Putting The Forecast In Its Place:Moving from a Push-Based, Manufacturing Centric Supply Chain to aPull Based, Demand-Driv...
Clariant – key facts                                                                  Clariant is a world leader in colors...
Pigments BusinessBusiness Profile:                                                                                        ...
What is changing in supply chain ? Supply chain cost likely to                           Increasingly inflexible          ...
Improvement areas to achieve objectives  1                                                                                ...
Our effort to improve accuracy as the basis ofour Make-to-Forecast did not pay-back                                 Foreca...
Completing the puzzle towards efficiency  1                                                                               ...
From Push to Pull: Our Four Step Approach                1. Use the demand forecast in the                1. Use the deman...
1. Use the demand forecast in the S&OP to‘condition’ the supply chain                                                     ...
2. Decouple production from forecast and MRPsynchronizing the supply chain with actual demand                             ...
3. Apply demand-pull planning techniques toreplenish inventory where possible                                             ...
The selection of planning scenarios is based onvolume and demand variability                                              ...
The re-order point is quarterly reviewed basedon average demand and desired service level     Product Details:     Average...
4. Operationalize the operating practices intoour core processes and SAP system      Extensive training program sponsored ...
What about capturing market data?                                                                                         ...
Inventory reductions of up to 40% within the regionaldistribution warehouses realised           Regional Distribution Ware...
Summary of the experience           A well functioning planning is                                                        ...
Confidential                                                                                                         Corp ...
Questions & Answers                                                          Contact Information:             Matt Tichon ...
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Chemical Supply Chain

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Moving from a Push-Based, Manufacturing Centric Supply Chain to a Pull Based, Demand-Driven Model

By Matt Tichon & Guillermo Fumero

LogiChem 2011 will be the event's tenth anniversary and an opportunity for the most senior chemical supply chain & global logistics directors from the European chemicals community to come together once again share experiences, make new contacts and benchmark the latest chemical supply chain initiatives.

Not only will LogiChem 2011 be a chance for the chemical industry to reminisce about the last ten years but an opportunity to shape the next decade. To celebrate a decade of LogiChem, there will be an exciting three day programme filled with networking opportunities in our new location, Antwerp.

