Rohm and Haas

- MRP II Class A

R&H Business Management Evolution

Pre 1985 Mid 1980s to Mid 1990s Post 1995

Technology-based Technology-based Competition Competition Multiple legacy Multiple legacy systems & systems & processes processes Regional matrix Regional matrix organization organization Good prices Good prices Market leadership Market leadership despite Arrogance despite Arrogance Mediocre customer Mediocre customer service service

Increasing technology & Increasing technology & price competition price competition Common systems Common systems installation/process re installation/process re engineering projects engineering projects Global, cross functional Global, cross functional business units business units Total Quality Leadership Total Quality Leadership Customer focus Customer focus Better customer satisfaction Better customer satisfaction Operational scrambling Operational scrambling

Pricing pressure - -tough Pricing pressure tough competition competition Drive to formal, common Drive to formal, common processes processes Stronger global scope of Stronger global scope of business units and business units and support functions support functions Redesigned business Redesigned business models/business models/business policies policies Competition based on Competition based on supply chain excellence supply chain excellence

R&H Supply Chain Process Vision

Strategic/Business Planning Process
Sales & Operations Planning Planning (S&OP) Sales & Operations Planning (S&OP) Demand
Management

Development Process Materials/Services Internal External Paying Supply Planning Supply

Internal Supply External Paying Supply

Supply
Management

Master Production Schedule

Transportation Planning

Demand Creation Process

Order Entry/ Order Mgmt Processing Order Entry/ Processing Billing/ Collecting

Production
Plant Scheduling mrp, Procurement, Paying

Required Materials/Services

Delivery
Shipping Shipping Freight Warehouse Warehouse Freight Warehouse Payables Operations Operations Payables Operations

Conversion

Orders

Production & Quality Reporting

Quality Product

Objectives
Understand MRP II Class A

Principles Processes Terminology

Define Roles Define benefits

4

mrp, MRPII and ERP

mrp (material requirements planning): methodology developed in 1970s for planning what raw materials to purchase to meet production schedule in the factory MRPII Manufacturing Resource Planning(): business management methodology evolved from mrp in the 1970s/80s, covering planning of all resources needed to balance supply & demand in a manufacturing business or company ERP (Enterprise Resource Planning): software systems developed in the1990s to run MRPII business management processes in a more integrated manner across all units and sites of a manufacturing enterprise
5

How are the MRP II and ERP Programs Linked?

MRP II / ERP Program Phases

Class A Business Process Design

SAP Software Implementation

Drive to Class A Achieve Levels of Class A Performance Certification

MRP II Business Process ERP (SAP/Manugistics) Software Implementation

MRP II Class A Business Operational Excellence

Delivering excellent customer service profitably across complex global supply chains requires:

Excellent business processes Highly trained people Integrated software systems

Basic Supply Chain Management Process

What Do We Have ?

Inventory

Forecast
What Does The Customer Need? How Much? When? Where?

What Are We Going to Make? How Much? When? What Does It Take to Make It? How Much RM Do We Have? What Do We Need? How Much? When?

MPS BOM

mrp

DEMAND BALANCING

SUPPLY

Formal Vs Informal Processes

Informal Processes
Dueling data Disconnected processes Internal competition Fuzzy accountability Apparent flexibility

Formal Processes
Common, accurate data Integrated tools/functions Cooperative communication Clear, measured accountability True, disciplined flexibility

MRP II Process
Business Planning (BP) Sales & Operations Planning (S&OP)

NEED?
Demand Management (DM)

MAKE?
Master Scheduling (MPS)

Rough Cut Capacity Planning (RCCP)

Inventory Records (IRA)

Bills of Material (BOM)

HAVE?
Work Center Capacity

Material & Capacity Planning (MRP & CRP)

TAKE?
Process Steps (Routes)

GET?
Plant & Supplier Scheduling

DO!

