Transcript Introduction to Process Management

Supply Chain Management:
Approaches and Practices
from Air Products and
Chemicals, Inc
George Diehl
VSB Center for Business Analytics
Air Products Overview
 $10 B Gases (80%) and Specialty
Chemicals (20%) company
 Chemical industry safety leader
 Operations in more than 30 countries
 55% of sales revenue outside the U.S.
 20,000 employees worldwide; 4500 at
Allentown PA, Global HQ
 AMR’s “Top 25 Supply Chains”-Honorable
Mention in 2008
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ANATOMY
of INDUSTRIAL GAS SUPPLY
78% NITROGEN
21% OXYGEN
1% ARGON
AIR
SEPARATION
GAS PIPELINE
TO CUSTOMERS
LIQUEFACTION
CYLINDERS
LIQUID STORAGE
CRYOGENIC TANKER
3
CUSTOMER
LIQUID STORAGE
AND VAPORIZER
GAS TO
CUSTOMER
OPERATION
Some Questions To Start…
 Which traditional functions make up the
supply chain?
– What are some of the issues with crossfunctional work?
– How are they addressed?
 How do you know that the supply chain is
working?
– And which parts are not
 What are some ways to “benchmark” supply
chain performance against “best in class”?
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Simple Supply Chain Process
Place
Order
Customer
Sales
Win
Business
Customer
Service
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Take
Delivery
Pay
Bill
Define
Reqts
Set Up
Account
Input
Order
Send
Invoice
Production
Commit
Inventory
Load
Product
Logistics /
Distribution
Schedule
Delivery
Deliver
Product
Apply
Cash
CEO Quote to Shareholders…
…Historically, we have had a very strong
functional focus in selling, operations,
engineering, etc., with a good track record
of continuous improvement. But what we
found is that the greatest improvement
comes where these functional
organizations interface. As a result, we
have taken a process viewpoint and
redesigned how we do much of our
business.
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Supply Chains Integrate CrossFunctional Processes
 Business Process: An organized group
of cross-functional activities that
together provide value for the
customer.
 Input(s) >> Activities >> Output(s)
 Focus on efficiency and effectiveness
 Well-designed processes can be
patented and/or become a source of
competitive advantage—outsource too
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PROCESS / FUNCTION BALANCE
Limits on
Functional
Improvement
Process Fills In
the “White Spaces”
Balanced Integration
Of Function and Process
Within/Across Businesses
Increased
Customer
Satisfaction
(Cycle Time,
Accuracy)
Customers
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“Predictably Positive Experiences”
+
Revenue, Productivity, and
Asset Management
Improvement
Plan
Deliver
Return
Suppliers’
Supplier
Source
Make
Return
Source
Deliver
Return
Return
Make
Deliver
Return
Our Company
Supplier
Source
Return
Deliver
Source
Return
Return
Customer
Internal or External
Internal or External
SCOR Model
Building Block Approach
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Make
Processes
Metrics
Best Practice
Technology
Customer’s
Customer
Air Products Process Model
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MAKE
• Schedule production
• Issue materials to
shop floor
• Produce materials
• Package materials
Key Sub-Processes
GOVERNANCE
• Manage corporate risk
• Manage disclosure
and audit
• Manage shareholder
rights & relations
ENVIRONMENT
• Permitting
• Compliance
• Issue Identification
• Employee Health &
Safety
ALIGN
• Planning &
Commitment process
• Mergers & Acquisitions
• Growth management
FINANCE
• Accounting / Tax
Transactions
• Treasury mgmt
• External reporting
• Decision support
BUILD
• Project definition
• Design
• Construct
• Commission & Startup
INFORMATION
• Plan Computing
Infrastructure
• Understand Client
Needs
• Build Solutions
• Deliver and Manage
Services
FULFILL
• Order Management
• Logistics & Delivery
• Invoicing
• Credit & Collection
• Cash Application
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SELL
• Find and Win
Opportunities
• Manage Customer
Experience
PEOPLE
• Source global talent
• Develop Work
Culture/Environment
• Deliver Manager /
Employee Services
• Reward Results
PLAN
• Demand planning
• Supply planning
• Balancing
• Network design
• Master data mgmt
SOURCE
• Market Analysis
• Solicit Bids / Negotiate
• Award Agreements
• Monitor Performance
• Pay Suppliers
INNOVATE
• Idea management
• Project impact analysis
• R&D Portfolio mgmt
• Offering Development &
Introduction
How do you know that
your supply chain
processes are
performing well and
where they are not?
