Sap Scm Colgate Cs

SAP Case Study mySAP™ Supply Chain Management

mySAP™ SCM AT COLGATE-PALMOLIVE COLLABORATIVE PLANNING FUELS GLOBAL GROWTH

mySAP SCM AT COLGATE-PALMOLIVE AT A GLANCE Strategic Goals Enhance the competitive position of Colgate’s consumer products business by continually improving margins, enhancing service to the retail trade and internal customers, improving responsiveness to promotions, and enabling a transformation to globally standard operations. Approach Focus initially on employing the supply network planning (SNP) capabilities in SAP® Advanced Planner and Optimizer (SAP® APO) for replenishment optimization. Employ demand planning (DP) and the collaborative engine in SAP APO for determining demand. Ultimately, make use of a broad range of SAP APO functions to enable Internet-based collaborative planning with internal and external partners. Enhance and extend the initial SAP APO implementation by embracing the solution across global brands and incorporating emerging functions in production planning and detailed scheduling (PP/DS) and other areas of SAP APO. Results: These achievements in North America-based implementations have set the stage for the global rollout: • Achieved performance gains with SAP APO beyond what had already been achieved with SAP® R/3® • Improved on-time and complete orders from 70% to 98% for vendor-managed inventory (VMI) replenishment, and improved customer order fulfillment to 95% • Reduced cycle times from 5 days to 1 day for VMI replenishment and from 62 days to 33 days for cross-border sourcing • Deployed collaborative planning to reduce forecast error from 62% to 22%, reduce inventory by 22%, contribute to improvements in cycle times and customer service, and benefit even further from the global sourcing model • Provided a foundation for e-business developments, enabling Colgate to maintain even better relationships with its partners and customers

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SUMMARY

Colgate-Palmolive Company is a U.S. $9.4 billion global consumer products company. The company manufactures and markets a wide variety of products in the United States and around the world, including toothpaste, soaps, laundry detergents, and pet foods. Colgate operates in over 200 countries, and approximately 70% of its sales come from international operations. The company has about 37,000 employees, of which approximately 80% are located outside the United States. Colgate’s SAP R/3 implementation began in 1994, providing a platform for responding to global customer requirements through better understanding of costs and prices, for analyzing sourcing options, and for determining competitive strategies. With this SAP R/3 execution framework in place, Colgate embarked on an ambitious plan to streamline its global supply chain planning processes. Implementation of this plan would not only enable significant operational improvements in service and inventory reduction, but also position the company to move from regional sourcing to a globalized model. This supply chain strategy – allowing for a breakthrough in production efficiencies and economies of scale – required full visibility of supply and demand information worldwide and a highly responsive supply chain planning process. These essential characteristics of Colgate’s supply chain are being enabled by the optimization, scheduling, and collaboration capabilities of SAP APO in mySAP™ Supply Chain Management (mySAP™ SCM). “The capabilities of SAP APO are critical to enabling Colgate to take the next logical steps in enhancing global supply chain performance,” says John Giroux, Colgate’s director of global IT strategic planning. “SAP APO delivers solutions on three key fronts: We gain visibility to global logistics data, optimize our operations through use of advanced mathematical planning functions, and provide a platform for collaboration with customers and partners. By making use of SAP APO, our worldwide operations are truly progressing toward excellence in supply chain planning.”

