“make” super sessionWednesday, May 29, 2013Scla annual executive business forum

OPENING REMARKS & INTRODUCTIONSMichael JacobsChief Logistics OfficerGreen Mountain Coffee Roasters

Interactive S&OP Panel Discussion

Facilitator:Michael Jacobs,Chief Logistics Officer, Green Mountain Coffee Roasters

Panelists:Jeff Metersky,VP Sales, Inventory and Operations Planning (SIOP) Practice, Chainalytics

Jason Reiman,Vice President, Global Logistics Excellence, The Hershey Company

Rahquel Purcell,Director Global Supply Chain Innovation, Procter & Gamble

Rafal Porzucek,Associate Director Strategic Demand and Supply Integration Projects, Global Operations, Procter & Gamble

Dr. Nada R. Sanders,Iacocca Chair and Professor, Lehigh University

Sales & Operations PlanningDr. Nada R. SandersIacocca Chair and ProfessorLehigh University

What is Sales & Operations Planning (S&OP)?

•A business management process intended to match supply and demand through functional collaboration.

•A process through which the executive leadership team achieves strategic focus, functional alignment, and synchronization across the entire organization.

5

What IS THE objective OF S&OP?

•Objective is to arrive at a business “Game Plan” to help manage and allocate resources to meet strategic objectives.

•Ensures that tactical plans of all business functions are aligned and support the business plan.

OPERATIONS PRODUCT DEVELOPMENT

FINANCE HR SALES & MARKETING

Production Plan New ProductPlans

Budget People Aggregate Sales Plan

Master Schedule DevelopmentMilestones & Plans

Reporting & Accounting

Skills Needs

Key Accounts

Inventory Schedule

Capital Expenditure Plans

Training Territories

S&OP ALIGNS ALL FUNCTIONS ON ONE PLAN

• Higher customer service levels• Lower inventories• More stable production/service rates• Faster and more controlled new product

launches• Reduced obsolescence• Shorter customer lead times

“Hard” Benefits of S&OP

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THE S&OP PROCESS

COMMUNICATE

MONTHLY CYCLE

1. Executive Leadership:•Defines clear objectives, roles, and responsibilities •Creates culture of trust and open communication •Visibly involved

Common Pitfall : Without executive leadership, S&OP dissolves into a fragmented tactical process that lacks strategic vision.

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Keys to Successful Implementation

Keys to Successful Implementation

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2. Reliable Data:•Clean, accurate & trustworthy data•Executive management receives information in easily understood format•Useful information with the least amount of data possible

Common Pitfall: Without useful and reliable data project is held up by additional data gathering efforts.

Keys to Successful Implementation

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3. Performance Measurement & Continuous Improvement

• Use S&OP scorecard that aligns KPIs with strategic goals

4. Phased Implementation

• Achieving full S&OP integration requires a phased implementation approach

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MATURITY MAP OF PROCESS INTEGRATION

▪ Informality▪ Firefighting▪ Expediting▪ Crisis management▪ Unplanned events▪“Blame” culture▪ No teamwork

▪ Elements of S&OP ▪ Understanding the coordination need▪ Data management▪ Functional bias

▪ Coordination across the business▪ One set of numbers▪ Teamwork▪ Data integrity▪ Realistic plans▪ Business plans shared &understood

▪ Integrated decision making drives strategic deployment▪ Responsiveness in pursuit of business strategy▪Process thinking

COORDINATION INTEGRATION

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S&OP IS A JOURNEY

At What Stage of the Maturity Mapis Your Organization?

EVOLVING S&OP TO INTEGRATED BUSINESS MANAGEMENT (IBM)

Jason ReimanVice President, Global Logistics ExcellenceThe Hershey Company

Forecasting Production Planning Inventory Deployment

Legacy Planning Processes Were Not Integrated

Schedules production using “rules of thumb” planning

How much?Where?When?

Let’s see, do I believethe forecasts? Howmuch should I make?

??

