Click to edit Master subtitle styleImplementing Zero Based Budgeting

Chris Winter, Heinz

An introduction to Heinz

A Brief History of Heinz

Founded by Henry J Heinz in 1869

First product was Horseradish in clear jars

First order for UK placed in 1886

In 1896 H J Heinz introduces “57 Varieties”

Now #1 or #2 food brand in over 50 countries

Valentines Day, 2013 - a declaration of love?

Warren Buffett Jorge Lemann

Who are 3G?

Heinz Vision

To Be the Best Food Company, Growing a Better World

Vision Supported by 5 Values

Consumer First

Quality

Integrity

Ownership/Meritocracy

Innovation

ZBB PRINCIPLES

Every cost is part of a package

Simple Packages

Complex Packages

• High compression 40%+ with very limited business risk

• High reliance on policies

• Behavior change

• Distributed management

• Global consistency expected

• Low/mid compression 10-25%

• Technical in nature

• Some are variable with volume

• Centralized management

• Efficiency related

PACKAGES1. Fees2. Institutional3. Legal4. Leases/Rentals5. People6. Variable Compensation7. Services8. Technology9. Travel10. Utilities

11. Logistics Support12. Maintenance 13. Marketing14. Sales15. Supply Chain Losses16. Transport

Lease of EquipmentLease of Real EstateLease of VehicleLease of AirplaneOther Leases/Rentals

Sub Packages

Every cost has two owners

Pa

cka

ge

s

Gro

up

s o

f E

xpen

ses

A

cc

ou

nts

ENTITIES

P

A

C

K

A

G

E

S

Entity Owners with “vertical” or organizational responsibility

Package Owners with expense (grouped by nature) responsibility

Entities Groups of People Cost Centers

ZBB Principles

Well defined owners

Shared responsibilities

Deep understanding of expenses drivers (price and consumption)

Other principles

Cost reduction targets

Budget built line by line with high level of granularity

Regular reviews with senior management during the process

GETTING STARTED

1. Define what is in scope

Sales

COGS

Gross Profit

DistributionMarketingOverheads

EBITDA

all other costs

variable costs

2. Define your packages

• ZBB Packages provide detailed and standard visibility of the company’s expenses and have been broken down into sub-packages

• Sub-packages are described in the PDB with unique definitions to enable consistent mapping of the company’s cost structure

Audience:

• The package definition book should be read by all Entity Owners, Package Owners and other individuals contributing to the ZBB Budgeting process. It is the best place to start understanding ZBB costs

Contents:

• This document defines what types of spend should and should not be included into each package

When to use:

• Anytime you are unclear as to where a type of spend should go in the budget

3. Build yourself a baseline

Use your last 12 months of actuals

GL account codes mapped to sub package and package

Cross reference with accounts payable data

This will serve as a base for target setting

4. Get the correct people in position

Zone Entity Owners

ZonePackage Owners

Global Package Owners

Top Leadership

Zone ZBB

Zone Presidents

Global ZBB

ZBB Report ZBB Meeting

Global level:

Zone level:

Country ZBB

Country Entity Owners

Country level:

5. Set global policies

Audience:

• All employees spending money in the Package

• Entity Owners and Package Owners who are budgeting in these packages

Contents:

• Employee Policies and Guidelines for spending and individual behavior

When to use:

• When budgeting and anytime when spending company money

6. Build yourself a reporting system

SAP DS

HFM

BPCS

EXTRACT G/L BALANCES

EXTRAC

T

G/L BALAN

CES

EXTR

ACT

G/L

 BAL

ANC

ES

EXTRACT

G/L BALANCES

Data Repository

EXTRACTWHQ Profit & Loss 

Pack H

ierarchy   G/L B

alances

ZBB T&M Tool(Business Objects

BW / BOBJ reporting)

Other SAP

EXTRACT

G/L BALANCES

TRA

NS

FOR

MZBB VISIBILITY

U8 JDA

Keystone SAP

NON-ERPWorksheets

G/L BALANCES

Budgeting Tool

GET GOING

Routine, routine, routine

Week 1 : close books

Week 2: Review with Package Owners

Week 2: Review with Entity Owners

Week 3: ZBB Zone reviews with Global

Week 2: Entity reviews with Global

Week 4: Action Plan reviews

Qtly: Package Owner review with CEO

Standardise reporting

Package owner reviews – 4 slides

Entity owners reviews – 3 slides in the Review deck

How do you change behaviour?

