Integrated Planning The Sasol Oil Journey BACKGROUND LENUSHKA NAIDOO

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1 Integrated Planning The Sasol Oil Journey LENUSHKA NAIDOO BACKGROUND Historically, the portfolio of work for the planning function in Sasol Oil spanned production planning and high-level supply and demand balancing. Other facets of planning, as well as business planning cycles were dispersed across functions in the organisation. In 2008, as part of the migration to a supply chain organisation, Sasol Oil set out on a journey to centralise its planning function, embed an integrated planning philosophy into its core business planning processes and extend the portfolio of business planning to cover its entire value chain across all planning cycles. The case for integrated planning was to: Ensure that decisions of a financially significant nature are made with a fully integrated view of the supply chain s future, that is, future demand, future supply and an integrated stock view Optimise the flow of materials through the supply chain, ensuring maximisation of profitability and integrated margin across the supply chain Employ assets to deliver the highest possible economic value Increase ability to react to unplanned situations and Ultimately maximise customer service levels. The following design principles were incorporated for the centralised integrated planning function: A central management of decisions requiring an integrated perspective for feedstock sourcing, production planning, distribution planning, inventory planning and demand planning. A single view of the future across the entire business and consistent across all cycles. Consensus reached on all plans by all role-players at appropriate levels. Where consensus cannot be reached, recommendations from the planning function will prevail. A move towards predictability this is dependent on customer orders and supply volatility. New and innovative technology needed to be developed to enable this vision. Sasol Oil embarked on developing and implementing an integrated planning technology solution to enable the enhanced portfolio of work for the operational planning horizons. In addition, a redesign of the business processes within the planning function was conducted to enable this vision and incorporate the integrated planning technology solution. PAPER PRESENTED AT SAPICS 35 TH ANNUAL CONFERENCE AND EXHIBITION 2 TO 4 JUNE 2013, SUN CITY, SOUTH AFRICA SAPICS 2013, ISBN OF 7

2 INTEGRATED PLANNING THE SASOL OIL JOURNEY PROCESS ENHANCEMENTS Planning cycles There are four cycles that occur within the integrated planning function. Within the operational planning sub-function there are two cycles namely long term scheduling and sales and operations planning. Within the tactical planning sub-function, there are two cycles namely target setting and strategic supply chain planning. Long term scheduling is a weekly recurring cycle focusing on the six to eight week horizon. The key deliverables are scheduling of the monthly sales and operations plan into weekly time buckets and the management of variances from the sales and operations plan. Sales and operations planning is a monthly recurring cycle focusing on the six to eight month horizon. The key performance areas are generation of an optimal sales and operations plan which is used to direct business decision making related to feedstock, imports, production, distribution, inventory and sales. Target setting is a quarterly cycle focusing on the 24 month horizon. The key performance areas are the generation of a rolling 24 month plan used for target setting for sales and operations planning and tactical optimization studies. Strategic supply chain planning is a biannual cycle focusing on a ten year horizon. The key performance area is the generation of a ten year plan which is used for strategic business planning. Cycles are integrated to facilitate the flow of directives and targets from higher cycles to lower cycles as well as to feedback past plan successes and actual performance from lower cycles to higher cycles. This facilitates the generation of a single view of the future across the business. This is illustrated in Diagrams 1 and 2. Diagram 1 Planning Cycle Integration Supply Chain Solutions for a Dynamic World 2 OF 7

3 INTEGRATED PLANNING THE SASOL OIL JOURNEY Diagram 2 - An Example Of Cycle Integration Planning process Diagram 3 - The Planning Process Assumptions are gathered for marketing, pricing, distribution, production, inventory, feedstock and other purchases. The planning function plays a facilitating role in the gathering and validating of assumptions. Reaching consensus on assumptions is a key step in the process before balancing and optimization commences. The planning function also facilitates SAPICS THE ASSOCIATION FOR OPERATIONS MANAGEMENT FOR SOUTHERN AFRICA 3 OF 7

4 INTEGRATED PLANNING THE SASOL OIL JOURNEY the consensus step. The afore-mentioned steps are critical steps in an integrated planning process. The quality and level of participation by assumption owners in these steps is a good predictor of success of the process. Following these two steps, requirement and resources are then balanced optimally. Scenarios are generated. The assumptions, plans, risks, constraints and opportunities are presented at the sales and operations planning meeting where plan acceptance is sought. The planning process shown is generic to all planning cycles. TECHNOLOGY ENHANCEMENTS Diagram 4 Portfolio Of Work The need for an integrated planning solution The diagram above illustrates the portfolio of work covered by the Sasol Oil planning function. To answer the typical questions shown in the above diagram, decisions and trade-offs need to be made via the process of balancing product flow through the supply chain, always optimising the governing drivers and key performance indicators. Balancing is a complex process that makes use of advanced technology requiring computational sophistication. Balancing happens inside the planning system and uses linear programming (LP) models, heuristics and mathematical models to solve simultaneous equations to provide the best result. With a vast portfolio to consider, requiring optimisation from an integrated perspective, the need for an integrated planning technology system was an essential one. Sales and operations planning enablement The overall solution is a pioneer in the field of integrated planning technology. It enables detailed end-to-end (crude to customer) integrated planning and optimisation. This global Supply Chain Solutions for a Dynamic World 4 OF 7

