1. Rohm & Haas Financial Results Modelling Stretching SEM-BPS Business Case & Implementation Study Presented by: Chris Choules & Greg Fedoruk 5/21/2003

2. Contents A New Approach to Forecasting A New Approach to Forecasting Rohm & Haas Business Case Rohm & Haas Business Case Objective & Implementation Strategy Objective & Implementation Strategy Planning Methodology Planning Methodology BPS Architecture & Technical Design BPS Architecture & Technical Design BW Reporting BW Reporting Storyline-Issues and Lessons Learned Storyline-Issues and Lessons Learned

3. Computer Modeling Select Appropriate reference data collection points Capture history of actual motions Construct a Basic Model of the Stroke Consider physical variables - wind, ball mass etc. and construct reactive formulas Incorporate user input variables – club, stance, backswing etc Run the Program

4. Common Patchwork Forcasting

5. Introduction Rohm & Haas is a global chemical company with annual gross sales of 6-7 $billion, with a manufacturing supply chain in over 40 countries worldwide. Rohm & Haas is a global chemical company with annual gross sales of 6-7 $billion, with a manufacturing supply chain in over 40 countries worldwide. e3 Project - Currently R&H is implementing a staged 4 yr global EPR/BI program consisting of SAP R/3 4.6D, BW 3.0B and Manugistics over 8 rollouts. e3 Project - Currently R&H is implementing a staged 4 yr global EPR/BI program consisting of SAP R/3 4.6D, BW 3.0B and Manugistics over 8 rollouts. R/3 was deemed inadequate to support the complex and evolving financial planning and analysis processes. SEM-BPS was selected to cover these integrated needs for all operations. R/3 was deemed inadequate to support the complex and evolving financial planning and analysis processes. SEM-BPS was selected to cover these integrated needs for all operations.

6. e3 Finance Processes Include Financial Business Planning Financial Business Planning Financial Forecasting *Financial Forecasting * BudgetingBudgeting Provide Decision Support Provide Decision Support Customer & Product PA*Customer & Product PA* Report & Analyze Business Performance*Report & Analyze Business Performance* Support Product Costing*Support Product Costing* Manage Capital & Risk Manage Capital & Risk Manage LiquidityManage Liquidity Manage Financial RiskManage Financial Risk Manage Accounting and Control Manage Accounting and Control Perform External Reporting*Perform External Reporting* Perform Overhead Accounting & AllocationPerform Overhead Accounting & Allocation * elements currently in scope for BW/SEM-BPS * elements currently in scope for BW/SEM-BPS

7. Business Case Business Case

8. Business Planning Issues Planning with input variables and assumptions previously done on Excel was inconsistent and un- repeatable. Planning with input variables and assumptions previously done on Excel was inconsistent and un- repeatable. Manual over-rides led to incorrect results compared with actuals. Manual over-rides led to incorrect results compared with actuals. Planning cycle duration and timing difficult to manage on a global level Planning cycle duration and timing difficult to manage on a global level Level of reporting and detail analysis was unresponsive to market dynamics and inadequate for meaningful extrapolations Level of reporting and detail analysis was unresponsive to market dynamics and inadequate for meaningful extrapolations

9. A Tall List of Requirements for the e3-Project… One set of numbers for the planning process for both operating and financial What if capabilities, RM vs SP relationships, volume upside/downside, R&D portfolio investment (step-out growth opportunities) Forecasting and dynamic reporting process must line up. Cash flow by currency and by business Fast cycle time to allow forecasting every month with respect for published/consistent timeline Capability to provide different cuts at the data I.e Tax planning Variance reporting, version comparison and key variance identification Forecasting is evergreen with rolling 18 month horizon Integrate forecasts based on S&OP. Auto-calculate RM’s, sales, plant costs based on key drivers, assets based on S&OP data and R&D investment. Use centrally corporate and business group factors - currency, inflation, economic growth, etc … Forecasts gross to net sales with impacts of cost drivers eg. freight surcharges Create data views for legal entity forecasts, currency, fixed asset, cash flow etc … Integrate forecasts for non-standard business activity (toll processing etc.) P/L modeling for long term planning Resolve bottoms up plan mismatch with top down expectations Consistent world-wide S&OP process ( within business) Unit of measure flexibility

