Innovative Supply Chain and Manufacturing Production Systems

1. Innovative Supply Chain and Manufacturing Production Systems For Presentation to the Annual Meeting of the Institute of Industrial Engineering Montreal, Canada June 1, 2014 Martin M. Stein, D.Sc. martin.stein@comcast.net 617-755-1960

2. The Toyota Production System and Proctor and Gamble’s, IWS • The Toyota Production System created a new form of management where culture change and climate in the organization were fundamental elements of production process control • Proctor and Gamble’s, Integrated Work System, is a major advance over TPM, with linkages to the supply chain. Plants are now able to produce product in response to inventory shortages. • Competitive advantage will require the expansion of internal capabilities and the rapid transfer new programs globally including for use by potential acquisitions and new plants. • Internal Capability will permit the use of internal resources that implement best practices on a step by step basis. The availability of a road map for implementation will provide an efficient and effective process for guiding companies toward excellence in supply chain and manufacturing.

3. Creating Leadership Opportunities for Culture Change • The TRACC System provides new opportunities for leaders to harness the organization’s energy for culture change. • Cross-functional teams become engaged in problem solving at all levels. Situational problems are solved by teams of front-line workers supported by technical staff members. Systemic problems are supported by supervisors, managers and technical staff who are dealing with recurring issues so they are not repetitive. Strategic challenges are surfaced by the mid level teams who identify barriers to strategic implementation. • The TRACC System contains several modules that drive culture change and organizational development. The Leading and Managing Change module is designed to create a holistic overview of the organization and is extremely important for companies with silo organization structures. Enablers also are included in the Human Capital Module where human resources, competency testing and professional development implementation actions required by culture change are provided. • The End to End, Demand Driven Organization Model (Stage 4 and 5) requires integration of business planning and the creation of a Center of Excellence that also facilitate culture change.

4. Benefits of Integrating Manufacturing and Supply Chain • Coordination of supply and demand is a critical element in the design of an end to end, demand driven value network. • The most advanced companies such as Procter & Gamble have recognized that there are significant potential benefits form integrating supply and demand planning. • The savings potential from manufacturing at P & G was $ 1B but when the supply chain opportunities were incorporated, savings potential tripled to $ 3B! • The logical structuring and systematic approach for continuous improvement that is required for a manufacturing process can be extended to include and integrate the supply chain components such as logistics, customer service and warehousing. • The latest version of the TRACC system has been expanded to include 11 additional modules for Supply Chain components. The combination of these to the 11 components for manufacturing, now create a comprehensive set of 22 that include over 1300 best practice staged and structured implementation actions.

5. TRACC provides the platform for sustainable performance improvement for a balanced set of metrics Leaders and Laggards 3 years 3.0 1.6 90% WORLD Deliver 20% More Perfect Orders… Perfect Order 90% CLASS 85% 68% 54 77% Days of Inventory 58 21% 68% SC Cost as % of Revenue 54 Days 23% 65 …hold a thirdless inventory… Performance 72 Days 24% 72 21% …have lower SC costsequal to 5% of revenue 26% 26% Practice Maturity Example adapted from AMR research and CCI results

6. The TRACC offering is functionally initiated and ensures integration and alignments to Strategic and Operational Enablers Strategy STRATEGIC ENABLERS Supply Chain Strategy Workshops Align Transform Innovate Supply Chain Alignment Product LifecycleManagement Leading and Managing Change Plan Demand Planning Sales & OperationsPlanning Supply Planning Integrated Business Planning Source Make Deliver Procurement Health and Safety FocusedImprovement SUPPLIER CUSTOMER EnvironmentalSustainability Autonomous Maintenance Warehouse Management 5S Asset Care TransportManagement Teamwork Set-up TimeReduction Visual Management Quality Administrative Excellence Operational Enabler Organisational Enabler ORGANISATIONAL ENABLERS OPERATIONAL ENABLERS Return TransactionalExcellence Human Capital

7. DDVN Aligned Stage 5 Competent Stage 4 Basics established Disconnected Stage 3 Stage 2 Stage 1 TRACC stages: The maturity growth is defined over 5 stages and the implementation sequence ensures sound foundations Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Disconnected Basics established Competent Aligned Excellence • Misaligned • Ignorant • Fragmented • Controlling • Crises Management • Fire fighting • Unclear strategy • Unclear goals • Undefined • Silo approaches • Ad hoc • Identify • Selective adoption • Recognition of waste / value • Risk awareness • Value articulated • Prioritisation • Stabilisation • Clearly defined • Initial awareness • Understanding of root causes • Standardised • Integrated • Deployed • Knowledge Expert • Consistent • Competent • Clear / focused • Available • Business process driven • Addressing Root causes • Simplicity • Sharing Collaboration • Visibility • External / Internal • Culture of learning • Improvement • Best in the classwithin industry • Eliminating root causes of problems • Culture of teaching • International benchmarking • Resilient • Virility • Dynamic • Predictive • Orchestrating • Shaping • Confidence & Trust • Advanced detection

