Desirey Wells Sapphire 2005

EXPERIENCE YOU CAN TRUST

INSIGHTS YOU CAN USE

INNOVATION YOU CAN PROFIT FROM

Leading Practices in Sales and
Operations Planning and the
DuPont Journey to Improved
S&OP
Steve Desirey, CFPIM
Manager of Business Planning, DuPont

Arnold Mark Wells, CPIM
Solution Principal, SAP America




S&OP – What and Why

The DuPont Journey

Working Examples

Wrap-Up




What is Sales and Operations Planning?
Why is Sales and Operations Planning Crucial?
Divider Page Section 3

What Is S&OP?

Sales & Operations Planning (S&OP) is the process of
making business decisions
 Synchronizing decisions across business functions (marketing,
sales, manufacturing, procurement, distribution, finance)

 Testing assumptions and alternatives (strategic and operational)

 Optimizing decisions for profitability (e.g. gross margin or EBIT)
or value (e.g. EVA)

 Making decisions feasible for execution

 Aligning tactical decisions with strategy and goals

 Adapting continuously for improved performance

 SAP AG 2005, SAPPHIRE Copenhagen / SLOT # / Speaker Name / 4

What Is S&OP?
18 months out
S&OP provides future planning
to avoid surprises … What can Unexpected levels of
be done differently now? working capital required

Demand exceeds capacity
Unexpected plant shutdown
Competition grows capacity

New product intro & cannibalization
Impact of planned price increase

Supply Inventories

S&OP Things seem OK at the moment
Process

New Backorders are high
Demand Products
Today Not all shipments are on time

Sales and Operations Planning integrates into a single operating plan for the next 18 months

What Is S&OP?

Strategic planning and Operational planning and budgeting
Plan evaluation
target setting on group level in the business units

Reconciliation of
operational plans
with strategic
targets

Production planning
Sales and
Operations Planning
Sales planning Marketing planning
Strategic Targets
(Operating Profit + 4%,
Market share + 10%) Strategic Planning

Tn T0


What Is S&OP? - Fully Integrated, Closed-Loop
Process

All Five Steps of the Process are Integrated
1. Strategic Planning
 Market planning
 Product planning
 Resource Planning
 Alignment to Corporate goals 2. Demand Planning
 Quantitative Forecasting
5. Evaluation &  Sales, Marketing Input
 Orders/Demand Balancing
Analysis
 KPI Measurement
 Plan vs. Actual
 Forecast error
 Margin Management
 Root Cause Analysis

3. Supply/Demand Balancing 3. Supply Planning
 Product Mix  Capacity Planning
 Constraint Management  Inventory Planning
 Allocation of Demand to Supply  Procurement Planning
 Logistics


What is S&OP - Demand
External Factors
History Isn’t Enough
 Customer input
 Competition

 Economy

 Regulation
Internal Factors
 Market trends

 Price changes
 Lead times
 Sales plans

 Product promotions
Unconstrained
 New products
Demand
 Product withdrawal
Forecast
 Senior management

 Objectives

 Strategies

 Expectations
History of Demand

 Actual sales
 Unmet demand

 Unwanted

What is S&OP - Demand

Demand Differentiation Is Critical!

 Three categories
Unmet
 Demand that meets the Demand
business’ criteria and can
be met
Sales
 Demand that meets the
business’ criteria but
exceeds available supply
Unwanted
 Demand that does not meet Demand
the business’ minimum
criteria and is thus not
wanted
“How do you determine the category of your demand?”


What is S&OP - Supply

Multiple Considerations with Many Implications

Supply Capabilities

Make Imports Outside
Available
Finished from Purchase
Product Other
Inventory Capacity Regions
Capability
Contract
Manufacture or
Tollers
Procurement
of Ingredients


What Is S&OP Crucial?

In a marketplace of constant change, sales and operations
planning (S&OP) has become one of the most critical
business processes required to enable companies to
achieve profitable growth.