BUSINESS

conventions, formulas and raw materials, manufacturing data and Colgate has in place a powerful strategy for sustained financial processes, and financial information. These standardization success. The company drives top-line growth by rapidly bringing initiatives supported by SAP systems contributed to tremendous innovative products to world markets, strengthening its global improvements in efficiency. For example, in the operations arena, brands, and concentrating on customer service. Colgate is also these efforts supported substantial consolidation of focused on continually improving its profit margins by a myriad manufacturing facilities. of cost-reduction programs. Colgate’s long-term trend of improving its gross profit margin Colgate has now implemented (from 39.2% in 1984 to 54.4% SAP R/3 in 49 countries covering “The capabilities of SAP APO are critical in 2000) is expected to continue. 80% of its business, and by early The company is targeting a 60% to enabling Colgate to take the next 2002 will be managing 95% of its margin by 2008, and the global operations with SAP R/3. logical steps in enhancing global supply anticipated savings continue While SAP R/3-enabled efforts chain performance,” says John Giroux, to be facilitated by supply chain produced significant results, the Colgate’s director of global IT strategic programs and the enterprise-wide competitive pressures in Colgate’s planning. SAP software. The broad global global markets have driven the reach of its products, coupled company to seek further with these continuing margin improvements using mySAP SCM: improvements, enables reinvestment in growth-building activities and confers on Colgate a sustainable competitive advantage. • On-time and complete customer order fulfillment had been improved from very poor levels to rates of around 90%. SUPPLY CHAIN CHALLENGE However, these rates were hampered from further improvement In 1993, Colgate recognized that it faced lack of standardization in by inadequate visibility into capacity constraints and demand, systems and data throughout the world and incurred costly and the continuing lack of product availability meant duplication of effort on many fronts. The company had inventory potentially losing out on revenue opportunities. Moreover, levels that were unnecessarily high, order-related cycle times that these fulfillment rates were still significantly below the were excessively long, and IT and other costs that were much higher increasingly stringent requirements of large customers. than they would be with global standardization of systems and data. • The replenishment order cycle time had been reduced from In 1994, Colgate began its SAP R/3 implementation, which enabled nine days to five days in North America. However, Colgate’s the company to improve operations through consistent, global order cycle times elsewhere in the world remained much support for financial analysis, logistics planning, and other business longer, and competitors were gaining significant ground on this processes. Moreover, a complementary standardization mandate service metric that customers were finding increasingly came from senior management that covered all general naming important. Moreover, the long order cycle times represented unacceptably high internal costs to Colgate.

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Reductions in inventory had been achieved, including an increase in turns per month for finished goods inventory in North America. However, internal inventory costs remained unacceptably high, and the high inventory levels were indicative of the limited visibility that continued throughout Colgate’s supply chain operations.

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Despite various reductions in capital and expenses that had been achieved, price competition continued to drive a focus on cost reduction. Plant operations, packaging, and transportation costs were all targets for further reductions.

Finally, the very source of Colgate’s competitive advantage created supply chain challenges. Rapid global introduction of new products, the needs for customization, and services to global customers created continued complexities for the company’s supply chain. IMPLEMENTATION

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While brands in Colgate have been managed globally, the company realized it must also manage demand and supply on a worldwide basis. The Colgate Global Supply Chain initiative began in November 1999 with the objective of building on the company’s investment in its core SAP R/3-enabled business processes in order to further improve supply chain performance. These performance improvements would be achieved by focusing on the fundamentals – globally standardizing internal supply chain and business-to-business processes, implementing shared services, sourcing strategically, and implementing cost reduction programs. Colgate identified three major supply chain strategies to achieve the company’s goals: •

Roll out a vendor-managed inventory (VMI) program with key accounts to drive significant channel inventory and cycle time improvements

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Implement Cross-Border Sourcing (CBS), a global planning initiative to enable Colgate to move from a regional to a global sourcing model, thereby driving forecast improvements and safety stock reductions, enabling consolidation of assets, and taking advantage of economies of scale on a worldwide basis

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Implement collaborative planning, thus enabling development of a closed-loop process to manage promotional demand and synchronize activities throughout the supply chain

