The document discusses the implementation of an integrated Sales and Operations Planning (S&OP) process at Air Products, highlighting its importance in aligning business, operating, production, and demand plans to enhance overall company performance. It details the S&OP cycle, key performance indicators, challenges, and success factors, demonstrating improvements in demand visibility, service levels, and financial forecasts since the process's implementation. The analysis also emphasizes the need for ongoing leadership support and defined roles to ensure effective S&OP execution.

1. Stephen P. Crane Director Supply Chain Management Performance Polymers Implementing An Integrated Sales & Operations Planning Process Dusseldorf, Germany April 26, 2006 The Key to Superior Business Performance Supply Side Demand Side

2. Implementing An Integrated Sales & Operations Planning Process: Addressing ways to align the business plan, operating plan, production plan, and demand plan so that all departments are striving to achieve the same goals Exploring key performance metrics that ensure optimal business performance Summarizing specific business results Abstract

3. Content Air Products in Brief Implementing S&OP Aligning Demand Plan with Operating Plan Key Performance KPIs Major Challenges Key Success Factors –S&OP Checklist

4. Who is Air Products?

5. Air Products in Brief Global supplier of gases, chemicals, equipment, and health care services FY05 revenue ~$8.1 billion Serving customers in technology, energy, industrial and healthcare markets One of the safest large-scale chemical companies Operations in more than 30 countries

6. Content Air Products in Brief Implementing S&OP Aligning Demand Plan with Operating Plan Key Performance KPIs Major Challenges Key Success Factors –S&OP Checklist

7. Air Products ERP Platform SAP R/3 Single Instance Initial Go-Live July 2002 (Release 1- Germany) Releases 2, 3, 4, 5 (2003 – 2006) Global Release strategy developed through 2007 APO (Advanced Planner & Optimizer) v3.0 Initial scope included deploying Demand Planning (DP) and Supply Network Planning (SNP) modules Standardized Demand Planning and Supply Planning processes for all businesses First APO forecast generated in October 2003 APO planned orders passed to plants for production scheduling APO v4.1 functionality upgrade scheduled for October 2006

8. Global Work Processes Metrics Follow the Money!

9. Where We Started in 2003 Just went live on SAP, master data issues New processes, tools, and data sources Planning processes loosely integrated Poor visibility of demand/supply balance Numerous service issues, late deliveries, renegotiated orders Communication gaps between business, finance, and supply chain No linkage between volume forecasts for supply chain and financial forecast

12. What is Sales & Operations Planning? Combines all business plans into one integrated plan Monthly process Reviewed by management at an aggregate level Reconciles demand and supply plans at detail and aggregate level and linked to operating plan What business plans to do over near/intermediate term covering an 18- month horizon to: Plan for resources Execute business plan/strategy

13. S&OP Process Flow Steps 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

14. S&OP Process Cycle Monthly Cycle Create Unconstrained Demand Plan (Days 1-7) Adjust Historical data, Statistical Forecast Develop Supply Plan Proposals (Days 7-9) Approved Demand Plan Partnership Meeting (Day 13) Approved Supply Plan (Days 10-12) Approved Plan Executive Meeting (Day 15) Balanced Plan Demand Change Summary (Day 0)

15. Content Air Products in Brief Implementing S&OP Aligning Demand Plan with Operating Plan Key Performance KPIs Major Challenges Key Success Factors –S&OP Checklist

16. Demand Planning Process Data Gathering & Setup (Analysis, Exception Reporting, Statistical Models, Data Aggregation) Routine Forecasting Cycle (Demand Change Reviews, Sales History and Future Forecast Adjustments, Unconstrained Forecast) Monitor & Improve Forecast Accuracy (Forecast Accuracy KPI, Forecast Value Added from Business Intelligence) Sales & Operations Planning Process Inventory Plan Supply Plan MPS Raw Material Plan Distribution Plan Financial Forecast Process Network Optimization Rail Fleet Sizing Safety Stocks Capacity Planning Input from Marketing, Sales, Customers, & R&D