The Sales and Operations Planning Benchmark Report
“Leveraging S&OP for Competitive Advantage”

Source:


S&OP practices are a prime determinant of business
performance and competitiveness

100%
90%
80%
Current % performance

70%
Laggard
60% Industry norm
50% Best in class
40%
30%
20%
10%
0%
Complete order % Gross margin % Customer
fill rate retention
Performance Metric
Source:
“The Sales and Operations Planning Benchmark Report”
Leveraging S&OP for Competitive Advantage”


S&OP: Then and Now
Wednesday, May 05, 2004
Vinay Asgekar, Jill Gazzi

The S&OP process, by definition, has always
been a multidisciplinary process. But up until
now, the lack of technology prevented multiple
groups from simultaneously participating in the
process. In many cases, the scope was limited
by region.
Source: AMR Research


Same Data, but from Different Perspectives

All departments can see the same data at the same time from their
own perspective


Inventory Days of Supply (Days) Cash-to-Cash Cycle Time (Days)
101,2 125 121,1
Immature
100
78,8 100 91,5 Mature
75 66,3 72,3
75 Mature
w/Best
50 In Class
50
systems
25 25

0 0
Immature Mature Mature w/BIC Immature Mature Mature w/BIC
Systems Systems

22% reduction with mature practice 24% reduction with mature practice
Additional 16% reduction with BIC Additional 21% reduction with BIC
systems systems
Inventory Carrying Cost (% of revenue) Total Obsolescence for Raw Material, WIP
and Finished Goods Inventory as a % of
3,2% Revenue
3%
2,3% 0,9%
1,0%
2% 0,8%
1,5%
0,6% 0,5%
1% 0,4% 0,3%
0,2%
0% 0%

28% reduction with mature practice 44% reduction with mature practice
Additional 35% reduction with BIC Additional 40% reduction with BIC systems
systems


Victory for DuPont will be

“When customers have a need for goods
and services, they will always contact
DuPont first.”


DuPont, Continuous Renewing

• Coatings & Color Technologies
• Performance Materials
• Safety & Protection
• Agriculture & Nutrition
• Electronic & Communication Technologies

“With five growth platforms, DuPont integrates
research and new product development with
confirmed market need to make life better, all
around the world.”


SAP in DuPont

R/3 (transaction system) will be typically by strategic business unit
or by global geography (Americas, Europe, Asia/Pacific). DuPont’s
landscape is by business.

Within the landscape, there are multiple R/3s
 Incumbent R/3s, R/2, Joint Ventures
 Focused DSAP activity that was launched in 2000
4 R/3 clusters with multiple strategic business units
 Multiple APOs by strategic business units
 One business warehouse (BW)

Today 90% of DuPont is on SAP
 75% is in the DSAP activity


Managing Process


Zippered Integration


“Trying to execute R/3 without an integrated planning
system is like tossing darts blindfolded”


Leading Edge Process Approach

Supply Demand


Critical Few Metrics

Sales Forecast Accuracy
Production to Plan

Supplier Deliveries Customer Deliveries
On Time On Time

Demand, Supply,
Sales and Operations
Inventory
Planning
Financial Outlooks


The molecule must be closed loop

Sales Forecast Accuracy
Production to Plan

Supplier Deliveries Customer Deliveries
On Time On Time

Demand, Supply,
Sales and Operations
Inventory
Planning
Financial Outlooks


Use a consistent audit list

Preparation Meeting Execution Continuous Improvement


Where should this activity take place?

New
Product
Plan

Demand
Plan
Integrated resources r Business Team Meeting
Capacity
Plan
linked to the X Sales and Operations
r
Business Plan Planning Meeting
r Not necessary
Supply
Plan

Financial
Plan


Not so easy, agreements required

Metric calculation
 Sales Forecast Accuracy
 Identify where forecast accuracy is within 10%
 Measured two months in advance of actual month
 Supplier Delivery
5 buckets (>5 days early, 2-5, On day to 1 day early, 1-3 late, 4 late)
 Production to Plan
 Volume of process order is 10% of planned volume
 Customer Service Delivery
 Buckets similar to Supplier Delivery
 S & OP
 Demand, Supply, and Inventory
 Units and Currency


Not so easy, agreements required

Metric calculation
 Make different from incumbent where possible -- raise the bar

Data design and cutoff
 Monthly cutoff/run dates versus Monthly financial cutoff/run dates
 Acceptance that regional cutoffs are trumped by global cutoffs
 Remember the goal is making an impact on the trend line

Leveraged corporate consistency
 Queries have hierarchical capability for details

Keep it simple with the definitions

Measure

Analyze

Improve

Control

Now how do we build it?


Standards and Governance

All business units will use the same set of reports jfjfjfjf

The originals of the standard configured reports will not be
changeable. The reports can be copied and changed to meet any
business specific reporting need under a different name space.

