chemical supply chain

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

/ 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

/ 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


� 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

0

10

20

30

40

50

60

70

80

90

100

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


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


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


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


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


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

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0 500 1,000 1,500 2,000 2,500

No

rmalis

ed

sta

nd

ard

devia

tio

n

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0 500 1,000 1,500 2,000 2,500

Average demand in Kg

RoP

KanbanRate Based

Annual Campaign Planning

Volume-Variability Analysis

Demand Pull

Techniques


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


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


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


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 )


0

20

40

60

80

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


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


Thank You!

Confidential

Corp Comms

04.11.2009


Questions & Answers

Matt Tichon

Clariant CorporationM: +1-401-441-2557

[email protected]

Contact Information:

Guillermo Fumero

Clariant International LtdM: +41-798181977

[email protected]

chemical supply chain

Education

data quality

master data

relevant data

planning ensure

supply chain

order point

apply demand

copyright