Transcript Implementing S&OP During Startup Phase Bringing In S&OP with the Bricks and Mortar Robin Weitkamp SVP, Lubricants and Additives September 2013

Implementing S&OP
During Startup Phase
Bringing In S&OP with the Bricks and Mortar
Robin Weitkamp
SVP, Lubricants and Additives
September 2013
How (not) to build a hotel
“On the Mediterranean coast, in the town known for pioneering cheap package tourism,
Spain is building what will be Europe’s tallest residential building. Benidorm’s InTempo
skyscraper is a gargantuan structure – some 650 feet tall and architecturally
ambitious: Two separate towers are conjoined over 550 feeet in the air by an inverted
cone which will house a massive garden and pool…..
But it’s also massively flawed: It doesn’t have any elevators capable of going all the
way to the top.
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Source: Roberto Ferdman, blog, 12 August 2013
How (not) to build a hotel
“Fixing Intempo’s structural flaws will mean tampering with its architectural
vision, and funneling even more money into the project. The only viable way to
correct for the builder’s design gaffe is to erect external elevator shafts….”
“Some 45% of the skyscraper’s 269 apartments have already been sold, but “sales
are going slower now,” the project’s architect, Roberto Perez Guerras, told El Mundo
earlier this month….”
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2013 Copyright, Elevance
Source: Roberto Ferdman, blog, 12 August 2013
We don’t make hotels
But we are worried about how to build a business
with very few people and in a hurry
Elevance Renewable Sciences is transforming chemicals production
Elevance uses its
proprietary Nobel
Prize winning
technology…
…to convert any
unsaturated
natural oil…
…into drop-in and
novel olefins, oleo
and specialty
chemicals…
Founded 2007 ….. ~140 Employees today
First industrial scale manufacturing operational
Shipments of products to customers established
5
…to serve large
and growing end
markets
High Performance Specialty and Intermediate Chemicals from
Natural Oils
 Variety of Natural Oils
 Widely Available
 Commercial Today
 Low Capital Requirements
 Low Operating Costs
 High Value Product Mix
 Addresses Critical Shortages
 Meets Customer Performance Needs
Specialty
Chemicals
Soy
Canola
Olefins
Oleochemicals
Palm
2012 Copyright Elevance Renewable Sciences
Is this a test?
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November 2, 2015
Copyright 2013, Elevance Renewable Sciences, Inc.
Specialty Chemicals Based on Novel Di-functional Molecules
O
Typical oleochemicals:
Monofunctional esters/acids
Typical olefins:
Monofunctional olefins
R
O
R
Di-Functional Molecules
Chemicals from the Elevance process combine functional attributes of olefins
and oleochemicals in a previously unachievable single molecule
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November 2, 2015
Copyright 2013, Elevance Renewable Sciences, Inc.
You get what you get…
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November 2, 2015
Copyright 2013 Elevance Renewable Sciences, Inc.
Products Address Critical Customer Needs
Detergents & Cleaners
Personal Care Products
 Improved cold water performance
 Alternative feedstock with pricing/supply dynamics
 Anti-frizz and shine for leave-in hair care
 Moisturizing benefits & smoother feel for skin care
Performance Waxes
 Thermal stability
 Increased fragrance loading
Lubricant Base Oils
 Reduction in formulation costs
 Improved fuel economy
Lubricant & Fuel
Additives
 Improved lubricity
 Enhanced cold flow properties
Engineered Polymers &
Coatings
 Enhanced corrosion, chemical and heat resistance
 Light weight replacement for metal alternatives
Products specifically target customer desired functional attributes
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Copyright 2013, Elevance Renewable Sciences, Inc.
8-12 products…
6-15 markets…
100s of customers…
140 employees… total
How can we be prepared… starting from scratch?
