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Integrated Demand PlanningManaging the Work-to-Materials (W2M) Process
Lance Schultz, Director, Materials Logistics and Planning
PG&E
John Sequeira, Partner
ScottMadden, Inc.
January 17, 2011Platts Strategic Supply Chain for Utilities
Trump International Beach ResortMiami Beach, Florida
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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Questions We Will Address
What is effective “demand planning?”
What does it take to make it work?
How does it generally work today?
How could it work?
What has PG&E done to improve the process?
What results have been achieved?
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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What is “Demand Planning?”
DEFINITION: The ability to meet the following criteria for your internal customers:
• The right materials
– Right item (e.g., SKU, Cat. ID. Commodity Code, etc.)
– Right quantity
– Right quality
• At the right time
– Neither early nor late
• At the right place (e.g., warehouse, job site, etc.)
• At the right price (e.g., lowest price consistent with obtaining the right materials)
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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What Does It Take to Make It Work?
Requirement Owner Enabler
Understanding of the work to be performed
• Engineering
• Construction
• Maintenance
• Asset management system
• Work control system
Understanding of the materials required to perform the work
• Engineering
• Construction
• Maintenance
• Accurate work packages
• Accurate bills of materials (BOMs)
• Supervisor experience
Knowledge of when the work will be performed
• Work Scheduler
• Maintenance
• Work scheduling system visible to all participants
• Accurate and stable “need dates”
Internal Customer’s Responsibilities
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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What Does It Take to Make It Work?
Requirement Owner Enabler
Visibility to projected materials requirements
• Inventory Analyst
• Material requirements (MR) aggregation
• Accurate and stable “need dates”
Understanding of historical material usage patterns
• Inventory Analyst• Inventory optimization software
• Analyst experience
Understanding of internal customer service levels (risk tolerance)
• Inventory Analyst • Inventory optimization software
Understanding of when to buy more materials (reorder point)
• Inventory Analyst
• Procurement Analyst
• Advance notice
• Accurate and stable “need dates”
Material Management’s Responsibilities
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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What Does It Take to Make It Work?
Requirement Owner Enabler
Visibility to projected materials requirements
• Buyer
• Automatic ROP notice
• Visibility to capital plans
• Adequate lead time to source effectively
Knowledge of available suppliers and market conditions
• Buyer
• Category Team
• Market intelligence
• Materials requirement (MR) aggregation
• Supervisor experience
Knowledge of internal and external lead times
• Buyer
• Category Team
• Purchasing system integrated with inventory management
Sourcing & Procurement’s Responsibilities
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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How Does It Work Today?
Engineering(Specification)
MaintenancePlanning (Need)
Supplier
Buyer
Distributor
MaterialsManagement
(Replenish Inventory)
Work Execution TeamsConstruction
Planning (Need)
Maint./Repair Reorder
Contracts/Legal
MaintenancePlanning (Need)
New
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Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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Issues that Utilities Face
Specification Process
• Engineering inclined to “over engineer” requirements
• Specification content often not actionable by buyers
Work Planning Process
• Work execution schedules are not visible to materials management, buyers, or suppliers
• Bills of materials (BOMs) are missing or inaccurate
• Work packages do not reflect actual materials needed
• Lead time to “need date” is shorter than sum of actual “internal” and “external” lead times
• Need dates are subject to frequent changes
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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Issues that Utilities Face (Cont’d)
Replenishment Process
• Reorder points based upon personal judgment rather than inventory optimization practices or algorithms
• Min/max or ROP updated infrequently; do not reflect current usage patterns
• Non-stocked materials procured for specific projects may sit in inventory for many months until schedule allows or budget is available
• Over engineering of products increases the SKU count and the replenishment complexity
• Unbalanced work resource planning creates demand spikes creating a bullwhip effect on material supply chain
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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Issues that Utilities Face (Cont’d)
Sourcing Process
• Buyers are unfamiliar with the material or services to be acquired. (It’s just a process)
• Buyers know less about suppliers and market conditions than internal customers. (Cannot add value)
• Buyers not trained or skilled in negotiation
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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Issues that Utilities Face (Cont’d)
Supply and Distribution Process
• Suppliers do not fully understand the specification
• Supplier are responding to a specification rather than a need. They cannot suggest lower-cost alternatives
• Suppliers unable to creatively add value
Purchasing and Contracting Process
• Purchasing process may preclude meaningful modifications of standard T&Cs
• T&C not tailored to specific materials or services
• Utility T&Cs may add significant cost without the utility being aware of the impact
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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The Bottom Line
TOO many “owners”
TOO little “ownership”
TOO many handoffs and repetitive cycles
Costs TOO much
Takes TOO long
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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How Could It Work?