Sell

Make

Deliver

10

PLANNING PROCESS
FORECASTING

SUPPLY CHAIN

CUSTOMERS

WAREHOUSES DRP
APR Whse US Whse

S&OP

MPS Rohm and Haas

Manufacturing

mrp

SUPPLIER SCHEDULING

SUPPLIERS
11

Key MRPII Principles

Formal processes (beginning with S&OP at the top) One set of numbers used by all Accurate data Realistic plans Disciplined execution of the Plan Clear Accountability Metrics with RCCA 12 Silence is Approval

Class A
Level
A

Qualitative Criteria

Quantitative Criteria
91 - 100%

80 - 90%

70 - 79%

60 - 69%

EMBG Management Process Class A Assessment Scorecard (Summary Level) Business Unit: __________________________ Site: _________________________ 4321 A. General Management Processes E. Production Processes A1. Corporate Direction E1. Plant Scheduling ----A2. Management - Active Leadership E2. MRP, Procurement and Paying ----A3. Linkage to Strategic/Business Planning E3. Conversion ----A4. Linkage to Demand Creation Process E4. Production and Quality Reporting ----A5. Linkage to New Product Development ----Process F. Delivery Processes F1. Shipping/Delivery Management A6. Employee Education and Involvement ----A7. TQL Process - Continuous Improvement ----A8. Financial Processes ----G. Data Quality G1. Single Set of Numbers G2. Inventory Record Accuracy B. Planning Processes G3. Bill of Material Accuracy ----Sales & Operations Planning G4. Capacity Planning Parameter Accuracy B1. Sales & Operations Planning Process ----G5. Product Change Control Process ----Demand Management B2. Forecasting and Demand Planning ----B3. Network Design & Analysis ----H. Performance Measurements H1. Customer Service B4. Distribution Planning & Replenishment ----A) External Customer - On Time Delivery B5. Collaborative Planning ----B) Distribution - On Time Delivery ----Supply Management C) Internal Auto Replenishment-On Time Delivery B6. Master Production Scheduling ----H2. Sales Forecast Accuracy - Family Level B7. Capacity Analysis ----H3. Sales Forecast Accuracy - SKU Level B8. Kan Ban Planning ----H4. Performance to Production Plan (Family) B9. Financial Analysis ----H5. Performance to Master Production Schedule (SKU) H6. Supplier Delivery to Scheduled Receipt C. Materials & Services Supply Processes C1. Planning of External Supply H7. Cycle Time Performance ----C2. Planning of Internal Supply H8. Number of Expedited Shipments and Associated ----C3. Transportation & Warehouse Planning Costs ----H9. PO to Invoice Variance H10. Percent Rework of Orders D. Order Management Processes D1. Order Entry Processing H11 Quality Performance ----D2. Billing & Collecting H12. Financial Performance ----Overall Score: ______ Class:________Class A = 3.5 4.0 Class B = 2.5 3.5 Class C = 1.5 2.5 Class D <1.5

4321 -----------------

-----

---->95% >98% >95% -----

>95% >95% >95% Measured Measured 98%-102% >95% >95% Measured Measured Measured Measured Measured Measured

14

Class A
Level
A

Qualitative Criteria
Business Wide All Functions Top Management Uses Significant Improvements Operations Focused Top Management Supports Measurable Improvements Materials Focused Top Management Allows Break Even Superficial Use Everyone Ignores Adds Cost/Confusion

Quantitative Criteria
91 - 100%

80 - 90%

70 - 79%

60 - 69%

MRP II Key Metrics

Focus Area Focus Area
Customer Service Inventory Record Accuracy Planning / Scheduling Forecast Accuracy Data Accuracy (BOM, Routings) MRP Procurement

Outcome Outcome
> 95% On-Time Delivery > 95% Accuracy > 95% Performance to Plan Measured & CI > 98% Accuracy > 95% Supplier OnTime Delivery

Now? Now?

