Steve Crane Director, Supply Chain Performance Polymers Air Products & Chemicals Philadelphia, PA October 23-25, 2007 Forecasting & Planning to Manage Customer Replenishment Joel Sutherland Managing Director Center for Value Chain Research Lehigh University Rick Bushnell Commercial Director Elemica

Content Introduction and Overview Air Products in Brief Collaboration Opportunity Forecasting Demand vs Order Forecasting Managing Customer Replenishment Elemica Overview Pilot Results Key Conclusions

Introduction and Overview

Air Products in Brief

Collaboration Opportunity

Forecasting Demand vs Order Forecasting

Managing Customer Replenishment

Elemica Overview

Pilot Results

Key Conclusions

Session Objectives Show how collaborative planning forecasting and replenishment (CPFR) can improve customer service levels Illustrate how CPFR can reduce costs and make it easier for customers to do business with you Present industry best practices to address the gaps between forecasting demand provided by sales and operations planning (S&OP) and managing daily order fulfillment

Show how collaborative planning forecasting and replenishment (CPFR) can improve customer service levels

Illustrate how CPFR can reduce costs and make it easier for customers to do business with you

Present industry best practices to address the gaps between forecasting demand provided by sales and operations planning (S&OP) and managing daily order fulfillment

Importance of Supply Chain 75%+ of chemical industry companies consider supply chain a driver of operational excellence or a significant source of competitive advantage. Source: Accenture, Global Chemical Industry Best Practices Study and Assessment (2005, 2007)

Performance Against SC Priorities Inventory Target Setting and Deployment Source: Accenture, Global Chemical Industry Best Practices Study and Assessment (2205, 2007) 19% 36% 37% 8%

Sharing of Supply Chain Best Practices Source: Accenture, Global Chemical Industry Best Practices Study and Assessment (2005, 2007)

External Collaboration with Customers While companies agree that an important factor in driving forecast accuracy is external collaboration (i.e., involving customers in the forecasting process)… Only 1/4 have significant collaboration in place Only 1/3 said they were happy with their current customer-integration levels Source: Accenture, Global Chemical Industry Best Practices Study and Assessment (2005, 2007)

While companies agree that an important factor in driving forecast accuracy is external collaboration (i.e., involving customers in the forecasting process)…

Only 1/4 have significant collaboration in place

Only 1/3 said they were happy with their current customer-integration levels

Internal Collaboration in Sales and Operations Planning Share data/ integrate planning Periodic communication No communication Source: Accenture, Global Chemical Industry Best Practices Study and Assessment (2005, 2007) Internal collaboration is improving

Industry Assessment Supply chain optimization not recognized Supply chain collaboration in the infancy stage Supply chain technology continues to disappoint Available technologies only partially utilized Integrated systems are less common in the chemical industry than in other industries Automation not reducing high-touch orders Poor forecast accuracy creates disadvantages Source: Accenture, Global Chemical Industry Best Practices Study and Assessment (2005, 2007)

Supply chain optimization not recognized

Supply chain collaboration in the infancy stage

Supply chain technology continues to disappoint

Available technologies only partially utilized

Integrated systems are less common in the chemical industry than in other industries

Automation not reducing high-touch orders

Poor forecast accuracy creates disadvantages

Industry Assessment Within the U.S. chemical industry, new collaborative partnerships have facilitated technological advances Chemical companies that take part in collaborative partnerships are gaining a competitive advantage Collaborative relationships promote sustainable growth for the industry Source: U.S. Department of Energy

Within the U.S. chemical industry, new collaborative partnerships have facilitated technological advances

Chemical companies that take part in collaborative partnerships are gaining a competitive advantage

Collaborative relationships promote sustainable growth for the industry

Industry Assessment Senior executives share a common desire to deliver significant benefits to shareholders One clear path to these benefits is through a world-class collaborative supply chain Source: Accenture, Global Chemical Industry Best Practices Study and Assessment (2005, 2007)

Senior executives share a common desire to deliver significant benefits to shareholders

One clear path to these benefits is through a world-class collaborative supply chain

Content Introduction and Overview Air Products in Brief Collaboration Opportunity Forecasting Demand vs Order Forecasting Managing Customer Replenishment Elemica Overview Pilot Results Key Conclusions

Introduction and Overview

Air Products in Brief

Collaboration Opportunity

Forecasting Demand vs Order Forecasting

Managing Customer Replenishment

Elemica Overview

Pilot Results

Key Conclusions

Who is Air Products?

