Implementing An Integrated Sales And Operations Planning Process

Stephen P. Crane

Director Supply Chain ManagementPerformance Polymers

Implementing An Integrated Sales & Operations Planning

Process

Dusseldorf, GermanyApril 26, 2006

Supply Side Demand Side

The Key to Superior Business Performance

2

“ Integrated Sales & Operational Planning Process”

APCI 2006, The Future of Demand Planning, S. P. Crane

Implementing An Integrated Sales & Operations Planning Process:

– Addressing ways to align the business plan, operating plan, production plan, and demand plan so that all departments are striving to achieve the same goals

– Exploring key performance metrics that ensure optimal business performance

– Summarizing specific business results

Abstract

3



Content

Air Products in Brief

Implementing S&OP

Aligning Demand Plan with Operating Plan

Key Performance KPIs

Major Challenges

Key Success Factors –S&OP Checklist

Who is Air Products?

4

5




Global supplier of gases, chemicals, equipment, and health care services

FY05 revenue ~$8.1 billion

Serving customers in technology, energy, industrial and healthcare markets

One of the safest large-scale chemical companies

Operations in more than 30 countries

6



Content


Implementing S&OP



Major Challenges


7



Air Products ERP Platform

SAP R/3 Single Instance

– Initial Go-Live July 2002 (Release 1- Germany)

– Releases 2, 3, 4, 5 (2003 – 2006)

– Global Release strategy developed through 2007

APO (Advanced Planner & Optimizer) v3.0

– Initial scope included deploying Demand Planning (DP) and Supply Network Planning (SNP) modules

– Standardized Demand Planning and Supply Planning processes for all businesses

– First APO forecast generated in October 2003

– APO planned orders passed to plants for production scheduling

– APO v4.1 functionality upgrade scheduled for October 2006

Global Work Processes

MetricsMetricsFollow the Money!Follow the Money!

9



Where We Started in 2003

Just went live on SAP, master data issues

New processes, tools, and data sources

Planning processes loosely integrated

Poor visibility of demand/supply balance

Numerous service issues, late deliveries, renegotiated orders

Communication gaps between business, finance, and supply chain

No linkage between volume forecasts for supply chain and financial forecast

10



11



12



What is Sales & Operations Planning?

Combines all business plans into one integrated plan

Monthly process

Reviewed by management at an aggregate level

Reconciles demand and supply plans at detail and aggregate level and linked to operating plan

What business plans to do over near/intermediate term covering an 18- month horizon to:

– Plan for resources

– Execute business plan/strategy

S&OP Process Flow StepsP1.1A – Identify, Prioritize, & Aggregate SC Requirements DAY 0 - 8 P1.4 – Establish &

Communicate SC Plans DAY 13-15

P1.3A – Balance Supply ChainRequirements with SC Resources DAY 9 – 12

P1.2A – Identify, Prioritize, & Aggregate SC Resources DAY 0 - 8

Review Historical Sales

Data

Review Demand Metrics

Apply Historical Sales Data

Adjustments

Apply Future Demand Change

Notifications

Run Forecast Model

Agree & Communicate

Approved Plans

Communicate Implications to

Financial & Sales Plans

Review Supply Plan & Cost Projections

Develop/Modify Supply Chain

PlansReview Supply Planning Measures

Adjust Supply Planning

Constraints

Load & Review Unconstrained Demand Plan

Submit Supply Plan with

Documented Options

Approve & Publish Supply

Plan

Approve & Publish

Unconstrained Demand Plan

Gather Data [DAY0]

Gather Data [DAY 0]

Define Supply Capability [DAY 1 – 8]

Develop Supply Plan Proposals

[DAY 9]

Finalize & Approve

Supply Plan [DAY 10 -12]

Aggregate All Sources of

Supply

Initiate Req Master Data

Changes

Review Inventory Available

Review Supply Capability

Create Demand Change

Summary

B

A

Partnership Meeting[DAY 13]

Executive S&OP

[DAY 15]

Summarize

Supply Chain Plans

Gather Collaborative

Input(Future Function)