___ ___ ___ ___ ___ ___

16

Root Cause Corrective Action for all metrics

System Reliability
Need?
80%

Have?
80%

Make?
80%

Take?
80%

Get?
.8 X .8 X .8 X .8 = 41% 41%
17

Typical Benefits from MRPII Implementation

Customer Service Improvement

Inventory Reduction Productivity Increase Purchase Cost Reduction Improved Supplier Performance Reduced Expediting

Reduced Stress

ABCs of MRPII Class A

PRIORITY "A" "B" "C" ELEMENT People (75%) Data Accuracy (15%) Computer Systems (10%)

Designers/Implementers <=> Users

MRP II
Business Planning (BP) Sales & Operations Planning (S&OP) Rough Cut Capacity Planning (RCCP)

NEED?
Demand Management (DM)

MAKE?
Master Scheduling (MPS)

Inventory Records (IRA)

Bills of Material (BOM)

HAVE?
Work Center Capacity

Material & Capacity Planning (MRP & CRP)

TAKE?
Process Steps (Routes)

GET?
Plant & Supplier Scheduling

DO!

Sell

Make

Deliver

20

SALES & OPERATIONS PLANNING OBJECTIVES

1. 2. 3. 4. 5. 6. 7. 8. SUPPORT THE PROFIT PLAN SUPPORT THE CUSTOMER INSURE REALISTIC PLANS LEAD CHANGE MANAGE INVENTORY MAKE DECISIONS - RESOLVE ISSUES MEASURE PERFORMANCE BUILD TEAM WORK!

S&OP - Rolling 24 Month View of the Business

Strategic Value Model BVM 5 Year Plan

Profit Plan 1 year Profit Plan YEAR 2

10 YRS+

S&OP

SALES & OPERATIONS PLANNING OBJECTIVES

1. 2. 3. 4. 5. 6. 7. 8. SUPPORT THE PROFIT PLAN SUPPORT THE CUSTOMER INSURE REALISTIC PLANS LEAD CHANGE MANAGE INVENTORY MAKE DECISIONS - RESOLVE ISSUES MEASURE PERFORMANCE BUILD TEAM WORK!

S&OP Process Flow

Existing Demand Plan

Obtain Input Update Demand Plan Communicate to Operations

Update Financials

Pre-S&OP S&OP Meeting New Plans Approved Communicate Plans

Operations Update & Response

24

SALES & OPERATIONS PLANNING OBJECTIVES

1. 2. 3. 4. 5. 6. 7. 8. SUPPORT THE PROFIT PLAN SUPPORT THE CUSTOMER INSURE REALISTIC PLANS LEAD CHANGE MANAGE INVENTORY MAKE DECISIONS - RESOLVE ISSUES MEASURE PERFORMANCE BUILD TEAM WORK!

Process Excellence S&OP (Sales & Operations Planning)

General Manager runs the monthly process, its how we run the business, not just a meeting Focus is on future planning and decision making, less on history (historical review just a basis for future planning) ERP system forecasts volume/revenue/gross profit, identifies cost/profit drivers, can re-project upsides/downsides for S&OP Inventory is planned/actively managed as a result of Sales and Production executing to the plan Annual Business Plan (budget) comes directly from S&OP plan S&OP Team oversees ongoing management of product line, channels and business policies Consistent metrics used across all R&H global units, with clear responsibility/accountability linkages
26

S&OP Enables
Monthly organization alignment on a realistic, achievable, single 18-month plan for the whole business which focuses on customer needs and meets business requirements Open and honest communication about issues and plans Clear, formal decision making on key issues and business priorities affecting the business Continuous improvement with consistent use of metrics, root cause analysis, and corrective action

MRP II
Business Planning (BP)

NEED?
Demand Management - (DM) Forecast Channel Assignment Customer Segmentation DRP
Sales & Operations Planning (S&OP) Rough Cut Capacity Planning (RCCP)

MAKE?
Master Scheduling (MPS)

Inventory Records (IRA)

Bills of Material (BOM)

HAVE?
Work Center Capacity

Material & Capacity Planning (MRP & CRP)

TAKE?
Process Steps (Routes)

GET?
Plant & Supplier Scheduling

DO!

Sell

Make

Deliver

28

Key Class A Characteristics Demand Management

Sales owns the forecast Demand plan used by all functions All assumptions tracked for forecast changes Sales / Marketing track forecast accuracy, have improvement goals Demand Manager / Planner reports into Sales organization Family plan = sum of detailed plans. Warehouse stocking is automated using DRP MTS/MTO categories based on quadrant analysis 29

MRP II
Business Planning (BP) Sales & Operations Planning (S&OP) Rough Cut Capacity Planning (RCCP)

NEED?
Demand Management (DM)

MAKE?
Master Scheduling (MPS)

Inventory Records (IRA)

Bills of Material (BOM)

HAVE?
Work Center Capacity

Material & Capacity Planning (MRP & CRP)

TAKE?
Process Steps (Routes)

GET?
Plant & Supplier Scheduling

DO!