The ERS S&OP process was designed by a cross-functional team
• The design project kicked off June 2012 and completed with an approved design
proposal in November
• S&OP and organizational design consultants guided the team in the development of
the process
• The on-going process launched in March 2013
Executive Sponsor Team
Lead Sponsor – COO
CEO
CFO
EVP Sales & Marketing VP HR
Design Team
• Process Manager
• Logistics/Business Operations
• Finance
• Manufacturing
• Business Operations
• Business Development
• Finance
Others involved in the design
• Marketing
• Platform 1
• Platform 2
• Platform 3
• Manufacturing
• Finance
• Operations
plus consultant support
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Elevance desired a process for managing chaos well before
building our “hotel”…
Without a process…
With a process…
Function-to-function handoffs
Coordinated
Multiple forecasts/biases
Integrated assumptions and views
Units & dollars don’t match
Integrated financials
Disconnected views
Consistent and holistic
Reactive decisionmaking
View of future, with agreed
boundaries
Additional benefits
• Enhanced teamwork
• Improved communications
• Better decisions tied to financial
plans with less effort/time
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• Tight linkage with corporate
strategy
• Greater accountability
• Greater control
Elevance relied on best practice literature in implementing
Executive S&OP
Management’s handle on the business
…a multi-step process involving demand planning,
supply planning, and
middle and top management meetings for decisionmaking and authorization
Step #5
Executive
Meeting
Step #4
Pre-S&OP
Meeting
Step #3
Supply
Planning
Step #2
Demand
Planning
Data
Gathering
End of Month
Sales Actuals,
Statistical Forecasts
&
Production Actuals
Conflict Resolution,
Recommendations &
Agenda for Exec. Mtg.
Capacity constraints
2nd-pass spreadsheets
Management Forecast
1st-pass spreadsheets
Step #1
Decisions &
Game Plan
The ERS S&OP process includes 5 basic steps that will occur
monthly and will look 36 months into the future
Why 5 steps?
Why
Monthly?
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Why 36
months?
Step
#1
Gather data from
previous month: sales,
production, inventory
actuals
Steps
#2/#3
Develop unconstrained demand
forecast based on customer,
market and historical views.
Define unconstrained plant
availability from JV and wholly
owned assets
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Optimization
Analysis
Decision
Meeting
Connection
with JV
Prep for ELT
Meeting
Step
#4
Determine optimized
supply/demand based on
inventory, financial constraints
and incremental economics.
Decide plan, set plant rates,
and define logistical
requirements. Connect with JV
partners, tollers, etc to agree
plan. Prep for ELT meeting.
Executive Meeting
Demand
Planning
Supply
Planning
Data Closing
…includes 5 basic steps…..
Step
#5
Present plan to the
leadership team with
appropriate inventory and
financial information.
Bring forward
recommendations for
decisions outside of
established guidelines.
…that will occur monthly…
Why 5 steps?
Why
Monthly?
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Why 36
months?
…that will occur monthly…
Feedstock inventories (left) and
product inventories (below) can vary
significantly….
3.50
3.00
2.50
We decided that a monthly
timespan was the maximum we
could handle
2.00
1.50
1.00
0.50
-
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Product C
The ERS S&OP process includes 5 basic steps that will occur
monthly and will look 36 months into the future
Why 5 steps?
Why
Monthly?
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Why 36
months?
(1.00)
20
(2.00)
(4.00)
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Jan-16
Nov-15
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
2.00
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
(1.00)
Product A
3.50
1.00
3.00
2.50
2.00
1.50
1.00
(3.00)
0.50
-
(2.00)
(3.00)
(4.00)
Product C
Jan-16
Nov-15
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
2.00
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
…and will look 36 months into the future
Product B
1.00
-
…and will look 36 months into the future
Strong signal in this product that a
decision about future capacity is
needed
Expand?
Position to marketplace an upcoming
tight product?
What about other products?
Product A
2.00
1.00
(2.00)
(3.00)
(4.00)
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Jan-16
Nov-15
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
(1.00)
Jul-13
-
Chemical plants take 2-3 years to
construct typically
…and will look 36 months into the future
And, remember, we have many of
these plots (for each Product) - each
having its own plot so a strategic view
is CRITICAL
Product A
2.00
1.00
(2.00)
(3.00)
(4.00)
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Jan-16
Nov-15
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
(1.00)
Jul-13
-
Now we know what we want…
…but how?
How can we be prepared… starting from scratch?