Create Unconstrained Demand Plan [DAY 1 -8]

Develop Unconstrained

Revenue Projection

Apply New Characteristic

Combos

Adjust Statistical

Parameters (if needed)

Review and Validate

Unconstrained Forecast

Input Source, Make, Deliver

Product & Capacity Plans

Create Supply Change

Summary

Develop Supply Plan Proposal (Optimization)

Review Alerts

Assess Impact & Develop

Options

Review Excess Capacity, Supply Options, Demand

Exceptions

Issue Resolution

Agree to Supply Plan

Initiate any Master Data

MOC

Review Supply Chain Plans

Review Revenue ProjectionsA

B

C

C

BI

14



S&OP Process Cycle

MonthlyCycle

CreateUnconstrained

DemandPlan

(Days 1-7)

Adjust Historical data,

Statistical Forecast

DevelopSupply PlanProposals(Days 7-9)

Approved Demand Plan

PartnershipMeeting(Day 13) Approved

Supply Plan(Days 10-12)

ApprovedPlan

ExecutiveMeeting(Day 15)

BalancedPlan

DemandChange

Summary (Day 0)

15



Content


Implementing S&OP



Major Challenges


16



Demand Planning Process

Data Gathering & Setup(Analysis, Exception Reporting, Statistical

Models, Data Aggregation)

Routine Forecasting Cycle(Demand Change Reviews, Sales History

and Future Forecast Adjustments, Unconstrained Forecast)

Monitor & Improve Forecast Accuracy(Forecast Accuracy KPI, Forecast Value

Added from Business Intelligence)

Sales & Operations Planning Process

Inventory Plan Supply Plan MPS Raw Material Plan Distribution Plan

Financial Forecast Process

Network Optimization Rail Fleet Sizing Safety Stocks Capacity Planning

Input from Marketing, Sales,

Customers, & R&D

17



Supply Planning Process

Data Gathering & Setup(Source, Make, Deliver, Product, &

Capacity Plans)

Define Supply Capability(Available Inventory, Sources of Supply,

Summarize Supply Changes, Adjust Constraints, Initiate Master Data Changes)

Develop Supply Plan Proposals(Assess Impact & Develop Options,

Submit Supply Plan Options)

Partnership Meeting MPS Raw Material Plan Distribution Plan

Approve Supply Plan

Input from Plants, Asset Management

Network Optimization Changes

Unconstrained Demand Plan

18



Partnership & Executive Meetings

Review Demand Plan(Review Product Families, Demand

Assumptions)

Review Supply Plan(Inventory Plan, Cost Projections, Supply

Assumptions, Issue Resolution)

Agree to Supply Plan(Develop Supply Chain Plans, Source,

Make, Deliver)Develop Revenue

Projections(Identify Gaps)

18 Month Projections

Communicate Approved Plans(Source, Make,

Deliver)

Communicate Plan Implications

(Financial, Sales)

19



S&OP Drives the Business Plan

CreateUnconstrained

DemandPlan

(Days 1-7)

DemandChange

Summary(Day 0)

PartnershipMeeting(Day 13)

ExecutiveMeeting(Day 15)

DevelopSupply PlanProposals(Days 7-9)

S&OPMonthlyCycle

Adjust Historical data,

Statistical Forecast

Approved Demand Plan

Approved Supply Plan(Days 10-12)

Approved Plan

Balanced Plan

Drives Business Plans: - Outlooks/Budgets - Sales/Marketing Plans - Gross Profit Forecast

Revenue

Fore

casting

Drives Supply Chain Plans: - Plant Loadings - Inventory Levels - Raw Material Forecasts

Volume

Forecasting

Financial Variances: volume, price &

margin

Process Links Together Business, Supply Chain, and Finance

20



Content


Implementing S&OP

Aligning Demand Plan With Operating Plan



Conclusions

21



S&OP Process KPIs

Forecast Accuracy (%)

Production Plan Adherence (%)

Inventory Days of Supply

Financial Forecast Accuracy (%)