Variances to the standard reports will need approval from the
Corporate Process Owner as well as the BW governance board

Security is enabled at Info Cube level and will have additional
flexibility after upgrade to BW version 3.5

All measurements and metrics will be available in BW and the
operational reports are available in APO


Standards and Governance

All business units will use the same set of Reports

The originals of the standard configured reports will not be
changeable. The reports can be copied and changed to meet
any business specific reporting need under a different name
space

Variances to the standard reports will need approval from the
Corporate Process Owner as well as the BW governance
board.

Security is enabled at Info Cube level and will have additional
flexibility after upgrade to BW version 3.5

All measurements and metrics will be available in BW and the
operational reports are available in APO


Supporting Architecture

SAP APO Systems
SBU 1
SBU 2
SBU 3 SAP BW
SBU 4
SBU 5
SBU 6

BW Extractors

SAP R/3 Clusters
Cluster1
Cluster2
Cluster3
Cluster4

BW Extractors

Non SAP

File

Staging the Actuals

Sales and Movement Info Structure 1
Transactions Data Collection R/3
Info Structure 1A
Archive

Sales staging DSI staging Delivery Service MPS
Info Structure 2a Info Structure 2b Info Structure 2c Info Structure 2d
V.001 Sales staging V.001 DSI staging V.001 Delivery service V.001 Mstr sched
V.100 Sales backup V.100 DSI backup V.100 Delivery backup V.100 Mstr sched backup

Info Cube A4 Info Cube A5
APO
Aggregated Info Cube A1 Info Cube A2 Info Cube A3
Info Cube DP DSI Delivery Ser. MPS –Comp. Capacity

Info Cube B3 Info Cube B4 Info Cube B5
BW
Info Cube B1 Info Cube B2
DP DSI Delivery Ser. MPS Comp. MPS Capacity


Data flow: Staging the Plan

Live Cache APO
Demand
Demand Planning Info Cube

DSI
Supply Network Info Cube

Planning Extraction
MPS-Comp
to BW
Production Info Cube

Planning & MPS-Cap.
Info Cube
Detailed
Scheduling Uptime
Info Cube


Data Flows and timings

The timing of data extraction is critical for both the plan and
actual transaction data.

The actual transaction information from R/3 is extracted every
day by scheduling the BW extractors

The Final Demand Plan for the month is automatically
scheduled to be extracted into BW periodically at the third
work day before the end of the month

The DSI (Demand, Supply & Inventory) plan is scheduled to be
extracted into BW periodically at the third work day before the
end of the month. The same data is converted into value for
Revenue Outlook and Inventory Projection

The detailed Production Schedule is extracted to BW at the
end of each week


Performance and Archiving

The performance of the reports can be maintained only by
managing the volume of data in the individual Info Cubes

The plan for each month is stored in BW Info Cubes as
separate versions. There is a minimum of six previous
versions of plan and the older versions are deleted two times
a year

The actual transaction data up to a minimum of two years in
the past will be available for reporting in the Info Cubes. The
older transactions will get deleted two times a year.

This above strategy is purely for supporting the performance
of BP reporting and is not part of the corporate archiving
strategy for transaction information





S&OP – What and Why

The DuPont Journey

Working Reports

Wrap-Up

Supplier Delivery Performance

On Time Performance
Supplier Deliveries

70.00%
64.41%

60.00%

50.00%
Pecentage of Total Purchase

40.00%

30.00%

20.00% 18.62%

13.34%

10.00%

1.86% 1.78%
0.00%
> 5 days early 5-2 days early 1 day early to on time 1-3 days late > 4 days late
Supplier deliveries


Customer Delivery Performance

Customer Delivery Service Performance

35.00%

30.00%

25.00%
Sales Orders

20.00%

15.00%

10.00%

5.00%

0.00%
<= -7 Days -4 to -6 Days -1 to -3 Days On Time 1 to 3 Days 4 to 6 Days >= 7 Days
Planned versus actual ship date


Product Group
DP
C DP
O
EM C O
CL EM
EA BA
RC SE
O C
DP AT O A
DP C /B T
C I S
RE DP OEM NDE OL
F. C V
PR R S EN
CL O E
M IM O TB

0.00000 %
20.00000 %
40.00000 %
60.00000 %
80.00000 %
100.00000 %
120.00000 %

DP EA ER LVE OR
C

Draft of chart
RC SOL NT N
RE O VE SO BO E
FI AT NT L V
NI /B S EN RN
S I
DP DP H A NDE OLV TBO E
C C D R E RN
RE RE DIT
IV
SO NT E
FI FI LV BO
DP DP NIS NIS ES EN RN
C C H H SO TB E
B L O

