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 gneights@elemica.com