Does APO Really Work? - An APO Case Study


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A case study on how to get APO to work and add significant business value

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  • Ayesha says Yes, SAP APO is the best of the breed software. It is a million dollar question with process, shop floor dependency, vendor manifesto, time, S&OP and people collaboration dependent. So we have to make sure we make it work and that is the purpose of the strategy planning with optimization. There is lots of hand shake involved.
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  • Introduction Good afternoon. My name is Steve Crane. I am the director of supply chain for the Air Products Polymers business at Air Products. In 2002, we began implementing APO in several of the business units in Air Products. Since implementation, there has been a wide range of opinions as to how well APO works in these businesses. In my business, it is working very well. In industry in general, there has also been a wide range of opinions as to how well APO works. While there have been several successful case studies published in the CPG industry, some other industry segments have not necessary faired as well. So I thought there must be some key differences between successful implementations of APO and those considered not so successful. This is what lead me to develop this case study, where I have tried to identify those critical success factors necessary for a successful implementation. I will be highlighting how we used the SCOR model as the foundation for our S&OP process and key metrics that we integrated APO with.
  • Does APO Really Work? - An APO Case Study

    1. 1. Air Products and Chemicals, Inc. Stephen P. Crane, CSCP Director Supply Chain Does SAP APO Really Work? Air Products Polymers APO Case Study Supply Chain World NA Philadelphia, PA March 20, 2007 Integrating Demand Planning and Supply Planning With Production Scheduling
    2. 2. Content <ul><li>Air Products in Brief </li></ul><ul><li>Business Situation </li></ul><ul><li>Process, People, & Tools </li></ul><ul><li>Critical Success Factors </li></ul><ul><li>The Benefits </li></ul><ul><li>Lessons Learned </li></ul>
    3. 3. Who is Air Products?
    4. 4. Air Products in Brief <ul><li>Global supplier of gases, chemicals, equipment, and health care services </li></ul><ul><li>FY06 revenue ~$8.9 billion </li></ul><ul><li>Serving customers in technology, energy, industrial and healthcare markets </li></ul><ul><li>One of the safest large-scale chemical companies </li></ul><ul><li>Operations in more than 40 countries </li></ul>
    5. 5. Content <ul><li>Air Products in Brief </li></ul><ul><li>Business Situation </li></ul><ul><li>Process, People, & Tools </li></ul><ul><li>Critical Success Factors </li></ul><ul><li>The Benefits </li></ul><ul><li>Lessons Learned </li></ul>
    6. 6. Air Products Polymers, LP Worldwide Leader in Co-Polymer Dispersion Technology, Serving Adhesives, Nonwovens, Coatings, and Pressure Sensitive Adhesives markets
    7. 7. Air Products Polymers, LP Dimensions <ul><li>$570 million global business </li></ul><ul><li>Multi regional (NA, Europe, Asia) </li></ul><ul><li>6 Plants (4 NA, 1 Europe, 1 Asia) </li></ul><ul><li>230 Products </li></ul><ul><li>1,800 Ship-to Customer Locations </li></ul><ul><li>3,500 Planning Combinations (Material-Ship-to-Primary Source Plant) </li></ul>
    8. 8. Where We Started in 2003 <ul><li>Just went live on SAP, master data issues </li></ul><ul><li>New processes, roles, tools, and data sources </li></ul><ul><li>Planning processes loosely integrated </li></ul><ul><li>Poor visibility of demand/supply balance </li></ul><ul><li>Numerous service issues, late deliveries, renegotiated orders </li></ul><ul><li>Communication gaps among the business, finance, and supply chain </li></ul><ul><li>No linkage between volume forecasts and financial forecast </li></ul>
