Integrated Sales and Operations Planning Approach for Pulp & Paper companies

Transcription

1 Integrated Sales and Operations Planning Approach for Pulp & Paper companies

2 Author: Santosh Kumar Soni, Sr Consultant Paper & Pulp manufacturing practice Co-Author: Samir Vakharia, Head Manufacturing Strategy Aug 2014 Certificate/Disclaimer: This paper has been co-authored by Santosh Kumar Soni and Samir Vakharia.For further information on this subject, please contact them at OR The excerpts from the paper cannot be reproduced without prior consent of author/authors. This is to certify that Santosh Kumar Soni and Samir Vakharia have authored the paper titled Integrated Sales and Operations Planning Approach for Pulp & Paper companies and that the content of the paper is original and not replicated from any source other than the quoted reference. 2

3 Table of Contents Abstract Pulp and Paper Industry Trends & Challenges Sales &Operations Planning Approaches Sales & Operations Planning Process Business Process Mapping with ERP Packages for Paper Industry specific processes Leading Industry Practices Tech Mahindra Recommendation Pulp and Paper Industry Opportunity Areas References About Tech Mahindra 3

4 01. Abstract With growing focus on value and margin improvement, Sales and Operations Planning (S&OP) has become a standard operative of supply chain planning. However, until the present time, the evaluation of its benefits has been conducted mainly through post implementation case studies. This paper explores the fundamentals of the Sales and Operations Planning process and presents a modelling approach to evaluate its impact before implementation. Three Multi Input Planning based models are formulated representing, respectively: Multi-site supply chain based S & OP (SC-S&OP): Integrates the cross functional planning of sales, production, distribution, and procurement centrally Multi-site sales production planning-based S&OP (SP-S&OP): Here the Joint sales and production planning is carried out centrally while the distribution and procurement are planned separately in each site Decoupled planning (DP):Here the sales planning is carried out centrally while the production, distribution, and procurement planning are performed separately and locally. The models are developed for an alternative multi-site manufacturing system that has different suppliers, produces different products and serves different customers on a make-to-order (MTO) basis where backlogs are allowed. Demand Customer Collaboration Key Account Planning Trade Promotion Consumer Promotion Competitor Actions Constraints Lead Time Manufacturing Capacity Constrains Supply Plant Scheduling Customer Service Goals Distribution Capacity Stock and Capital Policies Outcome Synchronized and integrated planning Aligned objectives and incentives Efficient usage of operations capacity Operation flexibility to minimize COGS Reduction in uncertainty and minimizes planning conflicts Disciplined communication process Empowerment for decision making Outcome Higher asset utilization with appropriate capacity Lower operating costs due to better communication Improved customer service Higher revenue Improved stock turns

5 02. Pulp and Paper Industry Trends & Challenges While historically, pulp and paper production was centered in the established economies of Northern Europe and North America, today, production is largely shifted to southern pole to the emerging economies in Southern Europe, South America, and Asia. As the growth is directly linked with global economic activity ongoing, extended economic downturn has made industry to redefine the business strategy. Being one of the oldest and saturated industries, now focus is on identifying new growth areas. Industry is currently facing following major business challenges Growth of digital media and internet penetration Margin improvement for profitable growth Change from volume to value focus Optimizing energy and transportation cost Sustainability and climate change It is one of the most capital, scale and energy intensive industries with low R&D investments. This industry has vast integrated supply chain right from deep forest to end consumer involving multiple stakeholders. Overall this industry has higher risk due to cyclical demand linked with world economic activity. Forest products Pulp manufacturers Paper manufactureres Packaging and other paper products Customers End users Recycle

