5/17/2012

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“Getting Ready for Executive

Review”

Alan L. Milliken CFPIM CSCP CPF

Sr. Specialist – SC Education

BASF SE

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• Designing S&OP and the Executive Review

Process.

• Keys to a Successful Executive S&OP

Meeting.

• Preparing for the Executive Review.

• Conducting the Executive Review process.

• Improving the review process.

• Questions and Wrap-up

Agenda

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Alan L. Milliken CFPIM CSCP CPF

• 22 Years at major plant sites in seven different functions (Production, Process Control, Quality Control, Operator Training, Scheduling, Industrial Engineering, Logistics)

• 14 Years as a Business Consultant specializing in SC Management. (7 Major re-engineering of SBU projects, integration of 3 major acquisitions, numerous improvement projects)

• 3 Years as Manager of Business Process Education for BASF Corporation in North America.

• Accepted global position in September, 2011 to implement CPIM throughout BASF.

• Education: BS Degree in Engineering – Auburn; MBA- Clemson; CFPIM, CSCP – APICS;CPF - IBF

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BASF

• the world’s leading chemical company – “The Chemical Company”®

• founded in 1865 as Badische Anilin & Soda –Fabrik (BASF)

• Sales in 2011 of approximately $80B USD

• Over 100,000 employees, 100 large sites and a multitude of small

sites across the globe

• Key business strategy is Value-Based Management

• Key execution strategy is Verbund – integrated production processes

• Combines economic success with social responsibility and

environmental protection

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Designing the S&OP and Executive

Review Process

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Jim & Dave

How not to design the Executive Review Process!

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Executive S&OP

S&OP is the process with which we bring together all the plans for the

business (customers, sales, marketing, development, manufacturing,

sourcing, and financial) into one integrated set of plans.

The objective of Sales & Operations Planning is to arrive at a business

“Game Plan” to help manage and allocate critical resources to meet the

needs of the customer at the least cost to do so.

J.

W.

S&OP

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S&OP Links Strategy to Operations

Strategic Planning

Business Planning

Sales and Operations Planning

(Volume and Financials)

Sales Plan Operations

Plan

Dem

an

d P

lan

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g

Su

pp

ly P

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Master Scheduling

Production Scheduling,

MRP and Materials Planning

(Execution)

Strategic Planning

Scheduling

Execution

Supply Chain Planning

S&OP

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The S&OP Process

Demand Planning

Supply Planning

Pre-S&OP Review

Executive S&OP Review

Gather Data

Executive Review Process

Make decisions on each product family—

either accept recommended actions or

choose a different course of action.

Authorize changes in production or

procurement rates where significant costs or

other consequences are involved

Review the financial version of the S&OP plan

in comparison to the business plan/budget

and make adjustments as appropriate

Resolve open issues that were not resolved at

the pre-S&OP meeting. Pre-briefing is

essential.

Review customer service performance, new

product issues and special projects, and

make the appropriate decisions.

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The Executive S&OP Meeting is a fact-based

business decision-making event: •The objective the Executive S&OP Meeting is to provide a standardized forum and arrive at a business “game plan” to help manage and allocate critical resources to meet the needs of the customer at optimal cost and to facilitate decision-making and issue resolution in the balancing of demand forecasts against production capacity constraints and inventory targets

– The majority of business decisions will have been made prior to this meeting

– Review performance on key indicators and make necessary changes to plans or targets

– Make the tough business decisions; approve the plans or recommend alternate actions. Choose between scenarios.

– Produce and communicate the consensus game plan

Strategic Planning

Business Planning

Sales and Operations Planning

(Volume and Financials)

Sales Plan Operations

Plan

Dem

an

d P

lan

nin

g

Su

pp

ly P

lan

nin

g Master Scheduling

Production Scheduling,

MRP and Materials Planning

(Execution)

1

0 - Internal document -

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Focus of Executive Review Process Pricing Product mix Business model

Fixed manufacturing costs

Process innovation

Inventories Receivables Forecast reliability

New investments Investments in expansions Debottlenecking

Shipping costs Packaging costs Transport costs

Payment terms/ dunning

Innovation (product and business models)

Variable manufacturing costs

Raw materials costs

Variable costs

Fixed costs

Operational assets

Cost of capital percentage

Working capital

Fixed assets

EBIT

Costs of capital

Sales revenue

Contribution margin

EBIT after

costs of capital

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Keys to a Successful S&OP

Executive Meeting

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Effective S&OP Meetings

• Improve communications and cross-functional teamwork

• Help ensure process objectives are met as efficiently as

feasible

• Leverage technology in communicating decision-making

information

Poorly planned or managed S&OP Meetings contribute to ineffective S&OP processes!