National level - monthly “Allocated” across weeks

Deploys inventory across distribution network

Better forecasts and demand insights help drive improvements in:

Customer Service

Inventory

Waste Reduction

Promotional Effectiveness

Retail Compliance

Over Forecast

Under Forecast

ForecastError

Long Term Margin Erosion Lower Profitability

Short Term Inventory Investment Obsolescence

Long Term Diminishing Promotions Declining Distribution

Short Term Imperfect Order Fill Retail “Out of Stocks”

Visibility and accuracy here drives the rest of the supply chain

Forecast Error Was The Source Of Many Issues

Hershey Evolved Their Planning Processes…First To Sales & Operations Planning, Then to Integrated Business Management

Functional Plans• Disconnected demand & supply plans• Weak accountability• Multiple, disjointed plans

S&OP• Formal forecast and supply review• Limited executive review• Focus on gross sales plan ($)• Fiscal focus planning horizon (current year)

Integrated Business Mgmt• Business decision making process• Executive level engagement• Integrated financial & operating plans

• Rolling 24 month horizon with linkage to strategic plan• Plans in units and dollars

Eff

ect

ive

ne

ss

Time

Oliver Wight Assessment

Exec Team Commitment

Formal 2 Year Initiativereporting through Sales

A formal process owned by the commercial teamthat leverages a routine, monthly cycle of structured discussionsand clear roles and responsibilitiesthat aligns all functions on the assumptions, risks and opportunitiesassociated with the sales volume, P&L, and calendarover a 24 month horizon to ensure we deliver our Strategy.

What is Integrated Business Management (IBM)?

Financials

Integration &Reconciliation

Supply/Fulfillment

SupplyReview

Demand Creation

DemandReview

Innovation Innovation

ReviewGlobal

IBM

FeedbackLoop

AlignedMetrics

Strategy

Strategy

Strategy Review

Management Business Review

Integrated Business Management Ensures We Deploy The Strategy

Financials

IntegratedReconciliation

Supply/Fulfillment

SupplyReview

Demand Creation

DemandReview

Innovation Innovation

Pipeline Review

Strategic &BusinessPlanning

Integrated Business

Management

Strategy

FeedbackLoop

AlignedMetrics

Management Business Review

Strategy Review

Volume

P&L

Calendar

A Structured Monthly CalendarCreates Accountability

Innovation Review & Consensus

Demand Consensus Meetings

Executive Demand Review

Sales & Marketing VP Review

Supply Review

Integration & Reconciliation (Finance)

Management Business Review

AUG

2927 2825

S

81522

F

714211918

T

61320

302423

M

31017

T

411

S

916

26

W

512

Function Role Input AccountabilityBrand Marketing (Integrated Marketing)

- Owner of Final Demand Plan- Drive Consensus, Action Plans for Improving Brand Results

- Advertising; Promotion and Marketing Plans (Marketing Schedule); Ad Lift Analysis; New Product Calendar; Item Discontinuation; Cannibalization; Seasonal; Strategy (timing, execution etc)- Building Blocks Year over Year (Base and Incremental)

- Execute Marketing Plan to support the volume and revenue plan.

Demand Planning - Objective view of forecast / trends- Facilitation of monthly review and drive to consensus

- Coordination of all inputs / Statistical projections- Recommended actions and plan / Document outcomes- Reconcile Aggregate to Detail plans- Collaborative Customer Plans- Collect and Formalize Assumptions- Review / Monitor Channel Inventory

- Provide detailed SKU mix and Geographic splits of demand on Branch Warehouses- Communicate Plan to Supply organization in Aggregate and Detail

Sales (Go To Market) - Represent Customer Plans- Communicate S&OP Plan to Field Sales- Align Targets and Metrics.

- Customer business plans / Trade spending plans- Customer promotions / Sell through- Pack Type Assortment Plan / Store Growth- Competitive feedback / New product acceptance- Customer ad-lift / Distribution- Retail Coverage

- Execute the customer business plan (programs, etc.)

Pack Type - Bridge Sales and Marketing volume projections

- Retail Trends based on execution vehicle - Develop Customer Marketing programs, supporting Brand Marketing Plans

Business Insights (IBI) - Provide supporting input to Product & Marketing plan

- Segmentation / Effect of Marketing elements- Concept testing / Consumer feedback- Velocity analysis / Share of Display / FDMx Trends- Competitive and Market consumption size / trends (NPD)- Retail Takeaway Forecast / Share of Distribution

- Timely analysis of market trends / promotional results

US Strategy - Development of long term business strategy goals / objectives

- Competitor Strategy / Customer Inventory- Pricing / White Space Analysis / SKU Rationalization

- Viable product priortization by COT

Finance - Support Brand Teams / Sales- Challenge assumptions- Provide visibility of Financial Goals

- ASP / AC / Revenue / Margins- Gaps / Sales and Marketing expenses

- Link output of Demand Review to Financial Planning Process

Demand Management Process Owner

- Oversee entire demand planning process- Facilitate change

- Best practice / Process integration- 5-Step process coordinator

- Multifunctional alignment- Process Improvement

Global Platform Innovation

- Drive New Platforms and Innovation - Market preferences / demand - Innovation Pipeline

