Sales and Operations Planning Las Vegas 2011

1. 11
After Action Review:
Sales, Inventory & Operations Planning
During High Growth
Green Mountain Coffee Roasters, Inc.

2. 22
AAR: SIOP Development
• Coffee Industry Background
• GMCR Company History
• The Development of the Keurig Brewing
System
• The High Growth Phase
• SIOP Development
• After Action Review: SIOP to Date

3. 33
Forward-Looking Statements
Certain statements contained herein are not based on historical fact and are “forward-looking
statements” within the meaning of the applicable securities laws and regulations. Generally, these
statements can be identified by the use of words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “feel,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “would,” and similar
expressions intended to identify forward-looking statements, although not all forward-looking
statements contain these identifying words. Owing to the uncertainties inherent in forward-looking
statements, actual results could differ materially from those stated here. Factors that could cause
actual results to differ materially from those in the forward-looking statements include, but are not
limited to, the impact on sales and profitability of consumer sentiment in this difficult economic
environment, the Company’s success in efficiently expanding operations and capacity to meet
growth, the Company’s success in efficiently and effectively integrating Tully’s and Timothy’s
wholesale operations and capacity into its Specialty Coffee business unit, the Company’s success in
introducing new product offerings, the ability of lenders to honor their commitments under the
Company’s credit facility, competition and other business conditions in the coffee industry and food
industry in general, fluctuations in availability and cost of high-quality green coffee, any other
increases in costs including fuel, Keurig’s ability to continue to grow and build profits with its roaster
partners in the At Home and Away from Home businesses, the impact of the loss of major customers
for the Company or reduction in the volume of purchases by major customers, delays in the timing of
adding new locations with existing customers, the Company’s level of success in continuing to attract
new customers, sales mix variances, weather and special or unusual events, as well as other risks
described more fully in the Company’s filings with the SEC. Forward-looking statements reflect
management’s analysis as of the date of this press release. The Company does not undertake to
revise these statements to reflect subsequent developments, other than in its regular, quarterly
earnings releases.
NASDAQ: GMCR

4. 44
History of Coffee
 Coffee Plant indigenous to Abyssinia (Ethiopia)
 First reliable record of coffee consumed as a
beverage in the 9th century
 Cultivation to Yemen as early as A.D. 575
 Protected by Arabians, germinal seeds
finally obtained by the Dutch in 1616.
 Colonization of coffee throughout the tropics
beginning mid 17th century in Indonesia and to the
Caribbean in early 18th century.
 Principal cash crop of the new world colonies

5. 55
Coffee in North America
• First introduced by Capt. John Smith with the
founding of Virginia in 1607
• Coffeehouses flourished quickly as a
fundamental part of American culture
• The Green Dragon,
center of social and
political life in Boston,
was known as
“headquarters of the
Revolution”

6. 66
20th Century Coffee Marketing in the U.S.
• Beginning of the Century, coffee was typically
purchased “green” by consumers, or roasted locally
by grocers
• With commercialization of merchandisers, local
roasters were not competitive with large roasters
• Eventually, over 80% market share would be held by
3 major roasters
• The battle for brand loyalty was largely fought with
lowest price, and quality suffered
• Coffee consumption declined steadily from 1960 to
1980, to half the per capita volume

7. 77
The birth of Specialty Coffee
• Specialty coffee
industry born in 1982
• Focus on quality,
freshness,
brewing quality
• Coffeehouses once
again flourish and are
at the center of
culture

8. 88
Green Mountain Coffee Story
• Founded in 1981
• Began as a café and small roaster in Waitsfield, VT
• Grew to 16
coffeehouses
in 5 states
• Went public in
1993
• Sold all retail
stores in 1998 to
focus on wholesale

9. 99
Green Mountain Coffee Story
• Grows to become one of the
top 5 coffee roasters in the
country
• Leader in Fair Trade &
Organic
• Becomes co-branded roaster
with Newman’s Own
Organics in 2003
• Leading Keurig Roaster, buys
Keurig in 2007
• Becomes 2nd Fastest Public
Growth Company in US

10. 1010
Multi-Channel Wholesaler
Supermarket
Office Coffee Service
& Food Service
Department Stores & Mass
Consumer
Direct
All
Other

