DLA’s Sales and Operations Planning Capability: How to Align Budgets and Purchases with Warfighter Demands

1. DLA’s Sales and Operations Planning Capability: How to Align Budgets and Purchases with Warfighter Demands Ms. Simone Reba, SES June 4, 2010

2. Workshop Goals • Introduce Sales & Operations Planning (S&OP) • Explain how DLA uses S&OP to drive improved customer readiness • Discuss how customer collaboration and DLA’s S&OP process can help all of us better serve the Warfighter

3. Scenario Funding for this FY has been cut by 10% from last year numbers while Sales are forecasted to remain flat * • FY ‘09 • Funding was $500M • Sales were $500M • FY ‘10 • Funding is $450M • Forecasted Sales for FY ‘10 is $500M • 3 Weapon Systems are supported: • H-60: FY ‘09 Sales $150M, FY ’10 Forecast $150M • C-130: FY ’09 Sales $250M, FY ‘10 Forecast $200M • F-18: FY ‘09 Sales $100M, FY ‘10 Forecast $150M What do you do? * This data is fictitious and is used for illustrative purposes only

4. How do you resolve this imbalance? Issue: Funding shortfall of $50M • Cut each Weapon System by $10%? • Fund only low dollar PRs to improve PR award rates, but limit expenditures? • First purchases in gets awarded, no awards when the money runs out? • Ignore it and hope for additional funding? for DLA, the solution is Sales & Operations Planning

5. S&OP is a forward looking process for managing your organization Creates a path for resolving Supply & Demand imbalances. Brings together expertise from Demand, Supply, and Finance areas to Define a complete picture of the issue resulting from Demand or Supply events Build a prioritized business plan that aligns enterprise objectives with workload and budgetary constraints Review current performance and futureprojections Standardizes requirements for management review Benefits of S&OP Inputs from Demand, Supply, and Finance ensure a balanced, realistic, and sustainable solution Standardizes the approach, including metrics, tools, formatting, etc so that more time is spent on issue analysis resolution rather than on formatting slides Provides a method to prioritize constrained Resources, Time, and Workload Action Plans that are directly linked to business performance metrics At DLA, business simulation utilized to enable investment/support decisions Sales and Operations Planning Background

6. How we use S&OP at DLA • Business Planning: -forward looking metrics • Collaboration: We review these business plans with Customers and Suppliers at • Customers: Validate and adjust forecasts • Examples of customer collaboration: NAVAIR: F-18, F-402, AFGLSC: C-130, KC-135 • Suppliers: manufacturing capabilities are in place and prepared • Examples of Supplier Collaboration: Honeywell, Boeing, and Lockheed Martin • Simulation: Used to evaluate different scenarios and their impact on the business, including OA, inventory, and readiness • Performance Management: Enterprise level metrics with drill down to the detailed item level – Percent Forecast Error, Perfect Order Fulfillment, Attainment to Plan • Decision Making: inputs to drive decisions on funding allocation, and performance goals

7. Week 1: Intelligence Gathering (finalize focus areas for Demand Consensus and Supply Consensus Sessions) Week 2: Conduct Demand Consensus and Supply Consensus Meetings within each Chain Week 3: Conduct Enterprise S&OP Meeting Week 4: Input into Demand Month End and/or Demand Month Start processing Monthly S&OP Cycle/Construct PBR PBR Events Events Intel Intel PBR PBR Events Events Intel Intel Agency Strategic Priorities are established at the beginning of the Fiscal Year and inform/guide the monthly S&OP process

8. Demand-Driven S&OP Scenario • Scenario: Significant Change in Forecast for a Weapon System (F-18) • 50% increase in projected sales over last years sales

