Chemical Supply Chain

Achieving Supply Chain Excellence
in the
Fast Moving Consumer Goods Industry

Thomas Müller-Kirschbaum
Düsseldorf, April 21, 2010
© TMK_Logichem 2010 1

Agenda

1 Company

2 Business Sector & Supply Chain

3 Cheaper, Faster, Smarter: The Challenges

4 Responses

5 Key Take Aways


Three Areas of Competence
134 Years of Brand Success

Laundry & Cosmetics/ Adhesive
Home Care Toiletries Technologies

Quality with Brands & Technologies


Henkel Brands
Performance around the Clock


Agenda

1 Company



4 Responses

5 Key Take Aways


Laundry & Home Care
Product Portfolio

• Heavy-duty • Bath and WC
detergents cleaners
• Fabric softeners • Glass cleaners
• Laundry care • Kitchen cleaners
products • Specialty
• Dishwashing products cleaning
• All-purpose cleaners products

• Scouring agents • Air fresheners
• Floor and carpet • Insecticides for
care products household use


2009 Sales by business sector

Sales: 13,573 million euros
in million euro
Corporate
210 (2%)

Laundry & Home Care
Adhesive Technologies 4,129 (30 %)
6,224 (46 %)

Cosmetics/Toiletries
3,010 (22 %)


2009 EBIT by business sector

Adjusted1) operating profit (EBIT): 1,364 million euros
in million euros

Adhesive Technologies Laundry & Home Care
506 (36 %) 530 (37 %)

Cosmetics/Toiletries
387 (27 %)

Excluding Corporate

1) Adjusted for one-time charges/gains and restructuring charges

Supply Chain Design – Basis for Success
Key Dimensions

One Global SC Organization with

• End-to-End Process Responsibility
(from the customer to the customer) and

• Full Vertical Integration
(Global – Regional – Local Level).


Supply Chain – End-to-End Process
Extended View of the Value Chain

Purchase to pay Order to cash

Supplier Production AC / Market /
Information flow

Warehouse Customer
Demand / Order
Plan Demand
Order Plan Order
Material flow

Source Make Deliver
Make Deliver
Source


Supply Chain – Key Elements
Planning/Procurement, Production, Distribution

Planning
Production Distribution
& Procurement

Single Suppliers Plants Distribution Center
past (2005) >2,900 >40 >150 10,000
future (2012) <1,400 <30 <120 Drop points

Moving 15,000 SKU


Supply Chain Strategy Pillars
Framework for Long-Term Action

• Mass products vs. specialties:
Optimize total performance decentralized vs. centralized production
(Cost, Inventories, Service) • Fully exploit make-or-buy potential
• Integrated technology sites

Design & implement • Interconnectivity Processes & Systems
an extended and • Smart complexity management
adaptive supply chain • Integration of customers & suppliers

Build on smart • Process simplification
technologies, • Integrated supply-chain planning
processes and systems • Permanent benchmarking

• End-to-end responsibility
Design & implement the
• Talent management
right organizational setup
• Clear governance


Agenda

1 Company



4 Responses

5 Key Take Aways


Assessment of FMCG Environment 2010+
No Revolution, but Evolution happens

• Demand variability increases
• Complexity increase and drives late stage differentiation as well as
adaptive supply chain designs
• Retailer power expected to rise; „smartest players in the value chain“
• Raw material prices continue to be volatile as resources remain
scarce; importance of risk management along value chain increases
• Distribution cost increases stronger than processing cost
• Sustainability emerges a new competitive parameter
• Challenge of private label product offerings remains and grows

+ Supply chain capabilities become a strategic success factor
+ Human capital in supply chain is a current & future bottleneck


The Future: Balance of Power moves
Retailers invest to become the “smartest“ Players

A consultants view on the industry:
Maturity of overall supply chain knowledge in FMCG

1980's Current 2012+ Uninformed

Going to School
Suppliers
Educated

Manufacturers Expert

Retailers Most informed
Supply Chain
Source: AT Kearney (2008) Participant


Key Factors Supply Chain Performance
Challenges 2010+ can be clearly identified

Volatility in upstream / downstream markets
Supply Chain Performance

1 Flexibility Consumer individualization / diversity
Changing customer specific supply chains

Perfect Order as KPI, OTIF is hygene factor
2 Reliability
Full process transparency

Fast changing consumer & customer patterns
3 Speed Customization of product offerings
Speed of innovation processes

Cost & Customer & supplier integration (e.g. VMI)
4 Capital Efficiency Volatility in downstream demand

Scarce resources / Energy conservation
5 Sustainability
Urbanization / Demographical concentration


Agenda

1 Company



4 Responses

5 Key Take Aways


Overview

A Integrated Supply Chain Organization

B Strategic Network Design

C Horizontal & Vertical Cooperation

D End-to-End Supply Chain Planning

E Smart Complexity Management

F Sustainability Matters

G KPIs

H People make the Difference !


