7 Procurement Best Practices Handbook [PDF]

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The 7 Nestlé Procurement Best Practices detail the basics that must be in place to achieve our vision of being “a strategic business partner delivering a competitive edge and sustainable value to all Nestlé spend; working with the business for the business”. This handbook details the principles that underpin each of the best practices and the rules that must be applied in all markets to accelerate our delivery of future benefits. The consistent and systematic application of these principles is essential to our success.

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Introduction – 1 Ensure an Effective Governance Model The principles and rules in this chapter describe the best practices for a governance model. Why are we doing this – what does it mean for you …? Good governance ensures alignment with the business and compliance with the rules agreed between the business and Procurement. It requires that:  A governance structure exists  Procurement management is regularly and actively present in the governing committee  Governance takes place on all levels of activity – local, regional, zone and global 1. Ensure an effective Governance model 1.1.

Principle A governance structure must be in place.

Rule 1.1.1. For the Nestlé Chief Procurement Officer and the PLG the Executive Board. 1.1.2. For the Zone/Global Business Procurement Leader - the Zone/Global Business Management Committee (Mancom) 1.1.3. For the Regional Procurement Leader - the Regional Mancom. 1.1.4. For the NiM Procurement Leader - the Market Mancom/NiM Operational Steering Committee. 1.1.5. For the Business Partner - the Business Mancom 1.1.6. The Procurement category experts must be consulted on a case by case basis.

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Best Practice Indicator

7 Nestlé Procurement Best Practices Handbook 1.2.

Procurement must be regularly present in the governance committee with a standard agenda.

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1.2.1. In the Executive Board meetings, for:  Validation of the Procurement vision and strategy  Validation of aggregation of spend categories and strategies for designated materials  Reporting on the progress of the implementation of the vision and blueprint  Reporting on the progress against corporate Procurement targets based on a global Procurement dashboard 1.2.2. In the region / market / NiM / business Mancom, on a monthly basis, for:  Validation of region / market / NiM / business specific projects driven by Procurement, strategies for key materials and P2P related initiatives  Reporting on the progress versus region / market / NiM / business targets  Arbitration and prioritization

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Compliance Indicator: The topics are documented in the minutes of the governance committee meeting.

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Introduction – 2 Align the Procurement Organization Procurement authority and accountability must be in line with category aggregation Why are we doing this – what does it mean for you …? Procurement must ensure that the following principles are correctly applied within the organization:  Strategic sourcing is operated at the most effective level of aggregation defined per spend category  Strategic Buyers are led by the appropriate Procurement Managers according to the level of aggregation  A NiM Procurement organization must be in place covering direct and S&IM spend categories  Operational procurement is managed at local level 2. Align the Procurement Organization 2.1.

2.2.

Principle All Procurement must be functionally led by the Chief Procurement Officer.

Rule 2.1.1. The Procurement organization is structured on different levels:  Corporate Procurement (CPO)  Zone Procurement; Global Procurement (e.g. GNBS, CPCC, Global Technical Procurement), Globally Managed Business Procurement (e.g. Waters)  Regional Procurement  NiM Procurement 2.1.2. Appropriate communication channels must be used across these levels. 2.1.3. Global Procurement (e.g. GNBS, CPCC, Global Technical Procurement) and Zone Procurement must report functionally to Corporate Procurement (CPO). This reporting line can also be direct where appropriate. 2.1.4. NiM Procurement Leaders must report functionally to Regional or Zone Procurement. This reporting line can also be direct where appropriate.

The Procurement Leadership Group members must be accountable to the Chief Procurement Officer.

2.2.1. The Procurement Leadership Group members must be accountable to the Chief Procurement Officer (CPO) for the delivery of Procurement objectives, Procurement 7 Best Practices and P2P compliance.

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Best Practice Indicator

7 Nestlé Procurement Best Practices Handbook 2.3.

Strategic Buyers must be led (either directly or functionally) by the appropriate Procurement Manager according to the level of aggregation.

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2.3.1. Global Strategic Buyers must be either directly or functionally led by the appropriate Global Procurement Leader. 2.3.2. Zone Strategic Buyers must be either directly or functionally led by Zone Procurement Leader. 2.3.3. Regional Strategic Buyers must be either directly or functionally led by the Regional Procurement Leader. 2.3.4. NiM Strategic Buyers must be directly led by the NiM Procurement Leader. 2.3.5. Business Partners must be directly led by NiM Procurement Leader. 2.3.6. For zone and globally managed businesses, it is acceptable for the Zone or Global Procurement Leader for those businesses to have joint functional leadership of the relevant Zone, Regional or NiM Strategic Buyers. 2.3.7. Where functional Procurement leadership is in place, direct reporting lines must be to the local or zone organization to ensure the Strategic Buyers are imbedded in standard HR processes. 2.3.8. Procurement responsibilities must be appropriately allocated, covering Above Market Strategic Buyers, NiM Strategic Buyers and Operational Buyers where relevant. An example of a RACI model for sourcing strategy definition is attached. RACI - Sourcing Strategy Defintion

For job profiles, please refer to Success Profiles.

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Strategic sourcing must be operated on the most effective level of aggregation defined per spend category.

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2.4.1. The target level of aggregation must be determined by the Category Lead through the use of the Aggregation Decision Tree (see below). The target level for each spend category must be validated by the PLG and, for global categories, endorsed by the EBM.

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7 Nestlé Procurement Best Practices Handbook 2.5.

A NiM Procurement organization must be in place covering all spend.

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2.5.1. In each market, there must be one NiM Procurement Leader, who is a functional expert and a functional leader across the Nestlé businesses represented at market level. It is acceptable to split this responsibility between two separate leaders at a market level, provided the split is only between direct materials and S&IM and not by business unit. 2.5.2. All NiM Strategic Buyers must report directly to the NiM Procurement Leader. 2.5.3. The NiM Procurement Leader must be accountable for the execution of Procurement strategies for local, regional, zone and global categories. 2.5.4. The Procurement Leader must ensure that, as changes occur within their Procurement organization:  Updated organisation charts are provided to Corporate Procurement Intranet Webmaster for publication; and  Procurement Who’s Who is updated by their local Webmaster

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Compliance Indicator: Organisation charts are documented Compliance Indicator: Procurement who’s who is up to date

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Operational Procurement must be managed by specialized Operational Buyers.

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2.6.1. Operational Procurement must be specialized and organized as follows:  A centrally managed team of Operational Buyers to raise head office purchase orders (head offices includes sales centres and distribution centres), with a direct reporting line to Procurement  A limited number of Operational Buyers to raise factory S&IM purchase orders. These operational buyers are functionally led by Procurement (i.e. objectives setting and training ensured by Procurement) but need not necessarily be based on the same site. Their line managers will always be local and typically belong to a function other than Procurement.  A limited number of specialised material planners to raise factory raw and packaging purchase orders. These planners do not report to Procurement (either directly or functionally), however where training on Procurement processes is required, Procurement must ensure this training is delivered 2.6.2. Procurement must approve the allocation of any operational buyer role to ensure this role is appropriately allocated and utilized.

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Introduction – 3 Develop Spend Category Expertise People in Procurement are regularly evaluated, developed and trained to demonstrate excellent Procurement competencies, as well as category expertise to continuously deliver value to the business Why are we doing this – what does it mean for you …?  Create and implement a robust people development plan for the Procurement function  Regularly assess gaps and development needs  Put in place a training plan following the Nestlé Procurement training pyramid (see below) . 3. Develop Spend Category Expertise Principle

3.1.

