Chemical Supply Chain

Putting The Forecast In Its Place:
Moving from a Push-Based, Manufacturing Centric Supply Chain to a

Pull Based, Demand-Driven Model
- Matt Tichon, Head of Supply Chain - Guillermo Fumero, Global Head of Supply
Pigments, North America Chain and Procurement Pigments
Clariant – key facts
Clariant is a world leader in colors, surface effects and

performance chemicals
Annual sales of CHF 6.6 billion in 2009
Headquartered in Muttenz near Basel, Switzerland
World-wide operations, with more than 100 companies
Approximately 17,500 employees
Products and services of 10 Business Units are based on
innovative specialty chemicals
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) 20.04.2010 Slide 2 / 17
Pigments Business
Business Profile: Business Facts:

Leading global provider of organic One of Clariant’s biggest
pigments, pigment preparations and dyes business (24% of group sales)
used in coatings, printing, plastics, and Global network in 37 countries
other specialty applications. with 24 production sites
Our broad portfolio includes high- Global Supply Chain structure:

performance pigments to meet the exact Global Demand and Inventory
demands of the automotive, architectural Management , KPIs and processes
and plastics industries as well as colorants
used in ink jet and laser printers tailored to Regional operations
individual needs. Asia-Pacific (India, Japan, Korea)
EMEA
Decades of know-how make our products Latin America
the industry standard for performance and North America
quality. This is supported through our
Global SAP R3 and APO systems
global technical service centers.
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) Slide 3 / 17
What is changing in supply chain ?
Supply chain cost likely to Increasingly inflexible Production constraints Customer demanding more
increase supply responsiveness
Total supply chain cost Increasing number of Excess capacities are Customers reduce own
currently at about 5% of materials sourced globally reduced to minimise fix stocks, asking for more
sales with long lead-times cost base just-in-time deliveries
Cash focus in whole value Working capital priorities Additional demand or Customers placing orders
chain leading to smaller are driving raw material order changes cannot be on short-notice
order sizes, which stocks down absorbed as easily as in
increases transaction Reduced competition the past
costs
We need to continuously improve our supply chain

performance and capabilities in order to remain competitive
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.) 20.04.2010 Slide 4 / 17
Improvement areas to achieve objectives
1 2
Demand planning Demand and inventory management
Statistical Sales Global S&OP Demand& Inventory Master Purchasing

forecast Planner Demand Management Planning
Plan Improve inventory parameters (e.g., safety stocks,
right decoupling points)
Introduce appropriate methods for replenishment

Improve planning accuracy
strategy
Improve S&OP
processes
3
Improve quality of planning Ensure that all relevant data for
Data quality
parameters in master data planning are available
4
Performance management Introduce Define clear
Train people
and capability building KPI reporting accountabilities
Source: CIP Planning Booster
Matt Tichon/ Guillermo Fumero, Supply Chain and Procurement (Copyright Clariant. All rights reserved.)
Our effort to improve accuracy as the basis of
our Make-to-Forecast did not pay-back
Forecast Accuracy 2008 Despite substantial investment in process and
technology improvements we struggled to
100
maintain forecast accuracy above 60%
90
80
Percentage Accuracy
70 Big monthly planning efforts have been critically

60 supported by marketing sales only as much as
50 the topic was in the limelight
40
30
20
Long replenishment lead-times further
10
deteriorated our forecast accuracy
0
Jul Aug Sep Oct Nov Dec
We acknowledged that our forecasts were
*Note: Forecast accuracy calculated as weighted average of insufficient as a basis for triggering production
forecast deviation for all products with demand plan
Completing the puzzle towards efficiency
1 2
Demand planning Demand and inventory management
Statistical Sales GDP S&OP DIP MP Pur-

forecast Planner chasing
Focus on fewer products and differentiate Improve inventory parameters (e.g., safety stocks,
demand planning right decoupling points)
Introduce appropriate methods for replenishment