Vendor-Managed Inventory: VMI is a pull process by which Colgate replenishes customer distribution centers (DCs) based on daily transmitted inventory and demand information. The current focus on VMI is in North America, where 40% of shipped cases from five plants are managed using VMI. The implementation includes 40 customer DCs at 12 customers, covering all categories of Colgate products (about 1,000 SKUs). As supply and demand are more precisely matched, this VMI implementation enables lower finished goods inventories, higher rates of on-time and complete orders, and reduced replenishment cycle times. The VMI business process is supported by supply network planning (SNP) in SAP APO. Daily inventory levels and demand from customer DCs are transmitted to SNP, which calculates replenishment orders. SNP incorporates plant capacity information to determine production requirements and any supply constraints. The replenishment orders are transmitted back to the customers via electronic data interchange (EDI) for acknowledgement and for handling the customers’ information processing requirements. The benefits of VMI will be multiplied as implementation extends toward all transacted business in North America and to other geographic regions. Cross-Border Sourcing: Colgate sales subsidiaries around the world have traditionally developed monthly demand forecasts with low levels of accuracy. These forecasts have determined replenishment requirements from offshore manufacturing sites. Colgate’s Cross-Border Sourcing initiative establishes a global sourcing process to replenish the sales subsidiaries. The new process is a weekly pull process, fully incorporating information about demand and supply. The supplying plants assume responsibility for replenishing the Colgate DCs, based on visibility to orders pegged from customers through in-country Colgate

DCs and then through to the supplying plants. Replenishment is also based on further demand information provided by the Colgate sales subsidiary, such as increased demand arising from promotions. The cross-border sourcing business process is supported by SNP in a manner similar to vendor-managed inventory: SNP calculates replenishment orders based on daily inventory levels and demand signals. With this business process, demand and supply are more exactly matched, forecast accuracy measures become almost irrelevant because of the specific order pegging, and the supplier can send shipments much more frequently to the DC. This enables lower finished goods inventory levels, reduced replenishment cycle times, and higher rates of on-time and complete orders for both internal replenishment and customer orders. Case fill rates and asset utilization are improved through the use of finite capacity replenishment planning techniques. The impact on transportation costs is not significant, despite the more frequent shipments, due to the better overall planning inherent in the CBS process.

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CBS has enhanced the benefit of consolidating manufacturing by providing a means to optimally balance supply and demand for a global source. CBS has a dramatic impact on Colgate’s overall strategy because of the complete supply chain visibility, increased planning cycle speed, and efficient asset utilization achieved through the move from a regional to a global sourcing model. Collaborative Planning: The demand planning (DP) capabilities and collaborative engine in SAP APO provide the Colgate sales subsidiary with a mechanism for communicating demand information to the supplier and further synchronizing planning across the supply chain network. For example, collaborative planning, forecasting, and replenishment (CPFR) is being deployed by Colgate by making use of SAP APO tools with customers, enabling collaboration on promotional activity, inventory levels, and demand forecasts. The associated CPFR processes can drive forecast accuracy improvements and thereby enable a range of cycle time and customer service improvements. In particular, statistically computed-base demand is calculated by DP and can drive repeatable replenishment processes, and changes resulting from promotions can be incorporated using collaborative processes. The support that the collaborative process provides for separate management of base and promotional demand is very valuable. Promotional demand management is substantially independent of the base demand, and it is critical information for driving manufacturing, product finishing, and distribution in Colgate’s consumer products business. To support the collaborative process covering promotional demand, the collaboration engine allows the exchange of up-to-date planning information, enables user-access security restrictions, supports exception-based management, and facilitates tracking of performance measures including forecast accuracy.