A people development plan must be in place on a local, regional, zone and global level. This plan must include PDGs, talent review and succession planning.

Rule

3.1.1. Success profiles must be implemented. Key positions must be defined. Each job must be clearly defined in a position description and categorized according to the success profiles. Success Profiles 3.1.2. PDGs must be done and documented annually for all Procurement employees.  Frequent review meetings must be held (minimum 2 times per year with people in key positions).  As a result of each PDG a personal development plan must be mutually agreed. 3.1.3. A talent review process, assessing performance and potential of all talents, must be in place and performed according to HR best practices.  This talent review process must be done annually.  Results must be documented.  Feedback must be obtained from other functions to ensure thorough evaluation and promote effective stakeholder management. This will also help to optimize the potential for cross-functional moves. 3.1.4. A Succession Plan must be documented to facilitate replacements for key Procurement positions (on a local, regional, zone and global level).  Succession planning must be updated annually or when relevant changes to the jobs or within the talent pool occur.

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Best Practice Indicator

Compliance Indicator: List of jobs / success profiles exists Compliance Indicator: PDGs are documented Compliance Indicator: Talent review process exists, results are documented Compliance Indicator: Succession plans are documented

7 Nestlé Procurement Best Practices Handbook 3.2.

A function specific training matrix must be in place on a local, regional, zone and global level.

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3.2.1. Based on the personal development plans and the results from the talent review a function specific training matrix must be agreed and planned.  The training matrix must be documented and updated at least once per year.  Training must be appropriate and in line with jobs (see training pyramid) but shall in no way be limited to function specific training only.  All training efforts (courses attended, coaching sessions etc.) must be captured annually in the training matrix for reporting purposes.  Career progression for Procurement professionals must be dependant on progressing through the pyramid.

3.2.2. When Procurement professionals are hired from outside Nestlé, their previous training must be reviewed to determine compatibility with Nestlé Procurement specific training. Independent of previous experience, it is mandatory for all employees to complete the Driving License and, after 18 months experience as a Strategic Buyer, 7 Steps Strategic Sourcing II. For those in lead positions, the Procurement Leadership seminar is recommended.

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Compliance Indicator: Training matrix exists

Training Matrix

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Introduction – 4 Procurement Ownership of Sourcing The principles and rules in this chapter describe the best practices for Procurement ownership of sourcing. Why are we doing this – what does it mean for you …? Procurement must ensure that the following principles are correctly applied within the organization:  Procurement early involvement in commercial discussions and the new product development process  The application of the 7 Steps Strategic Sourcing Process for spend categories  The execution of competitive bidding 4. Procurement Ownership of Sourcing 4.1.

Principle Procurement must have early involvement in commercial discussions and the new product development process for all spend categories.

Rule 4.1.1. Early involvement of Procurement in the sourcing process is essential to provide professional expertise. The Procurement Leader, in consultation with the business, must ensure a formal approval process for supplier agreements related to Procurement managed spend categories is in place within their organisation. This process must detail approval levels and roles and responsibilities of all participants and it must include provision for notification to or review by zone or global buyers where relevant. 4.1.2. Procurement must participate in New Product Development and Introduction (NPDI) or the current market new product development process during all phases.  In the ideation phase, the business gains consumer insight on a strategic opportunity area, generates and evaluates multiple ideas to form a short list of proposed ideas and selects a winning idea. Procurement must participate in that phase to provide information on material trends, supplier innovation, potential cost savings opportunities, specification optimization, potential suppliers, potential supply risks and how to overcome them. The Business Partner must ensure that the relevant buyers provide the necessary input in the ideation stage.  In the concept phase, the business generates and screens diverse concept options for the product, selects and refines the best one, develops an initial high level business plan including the capital 11

Best Practice Indicator

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investment project concept and defines the Development Brief. Procurement must participate in that phase to provide information on material trends, supplier innovation, potential suppliers, potential costs, potential supply risks and how to overcome them. The Business Partner must ensure that the relevant buyers provide the necessary input in the concept phase and that the sourcing strategy is developed accordingly. In the product development phase, the business develops product(s) that meet consumer requirements, as well as Nestlé policies and standards as described in the Development Brief. Procurement must contribute to this phase in order to identify potential suppliers in the markets where the products will be deployed. This includes leading the activities related to supplier prequalification, supplier selection, vendor approval and implementation (as described in the Vendor Approval Process – refer 6.2). In the product industrialization phase, Procurement needs to lead the activities related to monitoring suppliers’ performance (as described in the Vendor Approval Process – refer 6.2) and must ensure that we get the best price/quality balance for the materials we buy. As Nestlé’s requirements change, Procurement must ensure suppliers are aware of these changes.

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7 Nestlé Procurement Best Practices Handbook 4.2.

A formal 7 Steps Strategic Category Sourcing must be performed for 80% of all spend.

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Demand

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Supply Analysis

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Strategy Definition

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Communi cation

Analysis

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Supplier Selection

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Implemen tation

Supplier Manag’t

4.2.1. A formal 7 Steps Strategic Category Sourcing process must be performed for the spend categories which represent 80% of total addressable spend. The 80% threshold applies to raw, packaging and S&IM spend individually; i.e. 80% of raw, 80% of packaging and 80% of S&IM addressable spend must be covered. Each buyer, in consultation with the business, is responsible for defining and documenting the sourcing and supplier strategies related to the spend category they manage. The level of aggregation defined for the spend category will determine which buyer is responsible for the strategy (local, regional, zone or global). 4.2.2. The Procurement Leader (NiM, regional, zone or global depending upon the level of aggregation) is responsible for approving the Strategy Summary resulting from the strategic sourcing analysis for each spend category and to guarantee alignment with business needs. They are accountable for managing the flawless execution of the sourcing strategy. 4.2.3. The Strategy Summary needs to be signed and published in Ariba. It is also possible to store any of the other templates from the 7 Steps Strategic Category Sourcing process in Ariba. The format for a strategy summary is attached. Strategy Summary

4.2.4. The Business Partner must align the strategy with the business objectives and communicate the final strategy to the business and the category management team. 4.2.5. The Strategic Buyer must monitor progress against the objectives outlined in the strategy summary and communicate the achievements on a regular basis (minimum quarterly) to the relevant stakeholders.

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PPI: % of addressable spend for which an approved strategy summary has been prepared (Target 80%) PPI: % of addressable spend for which an approved strategy summary is published in Ariba (Target 80%)

7 Nestlé Procurement Best Practices Handbook 4.3.

4.4.

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A clear competitive bidding process must be in place with clear roles and responsibilities defined.

4.3.1. Quotations from a minimum of 3 suppliers must be obtained for any purchase over a threshold limit if the purchase does not refer to either a negotiated agreement or to a preferred supplier for the spend category. The Procurement Leader, in conjunction with Finance, is responsible for determining and communicating the threshold limit for their market and the process for obtaining quotations. The maximum allowable threshold is CHF 25,000. It is expected that the Procurement Leaders will set limits that are relevant to their market, which may be lower than this level. If guidelines exist at a regional or zone level, these must be respected for markets within that region or zone. 4.3.2. For spend categories managed by Procurement (meaning minimum 80% coverage of all spend as defined in 4.2.1), the Strategic Buyer must be responsible for the collection of the quotations. For spend categories not managed by Procurement, the Procurement Leader must ensure competitive bidding is carried out for spend in excess of the threshold defined in 4.3.1. 4.3.3. Procurement must monitor purchase orders on a regular basis for compliance to the competitive bidding rules and take action to drive the necessary discipline.

