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1、LOral Supply Chain DiagnosticMarch 18, 2004PresentationAgendaProject Scope andActivitiesOverviewofOurSupply Chain FindingsProcessesInventoryReviewMaturityProfilesOrganization/ PeopleandCultureTechnologySupplyChainRoadmapDiscussion of NextSteps2OurProjectApproachOver thepast three weeks,wehave:Interv

2、iewed5 ExecutivesofLOralCanadaFacilitatedtwocross-functionalprocess workshopsCollectedand analyzed dataConductedahigh level maturity assessmentComparedLOral processand performance to CPGbest practiceIdentified keybusinessissuesand areas of improvementSummarized ourfindingsinthis presentationdocument

3、Project KickoffData CollectionInterviewwithExecutivesProcess WorkshopsModelReview&ValidateBase CaseReviewMetricsIdentify& Consolidate Issues& OpportunitiesOpportunityPrioritizationBenefitsAssessmentFindings/RecommendationDevelopmentPresent RecommendationsDiscussNext Steps3Cross-Functional Participan

4、tsSeniorManagement- SupplyChainLaurent Venot (Project Sponsor)Jean ValoisPierreMassicotteValryMayerSalesDominiqueDeCellesIsabelleGenestAnne-Marie NelsonDion GemmityCustomerServiceEliBengioPatriciaRaposoLogistics&ProcurementValrie LacerteYves DubNaityJacelInformationtechnologyPierreJournelMarcelyneCr

5、aftFinanceMartinDeschnes4PresentationAgendaProject Scope andActivitiesOverviewofOurSupply Chain FindingsProcessesInventoryReviewMaturityProfilesOrganization/ PeopleandCultureTechnologySupplyChainRoadmapDiscussion of NextSteps5ProcessesDemandPlanningSupplyPlanningOrderFulfillmentDevelop Sales Forecas

6、tMaintainPromotionalPlanConsiderinventorylevels,backorderreports,safety stock levelsConsolidateandconsiderexternaldata(POS,Nielsen,Customerdata)ReconcileDemand PlanwithBudgetNewProductIntroductionsNetInventory andLead Times fromthe ForecastDistributedRequirementPlanningCapacityRequirementPlanningCus

7、tomerAllocationsCommunicateforecasttoSuppliersReceive supplier commitmentProcess Customer OrdersPlan andManageFinishedGoodsInventoryPicking andPackingManageOutboundProductFlowManageshipping&transportationGenerateInvoiceCreditmanagementandA/R(*)Out of scope6DemandPlanningIssuesand OpportunitiesIssues

8、Manualand InconsistentProcessesTheforecastprocessismostlymanual,inconsistentacross brandsanddivisions (duetodifferent levelsofmaturity)aswellasboth timeand resource consumingThereisnoformalprocessfordeterminingwhichproductsshould be focusedonduring theforecastingmeetingsNoonedepartment“ownstheforeca

9、st”Thereisnomechanismfor automaticallygeneratinga baseline forecastToomuchtime is spent on manualprocesses, dataclean-upand generatingreports,leavinginsufficienttimetoanalyze dataand manageexceptionsLOral Canadas brand forecastsarenot allaggregated up intoone forecast limiting visibilityand datashar

10、ingLOralCanadadoesnothavesimulation or “what if”capabilitiesMany disparatetoolsarebeingusedtofacilitate forecasting -Excel, Valo, SAPandOutils Gestion. Interfaceshavebeen built betweenthe varioustoolsand systems, butmanualverification is required andthecurrenttechnology still doesnot meetLOralsrequi

11、rementsPOS, Nielsen, customer information,promotionalandadvertisinginformationare notallintegratedinonecentralrepositoryOpportunityProcess RedesignSpendtime forecasting products thatgivethehighestreturn. Notallproductlinesbenefit fromincreased attention.Focusonhighmargin, lowvolume, bigticketitems,

12、highprofileitemsanditemswithcomplementstomaximizeprofitabilityCommunicateandreconcile forecast assumptions by conductingaformalreview after eachplanningcyclewithallstakeholders.Reportforecasterrorand modifyassumptionsasappropriateForecastingTool/BWImplementingaForecastingtool willenable theautomatic

