Zero Based Budgeting (ZBB)

~ Procurement’s New Best Friend ~

Mark Dady: SVP & CPO Mondelēz International

Andrea Sordi: Snr Dir Global Procurement Mondelēz International

All intellectual property rights on this material belong to Mondelēz International, it should not be copied, distributed and

used further without Mondelēz International’s prior written consent.

ZBB: Procurement’s New Best Friend

Objectives

• Share our function’s experience and best practice gained as

we’ve worked to lead this process for our company

• Start a dialogue

Mondelēz International: A Global Snacking Power house.

#1 #1 #2 #1

• Created in October 2012 ( from Kraft Foods spin off).

• One Dream: “Creating Delicious Moments of Joy”.

• ~ 85% Revenue from fast-growing snacks categories.

• ~ $30BN Net Revenues in 2015.

• ~100,000 employees across 165 countries.

• Major enterprise-wide Transformation underway.

• ~5% Gross ‘Procurement’ Productivity 3 years in a row.

A confluence of events makes Procurement a great place to be.

World slowdown is making top-line growth

harder to generate.

Increased pressure to become leaner, more

agile and expand margins

3G, has set an industry standard

for aggressive cost management.

Many companies increasingly follow a ZBB

approach in Indirects

“Every cost, no matter how minor, is

attacked and reduced or eradicated,” Heinz.

Indirect costs represent a significant

opportunity - historically not a key focus.

INDIRECTS

~20 -40% of Revenue

(Overheads, Services, IT)

GDP SLOWS… …esp. in BRICs

OPPORTUNITYDirect

Costs

>30% EBIT:

PROOF POINT

Opportunity for Procurement to lead the Enterprise:

Expand Margins and Fuel Growth.

• Set Bold Goals & be clear on what you need.

• Who’s the Best ? – why aren’t you the Best ?

• Can you achieve MORE ($) with LESS (OVH) ?

• Get organized.

• Lead the Enterprise.

• Embed Procurement at local, regional

& global levels.

BUILD YOUR BUSINESS CASE… …AND ENGAGE THE C-SUITE

Indirect costs are being addressed aggressively and

the results are showing in the P&L.

“I think ZBB is probably the thing I would single out that caused us to raise our margin guidance this year….” –CFO Mondelez; FQ3 2014 Earnings Call 05/11/2014

INDIRECT COST REDUCTIONS… …DRIVE MARGIN EXPANSION

7

Adopting a closed loop process: Procurement’s New Best Friend.

ZBB Closed Loop © Process – Sustainable Margin Expansion

1. Visibility

5. Procurement

3. Cost Package Ownership

2. Value Targeting

4. Zero-Based Budget

Provide transparency on ‘who-spends-how-much-on-what’ through transactional data analysis

Execute strategic sourcing events to realize price reductions & manage consumption

Create an accountability matrix and develop policy to ensure ownership of every expense

Conduct benchmarking, value lever analysis and define procurement initiatives to reduce consumption & price

Bottom-up budgeting annually to expose and eliminate unproductive expenses

6. Control & Compliance

Monthly review to identify budget variances, owners responsible for action to resolve.

4. Zero-Base

Budgeting

5.Procurement

1.Visibility 2.Value

Targeting

3.Cost Package

Ownership

Closed Loop

6.Control &

Compliance

IT TOUCHES EVERYONE and

IMPACTS CULTURE

* © Accenture proprietary methodology

8

Data VISIBILITY:1st enabler to ensure a credible and sustainable target.

• Provide transparency: “who spends how much on what” through transactional data

analysis

• Clear package definition is paramount to ensure proper spend classification – we have 11.

• Global Planning and Reporting system (CMT) has been implemented, enabling

standardized reporting and analysis across Regions and Functions

• Normalization requires significant effort across Finance, and functions

• Key requirement: Source data accuracy (GL, HR system, purchase orders, etc.)

• Spend cube and P&L mapping is fundamental to ensure consistency of reporting and

efficiency in decision

Standardized reporting in place Full involvement of stakeholders across organization

9

VALUE TARGETING: Joint objective setting based on credible benchmarks and cultural appetite.

• A challenging margin agenda and credible external/internal benchmarks create the

right burning platform to focus organization

• Target ‘Quartile’ has to be a deliberate company choice based on full value delivery

and cultural impact.

• Common goal and targets (consumption & price) between Functions and

Procurement are key to ensure full strategy alignment and collaboration

Events & Sponsorship Contingent Labor – Levers Tree

10

• C-levels own the Cost Packets globally.

• Expectation they understand the market in detail.

• Packet owners define policy, budget and

challenge functions /business units on spend.

• Packet Owners have final decision on initiatives

and budget allocation

• Procurement Organized around 11 ZBB Packets

– strong presence both at Global and Regional

level

• Leadership skills (70%) and external focus more

important than Sourcing skills.