A preferred supplier list must be documented and communicated to the business.

4.4.1. A preferred supplier list must be maintained by Procurement containing information on the preferred supplier(s) for each spend category managed by Procurement. This list must be communicated to the business. Examples of preferred supplier lists are attached Oceania

UK

If prompted for a password, press enter key

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PPI: % of purchase orders complying with the competitive bidding process (Target 100%)

7 Nestlé Procurement Best Practices Handbook 4.5.

Procurement must ensure appropriate category management to deliver added value to the business.

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4.5.1. The Procurement Leader is responsible for defining and communicating category management teams for each spend category managed by Procurement. Category management teams may include Procurement category experts and key business subject matter experts. The category management team is accountable for ensuring a sourcing strategy has been developed and is responsible for delivering the objectives documented in the sourcing summary. Clear roles and responsibilities must be defined for each team.

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PPI: % of Procurement managed spend categories for which a category team has been defined (Target 100%)

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Introduction – 5 Drive Business Connectivity The principles and rules in this chapter describe the best practices for business connectivity. Why are we doing this – what does it mean for you …? Good business connectivity ensures that Procurement understands and supports the business to deliver competitive advantage. This requires that  Joint objectives between business and Procurement are defined at all levels of the organisation  Procurement is an integral part of the MBS process.  Procurement provides one face to the business through the Business Partner activities 5. Drive Business Connectivity 5.1.

Principle Joint objectives between the business (includes business units and corporate functions) and Procurement must be defined.

Rule 5.1.1. The process to follow to define and implement joint objectives is as follows:  The business management presents its strategy to the Procurement Leadership team which is in charge of Procurement for their business. This must include specific discussions on opportunities for differentiation and competitive advantage.  Procurement builds the business strategy into sourcing strategies for the spend categories relevant for the business.  The business and Procurement agree on sourcing strategies and Procurement related initiatives e.g. P2P compliance. Other functions may need to be consulted; e.g. Finance for categories of high risk or financial impact.  The business and Procurement agree on joint objectives and an action plan to achieve the strategies for the forthcoming business year. This may require long-term plans e.g. 2 or more years and/or a phased approach if the sourcing strategy or the initiative requires long-term development.  This process takes place at all levels of the organisation with the Procurement objectives being initially defined at a business level and then reviewed based on Procurement NiM, regional, zone and global objectives.

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Best Practice Indicator Compliance Indicator: Joint objectives are defined and signed by the Procurement Leader and the business manager - at all levels of the organisation. PPI: % of the Procurement projects forecasted for the year that are implemented. (Target 100%)

7 Nestlé Procurement Best Practices Handbook 5.2.

Procurement must be an integral part of the MBS process.

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5.2.1. The process to ensure Procurement is an integral part of the MBS process is as follows:  The business presents its strategy to the Procurement Leader and/or the Business Partner in the concept phase which takes place according to the standard MBS plan (attached)  Based on the sourcing strategies, Procurement provides feedback to the Business Manager during the concept phase  The ultimately agreed MBS reflects the input from Procurement The below diagram shows the strategic Procurement involvement in the MBS process.

The below diagram shows the typical MBS timeline with dynamic forecast responsibilities included.

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7 Nestlé Procurement Best Practices Handbook 5.3.

A Business Partner, who is the Procurement representative for the business, exists for every business.

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5.3.1. A Business Partner must be appointed and clearly communicated for each business unit. Depending on the needs of the each of the business units, one Business Partner may represent multiple business units. 5.3.2. The Business Partner must be selected based on the Business Partner job success profile. Below is the success profile for the Business Partner and some sample job descriptions. Business Partner Success Profile

Sample Job Descriptions Business Partner

5.3.3. The Business Partner must be part of the Procurement Leadership Team. 5.3.4. The Business Partner must ensure the match between business strategy and sourcing strategy. 5.3.5. The Business Partner must participate in the business Mancom for the entire meeting and report the findings of the business Mancom back to the Procurement Leader and develop action plans where necessary. 5.3.6. The Business Partner reports on Procurement performance against objectives, both strategic Procurement and P2P compliance, in the business Mancom. 5.3.7. The Business Partner raises issues and requirements to the Procurement Leader and, if a category specific issue, to the Category Lead. 5.3.8. Business stakeholders must be surveyed to determine their level of satisfaction with the service provided by Procurement and their Business Partner. For more detail on the Internal Stakeholder Survey, refer to 7.8.

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Compliance Indicator: A Business Partner appointed for each business unit Compliance Indicator: Internal stakeholder survey is completed annually

7 Nestlé Procurement Best Practices Handbook 5.4.

The Business Partner must ensure that Procurement participates in New Product Development and Introduction (NPDI) or the current market new product development process during all phases.

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5.4.1. The Business Partner must ensure that Procurement is involved in the new product development process. They are typically not the person who will participate directly in the 4 phases; however they must ensure the Procurement is adequately represented and actions are completed.

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Introduction – 6 Ensure Compliance of Policies & Specifications The principles and rules in this chapter describe the best practices to ensure compliance to policies and specifications. Why are we doing this – what does it mean for you …? Adherence to specification management best practices and Procurement policies and processes ensures we adequately control risks within the Procurement process and streamline P2P activities. This requires that:  New suppliers have to be approved before first delivery  Purchasing specifications exist, are communicated and optimized where possible.  P2P Processes are adhered to and compliance measured 6. Ensure Compliance of Policies & Specifications 6.1.

Principle All potential suppliers on the short-list have passed prequalification and have been assessed for risk.

Rule 6.1.1. Strategic Buyers must follow step 2 “Supply Analysis” of the 7 Steps Strategic Category Sourcing process to generate a short list of potential suppliers. 6.1.2. Strategic Buyers must ensure that potential suppliers receive the Nestlé Supplier Code through Ariba RFx documents. If Ariba is not used for the RFx, buyers must send the Supplier Code to communicate that any future business with Nestlé will be subject to the requirements stated in the Supplier Code. Acknowledgement of the Supplier Code is a precondition to supply. 6.1.3. Strategic Buyers must request information from potential suppliers to conduct the pre-qualification assessment. The pre-qualification questionnaire covers:  financial  technical & R&D  quality  responsible sourcing Only pre-qualified suppliers can be short-listed 6.1.4. Strategic Buyers must perform a risk assessment to determine the level of assessment necessary for approval. Draft questionnaire for supplier risk assessment attached.

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Best Practice Indicator PPI: % of suppliers short-listed that have gone through prequalification (Target: 100%) PPI: % of suppliers short-listed that have a risk assessment (Target: 100%)

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Supplier Risk Profile

6.2.

New suppliers have to be approved before first delivery according to:

6.2.1. Strategic Buyers must ensure that new suppliers are taken through the 4 dimension vendor approval process (Vendor Approval Compass).

Financial criteria Food safety & quality requirements Technical / R&D requirements Responsible sourcing compliance

6.2.2. If a new supplier site has already been approved by another Nestlé unit for identical risk level and material application (specification) in finished product, the existing approval must be accepted by the new Nestlé unit. 6.2.3. Strategic Buyers must review supplier’s compliance with the Nestlé Supplier Code.  For high risk suppliers, approval is based on: o A self assessment questionnaire o A third party audit conducted by a recognised auditing body according to Nestlé Responsible Sourcing audit guidelines - Labour standards - Business integrity - Environment - Health and Safety  If an appropriate audit report is already available, suppliers must give Nestlé access to this audit report.  Suppliers will commission the audit and bear the cost. They will own the audit report and are free to share it with any customer of their choice. 21

PPI: % of new suppliers who have been subject to the approval process (Target 100%)

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6.2.4. Strategic Buyers must liaise with quality, technical, R&D and finance to ensure that all other dimensions in the approval process have been completed. Each of these functions is responsible for completing their approval actions within the agreed timeframes. Refer to attached draft GI for Vendor Approval to understand the approval actions of each function in the process. Draft GI - Vendor Approval Process

6.3.