13、generationofa baseline forecast based on sales historyand additionalvariables.Most packages allow users to selecta statistical model,enablethe systemtodeterminethe model withthe greatest fitoremployacompositemodelTheforecastingtoolselectedshouldallowfor thegeneration of alertsbasedonpredefined toler

14、ances, highlightingtheproductsthatrequire furtherconsiderationandmanual interventionProductsshouldbereviewedtodetermine which onesare critical or highmargin to planinaForecastingtool,whilenon-criticalorstagnantproductsmay be plannedinSAP R/3Theforecastingtoolselectedshouldprovide“WhatIf”simulationca

15、pabilitiestodemonstratethe impactofa variable change(e.g.pricechange)Coordinate datacollectionforall availablesources andhouseitina centralrepositorysuch as SAPBusinessWarehouse7DemandPlanningIssuesand OpportunitiesIssuesOpportunityPeopleEnsurethe Planning TeamisCross-FunctionalandCross-Trained:LOra

16、lwill needtoevaluatetheirresources skillsanddetermine if additionalresources arerequiredtogain forecasting expertiseStatisticalproficiencyandsystem expertiseshouldbebalancedwithindustry,companyandproductknowledgeCross-trainingsharpensskills, broadens perspectivesandimprovescommunicationCreateincenti

17、vestoimprove theaccuracyofforecasts:EstablishforecastaccuracygoalsEstablishcompensation structureMonitor andreviewcongruenceofgoalstorewardsThis willremove trade-offsbetweenforecastaccuracyandperformanceagainstforecast,leverages keyinformationandhelpseliminate biasesLOral Canadahasstartedtotie compe

18、nsationtoforecastaccuracy.Thispracticewill obtaingreater acceptanceamongemployees onceatool to supportthe processhas beenimplementedDepartmentsInvolvedhave DifferentPrioritiesWhilethegenerationoftheforecastisacollaborative effortbetween Sales,Marketing, Financeand Logistics,the involved partiesdonot

19、 share thesame viewofthe forecastsimportancenorappreciatetheimpact of their input (orlack thereof) on other departmentsability to executetheirfunctions downstreamSalesisseen as toodistant fromthe customer andthereforelackingpertinentdatatoinputinto theforecastinge.g. which store carrieswhichSKUSales

20、strategytopushproductsattheend of themonthandyearbydecreasing prices,throws offtheforecastLOral Canadarealizesthat eveniftheyimplementaforecastingtool,without theproperprocesses or resourcesinplace,forecastaccuracywillnotlikely improveLOralCanadaexperiencesahigh turnover among sales andmarketingpeop

21、le resultinginthelossofvitalcustomerandproductinformationTrainingforSalesand Marketingresourcesisinsufficient.Compensationre-evaluationhasbeguntoalignindividualgoalsandmetricswith organizational goals withrespecttoforecastaccuracyAlthoughLOral Canadahasmadegreatstrides in improvingtheirforecastingpr

22、ocess,theaccuracyhas notimprovedsignificantly leadingtofeelingsoffrustrationamongemployees8DemandPlanningIssuesand OpportunitiesIssuesOpportunityProduct LaunchesAlthoughLOral Canadahasaccess to other countrieslaunchesaswell as to likeproducts sales history, there is no toolorprocessinplacetoeffectiv

23、elyincorporatethis dataintotheirforecastsLOralCanadaisunable to accuratelyassess thecannibalizationeffect of oneproduct on anotherNopost-mortemanalysisisconductedorcapturedonfailed productlaunchesasinputtofuture launchesPromotionsThereiscurrentlynomeanstoaccuratelycleanse promotional upliftsfromsale

24、shistoryPast promotional performance is notadequately measured,thereforemaking it difficulttopredict theimpactoffuture promotionsPromotions involvinggiftwarecanleadtoimbalances in demand,making it difficulttopredict truedemand fortheseproducts“One Shot” promotionsare difficulttoplanProduct Allocatio

