Copyright 2012 Kinaxis Inc. All Rights Reserved. 1

The Myth of the One-Number Plan Trevor Miles vice president, thought leadership e: tmiles@kinaxis.com m: +1.647.248.6269 t: @milesahead Copyright 2012 Kinaxis Inc. All Rights Reserved. 2 Copyright 2012 Kinaxis Inc. All Rights Reserved.

Common (Mis-)Conceptions It brings in Sales, Marketing, Finance, Production, Materials and Logistics department together for reconciling their individual plans and create a ONE NUMBER plan which will be agreed by all the stakeholders in the Organization Sales and Operations Planning, ITToolBox, Wiki October 13, 2008 Copyright 2012 Kinaxis Inc. All Rights Reserved. 5

Common (Mis-)Conceptions One number planning, is a sign of excellence. Poor companies produce a sales forecast that is a tough but achievable target for the sales force. Production doesn t believe this forecast, so it generates its own, which usually means large batches to reduce manufacturing costs. Logistics is left to deliver whatever sales manages to sell. Finance doesn t believe the production or the sales forecast, so it creates its own to manage the cash. 10 Symptoms of Poor Supply Chain Performance, ARC Insights, SIimon Bragg, June 20, 2002 Copyright 2012 Kinaxis Inc. All Rights Reserved. 6

Common (Mis-)Conceptions MetaChain helps clients to achieve a one-number planning approach for financial and supply chain related matters. Using this approach all business units are using identical forecast information. In this case a financial long term plan could be compared with an inventory plan. The sales and operational planning enables companies to see financial impacts based on production and distribution plans. Supply Chain Planning & Optimization, MetaChain Supply Chain Management, Date unknown Copyright 2012 Kinaxis Inc. All Rights Reserved. 7

Different Times; Different Tunes Using a demand forecasting tool to generate a onenumber forecast, and planning your supply chain accordingly, is too simplistic of an approach to be credible. To manage risk, solutions need to assess the risk associated with an end-to-end goal and ensure that no decision is made in isolation, without quantifying the additional risks that it creates or the risks that it eliminates. In Managing Recent Risk and Disruptions, Have Supply Chain Management Technologies Failed the Test?, Gartner Inc., Noha Tohamy, June 6, 2011 Copyright 2012 Kinaxis Inc. All Rights Reserved. 9

Different Times; Different Tunes Five years ago, a number of companies taking the traditional approach for sales and operations planning (S&OP) asked AMR Research for help. The companies felt that their organizations were stuck in a rut, not maximizing true S&OP potential. They were right. The concepts of one-number forecasting and matching demand with supply were outdated. Sales and Operations Planning: Transformation From Tradition, AMR Research, Lora Cecere, Jane Barrett, Hussain Mooraj, May 12, 2009 Copyright 2012 Kinaxis Inc. All Rights Reserved. 10

Demand Dynamics Top CPG companies forecast performance MAPE for a monthly lag was 33% MAPE for a weekly lag was 48% NPI with weekly item/location MAPE was 65% 2011 Forecasting Performance Benchmark Study, Terra Technology, 2011 High-Tech/Electronics anecdotal Struggle to get better than 50% MAPE Where will breakthrough performance come from? Learning to forecast and plan better? Learning to respond profitably to real demand? Copyright 2012 Kinaxis Inc. All Rights Reserved. 12

Demand Dynamics Companies can t predict the future, build organizations that will survive and flourish under any possible future. Dynamic management: Better decisions in uncertain times, McKinsey Quarterly, December 2009 Copyright 2012 Kinaxis Inc. All Rights Reserved. 13

Portfolio Dynamics Make a Difference 2 4 0 2 YEARS 4 YEARS Dead next year 3 0 2 YEARS 4 YEARS Growing 1 0 2 YEARS 4 YEARS Surviving, just 5 Line Extension and Promos Existing Portfolio 0 2 YEARS 4 YEARS Dead next month 0 2 YEARS 4 YEARS Thriving Modified from The Evolution of S&OP, IndustryWeek Webcast, Dick Ling, Mar 29, 2012 Copyright 2012 Kinaxis Inc. All Rights Reserved. 15

The Myth of the One-Number Plan Historic Data Providing Trend and Seasonality Baseline Scenarios An Integrated Set of Plans; Not One Number Detail Operational Focus Roughly Right; Not Precisely Wrong HISTORY SHORT- TERM 2-3 YEARS Modified from The Evolution of S&OP, IndustryWeek Webcast, Dick Ling, Mar 29, 2012 Copyright 2012 Kinaxis Inc. All Rights Reserved. 16

But do we measure the same thing? CEO Chief Customer Officer COO Chief Marketing Officer Sales VP of Supply Chain CFO VP of Manufacturing Account Teams Customer Service Procurement Logistics CIO Quality Growth Volume Cost Source: The Role of Supply Chains in Building Market-Driven Differentiation, 2012, Supply Chain Insights Copyright 2012 Kinaxis Inc. All Rights Reserved. 17

The answer isn t a Suite of Segmented Planning Solutions Long term Business Planning Planning Horizon 1 10 years Within 1 year quarters with monthly buckets Outside 1 year years with quarterly buckets Customer Orders Sales History Demand Planning Inventory Levels / Targets Sales & Operations Planning One Aggregate Master Schedule Rough Cut Capacity Planning 0-1 year Within 3 months with weekly buckets Outside 3 months quarters with monthly buckets Medium term Material Requirements Planning Capacity Requirements Planning 0-3 months Months with weekly / daily buckets Planned orders of 4-12 weeks Short term Purchasing/ Supplier Collab Detailed Scheduling Response Management 0-3 months Weeks with daily / hourly buckets Fixed horizon of 2 weeks Copyright 2012 Kinaxis Inc. All Rights Reserved. 21

but an integrated and collaborative enviroment Planning Horizon Long term Business Planning 1 10 years Within 1 year quarters with monthly buckets Outside 1 year years with quarterly buckets Customer Orders Sales History Inventory Levels, Targets Demand Planning Sales & Operations Planning Rough Cut Capacity Planning 0-1 year Within 3 months with weekly buckets Outside 3 months quarters with monthly buckets Medium term Capable to Promise Clear to Build Material Requirements Planning Capacity Requirements Planning 0-3 months Months with weekly / daily buckets Planned orders of 4-12 weeks Short term PO Releases/ Expedites/Cancels (Daily buckets) Detailed Scheduling (Daily buckets) Response Management 0-3 months Weeks with daily / hourly buckets Fixed horizon of 2 weeks Copyright 2012 Kinaxis Inc. All Rights Reserved. 22

Observe-Orient-Decide-Act Time is the dominant parameter. The pilot who goes through the OODA cycle in the shortest time prevails because his opponent is caught responding to situations that have already changed. Copyright 2012 Kinaxis Inc. All Rights Reserved. 25

Plan, monitor, and respond to all aspects of supply and demand balancing in minutes - not days or weeks Collapse time to make profitable course corrections Reduce risk, increase customer satisfaction, and improve profitability Copyright 2012 Kinaxis Inc. All Rights Reserved. 26