Integrating a Global Supply Chain: Essential Strategies

1. Integrating a Global Supply Chain:Essential Strategies Pharma Manufacturing Cambridge, Massachusetts June 23, 2004 Cheryl CappsVice PresidentSupply Chain Planning & OptimizationBristol-Myers Squibb

2. BMS: A $20B Pharmaceutical and Related Healthcare Business BMS Facts • 27 Pharmaceutical plants • 5 Chemical Plants • 135 Markets Planned • 150 + Contract Mfgs • 100 + Distribution Centers • 2 SAP instances, 24 BPCS instances, and 6 msc. ERP systems • 6000+ SKU’s, 15000+ SRC’s Pharmaceutical Plant Chemical Plant Inventory …significant supply chain complexity

3. Our Vision Is Clear… One Plant, One Team, One Plan Seamless Integration, Flawless Execution … but what does it really mean?

4. Conceptualizing an Integrated Supply Chain is like asking a group of people to conceptualize Heaven… • What does it look like? • How do you get there? While everyone agrees that it’s a nice place and we should go there, that’s where the agreement ends!

5. Every participant in the supply chain is working from a different plan Little or no visibility beyond local unit Disjointed metrics, inconsistent reporting The same data has a different meaning at every site High variability in non-CGMP processes (like planning) One global supply chain plan Daily, global visibility of planning data Standard, global metric calculation and reporting Consistent data definitions Minimum standards for key processes What does Integration Mean to Us? To From Before you can optimize the supply chain, you must integrate it

6. Complete visibility of Inventories Demand Plant production plans and constraints Simultaneous planning at multiple levels Market and plant at the same time Organizational alignment Consistent metrics that drive supply chain, not local performance Consistent practices Tightly defined business rules for interactions between sites Practices that ensure the accuracy of critical data The same data means the same thing to everyone Global master data What Capabilities are required by “Integration”? Integration is the ability to create and execute a single plan for the entire supply chain.

7. Why do we fail? The usual suspects: • Lack of senior management support • Unrealistic objectives • Lack of resources • Poor project management • IT focus/IT led • Poor change management But many companies get all of these things right and still fail to realize the desired benefits!

8. Essential Strategies Step 1: Develop a compelling case for change Step 2: Create a vivid picture of the future Step 3: Identify the gaps in capabilities between the “as is” and the “to be” state Step 4: Build a road map Step 5: Design the project Step 6: Establish change management program There are 6 essential strategies to integrating a supply chain

9. Essential Strategies Step 1: Develop a compelling case for change • Easy to understand • Tailored to stakeholder group * Conceptual * Emotional * Financial * Technical • Integrated with other key business strategies Assume that the detriments of the “as is” state are not widely understood.

10. “As-Is” Scenario Demand Data Supply Data Supply Chain Issue Cannot balance supply and demand In SAP Sites SAP Sites Non US Markets Bulk Sites Finishing Sites In BPCS Sites BPCS Sites TollingPartners Finishing Sites Central Planning In- Transit Finishing Sites • Market Impact • Unreliable delivery • Long lead time • Minimum order qtys. • Excessive Inventory • Resource Intensive 3rd PartyMfgs 3rd Party Mfg Tolling Finishing Sites 3rd Party Mfg Tolling Partners MTO Market Orders Central Planning In US DC’s Distribution ReplenishmentOrders US Market In Non-US DC’s Manual, resource intensive, inaccurate Multiple formats systems & schedules

11. Essential Strategies Step 2: Create a vivid picture of the future • Right scope • Narrow enough to be manageable • Broad enough to allow true integration • Well defined Endpoint • What does success look like? • Tailored to stakeholder group • Detail for the “Detailed”, Simple for the “Simple” Assume that the benefits of the “to be” state are not inherently obvious

12. The Future State Process – Level 1 Demand Data Supply Data Balance Supply & Demand Global Inventory&Capacity Data Global Forecast& Net Requirements Statistical Tools APSSystem Suggested Network Plan Shape Supply & Demand Markets NetworkPlanning Trade Sales S&OP Collaborative Planning MFGSites Net Requirement Plan Purchase Orders • Full-picture • Real Time • One Format • One delivery system • Set calendar • One Plan • Collaborative Process • Data-based decision making • Assigned Accountability