• Governance helps overcoming cultural

challenges: P&L accountability vs geography vs

functions

Cost PackagesGlobal Package

Owner

Operational

Owner

Global

Procurement

Partner

Package 1 CEO -1CEO -2 (Functional

Leader)CEO - 3 (Glob Proc)

Package 2 CEO -1CEO -2 (Functional

Leader)CEO - 3 (Glob Proc)

Package 3 CEO -1CEO -2 (Functional

Leader)CEO - 3 (Glob Proc)

OWNERSHIP is with the CEO’s STAFF

Governance has to cut across different levels of the

organization

COST PACKET OWNERSHIP must be held at the Exec level and have Procurement embedded.

11

ZERO BASED BUDGETING:Granular planning drives cost transparency and dialogue.

• Individual budget holders build a budget from a zero base, justifying each item and

following policy guidance.

• Bottom-up exercise required at granular level, separating price and consumption

(eg: travel, event, FM).

• Budget holders receive top-down target and manage any discrepancy through an

internal negotiation process.

• Procurement provides tool with negotiated prices.

Travel Planning Tool requires single entry / trip specifying destination and duration.

Cost rolled up based on pre negotiated rates

12

PROCUREMENT @ the CORE of the LOOP.

• Procurement tools and ways of working becoming key enablers for visibiity and compliance

• Strict accounting discipline is critical to ensure solid control of savings

• Zero based budgeting provides procurement upfront visibility on volume to be negotiated

State- of- the-

art spend

analytics and

analyst pool Few dedicated

and trained

Mastershoppers

within functions

Buying Tool

driving

compliance and

efficiency

Policies

embedded

in tool

Dedicated

team

focused

on

reducing

spot

buying

Dedicated E2E

team ensuring

compliance all

along STP

Procurement Tools & Capabilities applied to Closed Loop

We are fearless business leaders and trusted partners who bring the outside in to win!

13

COMPLIANCE & REPORTING: key to benefit realization and sustainability.

• Simple policies provide key guidelines to

manage demand, optimal buying and

compliance.

• Reporting tracks compliance of the entire

organization to foster cultural shift and to

enable package owners to set and follow

corrective action plans

• Clear communication around package

performance and enhancements are key

to increase cultural engagement.

Policies to provide compliance and buying guidelines

Reporting Tools to track financials and exceptions

14

Developing the right set of Operational KPIs drives margin sustainability.

• Package leadership to define set of

operational KPIs to drive behavior

change and cost sustainability

• Leverage key suppliers to develop and

report KPIs where possible

• Use “DIAL” approach to develop

roadmap around People, Process and

Tools – critical enablers to ZBB

sustainability

BIC Target Global MDLZ AP EEMEA LA MEU NA CORP

Cost (Delta vs. AC) 3.4$ (1.4)$ (0.1)$ 0.9$ (1.4)$ 1.4$ 3.8$

Consumption drivers

$ cost/ traveller 1,502$ 1,099$ 1,092$ 1,564$ 754$ 1,856$ 3,917$

traveler in % total employees 21% 34% 16% 15% 15% 17% 63%

# trip/traveler 1.8 2.4 1.6 1.6 1.6 1.6 1.9

$ cost/trip 834$ 458$ 683$ 978$ 471$ 1,160$ 2,062$

% trips - business class 10% 10% 7% 12% 14% 3% 2% 35%# trips 13,237 4,080 1,367 1,623 2,775 2,014 1,378

% trips - internal 50% 65% 63% 49% 68% 58% 72% 83%

% trips 1day 10% 11% 6% 12% 11% 15% 16% 9%

% spend by top 10% travelers 40-50% 53% 60% 56% 53% 66% 52% 44%

# of travelers in top 10% 671 151 72 93 165 118 72

% non sales travelers 35% 34% 23% 33% 43% 37% 34% 51%

Compliance

# Exceptions air booking 5-10% 10% 12% 14% 17% 10% 11% 11% 13%

% 14 days 6% 6% 10% 15% 6% 8% 7% 9%

% lowest fare econ 4% 6% 4% 2% 4% 4% 4% 3%

% lowest fare business 0% 0% 0% 0% 1% 0% 0% 1%

% Domestic > 2 nights tbd 30% 45% 30% 30% 51% 39% 52% 66%

% Meal over allowance 5-10% 10% 8% 6% 8% 5% 8% 9% 14%

% trip not booked Online 10% 25% 63% 93% 96% 39% 33% 31% 58%

Operational KPIs reporting examples

‘DIAL’ approach applied to ZBB roadmap

LESSONS LEARNED ….

1. Opportunity for Procurement to Lead.

2. Critical to have a clear vision, purpose and communicate it .

3. Full C-Level engagement / ownership is key.

4. Structure Procurement around ZBB Packages.

5. Procurement Skills are 70% Leadership.

6. Establish Joint Goals & Targets and tie to the P&L.

7. Set up strong governance, tracking and Operational KPIs.

1. Fine line between ‘ZBB’ and cost cutting: Ownership is at stake.

2. Avoid noise created by financials not consistent with P&L.

3. Clear definition of package scope and content avoid double counting

or unclear accountabilities

4. Invest in tools to support granular planning.

TIPS

WATCH OUTS

“Procurement has fast become a strategic asset to

Mondelez, a cornerstone of our enterprise wide

transformation, and a key contributor to both our top line

and bottom lines.”

I. Rosenfeld Mondelez CEO, Dec 2015