Slide 1Nestlé Italiana S.p.A.

How to moveHow to movefrom the OPINIONS from the OPINIONS

to FACTS to FACTS Sale Forecasting SystemsSale Forecasting Systems

in Confectionery Division of in Confectionery Division of NestlNestlèè ItalianaItaliana SpaSpa

by G.Ricci, M.Rinchi, G.ZaniniSpeaker: Guelfo Zanini

Slide 2Nestlé Italiana S.p.A.

NestlNestléé Italy Group: Italy Group: !! Turnover: 2.735 mil Turnover: 2.735 mil €€

!! Products: 2600Products: 2600

!! Customers: 150.000Customers: 150.000

Slide 3Nestlé Italiana S.p.A.

WORLDWIDE COMPANYWORLDWIDE COMPANYDifferent sites for Commercial, Logistic and Production departments

SPECIALIZED FACTORIES SPECIALIZED FACTORIES High level of exchanges between the markets

MANY DISTRIBUTION CHANNELS MANY DISTRIBUTION CHANNELS ((WhereverWherever, , WheneverWhenever, , WhateverWhatever))

Different purchasing behaviours

SERVICE LEVELSTOCK LEVELWASTE

TIME TO MARKET

Flow CoordinatorPARTNERSHIP ROLES IN SALE FORECASTING PROCESS BETWEEN COMMERCIAL AND SUPPLY CHAIN FUNCTIONS

DEMAND PLANNER: from PERFORMER to PROACTIVE ROLE

the “Forecast Specialist”

• TO MAINTAIN FINALISED SALE DATA BASEShistory of the performances

• TO PROVIDE THE STATISTIC & METHODOLOGICAL SUPPORTbudget and canvass goals must be coherent and consistent

• TO CHECK THE TREND OF ACTUAL SALES AGAINST THE TARGETS

. Fine-tuning of targets (shared)

. Updating of the forecasts (independent)

Tasks of Demand Planner:

SALE FORECASTING REQUIRES

• EXPERTISE:Knowledge of the markets involved Knowledge of the phases of Product Life CyclesKnowledge of the cause-effect relationshipsKnowledge of customer and product potential

• TOOLS:systems, for sales planning and control models

EXCELLENCE IN THE SALE FORECAST PROCESS IS THEJOIN RESULT OF BOTH THESE AREAS!

In the context of widespread and dramatic change, the expertise may be linked to unforeseen factors

IF expertise and the system are both missing at the same time, then collapse is assured!!

Methods and tools allow organisations to survive

SO THE DEVELOPMENT OF A BUSINESS INTELLIGENCE SYSTEM (METHODS AND TOOLS) IS

A STRATEGIC FACTOR

BECAUSE:

it allows for Business Knowledge Continuity

it accelerates the (re-)building of Expertise

THE IMPROVEMENT OF THE OPERATIONAL SALES FORECASTING SYSTEM IS A MUST:

– to increase the process efficiency– to facilitate the integration within planning process

BUT IF THE RESULTS AND DEGREE OF ACCURACY REMAIN UNCHANGED: THEN THIS IS NOT ENOUGH!

TO IMPROVE FORECAST QUALITY A NEW APPROACH IS NEEDED TO LINK SALE FORECASTING VALUES WITH THE KEY PARAMETERS THAT EXPLAIN THE SALES FORECASTS

TWO AREAS:TWO AREAS:

1.1. BUSINESS INTELLIGENCE systems,BUSINESS INTELLIGENCE systems,to increase the to increase the ““qualityquality”” of salesof salesforecasts, cause/effect relationshipforecasts, cause/effect relationship

2.2. OPERATIONAL SALES FORECASTS systemsOPERATIONAL SALES FORECASTS systemsto accelerate the daily management processto accelerate the daily management processof operational sales forecasts (detail, of operational sales forecasts (detail, control,..) control,..)

GOALS

To introduce methods and tools oriented to Opportunity & Risk Analysis and Market Trend Analysis for the development of effective Action Plans

Top-DownBuilt-in Simulation models based on:

• Projection of the Key Parameters(Trend Analysis, Product Cycle Life)

• business relationship between causes and effects, in terms of quantitative benefits (promotions, new products,..)

Steps:• Aggregation of statistical sales data for products by multiple

attributes (to ensure the continuity to the historical series: old-new items link)

• Building of Customer Clusters based on static and dynamic elements (distribution channel, customer role, purchasing behaviours)

• Identification of “Key parameters” of the Product/Channel (numerical coverage, weighted distribution, market shares, stock turnover, returns, medium purchase, fidelity, variability,…)

• Building-in of Warehouse Planning Data(historical series based on sell-in & sell-out, commercial events, ..)