A Integrated Supply Chain Organization
Example Laundry & Home Care

Head of Global SC Production Steering
Global Global SC Operations
Industrial Engineering
SHEQ
Planning & Logistics
Process Technology

Regional Head of
Regional SC

Production Steering / Industrial Planning & Logistics /
SHEQ
Engineering Engineering Contract Manufacturing

Local
Head of Plant(s) Head of Local SC
Planning Logistics

Production/ Industrial Planning
SHEQ
Engineering Engineering /Logistics


Example European Network Re-Design

• Population density drives
set-up
• Optimum distribution
distance to be respected
• Country borders do not
matter
• Minimum number of storage
stages for responsiveness
and sustainable efficiency
Population Density Own factories (2010)
Factory closed/sold
(2005-2010)

Produce & deliver close to customers & consumers

Example Warehouse Concept Eastern Europe

Central Warehouse Vienna Achievements since 2006
Reduction of 3 warehouses
• Avoidance of 200,000
transportation km /
70,000 liters diesel /
xx 185,500 kg CO2 per year
Vienna

x • Double-digit reduction of logistics
costs
• Other positive impacts on service
levels, inventories and
responsiveness increasing quality
Warehouses
Production Facilities of our service to customers

Significant reduction of kilometers & CO2 emissions

C Horizontal & Vertical Cooperation
Example HeCoRe

Joint warehouses Joint deliveries

Savigny
~ 50% deliveries
Main
Principles Stock level
Service
St Quentin level
~ 50% deliveries

• Carrefour : 23 warehouses (full perimeter deployed)
Implemented • Auchan : 2 warehouses • Match : 2 warehouses
• Galec : 2 warehouses (joint deliveries with Reckitt)

• Increase of delivery frequency
Benefits • Improve service level Win-win-situation
• Reduce transport costs


Example Improvement Potential DPQ / SFA

Sales
Distribution
Forecast
Distribution Center
Expected
Center Forecast 1
Demand 2 Sales
3
Customer
4 Orders
Allocation
To Plants

5
6 7
Production
Planning Confirmation
to Distribution DC Replenish-
Centers ment
Planning


Example Clear Rules exploit Potential of Tools
Monday Tuesday Wednesday Thursday Friday

Sales Forecast
Direct demands

Sales Orders

Direct Copacking Dependend demands
demands Planning
Remaining
DC Forecasts Stock Trans- Stock alerts
and fer Planning
Stock Alerts
Production Planning

Contract Manufact Planning
Alert Mgmt

Distribution Center Replenishment


E Smart Complexity Management
Example Late Customization of Liquids

Past
● 1-Step process
● Batch production
Mixer
Produkt Filling ● Slow process
tanks A
● More cleaning &
waste water
goin
g X-Bo
x
● 2-Step process
Now
● Continuous production XBoX
● Fast change-over Mixer
tank for
tank for
type
type
Filling

● Less cleaning & Conti
Post-addition

waste water Post-Addition of perfume, color, actives, salts, citric acid
First pilot 2004

Result: -70% in base formulas

F Sustainability
Leading Position in External Recognition

Member 2009/10
Member 2008/09
Member 2007/08

2009
WORLD‘S MOST
ETHICAL
COMPANIES
WWW.ETHISPHERE.COM

Germany’s most WalMart
sustainable brand Sustainability Award
Henkel


F Sustainability Matters
Corporate CSR/Sustainability Targets for 2012

– 15 % – 10 % – 10 % – 20 %
further reduction further reduction further reduction further reduction
in in in in
energy water waste occupational
consumption* consumption* generated* accidents
Long-term target:
Zero occupational
accidents.
* Targets per metric ton of output. Base year: 2007


Focus on Entire Value Chain

Raw Packaging
Detergent and
materials Retail
production transport
Consumers Waste &
recycling
Washing Packaging
Raw machine and Retail
materials production transport

Contribution to carbon footprint in %:

~ 20% ~ 10% ~ 70%

Raw materials Production, packaging, Consumer use
transport, retail, phase
recycling


Performance based on Sustainability:
Leading through Focus on Total Value Chain and
Consumer Information
1000
Average scenario
30°C
800 60°C

600

400

200

0
Raw Materials Production Packaging Transpor- Purchasing Product Disposal Total
tation Usage

Henkel products stand for innovative sustainable consumption

How to Improve
Sustainable Consumption & Production

1 Less Energy Consumption

2 Global Carbon Cycle

3 Biodegradability

4 Biodiversity


Sustainable Consumption Index (SCI)

E • BIO • DIV
SCI ~
GWP

E: Efficiency in relative units of detergency
BIO: Biodegradability in total oxygen consumption
DIV: Biodiversity contribution in comparison to existing
solutions
GWP: Global Warming Potential in g CO2 equivalent


G KPI – Supply Chain KPI Master
What you measure is what you get!
• Integrated set of KPI linked to business strategy
• Basis for continuous improvement Changes Changes
realized planned
• Bottom-up reconciliation and benchmarking 2005-2008 2005-2010

Headcount Productivity (tons per headcount and year) +19% +51%

Processing Cost (EUR/ton) (powder/liquid) -3% -10%

Transport & Whse. Cost (EUR/ton) -2% -2%

Inventories (% of sales) -6% -16%

Total Supply Chain Costs (% of sales without materials) -150bp -220bp

# SKUs -13% -20%

Service Level (%) +1.7% +1.5%

Quality-in-the-box (%) +30% +30%

Incident Rate (accidents per 1 mill. working hours) -38% -48%

H People make the Difference!
Example for Developping & Retaining HR

Right organization template & governance
Less, but higher qualified resources

Initiatives @ Supply Chain Henkel
1 Succession Planning Levels 1 – 3

2 Talent Development Programme

3 Supply Chain Academy


Agenda

1 Company



4 Responses

5 Key Take Aways


Key Take Aways

• FMCG environment changes expected to Supply Chain Management Award
happen in an evolutionary way (based
on last 2-3 years experiences)

• Flexibility, Speed, Reliability and
Efficiency are „Classic Challenges“
joined by Sustainability being a
competitive factor

• Strategic responses focus on structural
Awarded by:
and process improvements as well as
clear metrics along the integrated supply • Supply Chain Management
Institute, European Business
chain process School
• PRTM Management Consultants
• Technology is a must, People will be the • Trade Magazine, Logistik Heute
„true“ differentiator in Retail-FMCG
Supply Chains of the Future

Chemical Supply Chain

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