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2011 IBM Corporation

This report is solely for the use of Client personnel. No part of it may be circulated,

quoted, or reproduced for distribution outside the Client organization without priorwritten approval from IBM. This material was used by IBM during an oralpresentation; it is not a complete record of the discussion.

March 07, 2011

Air ProductsPlan/Product Supply Strategic DesignS&OP Transformation


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Agenda

Introductions1

Why S&OP?2

S&OP Leading Practices3

Common S&OP Challenges4

Customer Experiences- Leading Consumer Electronics OEM- Leading Pharmanutritional Manufacturer

5

Q&A6


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Efficient Sales & Operations Planning enables integrated supply chainplanning

Sales &Operations

Planning

Demand Management MT Supply Planning ST Supply Planning SCM Execution (out of scope)

2. Demand Planning

6. InventoryDeployment

Short Term (days/weeks)

DeploymentRequirements

1. Marketing and Sales Planning

3. Network Planning

Planned stocktransfers for allmaterial types

InventoryPlanning

DistributionPlanning

All stocked materials Multiple replenishment

methods

All plants, storagelocations

Constraints included

Medium Term (weeks/months)

All materials included(FG, Raw, etc)

Produced and procured

MaterialPlanning

CapacityPlanning

C o l l a b o r a t i o n C

ol l a b or a t i on

CustomerOrders

Sales Forecast Sales Forecast

Production Capabilities

Packing Schedules

Distribution Capabilities Replenishment

Orders Supply

Limitations

Mtl Purchase

Orders

Order History

Sales Forecast LT Business plans, promotions schedules, pricing, POS, etc.

Supply Limitations

FG Purchase Orders

Suppliers Suppliers Customers Procure Manufacture Deliver Source

Strategic Planning

Business Unit Plans and Budgets

Short Term (days/weeks)

Production/MaterialSchedules

4. Factory Planning5. Factory Scheduling

3


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A cohesive S&OP process increases enterprise performance byimpacting key business drivers

5

OperatingCosts

Revenue

Revenue

Capital Employed

Capital Employed

Asset Utilization

Asset Utilization

Reduce cost of goods sold Reduce distribution costs

Reduce cost of goods sold

Reduce distribution costs

Shorten cash to cash cycle times Reduce inventory levels

Shorten cash to cash cycle times Reduce inventory levels

Increase in Return on CapitalEmployed (ROCE)

Impact on Business Drivers

Increase fill rates / consistency

Increase fill rates / consistency

Improve sales and product planning

Net Income

Net Income

WorkingCapital

WorkingCapital

CapitalExpenditures

CapitalExpenditures

CapitalExpenditures


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IBM has identified several keys to success from our experience inhelping clients develop and implement S&OP

Make S&OP the decision process that participants do notwant to miss through executive sponsorship across theorganization.

Strike a balance between lead times and plan accuracy,allowing for realistic and timely issue resolution.

Have S&OP participants spending the majority of theirtime in analysis and not laboring to extract data intospreadsheets.

Focus S&OP on forward-looking issue identification andresolution, not simple performance reporting and reflection

Ensure the established S&OP process is achieving itsobjectives through KPIs and continuous improvement.

Comprehensive adoption of new processes, systems,and roles & responsibilities

ActionOriented

ActionOriented

ExecutiveEngagement

World ClassS&OP


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Most companies usually share same common challenges whenimplementing S&OP

7

Lack of collaboration between suppliers, customers, and any 3PLsInability to provide accurate forecastsInability to integrate financial data into the S&OP processInability to determine capacity plansLack of cross functional representation in the processS&OP meeting not focused on decision makingPlanning groups not based on common resource requirementsNo standardized reporting format, decreasing the ability to comprehend and analyze theinformationNo bottom-up issue identification and recommendation developmentLack of communication on issues, alternatives, and recommendations prior to the S&OPmeetingsExisting business plans not aligned with recommendationsLack of understanding on financial implications and service trade-offs for allrecommendationsInability to measure the effectiveness of past actions takenInability to identify and commit to actions required to meet resource requirements



