Background
One of the fundamental challenges in implementing Sales and Operations Planning is the integration of plans from various functions and driving consensus among these functions. At a company like Air Products(see Appendix, Note 2), this challenge gets compounded when you take into account a global organization with 17 business units servicing more than 30 countries with more than 100,000 product configurations.
In the latest Supply Chain Council’s SCOR (Supply Chain Operations Reference) model (version 7.0), S&OP is accentuated as one of the most important best practices in supply chain management (see Appendix, Note 3). Air Products’ challenge has been to deploy this key business process across various business units, in all regions of the world, and with different stages of deployment of SAP.
Recognizing the adage “People, Process, Tools”, Air Products has had over 10 years of experience in S&OP, and has created a broad recognition of its importance, with many practitioners involved. Addressing the global integration challenge requires a strong commitment towards standardization of processes across the organization, scalable IT infrastructure, and flexible and easy to use tools that can be deployed rapidly. Air Products has embraced this philosophy and turned to SCOR for process definition and standardization, SAP to build a scalable IT infrastructure and Steelwedge Software for flexible and rapid S&OP deployment tools.
Business
Challenge
At Air Products, past processes were somewhat business dependent and not always universal or standardized. These variations extend to systems, use of currency, units of measure, data definition and so on. In an effort to drive out inefficiencies in the supply chain, Air Products decided to implement SAP and subsequently embraced the SCOR model for process definition and standardization. Additionally, the Integrated Supply Chain organization was formed to bring together the synergies of SAP, Continuous Improvement, Work Process and Supply Chain management; one project commissioned in this organization has been to implement a global, integrated S&OP process.
The charter of the Integrated S&OP team is to deploy S&OP in a consistent manner to all applicable businesses globally, with a standardized process and appropriate automation. This automation includes SAP and related tools, as well as non-SAP solutions. One particular challenge at Air Products is that some regions and businesses do not have SAP and the associated planning & optimization APO (Advanced Planning & Optimization) tools.
S&OP has traditionally been placed as the “pre-production plan” process. SCOR, as well as best practices across many companies, suggests that S&OP can, and should be, much more than this. Inside a business, there are many plans that coexist, and indeed, exhibit interdependencies.
Effective S&OP can be used to ensure that all of these plans are developed, agreed, communicated and acted on together, with the promise of huge gains in alignment, effectiveness and efficiency across the organization.
At Air Products, the Integrated S&OP
team quickly realized that effective accomplishment of integrated
S&OP requires simple but effective Planning and Reporting tools
that provide financial and operational projections, and the
capability to evaluate alternatives and options (which cannot
readily be accomplished in SAP as currently implemented). Also to
enable this reporting and analysis implies the availability of a
holistic demand forecast, containing adequate statistical
projections along with business intelligence.
While SAP APO
Demand & Supply Planning -- where deployed -- can meet many of
Air Products analytic and planning capabilities, it does not alone
support a global S&OP process for Air Products. And where SAP
APO is absent, other tools must be available to bring all business
units to a level playing field.
Further, effective
deployment of S&OP requires reliable, accurate and timely
analysis of multiple data types including: customer forecasts,
market intelligence, actual sales history, pricing and cost
information, projected demand and supply options, known or expected
pricing changes, cost or margin improvement and new product
introduction forecasts. This requires a single enterprise-wide
S&OP capability that enables consistent, standardized approach
to S&OP across businesses and geographies.
In summary,
the S&OP team’s challenge was to create a global S&OP
process that:
- Included all business units,
- Included and integrated a variety of tools and capabilities
to,
- Collate information
- Develop and consolidate forecasts
- Aggregate and dis-aggregate
- Perform unit conversions (multi-currency, units to revenue,
etc)
- Drive changes to forecasts and plans, price and cost data,
etc
- Provided reporting, “what-if” and other analytic tools to
enable better, more accurate and faster decision making
- Could be implemented in a short time frame
- Could be modified and re-configured as business needs change
In lieu of the above S&OP reporting gaps and long
deployment cycles associated with a multi-year implementation of
SAP, Air
Products decided to partner with Steelwedge to bridge these
gaps quickly.
Air
Products – Steelwedge Software Solution
Air Products’
overall process management approach is described within the
Enterprise Process Blueprint Model shown below. This approach
includes organizations called Global Process Management Teams
(GPMTs) that operate across businesses and functions to define how
work is done. Businesses define why work is done, and functions
define where work is done. Part and parcel of the PLAN GPMT approach
is the Sales and Operations Planning process.
It should be noted in the above picture
that Supply Chain Planning, including S&OP, also impacts
manufacturing, sourcing and distribution.
