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Implementing 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

PACKAGES

1. Fees 2. Institutional 3. Legal 4. Leases/Rentals 5. People 6. Variable Compensation 7. Services 8. Technology 9. Travel 10. Utilities 11. Logistics Support 12. Maintenance 13. Marketing 14. Sales 15. Supply Chain Losses 16. Transport

Lease of Equipment Lease of Real Estate Lease of Vehicle Lease of Airplane Other Leases/Rentals

Sub Packages

Every cost has two owners

Packages  Groups of Expenses  Accounts ENTITIES P A C K A G E S Entity Owners with “vertical” or

• rganizational

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 Distribution Marketing Overheads 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

• f 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 Zone Package 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

Data Repository

ZBB T&M Tool (Business Objects BW / BOBJ reporting)

Other SAP

U8 JDA Keystone SAP

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

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• 18%

• 250.8
• 10%

• cal T

• 3.4
• 3%

• 1.3
• 2%

• 403.9
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• sts

• 3.9
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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)

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