You are on page 1of 31

SVC Project

TO BE Process – Limited Pack Edition

Operations Finance & Projects


Lausanne, 8 Aug 2013
Agenda

 Product Structure – Overview


 Limited Pack Editions
 Overview
 Budgeting Process
 Actual Process
 Reporting & Variance Analysis

2
Product Master Data overview – AS IS
Current Process :
• Finished Goods in PMI are defined by a standard structure
• Product structure is managed in the Product Life Cycle Management (PLM) system
• Each product is defined by a set of “defining “ attributes

Product Structure:
• Every product has a unique code (core FA code)
• The product is defined by a set of 19 attributes

 Core FA code ‘s 19 attributes cover new launches and line extensions.

19 attributes are insufficient for planning and inventory management of various


product modifications and promotions
• Finished Product Variant (FPV) attributes were introduced to capture these
product modifications

3
Example of product attributes
Product Category Cigarette
Brand Family Marlboro
Brand Differentiator Lights
Top 9 defining Attributes
Menthol Indicator -
Product Standard description
Marketed Length Category KS
Marlboro Lights KS BOX 20
Pack Type Box
Items per Pack 20
Thickness Category Standard
Filter Indicator Yes
Bundle type Display Carton
Cigarettes per Bundle 200
Cigarettes per Case 10’000
Tipping Color Cork
19 defining Attributes
Special Flavor No Special Flavor
Cigarette Shape Round Core FA code
Original Design Market France Domestic FA123456
Sub Market -
Edition Category 01 (Neutral)
Repack BOM ID - 19 defining Attributes + variant attributes
Variant category 03 Printed Price Finished Product Variant (FPV)
Variant description New price 2011 FA123456.01 4
Product structure - dependency on SVC processes
Process Dependency:
• SVC budgeting is performed at FA code level of details
• Using appropriate FA codes for shipment volume input is crucial for correct SVC calculation and other
processes such as OVF, LPP etc.

LPP process
• Leaf purchases are
planned using OVF and
Shipment input
assigned to entities
• Markets provide a
shipment volume • Blending assumptions are
input in GMRB at FA adjusted
New FA codes request code level Production Volume
(OVF) SVC Calculation
• Markets request new • Active codes can be
selected (both new • Sourcing of submitted • SVC calculation is
product codes for
and existing codes) shipments volumes, performed based i.e. on
OB/LRP product
based on specs production volume,
launches
(BOMs) BOMs, blending etc
Budget BOM creation
• Product Development
provides Budget BOM DM assumptions
assumptions for
• DM quantities and price
existing & new
assumptions
products

When shipment volume is input on a particular FA codes other assumptions (BOMs, blends etc.)
need to be provided/referenced to enable SVC calculation 5
Opportunities & Solutions
OPPORTUNITIES FROM PARALEL ACTIVITIES:
 Streamline new FA codes creation by linking to 3 year market plans and
using Market Start Forms for code request (c/o PD, Marketing, Operation
Planning and Operations Finance)
 Bringing accuracy on Products on Market (POM) to efficiently delist
obsolete FA codes
 Potentially using SCIPIO as source of shipment and production volume

SYSTEM IMPROVEMENT:
Facilitate Budget BOMs and OVF management by adding new product
attributes for the costing to product structure.

PRODUCT STRUCTURE AND SHIPMENT VOLUME INTEGRATION


6
Agenda

 Product Structure – Overview


 Limited Pack Editions
 Overview
 Budgeting Process
 Actual Process
 Reporting & Variance Analysis

7
LPE – Overview

Limited Pack Edition – Overview


• Limited Editions are form of communication with customers over the
modification of certain attributes of an existing product over a limited
period of time
• Mainly produced in EU factories for the use in EU/EEMA markets
• Over 1,200 variants for 2013 OB with usually low volume but still material
cost in some cases
• Some LPE type (e.g. VAO) would require repackaging activities
Regular Product Events / Promotions Value Added Offers

8
Agenda

 Product Structure – Overview


 Limited Pack Editions
 Overview
 Budgeting Process
 Actual Process
 Reporting & Variance Analysis

9
Budgeting Process
Current Process:
• Product structure wise, LPE are maintained as part of top 19 defining attributes
• Maintaining “Edition Category” will result in different core FA codes for LPE

