2015 Shanghai S&OP Conference

1. 2015 Shanghai S&OP Conference Sales & Operations Planning: The New Approaches of Best Practice • November 12, 2015 • Guofeng Hotel • Shanghai, China Bob Stahl 508-226-0477 RStahlSr@aol.com www.RAStahlCompany.com

2. Objective Desired Outcome: Gain an informed understanding of some of the “new approaches” that support S&OP as “best practice,” enabling maximum potential benefits to be experienced!

3. Agenda • Introduction • “Refresher” on authentic S&OP • New Approaches: • Market Facing Families • Multiple View Forecasting • Simplifying Assumptions about Mix • Real World Benefits of doing S&OP well • Hard & Soft

4. A Few Things . . . • English as a second language • Your English is a lot better than my Chinese • I may ask Alice & Liza to help with communication • Questions at any time – they are NOT an interruption – it’s part of learning

5. Bob Stahl’s Background • 40+ years in manufacturing companies • Started as Schedules Coordinator (1970) • With help of Oliver Wight, achieved Class A success (1979) • Became an associate of Oliver Wight – 1982 (passed in 1983) • Have worked with some of the best companies in the world • Today = S&OP Coach, Educator, Author • Has written six books with Tom Wallace – • Three have been used for APICS Certification • S&OP Editor and Columnist – • Inaugural for the IIF’s Journal of Forecasting - Foresight • Heads up consulting services for TFWallace & Company • “Retired” = choices

6. “Refresher” on the Fundamentals of Authentic eS&OP

7. The Mission MeetingWorld Class StandardsIn • High Quality (High Conformance) • Low Cost (Low Inventory) • Customer Service • Quick Response • Reliability • Wide Variety Getting to AND . . . Diminishing OR

8. Detailed Forecasting & Master Scheduling Super MS 24 Months Time Exec. S&OP / Rough Cut Plant Scheduling/Pull PTF MS Historical Evolution . . . Most Detail Aggregate Only Exac Config. . .Precise Mat’l. . .# People. . .Capital Equip . . .Factory Space • Lost in the woods- Detail • Engage Top Management? • Added Little Valueoutside the Planning Time Fence Sales MIX Marketing VOLUME

9. Volume Supply Demand Balance Mix Sales & Operations Planning Fundamentals • How Much? • Rates • Mkt Facing Families • The Big Picture • Strategy/Policy/Risk • Monthly / 18 - 36 Mos • Executive Resp. ProActive Behavior Planning • Which Ones? • Timing/Sequence • The Details • Products/SKU’s/Orders • Tactics/Execution • Weekly/Daily 1-3 Mos • Middle Mgt. Resp. ReActiveBehavior Different& separate practices, but integrated! Scheduling Routinely

10. Strategic Planning Business Planning Volume Executive S&OP Demand Supply Sales Plan Operations Plan Capacity Planning Forecasting & Demand Management Mix Master Scheduling Detailed Planning & Execution Systems: MRP, Plant Scheduling, Supplier Scheduling, etc. ERPEnterprise Resource Planning Transactional Software

11. Master Scheduling Demand Pull Sales & Operations Planning(A word about terminology) Executive S&OP (eS&OP) Volume DemandPlanning Supply Planning Demand Supply Inside & Outside Mix

12. Executive S&OP is . . .APICS Dictionary, 13th Edition, October 2010 • The executive portion of the overall sales and operations planning set of processes. • It is a decision-making activity involving the leader of the business (president, general manager, COO, managing director), his or her staff, and a number of middle managers and specialists. • Its mission is to: • balance demand and supply at the aggregate level, • align operational planning with financial planning, • link strategic planningwith day-to-day sales and operational activities. • Disciplined forum for the setting of policy, strategy, access and assume risk • It is a multi-step process involving demand planning, supply planning, and middle and top management meetings for decision-making and authorization Top Management’s Handle on the Business eS&OP – does the proper prior planning to allow the routine things to be done routinely!!

