Breaking it Down
Akzo Nobel Surfactants' S&OP process begins with a demand forecast. Zemeter is then used to calculate a statistical demand forecast. The statistical forecast is sent to the company's sales force, where adjustments or overrides are made based on knowledge that the salespeople have from the field. Data are compiled into reports using Zemeter, and those reports form the basis for a demand meeting with each of the division's four business managers. Any changes made to the statistical forecast by the sales force, as well as the overall forecast and forecast error, are reviewed during this meeting, and the business managers discuss whether further inventory or forecast adjustments are required.
This results in a final forecast, which is used to perform a capacity analysis in Zemeter. This is a linear programming model, which includes production resources, bills of materials, routings, the sales forecast, raw material availability and prices. The company also performs a finite capacity analysis by production unit to determine if there are any production issues, then publishes the data and sends them to all production facilities. The company holds two supply meetings with different plants, at which time the capacity analysis and forecast are reviewed and managers discuss any issues or constraints and what can be done about them. Because Akzo Nobel Surfactants is a global business, if there are any deficits in a particular inventory, managers can call upon the global network to find out if another manufacturing location can pick up part of the supply.
The supply meetings allow Akzo Nobel Surfactants to examine the issues and develop a plan for how inventory and production is going to be managed for the next couple of months. Managers also develop a purchasing plan during the monthly S&OP meeting, which provides a forecast for the company's purchasers, who can then work together with Akzo Nobel's various vendors to determine what is going to be bought from each one. Managers take the supply and demand data from the supply meetings and consolidate them with any high-level issues, which form the basis of discussion at the monthly S&OP meeting. Inventory levels and changes, as well as supply and demand issues and uncertainties, are also discussed at the S&OP meeting.
With a diverse group of industries using the company's products, many factors can affect supply and demand, and therefore inventory levels. For example, Akzo Nobel Surfactants' Asphalt Applications develops advanced chemistry and technology to improve the performance and life of asphalt pavements. Oil prices can be a source of major uncertainty for this segment of the business. As oil prices go up, asphalt gets more expensive and municipalities buy less. Zemeter provides Akzo Nobel Surfactants with the ability to factor this uncertainty into the company's forecast. The S&OP process allows this information to be communicated to all groups within the organization, allowing them to more effectively develop a plan for how to deal with lower demand.
Another area of the company that must often deal with uncertainty is the agriculture segment. This segment of the business offers a range of products, including adjuvants that improve the performance of spray tank mixtures, dispersants for dry granule, suspension concentrate and wettable powder formulations, and modern emulsifiers. The company's surfactants are also used to enhance the performance of its customer's weed control products. And while many manufacturing environments deal with at least some level of uncertainty, production of the surfactants used with the weed control products can be especially uncertain since demand is greatly affected by dry or wet weather.
"The implementation of a formal S&OP process has allowed upper management to be much more aware and involved with decisions in forecasting, inventory levels, supply and demand," says Shearer. "The company has also implemented an S&OP process in our European facilities, so we have a much more global view of our overall business."