10. Benefits Case Program justification does not drive our Benefits Case. The need for the EPR program was already established to support Rohm and Haas strategic objectives: Program justification does not drive our Benefits Case. The need for the EPR program was already established to support Rohm and Haas strategic objectives: –Growth –Operational Excellence –Net readiness

11. Finance costs compared with other companies in the Chemical Industry Financial costs were collected by functional area and by region, estimated based on staffing level. Financial costs were collected by functional area and by region, estimated based on staffing level. Based on Benchmark Data the best in class in the Chemical Industry performs its finance functions.3% cost to revenues Based on Benchmark Data the best in class in the Chemical Industry performs its finance functions.3% cost to revenues Rohm and Hass finance costs are little lower than average in the industry Rohm and Hass finance costs are little lower than average in the industry Position in the Industry

12. Business Drivers Lower cost process with better economic benefits for the company Lower cost process with better economic benefits for the company Higher credibility and visibility Higher credibility and visibility Less time spent on internal activity Less time spent on internal activity Higher sales as people focus on running the business instead of forecasting Higher sales as people focus on running the business instead of forecasting Tax planning capability Tax planning capability Faster reaction to the external environment Faster reaction to the external environment

13. BPS Requirements in Scope Actuals analysis with back-exploded COGS to include fixed and variable cost components Actuals analysis with back-exploded COGS to include fixed and variable cost components Gross Profit Planning & Forecasting based on actuals analysis, and incorporating key profit drivers, over 18 rolling month horizon Gross Profit Planning & Forecasting based on actuals analysis, and incorporating key profit drivers, over 18 rolling month horizon P&L and Balance Sheet Reporting with planned/actuals drilldown evaluations P&L and Balance Sheet Reporting with planned/actuals drilldown evaluations ‘What if’ simulation of key profit drivers ‘What if’ simulation of key profit drivers

14. Requirements for Future Consideration Capital spend planning. Capital spend planning. Automated Earnings Change Analysis Automated Earnings Change Analysis Full legal entity income statements Full legal entity income statements Consolidations Consolidations

15. Objective & Implementation Strategy

16. Objective : The vision for the end state financial business planning solution is for an integrated planning process that is linked and responsive to internal and external factors and trends accurately. Further clarification of the approach was given by the Finance process owners council in March 2001: S&OP volumes will be the basis for the financial forecast but pricing and costing of this volume to get to GP will be created at a more aggregate level modeling the impacts of overall plant loading, key RM prices, key exchange rates, and material price movements.

17. Project Targets To implement SAP SEM BPS 3.0B in third quarter 2002 for monthly planning and to mirror/support annual planning process for 2003 for those businesses fully on R/3 To implement SAP SEM BPS 3.0B in third quarter 2002 for monthly planning and to mirror/support annual planning process for 2003 for those businesses fully on R/3 Rollout for P&L for Pilot, Plastic Additives and Electronic Materials businesses to European & North American profit centers initially, growing to 30 - 50 global users in the end state Rollout for P&L for Pilot, Plastic Additives and Electronic Materials businesses to European & North American profit centers initially, growing to 30 - 50 global users in the end state Include configuration foundation elements to roll out full enterprise balance sheet and income statement when critical mass is on R/3 Include configuration foundation elements to roll out full enterprise balance sheet and income statement when critical mass is on R/3 Upgrade platform for BW to 3.0B and SEM to 3.1B for the North American Financial Backbone rollout March 2003 Upgrade platform for BW to 3.0B and SEM to 3.1B for the North American Financial Backbone rollout March 2003

18. Prototype Development – SB1 Design & Config – DB1 Testing & Delivery QB1 PB1 End User Training, Support and Post Go Live Activities Month/Year Oct 01 Nov 01 Jan 02 Feb 02 Dec 01 7/2 11/412/12 R1/2 GO LIVE 7/1/02 Start Prototype Development ER Rollout 1 Workshop Team Review Mar 02 Apr 02 Jul 0l Aug 01 Sep 01 POC Review 10/1910/11 Business Financial Managers Feedback EM Rollout 2 Workshop May 02 Aug 02 Jun 02 Jul 02 ER Rollout 3 Workshop SEM-BPS Implementation Timeline

