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Air Products and Chemicals, Inc.
Stephen P. Crane, CSCPDirector Supply Chain
Does SAP APO Really Work? Air Products Polymers APO Case Study
Supply Chain World NAPhiladelphia, PA
March 20, 2007
Integrating Demand Planning and Supply Planning With Production Scheduling
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 2
“Air Products Polymers APO Case Study”
Content
Air Products in Brief
Business Situation
Process, People, & Tools
Critical Success Factors
The Benefits
Lessons Learned
Who is Air Products?
3
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 4
“Air Products Polymers APO Case Study”
Air Products in Brief
Global supplier of gases, chemicals, equipment, and health care services
FY06 revenue ~$8.9 billion Serving customers in technology,
energy, industrial and healthcare markets
One of the safest large-scale chemical companies
Operations in more than 40 countries
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 5
“Air Products Polymers APO Case Study”
Content
Air Products in Brief
Business Situation
Process, People, & Tools
Critical Success Factors
The Benefits
Lessons Learned
6
Air Products Polymers, LPWorldwide Leader in Co-Polymer Dispersion Technology, Serving Adhesives, Nonwovens, Coatings, and Pressure Sensitive Adhesives markets
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 7
“Air Products Polymers APO Case Study”
Air Products Polymers, LP Dimensions
$570 million global business
Multi regional (NA, Europe, Asia)
6 Plants (4 NA, 1 Europe, 1 Asia)
230 Products
1,800 Ship-to Customer Locations
3,500 Planning Combinations (Material-Ship-to-Primary Source Plant)
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 8
“Air Products Polymers APO Case Study”
Where We Started in 2003
Just went live on SAP, master data issues
New processes, roles, tools, and data sources
Planning processes loosely integrated
Poor visibility of demand/supply balance
Numerous service issues, late deliveries, renegotiated orders
Communication gaps among the business, finance, and supply chain
No linkage between volume forecasts and financial forecast
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 9
“Air Products Polymers APO Case Study”
APO v3.0 Objectives(Advanced Planner & Optimizer) Utilize APO to enable a robust & effective S&OP process Establish cost-based optimization approach to supply
planning vs MRP Increase forecast accuracy to improve supply chain
effectiveness Align production scheduling with monthly supply plan to
reduce inventory levels and reduce order lead time Establish rules for order commitment process to improve
order fulfillment and customer satisfaction Align demand plan with financial forecast to improve
financial forecasting accuracy
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 10
“Air Products Polymers APO Case Study”
Content
Air Products in Brief
Business Situation
Process, People, & Tools
Critical Success Factors
The Benefits
Lessons Learned
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 11
“Air Products Polymers APO Case Study”
Process, People, Tools
Business process improvement and success rely on proper blending of Process, People, and Tools/Technology
Overemphasis on any one leads to an imbalance that can defeat the intended purpose of a project
Our focus was on the process first, then the people, and lastly the tool
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 12
“Air Products Polymers APO Case Study”
Process, People, Tools
Process– Process provides standardization and defines what
needs be done to meet effectiveness, efficiency, and responsiveness goals
– S&OP process is a flow of activities with the goal of meeting customer requirements
– Includes all internal functions, sales, customer service, marketing, planning, manufacturing, sourcing, logistics, finance, and R&D
– Includes external companies, from delivering orders to customers to receiving materials and parts from suppliers
Air ProductsGlobal Work Processes
14
“Air Products Polymers APO Case Study” APCI 2004, The Future of Demand Planning, S. P. Crane
S&OP ProcessP1.1A – 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
15
“Air Products Polymers APO Case Study” APCI 2004, The Future of Demand Planning, S. P. Crane
Process, People, Tools
People
– People make organizations, are important to business and supply chain success
– They need to understand how their function fits into the supply chain and how to make it better
– People success is also a function of corporate culture. Organizational silos can short-circuit a supply chain process by sub-optimizing the overall process