Air Products in Brief Global supplier of gases, chemicals, equipment, and health care services FY06 revenue ~$8.6 billion Serving customers in technology, energy, industrial and healthcare markets One of the safest large-scale chemical companies with operations in 31 countries Known for our innovative culture and operational excellence

Global supplier of gases, chemicals, equipment, and health care services

FY06 revenue ~$8.6 billion

Serving customers in technology, energy, industrial and healthcare markets

One of the safest large-scale chemical companies with operations in 31 countries

Known for our innovative culture and operational excellence

Content Introduction and Overview Air Products in Brief Collaboration Opportunity Forecasting Demand vs Order Forecasting Managing Customer Replenishment Elemica Overview Pilot Results Key Conclusions

Introduction and Overview

Air Products in Brief

Collaboration Opportunity

Forecasting Demand vs Order Forecasting

Managing Customer Replenishment

Elemica Overview

Pilot Results

Key Conclusions

Collaboration Opportunity Forecasting accuracy was very good for monthly S&OP process Lacked the ability to manage short term order execution for VMI customers Reorder points and safety stock levels based on average demand. Does not take into account dynamic changes in demand from day to day Experiencing expedited deliveries and highly variable inventory levels at customer sites

Forecasting accuracy was very good for monthly S&OP process

Lacked the ability to manage short term order execution for VMI customers

Reorder points and safety stock levels based on average demand. Does not take into account dynamic changes in demand from day to day

Experiencing expedited deliveries and highly variable inventory levels at customer sites

Forecast Accuracy Utilizing Business Intelligence World Class Performance 2003 2007 50% Improvement

Content Introduction and Overview Air Products in Brief Collaboration Opportunity Forecasting Demand vs Order Forecasting Managing Customer Replenishment Elemica Overview Pilot Results Key Conclusions

Introduction and Overview

Air Products in Brief

Collaboration Opportunity

Forecasting Demand vs Order Forecasting

Managing Customer Replenishment

Elemica Overview

Pilot Results

Key Conclusions

Forecasting Demand vs Order Forecasting Sales Forecasting is typically defined as the actual consumption of product by the next customer in the supply chain Sales Forecasting for Sales & Operations Planning is usually performed monthly at aggregated levels Purpose of Forecasting Demand is for balancing supply and demand, financial forecasting, capacity/capital planning, but not for daily order execution Source – Supply Chain Collaboration by R.K. Ireland and C. Crum

Sales Forecasting is typically defined as the actual consumption of product by the next customer in the supply chain

Sales Forecasting for Sales & Operations Planning is usually performed monthly at aggregated levels

Purpose of Forecasting Demand is for balancing supply and demand, financial forecasting, capacity/capital planning, but not for daily order execution

Order Forecasting involves different rules and management techniques than sales forecasting The Order Forecast used in supply chain collaboration is usually a time series replenishment-based forecast of actual orders Generating an Order Forecast normally involves defining order policy rules such as Vendor minimums Lead times Safety stock settings Order points Lot sizes Forecasting Demand vs Order Forecasting Source – Supply Chain Collaboration by R.K. Ireland and C. Crum

Order Forecasting involves different rules and management techniques than sales forecasting

The Order Forecast used in supply chain collaboration is usually a time series replenishment-based forecast of actual orders

Generating an Order Forecast normally involves defining order policy rules such as

Vendor minimums

Lead times

Safety stock settings

Order points

Lot sizes

Order Forecasts can be created using a forecasting engine with the sales forecast as the demand input Order Forecasts can then used as input into production and distribution scheduling to determine if product can actually be supplied Forecasting Demand vs Order Forecasting Source – Supply Chain Collaboration by R.K. Ireland and C. Crum