19. Translating Vision into Configuration Evolving Data Model Active BW and SEM System Configuration Enterprise Brain trust implementation team interprets vision and defines data model in collaborative process Implementation team constructs prototype and tests concepts and system capabilities Feedback Issues & White Paper analysis to management team for decisions Specification Definition

20. Key Profit Drivers  Volume Growth  Selling Prices  Raw Material Costs  Currency Exchange Rates  Plant Costs (Fixed & Variable)  Asset Utilization  Below the Line Expenses Volume Growth Selling Prices RM Costs Currency Plant Costs Assets. BTL Exp.

21. BPS Design & Development Process 1.High level scope set by Finance POC & ERP project Objectives 2.Develop initial data model, leveraging existing BW-BI development elements, cubes and extractors 3.Create an integrated spreadsheet dataset representative of the expected levels of detail in end state (converting a subset of legacy data to R/3 format) 4.Build a prototype BPS-BW model, load and unit test with dataset – it is critical to address/test realistic volume & performance impacts 5.Evaluate issues and system capabilities with respect to user workshops, POC and SME feedback 6.Refine data model and refine BPS system configuration 7.Unit and integration test system with real R/3->BW data as much as possible – this is critical for debugging BPS gaps

22. Gross Profit Planning Purpose of Prototype Actual Cost of Goods Sold Analysis Proof of Concept... Accelerated Learning SEM-BPS Software & User Interface BPS-BW interaction System Technical Constraints

23. In the ER planning process workshop, participants ranked their priority for level of detail needed as … Workshop & POC Feedback 1. Market Segment 2. Profit Center 3. Product Sub-Family 4. Major Customer 5. Legal Entity 6.Destination Country The POC agreed to standardize planning detail level at summarized Major Customer and ‘ Minor Market ’ segment (not individual ship-to/SKU as requested by some business users)

24. ERP Constraints/Limitations Interface to Manugistics for Demand Planning Interface to Manugistics for Demand Planning Consolidations on HYPERION until after NA rollout Consolidations on HYPERION until after NA rollout currency revaluations are done in HYPERION therefore some Balance Sheet elements would not be available in BW until after rollout 4. R/3 requires custom SPL for TRX currency R/3 requires custom SPL for TRX currency Standard product costing BW extractors do not bring in TRX currency Standard product costing BW extractors do not bring in TRX currency Inter-company elements in transition Inter-company elements in transition ‘Global Blueprint’ and R/3 configuration still evolving ‘Global Blueprint’ and R/3 configuration still evolving

25. Challenges  Transport Approach  BW Data Model Utilization  Issues List  OSS Issue Timely Resolution  Success Metrics  Attribute Utilization  Comments  Design / Blueprint Build-out  User-IDs  Risk Identification and Mitigation  SEM Naming Convention  Post Go-Live Support Changes These were the challenges offered by SAP’s Guidance

26. SEM-BPS Design Issues Optimize Level of Detail vs. Response time for Drill Down Analysis Optimize Level of Detail vs. Response time for Drill Down Analysis System Response time of User Planning Interface. System Response time of User Planning Interface. Large Data Volumes (over ten million records in end state) Large Data Volumes (over ten million records in end state) Large ABAP record length of an Integrated Data Model Large ABAP record length of an Integrated Data Model Inconsistency in data models of standard BW business content, eg. KF vs. Acct. based Inconsistency in data models of standard BW business content, eg. KF vs. Acct. based Dependency on evolving definition of R/3 custom components ie. Special Ledger Dependency on evolving definition of R/3 custom components ie. Special Ledger Evolving software platform ie. changes to FOX functionality with hotpack upgrades Evolving software platform ie. changes to FOX functionality with hotpack upgrades Interface inconsistencies ie. Master data issues between Manugistics->BW Interface inconsistencies ie. Master data issues between Manugistics->BW

