The Power of Metrics in Achieving Supply Chain Excellence (Firmenich Case Study) IBF Supply Chain Planning & Forecasting Scottsdale, AZ February 24-26, 2013 Stephen Crane, CSCP Director S&OP Flavors NA Firmenich 1Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Agenda Who is Firmenich Evolution of S&OP S&OP Process Hierarchy Role of Performance Metrics Eight Steps to Success KPI Scorecard Forecast Accuracy & Bias Benefit Examples 2Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Over 117 Years of Success Firmenich • Founded by Charles Firmenich in 1895 • Largest Privately Owned Company in Fragrance & Flavor Industry • Headquartered in Geneva Switzerland • Divisions: Perfumery, Flavors, Ingredients Company Foundation 1895 in Geneva, Switzerland Global Sales 2.78 Billion Swiss Francs Average Growth per year: 7% Number of Employees: 6,000 Global presence: Over 64 Countries Manufacturing Worldwide: 22 Plant Sites R&D Centers: Geneva, Princeton, Shanghai R&D Awards: 35 awards including a Nobel Prize Patents: 1,400 Annual Investment in R&D Around 10% 3Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Firmenich ERP Platform SAP R/3 Single Instance – Initial NA Go-Live December 2009 (Princeton) – Global Implementation Completed in December 2011 APO (Advanced Planner & Optimizer) v4.1 – Deployed Demand Planning (DP) and Supply Network Planning (SNP) modules – Implemented standardized processes for S&OP, Demand Planning, Supply Planning Performance Management (KPI Scorecard) – S&OP implementation started in 2008 – Standardized KPI Metrics for plant sites, regions, and global business 4Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Firmenich Roadmap To S&OP Excellence S&OP Excellence • Competitive Advantage Profitable Growth • Scenario Planning • Network Optimization • Supply Chain Automation • Focus on Costs & • Benchmark Performance Execute the Plan Productivity • Cost-To-Serve • Customer Segmentation • Executive S&OP • Product Portfolio The Fundamentals • Align all Functions to One Management Plan • Complexity Reduction • Integrate NPI into S&OP • Continuous Improvement • Demand • Regional Independence • Supply • Align Demand w/Finance • Inventory • Identify Plan Gaps & Actions • Service • Link Planning w/Execution • Improve Planning • KPI Scorecards Creating a Competitive Advantage for Firmenich and our Customers 5Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Enterprise Process Blueprint Level 1 Process Business Strategy & Supply Chain Portfolios Competency Center S&OP (Planning) Sales KPIs To MeasureS Customers Customer Innovation PurchasingImprovement Operations Care Quality Master HR Finance HS&E Technology Data 6Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
S&OP Monthly Process Level 2 Process Production Planning Sales & Operations Planning Procurement Planning Demand Planning (How much could we sell?) Balance Demand Issue Supply Chain Plans Inventory & Supply (Do they match?) (Can we execute Planning plans?) Supply Planning (How much can we supply? Logistics Planning Financial S&OP provides outputs to, and needs Projections Input from many other processes 7Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Definitions: Metrics, KPIs & Measurement Metric – “a standard of measurement” – Inches, feet, meters – Value of inventory • Key Performance Indicator – a metric that is important to understanding past, present, or future business performance – Braking Distance – Inventory Turns • Measurement – the value derived from applying the metric – Braking Distance of a car traveling 50 MPH is 82 feet – Inventory turns 6 times per year 8Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
What Drives Functional Metrics? If it moves, measure it • If it is easy to measure, report it • My boss decided it was a good thing to measure • If it went wrong once years ago, we still measure it • Just in case we ever get asked • This way we know everything 9Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Role of Performance Metrics To provide a quantified definition of what is important and how the organization is performing. To ensure alignment between strategic, tactical, and operational goals & objectives. To facilitate a cross-functional view of relative importance among individual, team, and functional goals & objectives. To motivate the organization