• Impact Analysis on Trends and Commercial initiatives (market shares, consumption, price and competitor analysis. Simulations)

• Projection of the Key parameters by historical Series Analysis (trends)

GOALSTo develop Bottom-up models, compatible with Top-down ones, to provide thorough forecasts for the product/channel mix

To build-in Actual vs. Target control models able to provide very rapid feedback on:

achievement of target quantitiesactual ↔ target

causes of varianceskey parameters justification

NORMAL TRADE (Push)

CUSTOMER SHARES

MEDIUM PURCHASE

ORDERS FREQUENCY

GROCERY (Pull)

MARKET DISTRIBUTIONdealing with Customers

TURNOVER on the POINTS of SALE

LISTING/DELISTING

CONSUMER PROMOTIONS

PRODUCTS I&R

PROMOTIONS onTradeConsumers

DISCONTINUITY

NielsenIRI

OperationalSale Forecast

Systems

DWH

PLANNING

HLP

MPS

DRP

IMSP

MRP

SAS

CommercialDWH

SAP

Master DataSales OrdersInventory Mngt

Legacy

NielsenIRI

SAP

Master DataSales OrdersInventory Mngt

SAS

CommercialDWH

DWH

PLANNING

HLP

MPS

DRP

IMSP

Legacy

MRP

OperationalSale Forecast

Systems

SASSASBusinessBusiness

IntellingenceIntellingencePlanningPlanningorientedoriented

EventsLEARNING

-LOG

New

Slide 20Nestlé Italiana S.p.A.

Main SAS Tools:

-EnterpriseMINER

- EnterpriseGUIDE

- SAS STAT- SAS IT- SAS GRAPH

Slide 21Nestlé Italiana S.p.A.

B.U. Objectives- income- real grow DEFINITION OF COMMERCIAL ACTION PLANS

SALE ANALYSIS:- consumption’s- competitors- prices

PRODUCT PERFORMANCES:- market share- stock turnover- (trend, product life cycles)

OPPORTUNITY AND RISK ANALYSIS by PRODUCTS AND CHANNELS

INNOVATION & RENOVATIONPRIORITIES

CALCULATION OF TARGETS :- Quantities- Key Parameters

CM/BU

Slitting of objectives by:- MKTG organisation- Distribution Channel

Check on Results

I & RPROJECTS

BUDGETINGBUDGETING

PROMOTION INITIATIVES PLANS

TARGETSKEY VARIABLES

SPLITTING OF OBJECTIVES BY: PRODUCTS, CHANNELS & PERIODS.

COMMERCIAL ACTIVITIES CALENDAR

(initiatives, events)

CLUSTER OF PRODUCTScategory (type of consumption)

CLUSTER OF CUSTOMERS(selection, purchasing behaviour)

TYPICAL PROFILES(evolution of events)

MIXpotentials for SKU

ACTUAL VS TARGET CHECK

EXPECTED SELL-INACTUAL SELL-IN

Volumes

CUSTOMER SHARESTOCK TURNOVERPEI INITIATIVESMODIFICATION IN CHANNEL STOCKS

Key parameters REVISEDREVISEDTARGETSTARGETS

NEWNEWINITIATIVESINITIATIVES

OPERATIONALOPERATIONALFORECASTSFORECASTS

DATA AVAILABLE

DATA ANALYSIS CULTUREDATA ANALYSIS CULTURENew New approachapproach toto problemsproblems::factsfacts ((structured salesstructured sales data)data) vsvs.. opinionsopinionsuse use of Tools andof Tools and IntelligenceIntelligence

THE RIGHT INFORMATIONTHE RIGHT INFORMATIONProducts portafolioProducts portafolio ((CategoryCategory, , BrandBrand, , ……))CustomersCustomers portafolioportafolio (ICCC, BCG(ICCC, BCG MatrixMatrix, , ……))TTS TTS reductionreduction (Promotion (Promotion optimizationoptimization))

PROCESS INTEGRATION PROCESS INTEGRATION betweenbetweenOPL (I&R, OPL (I&R, promotional initiativespromotional initiatives))Sales PlansSales PlansOperational Operational SaleSale ForecastsForecasts

USEFULL INFORMATION FOR THE BUSINESS

BB

EE

CC

OO

MM

EE

Past Today Final target

ACCURACYACCURACY 60-70% 75÷80% >85%

REDUCTION OF SURPLUSFINISHED PRODUCTS - 40% - 80%PACKAGING MATERIALS - 30% - 50%

SERVICE LEVELLOSS IN SALES 2% 0,9% 0,5%

ORDER MODIFICATIONS 20% 8% 5%

PRODUCTION PROGRAM 65-70% 75% 90%ACCURACY

BENEFITS

REMOVAL/REDUCTION:

- UNREALISTIC OBJECTIVES

- NOT TARGETEDPROMOTIONS

- LACK OF UNDERSTANDING OF REAL PROBLEMS ANDNEEDS

INTANGIBLE BENEFITS

RESULTS:

- LESS EXPENSIVE COMMERCIAL ACTIONS

- REDUCTION OF RETURNS

- MORE EFFECTIVE PROMOTIONS(Cost/benefit)

- COHERENT I&R(Risks-opportunities)