New chart will have more data
RE RE BA
FI FI SE ASE VEN RN
NI N CO CO T E
SH ISH
Forecast Accuracy

AT AT BOR
SI P NE
NG RIM SO PO
LE ER LVE WD
ST S N T ER
AG OL BO
PE V RN
RF E S EN E
O O TB
RM LV O
AN EN RN
CE TBO E
SO C O R N
LV AT E
E I
SO NT NGS
LV BO
E RN
SO N T
LV BO E
Forecast Accuracy

E RN

Percentage of Hits
SO N T
LV BO E
E RN
SO N T
LV BO E
E RN
SO N T
LV BO E
E RN
SO N T
LV BO E
E RN
SO N T
LV BO E
EN R
W TB NE
AT O
ER R N
BO E
O
ve RN
ra E
ll r
es
ul
t
Forecast Accuracy (Q)

Production Quantity

D
PC
O
EM AL
C U
LE BL M
IN

5,000,000.000 KG
10,000,000.000 KG
15,000,000.000 KG
20,000,000.000 KG
25,000,000.000 KG

0.000 KG
AR AC
C C K UM
D O R PI S
AT AS G
PC
D /B TI M
R PC IN N EN
EF
O D C TS
.C ER O
LE
EM M
SO PO
D AR PR
LV U
PC C IM ND
R O ER EN
EF AT TB
IN /B SO O
IN

Draft of chart
IS LV RN
D H D EN E
PC ER
BA TB
R SE SO O
EF C LV R
IN O N
IS AT EN E
H TB
PR SO O
IM LV RN
ER EN E
TB
SO O
IN LV RN

EX
O TE EN E
R N
G D
TB
AN O
R

ER
IC N
PI E
YE G
O LL M
R O EN
G W TS
AN
O
R IC PI
G
G BL M
AN EN
IC UE
TS

Product Family
YE PI
G
PE LL M
R O EN
FO W TS
R PI
M G
AN M
C EN
Production Plan Accuracy

E TS
PL C
AS O
TI AT
C IN
IZ G
ER S
R
ES
IN
SO S
U
U RC
V IN
ST
AB G
W IL
H IZ
IT
E ER
S
Production Schedule Performance

PI
G
M
EN
TS
Actual Production Qty
Planned Production Qty

Demand, Supply and Inventory

Demand, Supply & Inventory

1,600,000,000

1,400,000,000

1,200,000,000

1,000,000,000
DSI in Units

Demand
800,000,000 Supply
Inventory

600,000,000

400,000,000

200,000,000

0
M M M M M M M M M M M M
03.2005 04.2005 05.2005 06.2005 07.2005 08.2005 09.2005 10.2005 11.2005 12.2005 01.2006 02.2006
Time Period
Draft of chart


Revenue Outlook

Draft of slide
A new graph will have more data


Projecting Cost of Inventory

Draft of slide
A new graph will have more data


Return on Investment

Return on Investment is going to be best measured when you are
meeting your goal

This requires a end to end business strategy and an integrated
demand and supply chain

Using the principles in this approach will result in an ROI that will
best result in leading edge performance


Leading Edge Practices

Sales and Operations Planning

Six Sigma

SCOR with a few vital metrics


Key Learnings

Engage in S&OP as a business planning process with bottom-line
implications

Identify your business goal

Select a few critical measurements

Plan your execution

Measure your performance with sensitive measures

that will be hard to hit
 Keep measurements simple and easy to relate to their area for impact

Assess for continuous performance

Repeat the process


Customer’s Response to “Why SAP?”

1. Enable Transformation 2. Integration & Innovation
• Higher business transparency & Visibility • Fast Implementation – Best Practices for Chemicals
• More efficient business processes • Proven Methodology
• IT has the flexibility to respond to changing • Trained implementation Consultants
market conditions • Preconfigured system – full
• Higher asset utilization & Lower inventory transparency

• Higher revenue, lower cost • Industry specific Team

FOUR REASONS
WHY SAP IS THE
PREFERRED
4. Lowest Risk CHOICE 3. Lower Total Cost of
• Proven solution Ownership
• Industry regulations compliance • Integrated Business processes
• Industry partner of choice • Lower cost through standardized processes
• Execute M&A Strategy • Open standards – scalable and secure

• SAP Management committed to your success • Flexible and adaptive to organizational and structural
changes
• Future-proof
• Lower maintenance cost with one integrated platform


What
additional questions
do you have?

Steve.Desirey@usa.DuPont.com
Mark.Wells@SAP.com

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