How difficult can it be?

1. S&OP / IBP
“How difficult can it be ?”
Mike Dicken
Dairies Operations Director
September 2015

2. Agenda
Introduce myself
Introduce Dairy Crest
Why we embraced IBP
Some key learnings or pitfalls successfully navigated
Share the key decision points that have underpinned our progress
Discussion

3. Introduction – Who am I
3 years with Dairy Crest
Since November 2014 have been the Operations Director for the Dairies
business with a revenue of c. £1billion per annum. Responsible for
manufacturing and supply chain planning.
In my previous role as Director for Demand & Supply Planning I was
responsible for the re-launch / implementation of a company wide IBP
process
> 20 yrs supply chain management experience & have also worked for
P&G, Avon Cosmetics, Dole Fresh UK (fruit)
And have worked in
Production, planning, procurement, new product development and
major capital projects

4. Introduction – Who are Dairy Crest
Dairy Crest grew to be the number one British owned dairy company,
previously owned by the Milk Marketing Board
Floated on London Stock Exchange 1996, with a turnover £750 million.
Turnover has since increased to c.£1.5 billion
Proud record of consistently being ranked top in the Business In The
Community (BITC) awards
Currently in the process of selling the “Dairies” division to Muller
Wiseman
Dairy is the third largest food category in UK retail, making up 10%
of grocery purchases
We operate an integrated business model whereby we are able to
process in-house the by-products of processing milk (e.g. cream, butter
milk, whey, skimmed milk powder)

5. Dairy Crest Dairies – a wide customer base
Our Dairies Division supplies milk through 3 main channels

6. Context for redesigning the IBP process
In 2013 DC was operating as 2 separate divisions, Food (cheese and
spreads) & Dairy (milk, cream and flavoured milk)
In April 2013 we announced 1DC, a major restructuring program to
leverage size, functional best practice and drive business integration
Each division had it’s own Managing Director, independent supply chain,
financial, marketing and sales teams
Each division ran independent S&OP processes that were different in both
design and execution including
Different cycle durations and sequencing of product, demand and supply
Different language
Different way of doing things, cultures and behaviours
The one thing in common was a diminishing, current financial year time horizon

7. Right time to fully embrace IBP
In merging the two businesses we created new leadership positions at both
Board and senior management level, resulting in …
A steep learning curve
New targets and measures
Removal of established decision rights and paths
It was in this context that we fully embraced IBP as way of
Reconnecting the business
Providing clarity of business goals and objectives
Developing a single way of working, “this is the way we are going to run the
business”
Empowering the organisation
Managing a matrix organisation

8. 2 years on
The IBP process is very much business as usual. Though it has evolved
over time the core process and structure remains the same as implemented
early 2014
As part of the proposed sale of the Dairies business to Muller Wiseman we
immediately and unanimously took the decision to carry on with the IBP
process, as is
During this time we have …
Maintained high levels of customer service, routinely hitting > 99.75% in full and
> 95% OTIF across the Dairies Division.
Reduced the generation of excess inventory by 97%
Delivered significant manufacturing cost reductions
Substantially changed our ways of working, most evident is our “budgeting
process”
Devolved decision taking rights to cross functional, category teams
Eliminated “bias” within our value and volume forecasts

9. On reflection …
Some key learnings or pitfalls
successfully navigated

10. 1. The Importance Of Culture Over Process
Recognised the specific challenge of
having to de-program, re-educate and
rebrand
We gained Top Down alignment & buy
in from the very beginning, with focus
on senior management engagement
Rapidly put in place an interim process
that enabled us to align calendars &
standardise ways of working whilst
designing the finer points of the to be
process
Took a conscious decision to work on
emphasising the right behaviours and
not on tools