    9. 9. APO v3.0 Objectives (Advanced Planner & Optimizer) <ul><li>Utilize APO to enable a robust & effective S&OP process </li></ul><ul><li>Establish cost-based optimization approach to supply planning vs MRP </li></ul><ul><li>Increase forecast accuracy to improve supply chain effectiveness </li></ul><ul><li>Align production scheduling with monthly supply plan to reduce inventory levels and reduce order lead time </li></ul><ul><li>Establish rules for order commitment process to improve order fulfillment and customer satisfaction </li></ul><ul><li>Align demand plan with financial forecast to improve financial forecasting accuracy </li></ul>
    10. 10. Content <ul><li>Air Products in Brief </li></ul><ul><li>Business Situation </li></ul><ul><li>Process, People, & Tools </li></ul><ul><li>Critical Success Factors </li></ul><ul><li>The Benefits </li></ul><ul><li>Lessons Learned </li></ul>
    11. 11. Process, People, Tools <ul><li>Business process improvement and success rely on proper blending of Process, People, and Tools/Technology </li></ul><ul><li>Overemphasis on any one leads to an imbalance that can defeat the intended purpose of a project </li></ul><ul><li>Our focus was on the process first, then the people, and lastly the tool </li></ul>
    12. 12. Process , People, Tools <ul><li>Process </li></ul><ul><ul><li>Process provides standardization and defines what needs be done to meet effectiveness, efficiency, and responsiveness goals </li></ul></ul><ul><ul><li>S&OP process is a flow of activities with the goal of meeting customer requirements </li></ul></ul><ul><ul><li>Includes all internal functions, sales, customer service, marketing, planning, manufacturing, sourcing, logistics, finance, and R&D </li></ul></ul><ul><ul><li>Includes external companies, from delivering orders to customers to receiving materials and parts from suppliers </li></ul></ul>
    13. 13. Air Products Global Work Processes
    14. 14. S&OP Process P1.1A – Identify, Prioritize, & Aggregate SC Requirements DAY 0 - 8 P1.4 – Establish & Communicate SC Plans DAY 13-15 P1.3A – Balance Supply Chain Requirements with SC Resources DAY 9 – 12 P1.2A – Identify, Prioritize, & Aggregate SC Resources DAY 0 - 8 Review Historical Sales Data Review Demand Metrics Apply Historical Sales Data Adjustments Apply Future Demand Change Notifications Run Forecast Model Agree & Communicate Approved Plans Communicate Implications to Financial & Sales Plans Review Supply Plan & Cost Projections Develop/Modify Supply Chain Plans Review Supply Planning Measures Adjust Supply Planning Constraints Load & Review Unconstrained Demand Plan Submit Supply Plan with Documented Options Approve & Publish Supply Plan Approve & Publish Unconstrained Demand Plan Gather Data [DAY0] Gather Data [DAY 0] Define Supply Capability [DAY 1 – 8] Develop Supply Plan Proposals [DAY 9] Finalize & Approve Supply Plan [DAY 10 -12] Aggregate All Sources of Supply Initiate Req Master Data Changes Review Inventory Available Review Supply Capability Create Demand Change Summary B A Partnership Meeting [DAY 13] Executive S&OP [DAY 15] Summarize Supply Chain Plans Gather Collaborative Input (Future Function) Create Unconstrained Demand Plan [DAY 1 -8] Develop Unconstrained Revenue Projection Apply New Characteristic Combos Adjust Statistical Parameters (if needed) Review and Validate Unconstrained Forecast Input Source, Make, Deliver Product & Capacity Plans Create Supply Change Summary Develop Supply Plan Proposal (Optimization) Review Alerts Assess Impact & Develop Options Review Excess Capacity, Supply Options, Demand Exceptions Issue Resolution Agree to Supply Plan Initiate any Master Data MOC Review Supply Chain Plans Review Revenue Projections A B C C BI
    15. 15. Process, People , Tools <ul><li>People </li></ul><ul><ul><li>People make organizations, are important to business and supply chain success </li></ul></ul><ul><ul><li>They need to understand how their function fits into the supply chain and how to make it better </li></ul></ul><ul><ul><li>People success is also a function of corporate culture. Organizational silos can short-circuit a supply chain process by sub-optimizing the overall process </li></ul></ul>
