1. Supply Chain Management:
Approaches and Practices from Air Products and Chemicals, Inc
George Diehl
VSB Center for Business Analytics

2. Air Products Overview
$10 B Gases (80%) and Specialty Chemicals (20%) company
Chemical industry safety leader
Operations in more than 30 countries
55% of sales revenue outside the U.S.
20,000 employees worldwide; 4500 at Allentown PA, Global HQ
AMR’s “Top 25 Supply Chains”-Honorable Mention in 2008

3. ANATOMY of INDUSTRIAL GAS SUPPLY
AIR
SEPARATION
78% NITROGEN
21% OXYGEN
1% ARGON
GAS PIPELINE
TO CUSTOMERS
LIQUEFACTION
GAS TO
CUSTOMER
OPERATION
CYLINDERS
LIQUID STORAGE
CRYOGENIC TANKER
CUSTOMER
LIQUID STORAGE
AND VAPORIZER

4. Some Questions To Start…
Which traditional functions make up the supply chain?
What are some of the issues with cross-functional work?
How are they addressed?
How do you know that the supply chain is working?
And which parts are not
What are some ways to “benchmark” supply chain performance against “best in class”?

5. Simple Supply Chain Process
Customer
Place Order
Take Delivery
Pay Bill
Sales
Win Business
Define Reqts
Customer
Service
Set Up Account
Input Order
Send Invoice
Apply Cash
Production
Bill as speaker – reinforce cross-functional nature of processes.
In the process awareness presentation / webcast, we use this process example, which is essentially the heart of the Order-to-Cash process. We stress that SAP will impact this process in 3 key ways …
NEXT: Impact #1 – Functions are more interdependent
The first impact area is …
Commit Inventory
Load Product
Schedule Delivery
Deliver Product
Logistics /
Distribution

6. CEO Quote to Shareholders…
…Historically, we have had a very strong functional focus in selling, operations, engineering, etc., with a good track record of continuous improvement. But what we found is that the greatest improvement comes where these functional organizations interface. As a result, we have taken a process viewpoint and redesigned how we do much of our business.
Point- Are we already on the road and have just not realized it???

7. Supply Chains Integrate Cross-Functional Processes
Business Process: An organized group of cross-functional activities that together provide value for the customer.
Input(s) >> Activities >> Output(s)
Focus on efficiency and effectiveness
Well-designed processes can be patented and/or become a source of competitive advantage—outsource too

8. PROCESS / FUNCTION BALANCE
Limits on
Functional
Improvement
Balanced Integration
Of Function and Process
Within/Across Businesses
“Predictably Positive Experiences” +
Revenue, Productivity, and
Asset Management
Improvement
Increased
Customer
Satisfaction
(Cycle Time,
Accuracy)
Process Fills In
the “White Spaces”
Customers

9. Building block approach Source connects to supplier
Plan
Source
Deliver
Make
Deliver
Deliver
Source
Make
Source
Make
Deliver
Source
Return
Return
Return
Return
Return
Return
Return
Return
Customer’s Customer
Suppliers’ Supplier
Supplier
Our Company
Customer
Internal or External
Internal or External
SCOR Model
Building block approach
Source connects to supplier
Deliver connects to customer
Not all companies have make
We can model as far up or down the supply chain as we view important (not limited to two tiers)
Customers and / or suppliers can be internal or external
Building Block Approach
Processes Metrics
Best Practice Technology 21 4

10. Air Products Process Model
Let’s spend a minute at an even higher level, looking at Air Products as a complete business enterprise. This shows the 14 global work processes that describe what we do as a Company. You probably can’t read all of the text here, and I don’t intend to go over this in detail.
The key point is this: You work in the Supply Chain, which is really at the heart of Air Products business activity. You have detailed knowledge about our products and our customers. As you complete the integrated ERP training program, you will be able to apply your existing knowledge of products and customers in new ways using the power of the SAP system and our new common work processes.

