotion ROI § Incremental Revenue less campaign costs, creative costs, § Tactical/Strateg ic § Manufacturer Sales & Costing systems § Brand Manager § Account Manager § VP - Marketing § Measure the lift in sales volume due to the promotion § Sales Lift% § % increase in base demand post promotion § Tactical § Retailer POS systems § Brand Manager § Account Manager § Demand Planner § Measure the extent of cannibalization due to promotion on other SKUs/Stores § Sales Drop % § % drop in base demand of nonpromoted SKUs in promoted Stores and promoted SKUs in nonpromoted Stores § Tactical § Retailer POS Systems § Brand Manager § Account Manager § Demand Planner § Measure the extent of Forward Buy by Stores/Accounts § Store/Accoun t Volume § Mismatch between POS sales volume and Store/Account Buy volume during promo period § Operational § Retailer POS systems § Manufacturer Sales systems § Demand Planner § Account Manager ©Company confidential 18

Trade Promotion Analytics – Hierarchy of Needs Operational • What will happen A N A L Y T I C S • What is happening • Why did it happen Demand Management Strategic TP Scenario Planning Customer Behaviour Analysis Inventory Management Ensure shelf availability Measurement of Sales KPIs – Store level, SKU level, Lift%, Drop% Determine and analyse Causals Determine Order Status • What happened Tactical Measure promotion impact on sales volumes ©Company confidential Evaluate Promotions Effectiveness Determine Promotion Costs Evaluate Store/Account Profitability 19

TPM Applications – Key Interfaces Customer Master Data Product Master Data ERP Store Promo Adoption POS Channel Spends Consumer Off-take Price Master Data Sales Performance SCM Inventory Customer Analytics @ Brand-Account level Stock-Out data Historical Sales Consumer Billing Price Trend CRM Base Demand Operational Application Order Backlog Inventory Availability Analytical Application Total cost of promotion Planogram Compliance Sales Returns Forecast Accuracy Retailer Invoice data Store level forecasts Market/Cateogry/Channel Outlook Retailer Panel Data Consumer Panel Data SYNDICATE DATA Retailer Promo penetration data Reports Exception Alerts FMCG Enterprise Applications ©Company confidential Retailer Applications What-If Analysis FMCG TPM Application Causal Analysis Third Party Optimisation TPM Analytics Data 20

Thanks ! ©Company confidential 21

Maturity Evolution of BI B 1 2. 0 Pervasive BI (Business Planning, Collaboration) Increasing MIS/EIS Reports BI Affordable, Democratized, Mobilized Data –> Insight, Alerts, Root Cause Analysis Static Reports -> On-The-Spot Answers BI –> EPM/CPM BI -> Greater Integration Business Intelligence -> Intelligent Business (Exception based Mgmt, predictive analytics etc) 1990 ©Company confidential 1995 2000 2005 2015 22

Evolution of BI BI 2. 0 Maturity Excel What-If Analysis Collaborative BI Excel Text Intelligence OLAP Reports EPM CPM Predictive Analytics Static Mgmt Reports Expensive Data Integration Web based OLAP Reports Dashboards Scorecards Alerts Analysis Trails Exception Based Management Mainframes Data Silos Integrated Data Repositories Packaged ERP BI Real Time Analytics 1990 Increasing Desktop OLAP Reports 1995 2005 2015 ©Company confidential 2000 23

Unilever Akili Unilever Global Working together with the business to fulfill consumercustomers Akili : Network : Connects all regional business units and its under one globalfaster pool cheaper whishes better, data and Global Intelligence Framework Enablers Common Identification Standards Supply Chain Intelligence Global Consumer, Shopper & Registry. Analytics Trade Market Trends & Consumer Segmentation Trade Dynamics, promotion management Network Planning & Optimization Single Platform – all regions Competitive Intelligence Global Data Synchronization Standardized Processes & Systems Global Information Service Center Supply Chain & Demand Planning Global Manufacturing Dispersed R&D Regional Demand Planning ©Company confidential Integrators Collaborative Shopper Value Creation Integrated Sourcing Hubs Regional Supply Chain Data Pool Category & Channel Marketing Regional Distribution Structure Regional Category Support Regional Channel Strategy Category Development By country Country Specific Intelligence Brand Activation Plans Common Business Performance Models Collaborative Planning 24