9. S&OP Action Plan for the F-18 Trigger Event: F-18 Maintenance overhaul program ramping up from 10 to 15 aircraft per month. Action 1: Weapon System Support Manager (WSSM): Collaborates with Customer on necessary Forecast updates Action 2: Business Process Support (BPS) Analysts simulate impact of changes in Demand. Review Key Metrics: Percent Forecast Error (PFE) / Attainment to Plan (ATP) / Perfect Order Fulfillment / Over-Procurement (OP) / StockOuts/StockLows (SO / SL) Action 3: Demand Consensus determines that the forecast is reliable and level 1 priority - Placed at the top of the priority list for Demand. Action 4: Supply Consensus determines that funding support for the C-130 will have to be reprioritized in order to support this F-18 project. DLA works with the C-130 customer to evaluate moving their requirements to the next fiscal year and/or reducing safety stock levels. Action 5: The Project Quad Chart and the results of Supply and Demand Consensus are presented at the Aviation Internal S&OP Meeting for Command approval of the F-18 project.

10. F-18 Project Quad Chart

11. Before and After S&OP Before S&OP After S&OP Collaboration occurs early and the details are reviewed with the customer Simulation is performed to determine impacts on funding, workload and supportability Information is loaded into the system to adjust forecasts in anticipation of the demand Funding constraints are resolved early in the fiscal year and/or at the beginning of a project Focus on most important needs • Collaboration may or may not have occurred • Impacts of additional demand would not have been simulated and analyzed to determine supportability • System would have had a delayed reaction once the increased demand is realized – resulting in backorders • Funding constraints may have been pushed off rather than addressed up front • All needs impacted

12. S&OP – Before and After Demand Shift Demand Shift Demand S&OP can adjust forecasts to reflect increases/decreases in demand Forecast Ob $ Inaccurate forecasts will result in poorly timed buys in large quantities and will likely lead to overprocurements. Note, S&OP helps level the Ob $.

13. High-Level Program Budget Review Process • Develop Senior Leader Strategy • Target Performance Levels • Synchronize with Strategic Planning • Obtain workload projections • Develop Materiel and Operational resource requirements • Determine Affordability • Rate/Rank Proposed Investments • Develop Enterprise Proposal

14. How’s S&OP Going at DLA? Successes • Full transparency – ensures outcomes are aligned with Strategy • Single, defined set of priorities – all singing (working) from the same sheet of music • Financials linked to Strategy • Streamlines complex Budget formulation process • Provides execution accountability • Forces PROACTIVITY • Greater partnership with Customers improving information sharing • Simulation capability details potential impacts of alternative Strategies, and ensures informed decisions • Senior-most Leadership ‘buy-in’ Challenges • Obtaining ‘actionable’ Demand intel…very difficult for Military Services to predict future contingencies • Full ‘buy in’ – S&OP is still perceived by some as a meeting requirement vice a cadence for business • Maintaining FUTURE focus…much easier to measure the past than to manage the future • When making tradeoff decisions, deciding what NOT to do • Meeting preparation…timeliness of input, cross-organization consistency • Tools/Tracking

15. S&OP Take Aways • Effective, proactive business model to balance supply & demand • Forward looking business plans/budgets utilizing customer forecasts • Balanced supply and financial constraints against requirement • Facilitates collaboration between DLA and Services • Reduced forecast error to achieve more accurate budgets • Prioritize customer needs to ensure Warfighter support • Improve cost to serve by reducing excess inventory • Rapid decision making supported by business simulation • Projected business impact (budgets, workload, inventory) of actions enables executives to make quicker, more effective decisions • Alignment of S&OP with enterprise performance reviews • Measure impact of S&OP decisions on business performance goals • Identify opportunities and actions to improve top priority initiatives

16. Backup

17. Real Results at DLA’s Aviation Supply Center

18. Real Results (cont.) • Some specific Platforms examples are; • H-47 WSSM identified approximately 50 NIINs that had invalid Special Program Requirements (SPRs). The WSSM collaborated with the customer to have these cancelled or adjusted. This resulted in $12.8 Million in reductions to forecasts. • TF-34 WSSM has reduced forecasts $34.8 Million since Nov 09. This was the result of collaboration with the customer to cancel unneeded SPRs and reduction of overforecasted DFUs • In Feb 10, the F-15 WSSM identified one NSN that had $23 million invalid forecast due to erroneous provisioning (SSR) requirements. WSSM collaborated with customer and had these removed