8. DDVN Aligned Stage 5 Competent Stage 4 Basics established Disconnected Stage 3 Stage 2 Stage 1 Planning TRACC’s: The Maturity Pathway SUPPLY CHAIN Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 DEMAND PLANNING Sensing Shaping No Insight Functional Forecasts Consensus Forecasts SUPPLY PLANNING Disarray Basic Plans Reliable Plans Fragmented and Reactive Rudimentary Integration Aligned and Focused SALES & OPS PLANNING INTEGRATED BUSINESS PLANNING

9. Decision-making in Planning TRACC’s Supply Chain Alignment • Determine customer segmentation and differentiated internal supply chains • Network configuration decisions with regard to manufacturing facilities, sourcing locations, distribution centres and routes • Collaboration decisions with regard to 2nd and 3rd tier customer and suppliers • High capital investment decisions • High importance and high complexity • Long term — 3 to 5 years • Broad impact on entire internal and external supply chain and organisation SCA Integrated Business Planning • Set direction and priorities for business • Decisions aimed at closing gap between supply chain plans and financial objectives • Decisions on new products, new markets and new improvement projects • Risk and opportunity based • High importance and high complexity • High investment decisions • Medium to long term — 18 to 24 months IBP SP S&OP DP SP Sales and Operation Planning • Balancing demand and supply • Controlling inventory • Product portfolio management • High-level capacity constraint decisions • Decision on reaching consensus on demand and supply plans • Medium term — 6 to18 months • Execution of strategy S&OP DP Supply Planning • Constrained supply plans • Finite capacity plans • Daily, weekly, monthly • Rough-cut plans — 18 to 24 month horizon Demand planning • Consensus demand plan • 18 to 24 month horizon 9

10. Planning TRACC’s: Integration drives consolidation of Information and timing Strategic Planning Supply Chain Alignment TRACC Business unit plansand budgets Demand Planning TRACC Marketing and Sales planning Price plans, promotionschedules, etc. Sales forecast Collaboration Collaboration Demand Planning and Communication Shipment History Sales and OperationsPlanning TRACC Sales forecast Sales forecast Sales forecast MATERIALS PLANNING Material Planning (MRP) Material Releasing CAPACITY PLANNING Resource Planning (RP) Rough Cut CapacityPlanning (RCCP) Capacity RequirementsPlanning (CRP) Finite Loading PRODUCTION PLANNING Production Planning (MPP) ProductionScheduling (MPS) FiniteScheduling (FPS) DEPLOYMENT PLANNING Inventory Planning (IP) Distribution DeploymentPlan (DRP) Medium Term(weeks or months) MaterialPlans Medium Term(weeks or months) Resource Availability Medium Term(weeks or months) ProductionPlans Medium Term(weeks or months) Inventory Targets Short Term(days or weeks) Vendor Schedules Short Term(days or weeks) RCCP Plans orInfo Short Term(days or weeks) Production Schedules Short Term(days or weeks) Deployment Requirements Supplier Customers Short Term(weeks or months) Requirements Capacity Plans Short Term(hours or days) FiniteSchedules Procurement TRACC Order Fulfilment TRACC Warehousing TRACC Transportation TRACC Purchase orders Consumer orders Supply Planning TRACC Make (Convert) Demand Supply Customer-driven Supply Chain (i.e. pull based)

11. Case Study: Kellogg Latin America • Kellogg Latin America consists of 8 plants in Mexico, Brazil, Venezuela, Ecuador and Colombia. At present, 7 of these plants are utilizing the manufacturing TRACC system. • Recently, Kellogg Latin America, has added Supply Chain Alignment, Demand Planning, Supply Planning and Sales and Operations Planning modules of the expanded TRACC system for Supply Chain. • This region will be the first region at Kellogg’s to launch the Supply Chain modules. • In 2013-4, task forces will be organized to implement the Stage 1 to 3 Implementation best practices. • Initial conclusions arethat there will be organizational change required to move to the end to end demand value based network.

12. Implementation Philosophy WORLD Y CLASS Can't go the distance Operations excellence systems must show results by improving hard KPIs or they will lose support before they are embedded in the culture. Contenders Performance Defining what 'good' lookslike and monitoring best practice implementation ensures a focus not oncurrent performance, but on long-term, sustainable market-beating performance. Back of the pack Promising Stragglers 1 2 3 4 5 X Practice Embedding best practices underpins lasting performance. World class organisations drive performance improvement by standardising practices and continuously improving these standards.