Corporate Strategic Planning

- Coordinate the Corporate Strategic Planning Process- Communicate plan to key stakeholders- Provide linkages and clarity of expectations

- Long Range Targets- Corporate Priorities and Initiatives (3+ years)

- Linkage to Corporate Performance Management- Effective Strategic Planning incorporating all business units and appropriate inputs from S&OP process

Task BrandDemand Planning IBI

Pack / Seasons

Go To Market Finance Sales

Basic AnalyticsActualize Prior Month History C A I C I CRun Statistical Projection C A C I CProvide updated in and open comparisons R A C C C CProvide system forecast A R C RCollaborative Planning forecast A R

Innovation / New ProductsProvide New Product Assumptions with Cannibalization A C C R R C RConfirm new product pipeline assumptions (<12 months) R C C R A I CConfirm new product pipeline assumptions (12+ months) A I C R R I C

Marketplace performanceProvide updated category takeaway projections C I A CProvide updated brand takeaway trends R C A R CProvide packtype takeaway trends R A R CProvide top customer takeaway trends C A R

Marketing ActivitiesProvide updated marketing support changes A I C C C C CProvide updated promotion support changes A I C C R C RProvide updated marketing impact information A I C C R C RProvide updated participation information in programs C I I C A I RNIST confirmation C R AComplete Building Blocks A

Competitive ImpactProvide competitive insights (quarterly)Provide competitive activities (quarterly)Impact of competitive activity (quarterly)

Customer InsightsProvide customer activity changes I I C R I AProvide customer inventory report I A R RRun impact of any significant pack / brand shifts R R A CCollect Key Customer Input I R R A RCreate Customer Takeaway Forecast I C I R R C ACollaborative Planner Input A

Seasons & PacktypesProvide seaonal projections R C R A R C RPacktype builds (outcome of pktype meeting) C A RConnect with foodservice / special channels A

Including Alignment On Roles And Responsibilities

PacksChocolateSBU View

Sugar SBU View

Choc Brand 1

Choc Brand 2

Choc Brand 3

Choc Brand 4

Seasons(if applicable)

Pre-meetings

Consensus Meetings

Executive Demand Review

Demand Review: Reaching An Aligned Demand Plan Is A Disciplined And Thorough Process

S&R Brand 1

S&R Brand 2

S&R Brand 3

S&R Brand 4

Other Brand 1

Other Brand 2

Other SBU View

Innovation Demand

Total Region Demand

Focused on Building Blocks by Franchise Advertising Distribution Innovation Cannibalization Promotions Other (specified)

Financials

Integration &Reconciliation

Supply/Fulfillment

SupplyReview

Demand Creation

DemandReview

Innovation

InnovationReview

Global

IBM

FeedbackLoop

AlignedMetrics

Strategic &BusinessPlanning

StrategyStrategy Review

Management Business Review

Supply Review: Ensures The Support Of The Business Plan Including Risks And Opportunities

Financials

#4 - Integration &

Reconciliation

Supply/Fulfillment

#3 - SupplyChain Review

Demand Creation

#2 - DemandReview

Innovation

#1 - InnovationReview

Enterprise Management & Support

Integrated Business

Management

FeedbackLoop

AlignedMetrics

Strategic &BusinessPlanning

StrategyStrategy Review

Revenue P&L

Calendar R&Os #5 - Management Business Review

Output of Supply Chain Review

Revised supply plans

Inventory Projections

Documented assumptions

Supply/Demand issues to resolve

Feedback to Demand or Innovation Management on constraints

Projected Cost Changes

Risks & Opportunities

Alternative scenarios

Supply Review Process Model

Dependant Demand

Supply Plan Analysis

Current MPS

Resources

Service Levels

Rough Cut Capacity Analysis

SuppliersCapacity

Supply Plan Constraints

Supply Review

Global Operations

Review

Management Business

ReviewDemand Plan

Scenarios and Options

Recomendations

The Time Horizon Of Each Meeting ReflectsThe Appropriate Content Focus

Regional Supply Chain Review Focus

Short Term Mid-Term Long Term

Short Term Mid-Term Long Term Strategic

Global Supply Chain Review Focus

10% 30% 60%

Management Business Review Output Guides Next Month’s Cycle

OUTPUT from Management Review

Approved plan Decisions taken Agreed actions

Input to next planning cycle

Input to Reconciliation Team on gap closing scenarios

CommunicatedLEVERAGES: Participants… for action Process Step Leaders… for direction and communication IBM Office… for broader communication on key changes

