supply chain management: approaches and practices from air products and chemicals, inc
DESCRIPTION
Supply Chain Management: Approaches and Practices from Air Products and Chemicals, Inc George Diehl Business Fellow, VSB. Air Products Overview. $10 B Gases (80%) and Specialty Chemicals (20%) company Chemical industry safety leader Operations in more than 30 countries - PowerPoint PPT PresentationTRANSCRIPT
Supply Chain Management:
Approaches and Practicesfrom Air Products and Chemicals, Inc
George Diehl
Business Fellow, VSB
2
Air Products Overview
$10 B Gases (80%) and SpecialtyChemicals (20%) company
Chemical industry safety leader
Operations in more than 30 countries
55% of sales revenue outside the U.S.
20,000 employees worldwide; 4500 at Allentown PA, Global HQ
Fortune’s Most Admired Chemical Firms: #3
AMR’s “Top 25 Supply Chains”-Honorable Mention in 2008
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Today’s Learning Objectives
Provide an overview of approaches and practices from Air Products and Chemicals* in these areas of supply chain management
– Importance of a process versus functional view of the supply chain
– How we measured performance– How the SCOR model helped us in both
of these areas as well as others
*All slides and data in this presentation have been previously presented externally and are in the public domain
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John P. JonesChairman, President,
andChief Executive Officer
The CEO’S Plan…
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Definitions
Business Process: An organized group of cross-functional activities that together provide value for the customer.
Business Process Management: The dimension of management that improves business performance by taking a “horizontal” view of efficiency and effectiveness to serve customers.
Processes are the underlying theme for all business improvement initiatives.
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FUNCTIONS[Departments, Centers of Excellence)
Business Process Management:A 3rd Dimension in Management
WO
RK
PROCESSES[Order to Cash, etc.]
Business Units own customers and profitability
Functions own the people and cost centers
Process Owners own work designs and cross- functional performance
BUSINESSES[Business Unit, Region, focused on P&L’s & markets]
FUNCTIONS[Departments, Centers of Excellence]
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A “Functional Organization”
Work Work
Sales Engineering Production
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Simple Supply Chain ProcessPlace Order
TakeDelivery
PayBill
Sales
CustomerService
Production
Logistics / Distribution
Customer
Win Business
SendInvoice
Set UpAccount
CommitInventory
ScheduleDelivery
DeliverProduct
DefineReqts
InputOrder
ApplyCash
Load Product
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PROCESS / FUNCTION BALANCEPROCESS / FUNCTION BALANCE
Customers
Limits onFunctional
Improvement
Increased Customer
Satisfaction
(Cycle Time,Accuracy)
Process Fills Inthe “White Spaces”
Balanced IntegrationOf Function and ProcessWithin/Across Businesses
“Predictably Positive Experiences” +
Revenue, Productivity, and Asset Management
Improvement
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The Value SCOR Brings…1. A well-defined process architecture that can be
applied to all supply chain processes.
2. A clear and consistent framework to enable effective end-to-end process integration, especially at those processes that cross GPMT boundaries.
3. Mapped processes with defined interconnections, inputs, outputs and standardized measures.
4. A significant opportunity to enable consistent, process-based definition of planning.
5. Emphasis on plan, execute, and enable processes to more clearly define how these fit in the overall structure.
6. Basis for consistent definition of metrics and benchmarking of the results and trends
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Configuration LevelLevel 2 EnableMake
EM
M3
Plan Make
PM
Make-to-Stock
M1Make-to-Order
M2 Makee-t-o
Revised AP Process Architecture Supply Chain Process Example (Plan)
Level 1 Plan & ProduceProducts &
Services
Level 3 Make toStock
ReleaseProduct to
DeliverPackage
StageProduct
Produce &Test
IssueProduct
ScheduleProductionActivities
M1.1 M1.2 M1.3 M1.4 M1.5 M1.6
Value Added Chain Diagram (VACD)
GLOBAL
Wh at Starts Step:
Wh y a Step :
Wh at is Done:1.2.3.4.5.6.
Wh o:
Deliverab le to Next Step:
What Starts Step:
Why a Step:
What is Done:
1.2.3.4.5.6.
Who:
Deliverable to Next Step:
W hat Starts Step:
W hy a Step:
W hat is Do ne:1.2.3.4.5.6.