Sell

Make

Deliver

30

Process Excellence - Supply Management

Master Production Schedules support all sources of Demand and drive short-term schedules in SAP Real schedule is in ERP system, no parallel spreadsheets or systems Performance to Plan/Schedule metrics tracked/improved. Changes are tracked/ managed formally . MTS, FTO & MTO schedules meet business policies The Master Production Schedule (MPS) is capacity feasible (realistic) for full 18 month planning horizon.. Predictive maintenance and Planned downtime is accounted for in the Master Production Schedule (MPS) Effective DRP planning for interregional supply Aggregate (family) capacity and production plans are built up from SKU detail
31

MRP II
Business Planning (BP) Sales & Operations Planning (S&OP) Rough Cut Capacity Planning (RCCP)

NEED?
Demand Management (DM)

MAKE?
Master Scheduling (MPS)

Inventory Records (IRA)

Bills of Material (BOM)

HAVE?
Work Centers Capacity

Material & Capacity Planning (MRP & CRP)

TAKE?
Process Steps (Routes)

GET?
Plant & Supplier Scheduling

DO!

Sell

Make

Deliver

32

Data Accuracy Is the Foundation for MRP II Class A - and- Trusting the ERP System
INVENTORY RECORDS (IRA) BILLS OF MATERIAL (BOM) WORK CENTER ROUTINGS & CAPACITY PLANNING DATA (Lead times Order Quantity Safety Stock)

95%
Metric =

98%

> 95%

>98%

% of records found accurate # of records checked

(record, not aggregate, level)

Data Cleansing = Event; Data Quality = Process/Prevention

33

MRP II
Business Planning (BP) Sales & Operations Planning (S&OP) Rough Cut Capacity Planning (RCCP)

NEED?
Demand Management (DM)

MAKE?
Master Scheduling (MPS)

Inventory Records (IRA)

Bills of Material (BOM)

HAVE?
Work Center Capacity

Material & Capacity Planning (mrp & CRP)

TAKE?
Process Steps (Routes)

GET?
Plant & Supplier Scheduling

DO!

Sell

Make

Deliver

34

Process Excellence - Material Requirements Planning & Supplier Scheduling

mrp runs routinely, materials needs are projected automatically Procurement recommendations are used/trusted; manual POs minimized/eliminated There are no separate parallel spreadsheets/processes Planning Data is measured and formally managed Supplier scheduling automated; where appropriate, suppliers are responsible for managing our stocks. Planning data (Safety stocks, lead times , order quantities) are formally managed. Accountability is clear.

35

MRP II
Business Planning (BP) Sales & Operations Planning (S&OP) Rough Cut Capacity Planning (RCCP)

NEED?
Demand Management (DM)

MAKE?
Master Scheduling (MPS)

Inventory Records (IRA)

Bills of Material (BOM)

HAVE?
Work Center Capacity

Material & Capacity Planning (MRP & CRP)

TAKE?
Process Steps (Routes)

GET?
Plant & Supplier Scheduling

DO!

Sell

Make

Deliver

36

Process Excellence Sell, Make, Deliver

Selling
Real Time ATP enables reliable commitments to customers Business policies and lead times are formal and honored Promises to customers are > 95% accurate Performance vs. requested and promised dates is tracked Invoices are 98% accurate Real schedule is in the ERP system, no parallel systems Performance to the Schedule is > 95%, schedule changes managed formally Real time data entry - Production & Quality On time delivery is measured and improved Warehouse moves and shipments reported in real time Warehouse staff responsible for FG inventory accuracy
37

Making

Delivery

External Procurement
Principles
Formal Processes for management of global procurement strategies Automatic material releases Supplier schedules and Long range plans based on our consumption projections Real-time entry of receipts into the system Accurate data on Due Dates for incoming materials Purchasing responsible for negotiating lowest total cost Performance measurements: vendor rating system (on time delivery, quality, price, technical support, etc.)