Steelwedge
analysis and reporting will enable the Air Products Sales and
Operations Planning process across multiple divisions. Selected Air
Products divisions (that do not have SAP APO) will also use
Steelwedge for forecasting and demand planning. Using the Steelwedge
Solution, Air Products is able to create a rough cut capacity plan,
balance supply with demand, improve forecast accuracy, and align
business and operational plans. SAP, where applicable, is the master
source of data for transactional, financial and plan information.
Data is interfaced into Steelwedge at the desired frequency (daily,
weekly and monthly) and rolled up to various defined hierarchy
levels to support the S&OP cycle.
Specifically, Steelwedge will drive Air Products S&OP process in the following areas:
- Demand Planning,
- Steelwedge provides demand forecasting capabilities such as statistical forecasting and NPI/EOL modeling for businesses that are not currently deployed on APO down to the detailed SKU customer level. Forecasts for APO businesses are imported. Financial implications can be derived from. the ability to make time phased (future looking) price adjustments for
- Supply aggregation,
- Supply plans such as inventory projections, capacity and replenishment plans are imported into Steelwedge when available from SAP or derived within Steelwedge where necessary for comparisons against demand and other operating plans.
- Demand & supply balancing,
- For businesses not in APO, SW will be used to derive rough cut supply planning while providing aggregate override and graphical views of Demand, Supply, Inventory and backlog. Planners will have the ability to make time phased (future looking) cost adjustments for accurate what-if analysis.
- S&OP meetings
- Provides revenue, contribution margin and inventory projections and comparisons against operating plans. The implications and options for the various plans described earlier are supported by the reports and templates in Steelwedge.
Implementation
To minimize the risk associated with change management and
provide quick value, enterprise wide deployment of S&OP tool was
broken down into multiple phases. In partnership with Steelwedge,
Air Products developed and implemented the first phase of S&OP
within 16 weeks. This phase was deployed to one business unit as a
pilot to validate the rules, decisions, and processes made during
the Enterprise S&OP design. It was structured to make users more
comfortable with the Steelwedge application and gain better
understanding of functionality available, which contributed to
further development of the solution. This phase also helped resolve
outstanding business issues; test interfaces and batch jobs; and
served as a training platform to Air Products IT department for
additional deployments.
Additional business units will be
rolled out in waves every two months with a target of deploying 10
business units by end of year. This includes business elements in
Asia, where the base source of data will not initially be SAP, but
other ERP-like systems (for example, Francium).
Anticipated
Benefits
Using the Steelwedge Solution, Air Products will
be able to create a rough cut capacity plan, balance supply with
demand, improve forecast accuracy, align business and operational
plans, accelerate planning cycles, minimize COGS, reduce logistics
costs, lower inventory, improve customer delivery performance and
share best practices through common tools and processes.
Aligned Strategy and Operations:
Improve the
alignment between Air Products business plan (yearly/quarterly plan)
and the functional operational plans (monthly, 12 months horizon)
influenced by shifting demand patterns and volatile market
conditions. Currently, it is difficult to see when business and
operating plans grow apart due to changes in market and/or internal
operational environments. Ability to identify the deviations in
advance, capability to analyze various alternatives and clear
insight into the financial consequences of decisions, will
significantly minimize the risk of deviating from business plan
objectives.
Improved Corporate Visibility and Control
over Global Supply Chain:
Each Business Unit can improve
their control over all parts of their business. As is the industry
norm, each business unit is broken up into various functions
(Marketing, Finance, Product Development, Sales, Production and
Distribution) which in turn are scattered across the world
(countries). These businesses often do not share the same operating
plans, have the same unit of measure (eaches, kgs, cylinders, etc)
or have the same information systems (SAP, Francium, spreadsheets,
etc). Providing a single view of plan synchronized by a formal
consensus process, where everyone understands what it means to them
will go a long way in reducing operational mistakes.
Fact
Based Planning:
By recording the assumptions as part of the
plans it becomes possible to track their validity over time, to
adjust where necessary, and to evaluate the consequences.
Communicating these assumptions will increase the trust in a plan
for all parties involved, and will increase the feasibility of the
plan.
Concentrate on Exceptions:
Effective
exception management is a key to successful execution of S&OP
process. It’s practically not feasible to sift thru and resolve
issues for thousands of products on a monthly basis. The process
becomes more manageable and effective by prioritizing and focusing
on situations outside pre-defined thresholds.
Consistent
Performance Management:
Having commonality and consistency of
supply chain measures will align and point all functions and regions
to one set of goals.