27. Profit & Loss Planning Methodology SEM-BPS High-Level Design

28. Methodology – Actuals Analysis SEM-BPS pulls Actual monthly results for Business Income Statement and Balance Sheet into a BW Multi-cube for reporting based on SAP account/ functional area/location/Group Account /Co Code/Profit Center: Std Gross Profit by material & ship-to in USD and Transaction Currency.Std Gross Profit by material & ship-to in USD and Transaction Currency. Inspired by SAP’s ‘Simplified Resource Planning Whitepaper’, Standard Cost of Sales is analyzed based on the exploded cost itemization by fixed/variable operating cost, depreciation, Key Raw Materials, input plant (transaction currency taken from the input plant)Inspired by SAP’s ‘Simplified Resource Planning Whitepaper’, Standard Cost of Sales is analyzed based on the exploded cost itemization by fixed/variable operating cost, depreciation, Key Raw Materials, input plant (transaction currency taken from the input plant) Balance sheet - AR by Ship-to,Country in USD and Transaction CurrencyBalance sheet - AR by Ship-to,Country in USD and Transaction Currency Balance Sheet - Inventory by Material in USD onlyBalance Sheet - Inventory by Material in USD only All Other Business Reporting Accounts are extracted from Profit Center Accounting (Special Ledger) – USD and transaction currency.All Other Business Reporting Accounts are extracted from Profit Center Accounting (Special Ledger) – USD and transaction currency. IF there is a reconciliation difference between Profit Center Accounting (Special Ledger) and other source data cubes, PCA (SL) is the standard!

29. P&L Planning Process End-to-end planning with the following process steps: 1. Extract/confirm synchronized BW source data set 2. Set up planning version & date variables (online BPS config) 3. Process /reformat actuals (GPS batch job) 4. Generate ‘base case’ scenario, extrapolated for 18 months (GPS batch job) 5. Update RM costs (online Planning Folders) 6. Modify base planned dollar amounts at a profit centre level (online Planning Folders) 7. Drill down to detail level of PSF,Customer,Market or Country level, optimise and save planned values (online planning folders) 8. Analyse consolidated forecast projections in BW multi-cube

30. Planning Assumptions Changes to demand volume are done in the source system only (Manugistics) in order to maintain synchronization with S&OPChanges to demand volume are done in the source system only (Manugistics) in order to maintain synchronization with S&OP Product cost components and explosion are dependant and based on R/3 group product costing functionality and configurationProduct cost components and explosion are dependant and based on R/3 group product costing functionality and configuration The system model assumes that all materials and resources are consumed at the time of sales.The system model assumes that all materials and resources are consumed at the time of sales. The resource and cost planning model does not take into account or reconcile in detail with manufacturing and logistics constraintsThe resource and cost planning model does not take into account or reconcile in detail with manufacturing and logistics constraints Planning at summary levels will stabilize forecast accuracy, eliminate ‘noise’ and keep data volumes manageablePlanning at summary levels will stabilize forecast accuracy, eliminate ‘noise’ and keep data volumes manageable eg. Product Sub-Family level vs. Material Summarize global customers by tier vs. ship-to Summarize non-key raw materials

31. Features Input adjustments to base case entered and saved as % changes for re-use of analysts’ applied intelligence Input adjustments to base case entered and saved as % changes for re-use of analysts’ applied intelligence ALV format used allows split input & results screen for on-line change impact analysis prior to saving ALV format used allows split input & results screen for on-line change impact analysis prior to saving BW reporting method allows analysis of overall plan after saved planning steps BW reporting method allows analysis of overall plan after saved planning steps Simulations folder uses Excel visual Basic processing for off-line analysis Simulations folder uses Excel visual Basic processing for off-line analysis Base case processing methodology guarantees a complete forecast picture even if manual adjustments are missing from individual contributors Base case processing methodology guarantees a complete forecast picture even if manual adjustments are missing from individual contributors Exploded COGS technique permits P&L drilldown to individual fixed and variable cost components at a line item level Exploded COGS technique permits P&L drilldown to individual fixed and variable cost components at a line item level Both Group and Transaction currencies permit evaluation of exchange rate impact Both Group and Transaction currencies permit evaluation of exchange rate impact Reconciliation differences show up in BW reporting Reconciliation differences show up in BW reporting Truly Integrated results! Truly Integrated results!

