Dumex VietnamRoute To Market

2012 Distributors

Network Model

DANONEVietnam

05Distributors

82S. Distributors

RETAILERS

2010Layer

Danone

Distributor

S. Distributor

Retailer

From Vision to Action 2011-2012

2011-2012 “Transition Phase” Management

Loyalty / credibility ofcurrent Distributor / Sub-Dist. Massive terminationdistribution contracts ofsub-distributorsIdentify potentialDistributor candidates whoare qualified & exclusive forDanoneSustainable growthField Sales force costincreased.

Potential Risk Key Points to Manage

Fully transparent to avoid rumors and fears. Prepare a positivecommunication of the newchosen model. Make up plan of Dist.to play a role of Sub-Dist. Build the selection processto assess & select right Dist. Carefully explore all thehidden cost for all scenarios. People, process and toolto facilitate

Simulation of Resources Required # Salesman # Vehicles Routing Plan per Cluster/Channel Delivery: * FTE * Cost to serve

Pilot “Direct From Distributor” model

5

Map Universevs Actual Stores Provision Store (incl. Dumex) DRC Ideal Route Planning

Territory(pilot)

Territory(pilot)

Pilot

Audit As-Is Picture of success compliance OSAUncovered StoresDelivery: $$ missed opportunity of Existing Model

1

2

3

4

6

May 24th

Jun 15th

Jun 15th

Jun 15th

Jul – Aug

Sep 1st

Pilot run in Nhatrang city on progress with clear KPIs

Resource Simulation – Staffing model

Criteria of setting the territory

1. Area (Km2)

2. Population

3. Income

4. Total FMCG Sales 2008

5. Transportation

6. Radius distance (max)

7. Dumex Sales Contribution

8. Potential Growth

9. Potential outlet coverage

Long An

Vinh Long

Dong Thap

Ben Tre

Tra Vinh

Binh Thuan

Binh Phuoc

Tay Ninh

Phu Yen

Kon Tum

Gia Lai

Quang Binh

Dak Nong

Ninh Thuan

Hai PhongHa Nam

Nam Dinh

Hung Yen

Soc Trang

Bac Lieu

Ca Mau

Hau Giang

Quang Nam

Quang Tri

Da Nang

Hue

Cao Bang

Lao Cai

Lai Chau

Lang Son

Son La

Yen Bai

Tuyen Quang

Bac Kan

Thai Nguyen

Phu Tho

Vinh Phuc

Bac Giang

Hoa Binh

Ha Giang

Dien Bien

Bac Ninh

Thai Binh

Khanh Hoa

Dong Nai

Binh Duong

Hai Duong

Can Tho

Ha Tay

Ha Noi

Binh Dinh

Tien Giang Ba Ria - Vung TauAn Giang Ho Chi Minh

Dak Lak

Quang Ninh

Nghe An

Ha Tinh

Thanh Hoa

Ninh Binh

Kien Giang

Quang Ngai

Lam Dong

Ha Noi

Ho Chi Minh

Da Nang

Can Tho

Nha Trang

Option 1: 06 Distributors directly Sell to retailer in nationwide

Q1/11

Q3/11

Q4/11

Q1/12

Q1312

62.2%

70.2%

76.5%

95%

100%

Parameter to show the %

contribution of FMCG Sales

for each stage

Option 1: 06 Distributors directly Sell to retailer nationwide

1. Keep the same 06 distributors & territories.

2. Distributors have to directly sell to retailers in 20 key cities.

3. Distributors have to set up DC in the rest small provinces.

Assumptions

1. Risky in cash collection & credit to retailer.

2. Out of control due to big territory (>10 provinces) because in every DC they must have the reliable people to manage.

3. Focus on big cities only.

From distributor’s points of view

It’s hard to achieve the objective of “direct from Distributor” in Nationwide

Distributor sales: 0%Sub-distributor sales: 100%

Distributor sales: 67.3%Sub-distributor sales: 32.7%

Dist. sales: 100%Sub-dist. sales: 0%

Option 2: Implementation Plan 2011-2012

Option 2: 12 Distributors directly Sell to retailer nationwide

1. Re-allocate from 06 to 12 territories

2. 01 territory has key cities to cover other small provinces – Hub and Spoke

3. Distributors have to cover all assigned provinces or nothing

Assumptions

1. Be able to manage cash collection & credit to retailer

2. Be able to control b/c the acceptable size of territory

3. Acceptable costs for DC & manpower requirement in small provinces

From distributor’s points of view

Be able to retain current / recruit new distributors as our “direct from Distributor” target with an