16
“Air Products Polymers APO Case Study” APCI 2004, The Future of Demand Planning, S. P. Crane
PeopleAssigned Full Time Supply Chain Roles
Demand Manager Overall forecast accuracy
Demand Planner APO statistical forecasting
Supply Planner APO supply planning
Supply Chain Manager Monthly S&OP process
Sourcing Manager Raw material supply
Transportation Planner Order delivery execution
MRP Data Administrator Data accuracy, audit process
Master Data Technician BOMs, recipes
Master Scheduler Executing plant supply plan
Profit Center Planner Financial forecasting
17
“Air Products Polymers APO Case Study” APCI 2004, The Future of Demand Planning, S. P. Crane
S&OP Best Practices
22 S&OP Best Practices
S&OP Assessment Shows Gaps
Not doing - Poor
Fair – Very Good
Excellent Identify key issues Develop actions to drive
process improvements
Not Doing -> Poor 0 -> 1Fair -> Very Good 2 -> 3
Excellent 4
North America Q1 Q2 Q3 Q4
Overall % Implemented_____ 74% 83% 88% 90%SALES AND OPERATIONS PLANNINGThe sales and operations planning process focuses on customer requirements, supports the annual business plans, and aligns the entire organization in support of the business strategy. The S&OP process is action-oriented, where management aggressively resolves problems to maintain balance between market demands and available resources.
1 There is a concise written sales and operations planning policy that covers the process, purpose, activities, participants, and expected results. Additionally, there is a well documented procedure that details the pre-S&OP, S&OP, and post-S&OP activities. Specific roles and responsibilities are assigned, understood, and accepted.
3 3 3 4
2 Sales and operations planning is truly a process, not just a monthly meeting. The process has a clear focus on intermediate to longer-term periods; detailed product and customer issues consume little time. The process views the future on a rolling horizon basis. There is not a fixation on points such as year-end where the process becomes short sighted. One of the final steps in the process is the executive approval meeting.
3 4 4 4
3 Defined activity dates are set well ahead to avoid schedule conflicts. In case the sales and operations planning regular participant is unable to attend the monthly meeting, he or she is represented by someone who is empowered to speak for the function. This also applies to emergency meetings.
3 4 4 4
4 A formal sales and operations planning packet is circulated at least 24 hours prior to the meeting. This packet includes the agenda, objectives, past performance, assumptions, product family reviews, major program updates, and minutes from last meeting.
3 3 4 4
5 For each product family, plans are reviewed in the units of measure that communicate to all functions most effectively.
4 4 4 4
6 New product development as well as major program and project schedules are reviewed during the sales and operations planning process. These reviews concentrate on all major initiatives' impact on resources, revenues, and costs. Changes in launch dates, promotions, etc. are also discussed.
3 4 4 4
7 All participants come prepared to the sales and operations planning meeting. There are pre-meeting activities by function that need to take place: sales and marketing to prepare a demand (sales) plan, research and development (engineers) to prepare a new product plan, operations (manufacturing) to prepare a revenue and cost plan. Corrective action plans must be developed to rebalance available resources with changes in market demand when needed.
3 3 3 3
8 The presentation of information includes a review of both past performances (minimum of 3 months) and further plans (typically 18 to 24 months) for: sales, production, inventory, backlog, shipments, and new product activity.
3 3 3 3
9 Inventory (finished goods) and/or delivery lead time (backlog) strategies are reviewed each month as part of the process.
3 3 4 4
10 There is a process of reviewing and documenting assumptions about the business, and reviewing the alignment in support of the business strategy. This is done to enhance the understanding of the business and represents the basis for future projections.
3 3 3 3
11 Sales and operations planning is an action process. Conflicts are resolved and decisions are made, Consensus is reached on a single, current operating plan.
3 3 3 3
12 Any large and/or unanticipated changes are communicated to all functions prior to the sales and operations planning meeting. Disclosing surprises in the meeting without communicating to others is considered unacceptable behavior.
