APICS Southeast Florida Executive S&OP A Presentation to: APICS Southeast Florida by Tom Wallace 3-20-08

Agenda Executive S&OP: Role, Structure and Benefits Implementation The Future of S&OP

The Four Fundamentals Volume Demand Supply Mix How Much? Rates The Big Picture Families Strategy/Policy/Risk Monthly/out to 36 Mos Volume Demand Supply Which Ones? Timing/Sequence The Details Products Tactics/Execution Weekly/Daily 1-3 Mos Mix

Sales & Operations Planning Executive S&OP Volume Supply (Capacity) Planning Demand Supply Demand Planning/ Forecasting Mix Master Scheduling Supplier and Plant Scheduling Distribution Scheduling

More Terminology Changes? Sales & Operations Planning may become the successor term to ERP/MRPII Thus the term Executive S&OP was developed to Eliminate confusion Avoid what happened with ERP Put high focus on the Executive role

Executive S&OP . . . Is an executive decision-making process Balances demand and supply Deals with volume in both units and $$$ Ties operational plans to financial plans: one set of numbers Is the forum for setting relevant strategy and policy Is what we called , for years, Sales & Operations Planning

The Role of Top Management The Leader of the Business Unit (General Manager, President, COO) Needs to be Hands-On with Executive S&OP: Stewardship Leadership Break ties Set high standards Motivate < 2 HOURS PER MONTH Monthly Time Commitment: 1.5 hours

Statistical Forecasts & The Executive S&OP Process Step #5 Executive Meeting Decisions & Game Plan Heavy Lifting Step #4 Pre- Meeting Conflict Resolution, Recommendations & Agenda for Exec. Mtg. Step #3 Supply Planning Capacity constraints 2nd-pass spreadsheets Step #2 Demand Planning Management Forecast 1st-pass spreadsheets Step #1 Data Gathering Sales Actuals, Statistical Forecasts & Supply Actuals End of Month

Three Examples of Best Practices Three (of 13) Companies Studied: High Seasonality High Cyclicality Highly Complex New Product Launch

Executive S&OP in Make-to-Stock w/ High Seasonality: The Scotts Co. Important Questions: When start Pre-Build? At what rates? Which SKUs? When ramp up & how much? When ramp down? S&OP helps to answer these & other questions Pre-Build Pre-Build

The Scotts Company “During the last four years, almost half of the company’s increase in earnings has come from Supply Chain savings: inventory down, manufacturing efficiency up, purchase and transportation costs down. All of these are due to improved planning.” Ken Reiff Vice President, Product Planning

S&OP in Make-to-Order w/ Extreme Cyclicality: Cast-Fab Cast-Fab Technologies – Year-to-Year Sales Change %Chg 15 38 6 12 14 25 1 32 18 Acquired from Cin’ti Milacron up down 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Implemented S&OP Some competitors go out of business 46!!! 12

Cast-Fab Technologies “During 2004, we posted sales increases of over 40%, which meant employee call-backs, retraining, new hires, initial training, getting up the learning curve and so forth. “During the same year, we had productivity gains of up to 3%! We never would have believed this was possible if we hadn’t done it. “S&OP played a key role in this; it gave us the forward visibility to make the right decisions on a timely basis.” Ross Bushman President and COO

. . . in the Pharmaceutical Industry New Product Launch . . . . . . in the Pharmaceutical Industry Multiple stages of testing Multiple approvals by FDA Multiple years Multiple 100s of millions of dollars

Eli Lilly and Company New Product Launch Performance: Industry Average Lilly 2001-04 1.8 Years Required (avg per product) >14 9 <11

Eli Lilly & Company “In the past three years we have launched 9 new products and met all demand despite 2 products that sold significantly above the high-side forecast. “Without Global Sales & Operations Planning, we would have been driven to reaction mode, which could have resulted in an increase in investment in new assets, a slow down in our launch plans, and/or missed demand opportunities.” Ron Bohl Supply Chain Coordinator

These 3 Examples: A Common Thread Executive S&OP is being used extensively in areas of the business that are: Mission Critical Very Difficult to Manage

Hard Benefits Customer Service UP Inventory DOWN Obsolescence DOWN Freight Costs DOWN Order Lead Times DOWN Supplier Lead Times DOWN Time to Launch New Products DOWN Plant Productivity UP CSL was 50-75%

Soft Benefits Enhanced Teamwork Improved Communications Better Decisions with Less Effort and Time Better $$$ Plans with Less Effort and Time Greater Accountability Greater Control Window into the Future Top Management’s Handle on the Business TMs ROLE – FIRST, BUSINESS PLAN

Agenda Sales & Operations Planning: Role, Structure and Benefits Implementation The Future of Executive S&OP

Organizational Behavior Change Changing the way we do our jobs The Real Issue . . . . . . is not in understanding S&OP. That’s easy. The hard part is . . . Organizational Behavior Change Changing the way we do our jobs “The hard stuff is the soft stuff.”

Implementing Executive S&OP Is Different The leader of the business (president, COO, CEO, general manager) must provide: Support Funding Commitment Leadership So what’s new? Active, Hands-on Participation by the Leader and Staff Each and Every Month

Implementing Executive S&OP Is Different Highly focused on Top Management Relatively few people Low cost/high impact

Implementation Principles Implementation begins and ends with the Leader of the business “Build it and they will come” carries a low probability for success “Gain and hold the high ground” and success will almost always follow

The Implementation Path Executive Briefing Go/No-Go #1 Live Pilot Go/No-Go #2 Phase III $$$ Integration Kickoff Session Phase II Expansion Business Improvement Phase I Live Pilot Low Risk Low Cost 1 2 3 4 5 6 7 8 9 Months

Low Risk Low Cost Phase III $$$ Integration Phase II Expansion Phase I Months 7-9 Full Financial Integration Institutionalize the Process Phase I Preparation Months 4 – 6 Add All Product Families Full Supply Planning Limited Financials Month #2 Demand Planning Processes & Data Feeds Supply Planning Processes & Data Feeds Executive Briefing & Go/No-Go Decision #1 Month #1 Assignment of Responsibilities Kickoff Education & Planning Development of Project Schedule Families & Sub-Families (Pilot Family) Data Definitions, Sources & Displays Month #3 Pilot Preparation & Execution Go/No-Go Decision #2

Agenda Sales & Operations Planning: Role, Structure and Benefits Implementation The Future of Executive S&OP

The Future of S&OP: Growth Factors Success breeds success Lean Manufacturing and S&OP Globalization New users outside traditional manufacturing S&OP specific software Greater financial integration, power and utility A growing presence in the executive suite

Implications for APICS Members (CPIM) Premises: Executive S&OP is a powerful tool for top management It’s here to stay and it’s growing It’s in APICS’ space CPIMs know more about Sales & Operations Planning than most others Therefore, CPIMs are positioned to take part in this growth and to be more valuable to their companies

Implications of Executive S&OP for APICS It’s in APICS’ space. It “lives” in the Executive Suite It can help attract new members: executive perception non-manufacturing companies APICS can play a – the? – leadership role in the widespread adoption of Executive S&OP

APICS is Getting On Board with S&OP S&OP Conference – Chicago – June 19, 20 Demand/S&OP Flight at APICS Conference in Kansas City – September 14-16 Frequent Webinars (most recent: 2-25: Sales & Operations Planning – The Executives’ Role)

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