acceptable size of territory

Binh Thuan

Lam Dong

Dong Nai

Ba Ria - Vung Tau

Quang Nam

Quang Tri

Da Nang

Hue

Binh Phuoc

Tay Ninh

Binh Duong

Binh Dinh

Phu Yen

Kon Tum

Gia Lai

Quang Ngai

Thanh Hoa

Nghe An

Ha Tinh

Quang Binh

An Giang

Kien Giang

Khanh Hoa

Dak Lak

Dak Nong

Ninh Thuan

Ho Chi Minh

Quang Ninh

Hai PhongThai Binh

Ha Nam

Nam DinhNinh Binh

Hai Duong

Hung Yen

Cao Bang

Lao Cai

Lai Chau

Lang Son

Son La

Yen Bai

Tuyen QuangBac Kan

Thai Nguyen

Phu Tho

Vinh Phuc

Ha Noi

Bac Giang

Hoa Binh

Ha Giang

Dien Bien

Bac Ninh

Ha Tay

Long An

Vinh Long

Dong Thap

Tien Giang Ben Tre

Tra Vinh

Can Tho

Soc Trang

Bac Lieu

Ca Mau

Hau Giang

Option 2: Implementation Plan 2011-2012

Sales Field Force 2011-2012

Cause and Effect Analysis of Low Control…

EffectCauses

Low Contro

l1) Un-qualified people

Low sa

lary, Lim

it of S

F cost

margin, Less

training

Image of d

ist. &

working

environment2) H

igh turnover rate

Low sa

lary & KPIs

achievement3) Not loyalty &

Less

Danone’s accountability

Not clear c

areer dev.

Less

motivatio

n

5) In

suffi

cienc

y of

tool

kits

&

stan

dard

s

Not equipped enough

Not tra

nsfer v

alue &

mission of D

anone

6) Foll

ow th

e ex

ecutio

n

way o

f dist

ributo

r

Paid by distributor &

under distributor

4) O

ld m

inds

et &

Adapt

cap

ability

Comm

unication &

KPIs alignment

Factors Causes Importance Ranking

Importance Weighted

Solution (take back or imp.)

Unqualified people • Low salary (limit of SF cost margin)• Under distributor headcount• Less training• Working environment

1 40%

• Improve

• Partially T.B• Improve• Improve

High turnover rate • Low salary• KPIs achievement 2 20% • Improve

• Improve

Old mindset & Adapt capability

• Communication• KPIs alignment 3 15% • Improve

• Improve

Follow the execution way of distributor

• Paid by distributor• Under distributor headcount

4 10%• Partially T.B• Partially T.B

Not loyalty & Less Danone’s accountability

• Not clear career dev.• Less motivation• Not transfer value & mission of Danone

6 10%• Improve• Improve• Improve

Insufficiency of toolkit & standards

• Not equipped enough 7 5% • Improve

Cause and Effect Analysis of Low Control…

60%

Who Who we want to control?

Why we want (nor not want) to control?

Salesman No • Credit control/Trust of distributor• High turnover rate

PG

Yes

• Key sales driver at shop and convert consumer fr. competitor• Nutrition advice to consumer• Excellent execution of Picos in key store• In store promo execution• Get supports of shop owner

SS

Yes• Control execution of salesman with Danone’s expectation• Provide training & coaching for salesman• Tracking daily sales activities

PS

Yes• Control execution of PG with Danone’s expectation• Provide training & coaching for PG• Tracking daily sales activities at key shops (DRC)

ASM

Yes

• Lead the sales Team to achieve the targets• Manage & improve performance of distributors together with building relationship with them• Manage the market & customer• Provide directions and solutions• Motivate the wining spirits of the sales Team

Admin Yes • Support in building the Sales Information system

Cause and Effect Analysis of Low Control…

Headcount OptionsImplementation Plan 2011-2012

Current Sales Force Cost (4.6% on GS) Structure including:

1. Salary:• ASM, SS and PS: 1.0%• Salesman: 1.2%• PG: 1.2%

2. Sales Incentive (KPIs):• ASM, SS, Salesman and PG: 1.2%

Hidden costs need to be verified:1.Logistic cost from Sub-distributor to retailer (includes DC/branch in the remote areas)2.Others costs related departments of Danone such as Sales, HR, SC and Finance…

Reimbursement salary & incentive by Danone is a option to improve the control…

Sales Organization Options

Option 1

Sales Organization OptionsOption 2, 3 & 5 Option 6

Sales Organization Options Option 4

Current Cost Structure

5.50%

0.40%

0.50%

3.60%

0.80%

0.60%

0.50%

0.10%

1.10%

2.80%

Discount / Rebates to SD

100% Distributor Gross Profit

Business Income Tax

Interest expenses

Admin overhead

Logistics

Staff overhead

Local Promotion

Stock return

Net Profits 1.8%

Sales Force 4.6%

0.70%

0.90%

Total Trading term: 15.9%

+ Basic margin: 12% + KPIs: 3.9%

- Primary sales: 1.7% - Secondary sales: 1.2% - Weighted distribution:

0.5% - Purchase outlets: 0.5%

Distributor Management Roadmap

How to select the best distributor?

• Potential candidates

• Expectations and benefits

• Assessment

Establish the Contract

Set up the network

Manage the distributor “Distributor Activation”

Select the best Distributor

What to write in the contract?

• Mutual commitments

• KPIs• Trading

conditions• Respect Danone

guidelines

How to start successfully the business?

• Connectivity• Distributor

responsibilities• Distributor manager

How to motivate and control the distributor?

• Understanding financials

• Motivation• Business planning• KPI’s

Change the roles and Responsibilities of Distributor within Opt.2, 3 & 5

Change the roles and Responsibilities of Distributor within Opt.6

Change the roles and Responsibilities of Distributor within Opt.4

What’s the key responsibilities of Distributor?

Perfect implementation of the service package

Service package scenarios to be analyzed later P&L simulation impact…

Expectations: “Must have” criteria Exclusivity for Danone categories

Danone must represent at least 30% of their business

Ability to achieve specified coverage (geographically, by channel, etc.)

• (But no full country coverage with one single distributor)

Data sharing / IS capability / PDA & DMS cost sharing

Give a permanent access to their processes and people (according to local regulation)

• Need to grant Danone supervisors a permanent access to inventories, invoices, pricing conditions, fleet, people

• The cost to serve and value chain analysis

Quality of there is/IT systems and logistical infrastructure and their ability to manage the cool chain (Dairy) and general quality controls and traceability

Respect of WISE &WHO requirements

“Selection” criteria Financial performance

Capacity to invest to follow Danone growth

Willingness to adopt to Danone standards in the future

Customer service performance

Supply chain coverage, scalability & efficiency

Ability to support quality standards

Attitude to work with Danone

Professionalism of their management and staff

Knowledge of market, customer base and quality of customer data

Relationships and alliances with key customers

Credibility in the marketplace and length of time established

WISE & WHO compliance

Roles and KPIs of Distributor Manager

Managing the Distributor

Managing the Market

Managing the Relationship

DistributorManager

• CANN growth

• Operational efficiency

• Returns

• Service level

• Distribution costs

• Payment behavior

• CANN growth

• Operational efficiency

• Returns

• Service level

• Distribution costs

• Payment behavior

• Weighted Distribution

• In-store execution

• Weighted Distribution

• In-store execution

• Business planning

• P&L improvement

• Training and information

• Sales Force motivation

• Business planning

• P&L improvement

• Training and information

• Sales Force motivation

And change to the new way of working...

Sales

Operations

Marketing

Finance / Systems

The Distributor Danone

Sales

Distribution

Marketing

Finance / Systems

‘Distributor’

Contact

Sales

Manager

From individual selling

Sales

Operations

Marketing

Finance /Systems

Sales

Distribution

Marketing

Finance /Systems

The Distributor Danone

‘Distributor’

Principle

Distributor

Manager

To Team selling

Relationship

Developing the long term relationships with Distributor

2008 2010 2011 2013 onwards

Competition / Confrontation

Consolidation

Co-operation

Biz Partnership

Trust

Timing