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OUTCOME

The SAP APO-supported supply chain implementations have achieved significant, measurable benefits for the initial Americabased implementations. The competitive position of Colgate’s business has been enhanced – by improving service to the retail trade and internal customers, enhancing responsiveness, and improving margins. Colgate has achieved performance gains with SAP APO beyond what had already been achieved with SAP R/3, and the company is well-positioned for multiplying the benefits across the global enterprise. The benefits achieved across the three initiatives include: Vendor-Managed Inventory: The SNP-enabled VMI process has enabled improvements to 98% in on-time and complete orders and an improvement to a one-day replenishment order cycle. In the eyes of Colgate’s customers and partners, these improvements are very significant. The previous SAP R/3-enabled achievements of 70% on-time and complete orders for VMI and the five-day replenishment order cycle would not have been acceptable in the unfolding competitive environment. Cross-Border Sourcing: The initial single-country implementation of Cross-Border Sourcing enabled the replenishment order cycle time (which includes time for order preparation, processing, and shipping) to be reduced from 62 days to 33 days. Supply and demand were more accurately matched, so there was a significant increase in shipments per month, a reduction in inventory by about 22%, and an increase in case-fill rates from 94% to 97%. CBS yielded a significant improvement in on-time and complete orders for intracompany replenishment, and customer order fulfillment increased to 95%.

Collaborative Planning: Responsiveness to promotions and other changes in supply and demand have been enhanced due to the closer link between producers and consumers. Improvements in cycle times, fulfillment performance, and inventory levels were supported through enhancements enabled by DP and the collaborative engine. In particular, forecast error with a major retailer was reduced from 61.9% before CPFR to 21.9% after CPFR was implemented. All three initiatives were supported by SAP APO’s real-time integration model, where any changes in stock, sales orders, and so on are transferred in real time between customer or internal ERP systems and SAP APO. This ensures that modifications to the plan can be made rapidly – which is particularly important to facilitate planning for promotions. The VMI, CBS, and collaborative planning implementations will be extended globally. As these implementations are extended to all brands and plants, Colgate expects to multiply the impact of the current implementations substantially. Moreover, savings are being achieved outside direct supply chain operations, including in key areas such as IT. As the standardization initiative is extended, visibility is being improved throughout the supply chain, and consistent data will be increasingly useful in management decisions covering tactical and strategic plans. In particular, enhanced data availability using mySAP™ Business Intelligence (mySAP™ BI) supports improved tactical and strategic decision making at various levels in the organization.

NEXT STEPS

Going forward, new forces are shaping Colgate’s use of systems for enhancing competitiveness. These drivers include price competition, the evolving attributes of global trade, and the consumer goods industry’s use of promotional campaigns. These factors are motivating Colgate to pursue continued cost reductions through all aspects of the business and to make use of collaborative tools that improve links with global customers. E-commerce is growing at a high annual rate in the consumer goods industry, providing further impetus for Colgate to make use of e-business tools that strengthen its integration internally and its links with partners and customers. Colgate intends to continue to pursue supply chain improvements that will enhance its competitive position. In addition to extending the use of vendor-managed inventory, cross-border sourcing, and collaborative planning globally, Colgate is pursuing: Repetitive manufacturing: Colgate is working with SAP to implement repetitive manufacturing processes using the PP/DS capabilities in SAP APO. These processes will perform repeated production runs using a single bill of material, with backflushing of material requirements. Production will become more responsive to promotion-driven demand changes, as making and finishing operations will be distinguished as separable manufacturing processes, facilitating quick production scheduling changes. Colgate is specifically supporting development of a PP/DS-related Wave algorithm. This algorithm will provide optimization of repetitive manufacturing during potential sudden peaks and valleys in requirements and finite capacity constraints.

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Outsourced manufacturing: Due to the variations in supply requirements resulting from the promotions-driven environment, third-party manufacturing contractors are increasingly relevant to Colgate’s business. Colgate expects to make use of SAP APOenabled collaborative planning links with these contractors. Transportation planning: Colgate is planning to implement Transportation Planning/Vehicle Scheduling (TP/VS) in SAP APO to optimize its transportation network and derive ongoing cost savings. Supply chain event management: Colgate is planning to use SAP supply chain event management capabilities to track carrier tendering and customer shipments – and to provide early warning of undue delays or problems. Additional collaborative scenarios: Colgate will pursue various additional forms of collaboration with customers and partners. Of significance will be Colgate’s participation in consumer goods industry e-marketplaces, which provide exchanges for collaborative demand, procurement, and logistics planning.

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