Going Global with Sales and Operations Planning © Oliver Wight International 2007

Topics Introduction Making the Choice to go Global Reasons for Going Global Global New Product Development Global Demand Global Supply Inter-regional Supply Management Global Financials and Inventory Management Global Executive S&OP and Cultural Considerations Design Guidance Q&A © Oliver Wight International 2007

The Sales and Operations Planning Process Introduction The Sales and Operations Planning Process PURPOSE: INTRO PAGE TIMING: COMMENTS: Set up the flow of the section – firstly help you to understand fairly commonly accepted view of S&OP and then show the potential and why we have re-branded as IBM. S&OP is the first phase of developing a full IBM process © Oliver Wight International 2007 EAME 0367-01

Overview of Steps In the Process S&OP Process Cycle Overview of Steps In the Process MANAGEMENT BUSINESS REVIEW STRATEGY BUSINESS PLAN PERFORMANCE SUPPLY REVIEW PRODUCT MANAGEMENT REVIEW DEMAND REVIEW © Oliver Wight International 2007 IC330

Sales & Operations Planning Guiding Principles Sales and Operations Planning is a formal process led by Senior Management that, on a monthly basis, evaluates time-phased projections for New Products, Demand, Supply, and the resulting Financials for the next 18-24 months It is a Decision-Making process to ensure that the business plans in all functions and geographies are aligned and in support of the company/division strategy The objective of S&OP is to reach consensus on a single operating plan, which members of the executive team hold themselves accountable, and allocates critical resources to most effectively and profitably meet customers’ needs Business Management Ownership Speak The Truth Rolling Monthly Planning One set of operating numbers Simplification - Focus on Changes Keys to Success Commitment and regular participation from executive staff Common Goals across all participants Benefits Business Process Simplification New Product Execution Focus on the Customer Planning vs. Firefighting Revenue, Market Share, Margin, Customer Service, Cash-flow © Oliver Wight International 2007 PV974/003

Definitions for “Global” Global – Encompassing more than one geography. Typically this means the entire world, but we can use it to refer to multiple geographic spans of control Geographies (or Regions) – A geographic entity which has a leadership team with functional responsibilities Inter-Regional Sourcing – Supply Management which goes across geographies but is within the overall corporate entity. © Oliver Wight International 2007

S&OP Process Cycle MANAGEMENT BUSINESS REVIEW PRODUCT MANAGEMENT STRATEGY BUSINESS PLAN PERFORMANCE SUPPLY REVIEW PRODUCT MANAGEMENT REVIEW DEMAND REVIEW © Oliver Wight International 2007 IC330

4 3 1 2 S&OP Process Cycle – Global Environment weeks Global Region 9. MANAGEMENT BUSINESS REVIEW GLOBAL/CATEGORY 7. Global Reconciliation 8. MANAGEMENT BUSINESS REVIEW (REGION) Global 5B. GLOBAL SUPPLY REVIEW 6. Regional Reconciliation Region weeks 1 3 2 4 Plants 1. GLOBAL PRODUCT REVIEW 5. PLANT SUPPLY REVIEW 2. REGIONAL PRODUCT REVIEW 3. COUNTRY/ REGIONAL DEMAND REVIEW 4. GLOBAL DEMAND REVIEW © Oliver Wight International 2007 EAME 1028a

Making the Choice to Go Global Defining the Value PURPOSE: INTRO PAGE TIMING: COMMENTS: Set up the flow of the section – firstly help you to understand fairly commonly accepted view of S&OP and then show the potential and why we have re-branded as IBM. S&OP is the first phase of developing a full IBM process © Oliver Wight International 2007 EAME 0367-01

What are the benefits to your company? Choosing to Go Global Start with the question –Why do we want run S&OP globally? Utilization of Assets? Complete Financial View? It’s how we run the business? Going Global should not be a casual decision. As with all change, we need to have a clear idea of the benefits and be able to articulate them. The organizational structure must support the process globalization, does this need to change? Also, do the political power centers support or work against going global? What are the benefits to your company? © Oliver Wight International 2007

