ABC Company

1
ABC Company Products Business Model and Key Issue
s

2
Products margin history
Average Competitor Margins 1994-2002
Average Product Margins 1994-2002
Product margins blew out in 2001
Midwest supply disruptions
Product spec changes
Margin (cents)
Margin (cents)
Average X Product Margins 1994-2002

• Product margins have remained relatively flat at
  a national level since 1994, except for 2001
  
• Competitor margins have been declining at about
  3.5 per year this is higher on a pooled basis
  
• X Product differentials have been declining 5
  per year, reflecting the overall decline in store
  margins

Margin (cents)
Note Arithmetic average of 50 sample cities ac
ross the US
3
Marketing structure
4
Composition of new organization
Heritage BUs
271 Employees

• Products team formed from several geographically
  dispersed organizations starting February 2003
  
• 30 of employees in new or changed roles
• 10 of employees in transitional roles

5
Products organization chart
6
Customers jobbers

• Be our jobbers Preferred Supplier
• ABC Company site brand with X Products are
  valued by consumer
  
• Competitive pricing
• Product availability
• Competitive jobber programs
• Productive successful business relationships

• Fit for customers and market changes
• Leverage profitable business as platform for
  growth two reports showing jobber margins have
  been sent as separate attachments
  
• Capture greater share of jobber wallet
  
  
• Growth is through expansion beyond existing core
  strengths and offers

7
Jobbers key performance indicators
8
ABC Company leads the industry in all products
with 40 total share of category, generating an
additional gross profit of 95m to ABC Company EOR

• Critical assumptions

• Incremental Benefit due to various products

• ABC Company gross profit
• million, 2000

• The analysis is based on the value of incremental
  sales of all products relative to other majors in
  any specific location. Data sources are as
  follows
• ABC Company Product ratios 2000 actual rates
• Competitive Product ratios 2000 NPD
• ABC Company AFM volume 2000 Actuals
• If the analysis were to assume that ABC Company
  performance could fall below the majors average,
  some of the 174m may also be threatened
  
• The assumptions behind the 95m gross profit
  attributable to other products also includes some
  halo benefit
  
• Value accrues entirely to new sites alone. There
  would be a significant value potential if ABC
  Company sites were to replicate the products
  volume profile

• ABC Company gross profit

• Normalized gross profit an average major would
  earn from same sites

• Incremental gross profit attributable to other
  products

Source external
9
Customers - Product Accounts Has Moved to a
Customer Focused Model and Defined Three Key
Aspects to Meet Customers Needs and Maximize Our
Contribution

• Optimizing portfolio
• Moved from 700 customers in EoR old BU to 500
  Key and Strategic Accounts EoR in USFSA and CMK
  
• Customers apreciate our services and awarded us
  for our delivery performance

1

• They expect more!!
• At the Customer symposium, they told us want to
  give us more of their business, but we MUST get
  the basics correct first
  
• Product supply reliability/security - " if you
  accept my order, I expect to receive the product
  delivery when stated"
  
• Invoice accuracy and payment reconciliation (back
  office systems)
  
• They believe that getting the basics right would
  give ABC Company distinctive value versus the
  competition (particularly our web offer)
  
• We have over 30 Share of wallet with more than
  10 of our current customers. We need to get the
  basics right to increase that number!

2

• Clearly Defined Offers for our customers
• Risk Management.
• Differentiated products
• Web Offer
• Deliver
• Total Product Management

3

• Getting the Basics Right
• Reliable Supply to customers purchase program is
  one option
  
• Faultless back-office
• Ease of transaction e.g. adding functionality to
  web offfer to allow customers to manage accounts
  on-line
  
• Competitiveness in market
• Buidling capabilities within the BU to serve
  customers more effectively

10
Product Accounts
11
Other Products

• Stores
• National/regional chains
• Strong buying power
• Optimize contract/non-contract
• Service with a Smile

• Resellers
• 50 retail sites
• 50 industrial/commercial end users
• Non-contract

• High volume retailers (HVRs)
• segment growing
• Shifting retail strategy to participate
• Efficient product delivery

12
Marketing interface high level to be process
map
The changes in behavior and culture, value
created and learnings from the Marketing
Interface and the Products Pricing Program have
resulted in a vision and set of business process
for how to maximize value across the supply
chain.
Optimize price, margin, and demand around a
forward market view in real time to address
market and competitive dynamics
3
Integrated Supply Pricing Optimization
Right Product/ Right Place/ Right Price / Right
Channel
Demand Generation Win with Brand
Drive demand through customer buyer value-driven
offerings and product strategy
1
Integrate exposure and margin optimization to
capture option value and provide the right
product to the right customer
4
Brand/ Product Mix
Customer Value/Offer
Margin/Pricing Optimization
1
Demand/ Price Forecast
Sales/ Demand Generation
3
Fulfillment Operational Excellence/
Strategic/ Dynamic Pricing
Allocation/ Demand Management
Manage products, contract and channel mix to meet
portfolio risk/return objectives
2
Supply Envelope Optimization
3
Portfolio Optimization Diversify Returns
Forward Market View
5
Product Mix
Trading/ Production
Exchange/ Purchase/ Sale
4
Local Supply/ Demand Optimization
Exposure
2
Inventory/ Scheduling
Channel Mix
Contract Mix
Execute rapid feedback loops to respond to
changing market conditions and capture new
opportunities in real time
7
Exposure Optimization
Fulfill local supply/demand optimization at
lowest COGS
5
Products Information Dashboard
7
Performance Optimization Maximize Total Margin D
ollars
Performance Management
Actual Performance
Pricing Optimization Focus
Implement performance management processes to
measure and proactively deliver expected
performance results
6
Other Function Focus