Next
Steps
In order to more efficiently drive the supply chain,
the Air Products demand planning groups must include business
intelligence, including both anomalistic events that impact
forecastability and future facing sales opportunities to create
accurate forecasts. Not only is this demand information critical,
but the timeliness in which it is received will also be a
determining factor in developing an improved forecast. To this
effect we are investigating:
- Adding current customer sales pipeline opportunities to
Salesforce.com
- Steelwedge Sales Planning Solution to translate sales
opportunities from Salesforce.com into meaningful product demand
information, to be incorporated into consensus demand planning
process
Having recognized the value of Sales &
Operations Planning as a strategic process, and having found a
highly configurable Demand and Supply Chain Planning/Performance
Measurement system to enable the process, Air Products is well
positioned to unlock the value of their SAP investments and rapidly
realize Supply Chain and ROI goals.
Footnotes
(1)
Sales & Operations Planning (APICS definition):
The process that provides management the ability to
strategically direct its business to achieve competitive advantage
on a continuous basis by integrating customer focused marketing
plans for new and existing products with the management of the
supply chain. The process brings together all the operating plans
for the business (sales, marketing, development, manufacturing,
sourcing, and financial) into one integrated set of plans. It is
performed at least once a month and is reviewed by management at
an aggregate (product family) level. The process must reconcile
all supply, demand, and new-product plans at both the detail and
aggregate level and tie to the business plan. It is the definitive
statement of the company’s plans for the near to intermediate term
covering a horizon sufficient to plan for resources and support
the annual business planning process. Executed properly, the Sales
and Operations Planning process links the strategic plans for the
business with its execution and reviews performance measures for
continuous improvement.
(2) Air Products Corporate
Overview
Air Products serves customers in technology, energy,
healthcare and industrial markets worldwide with a unique
portfolio of products, services and solutions, providing
atmospheric gases, process and specialty gases, performance
materials and chemical intermediates. Founded in 1940, Air
Products has built leading positions in key growth markets such as
semiconductor materials, refinery hydrogen, home healthcare
services, natural gas liquefaction, and advanced coatings and
adhesives. The company is recognized for its innovative culture,
operational excellence and commitment to safety and the
environment and is listed in the Dow Jones Sustainability and
FTSE4Good Indices. Air Products has annual revenues of $7.4
billion, operations in over 30 countries, and nearly 20,000
employees around the globe.
(3) Supply Chain Council’s SCOR
(Supply Chain Operations Reference) model (version 7.0)
It quotes from a reference work by ‘Sales and Operations
Planning Handbook’ by Civerolo and Rice. “Sales and Operations
Planning (S&OP) is a business management process used to
-
Establish communication links between executives and
managers;
- Establish a common language of discussion between
sales, marketing, production, and finance;
- Develop integrated
aggregate business plans;
- Balance the supply of products or
services with the demand for them;
- Provide information that
executives can use to validate the business plan;
- Provide
operating managers with information they can use to measure
performance.
S&OP does this by focusing on serving the
customer’s needs and matching marketplace and customer
expectations with the sales plan and balancing the sales plan with
the manufacturing capabilities…S&OP answers four
questions:
- WHAT is supposed to happen?
- WHEN is it
supposed to happen?
- WHO is responsible for it?
- WHAT
actually happened and why?”
The S&OP process is not a
monthly meeting or a software package module. The S&OP process
is a series of actions that require involvement and supports
communication.”
About the authors:
Beth Montag Schmaltz (bmontag@hitachiconsulting.com) is a Senior Manager and Organizational Change Competency Leader with Hitachi Consulting.
David Williams (dbwilliams@hitachiconsulting.com) is a Senior Manager and Supply Chain Planning Competency Leader with Hitachi Consulting.
As Hitachi, Ltd.'s (NYSE: HIT) global consulting company, Hitachi
Consulting is a recognized leader in delivering proven business and IT
solutions. From business strategy development through application
deployment, we leverage decades of business process, vertical industry,
and technology experience to understand each company's unique needs and to achieve sustainable ROI.
References
Sales and Operations Planning, A Cornerstone of DDSN Leadership, AMR Research, July 2005
The Heart of Change, John Kotter and Dan Cohen, Harvard Business School Publishing, 2002
Managing Transitions: Making the Most of Change, William Bridges, Perseus Books, 1991
Articles
“Software disasters are often people problems”, CNN
“Crisis Leadership: What Dr. Martin Luther King Can Teach Us About Business Change”, IBM Global Services
“Keith Yamashita Wants to Reinvent Your Company”, Fast Company
“Helping Employees Embrace Change”, The McKinsey Quarterly
Dr. Darrol Stanley, The Impact of Empowered Employees on Corporate Value
© 2005 Hitachi Consulting Corporation. All rights reserved. "Inspiring your next success", "Knowledge-Driven Consulting", "Information Velocity" and “Dove Consulting” are registered service marks of Hitachi Consulting Corporation.
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