W ho:
Deliverable to Next Step:
DATA
Volume
Rate
Elapsed Time
W ork Content T ime
Actual Labor
Potential Labor
T ravel
Set-up T ime
Search Time
Verification T ime
Error Rate Encountered
Redundant Input
Standardized Work
Value-Added Ratio (VAR)
Volume
Rate
Elapsed Time
W ork Content Time
Actual Labor
Potential Labor
T ravel
Set-up T ime
Search Time
Verification T ime
Error Rate Encountered
Redundant Input
Standardized Work
Value-Added Ratio (VAR)
DAT A
Volume
Rate
Elapsed T ime
W ork Content Time
Actual Labor
Potential Labor
Travel
Set-up Time
Search Time
Verification Time
Er ror Rate Encountered
Redundant Input
Standardized W ork
Value-Added Ratio (VAR)
DATA
Volume
Rate
Elapsed Time
Work Content T ime
Actual Labor
Potential Labor
Travel
Set-up T ime
Search Time
Verification T ime
Error Rate Encountered
Redundant Input
Standardized Work
Value-Added Ratio (VAR)
DATA
Volume
Rate
Elapsed T ime
W ork Content Time
Actual Labor
Potential Labor
Travel
Set-up Time
Search T ime
Verification Time
Er ror Rate Encountered
Redundant Input
Standardized W ork
Value-Added Ratio (VAR)
DATA
INPUTWhat starts:
Who starts:
Freq uen cy:
Who receives:
Quality of Input:
Oth er Data:
VA TIME:_________________________
ELAPSED TIME:___________________
VA TIME:_________________________
ELAPSED TIME:___________________
VA TIME:_________________________
ELAPSED TIME:___________________
VA T IME:_________________________
ELAPSED TIME:___________________
VA TIME:_________________________
ELAPSED TIME:___________________
W AIT T IME: WAIT TIME: WAIT TIME: W AIT TIME:
OVERALL LEAD TIME:
OVERALL VA TIME:
INV INV INV INVINV INV
VALUE ADDED RATIO (VAR):
CUSTOMER DATAW ho is Custo mer:
CUST OMER VALUES:Custo mer Expectations & CCR's:
PRODUCT DIMENSIONS:W hat is O utput :
How Much is Supplied:
Frequency:
O verall Lead Time:
Current Performance / Defect Rates:
O ther Data:
W hat Starts Step:
W hy a Step:
W hat is Do ne:1.2.3.4.5.6.
W ho:
Deliverable to Next Step:
What Starts Step:
Why a Step:
What is Do ne:1.2.3.4.5.6.
Who:
Deliverable to Next Step :
Defects Encountered
Defects Encountered
Defects Encountered
Defects Encountered
Defec ts Encountered
TYPE of VALUE STREAM
GOAL OF RE-DESIGN
PRODUCT or FAMILY
MAP BOUNDARIES
OWNER ofIMPROVEMENT EFFORTS
Level 4
SAP & Physical Transactions
QC and Leak Check Sub-Process
Qua
lity
Pla
nner
Pro
duct
ion
Wor
ker
Info
/De
liver
abl
es/
Job
Aid
s/ T
empl
ates
Qua
lity
Tec
hnic
ian
STARTINSPECTION
LOT CREATED
LIMS
HELIUM LEAKCHECK AND QC
CHECK ONPRODUCT
RESULTSENTERED
COMMUNICATERESULTS TO
QUALITY TECH
RECEIVECOMMUNICATI
ON
ENTER LEAKCHECK AND QC
CHECK RESULTS
VERBAL/ELECTRONIC/PAPERWORK
QE01
RECORDRESULTS FORINSPECTION
POINT
ENTERANALYTICAL
RESULTS
RESULTS PASS
RESULTS FAIL
XOR
AUTOMATIC USAGEDECISION BY SAP ANDPRODUCT MOVES TO
UNRESTRICTED STOCK(NO OPERATORINVOLVEMENT)
END
COMMUNICATERESULTS TO
QUALITYPLANNER
RECEIVECOMMUNICATI
ONREVIEW RESULTS
QA11
RECORD USAGEDECISION
QC REJECTPROCESS END
VERBAL
M1.2.1
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Supply Chain Vision
SupplierSupplier PlanPlan SourceSource MakeMake FulfillFulfill CustomerCustomer Customer’sCustomer’s CustomerCustomer
Pipeline to our Customers
Leverage the Single Instance SAP Platform
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To: Improve Visibility, Velocity, Simplicity
By: Driving Operational Innovation Focused On:
Reducing Costs Using Supply Chain
What
Simplify
Standardize
Shorten
Share
How
Educate
Execute
Improve
Measure
So That We:
Improve productivity by 3X by FY20XX
Create competitive advantage through our Supply Chain