    16. 16. People Assigned Full Time Supply Chain Roles Financial forecasting Profit Center Planner Order delivery execution Transportation Planner Raw material supply Sourcing Manager Executing plant supply plan Master Scheduler BOMs, recipes Master Data Technician Data accuracy, audit process MRP Data Administrator Monthly S&OP process Supply Chain Manager APO supply planning Supply Planner APO statistical forecasting Demand Planner Overall forecast accuracy Demand Manager
    17. 17. S&OP Best Practices <ul><li>22 S&OP Best Practices </li></ul><ul><li>S&OP Assessment Shows Gaps </li></ul><ul><li> Not doing - Poor </li></ul><ul><li> Fair – Very Good </li></ul><ul><li> Excellent </li></ul><ul><li>Identify key issues </li></ul><ul><li>Develop actions to drive process improvements </li></ul>
    18. 18. S&OP Assessment Trend Improved performance from 74% to 98%
    19. 19. Process, People, Tools <ul><li>Tools </li></ul><ul><ul><li>Supply chain management is sometimes incorrectly defined in terms of technology </li></ul></ul><ul><ul><li>Software is sometimes “sold” as the answer to supply chain issues </li></ul></ul><ul><ul><li>Software does not solve problems. Processes and people solve problems </li></ul></ul><ul><ul><li>APO should never be considered an IT project. It should be a business process improvement project </li></ul></ul>APO GLOBAL INTEGRATED PLANNING DP SNP ATP AIR PRODUCTS POLYMERS
    20. 20. Air Products Basic Beliefs <ul><li>Business strategy should drive planning strategy </li></ul><ul><li>Planning should simulate integration of all business functions, is necessary to properly manage the demand chain, supply chain, and financial plan </li></ul><ul><li>Improved planning drives improved execution </li></ul><ul><ul><li>Difficult without an integrated process </li></ul></ul><ul><li>Key metrics are necessary to measure effectiveness of executing the plans </li></ul><ul><li>S&OP is the key to reconciling the various plans </li></ul>APO GLOBAL INTEGRATED PLANNING DP SNP ATP AIR PRODUCTS POLYMERS
    21. 21. Why APO? SAP APO is Market Leader for SCP Source: AMR Research, 2005
    22. 22. Why APO? <ul><li>Integration with R3 and APO </li></ul><ul><li>Decision support with what-if simulations </li></ul><ul><li>Advanced statistical forecasting tools </li></ul><ul><li>Aggregation to simplify demand/supply planning </li></ul><ul><li>Exception management for forecast/supply alerts </li></ul><ul><li>Integration of supply planning with production scheduling </li></ul><ul><li>Product Lifecycle Management suite </li></ul><ul><li>BW provides standardized management reporting </li></ul>
    23. 23. Overview of APO SCP Modules <ul><li>Demand Planning </li></ul><ul><li>Forecasting </li></ul><ul><li>Simulation </li></ul><ul><li>Collaboration </li></ul><ul><li>Monitoring </li></ul>DP <ul><li>Supply Network Planning </li></ul><ul><li>Network modeling </li></ul><ul><li>Cost optimization </li></ul><ul><li>Deployment </li></ul><ul><li>Load builder </li></ul><ul><li>VMI </li></ul>SNP <ul><li>Production Planning/Detailed Scheduling </li></ul><ul><li>Planning </li></ul><ul><li>Scheduling </li></ul><ul><li>Monitoring </li></ul>PP/DS <ul><li>Global Available to Promise </li></ul><ul><li>Capable to promise </li></ul><ul><li>Allocation </li></ul><ul><li>Substitution </li></ul><ul><li>Multilevel check </li></ul>GATP <ul><li>Transportation Planning/Vehicle Scheduling </li></ul><ul><li>Route optimization </li></ul><ul><li>Consolidation </li></ul><ul><li>Carrier selection </li></ul><ul><li>Tendering </li></ul>TP/VS SAP APO Source: SAP, 2005
    24. 24. APO Project Implementation <ul><li>Blueprinting Phase for APO v3.0 Enterprise Design – August 2002 </li></ul><ul><li>Integration Testing – February 2003 </li></ul><ul><li>Final QA Testing – March 2003 </li></ul><ul><li>User Acceptance Testing – March 2003 </li></ul><ul><li>APO Go Live – August 2003 </li></ul><ul><li>APO Stabilization – November 2003 </li></ul><ul><li>SCM 4.1 Technical Upgrade – March 2006 </li></ul><ul><li>SCM 4.1 Improvements – October 2006 </li></ul>
    25. 25. DP/SNP Planning Book Examples DP Consensus Forecast DP Sales History SNP Capacity SNP Production Planning APO GLOBAL INTEGRATED PLANNING DP SNP ATP AIR PRODUCTS POLYMERS
