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Optimizing Retail Inventory using Predictive Analytics How Data Analytics is Impacting Supply Chain Management Fred Jezouit Vice President of Finance & Treasurer Southern States Cooperative, Inc. @SouthernStates

Business Leadership track March 7, 2013 1:15 – 2:00 pm

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Who is Southern States? • Agricultural cooperative founded in 1923 • East coast from Florida to Maine • 2,400 employees, $2.3 billion in annual sales

Introduction to Southern States

Complex and Diverse Business Model • 140 owned Retail locations — Over 1000 retail distribution points including dealer network (Agway)

• Four Wholesale Divisions — Feed – 8 feed mills — Crops – 17 facilities managing fertilizer, seed and crop protectants — Petroleum – 10th largest propane retailer in US — Farm & Home – 3 distribution centers

We Help People Grow Things

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Data Mining – Significant Potential • Most of 300,000 customers purchase on an account

• Wide variety of third party demographic data and customer insights

• Numerous infrastructure and process improvement opportunities

Opportunities…and Challenges

Obstacles We Face • Cultural awakening on how we measure and evaluate our business

• Limited functionality within certain information systems in place today

• Prioritizing projects and available resources

• No two retail locations are the same – different sizes, markets and products – decentralized decision-making

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Impact of Alteryx Felt Across the Company • Customer segmentation

• Customer activity – new, lost, regained, increased/decreased wallet share

• Wholesale and retail distribution study

• Marketing initiatives — Predictive analytics - optimize mailers and

marketing programs (John Deere Financial partnership)

— Customer insights – defining customer purchasing habits

• Financial variance analysis – sales, margins, unit volumes down to customer level – complete overhaul of operational metrics

18 Short Months – Alteryx is a Game-Changer

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Multi-Faceted Project • Data-mining provided valuable insights into performance and business rules resulting in

significant cultural and operational changes

• Initial focus is on our farm & home, animal health and packaged crop protectant products

• Emphasis on two specific areas of improvement

• Slow Moving Inventory (SMI) — Global initiative to reduce inventory and positively impact working capital at wholesale and retail

— Identify root causes of SMI and implement business rules

— Strategy to monetize excess inventory

— Set stage for transition to centralized inventory management

— Implement ongoing reporting structure to ensure achievement of goals and compliance with business rules

Supply Chain Improvement

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Multi-Faceted Project Continued

• RIGHT inventory at the RIGHT stores at the RIGHT time — Given limited showroom capacity, clean-up SMI to allow space for appropriate seasonal inventory

— Insight into seasonality

— Establish product start / stop dates for seasonal products

— Drive exit strategies

— Evaluate minimum / maximum stocking levels

— Forecasting to determine stocking levels and drive inventory purchasing decisions

— Lost sales due to outages analysis

Supply Chain Improvement

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Reporting Capabilities Shed New Light on Inventory Management • Slow moving defined as “dead”, no sales in last 12 months

or inventory in excess of 12 months sales

Magnitude of the Challenge – Attention Grabber

• Symptomatic of open purchasing rules for retail locations – business rules now in place — Accumulate order requirements across all retail locations — Expectations established for SMI management and reporting developed to

ensure compliance

RETAIL Total SKUs Slow Moving Crop Protectant Products 13,361 4,476 34% Farm & Home + Animal Health 165,690 54,400 33%

WHOLESALE Total SKUs Slow Moving Crop Protectant Products 2,377 716 30% Farm & Home + Animal Health 24,568 6,841 28%

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Multiple Initiatives to Reduce Inventory – Global and Local • Changed behavior from the store manager

all the way through buying group

• Dead and excess reports by store, by SKU delivered to operations personnel

• Ability to identify nearest retail location to move excess inventory

• Impacted buying decisions immediately – working with suppliers

• Clearance sales at retail locations

• Centralized liquidation effort in process, completed in spring

SMI Reporting Drives Action

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Still Early In Process – Benefits Already Realized