The best-in-class model for demand
Market View
Marketing collects
historical and forecast
market data, for
appropriate markets in
order to inform
demand forecasts
Oooops… we have no ability to correlate
market factors to demand for some of
our products… they are novel
The best-in-class model for demand
Market View
Marketing collects
historical and forecast
market data, for
appropriate markets in
order to inform
demand forecasts
Customer View
Platforms/ Business
teams collect productby-customer forecasts
Through our development partnerships,
working with companies in the space of
selling such materials, we have indirect
inputs on expected demand
The best-in-class model for demand
Market View
Marketing collects
historical and forecast
market data, for
appropriate markets in
order to inform
demand forecasts
Customer View
Platforms/ Business
teams collect productby-customer forecasts
History View
Finance pulls prior
month actuals and
runs analysis to create
historical view and
forecasts (eventually)
Being new, we have no history so no
historical trends…
The best-in-class model for demand
Market View
Marketing collects
historical and forecast
market data, for
appropriate markets in
order to inform
demand forecasts
Customer View
Platforms/ Business
teams collect productby-customer forecasts
History View
Finance pulls prior
month actuals and
runs analysis to create
historical view and
forecasts (eventually)
• Demand tool
populated
with 3 views
• Macros run
to generate
analyses
from the
input data
• Demand data
published to
Demand
Team
So we have a demand
view, but in our early
years we must take
caution that our
demand is very
customer-input driven…
The best-in-class model for demand
Market View
Marketing collects
historical and forecast
market data, for
appropriate markets in
order to inform
demand forecasts
Customer View
Platforms/ Business
teams collect productby-customer forecasts
History View
Finance pulls prior
month actuals and
runs analysis to create
historical view and
forecasts (eventually)
• Demand tool
populated
with 3 views
• Macros run
to generate
analyses
from the
input data
• Demand data
published to
Demand
Team
So our process is “full”, but
with no rearview or side
mirrors, reconciling
opinions is a key risk
• Participation
from platform/
business
leaders and
sales
• Goal of the
meeting its to
produce an
aligned demand
forecast
• Reconcile any
misalignments
with appropriate
LT connection
Demand
Agreement
Meeting
The best-in-class model for demand
Market View
Marketing collects
historical and forecast
market data, for
appropriate markets in
order to inform
demand forecasts
Customer View
Platforms/ Business
teams collect productby-customer forecasts
History View
Finance pulls prior
month actuals and
runs analysis to create
historical view and
forecasts (eventually)
• Demand tool
populated
with 3 views
• Macros run
to generate
analyses
from the
input data
• Demand data
published to
Demand
Team
• Participation
from platform/
business
leaders and
sales
• Goal of the
meeting its to
produce an
aligned demand
forecast
• Reconcile any
misalignments
with appropriate
LT connection
Demand
Agreement
Meeting
Aligned
demand view
published for
optimization
However, we are committed to building 3 demand views with time
 Intent
•
•
Compile a market-driven view of product demand and/or growth rate profile
Seen from the perspective of broad market indices and/or data
• Demographics, macroeconomics, industry trends, etc.
 Construct
• Selection of key broad markets
•
•
•
Markets are not applications; markets are extrinsically and consumer driven categories
Collection of data independent of ERS customers and sales staff
Views of market growth are utilized along with correlations to project demand view for
ERS Products
•
i.e., over time, vehicular transportation market data could be correlated to market demand for a
type of lubricant, which could then be translated to a demand for an Elevance intermediate
 Use
• Automated conversion to 36-month forecast demand view, quantity and growth rate
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2012 Copyright, Elevance
For the future, we map our expected product derivatives…
Example: Product -> Addressable Market Map (Product B)
DERIVATIVES
Coatings
Oilfield
Chem
Biocides
PAO Base
Oils
Ester
Base Oils
Additives
Adhesives
Sealants
Adjuvants
Reactive
Chemicals
Detergent
Cleansing
Engr
Plastics
Skin &
Hair Care
Surface
Cleaners
To begin building a demand profile, we
map the products that will be made
from our intermediates into key
applications of use
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Elevance Confidential
…to the markets in which they could be used
Example: Product -> Addressable Market Map (Product B)
…noting that consumption of those
products is driven by fundamental,
industrial demand drivers
Chemicals
Medical Eqpt
& Services
Oil Gas &
Fuels
Food &
Beverage
Forestry &
Paper
Furnishings
Aerospace &
Defense
MARKETS
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Electronic &