32. BPS & BW BPS & BW System Architecture System Architecture & & Technical Design Technical Design

33. Gross Profit - Base Case Generation 18 Future Periods Previous 2nd 3rd 4th Historical Periods Current Actual Volume Actual Sales Volume Forecast Calculate Unit Price 2 nd Previous Calculate Projected Revenue Calc Unit Price Explode WWBOM & Calculate COGS Calculate Gross Profit Explode WWBOM & Calculate COGS Extrapolate Revenue Extrapolate COGS Forecast Gross Profit Calculate Gross Profit Actual Sales Actual Volume

34. Planning Versions 18 Future Periods Previous 2 2 3 3 4 4 Historical Reference Periods Current Actual Volume Actual Sales 2 nd Previous Exploded WWBOM & Actual COGS Actual Gross Profit Generated Base Version (XX9) Analyst’s Working Copy (OLAP) Actual Volume Actual Sales Exploded WWBOM & Actual COGS Actual Gross Profit Analyst’s Forecast Version (FXX) Copy Base Version for Each Role Fine Tune using Planning Folders Save Analyst’s Adjusted Version

35. System Overview SEM-BPS Business Planning and Simulation SEM-BPS Business Planning and Simulation R/3 Transaction Processing Data Retrieval from BW Data Manipulation Data Input Saves Data back to BW Manugistics Networks Manugistics Networks Volume Planning SAP BW BW Reporting Multi-cube BPS Planning Folders

36. Business Planning Solution –Detail Architecture BW Multi-cube Cost Itemization PA Summary Multi-Planning Special Ledger (Incl. PCA) Actual Inventory BPS Planning (TRX Cube) Inventory Plan Area BPS Manugistics-BW R/3-BW R/3-BW OTC ODS Manugistics-BW ODS R/3-BW R/3-BW Cube Volume Demand Folders On-line Processing BPS Planning BPS Actuals (TRX Cube) R/3-BW Accounts Receivable Excel Queries P&L GPS Batch Jobs

37. P&L Planning Folder - Top Level View Change Impact Select Function Define Planning Selection Process Changes Input Changes

38. P&L Planning Folder - Detail Levels Make Detail Adjustments Select Output Display Select Criteria for Detail

39. Planning Folder – Simulations using Excel in Place Selection by PCtr, Customer, Product SF, Market Segment or Country 1. Choose Planning Folder 3. Select & Adjust Input Values 4. View Results immediately by Year or Quarters, Details or Summary 2. Input Criteria 5. Save Excel workbook for Off-Line Use & Distribution

40. BW Reporting

41. Reporting Purpose Queries were developed in BW for the following purposes: Queries were developed in BW for the following purposes: –Provide P&L Income Statements for management reporting –Financial analysis of actual results to facilitate monthly and annual planning in SEM-BPS –Provide drilldown projected view of cost elements –Consolidated view of plan-actual comparisons –Provide reconciliation between PA and SPL elements

