Supporting the Perfect Order: Collaborative S&OP and VMI October 30, 2012 Frankfurt, Germany Gary Neights Director, Product Management
Supporting the Perfect Order: Collaborative S&OP and VMI
October 30, 2012 Frankfurt, Germany
Gary Neights Director, Product Management
Source Make Deliver Deliver Make Source Deliver Make Source Source Deliver
Plan
Your Suppliers Your Customers Your Customer’s
Customer
Your Supplier’s Suppliers
Your Company
Customer’s Customers Supplier’s Suppliers
Delivering perfect orders to your customer requires: • Collaborative Planning • Collaborative Execution
The Multi-Echelon Supply Chain
• Perfect Orders
• Where Does the Data Lead Us?
• Collaborative Planning
• Collaborative Execution
Agenda
How do you know you have a perfect order?
• Customer gets: – Right product at right place at right time with correct paperwork
• Supplier gets:
– Right amount of cash, on time
• Systems populated with:
– Accurate data
Gartner: Perfect Order Fulfillment Process
• Manual: – Heavy reliance on paper. Ad hoc processes – Minimal automation and decision support
• Visible: – Real-time electronic visibility to the status of orders, shipments, inventory, and assets – Minimal automation and decision support
• Automated: – One version of truth via highly integrated systems and automated order changes – Minimal use of paper-based or manual data entry
• Collaborative: – Collaboration systems span the value delivery network – All order fulfillment processes can share knowledge and processes to meet customer demand
• Dynamic: – Decision support tools integrated into each step of the order fulfillment process – People can make optimal decisions at the strategic, tactical, and operational planning horizons
Measuring Perfect Orders Defined by Elemica Customer Management User Group
• Correct Settlement
• Correct Accounting
• Correct Lane and Paperwork
• Correct Product, Location, and Date
Perfect
Measuring Touch Less Orders Defined by Elemica Customer Management User Group
• Touch Less Cash Application and Reconciliation
• Touch Less Shipment and Invoice
• Touch Less Availability
• Touch Less Order Entry
Touch Less
Perfect
Low-touch
High-touch
Imperfect Product, Location, and Date
Lane and Paperwork
Accounting Settlement
Order Entry
Availability
Shipment and
Invoice
Cash Application and
Reconciliation
Quadrants of Perfection Defined by Elemica Customer Management User Group
Fax with incomplete data. Inside lead time. Issue product being held for a good customer. Bad master data. Ship product to wrong location.
System to system order. Conforms to contract. Product available. Electronic invoice and payment. First touch: physical movement.
Phone order. Product available. Manual invoice and payment
System to system order. Conforms to contract. Product on allocation. Miss request date; hit promise. Electronic invoice and payment.
Situation Normal, All Fouled Up (SNAFU) Heroics
Underachieve System to system order. Conforms to contract. Product on allocation. Cancel - cannot meet request date. Lose order.
Good touch
• Perfect Orders
• Where Does the Data Lead Us?
• Collaborative Planning
• Collaborative Execution
Agenda
Business Problems Fixed by Order Automation
Business Problem
Root Causes
Physical availability is a critical obstacle in the chemical industry.
Source: CCSMG 2012 Survey
Gartner identified the following benefits to order automation: • 30% order cycle time improvement • 5% to 10% higher customer service level • Bayer case study:
• 8% to 9% higher on-time delivery and order fill rate metrics • For most industries, these equate to:
• 1 day of working capital • 2% of revenue
Product is Needed for Perfect Orders
Perfect Order to Customer
Training
Contract: How to conduct business
together. Lead times, pricing indices, etc. Supported by
organization.
Physical Availability:
-Product -Carrier -- Driver - Assets
Order Fulfillment Rules
Master Data. Accurate contract data
(customer, vendor, product, pricing, etc) loaded into master
data repository.
Execution per process
Business Rules and Logic
using correct systems. Transaction data flows are accurate and timely.
and process controls
Touch-less
Physically Driven
System Driven
Best In Class Companies: Forecast well, deliver, and get paid quickly
Agenda
• Perfect Orders
• Where Does the Data Lead Us?
• Collaborative Planning
• Collaborative Execution
Source Make Deliver Deliver Make Source Deliver Make Source Source Deliver
Plan
Your Suppliers Your Customers Your Customer’s
Customer
Your Supplier’s Suppliers
Your Company
Customer’s Customers Supplier’s Suppliers
Collaborative Planning
Delivering perfect orders to your customer requires: • Collaborative Planning
• Materials, Logistics, and Operational Capacity are contracted
• Collaborative Execution (next section)
Source Deliver
Planning Goal – Improve Performance Over Time
www.apics-fraservalley.org
Planning Cycle Example
www.apics-fraservalley.org
Collaborative Planning
Source Make Deliver Deliver Make Source Deliver Make Source Source Deliver
Plan
Your Suppliers Your Customers Your Customer’s
Customer
Your Supplier’s Suppliers
Your Company
Customer’s Customers Supplier’s Suppliers
Demand: An Important Part of Planning
Demand Planning - Finished goods - Packaging - Transportation
Operations Planning - Make versus Buy - Tolls and Swaps - Plant and distribution capacity - Maintenance / turnarounds - Shift work - Warranty and support
Financial Planning - Cash conversion cycle - Asset utilization - Tax efficiency
Logistics Planning - Distribution - Warehousing - Transportation - 3PLs
Supply Planning - Raw materials - Finished goods - Packaging
Planning Issues
• Theory mostly based on one entity controlling the whole chain – Supply chain is often controlled by multiple companies and business units. – Often have competing interests and objectives.
