SEOP Process Management Study

1. SEOP Process Management Study Draft for Discussion with John Weeks 5th October 2001 Version 4.1

2. Background, Objectives and Scope Over the last four years SEOP has moved from its traditional OPCO model to a cluster, envelope and network structure that seeks to consolidate activity under a regional rather than country based model. The new model is based on Class of Business (CoB), Class of Market (CoM) and Class of Service (CoS) and is explained in the SEOP Governance Guide. Attempts to achieve process simplification and harmonisation have been frustrated by local influence and the absence of a process organisation with the authority to implement pan SEOP improvements rather than optimise around local OU requirements. PwC was invited to undertake a four week study to: The study commenced on 12th September and is obliged to report back before 11th October to meet the EMT timetable. Understand how SEOP is organised today, comment on process alignment and the extent of process management Propose alternative process based organisation models with reference to external case studies Provide a view on the alignment of current SEOP initiatives with the implementation of a more process managed organisation

3. Executive Summary Shared Service Centres and Centres of Excellence Country based Customer Call Centres Partial Shared Service Centre coverage Functional Centres of Excellence Integrated solutions, harmonised processes and common systems Process sponsorship, ownership and management • Emerging common decision support systems • Multiple SAP, JDE and Sun applications • Technology driven process harmonisation under way • Minimal pan European process ownership • Localised functional responsibility • Operational rather than process performance management Functional based teams Mostly aligned by country Evidence of co-location Multi-functional teams, values and behaviours

4. Executive Summary Understand how SEOP is organised today, comment on process alignment and the extent of process management: • SEOP is broadly a country based organisation that manages certain aspects of its business at cluster, envelope, network and European level • Minimal evidence of end to end process management at EMT, CoB, CoM and CoS level with activities managed on a broadly functional basis • Partial introduction of shared service centres and centres of excellence managed along functional and not process lines • Previous attempts to achieve process harmonisation and simplification have been technology driven and not addressed the fundamentals of pan European process ownership and performance management Propose alternative process based organisation models with reference to external case studies: • Many organisations have faced similar challenges and have or are adopting more ‘end to end’ process aligned organisation structures to drive through greater harmonisation and simplification alongside common systems • Without undergoing wholesale restructuring SEOP could embrace a more process aligned model that would provide the executive authority to challenge local practice and encourage greater convergence through a network of process rather than traditional functional management Provide a view on the alignment of current SEOP initiatives with the implementation of a more process managed organisation: • Though SEOP is investing to introduce common systems in many areas there are no pan European initiatives to align the organisation around the ‘end to end’ processes that underpin its performance • In the absence of clear process accountability from the EMT downwards the necessary changes in values and behaviour will inhibit efforts to achieve greater process and systems convergence.

5. Current SEOP Organisation

6. External Case Studies • Case Study 1 - Global Consumer Products - Asia Pacific • Case Study 2 - Global Consumer Products - Europe • Case Study 3 - Johnson & Johnson Ethicon - Europe To illustrate the practical adoption of the organisation principles adopted by other multi-nationals to achieve process management excellence we have included some illustrative case studies:

7. Case Study 1 - Global Consumer Products - Asia Pacific Regional CEO Growth Director Strategy Legal Finance HR Director Director Director Director Consumer Brand Customer Commercial & Category Account Planning Management Management Regional Shared Service Supply Chain Director Centre Manager Process Flow General Accounting & Demand Warehousing & Customer Procurement Manufacture Reporting Planning Transport Order Centre Accounts Payable Accounts Receivable Payroll Personnel Support Business Relationships Characteristics • Successful and growing global business • Traditional functional / country structure • Regional market growth and supply chain complexity • Drive for process harmonisation and simplification • Need for “end to end” process ownership • Implementing common ERP platform and decision support system

8. Case Study 2 - Global Consumer Products - Europe Regional CEO Marketing & Sales Strategic Sourcing Supply Chain Shared Services VP VP VP VP Marketing Sales Procurement Manufacturing Finance IT HR (By Category) (By Category) Characteristics • Traditionally market focused functional business • New design in response to • Deterioration in profit and turnover • Customer regionalisation / globalisation • Brand consolidation and faster time to market pressure • Opportunities to collaborate with suppliers and customers • New solution • Eliminates supply chain duplication • Harmonises processes leveraging best practice • Enables migration to common technology platform

