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Air Products Plan/Product Supply Strategic Design S&OP Transformation

March 07, 2011

This report is solely for the use of Client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the Client organization without prior written approval from IBM. This material was used by IBM during an oral presentation; it is not a complete record of the discussion.

2011 IBM Corporation

Agenda
1

Introductions Why S&OP? S&OP Leading Practices Common S&OP Challenges Customer Experiences - Leading Consumer Electronics OEM - Leading Pharmanutritional Manufacturer Q&A

2011 IBM Corporation

Efficient Sales & Operations Planning enables integrated supply chain planning
Strategic Planning

Sales & Operations Planning

Business Unit Plans and Budgets

1. Marketing and Sales Planning


Sales Forecast

LT Business plans, promotions schedules, pricing, POS, etc.

2. Demand Planning
Sales Forecast Sales Forecast

Order History

3. Network Planning

Collaboration

Medium Term (weeks/months)

Collaboration

Material Planning
All materials included (FG, Raw, etc) Produced and procured

Capacity Planning
All plants, storage locations Constraints included

Inventory Planning
All stocked materials Multiple replenishment methods

Distribution Planning
Planned stock transfers for all material types

4. Factory Planning 5. Factory Scheduling


Short Term (days/weeks) Production/Material Schedules
Mtl Purchase Orders Supply Limitations Packing Schedules FG Purchase Orders

6. Inventory Deployment
Short Term (days/weeks) Deployment Requirements
Distribution Capabilities

Customer Orders

Production Capabilities

Supply Limitations

Replenishment Orders

Suppliers

Procure

Manufacture
MT Supply Planning

Source

Deliver

Customers

Demand Management 3

ST Supply Planning

SCM Execution (out of scope)


2011 IBM Corporation

Companies have established Sales & Operations Planning to achieve key enterprise objectives
Yield realistic operations plans that are synchronized with the business plan Connect and reinforce the integrated linkages amongst Markets, Production, Purchasing and Planning activities Resolve resource conflicts and manage known events with an enterprise-wide perspective that transcends functional or geographical boundaries to achieve optimal business results

Fully understand financial impacts of operational decisions


Measure organizational performance against the Sales & Operations Plan by using a balanced and shared performance measurement scorecard Enhance the businesss ability to manage change by moving towards a forward planning based decision-making process as opposed to a reactive approach

2011 IBM Corporation

A cohesive S&OP process increases enterprise performance by impacting key business drivers
Impact on Business Drivers
Increase rates / consistency Increasefill fill rates / consistency
Improve sales and product planning

Revenue Revenue

Reduce of goods sold Reducecost cost of goods sold

Reduce costs Reducedistribution distribution costs

Operating Costs

Net NetIncome Income

Reduce levels Reduceinventory inventory levels Shorten to cash cycle times Shortencash cash to cash cycle times

Capital Capital Employed

Working Working Capital Capital


Capital Capital Expenditures Expenditures

Increase in Return on Capital Employed (ROCE)

Asset Asset Utilization Utilization

2011 IBM Corporation

IBM has identified several keys to success from our experience in helping clients develop and implement S&OP
Make S&OP the decision process that participants do not want to miss through executive sponsorship across the organization. Strike a balance between lead times and plan accuracy, allowing for realistic and timely issue resolution. Have S&OP participants spending the majority of their time in analysis and not laboring to extract data into spreadsheets. Focus S&OP on forward-looking issue identification and resolution, not simple performance reporting and reflection
Executive Engagement

World Class S&OP

Ensure the established S&OP process is achieving its objectives through KPIs and continuous improvement.
Comprehensive adoption of new processes, systems, and roles & responsibilities

Action Action Oriented Oriented

2011 IBM Corporation

Most companies usually share same common challenges when implementing S&OP

7

Lack of collaboration between suppliers, customers, and any 3PLs Inability to provide accurate forecasts Inability to integrate financial data into the S&OP process Inability to determine capacity plans Lack of cross functional representation in the process S&OP meeting not focused on decision making Planning groups not based on common resource requirements No standardized reporting format, decreasing the ability to comprehend and analyze the information No bottom-up issue identification and recommendation development Lack of communication on issues, alternatives, and recommendations prior to the S&OP meetings Existing business plans not aligned with recommendations Lack of understanding on financial implications and service trade-offs for all recommendations Inability to measure the effectiveness of past actions taken Inability to identify and commit to actions required to meet resource requirements