13. Executive S&OP = Keystone • If supply chain management can be compared to a stone arch, Executive S&OP is the Keystone: • The Keystone alone does not make an arch, but • Without the Keystone, nothing else can stand

14. Two Parts of eS&OP The mechanics: • Display of Info(Holistic View) • Defined ProcessFor Decision Making • Data Dump (Warehouse) • Information (Org Data) • Knowledge • Understanding

15. Holistic Display

16. The eS&OP Process Step #5 Executive Meeting Heavy Lifting Decisions & Game Plan Step #4 Pre-S&OP Meeting Conflict Resolution, Recommendations & Agenda for Exec. Mtg. Step #3 Supply Planning Capacity constraints 2nd-pass spreadsheets Step #2 Demand Planning Management Forecast 1st-pass spreadsheets Sales Actuals, Statistical Forecasts & Production Actuals It is a multi-step process involving demand planning, supply planning, and middle and top management meetings for decision-making and authorization Financial Involvement New Product Involvement Creates a Disciplined Rhythm Step #1 Data Gathering End of Month

17. Levels of Business Planning

18. Levels of Business Planning

19. Acid Test . . . If the Annual Business Planning process does not substantively change, eS&OP is not working. If eS&OP is not sufficient to set the ABP from, it is not sufficient to run the business every month!

20. Done Properly . . . Simpler (Not Easier) Better

21. eS&OP Ref Material

22. Agenda • Introduction • “Refresher” on authentic S&OP • New Approaches: • Market Facing Families • Multiple View Forecasting • Simplifying Assumptions about Mix • Real World Benefits of doing S&OP well • Hard & Soft

23. Market-Facing Families

24. Using Market-Facing Families & Simplifying Data Assumptions Best Solution: Market-Facing Families Data MIX Assumptions w/ Resource & $$Planning Traditional Solutions: Full Granularity or Fcs’t in Supply Families Markets Segments Channels Customers // Resource Department Equipment Supplier Sales & Marketing (Demand) Operations (Supply)

25. Exec. S&OP II Aggregate Only Quadrant Forecasting (Worst of Two Worlds) PTF III Building to Customer Demand I Suicide Quadrant Detail Horizon

26. Families SKU’s Demand Planning(Forecasting) Volume Resource Req. Plan Demand Supply MIX

27. Markets can be tied to extrinsic leading indicators; Products and Customers typically can not! Market-facing Families . . . Proper definition of families must promote best forecasting. Product Fire RetardantChemicals • Market • Automotive • Furniture • Electronics • Construction • - and more • Customer • Ford • Penna House • Sony • Acme Lumber • and more

28. Families . . . • S&OP Families -- In eS&OP, Families are aggregate groups of products that are similar in the way that customers and/or markets view their use. eS&OP Families are used to develop a reasoned, reasonable, credible, and transparent forecast based on market trends, grounded in extrinsic leading indicators. • Lean Families -- In Lean Manufacturing, the term Families is used to mean the grouping of products that are manufactured by the same resources. This is often called a ‘value stream.’ The idea is to create a ‘synchronous flow’ in manufacturing that allows products to be produced at a uniform and linear market driven rate – known as Takt Time.

29. Marketing: 1-18 Mos Executive S&OP Sales: 1-3 Mos Master Scheduling Demand Pull Two types of forecasting . . . Markt’g Volume Market Centric Shipments POS Mfg. Company Distribution Center Customers Markets Customer Centric Mix Sales

30. Fresh Preserving • Size (5 in all): • Quarts • Pints • Jelly • Top Opening: • Wide-mouth • Reg-mouth

31. Product Groupings Design Objectives: Highest level possible based on agreed upon market drivers Proven Grouping Assumptions that allow demand to be applied to supply groupings (for Product Groups) Grouped based on how capacities are constrained

32. Product Families Volume Baseline Weather Economy/CC Distribution Pricing/Promo Key Market Drivers at the Volume Level Demand Process Volume Forecast Jars

33. Regression Analysis Results

36. Closures to Mouth Size

37. Product Families Volume Baseline Weather Economy/CC Distribution Pricing/Promo Key Market Drivers at the Volume Level Demand Process Volume Forecast Jars