Sub-processes
Key Resource analysis Supplier Segmentation Performance Management Contract Materials requirements planning (mrp) Supplier scheduling SMI / SOI / SOMI

Process Outputs
Formal Procurement Strategy Action Plans Time-phased delivery schedule for supply Info to drive shared cost & inventory reduction

THE SUPPLY CHAIN ICEBERG

Unit Price long lead times inventory expediting duplication of effort changing schedules multiple inspections delivery times behaviors relationship complexity scrap and losses minimum batch sizes quarantined goods reworked product confused communications rework
39

Procurement Templates Outputs TEMPLATE

Key Resource Analysis Supplier Categorization Performance Management
Formal Expectations

Quadrant Analysis Purchasing Strategy

Strategic Alliance Partner Approved

Supplier Performance - good/bad Eliminate/Add Activities

Contract Process

Amended Contract with Current Supplier New Contract with Current Supplier New Supplier and New Contract

Key Resource Analysis and Strategy Development

Decide which purchased resources are key to the business Decide and document purchasing strategies Identify gaps and develop action plans for key resources

41

Performance Management
Expectation of Suppliers

Suppliers must understand what is expected of them in an MRP II Class A environment Documented in formal contracts Supplier Education METRICS with RCCA
(on time delivery, quality, price, technical support, etc.)

42

Supplier Selection and Approval

Purpose is to select and approve new or existing raw material suppliers to fulfill business requirements Subprocess of the Contract Process Applies to suppliers of resources purchased externally on competitive bids (excluding Stores and MRO)
43

External Procurement

Role of Buyers
Understand Business Needs Value/Costs Know the Market Source, negotiate & contract Manage relationships Educate suppliers Service/Quality Monitor supplier performance Solve major problems Technology development

PORTFOLIO ANALYSIS
1. Segments the Buyers Expenditure 2. Critiques the Current Practice 3. Establishes a Formal Improvement Plan 4. Alignment & Teamwork
45

HIGH
Bottleneck
Supply Chain M anagem ent Develop Contingency Sources Partnership w/Key Suppliers M - Long termContract ed

Critical
Aggressive Cost Reduction Supply Chain M anagem ent M to Supplier Econ ove Toll Conversion Alliances, Long TermCost Base Contracts

RISK/ COM PLEXITY

Routine
Stream Purch. Proc. line Flexible TermAgreem ent

Leverage
M arket/Spot Pricing Consolidate Business 1-3 m Pricing onth Bid Annually Develop M ultiple Sources

LOW

PROFITPOTENTIAL

HIGH
46

Quadrant Analysis - Key resource classification

A mapping tool for analyzing market conditions and segmenting key resources into specific classifications to support purchasing strategy development and execution.

Critical: vital and of global importance Unique qualities are required high expenditure Bottleneck: single source complex supply chain, unacceptable performance risk to global business objectives. Routine: multiple sources common specifications and low value. low market difficulty. . Leverage: high in expenditures common specifications multiple purchase points spot buying - prices are market-driven. 47

Supplier Categorization Strategic Alliance

commitment to Class "A" & CI The risks and rewards are shared. All pertinent information shared business plans Supplier Long Range Plans Supplier Schedules Long term contracts required

Partner
commitment to Class "A" & CI All pertinent information shared Supplier Long-Range Plans Supplier Schedules The Supplier demonstrates Class A processes Long-term contracts considered.

Approved Supplier
commitment to continuous improvement desirable. traditional Buyer/Seller relationship exists Purchase Orders, Contracts - as required

48

C1. Procurement Planning and Management Key Class A Characteristics

B. Supply/Material Strategy: 1) All items and suppliers covered. 2) The number of suppliers is rationalized. 3) Suppliers/materials are classified using R&H Procurement Quadrant Analysis (or similar). 4) Suppliers are educated on MRP II principles and understand their role. 5) Partner/strategic suppliers have formal action plans which are followed. 6) Global/regional/local accountability clearly defined and followed. 7) Material Planner and Buyer roles clearly defined C. Supplier selection process: 1) Supplier selection process is fully documented & followed 2) Criteria defined 3) Supports collaborative dealings for leverage, savings sharing, total value