13. Process Design – Level 2 “To Be” Operating Model 1.0 Determine Supply Capabilities 3.0 Balance Supply/Demand 2.0 Determine Demand Requirements 1.1 Determine Raw Material Supply 1.4 Determine Production Capacities 3.1 Consolidate Demand 3.7 Perform “What If” on NPI 2.1 Collect Customer Data and Collaborative Input 2.4 Collect Market Research / Analysis 2.7 Simulate NPI Requirements 1.2 Determine WIP and Committed Production 1.5 Determine 3rd Party Supply Capability 2.2 Load Demand History 2.5 Collect Promotion and Deal Information 2.8 Approve Forecast 3.2 Load Inventories 3.8 Prepare for S&OP Meeting 1.6 Determine Tolling Partner Supply Capability 1.3 Determine Actual FG Inventory 2.3 Create Statistical Baseline 2.6 Develop Sales Forecast 3.3 Review Supply Chain Performance 3.9 Conduct S&OP Meeting 3.4 Update Market Segmentation / Service Level Agreement 3.10 Adjust Supply Chain Tactical Plan 4.0 Execute Supply Plan 5.0 Shape Demand Plan 4.1 Create Production Schedule 4.4 Provide Tolling Partner with Product Requirements 4.7 Deployment 5.1 Create/ Execute Demand Plan 3.5 Update Inventory Targets 3.11Communicate Supply Side/ Demand Side Impact 4.2 Provide Raw Materials Requirements 4.5 Execute Production Schedule 5.2 Resolve Financial Impacts 3.6 Run Planning Optimization 3.12 Communicate Financial Plan Impacts 4.6 Perform Available To Promise (ATP) 4.3 Provide 3rd Party with Product Requirements

14. Process Design – Level 3 Example II Process Design - 1.1 1.4 Determine Production Capability Inputs Manufacturing Performance Planned Mfg Improvement Maintenance History 1.4.1 Determine production parameters based on demonstrated performance 1.4.2 Modify production parameters based on new capability 1.4.3 Estimate Maintenance needs by unit 1.4.4 Gain consensus on production capability parameters Preliminary FG Production capability profile (by site, by unit, by time period)

15. Essential Strategies Step 3: Identify the gaps in capabilities between the “as is” and the “to be” state. • Seek input from a broad base of stakeholders • Prioritize gaps based on degree of urgency and business value • Group “related gaps” Individual capability assessments and prioritization inputs provide the basis of the project plan

16. Gap Analysis Cross-Functional Input Capability Prioritization Capability Assessment Prioritization of each of the To-Be Operating Model components based on Degree of Urgency and Business Value Assessment of performance in relation to the To-Be Operating Model (Global Perspective with “80/20 Rule”) Driving Factors and Considerations • Benefit vs. Cost • “Low Hanging Fruit” • Domestic vs. International Capabilities • Current Initiatives / Activities • Scope • Scalability • Site Integration Issues • Process Dependencies • Technology Dependencies • Organizational Dependencies As-Is Business Capability Release #1 Business Capability Release#2 Business Capability Release #12 To-Be Operational Model +…+ + + =

17. Essential Strategies Step 4: Build a Road Map • Resist the urge to ‘eat the elephant in one bite’, while insuring that the entire elephant will be eaten. • Each “bite” should be large enough to deliver value but small enough to be completed in a 6 – 12 month time frame. • At the end of each “bite” the supply chain should be in a “steady-state”. …Achieve short term gains while insuring long term results

18. Business Capability Release Plan The BCR plan can be viewed as a simple building model... BCR 12 Closed Loop S&OP Process OptimizationPhase II BCR 11:APS Scheduling Optimization BCR 10Customer Integration BCR 9Supplier Integration Extension BCR 7APS Supply Planning BCR 6APS Demand Planning OptimizationPhase I BCR0A - Site Acceleration BCR8 – Market Remediation BCR0B - Management Tools BCR 4A Data Integration BCR 5 Network Planning Integration BCR 3S&OPStandardization BCR 4Inventory Visibility BCR 1Demand Consolidation BCR 2Tolling Automation Foundation Change Management & Learning … A solid framework of tools, processes, and data