Electrical
Construction
& Materials
Elevance Confidential
Industrial
Equipment
Transportation
Non-durable
Household
Durable
Household
Example: Potential markets for adhesives made from Product B
Example: Product -> Addressable Market Map (Product B)
DERIVATIVES
Oilfield
Chem
Coatings
Biocides
PAO Base
Oils
Ester
Base Oils
Additives
Adhesives
Sealants
Adjuvants
Reactive
Chemicals
Detergent
Engr
Plastics
Surface
Cleaners
Chemicals
Oil Gas &
Fuels
If we understand
forecasts for growth in
So we identify the pairs
industrial equipment
which could be mapped
manufacture, down the
road we can correlate
that growth expectation
to use of our product
Cleansing
Skin &
Hair Care
Medical Eqpt
& Services
Food &
Beverage
Forestry &
Paper
Furnishings
Aerospace &
Defense
MARKETS
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Electronic &
Electrical
Construction
& Materials
Elevance Confidential
Industrial
Equipment
Transportation
Non-durable
Household
Durable
Household
Caution: This brings great complexity if not managed practically
Example: Product -> Addressable Market Map (Product B)
DERIVATIVES
Oilfield
Chem
Coatings
Biocides
PAO Base
Oils
Ester
Base Oils
Additives
Adhesives
Sealants
Adjuvants
Reactive
Chemicals
Detergent
Cleansing
Engr
Plastics
Skin &
Hair Care
Surface
Cleaners
Chemicals
Medical Eqpt
& Services
Oil Gas &
Fuels
Food &
Beverage
Forestry &
Paper
Furnishings
Aerospace &
Defense
MARKETS
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Electronic &
Electrical
Construction
& Materials
Elevance Confidential
Industrial
Equipment
Transportation
Non-durable
Household
Durable
Household
So we focus on effective vs. perfect
ERS Products
ERS Platforms
A
Consumer
Ingredients &
Intermediates
B
•
•
•
•
C
Performance Waxes and Candles
Personal Care Products
Detergents and Cleaners
Antimicrobials
Lubricants &
Additives
D
E
• Lubricant Base Oils
• Additives for Lubricants &
Fuels
• Advanced Biofuels
F
Engineered
Polymers &
Coatings
G
H
• Specialty polyamide, polyols
& polyesters
• Epoxies and polyurethanes
• Coatings and Cross Linkers
I
Intermediates
J
Non-durable
Household
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Durable
Household
Furnishings
Food &
Beverage
2
Chemicals
Transportation
Oil Gas & Fuels
5
2
Forestry &
Paper
Aerospace &
Defense
Electronic &
Electrical
1
Construction &
Materials
1
Industrial
Equipment
2
Medical Eqpt &
Services
Eventually, demand planning will flow right to left, based on market data
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Markets
The best-in-class model for demand
Market View
Marketing collects
historical and forecast
market data, for
appropriate markets in
order to inform
demand forecasts
By building the
relationships
Customer View
Platforms/ Business
teams collect productby-customer forecasts
History View
Finance pulls prior
month actuals and
runs analysis to create
historical view and
forecasts (eventually)
And by collection our
actual demands
The best-in-class model for demand
Market View
Marketing collects
historical and forecast
market data, for
appropriate markets in
order to inform
demand forecasts
Customer View
Platforms/ Business
teams collect productby-customer forecasts
History View
Finance pulls prior
month actuals and
runs analysis to create
historical view and
forecasts (eventually)
Over time, we will have
windshield, side mirrors
and even a rearview…
The best-in-class model for demand
Supply is another set of options to make stuff
Biorefinery Inputs
JV Partner Inputs
Fixed:
- Plant Capacity
- Monthly run days
Fixed:
- Transesterification unit capacity
- ME fractionation Capacity
Variable:
- Scheduled outages
- Existing product inventories
- Ramp status (initially)
Variable:
- Scheduled availability to the JV
- Storage availability
- Inventory
Toller Inputs
Logistics Inputs
- Olefin Fractionation capacity by
month
- Inventories
- Scheduled shipments
- Material in-transit
- Tank availability/inventory
- Ship, barge, rail, storage availability
Supply Agreement Meeting:
Supply team to agree on unconstrained supply availability for planning horizon
Aligned unconstrained supply view
Optimization and consensus can be difficult in a co-product business
• Multiple products are produced simultaneously with limited flexibility on yields
• Product streams have different market values and logistics/packaging/delivery costs
• Multiple internal business may have demand for the same product stream at different
values
Mitigation Steps
• Inventories of all products must be simultaneously managed
• Incremental economics must be modeled to determine if projected demand streams
so not meet established criteria
• Supply and demand plans must be adjusted to optimize the operating plan based on
established constraints (i.e., maximize profitability, minimize working capital,
contractual commitment vs. spot)
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Logistics and communications must be part of the optimization
ROTT
L.A.
