Supporting the Perfect Order: Collaborative S&OP and VMI

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1 Supporting the Perfect Order: Collaborative S&OP and VMI October 30, 2012 Frankfurt, Germany Gary Neights Director, Product Management

2 The Multi-Echelon Supply Chain Plan Your Supplier s Suppliers Your Suppliers Your Company Your Customers Your Customer s Customer Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source Supplier s Suppliers Customer s Customers Delivering perfect orders to your customer requires: Collaborative Planning Collaborative Execution

3 Agenda Perfect Orders Where Does the Data Lead Us? Collaborative Planning Collaborative Execution

4 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

5 Gartner: Perfect Order Fulfillment Process Manual: Visible: Heavy reliance on paper. Ad hoc processes Minimal automation and decision support 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

6 Measuring Perfect Orders Defined by Elemica Customer Management User Group Perfect Correct Settlement Correct Accounting Correct Lane and Paperwork Correct Product, Location, and Date

7 Measuring Touch Less Orders Defined by Elemica Customer Management User Group Touch Less Touch Less Cash Application and Reconciliation Touch Less Shipment and Invoice Touch Less Availability Touch Less Order Entry

8 Quadrants of Perfection Defined by Elemica Customer Management User Group Low-touch Cash Application and Reconciliation Shipment and Invoice Availability Underachieve System to system order. Conforms to contract. Product on allocation. Cancel - cannot meet request date. Lose order. Good touch System to system order. Conforms to contract. Product on allocation. Miss request date; hit promise. Electronic invoice and payment. System to system order. Conforms to contract. Product available. Electronic invoice and payment. First touch: physical movement. Order Entry High-touch Fax with incomplete data. Inside lead time. Issue product being held for a good customer. Bad master data. Ship product to wrong location. Situation Normal, All Fouled Up (SNAFU) Imperfect Product, Location, and Date Lane and Paperwork Phone order. Product available. Manual invoice and payment Accounting Heroics Settlement Perfect

9 Agenda Perfect Orders Where Does the Data Lead Us? Collaborative Planning Collaborative Execution

10 Business Problems Fixed by Order Automation Business Problem 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 Root Causes Physical availability is a critical obstacle in the chemical industry. Source: CCSMG 2012 Survey

11 Product is Needed for Perfect Orders System Driven Physically Driven Touch-less Perfect Order to Customer Execution per process using correct systems. Transaction data flows are accurate and timely. Order Fulfillment Rules Training Contract: How to conduct business together. Lead times, pricing indices, etc. Supported by organization. and process controls Business Rules and Logic Master Data. Accurate contract data (customer, vendor, product, pricing, etc) loaded into master data repository. Physical Availability: -Product -Carrier -- Driver - Assets

12 Best In Class Companies: Forecast well, deliver, and get paid quickly

13 Agenda Perfect Orders Where Does the Data Lead Us? Collaborative Planning Collaborative Execution

14 Collaborative Planning Plan Your Supplier s Suppliers Your Suppliers Your Company Your Customers Your Customer s Customer Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source Supplier s Suppliers Customer s Customers Delivering perfect orders to your customer requires: Collaborative Planning Deliver Source Materials, Logistics, and Operational Capacity are contracted Collaborative Execution (next section)

15 Planning Goal Improve Performance Over Time

16 Planning Cycle Example Collaborative Planning

17 Demand: An Important Part of Planning Plan Your Supplier s Suppliers Your Suppliers Your Company Your Customers Your Customer s Customer Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source Supplier s Suppliers Customer s Customers Supply Planning - Raw materials - Finished goods - Packaging Logistics Planning - Distribution - Warehousing - Transportation - 3PLs Financial Planning - Cash conversion cycle - Asset utilization - Tax efficiency Operations Planning - Make versus Buy - Tolls and Swaps - Plant and distribution capacity - Maintenance / turnarounds - Shift work - Warranty and support Demand Planning - Finished goods - Packaging - Transportation

18 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.

19 Agenda Perfect Orders Where Does the Data Lead Us? Collaborative Planning Collaborative Execution

20 Collaborative Execution Plan Your Supplier s Suppliers Your Suppliers Your Company Your Customers Your Customer s Customer Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source Supplier s Suppliers Customer s Customers Delivering perfect orders to your customer requires: Collaborative Planning (previous section) Collaborative Execution Deliver Make Customer requirements accurately communicated per contract Materials and logistics available System contains accurate and actionable data Reserve power for rapid planning and response

21 Two Execution Alternatives Little s Law Continuous Improvement Better Operations Better Automation Better Planning Better Data Customer Service Failure: Increased Inventory Longer Lead Times Increased Demand Uncertainty Better Customer Service Operations: Better Automation Better Data Better Planning

22 Customers Order How They Want To Large volumes of material are managed in tanks. Collaborative VMI can help with execution and planning.

23 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

24 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 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

25 Planning Item Execution System proposes orders to keep projected on hand above the safety stock level. Dynamic per Gartner criteria.

26 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.

27 To Conclude

28 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.

29 Keep Your Organization in the Correct Cycle Little s Law Continuous Improvement Better Operations Better Automation Better Planning Better Data Customer Service Failure: Increased Inventory Longer Lead Times Increased Demand Uncertainty Better Customer Service Operations: Better Automation Better Data Better Planning

30 Resources on Collaborative Planning and Execution Organizations Association for Operations Management Institute for Supply Management International Supply Chain Education Alliance (ISCEA) Simulations on managing demand

31 Supporting the Perfect Order: Collaborative S&OP and VMI Gary Neights Director, Product Management

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