D. Supplier performance management process: 1) Supplier performance tracked & improved with formal supplier criteria and ratings 2) Performance metrics defined, supplier performance >95% 3) Suppliers do RCCA 4) Regular performance reviews conducted with suppliers 5) Real time global spend info from ERP is used for contract mgmt at global/regional/local levels E. Supplier Planning: 1) Supplier scheduling and collaborative planning is in place for identified suppliers; 2) Purchasing uses SAP/Networks data to provide Supplier Schedules. 3) Long term plans are communicated monthly 4) Supplier schedules are communicated weekly F. Metrics Metrics tracked at Global/Regional level, including key Class A metrics: 1) Supplier on time delivery 2) mrp planning data quality 3) Purchasing data quality Discretionary process improvement metrics: 4) Purchase price variance 5) RM Inventory turns 6) Obsolete and slow moving RM inventory

49

External Procurement

Supplier Scheduling
Delivery to a schedule (not orders) Structured, disciplined, managed process Requires valid production schedules Requires clear, simple communications Requires supplier collaboration

External Procurement

Supplier Partnerships

Share gains Supplier education Critical information shared Joint participation in product development, cost reduction & value analysis Business agreement Supplier Scheduling and SOMI mechanics Silence is approval Continuous Improvement

External Procurement

SUPPLIER SCHEDULE
TOTAL REQUIREMENTS PURCHASE ORDERS PLANNED ORDERS

Week of

May 4, 1998 May 11, 1998 May 18, 1998 380,000 May 25, 1998 1,140,000 June 1, 1998 June 8, 1998

1,330,000 1,140,000 950,000 1,140,000 950,000 1,140,000

1,330,000 1,140,000 570,000 -

380,000 1,140,000

OUTSTANDING PURCHASE ORDERS FOR SUPPLIER Recommendation

MRP Recommended Date/Time

S513275 1 S513276 1

190,000 5/04/98 24:00 190,000 5/05/98 24:00

External Procurement

Role of Supplier Schedulers

Delivery schedule releases Reschedules Routine communications Monitor performance & problems Material requirements planning

External Procurement

Supplier Owned/Managed Inventory (SOI/SMI)

Supplier Linking

Formal linkage Suppliers own/manage inventory Integrated supply / demand plans Supplier determines replenishment based on plant production schedule (not orders) Payments to suppliers by EFT based on consumption Win / Win

External Procurement

Criteria for Selecting SOI/SMI Candidates

Supplier Attributes:
Willingness to develop long term partnership Committed to reducing supply chain costs Exercises broad, open communications Practices MRPII/planning concepts Has broad level of interest throughout the company Supplier process is capable; no quality issues

Material Attributes:
High annual usage volume Predictable usage patterns

Audit Checklist
E2. mrp, Supplier Scheduling
Key Class A Characteristics

A. mrp/purchasing processes: 1) ERP mrp planning occurs daily, drives RM supply 2) Procurement recommendations are trusted/used 3) No parallel processes/manual POs 4) Accountability for RM inventory is clear 5) Safety stock policy clear and followed 6) Raw material stocking policy is formal and periodically updated B. Procurement Data Accuracy: 1) Procurement and planning parameter accuracy (esp. LT/ OQ/ SS) is measured and maintained by ongoing process

C. Metrics:are defined, tracked and used to drive improvement Class A Required: 1) Procurement recommendations executed without changes > 95% 2) % of POs issued with full lead time > 95 % 3) On Time delivery by vendors > 95%, 4) Procurement data accuracy >95% Optional metrics for process improvement 5) RM inventory turns 6) Purchase price variance 7) Supplier Schedule forecast accuracy D. Payment: 1) Accts Payable process is automated/ streamlined through the ERP system E. Supplier Scheduling: 1) The Supplier Scheduling process automatically communicates requirements to selected vendors on a weekly basis. 2) Long term material requirements are shared with vendors each month. 3) SOMI is being pursued. Where appropriate, vendors responsible for owning and managing raw material inventory.

EMBG

1 56