2011 IBM Corporation

Many of these S&OP challenges are similar to the ones that Air Products currently faces
Common S&OP Challenges
Lack of collaboration between suppliers, customers, and any 3PLs Inability to provide accurate forecasts Inability to integrate financial data into the S&OP process Inability to determine capacity plans Existing business plans not aligned with recommendations S&OP meeting not focused on decision making Planning groups not based on common resource requirements No standardized reporting format, decreasing the ability to comprehend and analyze the information Lack of cross functional representation in the process No bottom-up issue identification and recommendation development Lack of communication on issues, alternatives, and recommendations prior to the S&OP meetings Lack of understanding on financial implications and service trade-offs for all recommendations Inability to measure the effectiveness of past actions taken Inability to identify and commit to actions required to meet resource requirements

Air Products S&OP Challenges


Lack of a collaboration platform (with suppliers, customers, and internally) Inability to provide accurate forecasts Inability to reconcile the financial plan with the S&OP plan Inability to account for all supply capability constraints/capacity plans in the supply planning process No global intelligence gathering method or tool Current S&OP process is only informational, not a decision making process Process does not require the provision of BI information Inability to manage S&OP processes by exception Lack of communication between S&OP team and Sales/Marketing Lack of guidance provided to sales as to what BI is required/value added Lack of a consistent business intelligence process across business groups Lack of sufficient simulation/modeling capabilities to aide decision making Limited flexibility in statistical forecasting capabilities Lack of a structured process to identify and resolve gaps in S&OP plans
2011 IBM Corporation

Leading Consumer Electronics OEM S&OP Process Transformation Case Study

This report is solely for the use of Client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the Client organization without prior written approval from IBM. This material was used by IBM during an oral presentation; it is not a complete record of the discussion.

2011 IBM Corporation

Case Study Background: North American Consumer Electronics OEM


This North American Consumer Electronics manufacturer is a subsidiary of one of the worlds largest electronics companies ($80 billion in annual sales). It contributes over $8 billion in annual sales and is a leader in the North American electronics market. Likewise, it competes in several segments of the electronics space, including consumer electronics, business products, and industrial components.

A sampling of NA Consumer Electronics OEM current product offerings:

Consumer Electronics
Plasma & LCD TVs Digital Still Cameras Digital Camcorders DVD players Telephones

Business Products
Laptops Copiers Fax machines Printers

Industrial Components
Semiconductors Optical drives Appliance motors Telecom components
Source: Hoovers

10

2011 IBM Corporation

A sample of some of the issues that the aforementioned NA Consumer Electronics OEM addressed across S&OP are
Company viewed as an unreliable supplier by the retail channels Retail channels seeking more flexibility in a very competitive environment; no forecast locks and instant upside/downside orders High inventory levels in the channels, market share and cash flow resulting from few fast moving products Unreliable ATP performance to customers Company lacked a formalized/streamlined S&OP process--missing formal meeting structures/cadence, no clear meeting output, and no well defined roles and responsibilities Company had no formal equivalent to the to-be Monthly/Quarterly Executive S&OP Meeting, the weekly S&OP meeting, or the weekly SCM demand and supply meetings Existing S&OP meetings were not focused on developing strategic operational plans and countermeasures No periodic review of operational performance to the annual business plan targets Lack of defined supply and demand thresholds to dictate issues to escalate to S&OP team (exception management) No formal or standardized reporting Company did not utilize statistical forecasting Inability to determine financial implications for what-if scenarios on the fly No collaboration process with key channel partners
2011 IBM Corporation

Customer/Channel Partners

S&OP Process/Meetings

Enabling Processes

11

The client built a wide range of supply chain tools and capabilities which supported a more integrated and efficient S&OP process
Implemented collaborative Sales and Operations Planning (S&OP) process that supported VMI, CPFR, and non-VMI, non-CPFR fulfillment processes. Developed a new organizational structure Defined operational metrics and event management (exception management) Improved factory reliability and upside flexibility to become a reliable supplier Developed forecasting competency (statistical forecasting, promotions, demand shaping, etc.) Provided an integrated set of SCM tools to support process and organizational changes Enhanced channel partner/customer segmentation and product categorization strategy