• Organizationally where does it sit? – Forecasting demand tends to be in sales. Generally OK. Issues seen:
• General bias to ‘under’ forecast • Specific bias to ‘over’ forecast product lines with higher commissions
– Collaborative business planning is best chaired by product management executives: • Clearinghouse of factual data and predictions • Objective to optimize business operations for the period against objectives
– Not to meet the specific needs of procurement, operations, sales, or finance
• Forecasting demand and managing inventory – Best in class companies manage safety stock levels very well – Accurate demand is critical
Plan are not fixed. Organizational processes need to support changes in objectives and the market.
• Perfect Orders
• Where Does the Data Lead Us?
• Collaborative Planning
• Collaborative Execution
Agenda
Source Make Deliver Deliver Make Source Deliver Make Source Source Deliver
Plan
Your Suppliers Your Customers Your Customer’s
Customer
Your Supplier’s Suppliers
Your Company
Customer’s Customers Supplier’s Suppliers
Collaborative Execution
Delivering perfect orders to your customer requires: • Collaborative Planning (previous section) • Collaborative Execution
• Customer requirements accurately communicated per contract • Materials and logistics available • System contains accurate and actionable data • Reserve power for rapid planning and response
Make Deliver
Two Execution Alternatives
Little’s Law
Customer Service Failure: • Increased Inventory • Longer Lead Times • Increased Demand Uncertainty
Better Data
Better Automation
Better Operations
Better Planning
Better Customer Service Operations: • Better Automation • Better Data • Better Planning
Continuous Improvement
Customers Order How They Want To…
Large volumes of material are managed in tanks. Collaborative VMI can help with execution and planning.
Collaborative VMI Benefits
Customer Benefits
• Able to focus on their market, not their suppliers
• Fewer out of stock conditions
• Higher service levels for the same service cost
• If on consignment, reduced carrying costs
Manufacturer / Seller Benefits
• Customer stock levels are highly visible
• Drives collaboration on demand
• Over time, seller may anticipate demand before the customer
VMI provides better inventory and demand data for larger volume products
• Planning parameters – Calendars – Coverage rules – Lead times – Minimum order quantity – Requirements grouping – Safety stock and rules
• Order processing: – Order calculation and proposal – Automatic order release capability – Manual order adjustment capability – Multiple supply points – Flexible receiving options
• System integration:
– Customer, supplier, tank telemetry, warehouse, retailer, and 3PL
Requirements for Collaborative VMI Tools
• Collaborative forecasting • Real-time execution visibility:
– Inventory levels – Forecast – Orders and shipments – Projected On Hand – Safety stock
• Reporting and data analysis: – Consumption – Forecasts – Inventory – Shipments
Planning Item Execution
System proposes orders to keep projected on hand above the safety stock level. ‘Dynamic’ per Gartner criteria.
Execution Issues
• Profitable to promise versus available to promise
• Centralized or decentralized organization of order fulfillment operations – Centralized offers opportunities for process standardization – CSRs need to be organized by business, even when centralized
• Higher level CSRs
– Less data entry; buyers moving away from ‘chatting on phone’ – More collaboration on understanding demand, product consulting, and expediting
• Automation viewed favorably
– By CSRs as it helps them focus on higher value tasks; less risk due to interruptions – By management, support systematization and organization of work
• Ordering inside lead times – Customer service may need to ‘recalibrate’ the customer
• Measuring perfect orders – On-time delivery is frequently seen – Metric of ‘80% of Quality Incidents Reports closed within 21 days’ seems interesting
Automation viewed favorably. The right mix of automated and manual work flow is needed.
To Conclude…
Elemica
• Strategic execution platform to
automate thousands of trading partners who inherently have process and IT variation.
• Operational effectiveness in
order entry, manufacturing, logistics, and distribution.
• Customer satisfaction and profitability through perfect order fulfillment.
Keep Your Organization in the Correct Cycle
Little’s Law
Customer Service Failure: • Increased Inventory • Longer Lead Times • Increased Demand Uncertainty
Better Data
Better Automation
Better Operations
Better Planning
Better Customer Service Operations: • Better Automation • Better Data • Better Planning
Continuous Improvement
Resources on Collaborative Planning and Execution
Organizations
• Association for Operations Management – http://www.apics.org/
• Institute for Supply Management – http://www.ism.ws/
– http://www.ism.ws/pubs/emailnewsletters/ChemicalsNewsletter/eDigestChemicalDetail.cfm?ItemNumber=23208
• International Supply Chain Education Alliance (ISCEA) – http://iscea.com/index.html
Simulations on managing demand – http://www.beergame.lim.ethz.ch
– http://forio.com/simulate/mbean/near-beer-game/run/
Supporting the Perfect Order: Collaborative S&OP and VMI
Gary Neights Director, Product Management
267-237-7294 [email protected]