Page 5 - Apple Supply Chain Co-op Inc. 2016 Annual Report.

Message

david paradise

Board Chairman
apple supply chain co-op

As the theme of this year’s annual report suggests, CSCS exists to be a source of strength for its
Members. That strength is on display every day at the Co-op offices in the form of negotiating the lowest sustainable
prices, ensuring continuity of supply, and supporting Applebee’s in innovation and product development. While we
are operating in the most challenging environment ever experienced, Mike Leikam and his team at CSCS are working
tirelessly to identify new and creative ways to deliver value that create competitive advantages for us. The information
contained in this report highlights many of those value creation activities and ideas delivered in 2016, and I encourage
you to read it. As we navigate change in our industry, you can count on the team at the Co-op to remain maniacally
focused on making us stronger as a system.

Competitive pressures weren’t unique to the restaurant industry in 2016, as many of the underlying markets for the
products we buy also saw decreases in 2016. The Procurement team, led by Chief Procurement Officer Mark Smith,
took advantage of the economic landscape and delivered a market basket that cost 4% less than it did last year, and 250
basis points less than the Producer Price Index. Our comparable costs were favorable in the protein categories except
for pork, with much softer ground chuck costs. Mark and his team were also instrumental in successfully transitioning
us from the tri-tip steak to top sirloin, identifying and bringing online several new suppliers to accommodate our volumes.
The team continues to strive for creative approaches to purchasing that will strengthen our competitive position, including
a focus on restaurant services programs which are highlighted on www.cscscoop.com.

The savings generated from procurement can quickly be eroded without an effective distribution program. The Logistics
team, led by Paul Allegri, created record savings of an additional $5M in 2016 through expanded use of freight
management programs such as redistribution and third party logistics providers to maintain competitive lane rates. Over
$80 million in freight costs each year, combined with industry challenges led by a shortage of drivers, demand strong
distribution partners that are well equipped to weather the storms to come.

The Brand Program team, led by Chris McNutt, supports the Brand’s culinary and marketing endeavors. Proactively
managing inventories during the steak transition resulted in zero obsolescence for what could be considered the largest
one-time menu change in our history. The pace of change has never been faster, which precipitated substantive changes
in the way the Brand Program team is organized by centralizing inventory management in Kansas City and establishing
brand liaisons in Glendale. The Administration team, led by Dustin Pittman, produced the eighth consecutive clean
financial audit and made improvements to our technology platform including real-time price variance alerts for our
distribution centers to ensure the correct prices are being charged every day. The areas of efficiency, compliance, and
analytics are foundational to making us stronger, and all saw advancements in 2016.

Thank you to the other Apple Co-op and CSCS Board Members for devoting their time and talents to providing the right
levels of governance and direction to the CSCS management team. And thank you to all CSCS Members for staying
committed to system excellence through the supply chain. The supply chain as a source of strength is only made possible
through teamwork, coordination, and trust.

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