9. = Fulfilment process = Sales & Operational Planning process Case Study 3 - Johnson &Johnson Ethicon - Europe EVP Europe Logistics VP Sales VP Sales Director Affiliates Direct Customer Supply Chain Procurement Distribution Finance / IT/ HR Service Planning Country Country / Cluster Affiliate Direct Europe USA Warehouses SSC's Markets Markets Factories Factories Johnson & Johnson provides an example of a European organisation and process model that was implemented around the fulfilment process Characteristics • Pan-European order management provides ability to aggregate demand, manage service levels centrally, smoothing demand placed on factories and reducing inventory levels • Supply planning places orders on factories - all treated as 3rd parties and measured by adherence to plan • Sales are engaged by participation in the Sales & Ops planning process (owned by the ELD) • SSC’s operate in major markets to provide Finance, IT & HR transaction support to multiple franchises to achieve scale of economies across the Johnson & Johnson Group

10. Achieving process management excellence across SEOP Based on the findings of this brief study we believe that focussing on the key actions outlined below would enable SEOP to achieve greater harmonisation and simplification of its business: • Define the “end to end” processes and supporting activities that underpin the business with reference to the DBAM • Assign process ownership at the EMT level • Develop and implement a process based operating model for the business • Ensure that this operating model incorporates: • Process sponsorship, ownership and management • Effective process interface management • Business and process performance measures • Multi-functional working, parenting and co-location • Flexibility to accommodate local markets.

11. Redefining the DBAM as a process operating model PwC has reviewed the activities in the original DBAM and with reference to external case studies has re-grouped them into the core and support processes illustrated below. Manage Strategy, Portfolio & Relationships Stimulate Retail Demand Manage Customer Fulfilment Contract Stimulate Commercial Demand Depot Manage Demand Fulfilment Manage Purchase to Pay Provide & Manage Budgets & Funds Meet Legal Statutory & Shareholder Requirement Provide HR & Org Support & Services Develop & Maintain Systems & Office Core Process Support Process Process Handover Key:

12. Future EMT Process Sponsorship Illustrative Direct SEOP SEOP Executive Management Team Business Manage Strategy Stimulate Manage Manage Manage Finance, IT & Procurement Services Manage Stimulate Process Portfolio & Relationships Commercial Demand HR Services Demand Fulfilment Customer Fulfilment Retail Demand Manage Marketing Manage Sales Manage Network Manage Marketing Manage Sales • Manage Planning & Optimisation • Manage Sourcing - Sourcing - Trading - Make & Maintain • Manage Movements - Crude, Feedstock, & Intermediates Movements - Product Movements - Maintenance Manage Contracts & Ordering Manage Delivery Manage Invoicing and Accounts Receivable Manage Customer Accounts Manage Budgets and Funds Manage Legal, Statutory & Shareholder Requirements Manage Purchase to Pay Manage Systems & Offices Manage Human Resources & Organisational Support Services Manage Strategy & Plan Manage External Relationships Sub Process Note : Based on revised DBAM process definitions developed by PwC

13. Stimulate Demand Failing to manage the interface between winning a contract, setting it up, and managing its fulfilment is leading to: • Customer dissatisfaction • Brand erosion • Lost customers and sales • Delayed cash flow • Significant administrative rework Without effective liaison between “Stimulate Demand” and “Manage Customer Fulfilment”, and clear process ownership, attempts to improve Customer Satisfaction are unlikely to succeed. • Customer master record not set up correctly • Product master record not matched to cutsomer • Pricing data, rebates and special terms not supported by system • Physical delivery constraints and delivery windows ignored • Wrong customer code • Wrong product / volume • Incorrect credit limits • Special instructions ignored • Drives knock-on errors in deliver, invoice, cash and account management • Returned loads • Lost sales • Delivery to wrong drop point • Incorrect product / volume recorder • Insufficient ullage • Delivery window data incorrect • Returned loads • Lost sales • Knock on delivery delays • Wrong address / customer • Volume and pricing errors • Rebate information incorrect • Inaccurate payment terms • Delays in cash collection • Rework Direct debit dates incorrect Late / early payment Mismatched receipts Disputes Incorrect credit status Risk of lost sales Rework Unpaid invoices on statement Credit / debit errors Disputed payments Incorrect rebates Lost customers Brand erosion Rework Delayed cash flow Process Implications for Customer Fulfilment Illustrative Manage Customer Fulfilment Negotiate & Manage Contract Take & Generate Order Schedule & Make Delivery Invoice Customer Allocate Cash Receipt Manage Customer Account