Information on approved vendors must be available globally.

6.3.1. Assessment results, approvals and (re-)assessment plans must be stored in the GLOBE Vendor Audit Module (VAM). For markets that have not yet implemented VAM, assessments and approvals must be stored in a repository accessible by Procurement, Quality, Technical and R&D.

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PPI: % of suppliers for who complete documentation is available (Target 100%)

7 Nestlé Procurement Best Practices Handbook 6.4.

Approved purchasing specifications1 must be in place for all raw and packaging materials and communicated to suppliers. 1

Reference in this document to purchasing specifications includes both the purchasing specification and the market requirements (MRES). These documents must be seen as a package.

6.5.

The optimisation of purchasing specifications or S&IM requirements must be considered as part of every sourcing strategy.

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6.4.1. It is the responsibility of the technical community to ensure that updated and approved purchasing specifications are available and that the execution of the approval workflow is not delayed. 6.4.2. All raw and packaging materials must be linked to an approved purchasing specification. 6.4.3. All SAP & NCPS contracts and purchase orders for raw and packaging materials must contain a reference to an approved purchasing specification. 6.4.4. Purchasing Specifications and changes to specifications must be communicated to relevant suppliers in a timely manner. This communication should take place via the Nestlé Supplier Portal where suppliers will be asked to electronically acknowledge receipt of the purchasing specification. For markets not yet using the Nestlé Supplier Portal, the Procurement Leader must determine and communicate clear responsibilities and processes within their market for the timely communication of purchasing specifications to suppliers. Refer to GI-45.001 – Guideline for the Creation of Raw Material Purchasing Specifications 6.5.1. The optimisation of purchasing specifications or S&IM requirements is a mandatory action in the 7 Steps Strategic Category Sourcing process. This review must be undertaken as part of Step 1 – Demand Analysis. Each category summary must include a note on the review undertaken and the subsequent actions taken. Refer to GI-45.001 – Guideline for the Creation of Raw Material Purchasing Specifications.

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PPI: % of raw and packaging spend with reference to an approved purchasing specification. (Target 100%) PPI: % of purchasing specifications acknowledged on the Nestlé Supplier Portal. (Target 100%) When Nestlé Supplier Portal has been implemented in the market

7 Nestlé Procurement Best Practices Handbook 6.6.

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All existing suppliers must 6.6.1. Existing suppliers receive the Supplier Code through receive the Nestlé Supplier GLOBE/SAP contracts and purchase orders. Code and notification of a In markets not yet using GLOBE, buyers must send the supplier’s rejection of the code Supplier Code to suppliers to communicate that any future must be recorded and business with Nestlé will be subject to the requirements stated escalated. in the Supplier Code. 6.6.2. Upon renewal of a frame agreement, the Supplier Code must be included and signed along with the agreement. Acknowledgement of the Supplier Code is a precondition to continue supply. 6.6.3. In case of rejection of the Supplier Code, suppliers must notify their Nestlé buyer. Upon receipt of this notification, buyers must update the Supplier Code Status in GLOBE vendor master data to “rejected”. For markets not yet using GLOBE, a process to capture information on rejections of the Supplier code must be defined. 6.6.4. Buyers will then follow the Escalation Procedure for further steps. 6.6.5. Once acknowledgement or a mutual recognition agreement has been achieved, the Supplier Code Status has to be updated in GLOBE vendor master data: “acknowledged” or “mutual recognition agreement”.

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PPI: For suppliers who have rejected the Nestlé Supplier Code, the % where rejection has been recorded on their master record and the escalation process has been followed (Target 100%)

7 Nestlé Procurement Best Practices Handbook 6.7.

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Supplier payment terms must be standardized to streamline payment processes and reviewed on a regular basis to determine opportunities to improve working capital.

6.7.1. Procurement is responsible for setting payment terms with suppliers. 6.7.2. Procurement must undertake a review of supplier payment terms with a view to:  Standardising payment terms within a market (or above market level where appropriate)  Minimizing short payment terms (anything less than 30 days)  Assessing opportunities to extend payment terms or utilise alternative payment options; e.g. reverse factoring 6.7.3. After this review, the Procurement Leader must determine and communicate a listing of payments terms that are available for use in their market. This payment terms list must become part of the market guidelines that the operational buyer must check compliance with before creating a purchase order (refer 6.19.2).

The introduction of a new supplier must be as a result of a thorough selection process and approved by Procurement.

6.8.1. Prior to a request for a new supplier, a thorough investigation of, initially, the existing preferred suppliers, then, the existing GLOBE suppliers must be undertaken to verify:  Whether a preferred supplier can supply the required goods and services; or  Whether the new supplier already exists in GLOBE 6.8.2. All new suppliers must be approved by a Strategic Buyer or a Purchasing Manager. It is Procurement’s responsibility to ensure that only financially viable suppliers are awarded the Nestlé business and that new suppliers fit the overall Procurement strategy for the spend category. 6.8.3. A service level agreement to approve new vendor requests must be documented, implemented and measured. The SLA must include the timeframe within which suppliers must be approved.

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PPI: % PO with standard terms (Target 100%)

PPI: % of vendor requests approved within SLA (Target 100%)

7 Nestlé Procurement Best Practices Handbook 6.9.

Requests for new suppliers must be completed correctly and in a timely manner.

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6.9.1. New vendor requests must be initiated prior to any formal or informal commitment being made to a new supplier. The request must be made early enough to allow sufficient time for the approval and creation process. The Procurement Leader must determine and communicate the lead time for a new vendor in their market. 6.9.2. New vendor requests must be completed correctly, in line with GLOBE data standards and local market requirements. Incomplete or incorrect requests may delay the creation of a new vendor.

6.10. The vendor database must be kept up to date.

6.10.1. A review of inactive vendors (with no activity within last 18 months) must be done by Procurement on an annual basis in order to identify and subsequently mark for deletion any vendors no longer required. 6.10.2. Vendor master data must be updated as required; either upon notification from the supplier or as information regarding changes becomes available e.g. returned mail, fax, e-mail etc.

6.11. Use of one time vendor must be controlled and monitored.

6.11.1. The Procurement Leader must determine and communicate the guidelines for the appropriate use of one time vendors in their market. The appropriate use may be based on time, value and / or type of spend; e.g. OTV account must only be used for suppliers that will not be reused within an 18 month timeframe. OTV account must never be used for raw and packaging materials. 6.11.2. Operational buyers must check each use of a one time vendor account to ensure the use meets the criteria specified by the market prior to the creation of the purchase order. 6.11.3. Monitoring reports must be run and circulated to the business on a regular basis to highlight the use of one time vendors.

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PPI: % vendors created right first time (Target 100%)

PPI: % vendors that are active (Target 100%)

PPI: % of spend with one time vendors that is in line with the market guidelines (Target 100%)

7 Nestlé Procurement Best Practices Handbook 6.12. Formalisation of supplier relationships within legal agreements must be in place to ensure Nestlé complies with all commercial, financial, legal and regulatory risks and obligations and to mitigate dispute risks and ensure expected service levels are met.

