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