DEMAND AND SUPPLY FORECASTING

AT AIR PRODUCTS

PRESENTED BY,
MOURYA MODUKURU(18021141071)
DEBARGHYA DAS(18021141033)
ABHIJEET MISHRA(18021141004)
SUNEET KALYANAM(18021141106
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 Air products in Brief
• Air Products and Chemicals, Inc. is an American international corporation whose principal business
is selling gases and chemicals for industrial uses. Air Products' headquarters is in Allentown,
Pennsylvania, in the Lehigh Valley region of Pennsylvania, in the United States.

• Air Products serves customers in technology, energy, healthcare, food and industrial markets
worldwide with atmospheric industrial gases (mainly oxygen, nitrogen, argon, hydrogen and carbon
dioxide), process and specialty gases, performance materials and chemical intermediates.

• Air Products produces semiconductor materials, refinery hydrogen, natural gas liquefaction (LNG)
technology and equipment, epoxy additives, gas cabinets, advanced coatings and adhesives.

• Air Products also provided the liquid hydrogen and liquid oxygen fuel for the Space Shuttle External
Tank. Air Products has had a working relationship with NASA for 50 years and has supplied the
liquid hydrogen used for every Space Shuttle launch and the Mercury and Apollo missions.

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 Case Overview
• The electronics Specialty Materials(ESM)business unit at Air Products and Chemicals Inc. was
about to play their role in the company’s annual forecasting process.

• The issue was how to synchronize the financial forecast with an accurate and unambiguous
supply plan.

• The ESM business unit had to be prepared to manage through future unpredictable supply
interruptions.

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 Industry Background
• The US Chemicals industry was one of the largest American Industries ,representing 2% of national
GDP, employing one million people across the country and producing 23% of global chemical stock.

• Chemical companies converted derivatives of metals , minerals , natural gas , oil into products
which could be used in different markets.

• Basic chemicals,including inorganic chemicals,chlor-alkalis,and indusrial gases,were used as

building block materials or elements necessary for the successful production of other chemicals.

• The US chemicals industry had performed steadily since the 1920s and reached its largest trade
surplus of $20.4 billion in 1995.After 1995,the US chemicals industry battled an ongoing trade
deficit that was aggravated by volatile natural gas prices and a surge in foreign based manufacturing
centers.

Company Background
• Air products ranked among the top speciality gas and chemical companies in the United States with
2005 sales of $7.7billion. Sale came from three divisions:worldwide Gases(71% of 2005
revenue),chemicals(24%),and Equipment (5%).

• These products were each sold on a global basis to a spectrum of core industries ranging from
plastics to agriculture.

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 Electronic Speciality Materials(ESM)
• Electronics Speciality Materials was a business unit within Worldwide Electronics(a division of
Worldwide Gases) and served the electronics industry exclusively.

• ESM customers included many of the world’s leading electronics companies such as Samsung
and Chi Meei Optoelectronics etc.

• Production capacity was an important considration in developing supply plans,ESM’s outpput

was more limited by distribution capacity.Most products were designated as hazardous
materials.They required shipment within specialized containers and ground transportation Air
products’ fleet of specialized vehicles.

• The containers in which products were transported and stored at customer locations were
returned to ESM once the products were depleted.They were then cleaned and
decontaminated in preparation for future customer shipments.

• Planning distribution capacity and creating the shipping schedule required that ESM predict
when specific containers would be returned.While the time to product depletion could be
estimated based on a customer’s historical usage patterns,cycle time from shipment to
container return often varied from these estimates. Tracking the flow of containers on a
worldwide basis was a continual challenge for ESM.
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 Financial Forecasting
• The financial process begin with a variety of input reports including raw
material,manufacturing, and distribution cost analyses.These inputs were the foundation for
overall ESM global revenue and distribution costs.

• Following initial forecast analyses,the ESM marketing team assessed the business unit’s ten
best selling product lines,representing roughly 70% of ESM’s total sales.Using recent histor as
a guide,the marketing team estimated the revenue anticipated for these products in the next
year,and then calculated the associated production and distributed costs.

• Once the analysis of the top ten products was complete,a team from the finance organization
created the Sales and Direct Profits estimate,using the revenue and cost forecast developed
by finance,the marketing team’s analysis of high runners’and selected production and
distribution management reports.

• The forecast review meeting served as the final opportunity for ESM management to make
adjustments to the financial forecast.

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 Operational Forecasting
• Like the financial forecast, the operational forecast had an 18 month horizon.

• Unlike the financial forecast, it was regenerated constantly on a four week cycle.

• First week : Patrick used a software tool to develop computer generated demand
forecasts(3m, 18m, 3yr) which used historical customer demand patterns and statistical
models to predict future demand by customer and by SKU.

• Second week : They focused on fine-tuning the computer generated forecast and on
planning the supply required to meet it.

• They received a compilation of business intelligence which included data on industry

growth projections, product material levels, strategic customer purchasing patterns, and
sales projections from the regional marketing managers and used it to adjust the
forecast.

• The numerous SKUs offered by ESM made this tuning process extremely complex,
necessitating a focus on high priority customers and strategically important products.

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• Third & Fourth week : These weeks operational forecasting
cycle involved partnership planning and troubleshooting to
ensure supply would be available to meet anticipated demand.
• Inventory levels, analysing fleet capacity, and planning around
other shipments were important skills as ESM aimed to service
new strategic customers while retaining long term air products
customers.
• Customer demand cannot be met if we cannot meet our
revenue targets.
• We ned to know not only what to produce, but also in which we
need to transport and where it will be needed and make it
available in the right place at the right time.So, an accurate
operational forecast is important.

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 Balancing Amid Uncertainty
• Implementation of a lean production strategy, while meeting specific objectives for inventory days on

hand, cash to cash cycle time, capacity utilisation, and ongoing cost reduction.

• Long production and transportation lead times meant the monthly

operational forecast had to look out many months in order to be
useful for production and material planning.
• If current customer requirements did not match what had been
predicted several months earlier, ESM management had to find a
way to accommodate them.
• They had to rely on operational forecast to manage ESM’s supply
chain on a day to day basis.

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