Edition Category Distinguishes Promotional Editions from regular product


• 1 product: L&M RED LABEL KS BOX 20 (France)
• 3 edition categories: Neutral / Special / VAO
 3 FA codes
Edition Category Neutral Special VAO
Purpose “Regular Product” Events / promotions Value Added Offers
FA037246
Product Codes FA006599 FA006820
(Repack: 2 packs+lighter)

Example

Challenges:
• In some cases, LPE is maintained as product variant within the same core code with the regular product
• Special Edition core code could also have different variants (e.g. special design with insert vs. without insert)
10
Budgeting Process
Current Process:
• Due to the timing and information availability during budget cycle, budget assumptions for LPE (e.g.
volume) are sometimes provided on the same core FA with the regular products
• As a result, parallel budgeting process is done manually in Excel for LPE
Volume assumptions for LPE
• In most cases, volume for LPEs are inputted in the same core codes as the regular products
Regular Core FA Description Market Jan Feb Mar … Dec
FA006599 L&M RED LABEL KS BOX 20 France 100 80 110 … 120

e.g. includes 10 mio of special packaging


Parallel budget process for LPE
• Budgeting process for LPE is done as parallel and manual Excel process involving Marketing,
PD, DM Procurements, and Operations Finance functions
OVF Budgeting Process for Regular Products

Provide
Specifications
Define LPE, SVC
Consolidate LPE Calculate LPE
including volume Deviations
Assumptions impact
& timing Provide DM
Prices

Marketing Product Development DM Procurement Ops Fin Region Ops Fin Affiliates
11
Current Process – Challenges

Timing & process dependency


Product codes are usually requested before marketing plans review. As a consequence,
new codes including LPE & Repacks, SVC budgets and volume transmission are not
reflecting latest market plans.

Visibility of LPE products


LPE volume are usually provided in the same core FA as the regular product due to the
timing & process dependency during budget cycle.
Lower number of FA codes are used for budget transmission than for in Actuals result in
missing SVC.

Parallel budgeting process


In cases where no dedicated core FA code exists, LPEs are budgeted separately, which
results in parallel budgeting activities requiring manual follow-ups from functions (e.g.
Marketing, PD, DM Procurement, etc.)
Also, cost impact for LPE is usually budgeted in forecasted deviations, which is difficult to
track for variance analysis purpose.

12
Budgeting Process
Solution: Taking into consideration the opportunities & solutions related to Product Structure, below are
additional solutions to improve LPE budgeting process, especially to:
• Ensure availability of LPE information during budget cycle (e.g. timing, etc.)
• Facilitate better SVC budget assumptions gathering and calculation process for LPE
• Provide better visibility and tracking of LPE assumptions for actual & variance analysis later

Treat LPE as initiatives in GSVC


• Budgeting by main LPE initiatives/promotional activities
• Identify LPE by major promotional types or activities (e.g. Insert,
Special Design, etc.)
• Functionality to be build in GSVC to facilitate LPE assumptions
input by dedicated functions
• Marketing to indicate the volume and timing,
• PD to provide relevant product attributes & BOMs,
• DM procurement to provide DM prices related to LPE materials

13
Budgeting Process
Treat LPE as initiatives in GSVC
• Identify LPE by main promotional types or activities (e.g. Insert, Special Design, etc)
• Catalogue of LPE activities to be maintained in GSVC

Reference Brand
LPE ID LPE Type Details Market
Product Family
LPE-001 Summer edition Special design FA006599 L&M France
LPE-002 Revamp announcement Insert FA006599 L&M France

14
Budgeting Process
Treat LPE as initiatives in GSVC
• Dedicated functions to input required assumptions for LPE in GSVC (e.g. Marketing to indicate
the volume and timing, PD to provide BOMs, DM procurement to provide DM prices related
to LPE materials, etc.)
LPE Planned
Marketing input: e.g. Regular Product: FA006599 – L&M RED LABEL KS BOX 20 (France)
LPE Type Details Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Summer edition Special design 30 30
Revamp announcement Insert 45

Product assumptions (PD) - initial Product assumptions (PD) - LPE


INPUT INPUT
TD 0187 TD 0187
Board ICL240 Board ICL240
no. of print no. of print

LPE
station(excl. station(excl.
lacquer) 8 lacquer) 8
# embossing cyl. 1 # embossing cyl. 1
printing process gravure printing process gravure
HSC no HSC no
LCC-Lacquer yes LCC-Lacquer yes
High Gloss Silver no High Gloss Silver no
Metallure no Metallure no
double cut no double cut no
reverse printing no reverse printing no
serial coding no serial coding no