towards continuous improvement. To provide a means to link individual and organization performance to reward systems. “You cannot improve what you do not measure” 11Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Eight Steps to Measurement Success Plan: Create a development plan for metrics with timeframes and milestones Scope: Focus on a few metrics that really matter providing the most balanced view of end-to-end supply chain performance Process: Define clear ownership, roles, responsibilities, and structure Culture: Proactively address organizational resistance Communication: Create a balanced scorecard to track historical data and for easy organizational communication Tools: Invest in the tools that will make it reliable and repeatable Turn Data into Action: Hold weekly/monthly scorecard reviews to monitor progress, prioritize corrective actions, and engage the organization Power Through Process: Institutionalize your measurement program through a business process to “make it sticky” 12Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
12 Key Metrics To Maximize Supply Chain Performance Forecast Accuracy (Demand Planning) Largest Profit Drivers Supply Plan Accuracy (Supply Planning) On Time Shipping Rate Fill Rate Perfect Order Fulfillment Capacity Utilization Inventory Days of Supply “Without a yardstick, there is no Freight Bill Accuracy measurement. And without measurement, there is no control.” Freight Cost per Unit Cash to Cash Cycle Time COGS % of Revenue Revenue Forecast Accuracy 13Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Metric Profile Develop a Detailed KPI Profile For Each Metric Balanced Scorecard Perspective: Select the Frequency: How often is this metric reviewed? perspective – Financial, Customer, Growth, or Internal Hourly, Daily, Monthly, Quarterly, etc. Business Process Category: What business process Level of Detail: What level of information is available? should be measured ? Customer Service, Inventory, By product, business, country, customer, customer Forecasting, Production, or Procurement segment, etc. Owner: Who is accountable for the result of this KPI? Calculation: Document the formula and any special Document name and function components – average count, mean absolute deviation, percentages, differences, etc. Data Coordinator: Who is responsible for gathering Baseline Data: What year, month, or other time period data for KPI? Document name and function was used as the baseline? Data Source: Where does the information come from? Tolerance: What is the allowable error to target? BW, SAP, Financial systems. What is measured? Data Availability: When is the data available for What are primary components? Fit into one sentence updating? Purpose: Why do we measure this KPI? What is the Comments: Include possibility of automating data desired outcome? collection, issues around gathering the data, potential resources for the information. Include any other information that tells the user more about the KPI 14Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
S&OP Scorecard Example Increases Visibility of Performance to Organization Flavors North America Operations Scorecard FY12 Average FY- 12 vs. FY-12 Tolerance Status Average FY- Target 11 Flavors NA Operations KPIs Owner Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Planning Forecast Accuracy (%) S&OP Supply Plan Adherence (%) S&OP Sales Total Sales ($ K) Finance Volume Sold (MT) Finance Revenue Forecast Accuracy (%) Finance Manufacturing Total Expenses ($K) Man. Capacity Utilization (%) Man. Production Volume (MT) Man. Service On Time Shipping Logistics On Time Delivery Logistics Inventory Inventory ($ USD, in Millions) IM MOH (Inventory Months on Hand) IM Inventory Record Accuracy (%) IM Quality Service Index QC Product Index QC Safety TRC HS&E LTC HS&E Customer Care Billing Accuracy CC Lead Time Compliance CC MOQ Compliance CC Logistics % Carrier Compliance Logistics Expedited Freight Costs Logistics 15Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