14. Managing Process Interfaces Illustrative Negotiate & Manage Contract Stimulate Retail Demand Manage Customer Fulfilment Contract Stimulate Commercial Demand • Advise cost of contract fulfilment • Confirm contract terms, product and delivery requirements can be met: • Product availability • Pricing, discount and rebate tables exist • Physical delivery constraints • Agreed customer service levels • Processing capacity constraints • Target customers • Develop sales opportunity • Model pricing options and cost of fulfilment • Negotiate sales terms, service and delivery requirements • Confirm proposed contract terms, product and delivery requirements can be fulfilled • Sign contract Handshake

15. Sustaining Process Management across SEOP Assigning ‘end to end’ process ownership at SEOP EMT level would provide the accountability and authority for process harmonisation and simplification. Where a process is replicated at cluster/envelope/area or country level a network of ‘sub process’ owners should be established reporting into the process owner. In the example below we have taken the ‘Manage Customer Fulfilment’ process and assumed it is managed at a European level thorough a shared service centre. Delivery Scheduling could be managed at shared service level but execution managed at depot or asset level through a network of sub process owners. Illustrative Process Owner Manage Customer Fulfilment Negotiate & Manage Contract Take & Generate Order Schedule & Make Delivery Invoice Customer Allocate Cash Receipt Manage Customer Account Shared European Service Centre Sub Process Owner - Lead Depot 1 Make Delivery Sub Process Owner Make Delivery Depot 2 By example, one depot sub process owner could be assigned as the lead owner working with the overall process owner with responsibility for harmonisation, simplification and target performance achievement across SEOP

16. Negotiate & Manage Contract - Retail Italian German Negotiate & Manage Contract - Commercial Transport French English Take & Generate Order Negotiate & Manage Contract - Commercial Industrial Accommodating Local Markets Any future process managed organisation must accommodate the varying languages and business practices that define local SEOP markets. Again, we have used the “Manage Customer Fulfilment” process to illustrate how these variations could be accommodated within a funnel of process management, harmonisation and simplification. Illustrative Schedule & Make Delivery Invoice Customer Allocate Cash Receipt Manage Customer Account Make Delivery Make Delivery Market Aligned SEOP Aligned

17. Achieving Process Performance Targets Process ownership needs to be reinforced by performance targets designed to encourage continuous improvements across a balanced set of measures. Again we have used the ‘Manage Customer Fulfilment’ process to illustrate a balanced scorecard of performance measures. Illustrative Manage Customer Fulfilment Negotiate & Manage Contract Take & Generate Order Schedule & Make Delivery Invoice Customer Allocate Cash Receipt Manage Customer Account Process Scorecard Financial: • Debtors ($) • Debtor Days Outstanding • Process Cost Process performance targets would be agreed at EMT level by the sponsoring executive as part of the budget and planning process and achievement managed and reported by process owners. Day to day responsibility for sub process performance would be assigned to sub process owners / team leaders and reviewed on a weekly / monthly basis as appropriate. Illustrative People: • Morale Index • Training days attended • Continuous improvement ideas implemented • Sickness days • Absenteeism days Customer: • Orders delivered on time (%) • Order to delivery lead time • Order to cash lead time • Customer satisfaction index Sustainable Development • Invoice accuracy • Statement accuracy • Customer complaints Key Milestones • Staff ideas scheme launched • System go live achieved

18. Parenting Experience has shown that over time functional competency can be eroded in a process managed organisation. To maintain defined competence levels it is not uncommon for staff, managed day to day by a process owner, to be parented to a functional head that provides advice and guidance on career development, training and standards. We have illustrated this concept below showing the Manager Finance, IT and Procurement Services having a parenting responsibility for Credit Control, Invoicing and Accounts Receivable activities. Illustrative Manage Customer Fulfilment Negotiate & Manage Contract Take & Generate Order Schedule & Make Delivery Invoice Customer Allocate Cash Receipt Manage Customer Account Credit Control Accounts Receivable Invoicing Responsibility • Career development • Staff training • Operating standards Manage Finance, IT and Procurement Services