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

Points to consider:
• Major or most frequent LPE activities to be defined
• Parallel budgeting process might still exist
 Possible to minimize during budget cycle by pre-defining the costs per activities on quarterly basis
15
Budgeting Process
Treat LPE as initiatives in GSVC
• The budget calculation for LPE can be done:
• Based on pre-defined standards per Edition types/promotional activities
• Example:

LPE generic assumptions Pre-defined LPE types standards


Brand Family LPE Type LPE Type EUR (Std/’000)
Marlboro Insert Insert 1.0
Marlboro Printed Poly Printed Poly 0.5
L&M Insert Special Tear Tape 0.3
Chesterfield Special Tear Tape Onsert 0.8

 Standard estimates based on


actuals/historical data
 To be validated & reviewed (e.g. on
quarterly basis) by Ops Finance, PD,
DM Procurement, etc.

16
Agenda

 Product Structure – Overview


 Limited Pack Editions
 Overview
 Budgeting Process
 Actual Process
 Reporting & Variance Analysis

17
Actual Process
Current Process :
• In most cases where LPE are budgeted in forecasted deviations (i.e. not in SVC Standard Rates), actual
SVC deviations would appear in SAP postings
• Since the current SAP set-up does not allocate SVC deviations to SKU, the deviations are analyzed
manually in order to identify costs related to LPE
• Labeling might be performed in GMRB (with certain thresholds) to allocate the them to proper markets

Budget
SVC:
$9.00 Price
Deviations Allocate
Analyze SVC
Deviations to
Deviations:
Market using
Manufacturing $15 for LPE
Actual Label
Deviations
SVC:
$26.00

Budgeted in SVC deviations

Challenges:
• Deviations are currently not allocated to products based on purchasing & usage information in SAP
• Calculating actual cost for LPE requires manual process to analyze deviations, which is prone to mistakes
• Considerable workload spent on the process (extracting reports, data crunching, aggregation, etc.)

18
Actual Process
Solution: Allocate SVC deviations to products in SAP and load to GMRB. To do so, SAP Material Ledger
functionality has been selected as preferred option in order to facilitate:
• Automatic deviations allocations to products based on material consumptions
• Actual product cost calculation
• Actual product cost decomposition reporting, which can be used for variance analysis purpose in GSVC

DM Goods Calculation of actual Product cost


Receipts
product cost decomposition
Automatic deviations
Leaf Goods allocations Actual cost
Issue Allocation to Actual
Consumptions costs of decomposition
By materials products
Manufacturing FA123456.01
Process Order Material Ledger Cut filler
Settlement Closing Process TMC…
DM Make/Pack
Filter
Allocation to Acetate tow…
Selling Goods Inventory Cig. Paper…
By materials Conversion

Benefits:
• Deviations are allocated automatically to SKU levels of details in SAP
• Actual costs for LPEs will be more visible and can be traced for reporting purpose

19
Agenda

 Product Structure – Overview


 Limited Pack Editions
 Overview
 Budgeting Process
 Actual Process
 Reporting & Variance Analysis

20
Reporting & Variance Analysis
Current Process :
• Actual cost reporting for LPE is done manually in Excel
• Deviations reports from SAP are analyzed and allocated manually to LPE products
• Marketing / PD functions usually request the actual cost for LPE from Ops Finance for tracking purpose

Actual Reporting
Actual SVC Deviations ($)

DM Price DM Price Deviation by


Deviation by DM material excluding
DM material currency Actual
LPE Cost
Process order
DM Spec & Usage by
settlement
FA code, DM material
reports

Challenges:
• Actual deviations not properly allocated to products makes variance analysis further complex
• Calculating LPE actual costs for reporting purpose requires manual rework
• Variance analysis performed manually in Excel by comparing budget assumptions for LPE and actuals from
SAP, requiring considerable workload
21
Reporting & Variance Analysis
Solution: Reporting & variance analysis for LPE to be performed in GSVC
• Gather actuals data at detailed level from SAP (potentially using Material Ledger functionality)
• Compare actuals with the budget assumptions already available in GSVC
• Enable a more flexible analysis with its drill down and slice and dice functionalities in GSVC