19. Essential Strategies Step 5: Design the Project • Build stakeholder ownership into the process • Plan for sustainability • Minimize non-value add “we-they” activity • Eliminate “hand-offs” where possible • Integrate process technology and people • If you can’t integrate multiple project elements, is it reasonable to expect that you can integrate an entire supply chain? • Standardize project methodology, terminology, required documents, and even presentation formats. • Use every opportunity to reduce variability …Invest the time necessary to develop a robust project design

20. Team Leaders Project Team Structure Functional Process Owners Business Capability Releases Inventory & Metrics Mgmt Network Planning DistributionLogistics Database Maintenance Site Markets Sourcing Finance BCR 0-A Site Acceleration BCR 0-B Management Tools Change Mgmt & Learning BCR 1 Demand Consolidation • Design, build, test and deploy identified business capabilities BCR 2 Tolling Automation BCR 3 S&OP Standardization BCR 4 Inventory Visibility BCR 5 Network Plng. BCR 6 APS Demand Plng BCR 7 APS Supply Plng BCR 8 Market Integration • Re-design existing functional processes and organization to support BCR solutions BCR 9 Supplier Integration … Build stakeholder ownership into the process BCR 10 Customer Integration

21. The Project Office …People, process and technology integration required

22. Standard Project Methodology (Based on 12 Months) BCR Duration 1 2 3 4 5 6 7 8 9 10 11 12 Mobilize Change Management BCRTeam Design Build Capability Test/ Pilot Deploy Today: Week 6 of the design phase Weeks 7 & 8 Integrated level 4 process flow Final application architecture Final roll-out/ release plans Legal & Regulatory Element inventory Final Risk Management plan Build/ Test Element Inventory Detailed Build/ Test plan Complete - Week 5 Scope Assumptions Business Requirements Business scenario inventory Process Flows level 1, 2, 3. Complete - Week 6 Draft process flow level 4 Business Rules Draft application architecture First cut roll-out/ release plans Business Tools/ Metrics Inventory Business Resource requirements Draft Risk Management Plan

23. Essential Strategies Step 6: Establish Change Management Program • Engage and gain commitment from Senior leadership • Ensure employee understanding at all levels and promoting readiness and buy-in of key stakeholders • Identify and develop skills and competencies required by SC Professionals; train sites and markets • Facilitate the organizational transformation; clarify roles and accountabilities • Establish programs to recognize/reward behaviors needed to sustain the model and promote the new culture …Change Management is necessary to manage the journey and to facilitate transition to the future state.

24. BCR 12 Closed Loop S&OP Process BCR 11:APS Scheduling Optimization BCR 10Customer Integration BCR 9Supplier Integration BCR 7APS Supply Planning BCR 6APS Demand Planning BCR0A - Site Acceleration BCR8 – Market Remediation BCR0B - Management Tools BCR 4A Integration BCR 5 Network Planning BCR 3S&OPStandardization BCR 4Inventory Visibility BCR 1Demand Consolidation BCR 2Tolling Automation Change Management & Learning Change Management Processes Supply ChainOptimization CM8: Organizational Transformation Transformation to the End-State Vision CM7: Readiness Assessment CM6: Knowledge Transfer CM5: Performance Support & Learning CM4: Change Advocate network CM3: Communications & Stakeholder Management CM2: Build Project Team CM1: Sponsorship ... eight key change management processes leveraged.

25. Lessons Learned… • Benefits are likely understated in the business case. • Process must always lead technology. Don’t let the “latest whiz-bang tool” distract you from your objective. • Insure that “process & technology” do not get too far ahead of “people”. • Do not underestimate the effort required to integrate and remediate data. • Continue to change business objectives to reflect capabilities delivered and planned. • Have a low tolerance for exceptions to global standards. • Link a balanced scorecard of metrics and process compliance to compensation … It’s not easy, but it is achievable!