Order Forecasts can be created using a forecasting engine with the sales forecast as the demand input

Order Forecasts can then used as input into production and distribution scheduling to determine if product can actually be supplied

Content Introduction and Overview Air Products in Brief Collaboration Opportunity Forecasting Demand vs Order Forecasting Managing Customer Replenishment Elemica Overview Pilot Results Key Conclusions

Introduction and Overview

Air Products in Brief

Collaboration Opportunity

Forecasting Demand vs Order Forecasting

Managing Customer Replenishment

Elemica Overview

Pilot Results

Key Conclusions

Why Manage Customer Replenishment? Taking over control of customer orders can improve customer service and order fulfillment performance Eliminates need for customers to manage their inventory and place orders with suppliers Levels order patterns by forecasting delivery dates, reducing frequency of short term customer orders Reduces production and distribution schedule changes Reduces returns of unneeded product Enables a low cost supply chain business model

Taking over control of customer orders can improve customer service and order fulfillment performance

Eliminates need for customers to manage their inventory and place orders with suppliers

Levels order patterns by forecasting delivery dates, reducing frequency of short term customer orders

Reduces production and distribution schedule changes

Reduces returns of unneeded product

What is Managing Customer Replenishment? A process that integrates the flow of information and supply chain decisions between trading partners, in the planning and fulfillment of customer demand Helps closes the gap between monthly S&OP process and short term order execution It’s CPFR (Collaboration, Planning, Forecasting, and Replenishment)

A process that integrates the flow of information and supply chain decisions between trading partners, in the planning and fulfillment of customer demand

Helps closes the gap between monthly S&OP process and short term order execution

It’s CPFR (Collaboration, Planning, Forecasting, and Replenishment)

Managing Customer Replenishment is… Similar to Vendor Managed Inventory Forecast based determination of planned replenishment orders Automatic creation of planned orders eliminating need for manual order entry Utilizes alerts to manage exceptions

Similar to Vendor Managed Inventory

Forecast based determination of planned replenishment orders

Automatic creation of planned orders eliminating need for manual order entry

Utilizes alerts to manage exceptions

Customer Benefits Improved service levels from supplier Easier to do business with Air Products (No orders to place or inventory to manage) Deliveries automatically adjust to changes in customer demand Leverages Air Product’s competency in forecasting and planning which is better than many customers Improves productivity and lowers costs to keep all of us competitive

Improved service levels from supplier

Easier to do business with Air Products (No orders to place or inventory to manage)

Deliveries automatically adjust to changes in customer demand

Leverages Air Product’s competency in forecasting and planning which is better than many customers

Improves productivity and lowers costs to keep all of us competitive

CPFR ® Average Pilot Results Retailer Benefits Better Store in-stock: 2% - 8% Inventory Reduction: 10%- 40% Sales increase: 5% - 20% Lower Logistics Costs: 3% - 4% Supplier Benefits Lower Inventory: 10% - 40% Faster Replenishment Cycles 12% - 30% Higher Sales 2% - 10% Better Customer Service 5% - 10% Source – AMR Research, April 2001

Retailer Benefits

Better Store in-stock:

2% - 8%

Inventory Reduction:

10%- 40%

Sales increase:

5% - 20%

Lower Logistics Costs:

3% - 4%

Supplier Benefits

Lower Inventory:

10% - 40%

Faster Replenishment Cycles

12% - 30%

Higher Sales

2% - 10%

Better Customer Service

5% - 10%

Keep the Metrics Simple Core Metrics Inventory Levels Replenishment Accuracy Forecast Accuracy Sales Revenue In-stock percentage Logistics costs Customer Service Levels

Core Metrics

Inventory Levels

Replenishment Accuracy

Forecast Accuracy

Sales Revenue

In-stock percentage

Logistics costs

Customer Service Levels

Content Introduction and Overview Air Products in Brief Collaboration Opportunity Forecasting Demand vs Order Forecasting Managing Customer Replenishment Elemica Overview Pilot Results Key Conclusions