5 INTEGRATED PLANNING THE SASOL OIL JOURNEY model integrates the volume planning of crude, imports, demand, production, distribution and inventory for a six month horizon. In addition to the volume planning, the model considers crude, components, intermediates, product and customer pricing to enable the drafting of an optimal sales and operations plan for Sasol Oil to execute. Contractual production and blending models have also been integrated into the global model to maintain consistent information and plans in the integrated planning process. The solution also interfaces with SAP to ensure consistent information sourcing for transactional and master data. The benefit is the generation of an optimized fully integrated plan which will guide business. Assumptions gathering enabled by smart input utilities In excess of variables pass into the global model on a monthly basis via the sales and operations planning process. To streamline the data input process a few modules are used. Sales forecast assumptions are facilitated through a collaborative demand planning module. Purchase and inventory assumptions for all materials are facilitated through an advanced planning module. Assumptions for all materials pricing, customer netback pricing as well as production are facilitated through custom designed input utilities. The above facilities are designed to handle multiple data sets for scenario management. All input methods pass single scenario or multiple scenario assumption sets to a central database which then writes to the global model. Balancing enabled by global optimisation model A detailed distribution optimisation model was developed to enable optimisation of primary and secondary distribution of fuel products from source to customer ship-to location. Customer netback prices incorporating distribution costs are used to inform distribution options to the model. The distribution model is integrated with existing stand-alone production optimisation models to form a detailed integrated global planning and optimisation model. The benefit of an accurately modelled distribution network within a global model results in distribution optimisation from an integrated perspective. The solution is multi-period and enables inventory optimisation and management to target levels. Plan publication enabled by real-time web-based reporting All assumptions and resulting plans are accessible on a web-based enterprise platform ensuring that stakeholders are provided with real-time access to all key planning information. Additional data from the database has been mined using Crystal Reports to setup customised reports. Performance tracking is enabled through the comparison of planned versus actual reporting for key planning performance variables such as sales, inventory etc. Plan finalisation enabled by scenario management Scenario management for the sales and operations planning process is enabled with functionality that allows the management of multiple data sets for inputs into the planning cycles. An example of this would be adding different sets of pricing assumptions and / or SAPICS THE ASSOCIATION FOR OPERATIONS MANAGEMENT FOR SOUTHERN AFRICA 5 OF 7

6 INTEGRATED PLANNING THE SASOL OIL JOURNEY demand assumptions to be considered for the sales and operations planning cycle as scenarios. There is enhanced viewing capability of plan scenarios as well as visualisation of the impact of scenarios on inventory progressions. All of the afore-mentioned functionality work together to enable comprehensive scenario planning that improves readiness and agility for changes in the landscape affecting the validity of a single scenario plan. The multiple data set management and enhanced viewing of resulting scenarios side by side enable a fully transparent and auditable process which is key to the effective management of scenarios for the sales and operations planning process. Long term scheduling enablement After the sales and operations plan is finalised, it feeds into the long term scheduling process. The sales and operations plan is automatically disaggregated into daily time buckets and aggregated into weekly time buckets. Demand, stock transfers and production are then manually shaped for non-linear events that occur during the month. To generate an inventory view for the two month horizon in daily and weekly time buckets, two sets of information are considered. The first phase of the view uses opening inventory from SAP, open sales orders from SAP, open stock transfer orders from SAP and production blend plans. The second phase of the view uses the disaggregated and shaped sales and operations plan for sales, stock transfers and production. Beyond the two month horizon, sales, production, receipts and stock transfers from the monthly sales and operations plan are used to extend the inventory view. This inventory view is generated for all materials at all locations. Should variances be incurred for the zero to two month horizon after the sales and operations plan is finalised, the long term schedule is then re-balanced using the distribution replenishment planning (DRP) and materials requirements planning (MRP) modules in the technology solution. DRP and MRP suggest replenishments and purchases while dynamically considering changes in actual inventory levels, customer orders, sales forecast and target stock levels. The benefits are improved inventory management through increased visibility and automation of inventory to target. Integrated margin analysis An integrated margin model, leveraging the customer pricing data set from the technology solution, is used to analyse customer profitability to guide molecule allocation decisions for tactical planning. The global optimisation model could suggest optimal allocation decisions, however in the sales and operations planning horizon, sales demand is contracted and firm and consequently not easily leveraged for molecule re-allocation and channel optimisation. CONCLUSION All of the above process and technology enhancements work together to embed integrated planning philosophy into the sales and operations planning and long term scheduling processes. The ultimate aim of integrated planning is to maximise economic value add to Sasol Oil. The benefits seen to date have been planning accuracy improvement, inventory Supply Chain Solutions for a Dynamic World 6 OF 7