Serve our customers better; earn higher margins for shareholders
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Integrated Supply Chain Blueprint
SUPPLY CHAIN
5
SOURCE(Requisition to
Pay)
MAKE(Produce Products
and Services)
FULFILL(Order to Cash
Receipt)
PLAN(Plan Supply Chain)
BUILD(Create and Improve Assets)
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SUPPLY CHAIN
SELL(Find, Win, & Retain
Customers)
INNOVATE(Create & Improve
Offerings)
5
SOURCE MAKE FULFILL
PLAN
BUILD
Seven Customer-Facing Processes …
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PEOPLE(Human
Resources)
FINANCE(Finance & Accounting)
INFORMATION (Information
Services)
ENVIRONMENT(EnvironmentalHealth & Safety)
GOVERNANCE(Corporate
Governance)
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… Supported by Five Enabling Processes …
SUPPLY CHAIN
SELL
INNOVATE
SOURCE MAKE FULFILL
PLAN
BUILD
175
… Guided by One Key Leadership Process
ALIGN(Develop & Commit to
Enterprise Plans)
PEOPLE FINANCE INFORMATION ENVIRONMENT GOVERNANCE
SUPPLY CHAIN
SELL
INNOVATE
SOURCE MAKE FULFILL
PLAN
BUILD
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Air Products Process Model
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Air Products Process Model — Table Format
Global Process(AP Update)
Input(s) Key Steps Output(s) Functions Involved Top 3-5 Measures for Process
EPO view
Innovate Customer input, Business strategy,New product/service ideas
Idea management,Project impact analysis,Portfolio management, ODI process, Resourcing
New offerings ready for commercializationCost improvements,Value delivery
R&D, Marketing, Sales, Engineering, Operations, Supply Chain
Number and impact of gate 4 offerings per yrNew profit from products <5 years old% gate 4, Link to P&C
Sell Market Model Offerings (from Innovate),Business Objectives
Find and Win Opportunities,Manage Customer Experience
Valid and viable customers,Demand Forecast
Sales, Marketing, Engineering, Tech Service, Application Development, Management
Prospect Volume,Profitable Volume in Pipeline, Won/Loss %, Closed Sales
Plan Sales historyBusiness intelligenceSupply ConstraintsSOURCE, MAKE & FULFILL plansPrice changesCost changesAOPNew Product plansSupply chain strategies
Demand planning,Supply Planning,Balancing,Issuance of revised plans,Inventory planning,Master data managementNetwork DesignMobile Asset management
Plan that balances demand and supply,Revisions to SOURCE, MAKE & FULFILL plans,Revised inventory projections,Revisions to Sales Plan Financial projectionsGap closure strategies
Sales, Marketing,Product Management, GO, Supply chain managers, Supply chain planners,Demand managers
Forecast Accuracy,Adherence to Plan,Cycle time,S&OP maturity assessment,Demand management maturity assessment,
Source Business StrategyRequisitionsSales ForecastsCustomer Complaints/Issues
- Market Analysis- Budgetary estimates- Solicit Bids/Negotiate - Award Agreements- Monitor Performance- Pay Suppliers
Delivered material and servicesPaid suppliers
- Procurement- Operations- R&D- Finance- Engineering
On time delivery performanceSupplier Quality PerformanceCost Reductions/Cost Avoidance
How do you know that your supply chain processes are performing well and where they are not?
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Complaints Closed by Target Date
Demand ForecastAccuracy
Customer Master Data Quality
Cash to CashCycle Time
Perfect OrderFulfillment
Top 5 KPIs: Key Gauges of Supply Chain Performance
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Why these 5 KPIs?