Nestle – GLOBE (Global Business Excellence) GLOBE - Objectives Implementation of harmonized Nestle Business Excellence Best Practices – All Regions Managing Data as corporate assets – Implementation of single data standard – All Regions Implementation of standardized information system & technology – all regions Supply Chain Marketing Effectiveness Portfolio Enhancement Strategic Partner § Demand Planning § Manage risks to targets § Global Sourcing § Effective hedging § Working capital optimization § SKU optimization § Customer profiling & categorization § Consumer & shopper behavior § Trade dynamics & channel intelligence § Micro Marketing intelligence specific to regional needs § Drive operational channel marketing programs § By Geography, Category & by Product groups § Help to optimize product offerings § Identify new opportunity for growth of existing products in the global portfolio § Help in M&A § Identify Cash Flow issues § Currency risks § Aid in investment opportunities Key Initiatives Business Benefits Effective decision making ©Company confidential Enables Shared Services Speed to share & Implement & reduces cost of operations new best practices 25

Reebok – Global Business Intelligence Sales & Marketing Analytics Purchase Analytics Supply Chain Analytics Vendor Analytics Financial Analytics my. SAP portal SAP BW SAP R/3 - AFS (Apparel & Footwear solution) [NAM, Canada, Japan, Europe, Russia] Enterprise Exchange Service Sales Force Customers Logistics Vendors Forwarders Customs Financial Institutions Key Benefits a. b. c. d. e. Consolidated picture of performance – By brand, By Geo, By Period Fact based decision making – exception based Supply Chain management Driving accountability across organization –metrics ownership from top to bottom Better vendor control – vendor scorecarding Improved sharing of best practices within organization – visibility across organization ©Company confidential 26

Managed-BI Service Model for ITC Client’s Client Security Control Quality Control (Scorecards) Methodologies & Processes ITC Infotech Governance Measures SLAs, Joint Planning, Escalations, Business requirements, Financials, Change Management ©Company confidential Client Partner Client Business Team ITCInfotech Client Management Team • BI Program Management • Business Analysts • BI Support BI Application Portal (ITD, FBD, Hotels, LRBD) Complexity Firewall Managed Service Vendor Facilities Analytics Services Knowledge Services • Business Analytics Services (Segmentation, Price Elasticity etc) • Business Optimization Services (Stock optimization, Route Opt) • SME (SCM, CRMetc) • Analytics Experts Reporting Services • Generate On–Demand reports, Alerts, Dashboards • Maintain ETL Reporting, Database applications • Architects • BI Engineers • ETL Engineers • DBA Data Management Services • Master Data Management & Datacenter Systems • Data Quality Management • Data Administrators • Data Analysts Infrastructure Services • Software Server Management • Hardware & network Management • Hardware Engineers • Network Engineers 27

Business-Analytics Scope of Integrated BI q Financial Analytics q Customer Analytics q Profitability Analysis q WD Profitability Analysis q Financial Planning Accuracy q Retail Outlet Analysis q Working Capital Analysis q Customer Service Effectiveness q Brand Analytics q Trade Marketing Analytics q Category & Portfolio Analysis q Sales Analysis q Marketing Spend Effectiveness q Salesforce Analysis q Brand & Market Analysis q Channel Analysis q TM&D Performance Scorecard q Category Analysis q Operational Analytics q Production & Planning Efficiency q Trade Promotion Analysis q Workforce Analytics q Unit Level Scorecard & Automation q Employee Attrition q New Product Lifecycle Analysis q Workforce Productivity q Vendor Scorecard q IR Effectiveness q SCOR Measures q Resource analysis ©Company confidential 28

Business-Analytics Scope of Integrated BI q Distribution Performance q Project Performance Mgmt q Supply Chain Planning efficiency q Project Planning efficiency q Supply Chain effectiveness q Project Spend & vendor Analysis q Supply Network efficiency q Project Execution effectiveness q Warehouse Performance q Project Risk Analysis q S&OP Analysis q Forecasting Accuracy q Planning Adherence & efficiency q Variance Analysis q Corporate Sustainability Performance q Carbon footprint, variance & credit analysis q Sustainability Spend Analysis q HR Performance q Recruitment Efficiency q HR Spend analysis q Working Environment Regulation Effectiveness q Payroll Efficiency ©Company confidential 29

Integrated EPM/BI Capability Corp Performance TM&D Perf HR Perf Sales Emp Perf Finance CBSC, Food, PCB Perf Brand Perf Mgmt Distribution Planning Perf Category Perf Promo Perf Dist Perf Branch Perf WD Perf Channel Perf WSD Perf Warehouse Perf Outlet Svc Eff Route Eff Mkt Research Perf Network Eff NPD Perf Finance Portfolio Perf Operations Perf Procurement Perf Plant Perf HR Perf R&D Perf Workforce Eff Logistics Perf Scheduling Eff Carrier Eff Emp Eff AM Perf AE Perf ©Company confidential 30

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