1. Fonterra Supply Chain Now and in the future 8th August 2016
Confidential to Fonterra Co-operative Group

2. Agenda Market context Fonterra strategy Supply chain big plays
Current NZ network
Future NZ network
Thoughts for the industry
Q&A

3. Market Context Challenging time for the dairy sector
GDT price – at the lower end of the 10 year price range
Milk supply forecast to be 3% lower than 2014/2015 season
Velocity programme driving increased focus on working capital settings
Absolute focus on delivering value for our farmer shareholders

4. Fonterra Strategy
Fonterra’s company strategy looks to build on its strengths and prepare for the future by focusing on 3 key themes:
Volume - growing milk production volumes to protect our place in the market
Value driving value from every drop of milk provided from our farms
3. Velocity - executing our strategy at pace

5. Fonterra Supply Chain Strategy
The logistics function supports this vision by:
Ensuring our supply chain is scalable to enable future business growth aspirations
Developing efficient logistics solutions to support optimisation opportunities driving future profitability
Ensuring our supply chain is dynamic by flowing product earlier and more directly, to better satisfy customer’s needs
Logistics Network 7 Pillars

6. Supply Chain Big Plays – Global Hubs
Design and implement offshore storage solutions with the overall aim of improving service level and decreasing end to end supply chain cost to serve
Logistics hubs in strategic regions
Supporting customer specific supply chain solutions
Improved DIFOT performance vs NZ direct to improve customer satisfaction
Integrated planning to optimise planning of NZ and global inventory
Supports ocean freight optimisation opportunities including larger vessels

7. Supply Chain Big Plays – Global Supply Chain Efficiency
To design, build and improve infrastructure to make it safer for our people and products, simpler, and more productive
Maximise utilisation of existing storage facilities
Enhance primary storage to 25% of annual throughput
Optimise use of rail for landside movements
Consolidate flows through strategic ports
Address current network constraints / issues
Enable commercialisation, where it creates end-2-end value
Minimise touches from production to customer

8. Supply Chain Big Plays – Supply Chain Integrity
To consistently satisfy and surpass customer and consumer food safety and quality expectations by targeted improvement work
Reduce the risk of product quality impacts from cool store failures through implementing a proactive alerts solution
Reduce the number of customer complaints relating to pest events
Identify opportunities to reduce damages across the supply chain

9. Current NZ Network
Historically separate milk companies with local storage requirements
Tended to build CS assets on site
3PL CS assets tend to have been built around other industry sectors
As a result we can have inefficient flows from manufacturing to storage and then to port
Network complexity is high
50 storage facilities
228 potential room/temperature combinations
Handling peak volumes often involves multiple moves
F14
F15
F16
F17
2.03
1.91
1.85

10. Future NZ Network Smaller number of larger facilities
Multiple rooms with flexible temperature capabilities (N20 - P13)
Located with efficient transport flows in mind
Inbound from factory
Outbound to port
Road and Rail

11. Thoughts for the Industry
New technology is bringing improved efficiency in the operation of cool stores
Location and transport connectivity continue to have a large(r) influence on total supply chain cost
Industry collaboration
Seasonality of Fonterra requirement – peak stock levels ⅓rd higher than low point e.g. equates to ~10,000 pallets for North Island reefer network
Creative approach to bringing industries together to reduce supply chain waste
Example of Coda re commercialisation of ambient southbound transport capacity

12. Questions?