executive s&op case study presented at gpseg

Stephen P. Crane, CSCPWacker Chemical CorporationDirector Strategic Supply Chain

Implementing an Integrated Sales & Operations Planning Process

August 11, 2009

An Executive S&OP Case Study

Supply Chain & Operations Group

Supply Side Demand Side

Implementing Integrated Sales & Operational Planning

CONTENT

What is Sales & Operations Planning

How Does S&OP Help Improve Business Profitability

S&OP Case Study

Key S&OP Success Factors


Wacker Chemie AG

WACKER Group (2007)

OVER 90 YEARS OF SUCCESS

• Founded in 1914 by Dr. Alexander Wacker • Headquartered in Munich

• Sales: €3.78 billion

• EBITDA: €1.00 billion

• Net income: €422 million

• Net cash flow: €644 million

• R&D: €153 million

• Capital expenditures: €699 million

• Employees: 15,044


WE ARE COMMITTED TO BENCHMARK-QUALITY PRODUCTS DESIGNED FOR OUR FOCUS INDUSTRIES

Industries• Adhesives• Automotive and transport• Construction chemicals • Gumbase• Industrial coatings and printing inks• Paper and ceramics

Products: • Polymer powders and dispersions for the

construction industry• Polyvinyl acetate solid resins, polyvinyl alcohol

solutions, polyvinyl butyral and vinyl chloride co-

and terpolymers


CONTENT



S&OP Case Study



WHAT IS SALES & OPERATIONS PLANNING?

Is an executive decision-making process

Ties operational plans to financial plans: ONE set of numbers

Is a forum for setting relevant strategy and policy

Balances demand and supply

Deals with volume in both units and $

Monthly process reviewed by management at an aggregate level

What business plans to do covering an 18-month horizon to:

– Plan for resources

– Execute business plan/strategy


FROM 10,000 FEET

Executive S&OPA process to reconcile, agree upon, and communicate the

company game plan --

Operations(Units/Hours/Materials)

Product Development(Product Introduction)

Finance(Dollars)

Sales & Marketing(Units/$$ by family)


SALES & OPERATIONS PLANNING OVERVIEW

Volume

Mix

SupplyDemandDemand Planning/Forecasting

Supply Planning(Capacity)

Master SchedulingPlant & Supplier Scheduling

Distribution Scheduling

Executive S&OP


SALES & OPERATIONS PLANNING’S PLACE

Strategic Planning

Business Planning

Sales & Operations Planning

Plant, Supplier, Distribution Scheduling & Execution


TOP MANAGEMENT NEEDS

To see the Big Picture (volume)

Keep it SIMPLE

Must see dollars as well as units

Must tie to Annual Business Plan

Separate significant from trivial

To establish strategy, policy, and risk level


IMPLEMENTATION PATH

Months

Bu

sin

ess

Imp

rove

men

t

1 2 3 4 5 6 7 8 9

Phase IPreparation

Phase IIExpansion

Phase IIIFinancial

Integration


IMPLEMENTATION ALTERNATIVES

“Build it and they will come” – design it first, get the mechanics working, then attempt to sell it to top management =

Low probability of success

“Hold the high ground” – involve top management at the very beginning of implementation and throughout =

High probability of success


CONTENT



S&OP Case Study



TYPICAL BENEFITS FROM IMPLEMENTING S&OP

Forecast error reduction……20-25%

Inventory reduction………...…5-10%

Inventory turns increase….….5-10%

Service level increase…… ...5-10%

Top Line revenue growth.…..…2-5%

SKU rationalization……….…10-20%

Source: IBM


HIGH FORECASTING ACCURACY YIELDS TANGIBLE BENEFITS IN SUPPLY CHAIN PERFORMANCE

High forecast accuracy cuts cost out of the entire supply chain

Companies that are best at demand forecasting average;

– 15% less inventory

– 17% higher perfect order fulfillment

– 35% shorter cash-to-cash cycle times

– 1/10 the stockouts of their peers

1% point improvement in forecast accuracy can yield a 2% point improvement in perfect order fulfillment

3% increase in forecast accuracy increases profit margin 2%

Source: AMR Research 2008


Companies with higher forecast accuracy also achieve better delivery performance

– Delivery performance to request date increased 2% for each 5% increase in forecast accuracy

Source: PRTM 2008

BENEFITS OF IMPROVING FORECAST ACCURACY


INVENTORY LEVEL VS. FORECAST ACCURACY

Source: Aberdeen Group 2008

0

20

40

60

80

100

120

20% 30% 40% 50% 60% 70% 80% 90% 100%

Forecast Accuracy at SKU Location

Inven

tory

Days o

f S

ale


BENCHMARKING OBSERVATIONS

Emphasize S&OP as a first step

S&OP is the most critical element to drive supply chain benefits

Demand planning and supply planning are the largest profit drivers

Supply chain benefits normally fall into the range of 3 to 5% of sales revenue on a sustainable basis through CI efforts