25、nProduct allocationhas notbeen deployed effectively andhasevenledtoundesirableforecastingbehavioursProduct LifecycleManagementInvestigateAPSfunctionalitytohandle:“LikeModeling”wherebysaleshistory of asimilarproduct is usedtoforecastanewproductPhaseIn/PhaseOutofproductswhichentails weightingtheforeca

26、sttoreflecta productslifecycleTheseparationofthepromotionaluplift frombaselineforecastgenerationCannibalizationData CleansingSufficient timemustbespentcleaningdata suchasSKU changes, dataerrors,duplication,one-timeevents,stock-outs,promotions,outliersetc to enableforecastingmodelstoseparatebusinessg

27、rowth fromseasonalityand other deviationsProduct AllocationAllocation is auseful toolfor ensurehigherprioritycustomersobtainincreased servicelevels in cases of shortages.LOralshould developand implementformalpoliciesfor allocatingproducts(e.g.basedoncustomerforecasts)Allocation configurationshould b

28、e modified to reflectthe newpoliciesinSAPR/3.Inthelong-term additionalallocationfunctionality could be explored in an APStool9DemandPlanningIssuesand OpportunitiesIssuesOpportunityCustomerCollaborationCross-ShareForecastswithKeyCustomersIncorporatecustomerforecastswhichare deemedasreliableinto basel

29、ine forecastsandchallenge their numbers(managebyexception)Once forecastsaremoreaccurate,LOralshouldprovideawebsite to allow easyaccess fortheirCustomerstoentertheirforecasts andtopost LOralsconfirmedquantitiesforcustomers to validate in atimely mannerAggregation/ DisaggregationDeterminethe appropria

30、te level to forecast e.g.SKU/customer location forDSD, SKU/CustomerDCforwarehouse shipmentsAnAPSsolutionwillfacilitate theaggregationanddisaggregationofthe forecast,however,time shouldbespentdeterminingtheappropriatelevelfor forecasting.Top-downapproaches canmask trend shiftswhilebottom-upapproaches

31、maynot consider effectsshared acrossbrandsMeasuringForecastInaccuracyOrderdate shouldbeused as thepointforestablishing demandsinceitgivesthemostaccurateinformationonwhen demandisinitiated. Otherwisestock-outs,lost sales,opportunitycostsandlostcustomersmay be maskedEnsurethe fullaggregatedcostsoffore

32、casterroraremeasured:Insufficientinventory (stockouts)Excessinventory (returns,spoiled,destroyed, obsolete,slow moving)SafetystockExpediting costsInventorycarryingcostsOvertimeCustomerCollaborationAlthoughsome of LOralCanadascustomers provideforecastand POSdata,LOral doesnot possessthe infrastructur

33、e or processestoeffectivelyusethe dataLOral Canadamust first focus on improvingits ownprocessesbefore extendingtheirprocessesand dataout to share withCustomers andSuppliersForecastAccuracyWhileforecastaccuracyisbetteratthe Brand level,itvariesgreatlyattheSKU level regardlessofproductclassification(A

34、,B,C)Only 40%to50%ofitemsachievethetarget of tolerance of 20%(BIC 75%ofSKUachievethis target)SKUrankinghasbeenerroneousImpacts of Forecast InaccuracyNumerousforecastmodificationrequeststothe factoriesCustomerService levels(linefill ratein$)are at 92%despite targets of 98.5% (BICis99%)InventoryWrite-

35、offsareat10.5%(BICforCPG is 2%)InventoryTurnsare 4(BICforCPG is 17)SalesReturns areat5.25%(BIC is 0.4%)NOTE:Wearecomparing LOraltoCPG companieswhichisnotafair comparisoninsomecases.The comparisonismeantasaguideline.10SupplyPlanningIssuesand OpportunitiesIssuesInputTheunconstrainedforecastisthemainin

36、putfordevelopingthepurchasingplan.GivenLOral Canadas poorforecastaccuracy, thepurchasing plandoesnoteffectivelymeetcustomers demandsasdemonstrated by thenumerousforecastmodificationorders senttothe plantsandhighinventorylevelsProductslead times,safetystocklevels,min/max levelsarenot reviewed on areg