Many of these S&OP challenges are similar to the ones that AirProducts currently faces

8

Common S&OP ChallengesLack of collaboration between suppliers, customers, andany 3PLsInability to provide accurate forecasts

Inability to integrate financial data into the S&OP process

Inability to determine capacity plans

Existing business plans not aligned with recommendations

S&OP meeting not focused on decision making

Planning groups not based on common resource requirementsNo standardized reporting format, decreasing the ability tocomprehend and analyze the informationLack of cross functional representation in the process

No bottom-up issue identification and recommendationdevelopmentLack of communication on issues, alternatives, andrecommendations prior to the S&OP meetingsLack of understanding on financial implications andservice trade-offs for all recommendationsInability to measure the effectiveness of past actions taken

Inability to identify and commit to actions required to

meet resource requirements

Air Products S&OP ChallengesLack of a collaboration platform (with suppliers,customers, and internally)Inability to provide accurate forecasts

Inability to reconcile the financial plan with the S&OP plan

Inability to account for all supply capabilityconstraints/capacity plans in the supply planning process

No global intelligence gathering method or tool

Current S&OP process is only informational, not adecision making processProcess does not require the provision of BI information

Inability to manage S&OP processes by exception

Lack of communication between S&OP team and

Sales/MarketingLack of guidance provided to sales as to what BI isrequired/value addedLack of a consistent business intelligence process acrossbusiness groupsLack of sufficient simulation/modeling capabilities to aidedecision makingLimited flexibility in statistical forecasting capabilities

Lack of a structured process to identify and resolve gapsin S&OP plans





Leading Consumer Electronics OEM S&OPProcess Transformation Case Study



Case Study Background: North American Consumer Electronics OEM

10

Consumer ElectronicsPlasma & LCD TVs

Digital Still Cameras

Digital Camcorders

DVD players

Telephones

Business ProductsLaptops

Copiers

Fax machines

Printers

Industrial ComponentsSemiconductors

Optical drives

Appliance motors

Telecom components

This North American Consumer Electronics manufacturer is a subsidiary of one of the worldslargest electronics companies ($80 billion in annual sales). It contributes over $8 billion inannual sales and is a leader in the North American electronics market. Likewise, it competesin several segments of the electronics space, including consumer electronics, businessproducts, and industrial components.

A sampling of NA Consumer Electronics OEM current product offerings:

Source: Hoovers
http://images.google.com/imgres?imgurl=http://www.internettvsdirect.co.uk/images/panasonic-tx26lxd50-lcd-tv.jpg&imgrefurl=http://www.internettvsdirect.co.uk/&h=150&w=150&sz=4&tbnid=3wdamT5BjR0J:&tbnh=90&tbnw=90&hl=en&start=11&prev=/images%3Fq%3DPlasma%2BTVs%2BPanasonic%26svnum%3D10%26hl%3Den%26lr%3D



A sample of some of the issues that the aforementioned NAConsumer Electronics OEM addressed across S&OP are

11

Customer/ChannelPartners

Company viewed as an unreliable supplier by the retail channelsRetail channels seeking more flexibility in a very competitive environment; noforecast locks and instant upside/downside ordersHigh inventory levels in the channels, market share and cash flow resulting fromfew fast moving productsUnreliable ATP performance to customers

S&OPProcess/Meetings

Company lacked a formalized/streamlined S&OP process--missing formalmeeting structures/cadence, no clear meeting output, and no well defined rolesand responsibilitiesCompany had no formal equivalent to the to-be Monthly/Quarterly ExecutiveS&OP Meeting, the weekly S&OP meeting, or the weekly SCM demand andsupply meetingsExisting S&OP meetings were not focused on developing strategic operationalplans and countermeasures

Enabling Processes

No periodic review of operational performance to the annual business plantargetsLack of defined supply and demand thresholds to dictate issues to escalate toS&OP team (exception management)No formal or standardized reportingCompany did not utilize statistical forecastingInability to determine financial implications for what-if scenarios on the fly

No collaboration process with key channel partners



Implemented collaborative Sales and Operations Planning (S&OP) process thatsupported VMI, CPFR, and non-VMI, non-CPFR fulfillment processes.