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6.12.1. Any spend or commitment within a market over a specified annual value or a specified duration must be supported by a legal agreement. The Procurement Leader must set and communicate these threshold values for their market. 6.12.2. Regardless of the value or duration, the following types of spend or commitments must be supported by a written legal agreement:  Relates to the supply of equipments or packaging material with direct food contact;  Relates to the supply of service or material which could imply a risk of damage to Nestlé's reputation (consumer and employee health, environmental risk, promotional toys…);  Relates to the supply of service implying the collection of personal employee or consumer data (employee or consumer name, address…);  Relates to the use of intellectual property rights by Nestlé or a third party (e.g. use of patent, know how, trademark, confidential information, recipe, etc);  Mentions a minimum volume of purchase leading to financial penalty for Nestlé, containing obligations bearing on Nestlé, that may result in financial or other charges;  Contains some exclusivity, territorial or non compete restrictions;  Contains a lease or license of premises;  Contains Nestlé Group entities cross guarantees;  Contains joint purchasing obligations with third parties;  Contains any other material obligation as determined by the Strategic Buyer Sample legal agreement is attached. Legal AgreementSample.doc

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PPI: % spend above threshold / duration covered by a legal agreement (Target 100%)

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6.13. Supplier agreements must be approved and signed by duly authorised Nestlé employees and representatives of the suppliers.

6.13.1. The Procurement Leader, in consultation with the business, must ensure a formal approval process for supplier agreements related to Procurement managed spend categories is in place within their organisation. This process must detail approval levels and roles and responsibilities of all participants and it must include provision for notification to or review by zone or global buyers where relevant.

6.14. Supplier agreements must be stored in a central repository controlled by Procurement.

6.14.1. Signed supplier agreements must be stored on the Nestlé Contract Management System (available in 2010). For markets not yet using the Nestlé Contract Management System, supplier agreements must be collected and stored on a shared directory controlled by Procurement.

6.15. Valid GLOBE SAP contracts must exist for all raw and packaging materials purchased with the exception of materials managed through NCPS, which must have a valid NCPS contract.

6.15.1. Valid GLOBE SAP contracts must be maintained by Procurement for all purchased raw and packaging materials with the exception of materials managed through NCPS. For NCPS materials, valid NCPS contracts must be maintained by the CPCC. 6.15.2. An approval strategy for contracts must be determined and communicated by the Procurement Leader. This strategy must include approval limits and roles and responsibilities of an approver. The approval limits must be configured in GLOBE to ensure there is an appropriate system control. 6.15.3. A service level agreement for the approval of contracts must be documented, implemented and measured. The SLA must include the timeframe within which contracts must be approved and the requirement for back up (substitution) to be maintained and activated in case of planned (i.e. holidays) and unplanned absences (i.e. illness).

6.16. GLOBE SAP and NCPS contracts must be managed to ensure the information is accurate and up to date.

6.16.1. GLOBE Strategic Buyers and the CPCC must ensure that their contracts are kept up to date with current pricing, changes in volumes and changes in specifications. 6.16.2. GLOBE Strategic Buyers and the CPCC must actively monitor the need for a new or extended contract by ensuring there is sufficient volume on the contract to meet future requirements.

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PPI: % raw and pack spend against contract (Target 100%) PPI: % contracts approved within SLA (Target 100%)

7 Nestlé Procurement Best Practices Handbook 6.17. Purchase requisitions must be created and approved, where required, on a timely basis to ensure spend is approved by the budget owner prior to operational commitment with the supplier.

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6.17.1. The Procurement Leader must determine and communicate when a purchase requisition is required in their market. Generally, purchase requisitions are required for all spend, excluding the below:  Spend incurred on credit cards  Spend incurred on purchasing cards (P-cards)  Spend incurred through a non PO invoice (only for exceptional circumstances) Purchase requisitions for raw and packaging materials must be generated by MRP. 6.17.2. Purchase requisitions must be raised and approved, where required, prior to any operational commitment (formal or informal) being made to a supplier. 6.17.3. An approval strategy for purchase requisitions must be determined and communicated by the Procurement Leader, in consultation with Finance. The approval process must balance control with the administrative burden of approvals to ensure the most streamlined approval process possible with adequate levels of control. Purchase requisitions generated by MRP must not require approval. This strategy must include approval limits and roles and responsibilities of a purchase approver. The approval limits must be configured in GLOBE to ensure there is an appropriate system control. 6.17.4. A service level agreement for the approval of purchase requisitions must be documented, implemented and measured. The SLA must include the timeframe within which purchase requisitions must be approved and the requirement for back up (substitution) to be maintained and activated in case of planned (i.e. holidays) and unplanned absences (i.e. illness).

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PPI: % PR line items raised before invoice date (Target 100%) PPI: % of purchase requisitions approved within SLA (Target 100%)

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6.18. Purchase requisitions must be managed to ensure the information is accurate and up to date.

6.18.1. It is the responsibility of the purchase requester to track their requisition through the system and ensure it is approved in a timely manner. 6.18.2. The requester must also ensure that their requisitions are kept up to date with current pricing, changes in quantities or required delivery dates. Any changes made to a purchase requisition after the purchase order has been created must be manually communicated to the operational buyer for update on the purchase order.

6.19. Purchase orders must be created and transmitted to the supplier prior to any goods or services being supplied and prior to invoices being raised.

6.19.1. The Procurement Leader must determine and communicate when a purchase order is required in their market. Generally, purchase orders are required for all spend, excluding the below:  Spend incurred on credit cards  Spend incurred on purchasing cards (P-cards)  Spend incurred through a non PO invoice (only for exceptional circumstances – must be detailed on a “Non-PO Spend Category List”) 6.19.2. Purchase orders must be raised from approved purchase requisitions or MRP purchase requisitions. Prior to creation of a purchase order, an operational buyer must perform compliance checks on the request; e.g. use of preferred suppliers, correct spend category, use of one time vendor etc and challenge any request that is not in line with the market guidelines. For raw and packaging materials, material planners must ensure quantities generated by MRP are reasonable and optimise purchase orders, taking into account transportation and print run considerations. Purchase orders for raw and packaging materials must reference a valid GLOBE SAP or NCPS contract. 6.19.3. Purchase orders must be transmitted to the supplier on a timely basis through the most efficient means possible. It is the responsibility of operational buyers to communicate purchase orders to suppliers. 6.19.4. A service level agreement for the creation of purchase orders must be must be documented, implemented and measured. The SLA must include the timeframe within which purchase

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PPI: % PO line items created with reference to PR line item (Target 100%) PPI: % PO line items (raw & pack) created with reference to an MRP PR line item (Target 100%) PPI: % of purchase orders created within SLA (Target 100%) PPI: % PO line items created before invoice date (Target 100%)

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orders must be created and the compliance checks that must be carried out by the operational buyers. 6.20. Purchase orders must be managed to ensure the information is accurate and up to date.

6.20.1. Operational buyers must manage their purchase orders; specifically:  PO without goods receipt with delivery date in the past. Corrective actions may include: o Follow up with supplier to expedite delivery; o Follow up with goods receiver to process receipt; o Follow up with requester for accurate delivery date or deletion of PO if goods or services no longer required  Updates to the PO based on change of agreement with the supplier; e.g. change of price, change of delivery date

6.21. eTools, such as PCard, eCatalogues, eTransmission, and eSupply Chain should be used where possible to reduce the cost of transactional processing.

