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Transforming Seed Manufacturing
- 1. World Class Seed Manufacturing “Transforming an Industry” Mark Leidy Executive Vice President, Global Manufacturing Investor Meeting August 23, 2005 1
- 2. Monsanto is Revolutionizing Corn Seed Production Where does Seed Production fit in the Supply Chain? How is hybrid corn seed produced? How has biotechnology changed dynamics of corn seed production process? What has Monsanto done to make our production process a competitive advantage? What are the results? 2
- 3. Monsanto is Revolutionizing Corn Seed Production The Grain Chain Processors & Farmers & Seed Consumers Producers Suppliers Monsanto Farmers Ethanol Syngenta Cooperatives Fructose Dow Corporations Corn Gluten DuPont Others Animal Feed Others Others 3
- 4. Monsanto: Overview of a World Class Seed Supplier Breeding & Trait Integration Seed Manufacturing Marketing the Monsanto Brands INDEPENDENT SEED CO. Corn Usage in the Market 60% 50% 40% 30% 20% 10% 0% M eat , Expo rt s Et hano l C o rn C o rn C o rn C ereal A lc o ho l M ilk , Eggs Syrup St arc h Sweet ners B ev erage 4
- 5. Hybrid Corn Production Key Components ♂ of Corn Reproduction Tassel ♂ of ♀ plant Detasseling Remove Cross Pollination ♂♂ with ♀♀ Creating Hybrid Products Synergistic performance AxB=C ♀ ♂ 5
- 6. Complexity of Hand-Offs: Conventional Seed Corn Production Process 12/01/03 03/31/04 02/28/05 04/15/05 9/10/05 12/01/05 Parent Hybrid Hybrid R&D Finish Seed Seed Hand-Off Field Seed and Parent Increase Parent Seed Delivery Production Purity Harvest 20 ears 2 units 650 units 50k units 50k units Customer parent seed equivalent equivalent corn seed corn seed fulfillment Research Seed Production Process 260K Contract Acres Farmed Annually 6
- 7. Monsanto’s capital investments combined with best-in-class operational capabilities have transformed seed production by improving: Product Quality Product Performance Production Cost Product Life Cycle Inventory Management Employee Safety Since 1998 Monsanto has invested $400 million in global facility upgrades 7
- 8. Seed Acquisitions in 1990s Required Redesign of Production Model 1998 10 Separate Companies 138 Sites Aged Facilities Traditional Technology Independent Supply Chains 8
- 9. Monsanto Redesigned Supply Chain Globally State of the Art Production Facilities 2005 1 Focused Organization 67 Sites Upgraded Facilities Latest Technology Increased Irrigated Acreage Implemented Six Sigma Mechanized Field Activities Husk-On Harvest Vision Technology For Improved Quality 9
- 10. Disciplined Manufacturing Management Apply Standardized Management Tools Across Varied Processes Cost Product Portfolio Six Sigma Lean Management Performance Management Model Quality Complexity Opportunity Variability Efficiency Rapidly Leverage Drive Business Results Improvements Globally Manufacturing Technology Finance Product Global Continuous Teams Manufacturing Improvement Networks Teams Commercial 10
- 11. Cost Management Process Clearly Identifies Opportunities LEVERAGE FACTORS Cost Management 1. Expenditures Measured By Dollars Model 2. Screen Expenditures For Value Six Sigma 3. Evaluate For Opportunity 7. Continuous 4. Focus Resources Improvement On Opportunities Lean 5. Track Metrics 6. Improve INTERNAL EXTERNAL Portfolio Management Field production yield Facility production yield Product Product advancement Performance Inventory obsolescence People productivity 11
- 12. Competitive Advantage Inbred Yield And Plant Rapid Implementation Conditioning Yield Is The of Best Practices Cost Largest Cost Leverage Management Model Seed spacing and row width improvements Six Sigma Molecular breeding to enhance Results in significant male pollen shed and female yields production yield improvements Timing pollen shed with silking Lean 160 Data collection to assure Inbred Yields – effective pollination 1993 - 100% % of target (1993 = 100%) Flaming to improve timing – Portfolio Management Continuous learning and – 80 data collection Satellite imaging for field and Product grower selection Performance Sterile female inbreds 0 Production facility yields '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 12
- 13. Leveraging Technology to Move Seed Production Into 21st Century Grower Selection Process Female Population Increased Cost Management Model Six Sigma Lean Pollen Efficiency Through Flaming Breeding Improvements in Sterility (North America Seed Production) Portfolio % Sterile Production Management Product Performance 2000 2001 2002 2003 2004 2005 13