11. 1111
Keurig Development
• 1993 – Conception of Single Cup
• 1995 – Brewer Launched
around a converted salad
dressing cup
• Office Coffee Market
1st Focus

12. 1212
Keurig® Success
• Marketing Strategy based
on the “Razor & Razor Blade”
• Brewer (the Razor) Sales at
near cost
• K-Cup (the Blade) Sales carry
good margin
• Core Value Propositions:
Quality, Variety, Convenience

13. 1313

14. 1414

15. 1515
2,500

16. 1616

17. 1717

18. 1818

19. 1919

20. 2020
Multi-Site Mfg and Fulfillment

21. 2121
GMCR Stock Price – Last 5 Years

22. 2222
GMCR:PEET:SBUX Stock Value Change
Last 5 Years

23. 2323
High Growth Creates Challenges
• Tripling of SKUs
• Growth from 1 Manufacturing Plant to 6,
across the continent
• Non-rational, non-optimum capacity mix for
SKU & Distribution requirements
• Capacity < Demand (Both Materials & Production)
– Constrained Sales and Channel Allocation Battles
– Inventory Policy is Not Ideal; “Build what you can to
meet current orders” vs. Safety Stock based Targets

24. 2424
Sales, Inventory & Operations Planning
as a Strategic Initiative
“A set of business processes that helps
companies keep demand and supply in
balance.”*
*Sales & Operations Planning by Thomas
Wallace & Robert Stahl, 2009

25. 2525
Fundamentals
• Demand & Supply
– When Demand > Supply
• Delivery, Cost and Quality Metrics decline
– When Supply > Demand
• Lower margins, higher costs and lower cash
• Volume & Mix
– Volume
• How much of what types of products?
• Rates of sales, production, inventories
– Mix
• Which products specifically, how to prioritize?

26. 2626
Project Charter

27. 2727
Goals
Customer fill rates
Financial forecast accuracy
Timely and effective New Product launches
Pro-active Capacity Planning
Reduce planning process time
Reduce Freight Costs
Streamline Multi-Site Planning Process
Reduce Inventory Carrying Costs

28. 2828
 A SIOP Process & Meeting Structure, which includes:
 Process to communicate from Phase to Phase
 Unconstrained demand plan from Sales/Marketing
 Cross-Functional constrained demand/supply review
 Clearly Defined Meeting Inputs/Outputs
 Standard Work Requirements
 Required Resources/Attendees
 Meetings Sequenced Appropriately
 SIOP Policy Development
 Metrics: Sales Forecast vs Actual, Target Inventory Levels, Capacity
Plan, Production Schedules vs Actual
 Scenario Planning Ability
 Improve forecast accuracy by 10% for new product forecast by 2/1/11
 Establish baseline for sku level forecast accuracy by 11/1and target
improvement.
 Improve DDP performance to 98% by 3/11
 Improve linkage between DDP and Customer scorecards
 Reduce Touch Time by 30% by 3/11

29. 2929
Vertical Value Stream Process

30. 3030
Rapid Improvement Output
– Identified Phases, Meeting Schedule, Attendees, High
level inputs / outputs
– Created process for converting unconstrained to
constrained demand
– Created Project Team
– Outlined Pre-work to Launch
*RIE did not include KBU

31. 3131
RIE Objectives
• Rapid Deployment Effort
– Met targeted 8/20 date for initial SKU level forecast
• Agreed upon components = existing customers/products,
incorporation of Consumer Direct
– Agreed upon demand template format with Ops
– Consolidating external data sources (New Products,
New Customers) in Access
– High level data requirements / metrics defined
– Instituted foundational process changes

32. 3232
Sales, Inventory & Operations Planning

33. 3333
SIOP Calendar
FY11 SCBU/KBU COLLABORATIVE SIOP CALENDAR
***SIOP BEGINS***
PERIOD 3 Nov / Dec
Sun Mon Tue Wed Thu Fri Sat
21 22 23 24 25 26 27
28 29 30 1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
Sales & Marketing Demand Review
Supply Planning Meeting
Joint SIOP Meeting
Executive SIOP Meeting
SCBU Constrained forecast to be published after Executive SIOP Meeting