Introduction and Overview

Air Products in Brief

Collaboration Opportunity

Forecasting Demand vs Order Forecasting

Managing Customer Replenishment

Elemica Overview

Pilot Results

Key Conclusions

One Connection – One Process – Many Partners Deployment to Technically limited segments Plastics Industry - Omnexus Migration– 7 Buyers to 11 Sellers Ag Industry - Rapid – 10 Buyers to 4 Sellers Other Industries with many connections to Paper, Rubber, Programs to systematically integrate many trade partners DuPont Surfaces SBU internal XML - 19 distributors, 130,000 PO's annually via Elemica Simple Connect. Lanxess – SCS 50 Partners BP Chemical Automated Order and Logistics management for technically limited Buyers for 55% of the business Pharma Industry - DSM 9 Partners in one project, 5 messages, EDI to XML Automotive Industry Dow – 31 Partners 6 Months DuPont – 500 Partners 2 years Program deployment to industries or complex businesses

Plastics Industry - Omnexus Migration– 7 Buyers to 11 Sellers

Ag Industry - Rapid – 10 Buyers to 4 Sellers

Other Industries with many connections to Paper, Rubber,

DuPont Surfaces SBU internal XML - 19 distributors, 130,000 PO's annually via Elemica Simple Connect.

Lanxess – SCS 50 Partners

BP Chemical Automated Order and Logistics management for technically limited Buyers for 55% of the business

Pharma Industry - DSM 9 Partners in one project, 5 messages, EDI to XML

Automotive Industry Dow – 31 Partners 6 Months

DuPont – 500 Partners 2 years

Rosetta Stone - Broad Adoption: One version of the truth Real-time updated information for decision support Alerts and Alarms pushed to business client for Exception resolution Enterprise Visibility: Process and application to manage administration of broad programs 1000 – 10000 Partners Flexible to manage cost versus. benefit Knowledge to assist technically limited trade partners full partisipation Application to process shared data and provide business Context & Value Business Process standardization between enterprises eCommerce community collaboration and buy-in Consistent Enterprise Business Process:

One version of the truth

Real-time updated information for decision support

Alerts and Alarms pushed to business client for Exception resolution

Process and application to manage administration of broad programs 1000 – 10000 Partners

Flexible to manage cost versus. benefit

Knowledge to assist technically limited trade partners full partisipation

Application to process shared data and provide business Context & Value

Business Process standardization between enterprises

eCommerce community collaboration and buy-in

One Connection – One Process – Many Connections Enterprise Connect once, connect to all Data streams Shop Floor ERP Purchasing Shipping Dept Data Center Service Subsidiaries HR Sales Branch Marketing Billing Sales Branch Enterprise IT Platform ASPs and Outsources Freight Forwarders Suppliers Business Customers Logistics

Core Transaction Management Elemica Products ESD – Supplier Web Portal ESC – Batch Flat Files CS – Connected Solution Dashboard EBD – Flat File Buyer Transformation & Routing Business Rule Validation Logic & Processing Mapping & Conversion Dashboard (BAM) Test Environment XML Standard Message Batch Flat File Web Portal EAI Connection Inventory Elemica Transaction Exchange Logistics Order to Cash

Transformation & Routing

Business Rule Validation

Logic & Processing

Mapping & Conversion

One Connection - Multiple Business Processes Inventory Order Management Logistics Elemica Products TransLink – Logistics Terminal & Warehouse Electronic Load Tendering Carrier Portal Elemica Products SCS – Supply Chain Solution Managed Inventory (VMI, SOMI) Inventory Reconciliation Elemica Products SCS – Supply Chain Solution AIM – Invoice Management eSignature – EU Invoices

Elemica Products

TransLink – Logistics

Terminal & Warehouse

Electronic Load Tendering

Carrier Portal

Elemica Products

SCS – Supply Chain Solution

Managed Inventory (VMI, SOMI)

Inventory Reconciliation

Content Introduction and Overview Air Products in Brief Collaboration Opportunity Forecasting Demand vs Order Forecasting Managing Customer Replenishment Elemica Overview Pilot Results Key Conclusions