37、ularbasisFactory ConstraintsThepurchasingfrozenhorizonsset by theplantsseemexcessivelylong andarenot reviewed sufficiently.Therefore,LOral Canadamust place ordersfarinadvance,oftenbefore theyare abletoassess trendsTheplants confirmbackallorderedquantities since replenishmentleadtime is used. As ares

38、ult,LOral doesnot obtaina realviewofsupplyorcapacityconstraintsThefactories areProduct focusedrather thanSales/Customerfocused.The resultisa Pushmodelrather thanPull.LOrals factoriesoccasionallypushexcessstocktothe DCsratherthantryingtomatchcustomersrequirementsNoglobalsupply planning is engagedinat

39、LOral.EachLOral Sales Companyisprescribedwheretobuyeachproduct andcanonlylook to other factoriesincasesofshortage/ capacity constraintsOpportunityFactory ConstraintsCollaborative Planning withthe plantswouldinvolve LOralCanadaposting their forecast on theWeband allowing thefactoriestoconfirmthequant

40、itiesthey cansupplyagainsttheforecastinatimelymannerContinuetoroll-outoneofthe newer LOralCanada processeswhereby products arestocked in theUSandshippeddirectlytocustomersinCanada to reduceinventorylevels andcostsLong TermOnce LOralCanada hasimprovedtheirforecastaccuracy,theywillbeina betterposition

41、toapproachthefactories to discuss:Shortening frozenhorizonsCommunicating issuesObtainingvisibilitytotheplantsproduction schedulestogain abetter sense of supplyplansandcapacityconstraintsReceivingASNstogive LOralCanada atruesenseoftheirATPtopassontotheircustomersDevelop newpoliciesandeducation progra

42、macross LOralcompanies to ensurecustomerservice levelsarethe primaryfocusrather thanfactorythroughput andcostsAllLOralcompany forecastsshouldberolled up to acentralsupplychaingroupfor globalsupplyplanningpurposes. Thiswouldenable globalfulfillmenttomatchsupplywithdemand11SupplyPlanningIssuesand Oppo

43、rtunitiesIssuesOpportunityAllocationTheUSFactories ought to be allocatingstockinratiotoLOralSalesCompanies forecasts.Thiswould:Encouragethe LOralSalesCompanies to improvetheirforecastaccuracyEnsurefairshareallocation in shortage situationssinceeachSalesCompany would obtainstockinproportion to their

44、forecastBeyondthe forecastedamount stock could be allocatedona “firstcome,firstserve”basisTheUSFactories shouldmeasure andbecompensatedbasedontheirability to serviceall of North Americaand notjust theUSVMIImplementanAPS toolthatincludesVMIfunctionalityandchoose apilotcustomertomodelwithbeforeextendi

45、ng thefunctionality outtoothercustomersLeveragetheVMI experienceofLOralUSA(e.g.Lancme)Product HarmonizationWherepossible,continuetorolloutthe processofmanufacturingwith Final Assembly,whereby products areproducedandfinishedtothe point of localizationstepsFactory Constraints (contd)Canadamakesuponly3

46、%ofLOralsglobal sales,whiletheUSwhichsuppliesCanada makes up 28%ofLOralsglobal sales.Therefore, LOralCanadasrequirements areonly fulfilledonce theUSs needs havebeensatisfied. There is no formalprocess to allocate stock betweenCanada andtheUSTheUSfactoryismeasuredbasedonits abilitytomeettheUSrequirem

47、ents insteadofNorthAmericas.This KPIfurther encouragesthe US factorytodisregard Canadas ordersVMIA fewkeycustomers haveexpressed awillingnesstoestablish aVMI relationship,but LOralCanada doesnot yethave theprocess andinfrastructuretofulfill thisrequestProduct LaunchesTherushtobringnewproductsintothe

48、market is causinglaunch dates to be pushedupwith an insufficientbuffer. Theresultisthatthesupply doesnot arriveintime to meetthe advertising timelinesLOral anditscustomers havealreadycommittedtoProduct HarmonizationMany products cannotbeharmonized duetolocallegalrequirementsincluding language andDIN