6 Current business environment has forced industry consolidation to focus on building larger plants and increased forward and backward integration in the value chain. This change has helps industry to lower the cost and have better demand management but lower IT technology adoption has been a hurdle to realize full business benefits. There is a lack of synergy across value chain leading to challenges in alignment between market demand, production capacity and raw material requirement. Leading industry players are focusing on creating competitive advantage by strengthening overall value chain. Overall a strong business process orientation is must for handling cross business units for being a global player where investment in IT technology is of prime importance. Challenges Product Commoditization Industry Trends Business Imperatives Increasing Energy Cost Globalization Operational Excellence Lower Growth Industry Consolidation Competitive Differentiation Increasing Raw Materials Cost Focus on Differentiation and customer services Long term Growth Skilled Workforce Challenges Moving from B2B to B2C Business Model Cost Effectiveness Regulatory Compliance To explore further, below mentioned points poses big challenge for successful sales and operations planning process: Lower process orientation to mitigate demand variability Weaker coordination between Sales, Customer Service, and Operations, which led each to develop their own independent processes that meet their individual needs, but that do not necessarily optimize the entire process. Nature of industry & products force industry into push market mentality Limited understanding of profitability, cost-to-serve, and established service programs Limited manufacturing performance and sales history and forecasting data because of the limited usage of technology

7 03. Sales & Operations Planning Approaches Creating a single plan for the Enterprise that meets Finance, Sales and Operations objectives 3.1 Top-Down Planning Top-down planning is the simplest approach to sales and operations planning. In this approach, there is a single sales forecast that drives the planning process. The forecast is derived from a combination of products and services that require similar resources, for example, a number of manufactured finished products like hibrite or coated grade product, copier grade, Injet, Paper Board grade etc. Using top-down planning, the management can create tactical plans based on the overall forecast at paper grade level and divide the resources across the finished foods in the plan. 3.2 Bottom-Up Planning This approach is used by specialty paper manufacturing companies that do not have a stable manufacturing schedule and the number and type of finished goods can change from month to month. In this scenario the sales forecast is not helpful for resource planning. The management needs to calculate the resources for each of the products and then amalgamate the resources to get an overall picture of resource requirements. 04. Sales & Operations Planning Sales & Operations Planning Process While there should be a formal process initiation prior to the beginning of each agreed upon scheduling period, there must also be regular meetings of the Sales and Operations Planning team to adjust the initial production schedules for order variability, Paper machine problems, etc. in alignment with the key operating parameters which helped establish the schedules in the first place. The heart of the scheduling problem in paper production is block scheduling and generation of optimal run programs and subsequently finite scheduling of the downstream converting equipment like Rewinder / Sheeter for the generation of optimal trim plan for each run. 7

8 Demand Planning Master Scheduling Finite Scheduling Supply / Capacity Planning Demand Allocation Demand and Supply Capacity Balancing Production Inventory Warehousing & Distribution Inventory Planning Due to the number of decision variables and the volume of historical and actual data which must be analyzed, paper companies should use a combination of statistical decision support, Advanced Planning and Scheduling (APS), and reporting technologies to enable the process. Finally the Master Production Schedules generated a set of master operating schedules for all pieces of critical equipment. At a minimum, paper machine (primary) schedules will be generated. These schedules are made up of run-blocks which indicate the time required and tonnage produced for a particular grade, basis weight, and color. The blocks are frequently subdivided by LOB allocation. Secondary schedules for converting equipment (sheeters, calendars, rewinders, etc.) and shipping schedules may also be produced and are typically found at more advanced paper companies. Forecast Customer Orders Master Schedule Block Schedule Run Program Conversion & Finishing Finished Goods Inventory Replenishment Orders Paper Machine WIP Inventory Materials Shipment Key Questions Considerations Are the right orders on the right production lines? Are the orders run in an optimal sequence? Will orders be ready to ship on time? Standard and marginal production economics, machine capability, logistics costs, delivery dates Trim width, optimal grade/product sequence, Process reliability, system slack, alternative supply sources and products 8