11. Key Sub-Processes MAKE Schedule production
Issue materials to shop floor
Produce materials
Package materials
FINANCE
Accounting / Tax Transactions
Treasury mgmt
External reporting
Decision support
INFORMATION
Plan Computing Infrastructure
Understand Client Needs
Build Solutions
Deliver and Manage Services
ENVIRONMENT
Permitting
Compliance
Issue Identification
Employee Health & Safety
GOVERNANCE
Manage corporate risk
Manage disclosure and audit
Manage shareholder rights & relations
ALIGN
Planning & Commitment process
Mergers & Acquisitions
Growth management
BUILD
Project definition
Design
Construct
Commission & Startup
SELL
Find and Win Opportunities
Manage Customer Experience
Let’s spend a minute at an even higher level, looking at Air Products as a complete business enterprise. This shows the 14 global work processes that describe what we do as a Company. You probably can’t read all of the text here, and I don’t intend to go over this in detail.
The key point is this: You work in the Supply Chain, which is really at the heart of Air Products business activity. You have detailed knowledge about our products and our customers. As you complete the integrated ERP training program, you will be able to apply your existing knowledge of products and customers in new ways using the power of the SAP system and our new common work processes.
INNOVATE
Idea management
Project impact analysis
R&D Portfolio mgmt
Offering Development & Introduction
PLAN
Demand planning
Supply planning
Balancing
Network design
Master data mgmt
SOURCE
Market Analysis
Solicit Bids / Negotiate
Award Agreements
Monitor Performance
Pay Suppliers
FULFILL
Order Management
Logistics & Delivery
Invoicing
Credit & Collection
Cash Application
PEOPLE
Source global talent
Develop Work Culture/Environment
Deliver Manager / Employee Services
Reward Results

12. How do you know that your supply chain processes are performing well and where they are not?

13. Air Products Approach to Supply Chain
To: Improve Visibility, Velocity, Simplicity
By: Driving Operational Innovation Focused On:
What
Simplify
Standardize
Shorten
Share
How
Educate
Execute
Improve
Measure
So That We:
Improve productivity by 3X by FY20XX
Create competitive advantage through our Supply Chain
Increase customer loyalty scores; earn higher margins for shareholders

14. Top 5 KPIs: Key Gauges of Supply Chain Performance
Cash to Cash
Cycle Time
Customer Master Data Quality
Demand Forecast Accuracy
Complaints Closed by Target Date
Perfect Order Fulfillment 5

15. Tracking Key KPI's To Help Integrate Supply Chain Processes
Cash to Cash
Cycle Time
P&L Impact
Net Hard Benefits
Customer Master Data Accuracy
Production Master Data Accuracy
Workbook Rejection Rate
Inventory Days of Supply
Demand Forecast Accuracy
Faultless Invoices
Days
Payable
Owed
% Orders Received On Time to Demand
Production Plan Adherence
Inventory Accuracy
Complaints Closed by Target Date
Average
Terms
Days Past
Terms
Perfect Order Fulfillment
Days Sales Outstanding 5

16. Supply Chain KPI’s as Leading Indicators
% Complaints Closed by Target Date
Improve Reliability
Improve Responsive- ness
Customer Loyalty
Perfect Order Fulfillment
Master Data Quality
Demand Forecast Accuracy
Cash to Cash Cycle Time
Reduce Net Assets
Increase Profit
Operating Return on Net Assets (ORONA)

17. Supply Chain KPI’s as Leading Indicators
% Complaints Closed by Target Date
Improve Reliability
Improve Responsive- ness
AMR Research shows that companies with better demand forecast accuracy have …
Customer Loyalty
17% better perfect order ratings …
Perfect Order Fulfillment
Master Data Quality
Demand Forecast Accuracy
Cash to Cash Cycle Time
Reduce Net Assets
Increase Profit
Operating Return on Net Assets (ORONA)
15% less inventory …
and 35% shorter cash-to-cash cycle times
Source: AMR Research Report - February 2004

18. AP’s Key Results
First year: set goal and doubled the historical amount of P&L productivity
Year 2 & 3: set goal and exceeded it by more than tripling the historical amount of P&L productivity
Four Growth Platform Businesses increased from 25 to 50% of total revenues
Customer Loyalty scores for “secure customers” are 15% higher than prior to new process/SAP
ORONA hit year 3 goal; double digit growth 4 yrs
Stock went from historical $40’s to $105.

19. Keys to Success Give Your Processes Visibility
Clarify Cross-Functional Teamwork-Start with “Swim-lanes” and/or “Gives & Gets”, and then Share Common Measures
Identify and Adopt External Best Practices
Provide “Context” for Your Performance Indicators, and Measure Cycle Time, Accuracy, Customer Perspectives, Linked to Financial Performance
Establish Targets and Review at least Monthly.

20. George Diehl VSB-Center for Business Analytics
Thank You
George Diehl
VSB-Center for Business Analytics