49、#s12OrderFulfillment IssuesandOpportunitiesIssuesCustomerSegmentationand ServiceLevelsLOral customershave beensegmented andtask forceshave beencreatedtowork withcustomers,yetLOralisstillstrugglingtoachieve higherservice levelsLOralis“not close enoughtoits customers”, the“arrogantculture”preventsLOra

50、lfromlisteningsufficiently to CustomersrequirementsProduct allocationisnot being effectively usedtoensure priority customersaresatisfied first in cases of productshortageAvailableToPromise(ATP)ATPaccuracyiscompromiseddue to factoriesvagueconfirmations (they onlyagreetosupply productwithin amonths ti

51、meframe).Asa result,customerservicereps areunabletoshareATP information withcustomersLOral no longerwidelyacceptsbackordersOrderDeskCustomersmustcall LOralmultiple times sinceseparateordersare placedbybrand.Someoftheorders areconsolidatedusingthe transportation managementsystem to shiptothe customer

52、OpportunityCustomerServiceAnalyze customer profiles andsubsequentlycustomize serviceeffort tiedtoprofitability,customerloyaltyandpurchasehistoryImplementconsistentcommunication withcustomers e.g.orderacknowledgements,orderstatus updatesand customer satisfactionsurveysWork withLOralfactories to obtai

53、nmore specific ATPdates(i.e.ASNs)tosharewith customersDeterminewhetherthecurrentorderentryprocess is suitable to meetcustomerneedsorwhethera moreefficient processisrequired.Domost customershave separate buyers/ receivingdocksbybrandorwouldthey prefera moreconsolidated viewofLOral?TechnologyOnce theo

54、rderentryprocess hasbeen reviewed,theremaybeaneed to modifySalesArea configurationinSAP SDFormalizeproductallocation business rules to ensuretopcustomers receivepriorityincasesofproductshortage.Beginbymodifying productallocationfunctionality in SAPR/3before exploringAPSATP functionalityLong TermOnce

55、 LOralhas acquired greaterATP information fromthe factoriesthey could exploreAPS ATPfunctionality suchas:Customization andautomation of theATPsearch pathbycustomer/productcombinationtodeterminewhetheralternatelocations or alternateproductscanbeofferedtocustomersincasesofproductshortagesMulti-step av

56、ailabilitycheckingagainst ATP,productallocation andplanned independent requirements13Project Scope andActivitiesOverviewofOurSupply Chain FindingsProcessesInventoryReviewMaturityProfilesOrganization/ PeopleandCultureTechnologySupplyChainRoadmapDiscussion of NextStepsPresentationAgenda14Wereviewedinv

57、entorydatatoassessthe effectivenessofLOreals planning processesData UsedMonthendinventory forJanuary 2003Forecast& Sold-indataShipmentsdataQuantityreceivedfrom plantsPeriodJanuary 2003January 2004(13 months)Products12LOreal Paris SKUsA,B, andC products for4 categories(HairCare,HairColor,SkinCare,and

58、Cosmetics)InventoryDataReview15ObservationsLong frozenhorizons,highminimum order quantities, andinconsistentshippingpractices fromLOrealfactoriesresult in highinventory levelsandemergency expeditingcosts(out of scope)Thesameforecastingprocess shouldnotbeappliedtoallSKUs.Itwouldbebeneficialtore-evalu

59、atethelogicusedfordifferent productdemand types.Four mainproductdemandtypeswereobserved:Stabledemand patternUnstabledemandpatternStablepatternexpectfor promotionsLowVolume-Negative inventoryInventoryplanningpractices duringPromotionalperiods resultinlargeforecastingerrorsand large inventoryfluctuati

60、onsData Issues:Itisourunderstandingthat theForecastdata provided is thelast “correctedforecast” ratherthan theoriginalforecastused to makeprocurementdecisions.Wewouldexpectthe realforecastingerrorwouldthenbehigherthantheaverage+/-32%calculatedforthe 12 LOrealParisSKUsDespite notacceptingbackorders,