Air Products Approach to Supply Chain
To: Improve Visibility, Velocity, Simplicity
By: Driving Operational Innovation Focused On:
What
How
 Simplify
 Educate
 Standardize
 Execute
 Shorten
 Improve
 Share
 Measure
So That We:
 Improve productivity by 3X by FY20XX
 Create competitive advantage through our Supply Chain
 Increase customer loyalty scores; earn higher margins for
shareholders
13
Top 5 KPIs: Key Gauges of Supply
Chain Performance
Cash to Cash
Cycle Time
Customer Master
Data Quality
Demand Forecast
Accuracy
Complaints Closed by
Target Date
Perfect Order
Fulfillment
5
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Tracking Key KPI's To Help Integrate
Supply Chain Processes
Cash to Cash
Cycle Time
P&L Impact
Net Hard Benefits
Customer Master
Data Accuracy
Production Master
Data Accuracy
Workbook
Rejection Rate
Inventory Days
of Supply
Demand Forecast
Accuracy
Faultless Invoices
Days
Payable
Owed
% Orders Received
On Time to Demand
Production Plan
Adherence
Inventory
Accuracy
Complaints Closed
by Target Date
Average
Terms
Days Past
Terms
Perfect Order
Fulfillment
Days Sales
Outstanding
5
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Supply Chain KPI’s as Leading Indicators
% Complaints
Closed by
Target Date
Improve
Responsiveness
Customer
Loyalty
Improve
Reliability
Master
Data
Quality
Demand
Forecast
Accuracy
Perfect
Order
Fulfillment
Increase
Profit
Operating
Return on
Net Assets
(ORONA)
Cash to Cash
Cycle
Time
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Reduce
Net Assets
Supply Chain KPI’s as Leading Indicators
AMR Research shows
that companies with
better demand forecast
accuracy have …
Master
Data
Quality
% Complaints
Closed by
Target Date
17% better
perfect order
ratings …
Demand
Forecast
Accuracy
Improve
Responsiveness
Customer
Loyalty
Improve
Reliability
Perfect
Order
Fulfillment
Increase
Profit
Operating
Return on
Net Assets
(ORONA)
15% less
inventory …
Cash to Cash
Cycle
Time
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Source: AMR Research Report - February 2004
Reduce
Net Assets
and 35% shorter cash-tocash cycle times
AP’s Key Results
 First year: set goal and doubled the historical
amount of P&L productivity
 Year 2 & 3: set goal and exceeded it by more than
tripling the historical amount of P&L productivity
 Four Growth Platform Businesses increased
from 25 to 50% of total revenues
 Customer Loyalty scores for “secure customers”
are 15% higher than prior to new process/SAP
 ORONA hit year 3 goal; double digit growth 4 yrs
 Stock went from historical $40’s to $105.
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Keys to Success
 Give Your Processes Visibility
 Clarify Cross-Functional Teamwork-Start with “Swimlanes” and/or “Gives & Gets”, and then Share
Common Measures
 Identify and Adopt External Best Practices
 Provide “Context” for Your Performance Indicators,
and Measure Cycle Time, Accuracy, Customer
Perspectives, Linked to Financial Performance
 Establish Targets and Review at least Monthly.
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Thank You
George Diehl
VSB-Center for Business Analytics