SHAN
NOLA
SING
area
ERS
ERS
NODE
= Elevance Plant
= S&OP Nodes
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Aligning organization roles and rules enable “effective”
DEMAND Team
SUPPLY Team
OPTIMIZATION Team
EXECUTIVE Team
Responsibilities
Responsibilities
Responsibilities
Responsibilities
•Consolidate input from 4
•Determine monthly capacities
business units / platforms into
an integrated Elevance Demand
Forecast / plan.
•Generate updated demand
forecast on a monthly basis that
reflects analysis from market,
customer, historical data and
trends.
•Document key assumptions
that underlie the demand
forecast / plan.
– unconstrained supply.
•Determine logistics constraints
and identify solutions /
alternatives.
•Coordinate interface with
Wilmar / JV partner to ensure
coordinated supply plans.
Membership
Membership
•S&OP Process Owner Demand
•S&OP Process Owner
Process Manager
•Platform Leaders:
• Consumer Ingredients
• Lubricants and Additives
• Engineered Polymers and
Coatings
• Intermediates
• Market Analyst
• Customer Service, ad hoc
• FP&A, ad hoc
•Supply Process Manager
Cross-Functional and Cross-Business
Team with a common purpose to:
• Optimize supply and demand plans
across Elevance based on working
capital, cash flow, incremental
economics and income constraints
• Make decisions to set rates and
demand.
• Make recommendations to ELT for
strategic plans that are outside of
predetermined constraints
• Calculate rates for all coproducts
and projects supply/demand
balance over the planning horizon
Membership
•VP Manufacturing
• S&OP Process Owner
•Plant Scheduler
• Platform Leaders: (same as
•Global Logistics Manager
•Supply Chain Director
•
FP&A, ad hoc
•
•
•
•
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2013 Copyright, Elevance
Demand Team)
• Consumer Ingredients
• Lubricants and Additives
• Engineered Polymers and
Coatings
• Intermediates
Supply Process Manager
Global Logistics Manager
Financial Planning and Analysis
Asia General Manager
•Review and approve / modify
decisions made by the Optimization
team regarding optimized Supply
and Demand plans.
•Review recommendations made
from Optimization team regarding
plans outside of constraints
established for S&OP Process and
Optimization team.
Membership
•ELT
That’s what we did…
What can we share that we learned?
Optimization
Analysis
Decision
Meeting
Connection
with JV
Prep for ELT
Meeting
• Actuals and externals feed future view of demand
• Process timing must factor in data rhythm
• Actuals enable metrics for measuring the process
• How close were we?
• What were variances in expectations?
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Executive Meeting
Demand
Planning
Supply
Planning
Data Closing
Data matters
Optimization
Analysis
Decision
Meeting
Connection
with JV
Prep for ELT
Meeting
• Demand and supply inputs must be “unconstrained” – it is
independent of production and CANNOT be mixed
• Demand is a mix of various inputs – customer, market, and
historical views are all important
• This enables a discussion of assumptions vs. “how good
are the forecasts?”
• This can be made to be VERY COMPLEX; don’t fall for it – stick
to what is pragmatic and just understand the risk in the data
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Executive Meeting
Demand
Planning
Supply
Planning
Data Closing
Demand and Supply are unrelated….
Optimization
Analysis
Decision
Meeting
Connection
with JV
Prep for ELT
Meeting
Executive Meeting
Demand
Planning
Supply
Planning
Data Closing
….until we choose to flange them up
• This is the “guts” of the process
• Scenarios rule the day… i.e., no matter what you expect will
happen, you can only plan for what you believe is likely to happen
• Optimization can be iterative and involve multiple parties /
multiple iterations
• Team must know the objective (the “rules”) otherwise
recommendations will be rebuffed…
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For optimization, financials and economics are both important,
but serve very different purposes (i.e., NEVER MIX!!)
A process tied to financials is key, but an optimization led
by “incremental economics” is crucial
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Optimization
Analysis
Decision
Meeting
Connection
with JV
Prep for ELT
Meeting
Executive Meeting
Demand
Planning
Supply
Planning
Data Closing
The big picture can be consistent with the details, if done up front
• Provides a window to the future – so useful for flanging near term
(current/next month) with long-term view
• Serves to harmonize assumptions
• Forces leadership to provide optimization team with clear
boundaries… i.e., an operational strategy!
• If changes to recommendation are required routinely, then the
process has abjectly FAILED
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Executive S&OP was chosen by Elevance to provide us the
best chance to build our business (and even have elevators
when we finish) …