Beyond the Plant Walls: Manufacturing Excellence through Demand Visibility

1. Beyond the Plant Walls: Manufacturing Excellence through Demand Visibility Bill Swanton Vice President AMR Research

2. Demand Driven Manufacturing • Metrics for Manufacturing Success • Demand Driven Supply Networks (DDSN) • Linking Plants in a Supply Network • Case Studies in DDSN • Call to Action

3. Factories Treated as Supply Chain Black Boxes Plan ERP Advanced Planning Supply Chain Make Source Deliver Suppliers Customers Enterprise Plant Source: AMR Research

4. Benchmarking Metrics for Manufacturing Success

5. The Hierarchy of Supply Chain Metrics Cash-to-Cash Inventory Total AP AR Supplier Quality Supplier On-Time RM Inv Purch Costs Dir Mtl Costs Production Sched Variance Order Cycle Time Perfect Order Detail Cost Detail Plant Utilization WIP + FG Inventory Demand Forecast Assess Key to Profitability Perfect Order SCM Cost Diagnose Correct Traditional Manufacturing Focus

6. Industry Performance Tradeoffs Perfect Order SCM Costs (Strong) (Strong) Perfect Order SCM Costs (Weak) (Weak) Automotive Suppliers Consumer Products Perfect Order Performance – getting ordered product to customers on time, in the requested quantity, with promised quality

7. The Importance of Demand Visibility 20% 15% Change in Demand Visibility 10% Demand Forecast Accuracy 5% Perfect Order SCM Cost 0.0% 0% 5% 10% 15% 20% 25% Change in Perfect Order Cross-Industry: Better demand visibility = superior perfect order performance Slightly Better Visibility gives MUCH Better Performance Source: AMR Benchmark Analytix, 2004

8. Demand Variability Champion “10% reduction in out-of-stocks is the equivalent of adding a billion dollar brand.” • Jake Barr • Procter & Gamble • SAPPHIRE, 2004

9. Demand Driven Supply Networks (DDSN)

10. Isolated Business Processes Cause Supply and Demand Imbalance Supply Plan, Source, Make, Deliver Demand Attract, Sell, Service Product Define, Design, Promote, Supply, Support “I Think I Can Sell…” “Here It Is, Sell It” “Here’s a New Product – Figure Out How to Make It”

11. DDSN – the 21st Century supply network A system of technologies & processes that senses & reacts to real-time demand signals across a supply network of customers, suppliers, & employees. Supply Demand Product

12. The Demand Driven Supply Network… • Assumes and deals with a wide range of demand and supply variability • The Supply Chain is transformed into a Network of partners • Transparency of information • Common workflow • Mutual benefit • Shared Goal • Maintain high margins by exactly meeting customer demand • Counterbalance Supply Chain Gorillas, like Wal-Mart Make what you sell, not just sell what you make

13. Proliferation of Signals The Good Old Days Today’s reality CPFR Consensus Forecast VMI POS Store 2 POS Store 1 Demand RFID Demand Is Uncertain You Can’t Just Try to Forecast a Better Plan Time

14. Linking Plants in a Supply Network

15. DDSN Process Model Coordinated Product Ramp Up & Phase Out Event Driven Sales & Operations Planning Market Promotion Collaborative supply commitments Undistorted demand signals Replenish Replenish Fulfill Point of Postponement

16. DDSN Requirements for Plant Systems Point of Postponement Frequent Changes to Rolling Multi-day Schedule Faster NPI – Product Definition to Plant Hands Free Coordinated Product Ramp Up & Phase Out Event Driven Sales & Operations Planning Market Promotion Collaborative supply commitments Undistorted demand signals Replenish Replenish Fulfill Lean, Electronic Kanban, Hold More as Intermediate Materials

17. Plant Systems Requirements –High Capability Make to Order PLMRecipe, Process, Packaging, Specs Order Mgmt- Schedule- Sequence- Pack & Ship Root Cause Analysis- requires correlating orders, products, and processes Lot or S/N Trace Process Capability & Operational Equipment Effectiveness (OE)

18. Plant Systems Requirements –High Capability Make to Order Error Proofing – Each Order Unique PLMRecipe, Process, Packaging, Specs Order Mgmt- Schedule- Sequence- Pack & Ship Maintain High Capability Root Cause Analysis- requires correlating orders, products, and processes Lot or S/N Trace Process Capability & Operational Equipment Effectiveness (OE) Automated Data Capture – No Non-Value Added Steps

19. Supply Network System and Corporate Boundaries NPD&L S&OP O O O O A A A A T T T T C C C C Product Mfg R R Fulfill Raw Matl Supplier Copacker BRAND OWNER PLM Distribution Complaint & Traceability Database P P P P Packaging Supplier

20. SCOR M2.3: Make-to-Order Produce and Test

21. Case Studies in DDSN

22. Electronics Components: Win-Win VMI 43+Suppliers • Integration to key suppliers and 3PL (Omega) • Kanban signals from SAP to 3PL and suppliers • Integrated view of forecasts, demand, on-hand, and inventory position net of in-transit shipments and allocations • Measure SLA attainment of all partners • Inventory down 46% • Inventory turns up 74% • Vastly reduced debt used to finance inventory and built strong cash position Omega3PL Hub (4) Ship-ment from WMS (10) Receipt from WMS (3) Pull signal to WMS (7) Replenish-ment signal via email (8) Shipping status via portal (1) Inventory snapshot from WMS (9) ASN via email (6) Receipt from SAP (2) Pull signal from SAP (5) ASN via email

23. Case Study: Customer Segmentation • Dow Xiameter • brand for commodity silicones • Customer Segmentation • Low cost • No service • Product & Process Change • Efficient shipping units • Make to Order, Direct Ship • Standard Lead Times • Order Processing Automation • Haht catalog and sales • SAP integration • Automated inventory updates to SAP using OSIsoft • Automated delivery commitments • Results • Lowered prices 15% • Reduced warehouses • Reduced sales, marketing, manufacturing, technical services costs • Increased margins

24. Improved Product Launch • PLM/Specification Management in Two Food/CPG Companies • Eliminate redundant material specs • Reduce complexity in product portfolio (variety of ingredients) • Reduce major commodities costs • Consolidate spending – simplifying sourcing relationships • Eliminate over specification • Reduce unit costs up to 25% • “hundreds of millions in savings” • Faster NPI & Ramp Up • Products to production • Eliminate process variability due to inconsistent specs • Manage package/labeling differences by geography • Proliferate best practices among business units • Data Synchronization with customers • Product Information • Potential reduction of Environmental Health & Safety costs

25. Call to Action • Become Demand Driven • Don’t Expect a Better Long Term Forecast • Don’t Get Fixated on Cost Savings • Make the Metric Tradeoffs • DDSN Requires More Responsive Plants • Daily, Hourly, or Real-Time Schedule Updates • Accurate Production of New and Configured Products • Use Systems and the Internet to Extend Visibility • Pass Demand Signals Rapidly • Monitor Partner Status • Invest in New Product Development & Launch • Hands Free Transformation of Data for Manufacturing

26. Thank You! Bill Swanton bswanton@amrresearch.com