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Chemical Supply Chain

  1. 1. Putting The Forecast In Its Place:Moving from a Push-Based, Manufacturing Centric Supply Chain to aPull Based, Demand-Driven Model - Matt Tichon, Head of Supply Chain - Guillermo Fumero, Global Head of Supply Pigments, North America Chain and Procurement Pigments
  2. 2. Clariant – key facts Clariant is a world leader in colors, surface effects and performance chemicals Annual sales of CHF 6.6 billion in 2009 Headquartered in Muttenz near Basel, Switzerland World-wide operations, with more than 100 companies Approximately 17,500 employees Products and services of 10 Business Units are based on innovative specialty chemicalsMatt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) 20.04.2010 Slide 2 / 17
  3. 3. Pigments BusinessBusiness Profile: Business Facts: Leading global provider of organic One of Clariant’s biggest pigments, pigment preparations and dyes business (24% of group sales) used in coatings, printing, plastics, and Global network in 37 countries other specialty applications. with 24 production sites Our broad portfolio includes high- Global Supply Chain structure: performance pigments to meet the exact Global Demand and Inventory demands of the automotive, architectural Management , KPIs and processes and plastics industries as well as colorants used in ink jet and laser printers tailored to Regional operations individual needs. Asia-Pacific (India, Japan, Korea) EMEA Decades of know-how make our products Latin America the industry standard for performance and North America quality. This is supported through our Global SAP R3 and APO systems global technical service centers. Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 3 / 17
  4. 4. What is changing in supply chain ? Supply chain cost likely to Increasingly inflexible Production constraints Customer demanding more increase supply responsiveness Total supply chain cost Increasing number of Excess capacities are Customers reduce own currently at about 5% of materials sourced globally reduced to minimise fix stocks, asking for more sales with long lead-times cost base just-in-time deliveries Cash focus in whole value Working capital priorities Additional demand or Customers placing orders chain leading to smaller are driving raw material order changes cannot be on short-notice order sizes, which stocks down absorbed as easily as in increases transaction Reduced competition the past costs We need to continuously improve our supply chain performance and capabilities in order to remain competitiveMatt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) 20.04.2010 Slide 4 / 17
  5. 5. Improvement areas to achieve objectives 1 2 Demand planning Demand and inventory management Statistical Sales Global S&OP Demand& Inventory Master Purchasing forecast Planner Demand Management Planning Plan Improve inventory parameters (e.g., safety stocks, right decoupling points) Introduce appropriate methods for replenishment Improve planning accuracy strategy Improve S&OP processes 3 Improve quality of planning Ensure that all relevant data for Data quality parameters in master data planning are available 4 Performance management Introduce Define clear Train people and capability building KPI reporting accountabilitiesSource: CIP Planning Booster Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
  6. 6. Our effort to improve accuracy as the basis ofour Make-to-Forecast did not pay-back Forecast Accuracy 2008 Despite substantial investment in process and technology improvements we struggled to 100 maintain forecast accuracy above 60% 90 80 Percentage Accuracy 70 Big monthly planning efforts have been critically 60 supported by marketing sales only as much as 50 the topic was in the limelight 40 30 20 Long replenishment lead-times further 10 deteriorated our forecast accuracy 0 Jul Aug Sep Oct Nov Dec We acknowledged that our forecasts were *Note: Forecast accuracy calculated as weighted average of insufficient as a basis for triggering production forecast deviation for all products with demand plan Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 6 / 17
  7. 7. Completing the puzzle towards efficiency 1 2 Demand planning Demand and inventory management Statistical Sales GDP S&OP DIP MP Pur- forecast Planner chasing Focus on fewer products and differentiate Improve inventory parameters (e.g., safety stocks, demand planning right decoupling points) Introduce appropriate methods for replenishment Improve planning accuracy strategy Improve S&OP De-couple daily processes execution 3 Improve quality of planning Ensure that all relevant data for Data quality parameters in master data planning are available 4 Performance management Introduce Define clear Train people and capability building KPI reporting accountabilitiesSource: CIP Planning Booster Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
  8. 8. From Push to Pull: Our Four Step Approach 1. Use the demand forecast in the 1. Use the demand forecast in the 2. Decouple production decisions 2. Decouple production decisions S&OP to ‘condition’ the supply chain S&OP to ‘condition’ the supply chain from the forecast and MRP runs from the forecast and MRP runsSuppliers Warehouse Customer Plant 3. Apply demand-pull planning 3. Apply demand-pull planning 4. Operationalize these practices into 4. Operationalize these practices into techniques to replenish inventory techniques to replenish inventory our core processes and SAP system our core processes and SAP system where possible where possibleMatt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 8 / 17
  9. 9. 1. Use the demand forecast in the S&OP to‘condition’ the supply chain “Supply Chain Conditioning” Planning and Control Framework The Sales and Operations Planning process sets the overall demand Global Demand Supply Monthly C o n g i t d level trend at product group level. Planning Planning S&OP – Identifies production resource requirements SC Agree MidParameter Updates Term Plan – Procurement of long lead times Raw Materials SAP Actual Order – Sets parameters for Stock Level Fulfillment o u E n c i e t x replenishment execution i.e. pull and push strategies Scheduling Customer Orders “Supply Chain Execution” Bi Weekly Production Check points Actual product consumption triggers Orders the replenishment of products in line with the replenishment parameters Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 9 / 17