13. Case study: SABMiller - Practice Performance Ranking(presented at public conference)

14. Case Study: SABMiller – Energy Usage (presented at public conference) Low High

15. Case Study: DuPont Production System(presented at public conference) • DuPont: • The TRACC Integrative Improvement System is the backbone for theDuPont Production System globally. Our DPS System (powered by TRACC) has returned $2 billion backto the business in the last two years. Paul Mocniak,Program Manager, DPS TRACC, DuPont, USA

16. Case Study: DuPont integrated Improvement Approach(presented at public conference) DPS Vision statement Everyone, everyday in pursuit of Operations Excellence enabling DuPont to win in a dynamic world Managing process Keep focus on what really matters, with the right people Technical model Applytools and practices to drive focused improvement at all levels Capability building Insure the right skills and coaching Mindsets and behaviours Aligncultural norms with the organisation's vision, mission Current and future requirements for capability and performance Required business outcomes Brought in to supportand sustain all aspects of DPS

17. Case Study: Heinz integrated Improvement Approach(presented at public conference)

18. Example: Quantification and Opportunity Prioritisation Practice Assessment How sustainable are your current practices? Performance Assessment $ Opportunity

19. P-D-C-A Phase 3: Performance Management Control LoopsExample alignment feedback Shift Review P-Q-D MonthReview MonthReview Shift Review Day Review Day Review YearReview Week Review 1-2 hour review QuarterReview MonthReview Week Review QuarterReview P-Q-D-C-S-M P-Q-D-C-S-M P-Q-D-C-S-M P-Q-D-C-S-M P-Q-D-C-S-M P-Q-D-C-S-M P-Q-D-C-S-M P-Q-D-C-S-M P-Q-D-C-S-M P-Q-D-C-S-M P-Q-D P-Q-D

20. AM on shop floor Example:Full TRACC implementation and support Downtime trend

21. Kellogg LatAm – TRACC ResultsStrong Correlation between TRACC maturity and OEE Practice Maturity

22. Kellogg LatAm – TRACC ResultsStrong Correlation between TRACC maturity and Plant Performance

23. TRACC Practice Maturity 1.6 2.2 Practice Maturity Improvement

24. Improvement Potential CLASE 92% 90% MUNDIAL 87% 1.61 84% Processing 65% 55% 95% 55% 30% 45% OEE 37% Packaging 1 2 3 4 5 Maturity of Practices

25. CLASE MUNDIAL 5.0% 5.4% 6.0% 7.0% 4% 12% Waste 1 2 3 4 5 Improvement Potential 1.61 Maturity of Practices

26. Kellogg Australia – Botany PlantTRACC Manufacturing Practices Overview

27. Kellogg Australia – Botany Pilot Plant OEE analysis

28. The evolution from traditional CI to Integrative Improvement Systems • 70% of companiesarebetween Stage 2 and 2.5 • Companies below Stage 4 are unlikely to successfully replicate the long-term performance culture exhibited by the likes of Toyota & P & G 5. Learning Network Integrative Improvement deployed across network Culture of Innovation and Sharing of Know How Entire Global Network 4. Integrative Improvement System Codified and integrated implementation (Strategic, Systemic and Situational) Process 5 3. Functional Excellence Structured implementation approachwithin the functions(Systemic) Functional 4 3 2 2. Expert Based Implementation approach based onthe capability of the local expert Project 1 1. No Continuous Improvement No Continuous ImprovementPlans or structure

29. Enabling Execution ………“to improve everything”…… The pursuit towards operational excellence to date has been characterized by functional improvements and project based methodologies such as Six Sigma and Lean. Functional excellence and pockets of Lean do not create the organization capability required to step change operational competence, particularly when applied to complex global companies. There are just too many intricate process interdependencies across the end to end supply chain. The challenge for organizations is to manage and coordinate a sequenced and prioritized set of inter related actions across multiple functions, departments and the global network to execute strategy. Insight

30. Integrative Improvement across a global network requires a codified set of prioritized and sequenced work. • A company needs to provide a prioritized, holistic and integrated set of work packages that allows each and every part of the organization to execute the many pieces of work in a synchronized way that transforms the entire organization towards process based excellence “……everything must improve……” VISION 2015 2014 2013 2015 2012

31. Integrative Improvement across a global network requires a codified set of prioritized and sequenced work. • A company needs to provide a prioritized, holistic and integrated set of work packages that allows each and every part of the organization to execute the many pieces of work in a synchronized way that transforms the entire organization towards process based excellence “……everything must improve……” VISION 2016 2014 2013 2015 2012 KWS Advanced KWS Basics KEY

32. Relevance for Industrial Engineers? • Plant managers will be motivating change and accountability for each of the process based teams. • Decision making and priorities are facilitated by the existence of a structured approach for developing improvement in each of the critical process areas. • Metrics and benchmarks can be used to guide the teams from the changes in levels of maturity ratings to important process measures such as OEE. • Regional and central headquarters staff will facilitate the development of standardized definitions and performance measures, sharing of best practices and tracking KPI’s. • Plants that have achieved the greatest success and the greatest relative improvement will be recognized and rewarded.