Global Manufacturing Benefits Better utilization and balancing of plants 45% 40% 95% 90% 130% 85% 95% 70% 50% 90% 60% 80% 90% © Oliver Wight International 2007

Sell it by showing the money! Financial Benefits Plant selection based on system economics Remember to use “Total Delivered Cost”: Distribution Costs can offset any manufacturing costs benefits. Identifying and managing future capital requirements Supports make vs. buy decisions if outside suppliers are an option Global Inventory Management Financial Benefits can come from a variety of activities: Selecting the plant to manufacture products from a total cost perspective Capital management globally can ensure you allocate capital dollars to the right places, and eliminate regional competition Make vs. Buy Often the greatest benefit is managing inventory globally. There is usually an opportunity for 1 time cash flow improvements. Story: Reilly 2A6. Also can be used to improve customer service. Story: Reilly Reillex 402 with Eli Lilly. Sell it by showing the money! © Oliver Wight International 2007

Organizational Considerations Before Going Global, look at how the organization operates. Is the business organized by geography or product line? Where do the P&L Responsibilities lie? Are manufacturing and sourcing done regionally or globally? How much of the manufactured product is moved between geographies? Align the process with how you operate © Oliver Wight International 2007

Different Global Models We have to define what is “Global” Demand is global if business operates as one unit across all geographies Supply is global if products are supplied by only one plant or supplier. Supply may be global if sourcing can be changed based on changes in economics If the business needs a consolidated view or a forum to reconcile issues between geographic business units, a final Global S&OP meeting may be required. Go global only where you need to © Oliver Wight International 2007

Global New Product / New Activity Management PURPOSE: INTRO PAGE TIMING: COMMENTS: Set up the flow of the section – firstly help you to understand fairly commonly accepted view of S&OP and then show the potential and why we have re-branded as IBM. S&OP is the first phase of developing a full IBM process © Oliver Wight International 2007 EAME 0367-01

Global New Product/New Activity QUESTIONS TO GET STARTED Question 1: Who sets the growth targets for the business? Question 2: Who decides which New Products are developed? Question 3: Are there global initiatives that utilize local resources? Tell the Reilly 402 story © Oliver Wight International 2007

New Product Organizational Structures Decentralized Americas Development Asia Development Europe Development Works best when: Development Costs are High, and Developed Products can be sold across regions. Product Customization is minimal Technical Service is a small part of the selling process Works best when: Development Costs are Low, and Product are regionally specific Products are developed for specific Customers or Applications Technical Service is a large part of the business value proposition Globally Centralized: Company Example is Reilly Industries Globall Consolidated: Companies such as P&G, American Standard. Ask Ben Sellers: Caterpillar? © Oliver Wight International 2007

S&OP Cycles Decentralized Americas Development Asia Development Europe Executive S&OP Review Executive S&OP Review Key Initiatives Review Key Initiatives Review Key Initiatives Review Finance, Reconciliation, and Executive Preparation Finance, Reconciliation, and Executive Preparation Americas Demand Review Europe Demand Review Demand Review Supply Review Global Demand Review Supply Review © Oliver Wight International 2007

Global Demand Management PURPOSE: INTRO PAGE TIMING: COMMENTS: Set up the flow of the section – firstly help you to understand fairly commonly accepted view of S&OP and then show the potential and why we have re-branded as IBM. S&OP is the first phase of developing a full IBM process © Oliver Wight International 2007 EAME 0367-01

Global Demand Works best for businesses that operate globally and sell globally or regionally. Question: Will you regularly perform Demand Control globally? If yes, then you need to have a global meeting for this. Tell the Reilly 402 story © Oliver Wight International 2007

Demand Organizational Structures Works best when: Functional Leadership is Global Products and Product offering are the same in all regions Limited offering with few SKU’s Works best when: Each region has functional leaders Products and Product offering are regionally different Broad Offering with many SKU’s Globally Centralized: Company Example is Reilly Industries Globall Consolidated: Companies such as P&G, American Standard. Ask Ben Sellers: Caterpillar? © Oliver Wight International 2007