Engineering(Specification)
Maintenance(Need)
Supplier
Distributor
MaterialsManagement
(Replenish Inventory)
Work Execution TeamsConstruction
(Need)
Maint./Repair Reorder
Contracts/Legal
Maintenance(Need)
New
Category Planning Teams
Collaborative Demand Planning Approach
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Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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The PG&E Experience
Problem Statement (circa 2009)
Disjointed communication and no formalized planning processes with partners up and down the supply chain resulting in opportunities to improve total cost of ownership (TOC) of materials and improved inventory optimization
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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The PG&E Experience (Cont’d)
•Approach
• Total supply chain engagement model
– Customer procurement plans
• LOB executive alignment
– Supplier scorecards
– Deploy key demand planning initiatives
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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Key Demand Planning Initiatives Key Materials Planning Initiatives Projected Benefits Date
Optimize inventory levels on all
facilities
Optimize value of services to T&D
Optimize working capital (for other higher ROI
initiatives)
Better governance
Increase inventory visibility
On going
Implement SAP forecasting tool
Increase forecast accuracy
SAP integration
Hands-off PO generation approach
Completed
Gain inventory efficiencies
through supplier capabilities
Speed up product life cycle and utilization
Improve visibility on the supply chain
Leverage supplier inventories
Reduce carbon footprint
Dec 2010
Deploy supply & operations
planning initiative (S&OP)
Increase strategic alliances internally and with vendors
Synergy toward cross-functional organizational goals
Kicked Off Feb 2010
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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“Supply & Operations Planning (S&OP)”
S&OP is an integrated business management process through which the
executive/leadership team continually achieves focus, alignment, and
synchronization among functions. It routinely reviews LOB customer demand
and supply resources and “re-plans” quantitatively across an agreed rolling
horizon
Success Factors
• On-going, routine meetings
• Structured agendas
• Pre-work to support inputs
• Cross-functional participation
• Empowered participants
• An unbiased, responsible organization to run a disciplined process
• Internal collaborative process leading to consensus and accountability
• An unbiased baseline forecast to start the process
• Joint supply and demand planning to ensure balance
• Measurement of the process (metrics)
• Supported by integrated technology
• External inputs to the process
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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S&OP ProcessLOB
• 12-month project forecast/
dependent demand
• MWC/MAT impacted
• Timeline
• Material codes/groups
impacted
• CAEPS data/reports (future)
• Product tech knowledge and
design enhancement
SUPPLY CHAIN
• Verify historical data for
dependent and independent
demand – provide baseline
forecast
• Contract intelligence
• Demand supply best practices
• Validate financials
assumptions (meters,
transformers, others)
• WMIS materials report (future)
• Space/transportation support
• Obsolete/excess inventory EXECUTABLE
CONCENSUS PLAN
SUPPLIERS
• Validate manufacturing and
distribution capacity
• ETA
• Provide market insight
• Obsolete/excess inventory
• Product technical knowledge
The S&OP
Meeting
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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Four-Stage S&OP Process Maturity Model
STAGE 1
Marginal Process
Internal Meetings• Sporadic scheduling
Disjointed Process• Separate, disjoint demand
plans
• Supply plans not aligned
to demand plans