Over 50% of increases in shareholder value over the past three years have come from supply chain improvements


CONTENT



S&OP Case Study



AIR PRODUCTS POLYMERS BUSINESS UNIT

$600 million global business

Diversified geographies

– 65% of sales in N. America

– 30% Europe, 5% Asia

6 Plants (4 NA, 1 Europe, 1 Asia)

600 Products

1,800 Ship-to Customer Locations

3,500 Planning Combinations (Material-Ship-to-Primary Source Plant)


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

WHERE THEY STARTED IN 2003


MetricsMetricsFollow the Money!Follow the Money!

GLOBAL WORK PROCESSES


S&OP PROCESS STEPS

P1.1A – 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


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)

S&OP PROCESS CYCLE


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)

EXECUTIVE S&OP MEETING


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

S&OP DRIVES THE BUSINESS PLAN


S&OP PROCESS KPIs

Forecast Accuracy (%)

Production Plan Adherence (%)

Inventory Days of Supply

Financial Forecast Accuracy (%)


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

2Q

06

3Q

06

% F

ore

cast

Acc

ura

cy

(Product Mix Level)

Process, People,Statistical Forecasting

Exception AnalysisForecast Adjustments

Forecast SegmentationData Aggregation

World Class

+ 6% + 15%+ 7%


55

60

65

70

75

80

85

Oct-

04

No

v-0

4

Dec-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 27

30

33

36

39

42

45

Demand Forecast Accuracy (%)Inventory Days of Supply

Target

Target

20% Improvement

Fo

reca

st A

ccu

racy

(%

)

FORECAST ACCURACY VS INVENTORY DOS


50

60

70

80

90

100

Pro

du

cti

on

Pla

n A

dh

ere

nc

e (

%)

38% Improvement

2004 2007

PRODUCTION PLAN ADHERENCESUPPLY PLANNING ACCURACY


30

40

50

60

70

80

90

100

Dir

ec

t P

rofi

t A

cc

ura

cy

(%

)

21% Improvement

2004 2007

FINANCIAL FORECAST ACCURACY


WHERE ARE THEY 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

Communications aligned between business, finance, and supply chain

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

Business plans validated against supply chain capabilities on a monthly basis


One volume forecast aligned w/ all business plans; Financial, Supply Chain, Operational, & Commercial

Ongoing net productivity benefits ~ $18 Million+ / year

Improved financial performance

– Net Asset Investment down by 25%

– Operating Income increased by 80%

– ORONA improved from 5% to 13%

“All these benefits were driven by better supply chain planning & forecasting”

MAJOR IMPROVEMENTS SINCE 2003


THE S&OP CHECK LIST

Does your S&OP actively involve senior leadership?

Are accountabilities clearly defined?

Is the data accurate and timely?

Does it cover a 18 month time horizon?

Is volume expressed in units as well as $?

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

Are proactive decisions made?

Does it occur on a monthly cycle?

Does it include a capacity review?

Does it include actual vs forecasted sales?


• Identifying S&OP Champion or expert to lead implementation

• Senior leadership support

• Adapting the process to the organization

• Achieving process compliance

• Data accuracy and integrity

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

• Organizational silos

• Establishing S&OP meetings as the business priority

• IT enabling process with adequate tool functionality

ROAD BLOCKS & CHALLENGES


BU A FORECAST DEVIATION TREND

It took only 6 months to achieve the lowest Forecast Deviation in Wacker

.0

.1

.2

.3

.4

.5

No

v-0

8

De

c-0

8

Ja

n-0

9

Fe

b-0

9

Ma

r-0

9

Ap

r-0

9

Ma

y-0

9

Fo

rec

as

t D

ev

iati

on

Target


BU B FORECAST DEVIATION TREND

Forecast deviation chemical product level

0.0

0.2

0.4

0.6

0.8

1.0S

ep-0

8

Oct

-08

Nov

-08

Dec

-08

Jan

-09

Feb

-09

Ma

r-09

Apr

-09

Fo

reca

st D

evia

tio

n (

%)

Target


“The only sustainable competitive advantage any company can have is the ability to consistently react to market opportunities faster than the competition. A company’s products, engineering, proprietary manufacturing processes or even a powerful brand simply no longer ensure long term, sustainable advantage”

But those who can build superior, agile, and responsive supply chains, have a real chance

CONCLUSION


THANK YOU FOR YOUR ATTENTION

The WACKER Group

Stephen P. Crane

Director Strategic Supply Chain Management

[email protected]

CREATING TOMORROW'S SOLUTIONS