1 Draft presentation to new ECR co- chairs for meeting on 13 September 2006 For discussion at Operating Board meeting on 5 September 2006 Supply Side Agenda 2006/2007

2 Current priority areas –Optimal Shelf Availability –Shelf Ready Packaging –Shrinkage Recommended future priority areas –Deliver & implement current projects –Supporting role for Global Data Synchronisation –Transport –Returnable asset management Supply Side Agenda 2006/2007

3 Optimal Shelf Availability Supply Side Agenda 2006/2007

4 Optimal Shelf Availability – some background Implementation across Europe is still low Supply Side Agenda 2006/2007 Average current implementation rate in Europe: 1.2 (out of 4)  planning/pilot phase (source: full global scorecard benchmark) Average current out-of-stock rate in Europe 11% (source: global scorecard KPI section) There are varying degrees of implementation across countries. UK, France and Italy leading the way

5 Optimal Shelf Availability – some background How to boost implementation throughout ECR community? Supply Side Agenda 2006/2007 Recommendations from ECR Europe OSA strategy meeting – 12 May We need a target We need an action plan

6 Optimal Shelf Availability – target Supply Side Agenda 2006/2007 Reduce OOS by 50% within next 3 years Halve the gaps! Size of the prize: 4.7 billion Euro* * Total grocery sales Europe 2005 = € 965 bn (Planet Retail); OOS rate 11% = € 105 bn ; sales loss: 9% = € 9.45 bn 50% OOS reduction = € 4.7 bn potential sales increase

7 ECR Europe OSA action plan – work at 3 levels Companies Measure Physical audit Automated tool Analyse root causes Use root cause catalogue Improve Implement improvement levers National ECRs Report measurements Participate in learning programmes Aggregate measurement Set up learning programmes Share best practices ECR Europe Board members Evaluate measurement against target Make OSA a priority in your company Provide ressources cross-functional teams OSA champion Reward OSA performance Adapt KPIs Report measurements

8 Shelf Ready Packaging Supply Side Agenda 2006/2007 Shelf ready packaging (SRP) is the term used to refer to a product that comes in a ready merchandised unit which is easy to identify, easy to open, can easily be put onto the shelf and disposed of, allowing an optimisation of shelf replenishment, visibility and shopping trip.

9 Shelf Ready Packaging – Some background –Manufacturers and retailers are using SRP to improve: In-store operations Product presentation / shopping trip Availability –Problem: fragmentation of SRP requirements at local level, benefits are not equally distributed through the supply chain –ECR Europe project started work in February 2006 –Objective: be more efficient through harmonisation of SRP requirements at a European level and agree on joint approach to cost/benefit analysis –Plan to release a recommendation (blue book) by end of 2006 Supply Side Agenda 2006/2007

10 Shelf Ready Packaging – Focus areas –Guiding Principles –Business case –Functional requirements Supply Side Agenda 2006/2007

11 Shelf Ready Packaging – guiding principles Always of value to the shopper, retailer and manufacturer Compliance with environmental legislation & public policy concerns Avoid fragmentation & complexity Maintain brand identity Measure implementation Need for long-term commitment from retailers and manufacturers Compliance with total supply chain efficiency principles Supply Side Agenda 2006/2007

12 Shelf Ready Packaging – Business Case 8- step approach Supply Side Agenda 2006/2007 Adopt Value Chain Impact Approach Perform High Level Assessment Agree relevant Business Case Drivers Perform Business Case Assessment Implement Solution or Other Improvements Track / Measure Implementation Success Validate with Guiding Principles In line with total supply chain efficiency principles Define & evaluate alternative solutions

13 Shelf Ready Packaging – Functional requirements In-store execution recommendations SRP solution assessment tool Supply Side Agenda 2006/2007 Easy open Easy identification Easy shelf Easy dispose Easy shop + +

14 Shelf Ready Packaging – Future work items –Pilot & validate the recommended approach (companies) –Communicate blue book in the ECR community (ECR Europe & nationals) –Implement recommended approach in the industry Via national ECRs Through companies sharing their experience –Maintain SRP core team in 2007 to promote implementation Supply Side Agenda 2006/2007

15 Shrinkage (stock loss in the supply chain) Supply Side Agenda 2006/2007

16 –Project has been on-going since 2000 –Losses are high –Main deliverable: shrinkage reduction roadmap, now widely known in the ECR community and beyond –Project still attracting new retailers and manufacturers (e.g. Wilkinson, Adidas, Asda, Diageo) –Has delivered highly-rated sessions at conferences and a series of excellent training seminars –Has attracted CEO level interest (e.g. Tesco, Royal Ahold, Makro, ICA) SectorLoss in % of Sales (2004) Loss in Value (2004) Retailer1.84€ 18.5 bn Manufacturer0.57 € 5.7 bn Total2.41 € 24.2 bn Supply Side Agenda 2006/2007 Shrinkage – some background Corporate Policy 1. Plan 2.Map & Measure 3. Analyse 4.Develop Solutions 5. Implement 6. Evaluate