6.21.1. The S&IM Decision Tree and the Direct Decision Tree must be used to determine the best tool for each spend category within the market. 6.21.2. The Procurement Leader must determine and communicate an implementation plan for relevant eTools. 6.21.3. Upon implementation, the Procurement Leader must communicate when each eTool must be used in their market and the processes relevant for each eTool.

6.22. Clear guidelines must exist for the use of corporate credit cards and cash expenses.

6.22.1. The Procurement Leader, in consultation with Finance and where relevant HR, must determine and communicate the type of spend for which corporate credit cards and cash expenses can be used within their market. This guideline should include “mandatory” use of credit cards or cash expenses e.g. travel and entertainment costs and “allowable” use of credit cards or cash expenses e.g. subscriptions, gifts and prizes, adhoc low value purchases etc.

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PPI: Number of PO line items without goods receipt with delivery date in the past (Target 0)

PPI: % spend within spend category managed by eTool (e.g. PCard, eCatalogues) (Target 100%)

PPI: % mandatory spend covered by credit card / cash expenses (Target 100%)

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6.23. Goods receipts, where required, must be recorded in the system on a timely basis based on a proof of delivery of the goods or services.

6.23.1. Goods receipts for physical goods, where required, must be posted upon arrival and acceptance of the goods. Receipts for services (including service entry sheets), where required, must be posted promptly upon proof of delivery e.g. timesheets, job completion sheets, pro-forma invoices, statements etc. 6.23.2. The posting of a goods receipt must only occur upon confirmation that the services or goods delivered corresponds to the purchase order in quantity and quality. 6.23.3. It is the responsibility of the requester or the goods receiver to run a report on expected and overdue deliveries at least weekly and either follow up with the supplier to expedite deliveries, post a goods receipts or advice the operational buyer to change the delivery date on the purchase order.

6.24. Supplier invoices must reference a valid GLOBE purchase order number to enable invoice matching or be returned to the supplier.

6.24.1. Procurement must communicate the requirement for a valid GLOBE purchase order to be referenced on all invoices to all new and existing suppliers. 6.24.2. Procurement must follow up with suppliers who frequently do not reference purchase orders on their invoices to ensure future compliance.

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PPI: % PO line items with goods receipt posted before invoice posting date (Target 100%)

7 Nestlé Procurement Best Practices Handbook 6.25. Blocked and parked invoices must be actioned on a timely basis to ensure suppliers are paid according to agreed payment terms.

6.26. Suppliers must be notified of credits and claims without delay and managed to ensure timely resolution.

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6.25.1. The GLOBE Blocked Invoice Workflow and the GLOBE Parked Invoice Workflow must be implemented in all markets. It is only with these tools that the necessary visibility is provided to the market to drive continuous improvement in the reduction of blocked and parked invoices. 6.25.2. The Procurement Leader must determine and implement a service level agreement for the resolution of blocked and parked invoices for their market. The SLA must include the timeframe within which a blocked or parked invoice must be actioned and resolved (or trigger an escalation process). 6.25.3. Responsibility for blocked and parked invoices must be allocated as follows:  Blocked invoices – operational buyers  Parked invoices referencing a purchase order - operational buyers  Parked invoices not referencing a purchase order – accounts payable (involving Procurement depending upon reason code) 6.26.1. The Procurement Leader, in conjunction with the Quality Manager, must determine and communicate the process for claims management within their market. The process must include the roles and responsibilities, the treatment of credits and claims in GLOBE and the procedure for escalation. The process must make a distinction between standard incidents (where the operational buyer or requester may handle the process) and major incidents (where a Strategic Buyer must be involved and legal may need to be consulted). Example of processes for the management of credits and claims is attached for reference. Claim Management Claims Management Process Process

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PPI: % blocked invoices by blocking reason PPI: % parked invoices by parking reason PPI: % blocked invoices resolved within SLA (Target 100%) PPI: % parked invoices resolved within SLA (Target 100%)

7 Nestlé Procurement Best Practices Handbook 6.27. The GRIR account must be regularly monitored and corrective action taken for unreconciled items on a timely basis.

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6.27.1. Operational buyers must be responsible to monitor the GRIR account for imbalances on, at least, a monthly basis. They must take the appropriate action to correct unreconciled items.

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Introduction – 7 Adhere to KPI Framework The principles and rules in this chapter describe the best practices for KPI Reporting. Why are we doing this – what does it mean for you …? Good KPI reporting ensures we provide transparency of the benefits delivered to the business and our internal stakeholders and ensures continuous improvement and compliance. It requires:  One common set of KPIs  One common dashboard 7. Adhere to KPI Framework 7.1.

7.2.

Principle The Cost of Procurement (cost to serve / purchase) must be measured.

Rule 7.1.1. This KPI must be managed by the Procurement Leader. 7.1.2. The cost to serve or purchase is taken from the Procurement budget local salaries on a fully costed basis and any additional costs of Procurement, including costs allocated for above market buyers. 7.1.3. The following comparisons must be measured and reported:  Cost of Proc as a % of NPS (Cost of Procurement / NPS) * 100  Cost of Proc as a % of savings (Cost of Procurement / Savings) * 100  Cost of Proc vs. external benchmark 7.1.4. The Cost of Procurement KPIs must be reported once per year.

Budgets prices must be accurate.

7.2.1. Budget prices must be as accurate as possible. It is not acceptable to over or under estimate these prices. When the dynamic forecast process is fully implemented and communicated, budget prices must be a mirror image of the dynamic forecast.

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Best Practice Indicator Compliance Indicator: The cost of procurement is measured on an annual basis

7 Nestlé Procurement Best Practices Handbook 7.3.

7.4.

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The Purchasing Material Price Variance must be measured.

7.3.1. The Purchasing Material Price Variance (PMPV) is based on consumed quantities and measures:  Procurement’s position vs. budget  Procurement’s impact on P&L (actual this year vs. actual last year) 7.3.2. A GLOBE BW report (Purchase Material Price Variance) is available and must be used to calculate this KPI to ensure consistency across markets and transparency within the Group. The GLOBE PMPV report must not be used for commodities (as the hedging impact is not included). Procurement must use the PMPV information provided by their respective CPCCs for commodities. 7.3.3. The PMPV KPI must be reported on a monthly basis.

The Forecast Purchase Price Variance must be measured.

7.4.1. The Forecast Purchase Price Variance (FPPV) measures:  The forecast of Procurement’s position vs. budget 7.4.2. Two GLOBE BW reports are available to calculate this forecasted variance – PMPV report (as detailed above) and the FPPV report. These reports must be used for forecasting purposes to ensure consistency across markets and transparency within the Group. These 2 reports only apply for direct materials. For S&IM, refer to 7.6. 7.4.3. To calculate FPPV, a dynamic forecast process must be in place and the forecasted prices must be uploaded into GLOBE. It is the responsibility of the CFO, together with the BEM, to ensure a proper DF process is in place and the Procurement Leader must ensure accurate data is provided at the right level of detail and at the right frequency. The attached communication relates to the 2008 DF. Prices for Key Materials





All forecasts must be communicated at material / plant level irrespective of the level of aggregation at which the assumptions are taken (e.g. local, regional, zone or global buying). Procurement must define what is relevant from their expertise. Clear and detailed information at material & plant level must be available with no need for interpretation. Forecast accuracy depends on the amount and quality of the market intelligence, cost modelling/cost driver analysis and supply market analysis done. This is a key task for Procurement and must be 36

Compliance Indicator: PMPV is measured on an monthly basis

Compliance Indicator: FPPV is measured on an monthly basis

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challenged and validated by Procurement management.  Each Strategic Buyer must formally define for their spend category a forecast methodology detailing the key drivers for the forecast, any external sources of information and the frequency of the forecast (monthly/quarterly). This must be validated by, depending on the aggregation level, the zone or local controller and must be integrated into the sourcing strategy.  A formal validation of the forecast evolution of key categories must be requested by controlling at any appropriate level for all quarterly DF.  DF must be prepared and reviewed on a quarterly basis (February, May, June & September). 7.4.4. The FPPV KPI must be reported on a monthly basis. 7.5.