KPI Benefits Over Last 2 Years Communicate Successes Along the Way Forecast Accuracy increased by 250% Forecast Bias reduced by 80% Supply Planning Accuracy increased by 30% Customer On Time Delivery increased by 26% Inventory MOH decreased by 53% Supply Chain Costs decreased by 15% Order MOQ Compliance increased by 8% Supplier On Time Delivery increased by 20% Total Recordable Cases (TRC) decreased by 46% Lost Time Cases decreased by 87% 16Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Firmenich NA Business Dimensions 6 Plants 3250 Products 916 Customers 3,715 Forecasting Records (APO DP) 98% of customer/product combinations not statistically forecastable 17Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Forecast Accuracy 44% Annual Rate of Improvement 60% Target Forecast Accuracy % 50% 40% 30% 20% 10% 0% NA - 1 Month Linear (NA - 1 Month) 18Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Forecast Accuracy Pivot Table View by ACM, Month, Product Class, Deviation, Over/Under Bias Don’t focus on product Calendar Mth/Yr 10/2012 level accuracy ACM (All) Class (All) Values Material Cust Sum of ACM Fcst Sum of Sales ACM Dev Final Dev Over/Under ACM Accur 869240 2CBUM 276814 2,187 43,364 41,177 7,711 UNDER 5% 050001 AP50102 112557 9,434 29,921 20,486 14,961 UNDER 32% 125340 956 0 956 0 OVER 0% 241108 0 8,727 8,727 8,727 UNDER 0% 290272 3,378 4,156 777 4,156 UNDER 81% 868928 CB 736440 12,383 39,917 27,534 19,958 UNDER 31% 868560 CB 109207 0 31,752 31,752 0 UNDER 0% 868894 CB 109207 14,869 26,127 11,259 9,072 UNDER 57% 059432 TBHAP0551 707592 9,798 19,596 9,798 0 UNDER 50% 050999 560091T 366341 7,986 19,160 11,174 0 UNDER 42% 534104 TP0186 106614 10,835 18,625 7,790 4,673 UNDER 58% 868664 CB 102553 27,500 18,500 9,000 9,000 OVER 51% 571101 119002 13,553 17,481 3,928 1,605 UNDER 78% 24Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Forecast Deviation Comparison Focus on Deviations Not Accuracy Don’t focus on product level accuracy Sales Forecast Accuracy Deviation 1000 kg 500 kg 50% 500 kg 10,000 kg 5,000 kg 50% 5,000 kg 25Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Top Over & Under Forecasted Items January 2013 Analysis Updated Weekly Top Under Top Over Forecasted Forecasted Products Products North America Potential Under Forecasting Demand Forecast Potential Over Forecasting Demand Forecast ACM Customer # Item Description Jan-13 Jan-13 ACM Customer # Item Description Jan-13 Jan-13 KHAR 114521 APPLE FLAVOR 4,805 - JENS 115048 APPLE FLAVOR - 45,000 MRY 104732 WHITE CAKE FLAVOR 4,536 1,275 YVD 102553 CHEESE SAUCE FLAVOR - 19,792 MRY 104732 SWEET MIX FLAVOR 2,268 - CEC 109207 CHICKEN AND SALT ENH FLAVOR 20,866 38,556 JOHG 961345 BUTTER DURAROME FLAVOR 6,000 4,000 KMCC 287580 ORANGE AROMA OR50100 FLAVOR - 15,967 CRY 112211 COCOA FLAVOR 2,265 593 BCAR 112557 APPLE FLAVOR - 14,960 KMCC 241108 APPLE FLAVOR 1,662 - CEC 119002 SAUTEED ONION FLAVOR 1,700 14,824 TOND 120877 APPLE FLAVOR 1,452 - SRY 276814 CHICKEN GARLIC HERB FLAVOR - 12,025 CRY 266063 ORANGE CREAMSICLE FLAVOR 1,588 202 AGAR 352385 SWEETNESS MOUTHFEEL 2X FLAVOR - 8,165 SRY 123100 HONEY VANILLA DURAROME FLAVOR 1,200 - CEC 119002 VANILLA FLAVOR 2,177 9,299 SRY 123100 CHERRY FLAVOR 1,200 - PKR 120877 CHICKEN FLAVOR - 6,769 PKR 502418 RASPBERRY FLAVOR 1,815 907 KMCC 112486 ORANGE FLAVOR - 6,360 JOHG 244118 FLAVOR ENHANCER 907 - CEC 614433 MOLASSES FLAVOR - 6,124 JRBD 564642 VANILLA CREAM FLAVOR 2,722 1,814 AGAR 352385 LEMON FLAVOR - 6,033 Customer Care to talk to customers about the gaps 27Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Forecast Bias Action Summary Analysis is the key. Focus should always be on forecast deviation not forecast accuracy Hold structured Demand Reviews with Sales and Customer Care focused on Top deviations Investigate Top Over Forecast and Under Forecast Deviations Track Forecast Bias by plant, investigate Top deviations Measure and report forecast accuracy by ACM Measure and act on forecast not sold & unforecasted demand, increasing collaboration with customers 28Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Benefits of Accurate Volume Forecasts Increasing Forecast Accuracy Decreases Inventory Increasing Forecast 120 Accuracy from 40% to 60% would reduce NA inventory by ~$30 million Inventory Days of Sale 100 80 60 40 20 0 20% 30% 40% 50% 60% 70% 80% 90% 100% Forecast Accuracy at SKU Location Source: Aberdeen Group 2008 29Fostering Demand Planning, Forecasting, S&OP for 30+ Years!
Questions? Thank you for participating! Stephen P. Crane, CSCP Director S&OP Flavors NA Firmenich Stephen.firstname.lastname@example.org 30Fostering Demand Planning, Forecasting, S&OP for 30+ Years!