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Key Roles in Executive S&OP Meeting

Facilitator

• Guides the process

• Keep notes

•Acts as timekeeper

• Keeps meeting on

track

Business Leader

• Owns the meeting

• Encourages

participation

• Requires

attention & effort

• Makes decisions

• Assigns Actions

All Team Members

• Contribute ideas & suggestions

• Adhere to the agenda

• Practice good meeting behavior

Presenter

• Communicates and clarifies

issues and opportunities

• Highlights root causes and

need for change

• Moves management toward

a commitment

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Emphasis & Level-of-Detail

• Short-term

• Individual

• Operational

• Day-to-day impact

• Defensive

• Very detail-oriented

Operational Level Executive S&OP Demand-Supply Balancing

• Shorter-term

• Departmental

• Operational

• Defensive

• Turf-oriented

• Expert endorsements

• Detail-oriented

• Influencers

• Visionary

• Long-term

• Big picture

• Bottom-line results

• Action

• Focused

• Companywide

• Open

• Decision-makers

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Use the K.I.S.S. Principle

Quarterly Trend in Sales Quarterly Trend in Sales

Which of these two charts is better for S&OP Executive Meeting?

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Make Good Use of Time • Present information with a “clearly defined’ purpose

-Share information important to management (e.g. sales are decreasing

or increasing overall) Stick to the agenda.

- Identify issues needing resolution from management

• Schedule enough time to have a meaningful discussion

- Take actions to keep discussion on track with the subject

• All participants should come prepared

- Issue pre-reads from previous steps in process

- Use meeting time to resolve issues and make decisions

• Make sure action items are assigned to specific people and with due dates

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Preparing for the Executive Review

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• Review demand-supply imbalances and make decisions (within the

framework of policy, strategy and business plan).

• Where possible, resolve differences and develop a single set of plans to

recommend to the leadership team.

• Identify issues to be resolved by the executive team and decide how the

issue will be presented.

• Develop alternatives for resolving issues and identify the cost associated

with each alternative.

• Contribute to the Executive S&OP Meeting Agenda

• Critique the meeting.

Pre-S&OP Meeting

The appropriate executive(s) should receive a summary of open

issues from the Pre-Meeting in time to review and ask questions.

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S&OP Pre-Read File

S&OP KPI’s – Each owned by member of Executive Team who

is expected to come prepared to discuss the status and lead

action discussion if the KPI has red or yellow lighted.

New Product

Sales Status

Safety, &

Morale Inventory Financial

Special

Project

Data Index

1.0 =

target

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Exception Management Hierarchy

Planners &

Schedulers

Managers

E

Resolve 75% of Exceptions

and Opportunities

Resolve 20% of Exceptions &

Opportuniites

Receive 5% or fewer Exceptions &

Opportunities

What happens if too much flows up the hill?

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Who prepares for review and who

makes the decision? Annual Planners & Functional Executive

Revenue Schedulers Managers Leaders

$10M

(1 Prod. Group)

$300M

(6 Prod. Grps.)

1. “A customer” delivery will be late with current plan

2. Need to work overtime at plant next two weeks

3. Forecast for a product group is down 25%

4. New plan results in projected profits 10% below budget

5. Major competitor had an explosion that closed their plant

For the issues below, which level(s) should take primary responsibility (R) for

identifying the impact & providing alternatives and which level is accountable

(A) for resolving the issue? Only one “A” can be assigned.

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Executive Review Agenda

Sample Agenda – Executive S&OP Meeting

• Review of Overall Business Performance

• Review & Discussion of Key Performance Indicators

• Discuss Status of New Product Introductions

• Family-by-Family Review and Decisions

• Approve Production/Supplier Rate Changes

• Collective Impact on the Business Plan

• Review of Decisions Made & Action Items Assigned

• Critique of the Meeting

This meeting should be the “only” routine business level meeting.

Don’t spend much time on the “Good” news; focus on opportunities.

Many firms fail to manage these resulting in service-inventory-cost issues.

“Exceptions” should be identified and options ready for review.

Best if projected revenue & profits are in plan and reviewed in advance.

Only those which exceed authority of Demand-Supply reconciliation.

Quick summary of major decisions and who-what-when for actions.

Review of this meeting (benefits & concerns) – no more than 5 minutes.

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Conducting the Executive Review

Process

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Typical Discussions at Executive

S&OP Meeting: • Are we on plan financially?

– Variances to date (actual vs.. plan)

– Projected variance (Plan vs. Budget; Last approved vs. Current)

• How are we performing operationally?

– Metrics

– Company/Plant Goals

• Have there been any significant lessons learned since last month? (actual, projected)

– Customers

– Markets

– Competition

– Business Environment (factual or assumed)

– Demand (current & new products)

– Supply (current and new products / processes)

– Resource (projects)

•Are we comfortable with the projections between month 2 and month 18?

