Supply Chain Management: Approaches and Practices from Air Products and Chemicals, Inc

1. Supply Chain Management: Approaches and Practicesfrom Air Products and Chemicals, Inc George Diehl Business Fellow, VSB

2. Air Products Overview • $10 B Gases (80%) and SpecialtyChemicals (20%) company • Chemical industry safety leader • Operations in more than 30 countries • 55% of sales revenue outside the U.S. • 20,000 employees worldwide; 4500 at Allentown PA, Global HQ • Fortune’s Most Admired Chemical Firms: #3 • AMR’s “Top 25 Supply Chains”-Honorable Mention in 2008

3. Today’s Learning Objectives • Provide an overview of approaches and practices from Air Products and Chemicals* in these areas of supply chain management • Importance of a process versus functional view of the supply chain • How we measured performance • How the SCOR model helped us in both of these areas as well as others *All slides and data in this presentation have been previously presented externally and are in the public domain

4. The CEO’S Plan… John P. Jones Chairman, President,andChief Executive Officer

5. Definitions • Business Process: An organized group of cross-functional activities that together provide value for the customer. • Business Process Management: The dimension of management that improves business performance by taking a “horizontal” view of efficiency and effectiveness to serve customers. • Processes are the underlying theme for all business improvement initiatives.

6. BUSINESSES [Business Unit, Region, focused on P&L’s & markets] FUNCTIONS [Departments, Centers of Excellence) FUNCTIONS [Departments, Centers of Excellence] WORK Business Process Management:A 3rd Dimension in Management Business Units own customers and profitability Functions own the people and cost centersProcess Owners own work designs and cross- functional performance PROCESSES [Order to Cash, etc.]

7. Work Work Sales Engineering Production A “Functional Organization”

8. Simple Supply Chain Process Customer Place Order TakeDelivery PayBill Sales DefineReqts Win Business Customer Service Set UpAccount InputOrder SendInvoice ApplyCash CommitInventory Load Product Production ScheduleDelivery DeliverProduct Logistics / Distribution

9. Balanced Integration Of Function and Process Within/Across Businesses Process Fills In the “White Spaces” Increased Customer Satisfaction (Cycle Time, Accuracy) “Predictably Positive Experiences” + Revenue, Productivity, and Asset Management Improvement PROCESS / FUNCTION BALANCE Limits on Functional Improvement Customers

10. The Value SCOR Brings… • A well-defined process architecture that can be applied to all supply chain processes. • A clear and consistent framework to enable effective end-to-end process integration, especially at those processes that cross GPMT boundaries. • Mapped processes with defined interconnections, inputs, outputs and standardized measures. • A significant opportunity to enable consistent, process-based definition of planning. • Emphasis on plan, execute, and enable processes to more clearly define how these fit in the overall structure. • Basis for consistent definition of metrics and benchmarking of the results and trends

11. Level 1 Supply Chain Process Example (Plan) Plan & Produce Products & Services Make-to- Level 2 Stock Configuration Level M1 Make-to- Enable Plan Make Order Make PM M2 EM Make e-t-o M3 Level 3 Make to Stock Value Added Chain Diagram (VACD) Schedule Production Activities Release Product to Deliver Issue Product Stage Product Produce & Test Package M1.1 M1.2 M1.3 M1.4 M1.5 M1.6 GLOBAL Level 4 SAP & Physical Transactions M1.2.1 Revised AP Process Architecture

12. Supplier Plan Source Make Fulfill Customer Customer’s Customer Supply Chain Vision Pipeline to our Customers Leverage the Single Instance SAP Platform

13. Reducing Costs Using Supply Chain To: Improve Visibility, Velocity, Simplicity By: Driving Operational Innovation Focused On: What • Simplify • Standardize • Shorten • Share How • Educate • Execute • Improve • Measure So That We: • Improve productivity by 3X by FY20XX • Create competitive advantage through our Supply Chain • Serve our customers better; earn higher margins for shareholders