Supply/Fulfillment

Demand Creation

Innovation Innovation

Pipeline Review

Financial Review and

Consolidation

Strategic &BusinessPlanningManagement

Business Review

DemandReview

SupplyReview

Strategy

Enterprise Management & Support

Strategy Review

IBM Is A Core Global ProcessWhich Drives Our Business

#1 Regional

Innovation Review

#4 Regional Integration &

Reconciliation

#5 Regional

MBR

Wk 4 Wk 4Wk 1 Wk 3

#3 Global Supply Review

* Regional Demand

Consolidation

Wk 2

#2 Country Exec

Demand Review (EDR)

#3 Regional Supply

Review**

#2 Country Consensus

Mtg

#5 Global MBR

Wk 1

Financials

Integration &Reconciliation

Supply/Fulfillment

SupplyReview

Demand Creation

DemandReview

Innovation

InnovationReview

Global

IBM

FeedbackLoop

AlignedMetrics

Strategic &BusinessPlanning

StrategyStrategy Review

Management Business Review

Process Discipline

Enabling Our Teams To Deliver Improved Results

• Forecast Accuracy

• Working Capital

• Service

WMAPE

25%

30%

35%

40%

45%

Jan Feb Mar Apr Ma Jun Jul Aug Sep Oct Nov Dec

25.6%

Case Fill: Performance

95.0%

96.0%

97.0%

98.0%

99.0%

100.0%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2008 2009 Goal 2008 YTD 2009 YTD

98.8%

Inventory

$379

$358

$358 $3

65

$382

$407

$441

$425

$375

$369

$357

$376

$357

$356

$351 $3

62

$403

$433

$413

$363

$355 $3

61

$306

$279

$240

$290

$340

$390

$440

Jan

Feb

Mar

Apr

May Ju

n

Jul

Aug

Sep Oct

Nov

Dec

Mill

ion

s

Current Month Lag Inv Actual, Proj, FcstTarget 6.8 Turns (F&SH) Plan

Executed the strategy … delivered the planExecuted the strategy … delivered the plan

Planning for the future … not the presentPlanning for the future … not the present

Aligned organization on key prioritiesAligned organization on key priorities

Real Wins!Supply Chain Metrics

HOW TO LEVERAGE S&OP TO REVOLUTIONIZE YOUR CATEGORY BUSINESS STRATEGYRafal PorzucekAssociate Director Strategic Demand and Supply Integration Projects,Global OperationsProcter & Gamble

S&OP in Procter & Gamble

Standardization and Scale

P&G at a Glance•Annual Sales $84 billion

•Number of Employees 126,000

•Countries of Operations 75

•Countries Where Our Brands Are Sold 180

•Consumers Served by Our Brands 4.6 billion

(Approximate)

Billion-DollarBrands

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S&OP in P&G today

Business Planning FoundationS&OP integrates business planning and supply planning in a single number system

Excellence in business planning is a foundation for S&OP and Supply Chain excellence

S&OP PurposeS&OP provides framework for decision making and globally standard leadership process

The differences between Targets, Forecasts and

Actuals provide key insight to managing & driving the business.

S&OP Purpose

Multi-Functional Accountability to Delivering plans, with Operational

Excellence

Will the plans deliver volume,Sales, Profit, Share Growth

objectives?Risks & Opportunities

Complete,Unbiased Forecasts

PlanSufficiency

BusinessPerformance

ForecastAccuracy

Forecast Accuracy

ForecastAccuracy

Why is it important?All MDO’s and RBU’s use the 50:50 Volume & Value forecast and Risk & Opportunities (R&Os) to understand Business Sufficiency.Corporate Financial forecasts use the 50:50 and R&O’s as the basis of company business planning.

What is 50:50? 50% of the time the actuals will be greater than the forecast and 50% below the forecast. A 50:50 forecast has no tendency to under ship or over ship over time.

Complete & Unbiased Forecasts

“Forecast performance is a good indicator of how well leadership understands their business…”

Plan Sufficiency

PlanSufficiency

Will the plansdeliver volume,

Value, Profit, ShareGrowth Objectives?

Risks & Opportunities

• Business building and gap closing are the heart of S&OP.

• Focus is on actions to take or decisions to make.

• R&O’s and decision sheets are vehicles to communicate in an efficient and structured way across the MDO, RBU and GBU.