11. 2. Roughly right versus precisely wrong
In the context of …..
Having just spent significant money on a demand planning tool to
forecast more than 1,000 sku’s (volume and value) in weekly
buckets for every customer however big and small to every single
delivery point (10,000+) for the next three years
…… this was a tough message
We chose …
To define clear time horizons and the level of granularity to which
we would forecast either side of the “time fence”.
Where appropriate, to focus on product and customer families,
rolling the sku tail up into one bucket
For calculating margin and value beyond the time fence to simplify
the pricing to base, shallow cut and deep cut

12. 2. Roughly right versus precisely wrong
The roughly right vrs precisely wrong enabled us to …
Liberate the sales team and reduce the level of data entry
Free up the demand planning team to work more collaboratively
with both demand and supply
Allow commercial to work in product and customer families that
made sense to them whilst “translating” the demand into supply
chain technology families
See the wood for the trees
The roughly right mantra spread across all functions and has become a
way of working. Throughout the business we spend less time re-working
numbers and focusing on what the trends were telling us about our
performance and business

13. 2. Roughly right versus precisely wrong
Rather than the traditional measures of forecast accuracy (MAPE and
WAPE) we focused on being able to measure bias down to customer
and product family level and measuring the spread of error (forecast
error histograms)
Why …
Significant over-sales drive service issues and / or cost to fire fight
Significant under sales drive excess stock that is written off or
heavily discounted and potentially cannibalising your own demand

14. 3. Keeping it simple and the Importance of
behaviours over detail
For us a good process (meeting) is not one that has a 100 charts but
that follows the mantra of …
1) Did we do what we said we would do (looking back) - "manage
performance"
2) Is the plan realistic (looking forward) - "truth as we know it“, no
back pockets
3) Is the bottom up forward plan enough vrs the top down business
objectives
4) Determine what do we need to do to address the gaps - "action
planning“
• Cycle on cycle the “packs” became shorter yet more informative and
focused on the issues and gap closing
• You need to accept and build an acceptance for the fact that the first
cycles will be a bit pants

15. 4. Reconciliation is a process not a meeting
A key decision in the design of the process was to focus more on cross
functional, business categories and teams than functions
The importance of needing to oil the gears and lead the cross functional
agenda was recognised early on
Consequently we invested in 4 senior planning resources, 1 per
category who were dedicated 50% to performing the facilitation
(reconciliation) role

16. 5. Flying Fish and managing the time horizon
Breaking beyond an ever diminishing time horizon of the current
financial year was a challenge
Even getting the beyond the past month and the immediate challenges
was a struggle let alone talking about a 36 month horizon
To break through this we also commissioned the central IBP
implementation team (of 2) to clearly define the 0 to 90 day processes
that needed to be in place to manage the hear and now
In reality most of those processes already existed and were functioning
reasonably well but greater discipline was required

17. 6. The importance of self assessment and
continuous improvement
In the early cycles the meetings were a struggle and we would use up all
our time and effort just to agree on the current results let alone the most
likely outcome (truth as we know it)
Using a quantitative scoring mechanism and the end of each review
proved invaluable …
1) It enabled us to measure progress which in turn kept people with
the program and helped to manage expectations
2) It provoked good discussions on why one person would score a
particular aspect a 5 out of 5 whilst another individual may be at
the lower end of the scale
3) It acted as a constant learning tool and enabled us to remind
ourselves of the why and to gravitate towards a common
understanding of good

18. In Closing …
Is it perfect ?
But in essence IBP is really simple and effective
It’s changing behaviours and culture that is the hardest part or the key
to unlocking it
Do we instinctively just make it harder than it really is ?

19. Open Discussion …

20. In summary, the pivotal moments …
Recognising the importance of behaviours and driving culture change
Getting beyond the superficial understanding
Recognising that we had originally underestimated the size of the task
and differences between the two former divisions
On going education
Being brave
Securing senior engagement buy in
Appropriate and effective use of external support

21. Behaviours - Our Guiding Principles
Our plans always represent the truth as we know it, regardless of what
our targets are
We have the right to challenge others in a constructive manner to
support a realistic plan
We are comfortable with showing a gap
We encourage all ideas and deliver credible opportunities to close the
gap
We stick to the IBP process, not work around it