9 05. Business Process Mapping with ERP Packages for paper industry specific processes While ERP softwares may have capabilities in this area or serve as a repository for the initial information (orders, allocation, etc.), it may not have the horsepower to plan and prepare the complicated block schedules and finite scheduling required by a paper company. For the same reason, some of the ERP vendors have developed the solution with their partners to serve the industry need or companies need to select APS software such as APO, i2, Optivision, Manugistics, ABB CPM, Greycon etc. to perform the scheduling & trim optimization function on top of existing ERP. We have compared and found that the current ERP softwares have limitations to manage following key business processes impacted by Sales & Operations Planning for execution of the business plan. Business Process impacted by SOP Support in ERP Bill of Materials Planned Orders Unscheduled and Late Order Notification Production Confirmations Customer Specific Labeling Trim Scheduling Secondary Process Scheduling Shop Floor Control Material Tracking Shipping Integration Quality Management Block Scheduling Allocation Capacity Planning Consumption of Blocks By Existing Orders Consumption of Blocks By New Orders Fully supported Limited support No support 9

10 06. Leading modern industry practices Business process: Formal, documented Sales and Operations Planning process which is initiated on an yearly, quarterly, and a fixed planning/operating horizon basis (usually monthly or weekly) Ability to provide automated seasonal profile generation and multiple statistical forecasting algorithm Base Master Schedule upon actual lead times (not fixed lead times), current and projected capacity constraints, and multiple sourcing options or multiple paths through facility Ability to collaborate and integrate customers into S&OP process via collaborative forecasting, schedule sharing Information Technology: Statistical forecasting tools which process demand and capacity information and are fully integrated with planning applications Advanced Planning & Scheduling (APS) software tools capable of performing LP-type planning and Finite Capacity Scheduling for downstream equipment like rewinder, sheeter and other converting machine in integrated production facility EDI to receive inventory transactions, customer inventory levels, supplier order processing, and shipping to support an integrated supply chain exchanging information in real time Systematic creation of performance metrics; executive dashboard system to post performance against metrics System capability in place to assess impact of schedule changes; ability to evaluate what if scenarios. 07. Tech Mahindra recommendation Leading practice is to have the capability to balance business and IT capabilities. Very few information technology (IT) systems have such in build capability. We as Tech Mahindra believe that it is only through the combination of organizational, business process and IT capabilities that companies can achieve the competence to balance the components and optimize them in different market conditions. The balancing of the components must be dynamic, that is, adaptive to market and operating conditions. To enable that dynamic balancing, companies need to develop business processes around several aspects, or enablers. Those enablers include the ability to: Provide basis for comparative measure of the impact of each of the competing interests (customer service, manufacturing efficiency and inventory) Forecast effectively managing demand signals Plan in different time horizons Measure correctly the consumption of capacity

11 08. Pulp and paper industry opportunity areas Sales and operations planning create & manage allocation, maintain master plan & schedule. In integrated processes scenario, improvements in any one area should consider implications and potential improvements in the other area. Implementation of best practices in these process areas can help paper companies realize benefits in the following opportunity areas based on our past experience in paper industry: Improved forecasting capabilities at Paper Grade, Colour, GSM & SKU level Increased face time with customers for sales with limited time forecasting. Correlation between customer face time and sales Integrated plan for paper grade wise sales, production, logistics and procurement Help in allocations for demand based on prioritization criteria such as profitability at paper grade level Cost based sequencing optimization throughout the planning process. Ability to define right amount of supply for different market situations Ability to react fast in changing market conditions Improved Product SKUs / portfolio management with mechanism for review Visibility on stock levels across the supply chain Reduced warehousing and distribution costs, no part pallets Reduction / elimination in the aged finished stock and raw material stock 09. SMART Supply Chain Insight Solution Tech Mahindra has developed SMART supply chain insight solution to address the need of pulp & paper industry. The key value propositions of the solution are: Tailored solution for Pulp, Paper and Packaging Industry Process driven, preconfigured metrics to address key supply chain requirement and aligned with standard model for supply chain SCOR Consultative approach to derive flexible, theme based and modular solution on a single common platform. The solution follows 2 step consultative approach.