– Demand

– Supply

– Financial projection

– Assumptions

•Are we willing to commit this month’s S&OP plan as a business plan?

•Do we have any reason to revisit our company goals, strategies or strategic initiatives?

•How good is our reliability at developing a plan and performing to the plan?

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No Surprises!

• This is a “TEAM” process

• Surprises are very disruptive and result in non-value added efforts.

• Pre-S&OP process must include peer review of cross-functional

issues.

• Executives must be briefed on all issues identified during the Pre-

S&OP process that will need to be discussed in the Executive S&OP

meeting.

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Business Performance & KPI’s Period Ending: December, 2006 KPI ScoreCard

TREND

DEC STATUSROLLING

12 MONTH

Total Sales ($M) J. Doe

Contribution Margin ($ OK J. Doe

Total Demand (M lbs) OK J. Smith

Demand vs. S&OP OK J. Smith

Forecast Accuracy OK J. Smith

Total Production (M OK B. Jones

Production vs. S&OP OK B. Jones

S&OP Capacity OK B. Jones

Total Finished Goods OK J. Green

Inventory vs. S&OP OK J. Green

DII (PIT) Raw Materials OK J. Green

DII (YTD) Raw OK J. Green

DII (PIT) Finished OK J. Green

DII (YTD) Finished OK J. Green

DII (PIT) OK J. Green

DII (YTD) OK J. Green

Non-Saleable OK J. Green

On-Time Shipping OK D. Easy

Actual Ship Qty. vs. OK D. Easy

Total Fixed OK D. Easy

LOWER

LIMIT

REPORTING MONTH

OWNER

FINANCIAL

SBU APREVIOUS

MONTHTARGET

UPPER

LIMIT

DEMAND

PRODUCTION

INVENTORY

LOGISTICS

Use a “Status” System to identify and focus on poor performance!

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Financial Plan Comparison Cumulative Gross Margin (M Euros)

S&OP YTD Actual

Budget Plan Actual vs. Budget

1 January 3.5 4.2 4.2 0.7

2 February 7.0 7.8 6.9 -0.1

3 March 10.5 10.8 11.0 0.5

4 April 14.0 14.6 13.9 -0.1

5 May 17.5 18.0

6 June 21.0 21.2

7 July 24.5 24.6

8 August 28.0 28.6

9 September 31.5 32.2

10 October 35.0 36.5

11 November 38.5 40.0

12 December 42.0 43.4

Tracking to

budget but new

product sales

below S&OP

demand plan.

How often should leadership change the annual business plan?

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Executive Level Demand-Supply Significant Increase in

FCST Current Rated

Capacity

Resolution of imbalance requires significant investment!

Current Demo Capacity

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Review Inventory Performance

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

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Aged Inventory Report

New Product Aged has increased

Important Metric in a global recession!

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Executive Review Meeting Minutes

S&OP Executive Team

Monthly Team Meeting

Meeting Minutes

Meeting Date: Author:

Attendance:

Objectives:

Approve future S&OP Plan

Review performance

Resolve open issues

Highlights:

Next Meeting:

Action Items: Open

Date Initiated

Action Register Responsible Orig. Due Date

Revised Due Date

S&OP Executive Team

Monthly Team Meeting

Meeting Minutes

Meeting Date: Author:

Attendance:

Objectives:

Approve future S&OP Plan

Review performance

Resolve open issues

Highlights:

Next Meeting:

Action Items: Open

Date Initiated

Action Register Responsible Orig. Due Date

Revised Due Date

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Improving the Executive Review

Meeting

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Sample Critique of Early Review Meeting 1) Too much detail discussed at the S&OP meeting. For example, details of development

or manufacturing problems discussed by cross-functional teams re-stated in this

meeting. Need to highlight findings of teams.

2) Old action items still open and discussed again and again. Need better accountability

for resolution.

3) Confusion regarding product and capacity transition plans. Need a firm plan and

discussion to this.

4) Cannot perform “What-ifs” during meeting. Plan is not brought in on PC.

5) Only high-level performance measures discussed and no discussion around tolerances,

root cause identification, and improvement plans.

6) Meeting scope well beyond S&OP. Participants hold one-on-one or small group

meetings within the meeting.

7) Some discussion of financial outlook, but connectivity between S&OP plans and

financial performance not closely linked.

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Learn by Doing -Critique the Meeting

Benefits:

Concerns:

What Who When Comments

End-of-meeting critique is part of routine process!

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Effective Review is a Journey

Get the basics

in order (e.g.

Agenda,

Schedule, etc.)

Continuous

Improvement

Learn by

Doing and

Improve

Reviews

Focus the

S&OP

Process &

“E” Meeting

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Alan.milliken@basf.com