Reporting in GSVC
• Drill down, slice & dice capabilities

Special Editions

Printed Poly Actual $ Budget $

France

Marlboro

L&M

Benefits:
• Integrated reporting for LPE actual and budget costs
• Visibility for Total PMI/Regions/Affiliates levels
• Manual workload reduction for reports preparation
22
Back Up

23
Product Definition - Attributes

Repack BOM ID

• The coding attributes define the final product sold to the consumer, (not the base
product).
• Edition category may be either Neutral, Special or VAO

• The final repacked Product may contain several different base products
• E.g.: 1 Pack L&M Red + 1 Pack L&M Blue

• Repack Level may be:


• Pack, Carton, Shipping Case

• The same Repack BOM ID can be used for different repacked Products.
• E.g. same base product combination but different display carton

• Item per pack/bundle value is defining the sum (total quantity) of items

• Edition category may be:


• Neutral, Special or VAO
24
Limited Pack Edition – Variants

2 digit code specifying the type of the product variant,


Variant Category corresponding to as standard description

• The Variant category ID is linked to FTP Edition Category


• The edition category of the core product (FTP) defines which variant category can
be used to create the finished product variant (FPV)
• The Variant description is a 30 character free text field

FTP Edition Category FPV variant categories available


All 00 Initial New FTP (e.g. budget, new launch)
01 Issue Communication Program
02 Permanent Graphics Change
03 Printed Price Change
04 Smoking Figures Change
Special 05 -> 56 & 60 -> 62
VAO 57 -> 59 & 63 -> 64

25
Product Definition – Product Variant

Variant Category

26
Agenda

 Product Structure – Overview


 Repacks – Overview
 Limited Pack Editions
 Overview
 Budgeting Process
 Actual Process
 Reporting & Variance Analysis

27
Repacks

Repacks – Overview
• Repackaging activities that are done after the standard product has been
packed in shipping cases/palletized
• Business drivers behind the repackaging decision:
• Repackaged products for promotional or marketing purposes
• Requested by sales/marketing functions
• All incremental costs incurred will be classified as DME (e.g. repacking materials,
incremental manpower and transportation costs, etc.)

• Repackaged products for other purposes


• Other purposes not related to sales/marketing decision (e.g. driven by legal
requirements, specific requests of customers/wholesalers, etc.)
• Incremental costs should be included in SVC

28
Repacks

Repacks: Product Structure


4 digit code specifying a unique repacking formula
Repack BOM ID (Base product, Quantity, source, repack level, Original design market)

• Repack product:
• A repack product code is used whenever a the manufacturing of the final
product requires offline/manual repackaging of an existing basic product.
• Example:
• Value added offer: 3 packs of Marlboro KS BOX 20 (FA001427) + a Lighter
Final Product: FA014064: Marlboro KS BOX 20 3P # 0183

Repack BOM ID 0183

+ + Base product(s)
ODM
Marlboro KS BOX 20 (FA001427)
UK04
Repack level Pack
FA001427 FA001427 FA001427
Quantity 3
Base Product (FA001427)
29
Repacks

Repacks: Production Volume (based on 2013 OVF3)


• Volume: 2.1 bio sticks for 2013 OB mainly for Duty Free
• Repacks activities are done in 9 production centers:
• EU (6), EEMA (2), Asia (1)
• Over 60% of the repacks volume is done in LT (Klaipeda)
Repacks: BOMs
• Separate production BOMs exist for repackaging process
Repack Product: FA030913.00: MARLBORO RED (UPGRADE) KS BOX 2[.] #2411
Items Description Quantity UOM
Base product FA030867.00 MARLBORO (RED UPGRADE) KS BOX 20 1000 TH
46.0474 Wrapping Film 1.188 PC
47.3453 Tear Tape 0.095 PC
55.1211 Flip Top Carton 5 PC
70.E938 Shipping Case 100 PC
71.2081 Case Label 100 PC
72.0335 Case Tape 0.171 PC
80.3302 Adhesives 1 KG
30
Repacks

Budget Process
• Assumptions provided as part of SVC assumptions gathering process
• OVF is the main source for repacks volume, including reference to the base
products
• Budget BOMs for repacks also provided by PD/Affiliate Spec Office
• Conversion costs for repack activities are usually budgeted separately from
regular production in a dedicated sub-cost centers

Actual Process
• Production Volume actual reporting
• Actual volume of FG repacked at the original or any other Production Center
must not be added to the FG Production Volume
• Only the base FG volume shall be reported in FG Production Volume

31