- 14. Production Technology Improvements have Reduced Cost in North America by More than 35% Six Sigma Ensures Six Sigma Improves Cost World Class Production Field Performance Management Model Six Sigma Lean Portfolio Prescription Drying Management Row Spacing Optimization Gravity Table Improvements Plant Spacing Optimization Warehouse Optimization Product Planter Equipment Calibration Performance Safety Stock Optimization 14
- 15. Turning Art Into Science Six Sigma project measures Constantine County Top 2002 impact of greater uniformity in Doubles 5.3% Misses 14.0% StDev 3.14 Cost plant-to-plant spacing per row Management 20 Model A 6% yield increase for each lantSpacing one-inch decrease in standard 10 deviation of plant-to-plant P Six Sigma Target=5.1 spacing 0 1 2 3 4 5 6 7 8 9 10 11 12 Reduced COGs Row Number Lean Constantine County Top 2003 Doubles 2.9% Misses 8.1% StDev 1.87 Portfolio 20 Management lantSpacing 10 P Product Target=5.4 Performance 0 1 2 3 4 5 6 7 8 9 10 11 12 Row Number 15
- 16. Site Consolidation has Improved Productivity, Cost and Reliability of Supply 1998 Mfg. Productivity Cost 5,000 80 Management 3,000 employees 70 Model 4,000 60 138 production locations 50 3,000 40 Low productivity soils 2,000 30 Six Sigma 20 1,000 Low % irrigated farms 10 0 0 '01 '02 '03 '04 Lean Seed Headcount 100 Units/Employee 2005 2,100 employees Portfolio Management 67 production locations High productivity soils Product Performance High % irrigated farms 16
- 17. Traits Add Complexity to Product Portfolio if Not Properly Managed Production Variability 3 Traits on 1 Hybrid line adds 7 new SKUs 400% 350% Percent of Target 300% Cost 250% Management 200% Model 150% 100% SKU 50% Potential 0% 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 w/Traits Target Volume Lean Forecast Variability Actual SKU Count 350% Percent of Forecast 300% 250% 200% 150% Six Sigma 100% 2002 2003 2004 2005 50% 0% 3.5 0 50,000 100,000 150,000 200,000 250,000 300,000 Phase Mature New Decline Growth Forecasted Volume Out Introduction 3 Or Launch Portfolio Corn shelf life is 3-5 years e cenc 2.5 Management oles bs Production planning and ng O easi 2 Incr forecasting is critical to Decr e 1.5 asin g Sa fety Product minimize obsolescence and Stoc k 1 Performance to maximize the freshness of 0.5 Up to 70% <20% Decline Yr 1-2 > 5% Decline From Peak the portfolio 0 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Life Cycle Planning 17
- 18. Impact of Traits on Seed Business Dynamics Business Impact Cost Product development is complex Increased Management Model Lumpy sales: 1 or 2 cycles per yr. No Change Lean Production cycles long; 2-3 years No Change Six Sigma Product life cycles short; 1-5 years Shortened Short product shelf life; 1-3 years No Change Portfolio Management Long planning windows; 3-5 years Increased Product Performance Highly competitive business Increased 18
- 19. Global Monsanto Seed Manufacturing Blue Lines – inventory utilization Red Lines – cost, quality, reliability, or trait Chemical Plants Seed Plants Animal AG 19
- 20. Production Quality Improves Farmer Yield and Productivity Consistent, High Quality Products Monsanto Seed Brands Testing Programs Marketing Horizons Corn Quality Survey Results Cost Transformation Management Test for Trait and Model Presence of Intended 70 Event and Absence of S o m ew h a t B e tte r th a n o th e r Trait Unintended Commercial P ercen t M u c h B ette r o r 60 and Regulated Events 400 Events Development 50 Trait Integration B ra n d s 40 10 Events Lean 30 Pre-Foundation/ Commercial Event 20 Breeders seed 10 Foundation Commercial Event seed 0 Six Sigma Uniformity of Seedling Plantability On Target to Commercial Event Commercial Field Vigor meet Yield Seed Emergence Goal Farmer 2001 2002 2003 2004 Portfolio Management Product Performance 20
- 21. World Class Seed Production Yields Significant Improvement in GP NA Varieties/Trait Options 2000 - 2005 NA Production Yield 1993-2005 8 YG on female 160 ) %of tar t (1993 =100% f ar t s f pio s #o v r ieie #o o t n 5 80 ge 2 '01 '02 '03 '04 '05 0 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 Varieties T raits Options Seed Quality Measured by Emergence NA Production Unit Cost 1999 - 2004 Monsanto 100 100% Leading Competitor E m e rg e n c e (% ) 1999 =100% 95 90 85 50% RM<96 RM 96-105 RM 106-112 RM>113 FY99 FY00 FY01 FY02 FY03 FY04 Relative Maturity 21