Developed a new organizational structure

Defined operational metrics and event management (exception management)

Improved factory reliability and upside flexibility to become a reliable supplier

Developed forecasting competency (statistical forecasting, promotions, demandshaping, etc.)

Provided an integrated set of SCM tools to support process and organizationalchanges

Enhanced channel partner/customer segmentation and product categorizationstrategy

The client built a wide range of supply chain tools and capabilitieswhich supported a more integrated and efficient S&OP process

12



S&OP meetings play a distinct role in synchronizing processes toensure that operations are in line to achieve business plan targets

Monthly S&OPWeekly S&OP

Key Activities

Horizon

Scope & Timing

Participation

Review demand and supplyexceptions and issues

Evaluate execution and

effectiveness ofcountermeasures

13-week forecast

Product category Weekly

PCM Demand Analyst Supply Analyst

Align Operational Plan toBusiness Plan

Identify key countermeasures

to close gap betweenOperational & Business Plans

13-week forecast

Product category Monthly

PCM National Marketing Mgr Demand Analyst Supply Analyst

Evaluate operationalperformance vs. Business Plan

Approve countermeasures

from the Monthly S&OPMeeting

13-week forecast 3-month macro forecast

All product categories

Monthly, after MonthlyS&OP Meeting

Management: Sales, P&M,SCM, Business Management

Finance (quarterly) PCMs (as needed)

Sales and Operations Planning Meetings

K e y

M e e

t i n g

A t t r i

b u

t e s

Monthly / QuarterlyExecutive S&OP



A process transformation was required to deliver a leading S&OPsolution

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CPFR Tool

PCEC

Channel Partner

Load POS datainto CPFR tool

Extract PCEC ATP from CPFRtool and load intoback-end system

Create SalesForecast

and load intoCPFR tool

Sales repreviews POSand creates

sales forecast inCPFR tool

Process newdata loads

and preparefor weekly

collaboration

Conduct weeklycollaboration call

Enter collaboratedsales forecast into

CPFR tool

Extractcollaborated

sales forecast

Createpurchase

forecast andload it intoCPFR tool

Extract partnerpurchase forecast

and load it intoplanning systems

Conduct internalreview of partner

purchase forecast

Process partnerpurchase plan for

internal reviewProcess factory

ATP and createdestination

breakdown byplant

Create ATP andload it into CPFRtool for partner to

extract

Repeat cycle

Monday ThursdayWednesdayTuesday Friday Monday

Prior CPFR Process

G1 Lack of statisticalforecasting

G3No collaboration onsell-in/purchaseforecast

G4Lack of best-in-class metrics

G2No collaboration onevents and promotions

CPFR Tool

PCEC

Channel Partner

Load POS datainto CPFR tool

Extract PCEC ATP from CPFRtool and load intoback-end system

Create sell-through, sell-in/purchase,

inventory, andpromotions

forecasts andload into

CPFR tool

Review POSdata, inventory

levels, andPCEC

promotion data

Process newdata loads andprepare for sell-

throughcollaboration

Conduct weeklysell-through

forecastcollaboration call

Identify and handleexceptions

Agree on sell-through forecast,

promotions,inventory levels

Enter collaboratedsell-through

forecast into CPFRtool

Create s-i/purchase forecastbased on agreedupon s-t FC andload it into CPFR

tool

Extract partnerpurchase forecast

and load it intoplanning systems

Placereplenishmentorder based on

agreed uponpurchase forecast

Execute againstchannel partners

replenishmentorder

Create ATPagainst purchaseforecast, based

on domainproduct plan

Repeat cycle

Monday ThursdayWednesdayTuesday Friday

New Weekly CPFR Process

Generatestatistical sell-

through and sell-in forecasts andload into CPFR

tool

Conduct weeklysell-in/purchase

forecastcollaboration call

Identify and handleexceptions

Agree on sell-in/purchase forecast

Enter collaboratedpurchase forecast

into CPFR tool

Processes Defined/Redesigned: CPFR S&OP Goal Setting Demand Planning Supply Planning