Improve planning accuracy
strategy
Improve S&OP De-couple daily

processes execution
3
Improve quality of planning Ensure that all relevant data for
Data quality
parameters in master data planning are available
4
Performance management Introduce Define clear
Train people
and capability building KPI reporting accountabilities
Source: CIP Planning Booster
From Push to Pull: Our Four Step Approach
1.
1. Use
Use the
the demand
demand forecast
forecast in
in the
the 2.
2. Decouple
Decouple production
production decisions
decisions
S&OP
S&OP toto ‘condition’
‘condition’ the
the supply
supply chain
chain from
from the
the forecast
forecast and
and MRP
MRP runs
runs
Suppliers Warehouse Customer
Plant
3.
3. Apply
Apply demand-pull
demand-pull planning
planning 4.
4. Operationalize
Operationalize these
these practices
practices into
into
techniques
techniques to
to replenish
replenish inventory
inventory our
our core
core processes
processes and
and SAP
SAP system
system
where
where possible
possible
1. Use the demand forecast in the S&OP to
‘condition’ the supply chain
“Supply Chain Conditioning”
Planning and Control Framework The Sales and Operations Planning
process sets the overall demand
Global
Demand Supply Monthly
C
o
n
g
itd
level trend at product group level.

Planning Planning S&OP
– Identifies production resource
requirements
SC Agree Mid
Parameter
Updates Term Plan – Procurement of long lead
times Raw Materials
SAP Actual Order – Sets parameters for
Stock Level Fulfillment o
u
E
n
cietx
replenishment execution i.e.

pull and push strategies
Scheduling Customer
Orders
“Supply Chain Execution”
Bi Weekly
Production Check points
Actual product consumption triggers
Orders the replenishment of products in line
with the replenishment parameters
2. Decouple production from forecast and MRP
synchronizing the supply chain with actual demand
Triggered in line with Replenished from
consumption of the controlled primary global stocking
inventory held in the Primary point in line with actual
Distribution center consumption
Long Lead Primary

Mid Term Time Raw Global Regional
Forecast Materials Raw Distribution Distribution
Materials Center Center
Short Lead
Time Raw Manufacturing Customer
Materials
Based on demand pull

communication where
feasible to ensure Call Off Call Off Consolidated Regional Customer
availability with Signal Signal Replenishment Replenishment Order
optimized inventory Pull Signal Pull Signal
Demand amplification throughout the supply chain is eliminated as the actual customer
demand is communicated using demand pull replenishment techniques
3. Apply demand-pull planning techniques to
replenish inventory where possible
Make To Order was used when the
customer lead time allowed
Volume-Variability Analysis
8.0
When supply from stock is required,
7.0 Annual Campaign planning techniques were identified
Normalised standard deviation
Planning
6.0
based on the volume and statistical
5.0 variability of each product
4.0
RoP
Demand Pull
3.0 Techniques Inventory levels were set as a function
2.0 of demand, lead time and required
Kanban
1.0 Rate Based customer service levels
0.0
0 500 1,000 1,500
Average demand in Kg
2,000 2,500
Products with predictable volumes
became ‘self managed’
Planning effort focuses on products

which need more attention
The selection of planning scenarios is based on
volume and demand variability
Kanban is responsive to actual demand and
replenishes material in multiples of a fixed
quantity Provides self-management and flexibility
Planning Scenarios
High Re-order Point is also responsive to actual
Campaign demand but uses just one re-order quantity
management - Used when variability is too high for Kanban
DEMAND VARIABILITY
Re-order Point
Re-Order Point
Make to Order Campaign Management is used for very low-
volume materials
- Inventory may last a long time but is not significant
Kanban
Make to Forecast and Make to Order used for
Low High
special products
PRODUCT
MATERIAL VOLUME
Buy to Forecast used for products including Raw