12

2011 IBM Corporation

S&OP meetings play a distinct role in synchronizing processes to ensure that operations are in line to achieve business plan targets
Sales and Operations Planning Meetings Weekly S&OP
Review demand and supply exceptions and issues

Monthly S&OP
Align Operational Plan to Business Plan

Monthly / Quarterly Executive S&OP


Evaluate operational performance vs. Business Plan

Key Activities

Evaluate execution and effectiveness of countermeasures

Key Meeting Attributes

Identify key countermeasures Approve countermeasures to close gap between from the Monthly S&OP Operational & Business Plans Meeting 13-week forecast 3-month macro forecast

Horizon

13-week forecast

13-week forecast

Scope & Timing

Product category Weekly

Product category Monthly PCM National Marketing Mgr Demand Analyst Supply Analyst

All product categories Monthly, after Monthly S&OP Meeting Management: Sales, P&M, SCM, Business Management Finance (quarterly) PCMs (as needed)

PCM

Participation

Demand Analyst Supply Analyst

2011 IBM Corporation

A process transformation was required to deliver a leading S&OP solution


Prior CPFR Process Monday Load POS data into CPFR tool Create Sales Forecast and load into CPFR tool Tuesday Wednesday Extract collaborated sales forecast Create purchase forecast and load it into CPFR tool Thursday Friday Monday

Channel Partner

Extract PCEC ATP from CPFR tool and load into back-end system

G2

No collaboration on events and promotions

G1

Lack of statistical forecasting

Conduct weekly collaboration call Enter collaborated sales forecast into CPFR tool

G3

No collaboration on sell-in/purchase forecast Extract partner purchase forecast and load it into planning systems Process partner purchase plan for internal review

G4

Lack of best-inclass metrics

PCEC

Sales rep reviews POS and creates sales forecast in CPFR tool

Conduct internal review of partner purchase forecast

Process factory ATP and create destination breakdown by plant

Create ATP and load it into CPFR tool for partner to extract

Processes Defined/Redesigned: CPFR S&OP Goal Setting Demand Planning Supply Planning Allocation and Order Processing
New Weekly CPFR Process Monday Tuesday Wednesday Create s-i/ purchase forecast based on agreed upon s-t FC and load it into CPFR tool Conduct weekly sell-through forecast collaboration call Identify and handle exceptions Agree on sellthrough forecast, promotions, inventory levels Enter collaborated sell-through forecast into CPFR tool Extract partner purchase forecast and load it into planning systems Create ATP against purchase forecast, based on domain product plan Conduct weekly sell-in/purchase forecast collaboration call Identify and handle exceptions Agree on sell-in/ purchase forecast Enter collaborated purchase forecast into CPFR tool Thursday Friday Place replenishment order based on agreed upon purchase forecast Load POS data into CPFR tool

CPFR Tool

Process new data loads and prepare for weekly collaboration

Repeat cycle

Channel Partner

Extract PCEC ATP from CPFR tool and load into back-end system

Create sellthrough, sellin/purchase, inventory, and promotions forecasts and load into CPFR tool

Process Gaps Identified

Processes Redesigned
PCEC

Review POS data, inventory levels, and PCEC promotion data

Execute against channel partners replenishment order

Generate statistical sellthrough and sellin forecasts and load into CPFR tool

CPFR Tool

Process new data loads and prepare for sellthrough collaboration

Repeat cycle

14

2011 IBM Corporation

The solution architecture integrated and supported the end-to-end supply chain management system seamlessly
BW*
Promotion Information

Publish Forecast

Publish Plan

Existing SAP Functionality

Allocations

CRM*
Promotions

DP*
Forecasting

Finalized Forecast

ATP*
SNP*
Replenishment

Planned Material Movements

Order Promising

Collaborative Forecast Stat Forecast

ICH*
Collaboration

Replenishment Plan

ERP
Order Entry

Web Access

Purchase Order

DP = Demand Planning SNP = Supply Network Planning ATP = Available to Promise ERP = Enterprise Resource Planning and Execution = outside of our scope of implementation