S&OP Cycles Executive S&OP Executive S&OP Review Review Key Initiatives Review Key Initiatives Review Finance, Reconciliation, and Executive Preparation Finance, Reconciliation, and Executive Preparation Americas Demand Review Europe Demand Review Demand Review Supply Review Global Demand Review Supply Review © Oliver Wight International 2007

Global Supply Management PURPOSE: INTRO PAGE TIMING: COMMENTS: Set up the flow of the section – firstly help you to understand fairly commonly accepted view of S&OP and then show the potential and why we have re-branded as IBM. S&OP is the first phase of developing a full IBM process © Oliver Wight International 2007 EAME 0367-01

Global Supply Question: How are manufacturing and sourcing aligned with geographic markets? Plants tend to support one region: Global Supply manages System Capacity and Inter-Regional Sourcing; Geographies manage Utilization, Balancing, Capital Investments, and Master Production Scheduling Plants support multiple regions: Global Supply manages Utilization, Balancing, Capital Investments, and Master Production Scheduling. © Oliver Wight International 2007

Supply Structures Plants support one region Plants support multiple regions Supply Management and Master Scheduling are done at a regional level Plants can belong to the regional General Manager Capacity balancing is done globally, over a longer time horizon Inter-regional sourcing is facilitated globally, managed between geographic partners Supply Management is done globally, Master Scheduling may be done globally as well. Plants do not belong to regional General Manager Capacity balancing is done over the longer horizon and within the MPS Inter-regional sourcing is managed within the MPS at the global level © Oliver Wight International 2007

S&OP Cycles Plants support one region Plants support multiple regions Executive S&OP Review Executive S&OP Review Key Initiatives Review Key Initiatives Review Finance, Reconciliation, and Executive Preparation Finance, Reconciliation, and Executive Preparation Demand Review Demand Review Inter-Regional Supply Reconciliation Regional Supply Review Global Supply Review © Oliver Wight International 2007

Inter-regional Supply Management PURPOSE: INTRO PAGE TIMING: COMMENTS: Set up the flow of the section – firstly help you to understand fairly commonly accepted view of S&OP and then show the potential and why we have re-branded as IBM. S&OP is the first phase of developing a full IBM process © Oliver Wight International 2007 EAME 0367-01

Inter-regional Management What criteria do we use to select inter-regionally sourced items? Total Delivered Cost? Volume and Stability of Demand? Match with Supply Capabilities? Ability to fulfill Quality and Regulatory requirements? Consider total costs of inter-regional sourcing © Oliver Wight International 2007

Inter-regional Management Who should determine which customers we serve when supply is constrained? SALES! © Oliver Wight International 2007

Inter-regional Management The process must allow the Commercial functions to drive priorities. This is easy to do if the product lines are managed globally. If the Global Commercial leader is also the business leader, you don’t want to have every allocation decided by the leader: Set and enforce policy for setting inter-regional prioritization Set ground rules for the conflict resolution process © Oliver Wight International 2007

Inter-regional Management Process Cover these bases: Data. To make sourcing decisions, need to have: Variable Manufacturing Costs Distribution Costs Inventory Valuations (for Inventory Carrying Costs) Tax Rates You may also need to look at Transfer Pricing, Cash Liberation Laws, and Tax Implications and Opportunities. Cost side: Talk to American Standard Examples and Models © Oliver Wight International 2007

Inter-regional Management Process People are the critical element Cross Cultural Communication may be challenging. One tactic is minimize the people involved in order to allow them to build relationships. Have the people meet face to face and work together. Data and systems can facilitate communication Have a single data set for communication. Use your ERP if possible. Map your master data between regions so that communication is clear. Better yet, have global master data. Process Rules must be established Agree on time fences and change processes up front. Communication: American, Mexican, Singaporian, Englishman, Eqyptian, and Frenchman agreeing Foundation of the Process is Trust © Oliver Wight International 2007