Direct materials project savings must be identified and tracked.

For 2009, Procurement projects must be managed and savings calculated according to current processes in either PPR or BTT. For 2010, new best practices will be in place for project management: 7.5.1. Projects are defined as any Procurement activity yielding more than CHF5000 in savings. Activities yielding less than CHF5000 can be bundled into a general project relating to the spend category. Standard contract negotiations / annual negotiation which are recurring activities are considered as project. 7.5.2. A global solution, I-Nexus, will be implemented in 2010, together with detailed guidelines. The implementation plan will be communicated in due course. This solution will replace both PPR & BTT and is recognized as the official project management solution within Nestle Operations. 7.5.3. A new methodology for determining the baseline to be used in the Added Value calculation will be applicable from 1 January 2010 for direct material spend:  If an index is available, last year price must be adjusted with the index  If no index available, at least 3 quotes must be obtained and the baseline must be the average of the 3 lowest quotes. These quotes must be well documented and stored in I-Nexus.  The baseline and assumptions for the estimated savings must be clearly stated for further references. 7.5.4. All projects must include a project brief (detailing objectives, resources, and potential timelines) as well as fact sheets detailing high level 37

Compliance Indicator: Direct materials project savings are measured and recorded

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estimated savings. 7.5.5. Project estimated savings must be based on annual expected consumption at the time of implementation. 7.5.6. For commodities, savings must include differential negotiations. 7.5.7. Projects must be communicated early enough in the process to ensure support from the stakeholders and validation from the first estimated savings as per latest dynamic forecast assumption. 7.5.8. Once a project is ready for implementation, the forecasted savings must be taken into account for the dynamic forecast. The Strategic Buyer must ensure savings are not double counted; i.e. once the saving has been integrated into the dynamic forecast, it must not longer appear in identified savings. Forecasted savings that have been included in the dynamic forecast must be recorded in I-Nexus for reporting purposes. 7.5.9. Savings must be validated at each key milestone by Finance & Control. 7.5.10. Realized savings must be measured on a monthly basis using consumed quantities. 7.6.

S&IM performance must be measured.

7.6.1. Currently, we have not defined a solution specifically for measuring S&IM Performance. The current PPR & BTT tool must be used until a new solution is available. 7.6.2. Projects are defined as any Procurement activity yielding more than CHF5000 in savings. Activities yielding less than CHF5000 can be bundled into a general project relating to the spend category. Standard contract negotiations / annual negotiation which are recurring activities are considered as projects. 7.6.3. A global solution, I-Nexus, will be implemented in 2010, together with detailed guidelines. The implementation plan will be communicated in due course. This solution will replace both PPR & BTT and is recognized as the official project management solution within Nestle Operations. 7.6.4. A new methodology for determining the baseline to be used in the Added Value calculation will be applicable from 1 January 2010 for S&IM spend:  At least 3 quotes must be obtained and the baseline must be the average of the 3 lowest quotes. These quotes must be well documented and stored in I-Nexus.  The baseline and assumptions for the estimated savings must be clearly stated for further references.

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Compliance Indicator: S&IM performance is measured

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7.6.5. All projects must include a project brief (detailing objectives, resources, and potential timelines) as well as fact sheets detailing high level estimated savings. 1

2

Demand Analysis

3

Supply Analysis

4

Strategy Definition

5

Communi cation

6

Supplier Selection

7

Implement ation

Supplier Manag’t

7.6.6. Project estimated savings must be based on annual expected consumption at the time of implementation 7.6.7. Savings must be calculated and adjusted at different times throughout .the 7 Steps Strategic Sourcing process:  Step 1 - Demand analysis - Identified savings o Expected benefits must be formalized (demand reduction, TCO reduction etc) o The project must be communicated early enough in the process to ensure support from the stakeholders and validation from the first estimated savings.  Step 5 - Supplier selection - Contracted savings o Business assumptions must be updated based on contracted price and final specifications  Step 6 - Implementation - Realised savings o First year benefits must be formalised and compared to identified savings from Step 1. o The Business Partner or Strategic Buyer must liaise with Finance to understand whether the savings are being reinvested or not. For S&IM, both project related savings (covering steps 1 to 7) and routine negotiations (step 5 only) will be measured. 7.7.

Performance for the procurement of commodities must be measured

7.7.1. Specific benchmarks for each commodity (e.g. coffee, coca, sugar, grains, vegetable oils and dairy etc) must be defined to ensure alignment between the CPCCs and markets. 7.7.2. Performance against market must be measured monthly. 7.7.3. All KPIs in section 7 apply to commodities unless stated otherwise.

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Compliance Indicator: Performance for the procurement of commodities is measured monthly

7 Nestlé Procurement Best Practices Handbook 7.8.

An internal stakeholder survey must be commissioned once a year to measure the level of stakeholder satisfaction with Procurement services.

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7.8.1. The Procurement Leader must commission an internal stakeholder survey once a year. The content of these surveys will be common across the organization to allow for benchmarking. A third party provider has been selected to co-ordinate these surveys and this provider must be used by all markets. Surveys can be organised by contacting: Adam Pollard Quality Systems Specialist 1 Checkerboard Square--13T St. Louis, MO 63164 (314) 982-1206 [email protected] Attached is an example of an internal stakeholder survey commissioned by NBS North America. Sample Internal Stakeholder Survey

The cost of the survey must be borne by the market. The target for internal stakeholder satisfaction is a minimum of 70%.

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Compliance Indicator: Internal stakeholder survey is completed annually

7 Nestlé Procurement Best Practices Handbook 7.9.

Suppliers performance must be measured against pre defined criteria.

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7.9.1. Quantitative criteria for measuring suppliers must include on time deliveries, in full deliveries, quality of deliveries and accuracy of invoicing. 7.9.2. A GLOBE BW report (Vendor Evaluation Scorecard) is available to measure on time, in full and quality for raw and packaging suppliers and must be used to calculate this KPI to ensure consistency across markets and transparency within the Group. For the markets that have not fully implemented GLOBE, a process to measure suppliers against the above criteria must be defined. To ensure accurate information regarding a supplier’s performance is captured, best practices for material planners regarding delivery dates on purchase orders and recording goods receipts must be defined, communicated and implemented. Attached is an example of a best practice document from ZEUR.

Compliance Indicator: Supplier performance is measured monthly

Best Practices Vendor Scorecard

7.9.3. Procurement must verify the results provided by this report are reasonable before communicating them to suppliers. 7.9.4. For S&IM, where performance criteria are agreed with suppliers, a process must be in place to capture required data and measure the suppliers’ performance. 7.9.5. This KPI must be reported internally on a monthly basis. It must be reported to suppliers whenever required but, at least, once a year as part of a supplier review. 7.10. Compliance to the 7 Nestlé Procurement Best Practices must be measured.