7 INTEGRATED PLANNING THE SASOL OIL JOURNEY management improvement and margin improvement through channel and customer optimisation. ABOUT THE AUTHOR Lenushka Naidoo is currently a Senior Manager in the Supply Chain Planning function at Sasol Oil. She holds a Bachelor of Science degree in Chemical Engineering from the University of Natal and a Bachelor of Commerce degree with specialisation in Economics from UNISA. A former Sasol bursary holder, Lenushka commenced her career in 2001 as a process engineer at the Natref refinery and joined Sasol Oil in 2004, working across various roles in the manufacturing, planning and optimisation and product supply functions. In 2008, Lenushka joined a newly-formed centralised planning function at Sasol Oil and was tasked with leading a pioneering planning technology development project to enable integrated operational planning across the Sasol Oil value chain. A critical mass of her twelve year employment career is centred on planning. She has great depth and breadth of knowledge in operational and tactical planning and optimisation of the Sasol Oil value chain. This includes planning process and technology development through to implementation. CONTACT Website lenushka.naidoo@sasol.com Telephone Cellphone SAPICS THE ASSOCIATION FOR OPERATIONS MANAGEMENT FOR SOUTHERN AFRICA 7 OF 7

8 Integrated Planning The Sasol Oil Journey Lenushka Naidoo Sasol Oil (Pty) Ltd

9 AGENDA Definition Portfolio of work business requirements Business process enhancements Technology enablement enhancements Benefits Critical success factors Learning 1

10 2 INTEGRATED PLANNING PORTFOLIO OF WORK

11 3 INTEGRATED PLANNING CYCLES

12 4 SALES AND OPERATIONS PLANNING PROCESS

13 5 THE PLANNING PROCESS

14 6 BALANCING THE PLAN

15 S&OP ENABLEMENT Assumptions gathering enabled by intelligent input utilities Balancing enabled by a global optimisation model Plan publication enabled by real-time web-based reporting Plan finalisation enabled by scenario management functionality 7

16 8 S&OP DEMAND

17 9 S&OP DEMAND

18 10 S&OP RAW MATERIAL PURCHASES

19 11 S&OP PRODUCTION

20 12 S&OP STOCK TRANSFERS

21 13 S&OP INVENTORY

22 14 S&OP INTERMEDIATE VENTORY

23 15 S&OP FINANCIAL FORECAST

24 16 S&OP > LONG TERM SCHEDULING

25 LTS ENABLEMENT Disaggregation of Sales & Operations plan Shaping of two month inventory progression parameters Updating of sales orders, stock transfer orders, inventory, production Balancing of LTS enabled by distribution replenishment planning (DRP) and materials requirements planning (MRP) In consideration of actual inventory levels, customer orders, sales forecast and target stock levels Global stock and order visibility Short term scheduling is enabled (but not used yet at Sasol Oil) 17

26 18 S&OP > LONG TERM SCHEDULING

27 19 S&OP > LONG TERM SCHEDULING

28 20 DEMAND FORECASTING

29 21 INPUT MODELS

30 22 GLOBAL OPTIMISATION MODEL

31 23 SCENARIO MANAGEMENT

32 24 LONG TERM SCHEDULING INCORPORATING MRP, DRP, GLOBAL STOCK AND ORDER VISIBILITY

33 BENEFITS TO DATE Improved planning accuracy improves economic value add Improved inventory management Improved margins Channel and customer optimisation Centralised decision making of financially significant decisions from an integrated perspective One single integrated view of the future 25

34 CRITICAL SUCCESS FACTORS FOR INTEGRATED PLANNING Executive level sponsorship Sound process and meeting governance (standard meeting agendas, adherence to agenda, strong chairmanship etc) Internal partner agreements clearly stating requirements from Planning Financial alignment S&OP and tactical planning focus high financial value decisions LTS executing S&OP and managing variance Consensus and alignment on assumptions 26

35 CRITICAL SUCCESS FACTORS FOR INTEGRATED PLANNING HUMAN RESOURCES Strong interpersonal skills - > ten interfaces on frequent basis Technically and financially astute employees An organisational structure and talent pipeline that enables nurturing of technical skill Leaders should possess combination of leading/coaching skill, sound technical skill and strong interpersonal skills Based on exposure to total business operations and economics, employees are sought after retention and succession planning are crucial Highly specialised field, generally high performers most employees generally tend to stay in Planning for long periods due to job content appeal Power and influence through knowledge not position KPIs should be profit enhancement driven 27

36 LEARNINGS Detailed requirements statement Preferably fixed price contract Proof of concept Keep a critical mass of knowledge during transition Phased approach Sustained sponsorship Data readiness and clean up Adoption link KPIs to technology adoption and accuracy improvement Watch this space... 28

37 Integrated Planning Website Telephone Cellphone