17. Supply Planning Process Data Gathering & Setup (Source, Make, Deliver, Product, & Capacity Plans) Define Supply Capability (Available Inventory, Sources of Supply, Summarize Supply Changes, Adjust Constraints, Initiate Master Data Changes) Develop Supply Plan Proposals (Assess Impact & Develop Options, Submit Supply Plan Options) Partnership Meeting MPS Raw Material Plan Distribution Plan Approve Supply Plan Input from Plants, Asset Management Network Optimization Changes Unconstrained Demand Plan

18. Partnership & Executive Meetings Review Demand Plan (Review Product Families, Demand Assumptions) Review Supply Plan (Inventory Plan, Cost Projections, Supply Assumptions, Issue Resolution) Agree to Supply Plan (Develop Supply Chain Plans, Source, Make, Deliver) Develop Revenue Projections (Identify Gaps) 18 Month Projections Communicate Approved Plans (Source, Make, Deliver) Communicate Plan Implications (Financial, Sales)

19. S&OP Drives the Business Plan Create Unconstrained Demand Plan (Days 1-7) Revenue Forecasting Volume Forecasting Process Links Together Business, Supply Chain, and Finance Demand Change Summary (Day 0) Partnership Meeting (Day 13) Executive Meeting (Day 15) Develop Supply Plan Proposals (Days 7-9) S&OP Monthly Cycle Adjust Historical data, Statistical Forecast Approved Demand Plan Approved Supply Plan (Days 10-12) Approved Plan Balanced Plan Drives Business Plans: - Outlooks/Budgets - Sales/Marketing Plans - Gross Profit Forecast Drives Supply Chain Plans: - Plant Loadings - Inventory Levels - Raw Material Forecasts Financial Variances : volume, price & margin

20. Content Air Products in Brief Implementing S&OP Aligning Demand Plan With Operating Plan Key Performance KPIs Key Success Factors –S&OP Checklist Conclusions

21. S&OP Process KPIs Forecast Accuracy (%) Production Plan Adherence (%) Inventory Days of Supply Financial Forecast Accuracy (%)

22. Forecast Accuracy Improvement World Class Performance

23. Forecast Accuracy vs Inventory DOS Demand Forecast Accuracy (%) Inventory Days of Supply Target Target 20% Improvement

24. Production Plan Adherence 38% Improvement

25. Financial Forecast Accuracy 21% Improvement

26. Where We Are Today Improved visibility of demand and supply Improved service, On-time delivery at 98% Improved financial forecast accuracy S&OP meetings are boring… a sign of success Aligned communications between business, finance, and supply chain Sales and volume forecasting for outlooks/budgets; easier and more accurate; drives supply chain plans Demand plan aligned with financial plan Business plans validated against supply chain capabilities on a monthly basis

27. One volume forecast aligned w/ all business plans Financial Supply Chain Operational Commercial Ongoing productivity benefits ~ $18MM+ / year Improve Financial Performance Net Asset Investment down 25% to $315MM Improved Profitability up 80% to $53MM Improved ORONA up from 5% to 13% Major Improvements Since 2003 “ All these benefits have been easier to achieve due to better supply chain planning & forecasting”

28. What’s Next? Slice Financial Plan by market segment Align financial plan segments with Marketing Manager objectives Make closing demand gap more actionable Break down Demand Plan by individual salesperson Use Perfect Order Fulfillment metric to drive increased customer satisfaction

29. Content Air Products in Brief Implementing S&OP Aligning Demand Plan With Operating Plan Key Performance KPIs Major Challenges Key Success Factors – S&OP Checklist

30. Major Challenges Identifying S&OP Champion or expert to lead implementation Senior leadership support Achieving process compliance Clear definition and acceptance of roles and responsibilities, including defining specific objectives in employee appraisals Establishing S&OP meetings as the business priority IT enabling process with adequate tool functionality

31. Content Air Products in Brief Implementing S&OP Aligning Demand Plan With Operating Plan Key Performance KPIs Major Challenges Key Success Factors – S&OP Checklist

32. The S&OP Health Check Does your S&OP actively involve senior leadership? Are proactive decisions made? Does it cover all major areas of business looking out 18 months? Is there a financial view as well as units? Is financial difference between S&OP plan and financial plan evaluated monthly? Does it occur on a monthly cycle? Does it include a capacity review? Does it include actual vs forecasted sales? Are accountabilities clearly defined?

33. Thank you! Stephen Crane Director Supply Chain Air Products and Chemicals [email_address]