Impact on Inventory

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2011

2012

Inve

ntor

y on

Han

d

Total Inventory Farm & Home,

Animal Health & Crop Protectants

Retail division maintaining sales

with 31% less inventory

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Learning Process for Buyers and Retail Operations

Right Inventory at the Right Time

• Needed better understanding of seasonality of products – many products kept on shelves year round

• Developed quick view of sales at the SKU level – used to drive entry/exit timing

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Needed to Provide Greater Visibility Into Inventory Requirements

Ensure Products In Stock for Spring Season

• Expected sales compared to inventory on hand • Identify replacement SKUs • Incorporate marketing efforts – products included in circular advertisement

SKU and Item Description

Day 1-30 Avg

Units

Day 31-60 Avg

Units

60 Days Units

60 Day Sales $ Total Inv On-Hand On-Order

Days to Sell

Current Inv

Past Fut Circ Circ Inactive repl_SKU DO WHSE

02142803 – SS PREMIUM TURF FESCUE 20 LB (BG) 40 193 223 $ 8,904 1 1 0 60 X X 02142804 X X

02142783 – SOUTHERN STATES TALL FESCUE 20 (BG) 79 495 574 $12,030 777 777 0 60 X 02142804

88861300 – PGMG F/SPECIAL TURFGRASS (EA) 37 154 191 $10,697 1 1 0 0

88861200 – PGMG F/KENTUCKY 31 (EA) 23 159 182 $ 2,479 1 1 0 0

02132070 – FESCUE KY 31 50 LB (BG) 25 27 52 $1,349 7 7 0 90 X 0213207 X X

02132074 – FESCUE KY 31 20 LB (BG) 9 38 47 $1,057 148 148 0 90 X X

02145220 – GRASS SUNNY/SHADY MIX 3 LB (EA) 6 31 37 $ 335 0 0 0 60 X X 02132074

02145221 – GRASS SUNNY/SHADY MIX 10 LB (EA0 5 8 13 $ 300 0 0 0 60

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Provide Insight into Effectiveness of Inventory Initiatives

Measure Impact of Out of Stocks

• Are stores being too aggressive on inventory control? • Identify trends at store and within buying group • Impact of centralized purchasing pilot

Product Type Group SKU's in Group

Stores with Outages Resulting

in Lost Sales

Outage Sku Group Days with Lost Sales

Lost Sales

Lost Sales Units

Farm & Home 05900001 05900001 - STATESMN WOOD PELLET FUEL 40LB (BG),) 23 377 $28,991 6,610

Farm & Home 58892066 58892066 - SS COMPLETE SPORT 24-20 40LB (BG) 52 719 $24,534 1,577

Farm & Home 58893066 58893066 - SS DOG FOOD 21-9 40LB (BG) 39 982 $17,414 1,458

Farm & Home 58890066 58890066 - SS COMPLETE ADULT 21-10 40# (BG) 44 723 $16,630 1,174

Packaged CPP 11100511 11100511 - QUIK QUAT 265 GA RUP (EA) 1 25 $15,484 3

Packaged CPP 11100233 11100233 - ETHEPHON 2.5 GA (EA), 11102995 - PREP 2.5 GAL (EA) 15 39 $12,244 241

Farm & Home 10237218 10237218 - SSC PELLETED LIMESTONE 40LB (BG) 20 182 $11,242 3,578

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Changes to Our Organization Have Been Dramatic

Summary – What Have We Accomplished?

• Restructuring of business rules around inventory management at retail and wholesale

• Actionable data delivered to multiple operating units to improve inventory management

• Greater insight into seasonality, impacting timing of delivery of seasonal products

• More accurate sales forecasting, tied to inventory levels, to ensure in-stock positions – driver of sales

• Reduction in inventory levels – impact on working capital and debt levels

• Facilitated transition to centralized inventory management – 20 stores now in centralized pilot program

• Most important – cultural shift in use of information to improve our business – less decisions based upon gut feelings, more based upon analysis of the business

Thank You!

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Fred Jezouit Vice President of Finance & Treasurer

Southern States Cooperative, Inc. @SouthernStates