Allocation and Order Processing

Process GapsIdentified

ProcessesRedesigned



The solution architecture integrated and supported the end-to-endsupply chain management system seamlessly

15

Order Entry

Collaboration

Order Promising Replenishment Forecasting Promotions

DP*

Stat Forecast

Collaborative Forecast

Finalized Forecast

Replenishment Plan

Publish Forecast

Allocations

Planned

Material Movements

Purchase Order

Sales Order w/ ATP

Purchase Order

Sales Order w/ ATP

CRM*

BW*

SNP* ATP*

ERP ICH*

Publish Plan

Promotion Information

BW = Business Information Warehouse CRM = Customer Relationship Management ICH = Inventory Collaboration Hub

= within our scope of implementation

DP = Demand Planning SNP = Supply Network Planning ATP = Available to Promise ERP = Enterprise Resource Planning and Execution

= outside of our scope of implementation

Web Access

*

Existing SAP Functionality



Key solutions were developed and significant benefits were realized

Capabilities BuiltImplemented collaboration tools to support full CPFR processBuilt custom logic for demand prioritizationEnabled capability for use of POS data in demand managementDeveloped robust reports to support the S&OP processEnabled CTM for constrained based procurement and allocation planning

Enabled allocation check for both "monthly" and "weekly" modelsBuilt capability for allocation check in a poolDeveloped ability for release of unconsumed allocation to pool

Benefits AchievedInventory reduction: $36M over 3 years

Operational cost savings: $5M over 3 years

Improved forecasting consistency and accuracy

16

VICS Award 2008 Qualitative Customer Service PartneringVICS CPFR Implementation ExcellenceBest Buy Company, Inc. and Best Buy Sourcing Office Asia


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Leading Pharma-Nutritional Manufacturer S&OP Financial Integration & TechnologyEnablement Case Study



A global leader in infant and children's nutrition with strong global presence. The company wasfounded more than 100 years ago and has been committed from its very beginning toearning the trust of parents and health care professionals by offering scientific evidence of thebenefits of their products.

Case Study Background: Leading Pharmanutritional Manufacturer

Annual Turnover USD 2 Billion

World wide locations 229 Globally

Manufacturing sites 10 PlantsTotal SKUs 1500, world wide

Employees 6000

SAP Applications Scope

SAP GTS 7.2,GRC 5.0

SAP SRM 7.0

SAP SCM 5.0:

DP, SNP,PP/DS,SNC 5.0

SAP PI 7.0

SAP BI 7.0

SAP SUS SAP CC5.3

SAP Portal 7.0

Vistex(Partner

Applications)

Vertex(Partner

Applications)SAP ECC 6.0:

FI,CO,SD,MM,PM,PP-PI,

QM,LE,FSCM,WM



This Leading Pharmanutritional Manufacturer faced a number ofS&OP related issues

High cost, fluctuating price, and limited shelf life a of key raw materialingredient - Driving sporadic surges in the production volumes, and henceincreased inventory holding

Inflexible system infrastructure not able to adapt to the demands of a changingmarket

Limited technical and process integration Functional silos working from their own set of numbers Limited visibility into end-to-end planning process Disjoint planning between Demand, Supply and Finance

Lengthy cycle for S&OP meetings preparation - 2 Weeks for executingplanning cycle, updating the KPIs, and operational reports Non-standard, manual reporting based on data extracted from multiple source systems

