Implementing Zero Based Budgeting Click to edit Master subtitle - PowerPoint PPT Presentation

Implementing Zero Based Budgeting Click to edit Master subtitle style Chris Winter, Heinz

An introduction to Heinz

A Brief History of Heinz  Founded by Henry J Heinz in 1869  First product was Horseradish in clear jars  First order for UK placed in 1886  In 1896 H J Heinz introduces “57 Varieties”  Now #1 or #2 food brand in over 50 countries

Valentines Day, 2013 - a declaration of love? Warren Buffett Jorge Lemann

Who are 3G?

Heinz Vision To Be the Best Food Company, Growing a Better World

Vision Supported by 5 Values  Consumer First  Quality  Integrity  Ownership/Meritocracy  Innovation

ZBB PRINCIPLES

Every cost is part of a package Sub Packages PACKAGES Lease of Equipment Lease of Real Estate 1. Fees Lease of Vehicle 2. Institutional Lease of Airplane 3. Legal Other Leases/Rentals 4. Leases/Rentals 5. People • High compression 40%+ with 6. Variable Compensation very limited business risk 7. Services • High reliance on policies Simple 8. Technology • Behavior change Packages 9. Travel • Distributed management 10. Utilities • Global consistency expected 11. Logistics Support 12. Maintenance • Low/mid compression 10-25% 13. Marketing • Technical in nature 14. Sales Complex 15. Supply Chain Losses • Some are variable with volume Packages 16. Transport • Centralized management • Efficiency related

Every cost has two owners Entities  Groups of People  Cost Centers Entity Owners with Packages  Groups of Expenses  Accounts “vertical” or Package ENTITIES organizational Owners with responsibility expense (grouped by nature) P responsibility A ZBB Principles C Well defined owners K Shared responsibilities A Deep understanding of G expenses drivers (price E and consumption) S

Other principles  Cost reduction targets  Budget built line by line with high level of granularity  Regular reviews with senior management during the process

GETTING STARTED

1. Define what is in scope  Sales  variable costs COGS  all other costs Gross Profit  Distribution  Marketing  Overheads EBITDA

2. Define your packages • ZBB Packages provide detailed and standard visibility of the company’s expenses and have been broken down into sub-packages • Sub-packages are described in the PDB with unique definitions to enable consistent mapping of the company’s cost structure Audience: • The package definition book should be read by all Entity Owners, Package Owners and other individuals contributing to the ZBB Budgeting process. It is the best place to start understanding ZBB costs Contents: • This document defines what types of spend should and should not be included into each package When to use: • Anytime you are unclear as to where a type of spend should go in the budget

3. Build yourself a baseline  Use your last 12 months of actuals  GL account codes mapped to sub package and package  Cross reference with accounts payable data  This will serve as a base for target setting

4. Get the correct people in position Global level: Top Global ZBB Leadership Global Package Owners Zone level: Zone ZBB Zone Presidents Zone Package Zone Entity Owners Owners Country level: Country Entity Owners Country ZBB ZBB Report ZBB Meeting

5. Set global policies Audience: • All employees spending money in the Package • Entity Owners and Package Owners who are budgeting in these packages Contents: • Employee Policies and Guidelines for spending and individual behavior When to use: • When budgeting and anytime when spending company money

6. Build yourself a reporting system Other SAP BPCS U8 JDA G/L BALANCES EXTRACT Budgeting Tool EXTRACT G / L EXTRACT EXTRACT G/L BALANCES B G/L BALANCES A L A N C E S Keystone SAP EXTRACT G/L BALANCES EXTRACT HFM WHQ Profit & Loss Pack Hierarchy G/L Balances SAP DS G/L BALANCES T R A N S F O R NON-ERP M Worksheets ZBB T&M Tool ZBB VISIBILITY (Business Objects BW / BOBJ Data reporting) Repository

GET GOING

Routine, routine, routine Week 1 : close books Week 2: Review with Week 2: Review with Package Owners Entity Owners Week 3: ZBB Zone Week 2: Entity reviews reviews with Global with Global Week 4: Action Plan reviews Qtly: Package Owner review with CEO

Standardise reporting Package owner reviews – 4 slides Entity owners reviews – 3 slides in the Review deck

How do you change behaviour?  Management By Objectives (MBOs) • Qualifier • KPIs

How do you change behaviour? Reporting Entity Performance

How do you change behaviour? Show who prints the most

How do you change behaviour?  Communicate, communicate, communicate US US D'000 D'000 US US D'000 D'000 Travels Travels November November YTD (J an-Nov) E ric Dhaese E ric Dhaese 101.8 -35.6 -35.6 -6% -6% 1% 7,619.2 681.7 646.1 7,517.4 Budget Actuals Budget Actuals November YTD (J an-Nov) Package (US D '000) Budget Actuals Delta Delta % Budget Actuals Delta Delta % Travels - E ric Dhaes e 646.1 681.7 -35.6 -6% 7,619.2 7,517.4 101.8 1% L odging 210.3 223.4 -13.1 -6% 2,491.3 2,441.5 49.8 2% Airfare 178.7 210.6 -32.0 -18% 2,458.5 2,709.3 -250.8 -10% L ocal T ransportation 120.8 124.2 -3.4 -3% 1,361.2 748.7 612.6 45% Mileage reimbursement 62.5 63.8 -1.3 -2% 673.1 1,076.9 -403.9 -60% Other Travel C osts 40.6 23.4 17.2 42% 260.7 255.5 5.2 2% Meals 18.9 18.0 0.8 4% 205.6 205.6 0.0 0% R ental C ar 14.4 18.3 -3.9 -27% 168.8 130.0 38.8 23% C ost Travel Provider 0.0 0.0 0.0 0% 0.0 -50.0 50.0 0%

New Heinz quotes “The budget is the budget” - Europe CFO “Just because it is in the budget doesn’t mean we are going to spend it” - the same Europe CFO

KEEP IT GOING

Keep updating your policies  Update Global Policies  Introduce Local Policies for better control

Action plans – how to deliver more Est. Annual Impact (USD 000s) Date Item Subpackage Zone Country Action Responsible In Budget Incremental Status Completed 1 All HNA United States [ ] [Name] $100 $100 3/14 Complete 2 Subpackage [X] HNA Canada [ ] [Name] $100 $0 5/30 In Progress 3 All APAC China [ ] [Name] $100 $0 1/31 Delayed 4 Subpackage [Y] APAC Indonesia [ ] [Name] $100 $0 9/30 Complete 5 All APAC Indonesia [ ] [Name] $100 $0 3/15 In Progress 6 All Europe UK [ ] [Name] $100 $0 1/31 Delayed 7 All HNA Brazil [ ] [Name] $100 $0 5/30 Complete 8 Subpackage [Y] Corporate Brazil [ ] [Name] $100 $0 9/30 In Progress 9 Subpackage [Y] Europe United Kingdom [ ] [Name] $100 $0 3/15 Delayed 10 11 12 13 14 15 16

THE RESULTS

Hidden benefits  Bottom up budget will enable you to negotiate from a stronger position e.g. # of hotel nights  Everyone understand what is in the plan  When asking for variance explanations you can be specific

Imitation is the sincerest form of flattery - Charles Caleb Colton Mondelez International to cut costs by EUR2bn Accenture's system is already being used by 3G Capital, owners of AB InBev and Heinz. Irene Rosenfeld, Mondelez CEO, said, "We've watched the work that 3G has done with AB InBev and Heinz and we believe they can be of great help to us." - Source: IGD Supply Chain Analysis 25th Feb 2014

Q&A