Introduction and Overview

Air Products in Brief

Collaboration Opportunity

Forecasting Demand vs Order Forecasting

Managing Customer Replenishment

Elemica Overview

Pilot Results

Key Conclusions

Pilot Principles Joint business planning Common goals and metrics Agreement to collaborate Use technology standards for data sharing Data, text, and security Measurement and reporting of joint benefits and performance results

Joint business planning

Common goals and metrics

Agreement to collaborate

Use technology standards for data sharing

Data, text, and security

Measurement and reporting of joint benefits and performance results

Pilot Background Customer Dimensions North American bulk VMI telemetry customer selected for pilot: Two customer shipping locations Annual volume is 49 MM lbs One product supplied from single plant location Product shipped in 20,000 gallon railcars 270 orders/yr 13 day transit time Pilot duration 9 months Performance Polymers

Customer Dimensions

North American bulk VMI telemetry customer selected for pilot:

Two customer shipping locations

Annual volume is 49 MM lbs

One product supplied from single plant location

Product shipped in 20,000 gallon railcars

270 orders/yr

13 day transit time

Pilot duration 9 months

Firmed Order APCI CSR Inventory & Demand Data Calculates Replenishment Orders based on business rules, demand forecast, on-hand inventory and in-transit shipments SAP enterprise design standard messaging Order Create Order Response Ship Notice Invoice Air Products Polymers Automated Collaborative Planning, Forecasting And Replenishment Model Ship Notice Invoice Demand Forecast Telemetry or Inventory Level Exception Alerts Exception Alerts Logistics Providers Shipment Status Order Confirmation Visibility of Order/Shipment Status CSR Runs ATP Order Response Ship Status And Notice Delivery Info Shipment Made Planned Orders Shipment Status via Web Access Order Response APCI Plant via Web Access via e-mail via e-mail BIZTALK Connect Once Connect to All HUB Supply Chain Solution Customer’s System ELEMICA Customer via Web Access

Pilot Customer – Product Inventory Levels Inventory Reduction - 60% 9 Months Safety Stock Level

Pilot Customer Replenishment Accuracy Target 9 Months (Accuracy of actual on-hand inventory compared to target stock level)

Overall Pilot Results Before After Run Outs 0 0 Tank Truck Shipments/yr 70 0 % Days Below Inventory Target (40%) 32 0 Variation in Inventory (railcars) +/- 3 +/- .7 Safety Stock Levels (railcars) 14 10 Actual On Hand Inventory (railcars) 18 10 Total combined cost savings ~ $500,000 Working capital reduced ~ $475,000 (Joint Goals)

Implementation Plan Target existing bulk VMI/Consignment customers to reduce inventory levels Bulk customers already using telemetry Bulk customers with no telemetry

Target existing bulk VMI/Consignment customers to reduce inventory levels

Bulk customers already using telemetry

Bulk customers with no telemetry

Content Introduction and Overview Air Products in Brief Collaboration Opportunity Forecasting Demand vs Order Forecasting Managing Customer Replenishment Elemica Overview Pilot Results Key Conclusions

Introduction and Overview

Air Products in Brief

Collaboration Opportunity

Forecasting Demand vs Order Forecasting

Managing Customer Replenishment

Elemica Overview

Pilot Results

Key Conclusions

Conclusions Managing a customer’s replenishment can improve service levels and it’s in our best interest to do so Makes it easier for customers to do business with us and strengthens customer relationships Helps improve our performance, reliability of deliveries, and lowers our costs Provides a practical way to increase collaboration with customers Elemica makes it possible to have one process to improve service levels and reduce costs

Managing a customer’s replenishment can improve service levels and it’s in our best interest to do so

Makes it easier for customers to do business with us and strengthens customer relationships

Helps improve our performance, reliability of deliveries, and lowers our costs

Provides a practical way to increase collaboration with customers

Elemica makes it possible to have one process to improve service levels and reduce costs

Elemica Provides . . . Total Visibility Real Time Exception Based Integrated

Questions