chemical supply chain
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Moving from a Push-Based, Manufacturing Centric Supply Chain to a
Pull Based, Demand-Driven Model
- Matt Tichon, Head of Supply Chain
Pigments, North America
Putting The Forecast In Its Place:
- Guillermo Fumero, Global Head of Supply
Chain and Procurement Pigments
Slide 2 / 1720.04.2010Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
Clariant – key facts
� Clariant is a world leader in colors, surface effects and
performance chemicals
� Annual sales of CHF 6.6 billion in 2009
� Headquartered in Muttenz near Basel, Switzerland
� World-wide operations, with more than 100 companies
� Approximately 17,500 employees
� Products and services of 10 Business Units are based on
innovative specialty chemicals
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 3 / 17
Pigments Business
Business Profile:
� Leading global provider of organic
pigments, pigment preparations and dyes
used in coatings, printing, plastics, and
other specialty applications.
� Our broad portfolio includes high-
performance pigments to meet the exact
demands of the automotive, architectural
and plastics industries as well as colorants
used in ink jet and laser printers tailored to
individual needs.
� Decades of know-how make our products
the industry standard for performance and
quality. This is supported through our
global technical service centers.
Business Facts:
� One of Clariant’s biggest
business (24% of group sales)
� Global network in 37 countries
with 24 production sites
Global Supply Chain structure:
� Global Demand and Inventory
Management , KPIs and processes
� Regional operations
Asia-Pacific (India, Japan, Korea)
EMEA
Latin America
North America
� Global SAP R3 and APO systems
Slide 4 / 1720.04.2010Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
What is changing in supply chain ?
Supply chain cost likely to
increase
� Total supply chain cost
currently at about 5% of
sales
� Cash focus in whole value
chain leading to smaller
order sizes, which
increases transaction
costs
� Customers reduce own
stocks, asking for more
just-in-time deliveries
� Customers placing orders
on short-notice
Production constraints
� Excess capacities are
reduced to minimise fix
cost base
� Additional demand or
order changes cannot be
absorbed as easily as in
the past
Customer demanding more
responsiveness
Increasingly inflexible
supply
� Increasing number of
materials sourced globally
with long lead-times
� Working capital priorities
are driving raw material
stocks down
� Reduced competition
We need to continuously improve our supply chain
performance and capabilities in order to remain competitive
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
Improvement areas to achieve objectives
Demand planning Demand and inventory management
Statistical
forecast
Sales
Planner
Global
Demand
Plan
S&OP Demand& Inventory
Management
Master
Planning
Purchasing
Improve planning accuracy
Improve inventory parameters (e.g., safety stocks,
right decoupling points)
Introduce appropriate methods for replenishment
strategy
Data quality
Improve S&OP
processes
Performance management
and capability building
1 2
3
4
Improve quality of planning
parameters in master data
Ensure that all relevant data for
planning are available
Introduce
KPI reporting
Define clear
accountabilitiesTrain people
Source: CIP Planning Booster
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 6 / 17
� Despite substantial investment in process and technology improvements we struggled to maintain forecast accuracy above 60%
� Big monthly planning efforts have been critically supported by marketing sales only as much as the topic was in the limelight
� Long replenishment lead-times further deteriorated our forecast accuracy
� We acknowledged that our forecasts were insufficient as a basis for triggering production
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Jul Aug Sep Oct Nov Dec
Perc
enta
ge A
ccura
cy
Forecast Accuracy 2008
*Note: Forecast accuracy calculated as weighted average of
forecast deviation for all products with demand plan
Our effort to improve accuracy as the basis of our Make-to-Forecast did not pay-back
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
Completing the puzzle towards efficiency
Demand planning Demand and inventory management
Statistical
forecast
Sales
Planner
GDP S&OP DIP MP Pur-
chasing
Focus on fewer products and differentiate
demand planning
Improve planning accuracy
Improve inventory parameters (e.g., safety stocks,
right decoupling points)
Introduce appropriate methods for replenishment
strategy
Data quality
Improve S&OP
processes
Performance management
and capability building
1 2
3
4
Improve quality of planning
parameters in master data
Ensure that all relevant data for
planning are available
Introduce
KPI reporting
Define clear
accountabilitiesTrain people
Source: CIP Planning Booster
De-couple daily
execution
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 8 / 17
From Push to Pull: Our Four Step Approach
2. Decouple production decisions
from the forecast and MRP runs
2. Decouple production decisions
from the forecast and MRP runs1. Use the demand forecast in the
S&OP to ‘condition’ the supply chain
1. Use the demand forecast in the
S&OP to ‘condition’ the supply chain
3. Apply demand-pull planning
techniques to replenish inventory
where possible
3. Apply demand-pull planning
techniques to replenish inventory
where possible
4. Operationalize these practices into
our core processes and SAP system
4. Operationalize these practices into
our core processes and SAP system
Warehouse CustomerSuppliers
Plant
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 9 / 17
1. Use the demand forecast in the S&OP to ‘condition’ the supply chain
“Supply Chain Conditioning”
� The Sales and Operations Planning process sets the overall demand level trend at product group level.