Sales Order w/ ATP

BW = Business Information Warehouse CRM = Customer Relationship Management ICH = Inventory Collaboration Hub * = within our scope of implementation

15

2011 IBM Corporation

Key solutions were developed and significant benefits were realized


Capabilities Built
Implemented collaboration tools to support full CPFR process Built custom logic for demand prioritization Enabled capability for use of POS data in demand management Developed robust reports to support the S&OP process Enabled CTM for constrained based procurement and allocation planning Enabled allocation check for both "monthly" and "weekly" models Built capability for allocation check in a pool Developed ability for release of unconsumed allocation to pool

Benefits Achieved
Inventory reduction: $36M over 3 years

Operational cost savings: $5M over 3 years


Improved forecasting consistency and accuracy

VICS Award 2008 Qualitative Customer Service Partnering


VICS CPFR Implementation Excellence Best Buy Company, Inc. and Best Buy Sourcing Office Asia

16

2011 IBM Corporation

Leading Pharma-Nutritional Manufacturer S&OP Financial Integration & Technology Enablement Case Study

This report is solely for the use of Client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the Client organization without prior written approval from IBM. This material was used by IBM during an oral presentation; it is not a complete record of the discussion.

2011 IBM Corporation

Case Study Background: Leading Pharmanutritional Manufacturer


A global leader in infant and children's nutrition with strong global presence. The company was founded more than 100 years ago and has been committed from its very beginning to earning the trust of parents and health care professionals by offering scientific evidence of the benefits of their products.
Annual Turnover World wide locations Manufacturing sites Total SKUs Employees USD 2 Billion 229 Globally 10 Plants 1500, world wide 6000 SAP Applications Scope SAP SCM 5.0: DP, SNP, PP/DS, SNC 5.0 SAP GTS 7.2, GRC 5.0

SAP ECC 6.0: FI,CO,SD, MM,PM, PP-PI, QM,LE, FSCM,WM

SAP SRM 7.0

SAP BI 7.0

SAP Portal 7.0

Vertex (Partner Applications)

SAP PI 7.0

SAP SUS

SAP CC5.3

Vistex (Partner Applications)

2011 IBM Corporation

This Leading Pharmanutritional Manufacturer faced a number of S&OP related issues


High cost, fluctuating price, and limited shelf life a of key raw material ingredient - Driving sporadic surges in the production volumes, and hence increased inventory holding Inflexible system infrastructure not able to adapt to the demands of a changing market
Limited technical and process integration
Functional silos working from their own set of numbers Limited visibility into end-to-end planning process Disjoint planning between Demand, Supply and Finance

Lengthy cycle for S&OP meetings preparation - 2 Weeks for executing planning cycle, updating the KPIs, and operational reports
Non-standard, manual reporting based on data extracted from multiple source systems Manual process for unit to dollar conversion

Limited capability to execute integrated what-if planning scenarios

19

2011 IBM Corporation

The client implemented solutions that address many issues that Air Products currently faces
Visibility and integration between financial and operational plans is lacking Inability to compare corporate inventory financials (in dollars) with business unit inventory projections (volume) Inability to provide correct level of information to conduct accurate cost/benefit analysis Inability to integrate revenue plan into the S&OP process Lack of visibility to financial implications of planning decisions (what -ifs) in the S&OP process Inability to simulate cost benefit trade offs for network optimization No systematic way to capture new business prospects in S&OP (no integration b/w revenue projections and S&OP projections) Lack of integration/linkage of S&OP key factors with monthly financial forecast (i.e. driver staffing, capacity, power management (LB)

Air Products Financial Integration Challenges

Client Capabilities Developed

Integration of Demand Plan simulation versions with BPC (unit to $) for comparison to financial budget Integration of Supply Plan projected inventory with BPC (for unit to $ conversion) Integration of Demand and Supply plans with BPC to bring financial visibility to planners as well as S&OP process Define APO DP as system to finalize all volumes, creating ability to simulate prospective increases in volume and analyze supply impacts KPI reporting from BI to measure the operational plans performance Incorporate casual factors into APO demand planning forecasting