Inter-regional S&OP Cycle Executive S&OP Review Key Initiatives Review Finance, Reconciliation, and Executive Preparation Demand Review Inter-Regional Supply Review Regional Supply Review © Oliver Wight International 2007

Inter-regional Reconciliation Meeting Typical agenda would include: Performance Metrics: Internal Fill Rates, Time Fence Violations Plan Changes: Demand and Supply Reconciliation and Allocation Process areas requiring improvement Issues to elevate Participants Global Facilitator Regional Demand/Supply Representatives © Oliver Wight International 2007

Global Financials and Inventory Management PURPOSE: INTRO PAGE TIMING: COMMENTS: Set up the flow of the section – firstly help you to understand fairly commonly accepted view of S&OP and then show the potential and why we have re-branded as IBM. S&OP is the first phase of developing a full IBM process © Oliver Wight International 2007 EAME 0367-01

Global Financials A purely global process uses the standard process flow. When the business is regionally managed, we need a consolidation step prior to Executive S&OP. Supply Review Key Initiatives Review Global S&OP Review Demand Review Europe Finance/ S&OP Meetings Americas Finance/ S&OP Meetings Asia Finance/ S&OP Meetings Global Financial Consolidation and Preparation Tell story about consolidation errors (Reilly) © Oliver Wight International 2007

Global Financials Purposes of the Consolidation step include: Creating a consolidated financial view Resolving inter-regional resource issues prior to the Executive meeting Preparing issues to be elevated to the Executives Supply Review Key Initiatives Review Global S&OP Review Demand Review Europe Finance/ S&OP Meetings Americas Finance/ S&OP Meetings Asia Finance/ S&OP Meetings Global Financial Consolidation and Preparation Tell story about consolidation errors (Reilly) © Oliver Wight International 2007

Global Inventory Management Who determines what is in inventory? Who determines how much inventory we can afford? SALES FINANCE © Oliver Wight International 2007

Global Inventory Management - Centralized Global Inventory Drivers tend to be financial more than operational. Global Inventory Management works well with a highly centralized S&OP management structure. Need real-time visibility of the global inventory for this to work well. Centralized management structure: speak to Reilly turning on SAP in Europe © Oliver Wight International 2007

Global Inventory Management - Decentralized If inventory is regionally managed, you want a standardized approach to determining inventory requirements. Global S&OP will validate the calculated results, but the mix should be managed within each region. © Oliver Wight International 2007

Global Executive S&OP Meeting PURPOSE: INTRO PAGE TIMING: COMMENTS: Set up the flow of the section – firstly help you to understand fairly commonly accepted view of S&OP and then show the potential and why we have re-branded as IBM. S&OP is the first phase of developing a full IBM process © Oliver Wight International 2007 EAME 0367-01

Standard Executive S&OP Agenda Opening Comments (GM) Summary of Business (Business Directors) Performance Measures Financial Review (CFO) Review Assumptions and Vulnerabilities Family by Family Review with Decisions New Product Special Projects Review of Responsibilities (GM) Self Assessment Closing Comments (GM) © Oliver Wight International 2007

Global Executive S&OP Meeting Agenda Opening Comments (President) Summary of Business (Regional Business Leaders) Performance Measures Financial Review (CFO) Issue Resolution Review of Global Projects (Functional Project Leaders) Decisions (President) Review of Responsibilities (President) Self Assessment Closing Comments (President) © Oliver Wight International 2007

Potential Pitfalls of Going Global Does the Organizational Structure support planning and control at a global level? Does the central planning group have the political power to enforce their plans? Do the reward systems support global plans or locally controlled plans? © Oliver Wight International 2007

Cultural Considerations While the principles and activities of planning are the same globally, communication is different in multiple cultures. Best way to overcome cultural differences is for people to meet each other and work on a project together. Facilitation may be necessary. Question people: You are teaching the sales force about forecasting, and changing the process. Who should you include in the class? What challenges might you face in the United States, China, Thailand? How might you overcome these? © Oliver Wight International 2007