– Identifies production resource requirements
– Procurement of long lead times Raw Materials
– Sets parameters for replenishment execution i.e. pull and push strategies
“Supply Chain Execution”
� Actual product consumption triggers the replenishment of products in line with the replenishment parameters
Planning and Control Framework
Global Demand Planning
Agree Mid Term Plan
SAP
SC Parameter Updates
Monthly
S&OPSupply
Planning
Order Fulfillment
Bi Weekly
Check points
Scheduling
Actual Stock Level
Customer Orders
Production Orders
Conditioning
Execution
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 10 / 17
2. Decouple production from forecast and MRP synchronizing the supply chain with actual demand
Demand amplification throughout the supply chain is eliminated as the actual customer demand is communicated using demand pull replenishment techniques
Customer
Regional
Distribution
Center
Primary
Global
Distribution
Center
Manufacturing
Mid Term
Forecast
Long Lead Time RawMaterials
Short Lead Time Raw Materials
Customer
Order
Regional
Replenishment
Pull Signal
Consolidated
Replenishment
Pull Signal
Call Off
Signal
Call Off
Signal
Raw
Materials
Replenished from
primary global stocking
point in line with actual
consumption
Triggered in line with
consumption of the controlled
inventory held in the Primary
Distribution center
Based on demand pull communication where feasible to ensure availability with optimized inventory
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 11 / 17
3. Apply demand-pull planning techniques to replenish inventory where possible
� Make To Order was used when the
customer lead time allowed
� When supply from stock is required,
planning techniques were identified
based on the volume and statistical
variability of each product
� Inventory levels were set as a function
of demand, lead time and required
customer service levels
� Products with predictable volumes
became ‘self managed’
� Planning effort focuses on products
which need more attention
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No
rmalis
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devia
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Average demand in Kg
RoP
KanbanRate Based
Annual Campaign Planning
Volume-Variability Analysis
Demand Pull
Techniques
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
The selection of planning scenarios is based on volume and demand variability
Planning Scenarios
�Kanban is responsive to actual demand and
replenishes material in multiples of a fixed
quantity Provides self-management and flexibility
�Re-order Point is also responsive to actual
demand but uses just one re-order quantity
- Used when variability is too high for Kanban
�Campaign Management is used for very low-
volume materials
- Inventory may last a long time but is not significant
�Make to Forecast and Make to Order used for
special products
�Buy to Forecast used for products including Raw
Materials with long lead times
Kanban
Re-order Point
Make to Order
DEMAND VARIABILITY
High
Campaign
management
Low PRODUCT VOLUME
Re-Order Point
DEMAND VARIABILITY
High
HighLow MATERIAL VOLUME
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 13 / 17
The re-order point is quarterly reviewed based on average demand and desired service level
Product Details:
Average Weekly Demand: 3,343 Kg
Replenishment Lead Time: 5 weeks
Desired Service Level: 95%
ROP Components
Inventory to cover average 16,715 kg
demand over lead time
Inventory to cover demand 12,548 kg
variability for 95% service
level
ROP for product 29,263 Kg
Replenishment order is placed
when on-hand inventory plus
open orders is less than ROP
Parameters considered
� Average demand
� Lead times
� Lot sizes (technical and optimal)
� Demand variability
� Desired service level
� As the re-order point is directly related to
the desired service level, the impact of
reduced inventories on service level can
be evaluated when planning inventory
levels and investment
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 14 / 17
4. Operationalize the operating practices into our core processes and SAP system
� Extensive training program sponsored by the Division Head with all stakeholders
� Supply Chain Conditioning has been integrated into the S&OP process
– Planning parameters and the calculated inventory levels are reviewed quarterly and
replenishment technique selection is reviewed annually
� A ‘Planning Cockpit’ has been developed in SAP with visual signals
� Global KPI’s have been established to measure inventory, customer service and
operational compliance for each implementation
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 15 / 17
What about capturing market data?
� Simple form is used by the sales force to
communicate our Global marketing
known demand changes
� Global marketing review input for “Top
50” products by Market segment
� Action can be taken immediately to
adjust the ROPs/Kanbans and place new
replenishment orders
� Information is reviewed during the
regional S&OP process and forwarded to
the global S&OP team for new
productions if necessary ( decisions in
global S&OP and Check point meetings )
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 16 / 17
0
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100
USA Asia Latin America
Before - Replenish to Forecast With Pull Based Replenishment
Inventory reductions of up to 40% within the regional distribution warehouses realised
� Planned inventory requirements
were calculated based upon a 95%
service level
� Current supply lead times, minimum
order quantities and demand
patterns were used in the modelling
� Substantial additional inventory
reduction opportunities have been
identified that require current supply
constraints to be addressed
Regional Distribution Warehouse Planned
Inventory Reduction (% Tons)
*
* A large percentage of Asia business was originally replenished
on Make to Order planning scenarios
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
Summary of the experience
� A well functioning planning is
still required to right “condition”
the supply chain.
� Pull strategies works , eliminate
noise of bad detailed planning
and react to normal changes in
demand
� In volatile markets risk of
overstock is limited to the “filling
levels” defined
� During “Crisis or big changes “
human intervention is
necessary to overrun system
decision (bi weekly control
required)
� Synchronization of Master
data (e.g. lead times or
replenishment lots ) across
borders are a must
� Centrally managed updates of
parameters ensures
continuous optimization
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
Thank You!
Confidential
Corp Comms
04.11.2009
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
Questions & Answers
Matt Tichon
Clariant CorporationM: +1-401-441-2557
Matt.Tichon@clariant.com
Contact Information:
Guillermo Fumero
Clariant International LtdM: +41-798181977
Guillermo.Fumero@clariant.com
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