Cash to Cash Cycle Time
SCOR recommended / benchmarkable
End-to-end measure of cash flow velocity
Directly impacts ORONA denominator
Promotes line of sight in managing A/R, Inventory, and A/P
Perfect Order Fulfillment
SCOR recommended / benchmarkable
Broad, objective view of SC performance from the customer’s perspective
Simple in concept (4 gates – on-time, in full, complaint-free, accurate invoice – must get through all 4 to be ‘perfect’)
Helps us understand when orders are not ‘perfect’ targeted CI activity
Demand Forecast Accuracy
SCOR recommended / benchmarkable
Research shows correlation to above: companies with highest forecast accuracy had 17% better POF scores, 15% less inventory, and 35% shorter cash to cash cycle time
Directly related to our service level to customers
Complaints Closed by Target Date
Customer-focused metric
Customer Loyalty feedback: ability to respond to and resolve problems is viewed as a differentiator. AP results show need for improvement.
Many people can impact this measure – becomes a leading indicator of customer loyalty and A/R improvement
Customer Master Data Quality
Customer-focused metric
Lack of DQ here directly impacts our planning to serve customers, and our ability to produce payable invoices
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Returnon
Investment(increase)
ORONA
Aligned SCORMetrics
Revenue(increase)
Growth
Cost(decrease)
Productivity
Investment(decrease)
Net Assets
Reliability
Responsiveness&
Flexibility
Cost
AssetManagement
Efficiency
ProductivityImprovement
Cash to Cash Cycle Time
Perfect Order Fulfillment
% Orders Rec’d on-time (supplier)
Production Master Data Quality
% Faultless Invoices
Average Terms (customer)
Average Days Past Terms
Inventory Accuracy
Customer Master Data Quality
Workbook Rejection Rate
Demand Forecast Accuracy
Production Plan Adherence
% Complaints Closed by Target
P&L Impact
Net Hard Benefits
Perfect Order Fulfillment
Customer Data Quality
ForecastAccuracy
Complaints Closed by Target
Cash to Cash Cycle Time
Days Sales Outstanding
Inventory Days of Supply
Days Payable Owed
Supply ChainAttribute
“Top 5”Focus Areas
$ Benefit Area
Supply Chain KPI’s
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POF results are preliminary – measurement approach still being finalized
Click here to view KPI Performance Summaries
253
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Mixed LeaningGreen
Mixed LeaningRed
RedGreen
% FaultlessInvoices
Inventory Days ofSupply
Production PlanAdherence
% Orders ReceivedOn Time to Demand
% MRP DataAccuracy
InventoryAccuracy
Cash-to-CashCycle Time
ForecastAccuracy
% Complaints Closedby Target Date
Net HardBenefits
P&LImpact
Average Days Past Terms
AverageTerms
Legend
End-to-end Performance Visibility
21
26
“Visibility” of Metric Performance
Scorecard(cross-business comparisons)
Metrics Report(trends and commentary)
Key Measures Link(BW or Excel details)
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Process Improvement ModelProcess
Execution
• GPMT’s & Businesses
P & LCustomer Loyalty Balance Sheet
Project Prioritization
Strategy
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Business Units“Run” Global Processes Using Common Metrics
Priority Metrics and Gaps Focus
Annual Plans
Cash to Cash Cycle Time
Perfect Order Fulfillment
Customer Data Quality
ForecastAccuracy
Complaints Closed by Target
Safety Metric
New Products past Gate 4
Prospect Volume
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AP’s Key Results
In FY04, set goal and doubled the historical amount of P&L productivity
In FY05 and 06, set goal and exceeded it by more than tripling the historical amount of P&L productivity
Four Growth Platform Businesses increased from 25 to 50% of total revenues
Customer Loyalty scores for “secure customers” are 15% higher than prior to new process/SAP
ORONA hit FY08 goal; double digit growth 4 yrs
Stock went from historical $40’s to $105 – now $100.
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Today’s Learning Objectives
Provide an overview of approaches and practices from Air Products and Chemicals* in these areas of supply chain management
– Importance of a process versus functional view of the supply chain
– How we measured performance– How the SCOR model helped us in both
of these areas as well as others
*All slides and data in this presentation have been previously presented externally and are in the public domain