The Confection Connection – A Collaborative Supply Chain

1. The Confection Connection – A Collaborative Supply Chain International Logistic Conference SpeedChain 2011 Prague, BrevnovMonestery 2-3 November, 2011 Joel Sutherland Managing Director Supply Chain Management Institute University of San Diego joelsutherland@sandiego.edu

2. Supply Chain Collaboration

3. Is This Collaboration? Or This?

4. All companies involved share information, knowledge, and risks Collaboration is More Than Cooperation Cultures are meshed Everyone involved must benefit All parties work actively together towards common objectives

5. Global Flatteners Supply chaining and collaboration… Forces that are Flattening the World Supply chaining is the method of collaborating horizontally among suppliers, retailers, and customers--to create value.

6. Why Collaborate? Alliances are where the real growth is. Not in terms of mergers and acquisitions But collaboration between adversaries.

7. Collaboration = Value 88% of companies believe that collaborating with carriers, suppliers and customers will create more economical supply chain processes. But…few have started down this path. Why? Source: Aberdeen Group Because It’s hard!

8. Collaboration Concerns & Opportunities At a recent forum on Supply Chain Collaboration, companies were asked the following question: What are the concerns and opportunities you see related to supply chain collaboration? These were their responses…

9. How can we develop a trusting relationship? How are power issues resolved? Who has control over intellectual property? How accurate is your partner’s data? Concerns: Control and Trust

10. How are risks and rewards shared? How is proprietary information protected? How accurate are demand forecasts received from partners? How are information systems and technology integrated between partners? Concerns: Risks and Information Sharing

11. How can the success of collaborative relationships be measured? If cost reduction benefits everyone - how can these savings be documented? Concerns: Measurement and Benefits

12. Takes too long - project orientation Technology investment & integration Cultural incompatibility Metrics to assess benefits Gap between strategy and execution Silos bigger & stronger than ever Concerns: Implementation

13. Reduced inventory Reduced order to delivery cycle times Stronger focus on core competencies Stronger emphasis on supply chain whole Competitive advantage over other supply chains Opportunities

14. Experiences in Collaboration • Most collaborations are done with non-competitors than with competitors • Carriers collaborate more than 3PLs, who collaborate more than shippers Source: Eyefortransport, 2011

15. What is Shared in Collaboration • Most common is… • truckload shipments via a carrier • 3PL’s/carrier’s warehouses • shipper’s warehouses Source: Eyefortransport, 2011

16. Finding Partners to Collaborate • Most popular included partners that… • are trusted • have similar goals • with similar trade flows & delivery • are customers Source: Eyefortransport, 2011

17. Industries Leading the Way • Most advanced are: • Transportation / Logistics • Automotive • Retail / CPG • Food & Beverage Source: Eyefortransport, 2011

18. Key Drivers - Shippers • Most important are: • Cutting transport costs • Satisfying customers • Followed by: • Cutting sourcing costs • Enhancing customer service • Improved delivery times • Improved overall efficiency • Cutting distribution costs Source: Eyefortransport, 2011

19. Key Drivers – 3PLs • Most important are: • Cutting transport costs (their own and their customers) • Enhancing customer service • Followed by: • Cutting customer distribution costs • Cutting customer sourcing costs • Reducing empty running • Cutting own distribution costs • Cutting customer storage costs Source: Eyefortransport, 2011

20. Key Drivers - Carriers • Most important are: • Reduce empty miles • Cut customer transport costs • Cut customer distribution costs Source: Eyefortransport, 2011

21. Drivers for Investment • Most important are: • Gain-sharing models • Shippers open to innovation • Industry case studies • Acceptance of idea Source: Eyefortransport, 2011

22. Barriers to Investment • Most important are: • Fear of information disclosure • Lack of acceptance • Difficulty starting trusting relationship • Difficulty finding partners Source: Eyefortransport, 2011

23. Conclusions – A Mixed Bag • Supply chain collaboration is still new • Benefits are clearly recognized • Some companies and industries are already optimizing their supply chains by collaborating • For shippers, fear of sharing information is the biggest barrier • For carriers and 3PLs, lack of legal / contractual framework and uncertainty of customer needs are the biggest barriers

24. Case Study

26. Value Continuum Opportunity to add value through collaboration increases as multiple shipper networks are integrated, carriers are connected, and communication and execution capabilities are enhanced • Consortium Collaboration • Multiple Shippers, Carriers • Third-party facilitation • Information Hub • Relationship management Value • Partnership Collaboration • Shipper, Receiver, and Carrier • Shared forecast • Committed capacity • Visibility and security • Traditional Vendor • Transactional • No visibility Level of Collaboration