34. 3434
SIOP Process Changes
Sales & Marketing
• Integrating New Products into SCBU Forecast
• New Products Review - Pre-meeting established
• Stagegate Workbooks – dynamic updates
• NPD definition of forecast ownership (up to 60 days prior to launch)
• Exception based forecasting for Sales
• Sales focus on new products and outliers from statistical baseline
• Sales focus on key customers – longer term: sales calendar planning
• Activating the Demantra Forecast (SKU level)
• Using statistical sku level baseline forecast from Demantra
• Integrated DDX data
• Demand Planning reviews SKUs, channels, product types (System Integrity)
• Consolidating external data sets via EPM Cube (New Products, CD)
• Import New Products, Pipeline, Keurig, convert to SKU & Export to Ops

35. 3535
SIOP Process Changes - Supply Chain
• SKU level forecast = input to production
forecast
• Release site production forecasts 6
weeks in advance of each period vs 3
• Establish formal process of converting
ship-to forecast to ship-from forecast
• Refine and improve the process of
setting safety stock levels
• Weekly meetings with each site to
monitor production-to-plan metrics

36. 3636
We hold these truths to be self evident…
“The forecast will be off.”
“Customers will
surprise us!”
“Equipment will break down.”
“Priorities will change.”
“Resources will be constrained.”

37. 3737
SIOP Status
• First Run through Period Calendar
– Forecast was wrong
– Priorities Changed
– Customers surprised us
– Equipment broke down
– Resources were constrained
• Loaded Forecast into Supply Planning
– 12 Iterations of Planning Instances and Solver Runs
– Comparison with Manual Analysis
– Maintenance of Planning Attributes

38. 3838
SIOP Next Steps
• Activate Supply Planning as Feed to Site
Production Plans
• Onto 3rd Iteration of SIOP
– Improved Forecast
– Greater Integrity of “One Set of Numbers”
– Communicated Commitment
• Further Refinement of Planning Tools to
Incorporate SIOP Feed into Production
Scheduling and MRP

39. 3939
After Action Reviews
An after-action review (AAR) is a professional
discussion of an event, focused on
performance standards, that enables soldiers
to discover for themselves what happened,
why it happened, and how to sustain strengths
and improve on weaknesses. It is a tool
leaders and units can use to get maximum
benefit from every mission or task.
:US Army TC25-20

40. 4040
After Action Review Format
• What was supposed to happen? What
actually happened? Why were there
differences?
• What worked? What didn’t? Why?
• What would you do differently next time?
• Best when coupled with a
Before Action Review

41. 4141
After Action Conclusions
• Significant Progress Achieved in SIOP
Program
– Better Communication between all stakeholders
– Quality Forecast to load MPS and MRP tools
– Formal Process & Cadence Appropriate for our
Enterprise
• Challenges to have been anticipated
– Critical Partners need to be brought in early
– Senior Executives need appropriate involvement
– Never enough resources to focus on development

42. 4242
After Action Conclusions
• Significant Progress Achieved in SIOP
Program
– Better Communication between all stakeholders
– Quality Forecast to load MPS and MRP tools
– Formal Process & Cadence Appropriate for our
Enterprise
• Challenges to have been anticipated
– Critical Partners need to be brought in early
– Senior Executives need appropriate involvement
– Never enough resources to focus on development

43. 4343
Partners Need to be Brought in Early
• Hesitation that we need “our house in order”
before we involve critical partners
• Challenge: if both houses aren’t in order, the
whole system doesn’t work

44. 4444
Senior Executives Need Appropriate
Involvement
• Senior managers don’t just need to be
committed to the concept of S&OP, they also
need to be committed to the design
• Hesitation to bring in Senior Managers to the
design, as we thought it would be distracting
• There is less credibility to the results,
especially at the early stage, because they
were less involved with design than
appropriate.

45. 4545
• Recruit a Director of Planning
– Expertise in Multi-Site Supply Chain Planning with Tier 1 (SAP,
PeopleSoft, etc.,) ERP system
• Enforce “One Plan” System
– Reliable, integral set of data on demand, capacity and
constraints
– Exercise communication, data analysis and tool usage to the
point of competence
– Further enhance quality of forecast, capacity planning and
inventory policy execution
• Run the next 20 miles of the Marathon

46. 4646
Questions and Discussion
Please contact me at Don.Holly@gmcr.com