14. Integrated Supply Chain Blueprint supply chain PLAN(Plan Supply Chain) • SUPPLY CHAIN SOURCE(Requisition to Pay) FULFILL(Order to Cash Receipt) MAKE (Produce Productsand Services) customers suppliers BUILD(Create and Improve Assets) 5

15. Seven Customer-Facing Processes … supply chain PLAN • SUPPLY CHAIN INNOVATE(Create & Improve Offerings) SOURCE MAKE FULFILL customers SELL (Find, Win, & Retain Customers) BUILD 5

16. … Supported by Five Enabling Processes … supply chain PLAN • SUPPLY CHAIN INNOVATE SOURCE MAKE FULFILL customers SELL BUILD PEOPLE (HumanResources) FINANCE (Finance & Accounting) INFORMATION (InformationServices) ENVIRONMENT(EnvironmentalHealth & Safety) GOVERNANCE(CorporateGovernance) 5

17. … Guided by One Key Leadership Process ALIGN (Develop & Commit to Enterprise Plans) supply chain PLAN • SUPPLY CHAIN INNOVATE SOURCE MAKE FULFILL customers SELL BUILD PEOPLE FINANCE INFORMATION ENVIRONMENT GOVERNANCE 5

18. Air Products Process Model

19. Air Products Process Model — Table Format

20. How do you know that your supply chain processes are performing well and where they are not?

21. Top 5 KPIs: Key Gauges of Supply Chain Performance Cash to Cash Cycle Time Customer Master Data Quality Demand ForecastAccuracy Complaints Closed by Target Date Perfect OrderFulfillment 5

22. Why these 5 KPIs?

23. Supply Chain KPI’s Reliability Revenue (increase) Growth Responsiveness&Flexibility Cost (decrease) Productivity ProductivityImprovement Cost Investment (decrease) Net Assets AssetManagementEfficiency “Top 5” Focus Areas Aligned SCORMetrics Customer Master Data Quality Customer Data Quality Supply ChainAttribute Workbook Rejection Rate $ Benefit Area Demand Forecast Accuracy ForecastAccuracy Production Plan Adherence Perfect Order Fulfillment Perfect Order Fulfillment % Orders Rec’d on-time (supplier) Production Master Data Quality Complaints Closed by Target % Complaints Closed by Target Return on Investment (increase) ORONA P&L Impact Net Hard Benefits Cash to Cash Cycle Time Days Sales Outstanding % Faultless Invoices Cash to Cash Cycle Time Average Days Past Terms Average Terms (customer) Inventory Days of Supply Inventory Accuracy Days Payable Owed

24. Click here to view KPI Performance Summaries POF results are preliminary – measurement approach still being finalized

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26. Scorecard(cross-business comparisons) Metrics Report(trends and commentary) Key Measures Link(BW or Excel details) “Visibility” of Metric Performance

27. Strategy • Process Execution • GPMT’s & Businesses Project Prioritization Customer Loyalty P & L Balance Sheet Process Improvement Model

28. Business Units“Run” Global Processes Using Common Metrics Priority Metrics and Gaps Focus Annual Plans Customer Data Quality ForecastAccuracy Perfect Order Fulfillment Complaints Closed by Target Cash to Cash Cycle Time New Products past Gate 4 Safety Metric Prospect Volume

29. AP’s Key Results • In FY04, set goal and doubled the historical amount of P&L productivity • In FY05 and 06, set goal and exceeded it by more than tripling the historical amount of P&L productivity • Four Growth Platform Businesses increased from 25 to 50% of total revenues • Customer Loyalty scores for “secure customers” are 15% higher than prior to new process/SAP • ORONA hit FY08 goal; double digit growth 4 yrs • Stock went from historical $40’s to $105 – now $100.

30. Today’s Learning Objectives • Provide an overview of approaches and practices from Air Products and Chemicals* in these areas of supply chain management • Importance of a process versus functional view of the supply chain • How we measured performance • How the SCOR model helped us in both of these areas as well as others *All slides and data in this presentation have been previously presented externally and are in the public domain