Integrated Demand Planning · 1 Integrated Demand Planning Managing the Work-to-Materials (W2M) Process Lance Schultz, Director, Materials Logistics and Planning PG&E John Sequeira,

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Integrated Demand PlanningManaging the Work-to-Materials (W2M) Process

Lance Schultz, Director, Materials Logistics and Planning

PG&E

John Sequeira, Partner

ScottMadden, Inc.

January 17, 2011Platts Strategic Supply Chain for Utilities

Trump International Beach ResortMiami Beach, Florida

Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference

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Questions We Will Address

What is effective “demand planning?”

What does it take to make it work?

How does it generally work today?

How could it work?

What has PG&E done to improve the process?

What results have been achieved?


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What is “Demand Planning?”

DEFINITION: The ability to meet the following criteria for your internal customers:

• The right materials

– Right item (e.g., SKU, Cat. ID. Commodity Code, etc.)

– Right quantity

– Right quality

• At the right time

– Neither early nor late

• At the right place (e.g., warehouse, job site, etc.)

• At the right price (e.g., lowest price consistent with obtaining the right materials)


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What Does It Take to Make It Work?

Requirement Owner Enabler

Understanding of the work to be performed

• Engineering

• Construction

• Maintenance

• Asset management system

• Work control system

Understanding of the materials required to perform the work

• Engineering

• Construction

• Maintenance

• Accurate work packages

• Accurate bills of materials (BOMs)

• Supervisor experience

Knowledge of when the work will be performed

• Work Scheduler

• Maintenance

• Work scheduling system visible to all participants

• Accurate and stable “need dates”

Internal Customer’s Responsibilities


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Visibility to projected materials requirements

• Inventory Analyst

• Material requirements (MR) aggregation


Understanding of historical material usage patterns

• Inventory Analyst• Inventory optimization software

• Analyst experience

Understanding of internal customer service levels (risk tolerance)

• Inventory Analyst • Inventory optimization software

Understanding of when to buy more materials (reorder point)

• Inventory Analyst

• Procurement Analyst

• Advance notice


Material Management’s Responsibilities


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Visibility to projected materials requirements

• Buyer

• Automatic ROP notice

• Visibility to capital plans

• Adequate lead time to source effectively

Knowledge of available suppliers and market conditions

• Buyer

• Category Team

• Market intelligence

• Materials requirement (MR) aggregation

• Supervisor experience

Knowledge of internal and external lead times

• Buyer

• Category Team

• Purchasing system integrated with inventory management

Sourcing & Procurement’s Responsibilities


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How Does It Work Today?

Engineering(Specification)

MaintenancePlanning (Need)

Supplier

Buyer

Distributor

MaterialsManagement

(Replenish Inventory)

Work Execution TeamsConstruction

Planning (Need)

Maint./Repair Reorder

Contracts/Legal

MaintenancePlanning (Need)

New

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Issues that Utilities Face

Specification Process

• Engineering inclined to “over engineer” requirements

• Specification content often not actionable by buyers

Work Planning Process

• Work execution schedules are not visible to materials management, buyers, or suppliers

• Bills of materials (BOMs) are missing or inaccurate

• Work packages do not reflect actual materials needed

• Lead time to “need date” is shorter than sum of actual “internal” and “external” lead times

• Need dates are subject to frequent changes


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Issues that Utilities Face (Cont’d)

Replenishment Process

• Reorder points based upon personal judgment rather than inventory optimization practices or algorithms

• Min/max or ROP updated infrequently; do not reflect current usage patterns

• Non-stocked materials procured for specific projects may sit in inventory for many months until schedule allows or budget is available

• Over engineering of products increases the SKU count and the replenishment complexity

• Unbalanced work resource planning creates demand spikes creating a bullwhip effect on material supply chain


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Sourcing Process

• Buyers are unfamiliar with the material or services to be acquired. (It’s just a process)