38. Exec. S&OP II Aggregate Only Quadrant Forecasting (Worst of Two Worlds) PTF III Building to Customer Demand I Suicide Quadrant Detail Horizon

39. Reasonable Grouping Assumptions Volume Forecast for Jars Volume Forecast for Closures Volume Forecast for Jar by Neck Size (W/M – Reg) Closure/ Size and Type (W/M – Reg; Lid – Cap)

40. Multiple View Forecasting

41. Multiple Views . . . Market View Customer View Historical View Reconciliation Process (The DAM Meeting) Consensus Forecast (When it does not meet business $$$ needs . . . ) Applying “Puts & Takes” – Actions! Company Forecast

42. Demand Planning – Market Facing Pleat Forecast • Internal Data: • New sales data (last month) • Previous forecast • External Data: • Leading indicators • Market Data Data • Develop three different market facing forecasts using the same forecasting methodology but done separately. • Pilot Market Facing Forecasts: • Healthcare • Commercial • Institutional Market View 18-24 Months Customer View 3-6 Months Historical View 18-24 Months • Arrive at one set of Demand numbers to run the business • Historical view as a reference point (not forward looking) • Change the market view to conform with the Customer View or vice Versa Demand Agreement Meeting Initial Consensus Forecast Puts and Takes • Comparison to the Annual Business Plan • The effect of new products • Other initiatives taking place Company Forecast Demand Plan to the Supply Team

43. Demand Planning – Healthcare Pleat Market Forecast Data Gathering Customer View 3-6 Months Historical View 18-24 Months Market View 18-24 Months • Three Leading Market Indicators: • Hospital Care Expenditures • Facilities Expenditures • Healthcare Share of GDP • Top Three Healthcare Contracts are 65% of the Pleat Sales: • Premier • Med Assets • HTPG Investigate the other 35% of similar Buying patterns Purchase and get up to speed on the Forecast X software package • Multivariate Regression Analysis: • Actual Leading Indicators to be Investigated Forecast X picks the best forecast among the methods available for Healthcare Pleats Develop a forecast of “All Other” healthcare Develop three forecasts for Each Contract Acceptable Unacceptable Combine the Forecast for all Healthcare pleats Revise Leading Market Indicators Use Forecast Estimates Market Share Analysis Data Matrix to be Developed Acceptable Unacceptable Revise Forecast Use Forecast Estimates Data to the Demand Agreement Meeting

44. Review Pine Sol Performance vs. Dilutable Category • Trend lines show that Dilutable Category and Pine Sol are moving in opposite direction • However, there is a positive correlation between Dilutable Category & Pine Sol (Corr = 0.55) • Key Workstreams to turnaround competitive disadvantage shown below include: New Growth Strategy with New Advertising, Packaging Graphics, Innovation in and beyond the dilutable category Note: Pine Sol decline accelerated with pricing action in April 2012 and Fabuloso as key competitive threat

45. Consensus Demand PerformanceWaterfa;; Chart

46. Forecasting -- Two Parts

47. Sales & Marketing’s Job Enablers . . . • No full granularity for the entire planning horizon - 18 to 24 Months (Getting out of the Suicide Quadrant) • Family definitions that enable them to correlate to extrinsic factors that are “leading indicators”(Using “simplifying data assumptions” to deal with MIX) • No complex software cost or learning curve Willingly & Enthusiastically Join the Party!

48. Simplifying Assumptions about MIX

49. Using Market-Facing Families & Simplifying Data Assumptions Best Solution: Market-Facing Families Data MIX Assumptions w/ Resource Planning Traditional Solutions: Full Granularity or Fcs’t in Supply Families Markets Segments Channels Customers // Resource Department Equipment Supplier Sales & Marketing (Demand) Operations (Supply)

50. Consumer Market Small Widgets Housing Market Medium Widgets Industrial Market Large Widgets Family Feud . . .When are they the same? World Wide Widget Company Supply Demand Typically NOT!