42. Select Drilldown on a line item by ‘Free Characteristic’ Combined actuals to date with forecast for projected totals

43. Drilldown on P+L by any ‘Free Characteristic’

44. Implementation Storyline Rohm & Haas Lessons Learned

45. A Brief History... August 2001 - Started build of initial data model August 2001 - Started build of initial data model Built prototype architecture in sandbox environment, loaded dataset and proved COGS back explosion concept Built prototype architecture in sandbox environment, loaded dataset and proved COGS back explosion concept January 2002 - Refined data model and architecture from testing, issues and feedback January 2002 - Refined data model and architecture from testing, issues and feedback Rebuild and successfully unit tested in Development. Rebuild and successfully unit tested in Development. May 2002 - Transported and integration tested in Quality system - BW extractions of Product Costing source data and BPS processing failed on real PC data volumes !!! May 2002 - Transported and integration tested in Quality system - BW extractions of Product Costing source data and BPS processing failed on real PC data volumes !!! Raised OSS message regarding memory-short dumps Raised OSS message regarding memory-short dumps Redesigned data model and rebuilt base BPS & BW configuration, segregating P&L and Balance Sheet elements Redesigned data model and rebuilt base BPS & BW configuration, segregating P&L and Balance Sheet elements June 2002 - Successfully tested SAP’s delivered solution for large data volumes (ABAP) June 2002 - Successfully tested SAP’s delivered solution for large data volumes (ABAP) Developed BW Multi-cube and query reporting architecture Developed BW Multi-cube and query reporting architecture Developed Simulations tool using excel visual basic component Developed Simulations tool using excel visual basic component Postponed implementation of Balance Sheet functionality, retaining configuration elements for future rollout Postponed implementation of Balance Sheet functionality, retaining configuration elements for future rollout Tested and transported new configuration to Production, and delivered end user training. Tested and transported new configuration to Production, and delivered end user training. July/August 2002 - Rolled in live planning elements and reporting in parallel to legacy processes for qualification. July/August 2002 - Rolled in live planning elements and reporting in parallel to legacy processes for qualification.

46. Major pitfalls... Cross system interfaces - lack of master data integrity in dataflow between Cross system interfaces - lack of master data integrity in dataflow between R/3->Manugistics->BW R/3->Manugistics->BW Too low a level of detail available in Shared BW Sources (eg.document level) Too low a level of detail available in Shared BW Sources (eg.document level) Source BW elements vary between key figure and characteristic based formats Source BW elements vary between key figure and characteristic based formats Some processing requirements are too complex for FOX formulas Some processing requirements are too complex for FOX formulas Slow performance ( 5-8 minutes between screens vs. target of under two) Slow performance ( 5-8 minutes between screens vs. target of under two) Complex security for BPS planning & BW reporting sharing data sources Complex security for BPS planning & BW reporting sharing data sources Enterprise data model resulted in too large an ABAP record length - 960, causing failure when processing over 400,000 records in background batch jobs Enterprise data model resulted in too large an ABAP record length - 960, causing failure when processing over 400,000 records in background batch jobs Evolving R/3 enterprise architecture elements force changes to BPS elements. These changes force complete re-writes of FOX formulas - no download/upload capability yet on this editor! Evolving R/3 enterprise architecture elements force changes to BPS elements. These changes force complete re-writes of FOX formulas - no download/upload capability yet on this editor! Building in a methodology for excluding inter-company accounting information until critical mass is on R/3 Building in a methodology for excluding inter-company accounting information until critical mass is on R/3

47. Problem Resolutions... Created BPS-dedicated BW summary cubes loading from shared info- sources Created BPS-dedicated BW summary cubes loading from shared info- sources Standardized data format for BPS-dedicated source cubes Standardized data format for BPS-dedicated source cubes eg. convert PA from key-figure to account based format, eg. convert PA from key-figure to account based format, split Product Costing currency type into multiple key figures split Product Costing currency type into multiple key figures Pre-processed data format in dedicated cube start-up routines to simplify FOX formula requirement Pre-processed data format in dedicated cube start-up routines to simplify FOX formula requirement Refined and standardized multi planning area data model, being ruthless in sacrificing characteristics, reducing ABAP record length by over 70 % Refined and standardized multi planning area data model, being ruthless in sacrificing characteristics, reducing ABAP record length by over 70 % SAP-OSS messages generated new a ABAP to automatically break up planning sequence data packages at runtime (UPC_BUNDLE_EXECUTE_STEP ) SAP-OSS messages generated new a ABAP to automatically break up planning sequence data packages at runtime (UPC_BUNDLE_EXECUTE_STEP )

48. Essential Ingredients...  A clear, firm, high level vision of the desired end state planning functionality, plus team members with the knowledge set to drive this vision down to the lowest level of detail with minimal compromise - ‘the Devil is in the details’  Management ‘will’ to standardise business practices and make hard decisions quickly  A stable enterprise ERP platform for financial elements  Out-of-the box creative thinking / problem solving by SEM & BW implementation team members in the face of dead ends and technical limitations  A love of complex spreadsheet manipulations (BPS is like a large multi-dimensional Excel pivot table)  Guidance and technical support from SAP’s Platinum team, OSS and technical performance tuning documentation