3 4 4 4
S&OP Assessment for Performance Polymers Current Status
General Objective
FY05
18
“Air Products Polymers APO Case Study” APCI 2004, The Future of Demand Planning, S. P. Crane
S&OP Assessment Trend
93%
97% 97% 98%
90%88%
83%
74%
60%
70%
80%
90%
100%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2005 2006
Date
S&O
P Pr
oces
s Im
plem
ente
d
Improved performance from 74% to 98%
19
“Air Products Polymers APO Case Study” APCI 2004, The Future of Demand Planning, S. P. Crane
Process, People, Tools
Tools– Supply chain management is sometimes
incorrectly defined in terms of technology
– Software is sometimes “sold” as the answer to supply chain issues
– Software does not solve problems. Processes and people solve problems
– APO should never be considered an IT project. It should be a business process improvement project
APO GLOBAL INTEGRATED
PLANNING
DPSNPATP
AIR PRODUCTS POLYMERSAIR PRODUCTS POLYMERS
20
“Air Products Polymers APO Case Study” APCI 2004, The Future of Demand Planning, S. P. Crane
Air Products Basic Beliefs
Business strategy should drive planning strategy
Planning should simulate integration of all business functions, is necessary to properly manage the demand chain, supply chain, and financial plan
Improved planning drives improved execution
– Difficult without an integrated process
Key metrics are necessary to measure effectiveness of executing the plans
S&OP is the key to reconciling the various plans
APO GLOBAL INTEGRATED
PLANNING
DPSNPATP
AIR PRODUCTS POLYMERSAIR PRODUCTS POLYMERS
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 21
“Air Products Polymers APO Case Study”
Why APO?SAP APO is Market Leader for SCP
Source: AMR Research, 2005
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 22
“Air Products Polymers APO Case Study”
Why APO?
Integration with R3 and APO Decision support with what-if simulations Advanced statistical forecasting tools Aggregation to simplify demand/supply planning Exception management for forecast/supply alerts Integration of supply planning with production
scheduling Product Lifecycle Management suite BW provides standardized management reporting
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 23
“Air Products Polymers APO Case Study”
Overview of APO SCP Modules
Demand Planning• Forecasting• Simulation• Collaboration• Monitoring
DP
Supply Network Planning• Network modeling• Cost optimization• Deployment• Load builder• VMI
SNP
Production Planning/Detailed Scheduling• Planning• Scheduling• Monitoring
PP/DS
Global Available to Promise• Capable to promise• Allocation• Substitution• Multilevel check
GATP
Transportation Planning/Vehicle Scheduling• Route optimization• Consolidation• Carrier selection• Tendering
TP/VS
SAP APO
Source: SAP, 2005
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 24
“Air Products Polymers APO Case Study”
APO Project Implementation
Blueprinting Phase for APO v3.0 Enterprise Design – August 2002
Integration Testing – February 2003 Final QA Testing – March 2003 User Acceptance Testing – March 2003 APO Go Live – August 2003 APO Stabilization – November 2003 SCM 4.1 Technical Upgrade – March 2006 SCM 4.1 Improvements – October 2006
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 25
“Air Products Polymers APO Case Study”
DP/SNP Planning Book Examples APO
GLOBAL INTEGRATED PLANNING
DPSNPATP
AIR PRODUCTS POLYMERSAIR PRODUCTS POLYMERS
DP Consensus Forecast
DP Sales History
SNP Capacity
SNP ProductionPlanning
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 26
“Air Products Polymers APO Case Study”
Content
Air Products in Brief
Business Situation
Process, People, & Tools
Critical Success Factors
The Benefits
Lessons Learned
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 27
“Air Products Polymers APO Case Study”
APO Critical Success Factors
Migrating sales history from legacy systems is very complex. R3 data must be correct.