27. 3PL Paths to Achieving CTM Benefits • The value of CTM can be obtained through two primary paths: • Direct communication between Shipper(s), Receiver(s) and Carrier(s) • 3PL facilitation of the communication and execution process Carrier Buyer Supplier

28. Who is Just Born? • Started in 1923 by Sam Born – in NYC • In Bethlehem, PA since 1932 • Still run by Born family – third generation • Produces 5MM Peeps and 110MM molded centers daily Founders - Sam Born, Jack Shaffer, Irv Shaffer

29. It Started with a Vision • Serve customers better • Control long-term logistics costs • More sustainable supply chain • Reduce carbon footprint (“Green”) • Compete with the “big boys”

30. Steps to Achieve Results • Gain critical mass (i.e. shipping volume) • Utilize best-of-breed technology • Open new state-of-the-art facility • Use leading 3PL to facilitate & execute

31. Step 1: Network Optimization Project • 2007: Began analysis of supply chain network • Objective: minimize overall transport cost • Questions to be answered: Pool Distribution • Optimal number of pool points required (28 existing) and where should they be located? • Optimal way to route product, in what quantities, & when?

32. Step 1: Network Optimization Project • Decided to seek outside help • Received bids from: • Consulting companies • Lehigh University’s Center for Value Chain Research (CVCR) • CVCR selected because: • Lower cost; unbiased validation of concept; long-term relationship

33. Step 1: Network Optimization Project • Optimize number of pool points • Increase consolidated shipments • Reduce empty (“dead-head”) miles • Reduce total logistics costs Q1, 2009

34. Step 1: Network Optimization Project Cost vs. # of Pool Points Used Optimal Existing

35. Step 2: Selecting a 3PL • Industry experience • Understand uniqueness of confectionery industry • Proactive “Customer-Focused” 3PL • 3PL to add confectionery manufacturers • Strategic partner with broad footprint • Ten-year agreement; cultures must mesh • Integrated solutions provider • Transportation, global, technology, engineering • After competitive bid selected OHL

36. Step 3: Establishing a DC • Provide other confectionery companies with: • Shared warehousing, transportation and distribution services • Like-products delivering to same customers • Benefits include: • Co-loading freight among multiple shippers • Co-packaging • Nationwide temperature-controlled distribution network

37. Step 3: Establishing a DC • Food-grade facility • 600,000 ft² (55,742m²) • 100% temp controlled • 68°F (20° C) year-round • LEED certified • Color schemeinspiration • of CEO RossBorn

38. Step 4: Gaining Critical Mass Estimated combined freight spend savings = 25%

39. Step 4: Gaining Critical Mass • Critical mass of shipper freight and carrier asset networks • Same business rules for all parties • Everyone involved must commit • Five companies already on board: • Just Born • Godiva • Boyer Candy • Sorbee • Brookside

40. Step 5: Future Expansion

41. Summary • Timeline • 2007: Project started • 2008: Software developed • 2009: Property acquired for Distribution Center • 2010: New Distribution Center opened • 2011: Companies continue to join Concept is sound; savings are significant

42. Would You Collaborate with Another Company to Cut Logistics Costs? • 94% said they would consider. • Only 38% said they would with a competitor. • With a neutral third-party facilitating the % nearly doubled. • Most collaborations are in retail and consumer packaged goods – and most are in Europe. For example: • Kimberly-Clark & Unilever built joint warehouse in the Netherlands. • Sony and Samsung sharing a warehouse in the Netherlands. • 3PL managing a DC for Goodyear Dunlop and Continental in UK. • On average, companies achieved cost savings of 6-10% - however, in retail, high-tech, automobile and chemical industries the savings exceeded 15%. Source: Supply Chain Quarterly, Quarter 3, 2010

43. Ferrero, Hershey Collaboration 5 October, 2011 • Confectionery giants Hershey and Ferrero announced a US collaboration including warehousing, transport and distribution. • This collaboration will “improve supply chain efficiency and enhance competitiveness”. • The two companies will “work together to maximize corporate social responsibility to reduce carbon dioxide emissions and energy consumption in warehousing and freight”.

44. Looking Forward… • Combined turnover of $15 billion (USD) globally. • Will start in the US with benefits starting in 2012. • Collaboration will be expanded to other geographic regions in the future.

45. Questions?