An executive S&OP case study

1. Stephen P. Crane, CSCP Wacker Chemical Corporation Director Strategic Supply Chain Implementing an Integrated Sales & Operations Planning Process August 11, 2009 An Executive S&OP Case Study Supply Chain & Operations Group Supply Side Demand Side

7. FROM 10,000 FEET Executive S&OP A process to reconcile, agree upon, and communicate the company game plan -- Operations (Units/Hours/Materials) Product Development (Product Introduction) Finance (Dollars) Sales & Marketing (Units/$$ by family)

8. SALES & OPERATIONS PLANNING OVERVIEW Volume Mix Supply Demand Demand Planning/ Forecasting Supply Planning (Capacity) Master Scheduling Plant & Supplier Scheduling Distribution Scheduling Executive S&OP

9. SALES & OPERATIONS PLANNING’S PLACE Strategic Planning Business Planning Sales & Operations Planning Plant, Supplier, Distribution Scheduling & Execution

11. IMPLEMENTATION PATH Months Business Improvement 1 2 3 4 5 6 7 8 9 Phase I Preparation Phase II Expansion Phase III Financial Integration

12. IMPLEMENTATION ALTERNATIVES “ Build it and they will come” – design it first, get the mechanics working, then attempt to sell it to top management = Low probability of success “ Hold the high ground” – involve top management at the very beginning of implementation and throughout = High probability of success

17. INVENTORY LEVEL VS. FORECAST ACCURACY Source: Aberdeen Group 2008

22. GLOBAL WORK PROCESSES Metrics Follow the Money!

23. S&OP PROCESS 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

24. 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)

25. EXECUTIVE S&OP MEETING 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)

26. 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

28. FORECAST ACCURACY IMPROVEMENT (Product Mix Level) Process, People, Statistical Forecasting Exception Analysis Forecast Adjustments Forecast Segmentation Data Aggregation World Class + 6% + 15% + 7%

29. Demand Forecast Accuracy (%) Inventory Days of Supply 20% Improvement Forecast Accuracy (%) FORECAST ACCURACY VS INVENTORY DOS Target Target

30. 38% Improvement 2004 2007 PRODUCTION PLAN ADHERENCE SUPPLY PLANNING ACCURACY

31. 21% Improvement 2004 2007 FINANCIAL FORECAST ACCURACY

39. The WACKER Group THANK YOU FOR YOUR ATTENTION Stephen P. Crane Director Strategic Supply Chain Management [email_address] CREATING TOMORROW'S SOLUTIONS