• Buyers know less about suppliers and market conditions than internal customers. (Cannot add value)

• Buyers not trained or skilled in negotiation


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Supply and Distribution Process

• Suppliers do not fully understand the specification

• Supplier are responding to a specification rather than a need. They cannot suggest lower-cost alternatives

• Suppliers unable to creatively add value

Purchasing and Contracting Process

• Purchasing process may preclude meaningful modifications of standard T&Cs

• T&C not tailored to specific materials or services

• Utility T&Cs may add significant cost without the utility being aware of the impact


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The Bottom Line

TOO many “owners”

TOO little “ownership”

TOO many handoffs and repetitive cycles

Costs TOO much

Takes TOO long


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How Could It Work?

Engineering(Specification)

Maintenance(Need)

Supplier

Distributor

MaterialsManagement

(Replenish Inventory)

Work Execution TeamsConstruction

(Need)

Maint./Repair Reorder

Contracts/Legal

Maintenance(Need)

New

Category Planning Teams

Collaborative Demand Planning Approach

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The PG&E Experience

Problem Statement (circa 2009)

Disjointed communication and no formalized planning processes with partners up and down the supply chain resulting in opportunities to improve total cost of ownership (TOC) of materials and improved inventory optimization


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The PG&E Experience (Cont’d)

•Approach

• Total supply chain engagement model

– Customer procurement plans

• LOB executive alignment

– Supplier scorecards

– Deploy key demand planning initiatives


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Key Demand Planning Initiatives Key Materials Planning Initiatives Projected Benefits Date

Optimize inventory levels on all

facilities

Optimize value of services to T&D

Optimize working capital (for other higher ROI

initiatives)

Better governance

Increase inventory visibility

On going

Implement SAP forecasting tool

Increase forecast accuracy

SAP integration

Hands-off PO generation approach

Completed

Gain inventory efficiencies

through supplier capabilities

Speed up product life cycle and utilization

Improve visibility on the supply chain

Leverage supplier inventories

Reduce carbon footprint

Dec 2010

Deploy supply & operations

planning initiative (S&OP)

Increase strategic alliances internally and with vendors

Synergy toward cross-functional organizational goals

Kicked Off Feb 2010


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“Supply & Operations Planning (S&OP)”

S&OP is an integrated business management process through which the

executive/leadership team continually achieves focus, alignment, and

synchronization among functions. It routinely reviews LOB customer demand

and supply resources and “re-plans” quantitatively across an agreed rolling

horizon

Success Factors

• On-going, routine meetings

• Structured agendas

• Pre-work to support inputs

• Cross-functional participation

• Empowered participants

• An unbiased, responsible organization to run a disciplined process

• Internal collaborative process leading to consensus and accountability

• An unbiased baseline forecast to start the process

• Joint supply and demand planning to ensure balance

• Measurement of the process (metrics)

• Supported by integrated technology

• External inputs to the process


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S&OP ProcessLOB

• 12-month project forecast/

dependent demand

• MWC/MAT impacted

• Timeline

• Material codes/groups

impacted

• CAEPS data/reports (future)

• Product tech knowledge and

design enhancement

SUPPLY CHAIN

• Verify historical data for

dependent and independent

demand – provide baseline

forecast

• Contract intelligence

• Demand supply best practices

• Validate financials

assumptions (meters,

transformers, others)

• WMIS materials report (future)

• Space/transportation support

• Obsolete/excess inventory EXECUTABLE

CONCENSUS PLAN

SUPPLIERS

• Validate manufacturing and

distribution capacity

• ETA

• Provide market insight

• Obsolete/excess inventory

• Product technical knowledge

The S&OP

Meeting


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Four-Stage S&OP Process Maturity Model