A question…What will happen if the Volume

Target becomes the Volume

Forecast in S&OP ?a. We will gain the consensus in S&OP

b. Forecast accuracy will become business performance

measure with little action on business strengthening

activities

c. We will support the General Manager

d. We will simplify S&OP

Gillette study showed that a 1-2 point service drop was a potential loss of $330MM Sales. S&OP helps minimize Case Fill Rate misses and maximize sale opportunities

Few Practical Benefits

Cosmetics leveraged S&OP process to deliver the following in year 1 of an initiative:•An additional 750m cases.•Improved BT profits by $14.5 MM.•Maintained 99.5% Case Fill Rate

China was able to maintain high growth using S&OP by improving the alignment of the supply chain with Customer requirements (50/50 forecast)

Seasonality – a typical challenge

Use seasonal statistical forecast model to establish the right

starting point

Add local market intelligence to be more accurate

Use combination of manufacturing agility, late

differentiation and inventory to manage the risk;

adjust the plan with new information

S&OP Roles & Responsibilities

General Manager Role

The GMs behavior and expectations set the tone for S&OP in the organization.

DRIVE

• S&OP as THE core process for managing the business.

• Decisions, clear actions and priorities to close the gaps.

• 50:50 volume and value forecast.

EXPECT

• The organization to penetrate gaps and generate choices to close gaps.

• Finance and PS process owners to improve the effectiveness of S&OP and facilitate quality meetings.

• Quality one page decision sheets to drive choices.

Finance Manager Role

Ensure financial assessments of demand and supply plans are used in S&OP Decisions:

– Profit Gap Analysis– Contingency Plan Costing– Elimination of Forecast Bias– Inventory Position

•Ensure that demand and supply plans are used in GM and Lead Team financial analyses:

– Align the 50/50 volume forecast– Relate profit forecast to S&OP plans and share in S&OP meeting

Product Supply Manager Role

Ensure thorough demand and supply planning process is used in S&OP:– Ensure 18 month planning horizon– Ensure constraints are identified– Address important supply issues in the process– Identify strategic choices and tactical decisions needed

•Embraces the 50/50 number and realistic forecasts– Hold the organization accountable for appropriate family level accuracy

based on Operating Strategy– Apply same approach for new product initiatives

A question…What is your volume forecast

error one month out at the

category level ? a. We do not measure forecast error

b. It is in the 3-5% range

c. It is in the 10% range

d. It is in the 30% range

Marketing Manager Role

• Ensure brand managers contribute to demand forecast– To provide balanced forecast via detailed assumptions– To drive out bias

• Embrace S&OP as a key process to deliver business targets:– Understand 50/50 forecast assumptions– Lead sufficiency check process

Sales Manager Role

• Ensure that required Sales input is provided to demand planners• In a timely manner and with right granularity• With revisions/updates as appropriate

• Ensure Sales understands product availability details • Changes required in their selling plans• Product changes, discontinuations etc requiring Sales Attention

• Embrace S&OP sales plan and shipment forecast• Assist in resolving volume gaps• Ensure the latest execution plans and supporting S&OP including initiative details

Initiative Manager Role

• Ensure that product launch process is used and linked to S&OP• Master Plan reviews• Pre-S&OP planning• Key decision dates are met to allow adequate planning

• Embrace S&OP as the key process for delivering an integrated category business plan with all initiatives included

A question…

What is 50/50 forecast ?

a. An average of Demand, GM, Finance and Sales

volume input

b. A forecast that has equal probability to be shipped

or exceeded within agreed tolerance

c. A volume target that GM needs to deliver

d. A forecast that has equal probability to be exceeded

or missed within agreed tolerance

Standardization & Scale

Organization – globally standard

Structure

Training and Qualification by

Function

Skill based progression consistent

across planning disciplines

Work Process – globally standard

8 block Demand Planning work process

model

Demand Planning Standards

S&OP with single number

Health Check system

Global Capability Network

Systems – globally standard

• Global Forecasting Platform

• Demand Sensing

• Data Storage and Reporting

• Global Financial Platform

• Accuracy reporting for volume and $MM

COECOE

…its all about Agility

the next big product launch

the next emerging channel

the next acquisition

the next business change

the next big enterprise solution

Interactive S&OP Panel Discussion

Facilitator:Michael Jacobs,Chief Logistics Officer, Green Mountain Coffee Roasters

Panelists:Jeff Metersky,VP Sales, Inventory and Operations Planning (SIOP) Practice, Chainalytics

Jason Reiman,Vice President, Global Logistics Excellence, The Hershey Company

Rahquel Purcell,Director Global Supply Chain Innovation, Procter & Gamble

Rafal Porzucek,Associate Director Strategic Demand and Supply Integration Projects, Global Operations, Procter & Gamble

Dr. Nada R. Sanders,Iacocca Chair and Professor, Lehigh University

Questions?

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WRAP-UP & CLOSING REMARKSMichael JacobsChief Logistics OfficerGreen Mountain Coffee Roasters