Executive S&OP

1. Executive S&OP A Presentation to: APICS Southeast Florida by Tom Wallace 3-20-08

2. Agenda • Executive S&OP: Role, Structure and Benefits • Implementation • The Future of S&OP

3. Volume Supply Demand The Four Fundamentals • How Much? • Rates • The Big Picture • Families • Strategy/Policy/Risk • Monthly/out to 36 Mos • Which Ones? • Timing/Sequence • The Details • Products • Tactics/Execution • Weekly/Daily 1-3 Mos Mix

4. Sales & Operations Planning ExecutiveS&OP Volume Supply (Capacity) Planning Demand Supply Demand Planning/ Forecasting Mix Master Scheduling Supplier and Plant Scheduling Distribution Scheduling

5. More Terminology Changes? Sales & Operations Planning may become the successor term to ERP/MRPII Thus the term Executive S&OP was developed to • Eliminate confusion • Avoid what happened with ERP • Put high focus on the Executiverole

6. Executive S&OP . . . • Is an executivedecision-making process • Balances demand and supply • Deals with volume in both units and $$$ • Ties operational plans to financial plans: one set of numbers • Is the forum for setting relevant strategy and policy • Is what we called , for years, Sales & Operations Planning

7. The Role of Top Management The Leader of the Business Unit (General Manager, President, COO) Needs to be Hands-On with Executive S&OP: • Stewardship • Leadership • Break ties • Set high standards • Motivate Monthly Time Commitment: 1.5 hours

8. Step #5 Executive Meeting Decisions & Game Plan Heavy Lifting Step #4 Pre- 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 The Executive S&OP Process Step #1 Data Gathering Sales Actuals, Statistical Forecasts & Supply Actuals End of Month

9. Three Examples ofBest Practices Three (of 13) Companies Studied: • High Seasonality • High Cyclicality • Highly Complex New Product Launch

10. Executive S&OP in Make-to-Stock w/ High Seasonality: The Scotts Co. • Important Questions: • When start Pre-Build? • At what rates? • Which SKUs? • When ramp up & how much? • When ramp down? S&OP helps to answer these & other questions Pre-Build Pre-Build

11. The Scotts Company “During the last four years, almost half of the company’s increase in earnings has come from Supply Chain savings: inventory down, manufacturing efficiency up, purchase and transportation costs down. All of these are due to improved planning.” Ken Reiff Vice President, Product Planning

12. S&OP in Make-to-Orderw/ Extreme Cyclicality: Cast-Fab Cast-Fab Technologies – Year-to-Year Sales Change %Chg 15 38 6 12 14 25 14 1 32 25 18 Acquired from Cin’ti Milacron up up down down up down down down down down up up up 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Implemented S&OP Some competitors go out of business 46!!! 12

13. Cast-Fab Technologies “During 2004, we posted sales increases of over 40%, which meant employee call-backs, retraining, new hires, initial training, getting up the learning curve and so forth. “During the same year, we had productivity gains of up to 3%! We never would have believed this was possible if we hadn’t done it. “S&OP played a key role in this; it gave us the forward visibility to make the right decisions on a timely basis.” Ross Bushman President and COO

14. New Product Launch . . . . . . in the Pharmaceutical Industry • Multiple stages of testing • Multiple approvals by FDA • Multiple years • Multiple 100s of millions of dollars

15. Eli Lilly and Company New Product Launch Performance: Industry AverageLilly 2001-04 1.8 Years Required (avg per product) >14 9 <11

16. Eli Lilly & Company “In the past three years we have launched 9 new products and met all demand despite 2 products that sold significantly above the high-side forecast. “Without Global Sales & Operations Planning, we would have been driven to reaction mode, which could have resulted in an increase in investment in new assets, a slow down in our launch plans, and/or missed demand opportunities.” Ron Bohl Supply Chain Coordinator

17. These 3 Examples:A Common Thread Executive S&OP is being used extensively in areas of the business that are: • Mission Critical • Very Difficult to Manage

18. Hard Benefits • Customer Service UP • Inventory DOWN • Obsolescence DOWN • Freight Costs DOWN • Order Lead Times DOWN • Supplier Lead Times DOWN • Time to Launch New Products DOWN • Plant Productivity UP

19. Soft Benefits • Enhanced Teamwork • Improved Communications • Better Decisions with Less Effort and Time • Better $$$ Plans with Less Effort and Time • Greater Accountability • Greater Control • Window into the Future Top Management’s Handle on the Business

20. Agenda • Sales & Operations Planning: Role, Structure and Benefits • Implementation • The Future of Executive S&OP

21. The Real Issue . . . . . . is not in understanding S&OP. That’s easy. The hard part is . . . Organizational Behavior Change Changing the way we do our jobs “The hard stuff is the soft stuff.”

22. Implementing Executive S&OP Is Different • The leader of the business (president, • COO, CEO, general manager)must provide: • Support • Funding • Commitment • Leadership So what’s new? Active, Hands-on Participation by the Leader and Staff Each and Every Month

23. Implementing Executive S&OP Is Different • Highly focused on Top Management • Relatively few people • Low cost/high impact

24. Implementation Principles • Implementation begins and ends • with the Leader of the business • “Build it and they will come” • carries a low probability for success • “Gain and hold the high ground” • and success will almost always follow

26. The Implementation Path Executive Briefing Go/No-Go #1 Live Pilot Go/No-Go #2 Phase III $$$ Integration Kickoff Session Phase II Expansion Business Improvement Phase I Live Pilot Low Risk Low Cost 1 2 3 4 5 6 7 8 9 Months

27. Phase III $$$ Integration Low Risk Low Cost Phase II Expansion • Months 7-9 • Full Financial Integration • Institutionalize the Process Phase I Preparation • Months 4 – 6 • Add All Product Families • Full Supply Planning • Limited Financials • Month #2 • Demand Planning Processes & Data Feeds • Supply Planning Processes & Data Feeds Executive Briefing & Go/No-Go Decision #1 • Month #1 • Assignment of Responsibilities • Kickoff Education & Planning • Development of Project Schedule • Families & Sub-Families (Pilot Family) • Data Definitions, Sources & Displays • Month #3 • Pilot Preparation & Execution • Go/No-Go Decision #2

28. Agenda • Sales & Operations Planning: Role, Structure and Benefits • Implementation • The Future of Executive S&OP

29. The Future of S&OP: Growth Factors • Success breeds success • Lean Manufacturing and S&OP • Globalization • New users outside traditional manufacturing • S&OP specific software • Greater financial integration, power and utility • A growing presence in the executive suite

30. Implications for APICS Members (CPIM) Premises: • Executive S&OP is a powerful tool for top management • It’s here to stay and it’s growing • It’s in APICS’ space • CPIMs know more about Sales & Operations Planning than most others Therefore, CPIMs are positioned to take part in this growth and to be more valuable to their companies

31. Implications of Executive S&OP for APICS • It’s in APICS’ space. • It “lives” in the Executive Suite • It can help attract new members: • executive perception • non-manufacturing companies • APICS can play a – the? – leadership role in the widespread adoption of Executive S&OP

32. APICS is Getting On Boardwith S&OP • S&OP Conference – Chicago – June 19, 20 • Demand/S&OP Flight at APICS Conference in Kansas City – September 14-16 • Frequent Webinars (most recent: 2-25: Sales & Operations Planning – The Executives’ Role)

33. Thanks for Listening Go to www.tfwallace.com for: • Copies of slides • Periodic newsletter • White papers • Books and videos