Materials with long lead times
The re-order point is quarterly reviewed based
on average demand and desired service level
Product Details:
Average Weekly Demand: 3,343 Kg Parameters considered
Replenishment Lead Time: 5 weeks Average demand
Desired Service Level: 95% Lead times
Lot sizes (technical and optimal)
ROP Components
Demand variability
Inventory to cover average 16,715 kg
demand over lead time Desired service level
Inventory to cover demand 12,548 kg
variability for 95% service As the re-order point is directly related to
level the desired service level, the impact of
ROP for product 29,263 Kg reduced inventories on service level can
be evaluated when planning inventory
Replenishment order is placed levels and investment
when on-hand inventory plus
open orders is less than ROP
4. Operationalize the operating practices into
our core processes and SAP system
Extensive training program sponsored by the Division Head with all stakeholders
Supply Chain Conditioning has been integrated into the S&OP process
– Planning parameters and the calculated inventory levels are reviewed quarterly and
replenishment technique selection is reviewed annually
A ‘Planning Cockpit’ has been developed in SAP with visual signals
Global KPI’s have been established to measure inventory, customer service and
operational compliance for each implementation
What about capturing market data?
Simple form is used by the sales force to

communicate our Global marketing
known demand changes
Global marketing review input for “Top
50” products by Market segment
Action can be taken immediately to
adjust the ROPs/Kanbans and place new
replenishment orders
Information is reviewed during the
regional S&OP process and forwarded to
the global S&OP team for new
productions if necessary ( decisions in
global S&OP and Check point meetings )
Inventory reductions of up to 40% within the regional
distribution warehouses realised
Regional Distribution Warehouse Planned Planned inventory requirements

Inventory Reduction (% Tons) were calculated based upon a 95%
100 service level
80
Current supply lead times, minimum
60
order quantities and demand
40
patterns were used in the modelling
20
0 Substantial additional inventory

USA Asia * Latin America reduction opportunities have been
Before - Replenish to Forecast With Pull Based Replenishment
identified that require current supply
constraints to be addressed
* A large percentage of Asia business was originally replenished
on Make to Order planning scenarios
Summary of the experience
A well functioning planning is During “Crisis or big changes “

still required to right “condition” human intervention is
the supply chain. necessary to overrun system
decision (bi weekly control
required)
Pull strategies works , eliminate
noise of bad detailed planning
and react to normal changes in Synchronization of Master
demand data (e.g. lead times or
replenishment lots ) across
borders are a must
In volatile markets risk of
overstock is limited to the “filling
levels” defined Centrally managed updates of
parameters ensures
continuous optimization
Confidential
Corp Comms
04.11.2009
Thank You!
Questions & Answers
Contact Information:
Matt Tichon Guillermo Fumero

Clariant Corporation Clariant International Ltd
M: +1-401-441-2557 M: +41-798181977
Matt.Tichon@clariant.com Guillermo.Fumero@clariant.com

Chemical Supply Chain

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Chemical Supply Chain

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Putting The Forecast In Its Place:

Moving from a Push-Based, Manufacturing Centric Supply Chain to a

Clariant is a world leader in colors, surface effects and

Business Profile: Business Facts:

Our broad portfolio includes high- Global Supply Chain structure:

We need to continuously improve our supply chain

Statistical Sales Global S&OP Demand& Inventory Master Purchasing

Introduce appropriate methods for replenishment

70 Big monthly planning efforts have been critically

Statistical Sales GDP S&OP DIP MP Pur-

Introduce appropriate methods for replenishment

Improve S&OP De-couple daily

Suppliers Warehouse Customer

level trend at product group level.

replenishment execution i.e.

Long Lead Primary

Based on demand pull

Planning effort focuses on products

Buy to Forecast used for products including Raw

Simple form is used by the sales force to

Regional Distribution Warehouse Planned Planned inventory requirements

0 Substantial additional inventory

A well functioning planning is During “Crisis or big changes “

Matt Tichon Guillermo Fumero

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