7.10.1. Compliance to the 7 Nestlé Procurement Best Practices must be measured and reported on a monthly basis through the use of the 7 Nestlé Procurement Best Practices Dashboard. Zone Procurement will be responsible for monitoring progress and results will be consolidated globally. The Dashboard will be visible for all markets for benchmarking purposes.

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Compliance Indicator: Compliance to the 7 Nestlé Procurement Best Practices is measured

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Glossary Above Market Buyer Addressable Spend

Ariba Baseline Best Practice Indicators

BTT Business Business Partner Compliance Indicator (CI) Corporate Function CPCC CPO EBM eCatalogues eSupply Chain eTransmission

A buyer who manages spend categories that are aggregated above the market – covers regional, zone or global buyers. Addressable spend is all spend excluding the following categories:  Taxes, rates and tariffs.  Banking payments of debts and financial services  Government managed services (when no choice of supplier exists)  Royalties  Dividends  Minor travel expenses e.g. restaurants, tips  Trade Spend (payments to customers)  Inter-group charges The provider for the Nestlé eSourcing platform Theoretical base price against which cost improvements are calculated Indicators that help to define and evaluate whether and to what extent, a particular process or practice has been complied with. They include: PPIs (Process Performance Indicators) – quantitative measures that quantify the degree and progress of adherence to a best practice; and CIs (Compliance Indicators) - qualitative (yes / no) metrics that indicate compliance to a best practice Benefits Tracking Tool - NBS North America solution for cost savings tracking A business unit; e.g. Nestlé Beverages UK, Maggi GmbH Germany (includes SBUs – Strategic Business Units where relevant) A senior Strategic Buyer or Group Manager who operates as a single point of contact for Procurement for a business Compliance Indicator - qualitative (yes / no) metric that indicates compliance to a best practice Departments that are not business units e.g. HR, Finance, Technical departments. A Corporate function can be at a market, regional, zone or global level Nestlé Commodities Purchasing Centre of Competence Chief Procurement Officer Executive Board of Managers eCatalogues are electronic catalogues that can be accessed by users to order predefined materials in an efficient manner eSupply Chain is a collaboration tool that is used by Nestlé and its suppliers to enable the electronic exchange of key business documents through an electronic marketplace and to support and facilitate the Procure to Pay process for direct materials eTransmission is the use of a marketplace as an intermediary to allow electronic data exchange; e.g. ePO or

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Functional Leadership Globally Managed Business GLOBE Blocked Invoice Workflow GLOBE Parked Invoice Workflow GLOBE Strategic Buyer GLOBE Vendor Audit Module GNBS Governance GRIR account Mancom Market Market Requirement (MRES)

MRP – Materials Requirement Planning Mutual Recognition Agreement NBS NCPS Nestlé Contract Management System Nestlé Supplier Code Nestlé Supplier Portal NiM One Time Vendor Operational Buyer

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eInvoice with our suppliers Leadership by the Function without direct reporting lines – means Procurement involvement in objective setting and ensuring adequate training is provided Nestlé businesses managed at a global level e.g. Waters, Nestlé Professional, Nutrition, Purina, Nespresso A GLOBE tool developed to facilitate the resolution of invoices blocked for payment A GLOBE tool developed to facilitate the resolution of parked invoices The GLOBE role for Strategic Buyer – has the access to create and maintain SAP contracts. A GLOBE solution to plan and manage vendor audits and store vendor audit reports and supporting documentation Global Nestlé Business Services The process of decision-making and validation of decisions A clearing account in GLOBE that reports the quantity differences between goods receipts and invoice receipts for purchase orders Management Committee e.g. Nestlé UK A document that specifies market specific requirements; specifically: legal requirements relating to local legislations, certificate & documentation requirements , express exempt origin requirements, requirements specific to ingredients statements and logistical requirements. It is intended to complement the Purchasing Specification Functionality used to monitor stocks, calculate requirements and guarantee material availability based on stock policy, manufacturing needs, purchasing requirements and inventory management needs A written agreement with a supplier that states that the supplier has a code of conduct that Nestlé recognises to be equivalent to the Nestlé Supplier Code Nestlé Business Services Nestlé Commodity Procurement System – the system used to manage the Procurement of commodities Global Nestlé repository for signed agreements with suppliers, including search and alert functionality. The Nestlé Supplier Code is a document that emphasizes the relevant requirements for suppliers and contract manufacturers: Business Integrity, Health & Safety, Labour Standard, Environment and Sustainability, Supplying Farmers. A Nestlé web based solution that provides a single point of access for suppliers to various Nestlé applications e.g. Invoice Payment Status Tool, Document Exchange Solution Nestlé in the Market e.g. NBS UK, NBS Germany One Time Vendor is a collective vendor master record; i.e. it is one vendor number that collects transactions for various suppliers who provide one off goods or services to Nestlé An Operational Buyer is a Nestlé employee who is authorised to create purchase orders. 43

7 Nestlé Procurement Best Practices Handbook Operational Commitment Operational Procurement P-Card – Purchasing Card PLG – Procurement Leadership Group PPI PPR Procurement Leadership Team Procurement Leader Purchase Approver Purchase Requester Purchase Requisition Purchasing Specification RACI

Region RFx SLA Webmaster Zone

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A commitment made to a supplier for the delivery of specific goods or services on a specific date(s) – excludes strategic commitments which are the contracts or agreements with suppliers to supply goods and services during a defined time period or up to a defined volume. The process of creating PO’s, transmission of PO’s to suppliers, management of blocked and parked invoices, liaison with suppliers and requesters. P-cards are charge cards issued to Nestlé. They are used by authorised employees to make purchases of high volume, low value goods and services from pre-determined vendors. Nestlé makes one monthly payment for all P-card purchases to the Purchasing Card provider (American Express) Procurement Leadership Group made of Chief Procurement Officer, Zone Procurement Managers, Global Procurement Managers and Business Procurement Managers Process Performance Indicator – quantitative measure that quantifies the degree and progress of adherence to a best practice Purchasing Project Repository. GLOBE solution for cost savings tracking The leaders of the Procurement function at a market, region or zone level. Will typically include the direct reports of the Procurement Leader. A Procurement Leader is a person who leads the Procurement function at a market, region, zone or global level. Typical job titles include Head of Procurement or Procurement Manager A Purchase Approver is a Nestlé employee who is authorised to approve purchase requisitions, purchase orders and contracts in GLOBE A Purchase Requester is a Nestlé employee who is authorised to create purchase requisitions and could be from any Department within the Company A purchase requisition is a request from the business to Procurement to purchase a certain quantity of a good or service so that it is available at a certain point in time. It is an internal document and is not to be used outside the company A document that clearly describes a substance to enable its purchase to meet the quality and performance requirements based on its intended use by Nestlé and/or our partners A model that defines possible types of involvement Responsible: correct execution of process or activities (who is the doer) Accountable: ownership of quality and end result of process (who is accountable for the decision) Consulted: involvement through input of knowledge and information (who must provide input to the decision) Informed: receiving information about the process execution (who must you inform about the decision) A collection of Nestlé markets below Zone level e.g. LATAM, NBS NA, ASEAN Includes requests for information, requests for proposals or requests for quotation Service Level Agreement Person who is responsible for managing the content of an intranet site – there are Local Procurement Webmasters in each of the markets and a Global Procurement Webmaster to manage the corporate site. ZAOA (Zone Asia, Oceania, Africa), ZAMS (Zone Americas), ZEUR (Zone Europe)

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