Supply Chain Management: Approaches and Practices from Air Products and Chemicals, Inc George Diehl VSB Center for Busi

1. Supply Chain Management: Approaches and Practicesfrom Air Products and Chemicals, Inc George Diehl VSB Center for Business Analytics

2. Today’s Learning Objectives • Provide an overview of approaches and practices from Air Products and Chemicals* in these areas of supply chain management • Importance of a process versus functional view of the supply chain • Critical role of performance measurement • How the SCOR model helped us in both of these areas as well as others *All slides and data in this presentation have been previously presented externally and are in the public domain

3. Agenda • Air Products • Process-the Foundation for Supply Chain • Transformation to Supply Chain • SCOR • Measuring SC Performance • Results

4. Air Products Overview • $10 B Gases (80%) and SpecialtyChemicals (20%) company • Chemical industry safety leader • Operations in more than 30 countries • 55% of sales revenue outside the U.S. • 20,000 employees worldwide; 4500 at Allentown PA, Global HQ • Fortune’s Most Admired Chemical Firms: #3 • AMR’s “Top 25 Supply Chains”-Honorable Mention in 2008

5. SC Is All About Processes • Business Process: An organized group of cross-functional activities that together provide value for the customer. • Business Process Management: The dimension of management that improves business performance by taking a “horizontal” view of efficiency and effectiveness to serve customers.

6. BUSINESSES [Business Unit, Region, focused on P&L’s & markets] FUNCTIONS [Departments, Centers of Excellence) FUNCTIONS [Departments, Centers of Excellence] WORK Business Process Management:A 3rd Dimension in Management Business Units own customers and profitability Functions own the people and cost centersProcess Owners own work designs and cross- functional performance PROCESSES [Order to Cash, etc.]

7. CEO Quote to Shareholders… …Historically, we have had a very strong functional focus in selling, operations, engineering, etc., with a good track record of continuous improvement. But what we found is that the greatest improvement comes where these functional organizations interface. As a result, we have taken a process viewpoint and redesigned how we do much of our business.

8. Simple Supply Chain Process Customer Place Order TakeDelivery PayBill Sales DefineReqts Win Business Customer Service Set UpAccount InputOrder SendInvoice ApplyCash CommitInventory Load Product Production ScheduleDelivery DeliverProduct Logistics / Distribution

9. Balanced Integration Of Function and Process Within/Across Businesses Process Fills In the “White Spaces” Increased Customer Satisfaction (Cycle Time, Accuracy) “Predictably Positive Experiences” + Revenue, Productivity, and Asset Management Improvement PROCESS / FUNCTION BALANCE Limits on Functional Improvement Customers

10. The CEO’S Plan… John P. Jones Chairman, President,andChief Executive Officer

11. How SC Transformation Began • New CEO with major challenges • New Strategy-Vision • New ERP to “As a data platform to take us into the 21st century” ($300 million invest.) • Catalyst for change to work process • New processes versus a new IT tool • “As Is” or “Best Practices” to get “To Be” • Focus on “Supply Chain” because of customer and cost impact • “What do other companies do?” • SCOR model

12. Air Products Approach to Supply Chain To: Improve Visibility, Velocity, Simplicity By: Driving Operational Innovation Focused On: What • Simplify • Standardize • Shorten • Share How • Educate • Execute • Improve • Measure So That We: • Improve productivity by 3X by FY20XX • Create competitive advantage through our Supply Chain • Increase customer loyalty scores; earn higher margins for shareholders

13. Industry Membership Scope AMR 2009 - SCC & SCOR Executive Overview 13

14. The Value SCOR Brings… • A well-defined framework that can be applied to all end-to-end supply chain processes • Mapped processes with defined interconnections, inputs, outputs and standardized measures • Emphasis on planning, execution, and enabling processes to more clearly define how these fit in the overall framework • Basis for consistent definition of metrics for benchmarking results and trends • Minimizes manager debates about best processes, practices, measures, and targets because of strength of SCOR membership

15. Integrated Supply Chain Blueprint supply chain PLAN(Plan Supply Chain) • SUPPLY CHAIN SOURCE(Requisition to Pay) FULFILL(Order to Cash Receipt) MAKE (Produce Productsand Services) customers suppliers BUILD(Create and Improve Assets) 5

16. Air Products Process Model

17. Global Education Platform: SCA How to introduce VP’s and front line to SC? • Classroom training alone is not sustainable • Accenture’s SCA won global bid • On-line learning by teams across regions • Set up curricula by role, • VP’s took 6 courses on planning • SC Planners, Procurement Specialists, et. al • LSS project teams started with courses to level set • APICS and CPIM certifications on-line too • Just completed 5th year at AP using SCA

18. How do you know that your supply chain processes are performing well and where they are not?

19. Simple Supply Chain Process Customer Place Order TakeDelivery PayBill Sales DefineReqts Win Business Customer Service Set UpAccount InputOrder SendInvoice ApplyCash CommitInventory Load Product Production ScheduleDelivery DeliverProduct Logistics / Distribution

20. Top 5 KPIs: Key Gauges of Supply Chain Performance Cash to Cash Cycle Time Customer Master Data Quality Demand ForecastAccuracy Complaints Closed by Target Date Perfect OrderFulfillment 5

21. Why these 5 KPIs?

22. Supply Chain KPI’s Reliability Revenue (increase) Growth Responsiveness&Flexibility Cost (decrease) Productivity ProductivityImprovement Cost Investment (decrease) Net Assets AssetManagementEfficiency “Top 5” Focus Areas Aligned SCORMetrics Customer Master Data Quality CustomerData Quality Supply ChainAttribute Workbook Rejection Rate $ Benefit Area Demand Forecast Accuracy ForecastAccuracy Production PlanAdherence Perfect Order Fulfillment Perfect Order Fulfillment % Orders Rec’d on-time (supplier) Production Master Data Quality Complaints Closed by Target % Complaints Closed by Target Return on Investment (increase) ORONA P&LImpact Net Hard Benefits Cash to Cash Cycle Time Days Sales Outstanding % Faultless Invoices Cash to Cash Cycle Time Average Days Past Terms Average Terms (customer) Inventory Days of Supply Inventory Accuracy Days Payable Owed

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24. Scorecard(cross-business comparisons) Metrics Report(trends and commentary) Key Measures Link(BW or Excel details) “Visibility” of Metric Performance

25. Gaps in KPI to Target Drive Project Selection Priority Metrics and Gaps Focus Annual Plans Customer Data Quality ForecastAccuracy Perfect Order Fulfillment Complaints Closed by Target Cash to Cash Cycle Time New Products past Gate 4 Safety Metric Prospect Volume

26. AP’s Key Results • In FY04, set goal and doubled the historical amount of P&L productivity • In FY05 and 06, set goal and exceeded it by more than tripling the historical amount of P&L productivity • Four Growth Platform Businesses increased from 25 to 50% of total revenues • Customer Loyalty scores for “secure customers” are 15% higher than prior to new process/SAP • ORONA hit FY08 goal; double digit growth 4 yrs • Stock went from historical $40’s to $105 – now $100.

27. Today’s Learning Objectives • Provide an overview of approaches and practices from Air Products and Chemicals* in these areas of supply chain management • Importance of a process versus functional view of the supply chain • How we measured performance • How the SCOR model helped us in both of these areas as well as others *All slides and data in this presentation have been previously presented externally and are in the public domain

28. Thank You George Diehl Center for Business Analytics