12 Step 1 We conduct supply chain health assessment with consultative approach using Tech Mahindra supply chain assessment tool to capture the as-is situation and based on the aspiration or recommended roadmap to achieve the desired milestone. Supply Chain Assessment Framework The assessment tool or diagnostics framework will helps identify the gaps in the client s existing processes and opportunities for improvements. Also this will help in defining the process prioritization and road map for achieving the desired position. Step 2 This step focuses on the deployment of the technical solution based on the recommended roadmap. The pre build solution follows modular architecture. It mainly has below mentioned modules: 1. Dashboards / Reporting: Includes the ability to publish web-based or mobile reports with intuitive interactive graphical presentation that indicates the state of a performance metric compared with a goal or target value. Increasingly, dashboards are used to disseminate real-time data from operational applications or in conjunction with a complex-event processing enginewhile reporting capability will provide the ability to create formatted and interactive reports, with or without parameters with highly scalable distribution and scheduling capabilities. 2. Alert Monitoring: This module will include tracking the leading indicators which triggers any action, to control the desired results in supply chain area. Alert monitoring will be on real time to trigger for corrective measures.

13 3. Analysis Workbench & Modelling: This feature enables user to analyse data with fast query and calculation performance, enabling a style of analysis known as "slicing and dicing." Users will be able to navigate multidimensional drill paths. They also have the ability to write back values to a proprietary database for planning and "what if" modelling purposes. 4. mscm: This module will enable the above mentioned solutions through mobile devices. Step 2: Solution Framework Supply Chain Insight 1 Dashboard / Reporting 2 Alerts 3 Monitoring Analysis Workbench & Modelling 4 mscm Business Rules, Processes and Analysis Engine Supply Input Material s Logistics Cycle Time Supply Chain Data Demand Finish Inventorie s Lead Time Demand Variability Manufacturing Operations Management Benefits to Customers: Real time Supply chain visibility will help as a differentiating predictive problem solving capability from a post event audit approach Accelerated decision making with complete visibility of supply chain performance Alignment of Supply Chain visibility drivers with key business drivers like working capital control, inventory aging and losses etc. Actionable data view for the right person at the right time Mitigate Supply chain risk by monitoring and managing performance criteria Collaboration with trading partners across fragmented network

14 10. Our Experience We have established a COE for a leading global paper and packaging in APAC with vision to enable them to be a World Class Company. COE Objective: Collaborating and leveraging IT to deliver Broader Business Benefits: Cost Reduction New Revenue Continuous Improvement We have set up Centre of excellence jointly with client core business users to deliver below services. Extended Service Offerings through CoE Prototyping Proof of concepts Business case preparation Market collaboration Project execution support Procurement Services Strategic sourcing Spend analytics Low cost country sourcing Benchmarking Co-innovation Centre of Excellence (CoE) Manufacturing Services Supplier Risk Reviews Drafting (2 & 3D modeling) Optimized parts re-engineering Industrial automation Engineering Services CI Programs Pack Management Telematics Structural design The Centre of Excellence is engaging customer to leverage Tech Mahindra services more than IT services to realize business benefits. BUSINESS BENEFITS: Revenue growth leveraging the synergies between two conglomerates for business expansion Improve the cost benefits through low cost country sourcing strategy Improvement in operational efficiencies through co-innovation/process improvement Explore opportunities among Mahindra and Client customer base IT Services CoE Services Joint offerings drawing from the strength of each partner providing compelling value proposition

15 References

16 About Tech Mahindra Tech Mahindra represents the connected world, offering innovative and customer-centric information technology services and solutions that enable Enterprises, Associates and the Society to Rise. We are a USD 3.1 billion company with 92,729 professionals across 51 countries, providing services to 632 global customers including Fortune 500 companies. Our Consulting, Enterprise and Telecom solutions, platforms and reusable assets connect across a number of technologies to deliver tangible business value to all our stakeholders. We are part of the USD 16.5 billion Mahindra Group that employs more than 180,000 people in over 100 countries. The Group operates in the key industries that drive economic growth, enjoying a leadership position in tractors, utility vehicles, after-market, information technology and vacation ownership.for more information; write to 16