Management By Objectives (MBOs)

• Qualifier

• KPIs

How do you change behaviour?

Reporting Entity Performance

How do you change behaviour?

Show who prints the most

How do you change behaviour?

Communicate, communicate, communicate

Package (USD '000) Budget Actuals Delta Delta % Budget Actuals Delta Delta %

Travels - Eric Dhaese 646.1 681.7 -35.6 -6% 7,619.2 7,517.4 101.8 1%Lodging 210.3 223.4 -13.1 -6% 2,491.3 2,441.5 49.8 2%Airfare 178.7 210.6 -32.0 -18% 2,458.5 2,709.3 -250.8 -10%Local Transportation 120.8 124.2 -3.4 -3% 1,361.2 748.7 612.6 45%Mileage reimbursement 62.5 63.8 -1.3 -2% 673.1 1,076.9 -403.9 -60%Other Travel Costs 40.6 23.4 17.2 42% 260.7 255.5 5.2 2%Meals 18.9 18.0 0.8 4% 205.6 205.6 0.0 0%Rental Car 14.4 18.3 -3.9 -27% 168.8 130.0 38.8 23%Cost Travel Provider 0.0 0.0 0.0 0% 0.0 -50.0 50.0 0%

November YTD (Jan-Nov)

646.1

681.7

Budget Actuals

Travels Eric Dhaese

November

-35.6 -6%

USD'000

November

-35.6 -6%

USD'000

7,619.2

7,517.4

Budget Actuals

Travels Eric Dhaese

USD'000

YTD (Jan-Nov)

101.8

1%

USD'000

New Heinz quotes

“The budget is the budget” - Europe CFO

“Just because it is in the budget doesn’t mean we are going to spend it”

- the same Europe CFO

KEEP IT GOING

Keep updating your policies

Update Global Policies

Introduce Local Policies for better control

Action plans – how to deliver more

Est. Annual Impact (USD 000s)

Item Subpackage Zone Country Action Responsible In Budget IncrementalDate

CompletedStatus

1 All HNA United States [ ] [Name] $100 $100 3/14 Complete

2 Subpackage [X] HNA Canada [ ] [Name] $100 $0 5/30 In Progress

3 All APAC China [ ] [Name] $100 $0 1/31 Delayed

4 Subpackage [Y] APAC Indonesia [ ] [Name] $100 $0 9/30 Complete

5 All APAC Indonesia [ ] [Name] $100 $0 3/15 In Progress

6 All Europe UK [ ] [Name] $100 $0 1/31 Delayed

7 All HNA Brazil [ ] [Name] $100 $0 5/30 Complete

8 Subpackage [Y] Corporate Brazil [ ] [Name] $100 $0 9/30 In Progress

9 Subpackage [Y] Europe United Kingdom [ ] [Name] $100 $0 3/15 Delayed

10

11

12

13

14

15

16

THE RESULTS

Hidden benefits

Bottom up budget will enable you to negotiate from a stronger position e.g. # of hotel nights

Everyone understand what is in the plan

When asking for variance explanations you can be specific

Mondelez International to cut costs by EUR2bn

Accenture's system is already being used by 3G Capital, owners of AB InBev and Heinz. Irene Rosenfeld, Mondelez CEO, said, "We've watched the work that 3G has done with AB InBev and Heinz and we believe they can be of great help to us."

- Source: IGD Supply Chain Analysis 25th Feb 2014

Imitation is the sincerest form of flattery - Charles Caleb Colton

Q&A