STAGE 1

Marginal Process

Internal Meetings• Sporadic scheduling

Disjointed Process• Separate, disjoint demand

plans

• Supply plans not aligned

to demand plans

Minimal Technology

Enablement• Multitude of spreadsheets

STAGE 2

Rudimentary Process

Formal Meetings• Routine schedule

• Spotty attendance and

participation

Interfaced Process• Demand plans reconciled

• Supply plans aligned to

demand plans

Stand-alone Applications

Interfaced• Stand-alone demand planning

system and multi-facility APS

system

• Systems interfaced on a one-

way basis

STAGE 3

Classic Process

Formal Meetings• 100% attendance and

participation

Integrated Process• Demand and supply plans

jointly aligned

• External collaboration with

limited number of suppliers

and customers

Applications Integrated• Demand planning packages

and supply planning

applications integrated

• External information

manually brought into the

process

STAGE 4

Ideal Process

Event-Driven Meetings• Scheduled when someone

wants to consider a change

or when a supply-demand

imbalance is found

Extended Process• Demand and supply plans

aligned internally and

externally

• External collaboration with

most suppliers and

customers

Full Set of Integrated

Technologies• An advanced S&OP

workbench

• External-facing

collaborative software

integrated to internal

demand-supply planning

systems

2010 2011-2012 2013-2014TARGET

Where

we are

The Journal of Business Forecasting, Fall 2004


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PG&E Advancing in the Maturity Model

STAGE 1

Marginal Process

• Ad hoc process

• Not formal

• Timeline and detail varies

• Spreadsheet based, report

exhausting

• 43 LOB partners engaged

STAGE 2

Rudimentary Process

• Engage current LOB partners

with new S&OP process

• Engage MWC management

• Identify other key projects and

deploy S&OP Stage 2 process

• Get alignment from T&D

leadership at the executive

level

• Integrate CAEPS process and

WMIS reporting into the

process as it becomes available

• Integrate suppliers as part of

the action register

STAGE 3

Classic Process

• Leverage CAEPS and WMIS to

drive communication and

meeting agenda

• Integrate WMS in the process

• Use 2010 experience and

diagnostics to redefine

process based on business

needs

• Integrate suppliers early in

the process as needed

STAGE 4

Ideal Process

• Leverage multi-echelon SAP

tool with CAEPS, WMIS, and

WMS reporting to drive

supply-demand balance

consensus

• Suppliers engagement

driven by capital plan a

year in advance

2010 2011-2012 2013-2014

The Journal of Business Forecasting, Fall 2004

2008-2009


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Benefits - ScopeScope (for optimization) Location

Fast Mover Consumables (MRO) DCs

Fast Movers Transformers DCs, RML

Safety Equipment DCs

Tools DCs

Minor Materials DCs

Rapid Response (dead stock) RMLs

Meters (2) Fremont Locations

Obsolete/Inactive DCs, RMLs, Diablo

Scope (for S&OP) Location

Long Lead Time/Critical Materials DCs

Not on Scope (keep as is) Location

Critical Emergency Equipment Across Territory

Emergency Spares Across Territory

Storm Inventories DCs

Rapid Response (active inventory) as per SLA

RMLs

Key Benefits for T&D

Integrated supply-demand plans will result in faster, more committed response by suppliers.

Standard replenishment processes on all facilities will reduce the amount of expedites.

Integrated systems (on SAP backbone) will enable T&D to maximize the use of existing inventory regardless of location (visibility).

In sync with technology, new tools are being implemented in SCM (SAP Forecast, WMS) and T&D (CAEPS).

Builds team. Builds partnerships. Builds accountability. Builds engagement.

Release of working capital can be used on more profitable initiatives.

Reduced code complexity will ease job estimation “look-ups.”


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Q&A

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Thank You

Lance Schultz

[email protected]

(415) 973-9797

John Sequeira

[email protected]

(704) 560-5061

Integrated Demand Planning · 1 Integrated Demand Planning Managing the Work-to-Materials (W2M) Process Lance Schultz, Director, Materials Logistics and Planning PG&E John Sequeira,

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