Prepared by Bayu Soedjarwo January 2011

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Supply Chain Concept Typical FMCG supply chain gaps S&OP cycle
S&OP process Supply planning

Organization gaps
Demand Planner & CS Manager

Material & Product Flow

Cash Flow

Information Flow (both ways)

Servi e
CSL (Reliability)

Cash & Cost

Working apital

Freshness

Cost to serve

Responsiveness

Safety, environment

Organization is focused to build the future

Relati ely young organization Technically capable, conduci e and open

Supply chain planning is the key opportunity for impro ement

Confusion on which number to use Instability of sales order, production schedule and milk requirements No formal in entory policy Inefficient logistics network opportunity to reduce total cost to ser e

Demand/Supply planning area:

Demand/supply/in entory model is not formally set S&OP process: need to define the monthly cycle
x Opportunity to integrate financial numbers in S&OP

Formal weekly demand/supply/AR monitoring

x Key for Indonesia which major olume are thru distributors
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Customer ser ice:

Poor sync with product a ailability Frequent credit hold Master data sync with modern trade customers

Fix S&OP process

Forecasting S&OP cycle Weekly monitoring Demand/supply balance

Setup in entory policy

More stable shipment Co er demand/supply ariability

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Fix credit hold issue

Increase bank guarantee of some distributors

Get immediate total cost to ser e sa ings

Combined fresh and ambient logistics for MT

S&OP is a Fi e-Step Process: ePrePre-S&OP and Executi e S&OP may be combined into one meeting

Output S&OP: 1.Sales plan 1.Sales 2.In entory plan 2.In 3.Production Plan 3.Production

History is included to highlight past plan-toplan-toactual performance

The Basic S&OP Grid:

In entory Plan = Planned Opening In entory + Planned Production Planned Sales

Actual In entory = Opening In entory + Actual Production Actual Sales

Material requirement planning (MRP-R/3)

Supply Network Planning (SNP)

Demand planning (DP)

Strategic 3 years horizon

2.2 MATERIAL CONTRACTS

2.1 INDUSTRIAL and LOGISTICS VISION and STRAGTEGY

1.1 LONG TERM DEMAND

Tactical 1 Year horizon

2.5 MATERIAL REQUIREMENT PLANNING

2.4 MID-TERM MASTER PLANNING

2.3 DISTRIBUTION REQUIREMENT

1.2 MIDDLETERM DEMAND

Operational 3 weeks Very short-term 3 days

Production planning Detailed scheduling (PPDS / PPDS+)

3.3 MATERIAL RELEASE AND USAGE

3.2 SCHEDULING

3.1 DISTRIBUTION REQUIREMENT PLANNING 3.4 DEPLOYMENT

1.3 SHORTTERM DEMAND

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5th: Sales & Marketing Forecast Meeting 12th: Supply Planning Process 17th: Pre S&OP meeting 22nd: Executi e S&OP 25th: Long-lead-time MRP run 25th: Detailed next month sales plan

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E ery 5th of the month Minimum participants: Demand Planner, TMM, Brand Directors, NSM, Business analyst Optional in itee: Exco, NKAM, Finance Agenda:
Past month re iew (month end) by Business Analyst Baseline presentation by Demand Planner for next 12 month (M1-M12) constructed from 52 weeks. Focus discussion on M3+ Past assumptions re iew Marketing initiati es on M3+ (Brand Director) Demand management for M0-M2 (Trade Marketing) STT pattern and impact to STD (NSM)

Sales Forecast of next 12 months

Ideally w/ weekly details a ailable for coming 2 months

Documented assumptions
Learning of last assumptions New & adjusted assumptions

 Consumption trend: Habit, macroeconomics Baseline Seasonal factor: school holiday, festi e Ad ertising, consumer promo Shopper Weather, competition Route To Market seasonality, a ailability Trade promo/load/PPED, competition

Trade

Aug 6th, 2010 Bottle 70ml

STD actual STT actual Cons trend pull Cons seasonalities Demand baseline Adv/shopper mkt Consumer promo Rain factor Competition Shopper pull RTM seasonalities Trade promo/load Trade PPED Competitor trade STT forecast Dist loading Dist PPED STD forecast After supply cut PPED S&OP Net Volume Budget Latest LE Gap vs budget Gap vs Latest LE