2011 IBM Corporation

The client implemented technology to enable key capabilities for an efficient S&OP process
Forecast collaboration and replenishment planning based on SNC, for key customers

Operational Planning enabled through APO Demand Planning, Supply Network Planning and Production Planning/Detailed scheduling
Integrated units and financial planning enabled by APO and BPC

Capability to execute integrated what-if simulations on demand, supply and financial plans
KPI and Operational Reporting and business analytics through BI/BOBJ Web Interactive Business Explorer Provided ability to segment market based on Key Customers

21

2011 IBM Corporation

The client designed an S&OP process enabled by SAP


Statistical Forecast Sales Forecast Capacity Utilization Planned Orders / PRs Final Demand Plan DIOH vs. Target Resource Utilization Projected Stock Outs Final Demand Plan Supply > Demand Supply < Demand Dashboard Report DP/SNP reports (as appropriate) S&OP Plan Team Issues Recommendations Executive Dashboard Report DP/SNP Reports S&OP Plan X-Category Issues Recommendations Global S&OP Dashboard Report Financial Plan

Inputs Outputs

Marketing Forecast Forecast Accuracy Forecast Bias Forecast Stability

Sales and Operations Planning


S&OP. 1 S&OP Demand Review S&OP. 2 S&OP Supply Review S&OP. 3 Pre-S&OP Meeting S&OP. 4 Executive S&OP Meeting S&OP. 5 Global S&OP
(Quarterly)

Changes to demand plan in APO


Final Demand Plan Projected Sales Unit to $ conversion (BPC) Meeting Minutes S&OP Inputs (From APO) S&OP Inputs (From BI)

Changes to Supply plan in APO


What if Analysis Proj. Inventory Unit to $ conversion (BPC) Meeting Minutes Non System Activity S&OP Outputs (to APO)

Changes to:
Demand in APO/DP Supply Plan in APO

Executives Decisions
Team Action Items

Executives Decisions
Financial Impacts Supply Plan in APO

Meeting Minutes

Change to Demand/Supply

Change to Demand/Supply

2011 IBM Corporation

The solution architecture integrated the planning, reporting, and finance areas for complete S&OP financial integration
Finance
Business Planning & Consolidation Financial Supply Chain Management FSCM Reports (Dollarized) Financial Planning / Budget Consolidation

S&OP Financial Integration

Advance Planning & Optimizer (APO)


Consensus Forecast

Demand and Supply Data

Business Intelligence (BI) Business Objects (BOBJ)

Supply Network Planning (SNP)

Demand Planning (DP)

Sales Order History

Reporting

Planning

Constrained Production Plan

Reports
Planning Data

-S&OP (Volumes) -KPI -Operational

Deployment

Execution

Core Interface ECC 6.0 Master & Transaction Data

Actuals

Material Requirement Planning (MRP)

ECC

ECC Report

23

2011 IBM Corporation

The solution architecture enabled a process synchronize the operational and financial plans
1 2 3

SCM
Order/Shipment History Production Actuals Price/Cost

BPC
Price/Cost Data Other financial Data

SCM

BPC

SCM
Generate Demand & Supply Plan

BPC
Generate Initial Financial Plan

Sales Data

ERP

ERP

ERP

BI / BOBJ

BI / BOBJ

BI / BOBJ

SCM

BPC
Use Unit plans to Validate / adjust the financial Plan (dollarize the plans)

SCM

BPC
Financial Plan

Demand & Supply Plan

Actuals

ERP BI / BOBJ

ERP BI / BOBJ

2011 IBM Corporation

Key solutions were developed and significant benefits were realized


Globally Integrated Demand, Supply Process and Financial Planning processes Demand Driven Supply chain - Leveraging integrated VMI model for key retailers and Distributors Leverage SAP as a key enabler for next level of S&OP maturity (i.e. from anticipating to collaborating) Better Quality of Data (i.e. Master data, planning data and actuals) Better technical integration through entire planning process within SAP Capability to perform integrated what-if analysis across demand, supply and financial planning, in near real time

Standardized reporting leveraging same data, format and tool


Capability to perform business analytics on multiple product and customer dimensions

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2011 IBM Corporation

2011 IBM Corporation