    26. 26. Content <ul><li>Air Products in Brief </li></ul><ul><li>Business Situation </li></ul><ul><li>Process, People, & Tools </li></ul><ul><li>Critical Success Factors </li></ul><ul><li>The Benefits </li></ul><ul><li>Lessons Learned </li></ul>
    27. 27. APO Critical Success Factors <ul><li>Migrating sales history from legacy systems is very complex. R3 data must be correct. </li></ul><ul><li>Automate data transfer from R3. </li></ul><ul><li>Only plan what you need. Minimizes complexity and data maintenance requirements </li></ul><ul><li>Be patient . Full realization may take 2-3 years </li></ul><ul><li>Allocate dedicated business resources early in project </li></ul><ul><li>Consulting support – consultant quality varies, use highly experienced consultants with personal references </li></ul><ul><li>Expect consulting support for 2 years after go-live </li></ul><ul><li>Need R3 stabilization before building APO </li></ul>
    28. 28. Content <ul><li>Air Products in Brief </li></ul><ul><li>Business Situation </li></ul><ul><li>Process, People, & Tools </li></ul><ul><li>Critical Success Factors </li></ul><ul><li>The Benefits </li></ul><ul><li>Lessons Learned </li></ul>
    29. 29. So Where Are We Today? <ul><li>Improved visibility of demand and supply </li></ul><ul><li>Improved service, On-Time Delivery now 97% </li></ul><ul><li>S&OP meetings are boring… a sign of success </li></ul><ul><li>Aligned communications among business, finance, and supply chain </li></ul><ul><li>Sales and volume forecasting for outlooks/budgets; easier and more accurate; drives supply chain plans </li></ul><ul><li>Demand plan aligned with financial plan </li></ul><ul><li>Business plans validated against supply chain capabilities on a monthly basis </li></ul>
    30. 30. The Benefits <ul><li>Reduced instability in inventory levels due to improved forecast accuracy </li></ul><ul><li>Improved supply planning accuracy due to integration with production scheduling </li></ul><ul><li>Improved order fulfillment and customer service </li></ul><ul><li>Improved raw material forecasting for suppliers </li></ul><ul><li>More accurate capacity plans developed based on real world constraints and variability </li></ul><ul><li>Optimized safety stock levels based on service level and profit objectives </li></ul>
    31. 31. S&OP Process KPIs <ul><li>Forecast Accuracy (%) </li></ul><ul><li>Production Plan Adherence (%) </li></ul><ul><li>Inventory Days of Supply </li></ul><ul><li>Financial Forecast Accuracy (%) </li></ul>
    32. 32. Forecast Accuracy Includes Use of BI Process World Class Performance 2003 2007 50% Improvement
    33. 33. Forecast Accuracy vs Inventory DOS Demand Forecast Accuracy (%) Inventory Days of Supply Target Target 20% Improvement 2004 2005
    34. 34. Production Plan Adherence (Supply Planning Accuracy) 38% Improvement 2004 2007
    35. 35. Financial Forecast Accuracy 21% Improvement 2004 2007
    36. 36. Content <ul><li>Air Products in Brief </li></ul><ul><li>Business Situation </li></ul><ul><li>Process, People, & Tools </li></ul><ul><li>Critical Success Factors </li></ul><ul><li>The Benefits </li></ul><ul><li>Lessons Learned </li></ul>
    37. 37. Success requires making the right choices
    38. 38. APO Implementation Lessons Learned <ul><li>Current ERP data quality is not usually acceptable for integration with APO. Requirements for planning master data are very different than transactional master data </li></ul><ul><li>Important to have right mix of business and technical expertise, and the need to dedicate resources full time to project </li></ul><ul><li>Don’t underestimate impact of moving from a manual scheduling process to a common integrated supply chain planning system </li></ul><ul><li>Implementation needs to be led by Supply Chain, not the IT organization. It’s not an IT project. </li></ul><ul><li>APO implementations require simultaneous business process transformation, are hard to implement, but can significantly reduce inventory levels and improve supply chain performance </li></ul>
    39. 39. APO Provides . . . Total Visibility Real Time Exception Based Integrated
    40. 40. Thank you for participating! Stephen P. Crane, CSCP Director Supply Chain Air Products Polymers [email_address]