Minimal Technology
Enablement• Multitude of spreadsheets
STAGE 2
Rudimentary Process
Formal Meetings• Routine schedule
• Spotty attendance and
participation
Interfaced Process• Demand plans reconciled
• Supply plans aligned to
demand plans
Stand-alone Applications
Interfaced• Stand-alone demand planning
system and multi-facility APS
system
• Systems interfaced on a one-
way basis
STAGE 3
Classic Process
Formal Meetings• 100% attendance and
participation
Integrated Process• Demand and supply plans
jointly aligned
• External collaboration with
limited number of suppliers
and customers
Applications Integrated• Demand planning packages
and supply planning
applications integrated
• External information
manually brought into the
process
STAGE 4
Ideal Process
Event-Driven Meetings• Scheduled when someone
wants to consider a change
or when a supply-demand
imbalance is found
Extended Process• Demand and supply plans
aligned internally and
externally
• External collaboration with
most suppliers and
customers
Full Set of Integrated
Technologies• An advanced S&OP
workbench
• External-facing
collaborative software
integrated to internal
demand-supply planning
systems
2010 2011-2012 2013-2014TARGET
Where
we are
The Journal of Business Forecasting, Fall 2004
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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PG&E Advancing in the Maturity Model
STAGE 1
Marginal Process
• Ad hoc process
• Not formal
• Timeline and detail varies
• Spreadsheet based, report
exhausting
• 43 LOB partners engaged
STAGE 2
Rudimentary Process
• Engage current LOB partners
with new S&OP process
• Engage MWC management
• Identify other key projects and
deploy S&OP Stage 2 process
• Get alignment from T&D
leadership at the executive
level
• Integrate CAEPS process and
WMIS reporting into the
process as it becomes available
• Integrate suppliers as part of
the action register
STAGE 3
Classic Process
• Leverage CAEPS and WMIS to
drive communication and
meeting agenda
• Integrate WMS in the process
• Use 2010 experience and
diagnostics to redefine
process based on business
needs
• Integrate suppliers early in
the process as needed
STAGE 4
Ideal Process
• Leverage multi-echelon SAP
tool with CAEPS, WMIS, and
WMS reporting to drive
supply-demand balance
consensus
• Suppliers engagement
driven by capital plan a
year in advance
2010 2011-2012 2013-2014
The Journal of Business Forecasting, Fall 2004
2008-2009
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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Benefits - ScopeScope (for optimization) Location
Fast Mover Consumables (MRO) DCs
Fast Movers Transformers DCs, RML
Safety Equipment DCs
Tools DCs
Minor Materials DCs
Rapid Response (dead stock) RMLs
Meters (2) Fremont Locations
Obsolete/Inactive DCs, RMLs, Diablo
Scope (for S&OP) Location
Long Lead Time/Critical Materials DCs
Not on Scope (keep as is) Location
Critical Emergency Equipment Across Territory
Emergency Spares Across Territory
Storm Inventories DCs
Rapid Response (active inventory) as per SLA
RMLs
Key Benefits for T&D
Integrated supply-demand plans will result in faster, more committed response by suppliers.
Standard replenishment processes on all facilities will reduce the amount of expedites.
Integrated systems (on SAP backbone) will enable T&D to maximize the use of existing inventory regardless of location (visibility).
In sync with technology, new tools are being implemented in SCM (SAP Forecast, WMS) and T&D (CAEPS).
Builds team. Builds partnerships. Builds accountability. Builds engagement.
Release of working capital can be used on more profitable initiatives.
Reduced code complexity will ease job estimation “look-ups.”
Integrated Demand PlanningPlatts Strategic Supply Chain for Utilities Conference
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Q&A
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Thank You
Lance Schultz
(415) 973-9797
John Sequeira
(704) 560-5061