Design Guidance PURPOSE: INTRO PAGE TIMING: COMMENTS: Set up the flow of the section – firstly help you to understand fairly commonly accepted view of S&OP and then show the potential and why we have re-branded as IBM. S&OP is the first phase of developing a full IBM process © Oliver Wight International 2007 EAME 0367-01

Where Do The Following Activities Occur ? Level 3 Region / Global Level 2 Region / Country Grouping / Business Sector Level 1 Customer / Country / Market Strategic Review Financial Consolidation Supply Demand New Activity Development IC1690 © Oliver Wight International 2007

Where Do The Following Activities Occur ? Example Company Financing Competition Acquisitions Holding Company/ HQ Primary Manufacture Original Research and Development Level 3 Region / Global Acquisition Business Unit Packaging Distribution Multi- National Customers Brand Level 2 Region / Country Grouping / Business Sector In Country Product Additions Level 1 Customer / Country / Market Strategic Review Financial Consolidation Supply Demand New Activity © Oliver Wight International 2007 IC1700

Where Do The Following Activities Occur ? Example Company 2 P&L to Net Income Global Business Unit Manufacture Site Selection Global Growth Validation Original Research and Development Level 3 Region / Global Contribution Regional Execution Multi- National Customers New Product Level 2 Region / Country Grouping / Business Sector In Country Tech Service Level 1 Customer / Country / Market Strategic Review Financial Consolidation Supply Demand New Activity © Oliver Wight International 2007 IC1700

8. MANAGEMENT BUSINESS REVIEW GLOBAL/FUNCTION Gap Closers Constraints & Issues Global Gap Closers Regions 7. Global Financial Outlook Updated/Issues Addressed – Region Constraints weeks 1 3 2 4 Plant/ Country Level 1. GLOBAL NEW PRODUCT REVIEW 2. REGIONAL New Product New Business REVIEW Reconcile 24 mo 3. Sub-Region Demand/Price REVIEW 4. REGIONAL DEMAND/PRICE REVIEWS Regional Director’s Sign-Off On Demand View  6. GLOBAL SUPPLY/OPS REVIEW 5. GLOBAL DEMAND REVIEW © Oliver Wight International 2007

Where Do The Following Activities Occur ? Example Company 3: Multiple SBU’s Business Full P&L Original Research and Development Level 3 Region / Global SBU Full SBU SBU Supply SBU Demand SBU R&D Level 2 Region / Country Grouping / Business Sector BU Demand Level 1 Customer / Country / Market Strategic Review Financial Consolidation Supply Demand New Activity © Oliver Wight International 2007 IC1700

9. MANAGEMENT BUSINESS REVIEW GLOBAL/FUNCTION Business Director Level 8. SBU Financial Outlook Plan Total Business Plan Business Director Level 7. SBU MANAGEMENT BUSINESS REVIEW weeks 1 3 2 4 Business Manager Level 1. NEW PRODUCT/ GROWTH REVIEW 6. Business Financial Outlook 2. SBU New Product New Business REVIEW Reconcile 24 mo 3. BU Demand/Price REVIEW 4. SBU DEMAND/PRICE REVIEWS 5. SBU SUPPLY/OPS REVIEWS Diversified Business Analogy © Oliver Wight International 2007 EAME 1028c

Summary Global S&OP adds complexity, so: Go Global where there is clear value. Be able to articulate the value. Design the organizational structure to support Global Management. OR Design the process in alignment with the current organizational structure. People are the critical element in a successful process. Data and Systems are the process enablers. As with any complex process, simple and clear policy is essential. Question people: You are teaching the sales force about forecasting, and changing the process. Who should you include in the class? What challenges might you face in the United States, China, Thailand? How might you overcome these? © Oliver Wight International 2007

Q&A © Oliver Wight International 2007