22



Forecast Accuracy Improvement

40

50

60

70

80

90

1004

Q0

3

1Q

04

2Q

04

3Q

04

4Q

04

1Q

05

2Q

05

3Q

05

4Q

05

1Q

06

% F

ore

cast

Acc

ura

cy World Class Performance

23



55

60

65

70

75

80

85

Oct-

04

No

v-0

4

Dec

-04

Jan

-05

Feb

-05

Mar-

05

Ap

r-05

May

-05

Ju

n-0

5

Jul-

05

Au

g-0

5

Sep

-05

Oct

-05

27

30

33

36

39

42

45

Demand Forecast Accuracy (%) Inventory Days of Supply

Target

Target

Forecast Accuracy vs Inventory DOS

20% Improvement

24



Production Plan Adherence

50

55

60

65

70

75

80

85

90D

ec-0

4

Jan

-05

Feb

-05

Mar-

05

Ap

r-05

May-0

5

Ju

n-0

5

Ju

l-05

Au

g-0

5

Sep

-05

Oct-

05

No

v-0

5

Dec-0

5

Jan

-06

Pro

du

cti

on

Pla

n A

dh

ere

nc

e (

%)

38% Improvement

25



Financial Forecast Accuracy

30

40

50

60

70

80

90

10012/1

/2004

1/1

/2005

2/1

/2005

3/1

/2005

4/1

/2005

5/1

/2005

6/1

/2005

7/1

/2005

8/1

/2005

9/1

/2005

10/1

/2005

11/1

/2005

12/1

/2005

1/1

/2006

2/1

/2006

3/1

/2006

4/1

/2006

Dir

ec

t P

rofi

t A

cc

ura

cy

(%

)

21% Improvement

26



Where We Are Today

Improved visibility of demand and supply

Improved service, On-time delivery at 98%

Improved financial forecast accuracy

S&OP meetings are boring… a sign of success

Aligned communications between business, finance, and supply chain

Sales and volume forecasting for outlooks/budgets; easier and more accurate; drives supply chain plans

Demand plan aligned with financial plan

Business plans validated against supply chain capabilities on a monthly basis

27



One volume forecast aligned w/ all business plans– Financial

– Supply Chain

– Operational

– Commercial

Ongoing productivity benefits ~ $18MM+ / year

Improve Financial Performance

– Net Asset Investment down 25% to $315MM

– Improved Profitability up 80% to $53MM

– Improved ORONA up from 5% to 13%

Major Improvements Since 2003

“All these benefits have been easier to achieve due to better supply chain planning & forecasting”

28



What’s Next?

Slice Financial Plan by market segment

Align financial plan segments with Marketing Manager objectives

Make closing demand gap more actionable

Break down Demand Plan by individual salesperson

Use Perfect Order Fulfillment metric to drive increased customer satisfaction

29



Content


Implementing S&OP



Major Challenges

Key Success Factors – S&OP Checklist

30



Major Challenges

Identifying S&OP Champion or expert to lead implementation

Senior leadership support

Achieving process compliance

Clear definition and acceptance of roles and responsibilities, including defining specific objectives in employee appraisals

Establishing S&OP meetings as the business priority

IT enabling process with adequate tool functionality

31



Content


Implementing S&OP



Major Challenges

Key Success Factors – S&OP Checklist

32



The S&OP Health Check

Does your S&OP actively involve senior leadership?

Are proactive decisions made?

Does it cover all major areas of business looking out 18 months?

Is there a financial view as well as units?

Is financial difference between S&OP plan and financial plan evaluated monthly?

Does it occur on a monthly cycle?

Does it include a capacity review?

Does it include actual vs forecasted sales?

Are accountabilities clearly defined?

Thank you!

Stephen CraneDirector Supply ChainAir Products and Chemicals

[email protected]

Implementing An Integrated Sales And Operations Planning Process

Business

future of demand planning

demand planning dp

supply planning processes

integrated planmo

crane contentair products

crane abstractimplementing

production plan

superior business performance