Actual Now M10 J10 J10 A10 1945 2264 2750 2200 2200 2200 2200

Firm Plan S10 O10

Open Forecast -->> N10 D10 J11

F11

M11

A11

M11

2200 2200

2200 73 2273

2200 2200

2200 2200 2200 2200 2200 2200 73 73 -147 73 73 2273 2273 2053 2273 2200 2273

-45 2200 100 22 2322 400 70 2722 2722 -92 2630 3050 2323 -420 427 2200 -110 -100 22 2012 -500 60 1512 1512 -82 1430 2350 1526 -920 -96 2200 -110 22 2112 63 2112 2112 -85 2027 3020 2073 -993 -46 2228

-44 2156

-45

-114

-103

-45

-22

2228 2160 1951 2228 2178 2273

22 2250

22 2178

22 2250 225 45 2475 2475 -67 2408 3230 2073 -822 335

22 2182 -218 22 1964 1964 -44 1920 1920 1920 0 0

22

22

22

22

1973 2250 2200 2295 20 1973 1973 -42 1931 1931 1931 0 0 22 2250 2250 -44 2205 2205 2205 0 0 22 2200 2200 -44 2156 2156 2156 0 0 23 2295 2295 -45 2250 2250 2250 0 0

2800 2770 -855 -506

45 44 2250 2178 2250 2178 -67 -66 2183 2112 3500 3350 2173 2173 -1317 -1238 10 -60

For consumers
Product a ailability at fair price and expected locations Fresher products in good condition, guaranteed food safety

For company (also for distributors and retailers)

Tapping higher demand opportunity (higher sales) Lower costs: smooth running plants, low stocks, low PPED

For suppliers and en ironment

More stable supply plan, lower cost to do business Lower CO2 emission due to well-planned deli eries

Bias toward budget

Forecast must represent our best estimate on market reality, not what we wish we achie e financially It is top mgt job to prioritize top line or bottom line

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Constraint thinking
Worry about plant capacity, material shortages, etc

Offsetting underdeli ery culture

So we tend to put higher number

Senior management inter ention Wrong forecasting le el

SKU s family le el, national s regional le el

Lack of learning and assumption documentation

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Long term: Plan what we will sell Short term: Sell what we ha e planned
This is called DEMAND MANAGEMENT This is reality in life. In all kind of businesses (with different response time, cost sensiti ity, etc.)

Example of demand management

Offering a ailable fla or to the trade Trade promo ensure the trade to push forward In a restaurant, Special Today is to a oid PPED

Put the marketing plan and assumptions on how we can influence demand
How much will consumer demand be increased? Refer to past experience and how this time will be different or the same

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Ensure the assumptions are documented Re iew the result after the plan is executed

Use weekly forecast details from SMF outcome

Check on material, capacity and workforce constraints

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To be lead by: PPIC Output is

Construct options if constraint exists, by item

Use weekly forecast details from SMF outcome

Check on material, capacity and workforce constraints

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To be lead by: PPIC Output is

Construct options if constraint exists, by item

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We initially combine Pre and executi e S&OP Objecti es: To re iew total demand/supply balance, recognize issues, generate options Participants: NSM, TMM, Demand Planner, Business Analyst, PPIC Agenda (demand planner to lead):
Demand and supply issue Options creation and recommendation Mid month re iew to include financial impact of each option (Business Analyst)

Monday noon W1 forecast update submission

Re iew between NSM, TMM and demand planner Example: in Monday W30, forecast W31 is updated

Wednesday demand/supply meeting

Weekly KPI: CSL, PSL and FA W-1 Re iew between demand planner and PPIC on W-1, W0 and W1 Identify gap s. current month S&OP numbers Finance to join e ery 1st (w/ SMF mtg) and 3rd (w/ Pre S&OP) week of Wed for closing/mid month re iew

Friday: Submission of W2 CMOD for distributors by noon

We need to determine in entory le el to co er

Supply ariability (production + release ariability) Production cycle Quarantined Demand ariability

For R/P Materials, we need to co er

Demand ariability o er lead time Lot size (production or deli eries) Supplier reliability

Use the Japanese Takt time concept to establish the flow

For example, 250 cartons per day for an item

Based on weekly bucket, fixed e ery Thursday for next week schedule
Schedule is 70% fixed, only within 1-2days a week that we reser e to absorb demand ariance MRP to be run on weekly basis e ery Thursday