Automate data transfer from R3. Only plan what you need. Minimizes complexity and
data maintenance requirements Be patient. Full realization may take 2-3 years Allocate dedicated business resources early in project Consulting support – consultant quality varies, use
highly experienced consultants with personal references
Expect consulting support for 2 years after go-live Need R3 stabilization before building APO
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 28
“Air Products Polymers APO Case Study”
Content
Air Products in Brief
Business Situation
Process, People, & Tools
Critical Success Factors
The Benefits
Lessons Learned
29
“Air Products Polymers APO Case Study” APCI 2004, The Future of Demand Planning, S. P. Crane
So Where Are We Today?
Improved visibility of demand and supply Improved service, On-Time Delivery now 97% S&OP meetings are boring… a sign of success Aligned communications among business, finance,
and supply chain Sales and volume forecasting for outlooks/budgets;
easier and more accurate; drives supply chain plans Demand plan aligned with financial plan Business plans validated against supply chain
capabilities on a monthly basis
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 30
“Air Products Polymers APO Case Study”
The Benefits
Reduced instability in inventory levels due to improved forecast accuracy
Improved supply planning accuracy due to integration with production scheduling
Improved order fulfillment and customer service Improved raw material forecasting for suppliers More accurate capacity plans developed based on real
world constraints and variability Optimized safety stock levels based on service level
and profit objectives
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 31
“Air Products Polymers APO Case Study”
S&OP Process KPIs
Forecast Accuracy (%)
Production Plan Adherence (%)
Inventory Days of Supply
Financial Forecast Accuracy (%)
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 32
“Air Products Polymers APO Case Study”
Forecast AccuracyIncludes Use of BI Process
40
50
60
70
80
90
100
% F
orec
ast A
ccur
acy
World Class Performance
2003 2007
50% Improvement
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 33
“Air Products Polymers APO Case Study”
55
60
65
70
75
80
85
Oct
-04
Nov
-04
Dec
-04
Jan-
05
Feb-
05
Mar
-05
Apr
-05
May
-05
Jun-
05
Jul-0
5
Aug
-05
Sep-
05
Oct
-05 27
30
33
36
39
42
45Demand Forecast Accuracy (%) Inventory Days of Supply
Target
Target
Forecast Accuracy vs Inventory DOS
20% Improvement
2004 2005
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 34
“Air Products Polymers APO Case Study”
Production Plan Adherence(Supply Planning Accuracy)
50
60
70
80
90
100
Prod
uctio
n Pl
an A
dher
ence
(%)
38% Improvement
2004 2007
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 35
“Air Products Polymers APO Case Study”
Financial Forecast Accuracy
30
40
50
60
70
80
90
100
Dire
ct P
rofit
Acc
urac
y (%
)
21% Improvement
2004 2007
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 36
“Air Products Polymers APO Case Study”
Content
Air Products in Brief
Business Situation
Process, People, & Tools
Critical Success Factors
The Benefits
Lessons Learned
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 37
“Air Products Polymers APO Case Study”
Success requires making the right choices
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 38
“Air Products Polymers APO Case Study”
APO ImplementationLessons Learned
Current ERP data quality is not usually acceptable for integration with APO. Requirements for planning master data are very different than transactional master data
Important to have right mix of business and technical expertise, and the need to dedicate resources full time to project
Don’t underestimate impact of moving from a manual scheduling process to a common integrated supply chain planning system
Implementation needs to be led by Supply Chain, not the IT organization. It’s not an IT project.
APO implementations require simultaneous business process transformation, are hard to implement, but can significantly reduce inventory levels and improve supply chain performance
APCI 2006, The Value of Business Intelligence to Forecast Accuracy, S. P. Crane 39
“Air Products Polymers APO Case Study”
APO Provides . . .
Total Visibility
Real Time
Exception Based
Integrated
Thank you for participating!
Stephen P. Crane, CSCPDirector Supply ChainAir Products Polymers