Industry Case Studies, Chemicals

A Leading Specialty Chemicals Producer Uses Sales & Operations Planning to Drive Their Business.

Background:
Based on various business measures and symptomatic evidence, the client knew that it's supply chain management processes were operating at a sub-optimal rate. Recognizing that they lacked experience in re-engineering supply chain processes and implementing the associated systems, the client engaged EnteGreat to evaluate it's supply chain operations and devise a strategy for their future state supply chain environment. As a result of this supply chain evaluation and strategy definition effort, EnteGreat recommended that the client institute a Sales and Operations Planning (S&OP) process. This recommendation included a comparison of sales & operations planning practices vs. traditional production planning practices and benchmarks related to the overall business benefits associated with sales & operations planning processes in various industries. The client understood the critical need to improve their operations planning, and that they undoubtedly needed to institute a sales & operations planning process.

Situation:
The client's prior planning environment was a collection of non-integrated, recurring, independent processes (including a traditional production planning process) resulting in separate plans for various business functions - each with it's own terminology, timing, and units of measure. These multiple and often counter-productive plans created an overall operating environment that was extremely difficult to coordinate as operations evolved. Each functional area (Sales/Marketing, Operations, Engineering, New Product Development & Introduction, and Finance) was creating and implementing plans of their own, which resulted in continual resource conflicts and contradictory action plans. This situation was extremely difficult on the Operating team, because they were constantly being whipsawed back and forth between contradictory initiatives and changing plans. As a result, they insulated themselves from these continually changing plans by developing protection through the supply chain in the form of excess inventory, extra production resources, standardized expediting functions, and planned overtime.

In spite of all the resources and effort invested in planning, follow-through on the plans was limited. Frequently, the plans only lasted a couple of days and were then abandoned to support localized business priorities, other plans which superceded the original plans, or entirely new initiatives. Consequently, Operations generally ignored the plans and acted on their own volition to service their localized interpretation of current business priorities in the form of constantly changing execution schedules. Production inefficiencies were deliberately introduced to support the expediting of orders. As such, the planning efforts were essentially in vain and added little value. This situation was rampant with waste; inefficiency was obvious; and performance measurements were deteriorating as evidenced by the following:

• Resource utilization was low and declining
• Production runs were being changed frequently
• Off-spec production and re-work were growing
• Inventory valuations were climbing
• Customer service and on-time deliveries were declining
• Transportation costs were growing
• Overtime was excessive and growing
• Raw material shortages occurred regularly
• Maintenance was reactionary and not planned into production schedules
• Forecast accuracy was low and not even tracked on a regular basis

Worst of all, everyone was working hard, but seemingly the business was paralyzed and could not respond to market and customer opportunities in a proactive and efficient manner. Missing opportunities to grow and sensing that their business was being stunted by inefficient processes caused the client's senior management to take action.

Solution:
To address its ineffective planning environment, the client collaborated with EnteGreat to define and implement an S&OP process specifically adapted to their business environment. The client's resulting S&OP process, based on EnteGreat's standard S&OP process, considered their strategy, organization structure, product portfolio, production resources, and end-customer requirements to formulate a process best suited for the client environment.

The S&OP process was implemented in a collaborative manner, with client personnel performing many of the systems development efforts while EnteGreat managed the overall process and aggressively mentored client personnel throughout the implementation effort. The S&OP implementation effort transpired as follows:

• S&OP Process Development - Using EnteGreat's standard S&OP process as a basis, EnteGreat personnel collaborated with lead client personnel from their supply chain management, operations, and sales teams as well as senior executives to:
  1. Devise an appropriate S&OP process for the client, based on adaptation of the EnteGreat standard S&OP process
  2. Map the S&OP process to the client's organizational structure as well as business and individual metrics (KPIs)
  3. Establish a migration plan for implementation of the S&OP process. This migration plan identified the sequence of client business units where the S&OP would be rolled-out based on various business issues.
• S&OP Training - EnteGreat conducted introductory-level training for all S&OP process participants as well as focused training for individuals with responsibility for various S&OP process activities
• S&OP Mentoring / Coaching - To prepare client personnel for their S&OP activities, duties, and responsibilities, EnteGreat personnel worked with the client S&OP process participants to guide them in methods and tactics for gathering and preparing the required data, devising candidate plans, preparing proper pre-meeting materials, and conduction S&OP meetings.
• S&OP Data Management - While the client had primary responsibility for creating the associated S&OP data management utilities, EnteGreat helped various client personnel understand the data requirements in a holistic manner across the overall S&OP process. This established common time periods, units of measure, data granularity, and terminology to support integrated planning across the demand planning session, operations planning session, and S&OP decision meeting. Ultimately, the client created a series of utilities that operated in an integrated manner to support each stage of the S&OP process.
• S&OP Facilitation - EnteGreat facilitated a dry-run of the actual S&OP meeting cycle as well as the initial live S&OP meeting cycle. The dry-run introduced the client participants to the overall process in a real manner and helped them understand how to prepare for and conduct S&OP sessions. At the conclusion of both the dry-run and initial live S&OP meeting cycles, EnteGreat produced report cards that graded all aspects of the S&OP process and offered suggestions for correction of problem areas as well as process improvement.
• S&OP Support - After two (2) live S&OP cycles, the client was comfortable with the established S&OP process and was capable of successfully operating the meeting cycles without direct participation or support from EnteGreat.
• Organizational Structure Adjustments & KPIs/Objectives Redefinition - As a result of the S&OP process, EnteGreat assisted the client with adjustments to the organizational structure as well as redefining KPIs at both group and individual levels to proper support and incentivize the S&OP participants. The KPIs had significant impact on the sales team (where forecast accuracy becomes a critical metric for compensation) as well as the plant scorecards (where performance to plan replaced prior production tonnage targets).

As a result of this approach, the client was able to independently operate it's S&OP process as a regular business function after only one (1) dry run and two (2) live S&OP meeting cycles. The process was so successful that after the first live S&OP meeting cycle, the client identified significant disconnects with it's forward production plans and decided to redo their entire business plan for the upcoming year. Without the integrated S&OP planning process, the client would not have been able to identify these problems and opportunities.

Benefits:
The project had significant positive business impact for the client in the form of:

• Cost Savings. Significant cost savings were recognized in the form of reductions in production overtime, waste, utility consumption, inventory levels, and expediting costs associated with materials shortages.
• Additional Production Capacity Realization. Eliminating unplanned schedule changes and raw-material shortages increased production throughput for the same production resources.
• Improved Production Performance. By establishing frozen production periods, unplanned schedule changes were substantially eliminated reduced. This improved resource utilization by enabling longer production runs and scheduled preventative maintenance activities.
• Improved Operational and Resource Coordination. The structured S&OP process provided a platform for more efficient and organized planning activities. Collectively, the effort required to create the S&OP plan is significantly less than the prior planning processes while yielding higher-quality plans that were implemented and followed by all functional areas. Additionally, the S&OP process eliminated the prior resource contention issues, which were the cause of significant inefficiency.
• Improved Customer Service. As a result of improved schedule, stability resulting from better planning, coordination, and communication, improved on-time deliveries and customer service levels were achieved.
• Common Business Based Decision Making and Plans. The S&OP process creates a unified plan, which is suitable for all functional areas (Sales, Operations, Engineering, Finance, etc.) based on an integrated planning approach focused on the overall enterprise's business needs - rather than localized priorities.