Manual process for unit to dollar conversion

Limited capability to execute integrated what -if planning scenarios

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S&OP. 2

S&OP SupplyReview

Sales and Operat ions Plann ing

Statistical Forecast

Sales Forecast

Marketing Forecast

Meeting Minutes

S&OP. 5

Global S&OP(Quarterly)

Forecast Accuracy

Forecast Bias

Forecast Stability

S&OP Inputs (From APO)

S&OP. 1

S&OP DemandReview

S&OP. 3

Pre-S&OPMeeting

S&OP. 4

ExecutiveS&OP Meeting

S&OP Inputs (From BI)

Capacity Utilization

Planned Orders / PRs

Final Demand Plan

DIOH vs. Target

Resource Utilization

Projected Stock Outs

Final Demand Plan

Supply > Demand

Supply < Demand

Dashboard Report

DP/SNP reports (asappropriate)

S&OP Plan

Team Issues

Recommendations

Executive DashboardReport

DP/SNP Reports

S&OP Plan

X-Category Issues

Recommendations

Global S&OPDashboard Report

Financial Plan

Changes to demandplan in APO

Final Demand Plan

Projected Sales Unit to$ conversion (BPC)

Changes to Supply planin APO

What if Analysis

Proj. Inventory Unit to $conversion (BPC)

Meeting Minutes

Changes to:

Demand in APO/DP

Supply Plan in APO

Meeting Minutes

Executives Decisions

Team Action Items

Change to Demand/Supply

I n p u t s

O u t p u t s

Executives Decisions

Financial Impacts

Supply Plan in APO

Change to Demand/Supply

Non System ActivityS&OP Outputs (to APO)

The client designed an S&OP process enabled by SAP


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S & O P F i n a n c

i a l

I n t e g r a

t i o n

23

The solution architecture integrated the planning, reporting, andfinance areas for complete S&OP financial integration

R e p o r t i n

g

E x e c u

t i o n

P l a n n

i n g

F i n a n c e

Business Intelligence (BI)

Business Objects (BOBJ)

Advance Planning & Optimizer (APO)

ECC 6.0

ConsensusForecast

Demand Planning (DP)Supply Network Planning(SNP)

Reports

-S&OP (Volumes)-KPI-Operational

Material Requirement Planning (MRP)

Core Interface

Master & Transaction Data

Constrained Production Plan

PlanningData

Actuals

Deployment

Sales OrderHistory

Business Planning &

Consolidation

ECC Report

ConsolidationFinancial Planning / BudgetFinancial Supply Chain

Management

Demand and Supply Data

FSCM Reports (Dollarized)

ECC

R e p o r t i n

g

E x e c u

t i o n

P l a n n

i n g

F i n a n c e




ECC 6.0

ConsensusForecast


Reports



Core Interface



PlanningData

Actuals

Deployment

Sales OrderHistory

Business Planning &

Consolidation

ECC Report


Management



ECC

R e p o r t i n

g

E x e c u

t i o n

P l a n n

i n g

F i n a n c e




ECC 6.0

ConsensusForecast


Reports



Core Interface



PlanningData

Actuals

Deployment

Sales OrderHistory

Business Planning &

Consolidation

ECC Report


Management



ECC




ECC 6.0

ConsensusForecast


Reports



Core Interface



PlanningData

Actuals

Deployment

Sales OrderHistory

Business Planning &

Consolidation

ECC Report


Management



ECC


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SCM BPC

Order/Shipment HistoryProduction Actuals

Price/Cost

Price/Cost DataOther financial

Data

SCM BPC

Sales Data

SCM BPC

Generate Demand& Supply Plan

Generate InitialFinancial Plan

SCM BPC

Use Unit plans toValidate / adjust the

financial Plan (dollarizethe plans)

SCM BPC

BI / BOBJ

ERP

BI / BOBJ

ERP

BI / BOBJ

ERP

BI / BOBJ

ERP

BI / BOBJ

ERP

Financial PlanDemand &

Supply Plan Actuals

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The solution architecture enabled a process synchronize the operationaand financial plans


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