  10. 10. 2. Decouple production from forecast and MRPsynchronizing the supply chain with actual demand Triggered in line with Replenished from consumption of the controlled primary global stocking inventory held in the Primary point in line with actual Distribution center consumption Long Lead Primary Mid Term Time Raw Global Regional Forecast Materials Raw Distribution Distribution Materials Center Center Short Lead Time Raw Manufacturing Customer Materials Based on demand pull communication where feasible to ensure Call Off Call Off Consolidated Regional Customer availability with Signal Signal Replenishment Replenishment Order optimized inventory Pull Signal Pull Signal Demand amplification throughout the supply chain is eliminated as the actual customer demand is communicated using demand pull replenishment techniques Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 10 / 17
  11. 11. 3. Apply demand-pull planning techniques toreplenish inventory where possible Make To Order was used when the customer lead time allowed Volume-Variability Analysis 8.0 When supply from stock is required, 7.0 Annual Campaign planning techniques were identifiedNormalised standard deviation Planning 6.0 based on the volume and statistical 5.0 variability of each product 4.0 RoP Demand Pull 3.0 Techniques Inventory levels were set as a function 2.0 of demand, lead time and required Kanban 1.0 Rate Based customer service levels 0.0 0 500 1,000 1,500 Average demand in Kg 2,000 2,500 Products with predictable volumes became ‘self managed’ Planning effort focuses on products which need more attention Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 11 / 17
  12. 12. The selection of planning scenarios is based onvolume and demand variability Kanban is responsive to actual demand and replenishes material in multiples of a fixed quantity Provides self-management and flexibility Planning Scenarios High Re-order Point is also responsive to actual Campaign demand but uses just one re-order quantity management - Used when variability is too high for Kanban DEMAND VARIABILITY Re-order Point Re-Order Point Make to Order Campaign Management is used for very low- volume materials - Inventory may last a long time but is not significant Kanban Make to Forecast and Make to Order used for Low High special products PRODUCT VOLUME MATERIAL Buy to Forecast used for products including Raw Materials with long lead times Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
  13. 13. The re-order point is quarterly reviewed basedon average demand and desired service level Product Details: Average Weekly Demand: 3,343 Kg Parameters considered Replenishment Lead Time: 5 weeks Average demand Desired Service Level: 95% Lead times Lot sizes (technical and optimal) ROP Components Demand variability Inventory to cover average 16,715 kg demand over lead time Desired service level Inventory to cover demand 12,548 kg variability for 95% service As the re-order point is directly related to level the desired service level, the impact of ROP for product 29,263 Kg reduced inventories on service level can be evaluated when planning inventory Replenishment order is placed levels and investment when on-hand inventory plus open orders is less than ROP Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 13 / 17
  14. 14. 4. Operationalize the operating practices intoour core processes and SAP system Extensive training program sponsored by the Division Head with all stakeholders Supply Chain Conditioning has been integrated into the S&OP process – Planning parameters and the calculated inventory levels are reviewed quarterly and replenishment technique selection is reviewed annually A ‘Planning Cockpit’ has been developed in SAP with visual signals Global KPI’s have been established to measure inventory, customer service and operational compliance for each implementationMatt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 14 / 17
  15. 15. What about capturing market data? Simple form is used by the sales force to communicate our Global marketing known demand changes Global marketing review input for “Top 50” products by Market segment Action can be taken immediately to adjust the ROPs/Kanbans and place new replenishment orders Information is reviewed during the regional S&OP process and forwarded to the global S&OP team for new productions if necessary ( decisions in global S&OP and Check point meetings )Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 15 / 17
  16. 16. Inventory reductions of up to 40% within the regionaldistribution warehouses realised Regional Distribution Warehouse Planned Planned inventory requirements Inventory Reduction (% Tons) were calculated based upon a 95% 100 service level 80 Current supply lead times, minimum 60 order quantities and demand 40 patterns were used in the modelling 20 0 Substantial additional inventory USA Asia * Latin America reduction opportunities have been Before - Replenish to Forecast With Pull Based Replenishment identified that require current supply constraints to be addressed * A large percentage of Asia business was originally replenished on Make to Order planning scenariosMatt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 16 / 17
  17. 17. Summary of the experience A well functioning planning is During “Crisis or big changes “ still required to right “condition” human intervention is the supply chain. necessary to overrun system decision (bi weekly control required) Pull strategies works , eliminate noise of bad detailed planning and react to normal changes in Synchronization of Master demand data (e.g. lead times or replenishment lots ) across borders are a must In volatile markets risk of overstock is limited to the “filling levels” defined Centrally managed updates of parameters ensures continuous optimizationMatt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
  18. 18. Confidential Corp Comms 04.11.2009 Thank You!Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
  19. 19. Questions & Answers Contact Information: Matt Tichon Guillermo Fumero Clariant Corporation Clariant International Ltd M: +1-401-441-2557 M: +41-798181977 Matt.Tichon@clariant.com Guillermo.Fumero@clariant.comMatt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)

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