17 Shrinkage – some background Project has delivered tangible benefits Supply Side Agenda 2006/2007 OrganisationsLocationResults TescoUK€143million annual savings Tesco & GilletteHungary- 74% losses + 288% sales B&Q & PlasplugsUK- 50% losses + 33% sales Feira Nova & DanonePortugal- 45% total shrink Ahold & sausage suppliersPoland- 42% losses Sainsbury’s spirits categoryUK- 40% losses + 10% sales Sonae & Colgate PalmolivePortugal- 29% losses Sainsbury’s & MenziesUK- 25% losses + 10% sales Wickes & GETUK- 7% losses

18 Shrinkage – current work items –Offender research: understanding the opportunities for internal theft – white paper by mid-November –Rapid Improvement Roadmap: short version of the Shrinkage roadmap for rapid deployment in “hot stores” – white paper by end of October –Sharing of experience between retailers and manufacturers at regular project team meetings Supply Side Agenda 2006/2007

19 Shrinkage –future work items Shrinkage –future work items: –ROI of shrinkage control technologies (e.g. data mining, tagging, CCTV, etc.) –Enabling better retailer/supplier collaboration Designing shrinkage out of new products Pay-on-scan –Continue ECR Europe shrinkage seminars: ECR nationals (Sweden, Finland) 2 European seminars in 2007 (February & October) Supply Side Agenda 2006/2007

20 Next steps for ECR Europe supply side Future Supply Side Agenda

21 Deliver and implement current projects (OSA, SRP, shrinkage) Support implementation of Global Data Synchronisation & Data Quality Tackle new topics of wider European interest Future Supply Side Agenda

22 Deliver and implement current projects (OSA, SRP, shrinkage) –Via national ECRs and with help from ICI –Via companies implementing recommended best practices and not just talking about them –Via ECR Executive Board members promoting ECR approach in their companies Future Supply Side Agenda

23 GDS - Role of ECR Europe –Support implementation of GDS based on 3 ‘Golden Rules’ –Support piloting and implementation of global data quality framework Supply Side Agenda 2006/2007 Use the Global Infrastructure Get Your Information Right Engage with your Partners Collaborative GDS Data Quality Framework Company responsibility to implement ECR Europe to promote GDS through: annual conference, existing ECR projects

24 Possible new topics Future Supply Side Agenda Transport – responsible and effective use of means of transport Returnable asset management (pallets, crates)

25 Transport – current situation –Retailers and manufacturers will have to work within increasing constraints: rising fuel prices, capacity shortages, environmental concerns (Kyoto), road user charges, higher transport rates, reduction of driving hours, week-end driving restrictions, urban access restrictions, etc. –European Commission is proposing action on several transport fronts, including freight logistics (2007) –ECR Europe has released recommendations on transport optimisation, BUT these are not implemented consistently (e.g. unit loads design for better vehicle fill, joint warehousing & delivery programmes, alternative modes of transport, etc.) –Various piece-meal transport optimisation programmes underway between individual companies Future Supply Side Agenda

26 Transport – proposed ECR action –Review existing ECR Europe transport- related recommendations and identify gaps –Set priorities for concrete implementation programmes for topics with highest potential (Support from ICI and national ECRs needed) –Influence EU Commission activities by establishing a dialogue and providing input Future Supply Side Agenda

27 Returnable asset management – current situation –Pallet market is working with two basic scenarios: centrally managed pallet pools (e.g. CHEP) or exchange system (white pallet) – both are currently not satisfactory: high costs, questionable pallet quality, pallet losses, inefficient return logistics – often a result of non- cooperation between manufacturers and retailers. –Market for other returnable assets (crates) also fragmented and return logistics are an issue –ECR Europe has released recommendations on design and management of returnable assets under guidance of International Council for Reusable Transport Items (IC-RTI), but IC-RTI no longer exists Future Supply Side Agenda

28 Returnable asset management – proposed ECR Europe action –Launch a debate on returnable asset management Review current systems Identify shortcomings Agree on necessary improvements Agree on respective roles of manufacturers, retailers and asset providers Future Supply Side Agenda

29 Strengths Active supply side co- chairs & project teams Proven ECR blue book track record Good number of “hot topics” Supply side community is open and pro-active to address industry issues Focused on implementation Weaknesses Company execution of agreed best practices Scarce resources for project team participation on the retail side Alignment with activities/recommendations of national ECRs Supply Side activities – strengths & weaknesses