Moving ahead in a changing environment
Changes in consumer behavior and their effect on customer service levels Change of customer requirements to smaller quantities and shorter delivery times due to: Economies of scale in retail business (delivery times) Increase of competition (delivery times) Lack of stock in small POS (smaller quantities) Increase of operating costs, decrease of liquidity management of lower inventory levels (smaller quantities) The natural evolution of consumer requirements (both) Power of habit (both) July 2015: Trend for smaller orders increases by 14% despite risk averse consumer behavior in the particular period. Delivery times based on prepayment, normal lead time standards In Aug-Sep 2015 there is a 5% small order increase of small orders vs year s standard. Delivery time to normal standards
Sales and supply chain network optimization & synergies exploitation (1/2) Sales Network Seeing the economic crisis as an opportunity and investing in people, new markets, new customers and optimized procedures Small scale adjustment based on the needs, the geography of the market and the product range increase Traditional pull Kerakoll-distributor sales relationship has been transformed to push Kerakoll-end user long-term co-operation relationship Product range increase that brought new customer categories Collaboration with new customers
Sales and supply chain network optimization & synergies exploitation (2/2) Supply Chain Network Logistics structure optimization in Attica and north Greece networks Business strategy alignment Cost structure advantage & cost advantage Maintain similar customer delivery service levels Long term contract with connection of customer delivery service levels to bonus/malus system Freight insurance Reduction of carbon footprint with 3PL main collaborator (fleet management system, use of euro 4 and euro 5 trucks, combined transport, co-operation with BP Target Neutral for minimization of carbon footprint) Actual transport cost follow up for control and improvement purposes Personalized service to every customer (size of vehicle, mode of delivery, urgent orders, special needs) Customer service level follow up and improvement: within logistics team, with sales team, with 3pl collaborator Filtering and optimization of urgencies, special needs and order frequencies/quantities together with sales team Connection of customer delivery promise (time of delivery) to order quantity and value Connection of groupage loadings to order quantity and value in remote delivery areas «Order Acceptance Limit» procedure for optimization of customer orders execution (additional lead time of delivery if over the limit, for B category products)
Threats to supply chain posed by capital controls, ways to tackle and results (1/4) Threat: Increase of checks payback time and financial risk Solution: Set new priorities in sales management and modes of payment Cancellation of all sales order in ERP system and re-registration on prepayment basis Development of stricter credit policy Threats: Shortages in domestic packaging material due to difficulty to deliver 100% of the orders shortages in FP Shortages in imported raw and packaging material due to delays in order payment through the banking system shortages in FP Expiration of particular final products due to sudden change of sales trend and product mix
Threats to supply chain posed by capital controls, ways to tackle and results (2/4) Solutions: 1. Short term planning and better co-ordination between departments Daily (now weekly) communication & follow-up of open orders of raw and packaging material for optimized order management in conditions of uncertainty Weekly (now monthly) update of raw material and packaging material budget with time horizon up to the end of the year 2. Supply chain organization & planning Supplier structure - in most cases - of two to three suppliers for each raw & packaging material provided necessary flexibility where needed Inventory increase of raw material, packaging material and final products in the previous months (following the sales trend and seasonality) provided a safety cushion in the abrupt transition to capital controls environment 3. Contingency planning and flexibility Pro-active inventory increase of produced products during the first month of capital controls application, in order to decrease a possible future financial risk (due to the general macroeconomic situation) Layout adjustment of the above-mentioned inventory increase of the warehouses of raw & packaging material and final products Forecast obsolescence rate (New EX/Sales) in worst case scenario (July capital controls environment) and communication to sales department for possible commercial policy preventive actions in case necessary (Upon agreement) temporary human resources adjustment during the first month of capital controls application (-35% vs July 2014)
Threats to supply chain posed by capital controls, ways to tackle and results (3/4) Results Stock-outs in category B products in July 2015 were just 0.03% of the products sold, stock-outs to date are at 0,11% (yearly target <0.5%) 0.70% 2015 Out of stock Target 2015 (A+B categ.) < 0,5% 0.65% 0.60% 0.54% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 0.00% 0.11% A B C TOTAL
No Threats to supply chain posed by capital controls, ways to tackle and results (4/4) Obsolescence rate for July 2015 was 0.00% and to date 0.02% Rate of rotation: Due to capital controls application in June 29, there was a low rate of rotation in June and July. In August and September, inventory levels were again within target, due to the sales increase and the return to normality 24.0 22.0 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 11.9 12.4 11.4 11.1 Rate of rotation - Total Target 2015: > 12 12.5 13.3 13.8 14.1 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Month 10.5 11.3 13.1 11.9
Modes of payment in supply chain and future anticipation Electronic or check payment for amounts>500 January-June: Check is king with 58% of transactions. Electronic payment follows with 39% In July 2015 analogy of electronic transactions-cash was 85/15 and orders were executed with pre-payment following cancellation of all previous sales orders in ERP In August-Sept 2015 electronic payment has climbed to 46% (+7%). Credit works with stricter conditions
Credit policy criteria & bad debt management (1/2) New or inactive customers filtering: Credit analysis from external partner; in case of no adverse elements, further credit analysis is performed internally, based on company type Commercial credit policy criteria Credit limit defined by Commercial & Financial department based on customer valuation, which is monitored-controlled-readjusted automatically by company software system Open position reduced from 60 days before capital controls to 45 days Financial risk upper limit at 33% Customer is automatically blocked if any of the above criteria is not met. Blocking released only following credit analysis by credit control department, or approval of Sales & Financial Manager when necessary Customer bad debt management Reduction of bad debt through transfer of turnover discounts Customer orders payoff with simultaneous partial bad debt cover Bad debt haircut on the condition of turnover increase For export customers, orders are executed either with pre-payment or with equivalent credit policy criteria
Credit policy criteria & bad debt management (2/2) Results Following capital controls, checks payback time was decreased from 92 to 87 days on average and financial risk does not exceed 22% Almost zero bad debts from 2011 to date Zero bounced checks to date Risk % Dec 14 Jan Feb Mar Apr May June July Aug Sept KKH 20.9% 21.7% 22.5% 23.1% 24.7% 29.4% 32.0% 24.7% 22.9% 21.6% 0.5 0.4 0.3 0.2 0.1 Risk % 0 Dec 14 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
Product ABC & profit margin analysis, Customers collaboration & disinvestment criteria Products Monthly follow up of ABC categories of final products in order to be aligned with the sales trend July 2015 worst case scenario analysis (-35% vs July 2014) showed that 8% of the codes should be degraded in C category. No actions taken due to August and September sales recovery (+12/13% vs last year) Quarterly profit margin control per product, so as to apply commercial policy corrective actions if necessary Customers Customer disinvestment is a strategic choice; collaboration with financial risky customers continues on pre-payment basis
Technology in a new role: Alignment to a changing environment, streamlining of procedures and data access in real time Sales Network Sales Force Automation system (historical sales data per customer, open orders, customer credit limits etc. in sales team s mobile phones) for sales order registration and sales data availability in real time. Launch target March 2016 Distribution network (3PL collaborator) POD application for Attica, Salonica and surrounding areas. Electronic interconnection by March 2016 Planning: Application of MPS/MRP system by June 2016, in order to increase planning effectiveness and efficiency, improve communication between departments and decrease non-value added activities