19. Co-location Though responsibility for the integrity of ‘end to end’ process operation rests with the process owner it is often essential that certain sub processes are devolved to operating units. In the example Contract, Order and Receive sub processes are operating in support of Develop and Improve Facility and Maintain Facility and Equipment at a refinery. Local performance of these devolved sub processes could be managed locally and monitored periodically as part of the interaction between the lead sub process owners and local team leaders. Illustrative European Shared Service Centre Manage Purchase To Pay Source Contract Order Receive Process Invoice Pay Manage Supplier Relationship Devolved Process Responsibility Refinery Develop & Improve Facility Maintain Facility & Equipment Contract Order Receive

20. Current SEOP & Related Initiatives Catalogue of identified initiatives and assessment of their contribution to more effective process management.

21. Current SEOP Business Process Programme Projects Catalogue of identified process related projects that are being managed with support of the ERP initiative, again assessed for their contributions to more effective process management. H = High - M = Medium - L = Low

22. Alignment of SEOP initiatives with the achievement of process management excellence • Process sponsorship, ownership and management • Only a limited number of current initiatives support this fundamental enabler • There is process recognition, and a series of initiatives which accentuate the profile of ‘processes’ and will enable the concept of process ownership and management to develop • Integrated solutions, harmonised processes, common systems • The plan to migrate to a common ERP platform (in stages) by 2010 is a key enabler to support the design and adoption of common processes • Shared Service Centres and Centres of Excellence • Common systems and process initiatives create an environment which enables Shared Service Centres to operate more effectively. • Centres of Excellence provide a source of best practice but need to be integrated more closely with process management • Multi-functional team based working, values and behaviours • This is the biggest gap along with process ownership • We are aware of a global HR initiative to standardise HR practices • For the above initiatives to succeed, and the adoption of a process-based organisation will require a significant shift in values and behaviours, especially at the OU level where resistance to harmonisation of processes is most apparent.

23. Conclusions • There are strong organisational precedents from other multi-nationals who have, or are moving towards, “end to end” process operating models on a regional scale. • Such organisations operate by: • Managing operational planning, sourcing and production at a regional level • Manufacturing, distribution and inventory owned at a regional level but with local execution • Utilising pan regional shared service centres for order management, back office and support services • Establishing process ownership and multi-functional team based structures • Such models require greater process harmonisation and simplification, can only operate with common systems, and necessitate changes in values and behaviours.

24. Conclusions • SEOP, whilst making progress in moving away from the OPCO to a partial European structure, is still someway short of a truly regional process managed organisation • To achieve the desired process and systems convergence will require SEOP to address the fundamentals of process ownership and to integrate its Centres of Excellence, Customer Service Centres and Shared Service Centres into a process managed structure • Current initiatives are in place in SEOP to support system and process harmonisation but the biggest challenge is to address process ownership, a more process orientated operating model, and supporting values, behaviours and working practices to encourage further pan-European and multi-functional working.

25. Next Steps It is proposed to discuss the findings and conclusions of this brief study with the EMT on 18th October 2001. Based on their feedback the following activities should be considered to validate the findings more rigorously and lay the foundations for the necessary changes in the business to support more effective process management: • Complete a detailed “as is”mapping of current OU, Cluster, Envelope, Network and SEOP activity to the revised DBAM model • Visit other multi-national organisations and understand in detail the practical implications of process management and the lessons learned during implementation • Create a “to be” vision and operating model that defines how SEOP would operate in the future to embrace process working, illustrating the integration of OU, Clusters, Envelopes, Networks, Shared Service Centres, Centres of Excellence and Customer Service Centres • Map vision onto existing and planned application systems architecture and functionality • Gain buy-in to the vision and complete a gap analysis with the “as is” operating model • Develop an initial route map defining the activities and dependencies required to implement the vision with reference to current and planned initiatives • Prepare a high level business case to justify the investment • Present proposals to the EMT and seek approval to proceed with detailed design.