Integrated Business Planning Process

2010 Supply Chain Council. ALL RIGHTS RESERVED. | < filename > | Slide 2 | 21 October 2012

September 19, 2012

INTEGRATED BUSINESS PLANNING PROCESS AT HOSPIRA A MATTER OF LIFE & DEATH

Hospiras Approach to Implementing Next-Generation Sales & Operation Planning Processes

Supply Chain Council Executive Summit Indian Wells, CA September 18th-20th, 2012

Market leadership positions in: Generic injectable pharmaceuticals globally Biosimilars in Europe Medication management systems globally

Pioneer in innovation and safety 70+ years experience;

public independent company since 2004 2011 annual revenues of $4.1B 15,000 employees ~15,000 employees, 13+ manufacturing facilities Headquartered in Lake Forest, Ill., USA

Our company

Improving the safety, cost and productivity of patient care

5

Hospira product categories

Medication Management

Systems

24%

Specialty Injectable

Pharmaceuticals (SIP)

63%

Other Pharma

12%

2011 Net Sales $4.1B

Generic injectables Proprietary drugs Biosimilars

Infusion devices, dedicated administration sets, software and services

Gravity administration sets

Large volume solutions One2One contract manufacturing services

Specialty Injectable Pharmaceuticals (SIP)

Medication Management Systems

Other Pharma

Expanding Geographic Footprint

EMEA The Americas APAC

Regional presence denoted by colors

80% of 2010 sales

13% of 2010 sales

7% of 2010 sales

6


Objectives

1. Explain why IBP is important, urgent even, for Pharmaceutical / Biologics companies today

2. Share the fundamentals of Integrated Business Planning and how its been applied at Hospira

3. Describe the foundational capabilities developed at Hospira to enable the IBP process


An urgent matter: The global drug shortage crisis makes Integrated Business Planning a critical imperative.


The Drug Shortage Crisis

According to the Food and Drug Administration, the number of drug shortages has increased nearly 300% since 2005. More than half of the drugs on the shortage list are considered critical -- meaning they have no alternative. - CNN, July 2012

One of the most serious problems in American health care today is a

catastrophic shortage of supply for dozens of important generic drugs, especially certain injectable medications that form the backbone of modern cancer treatment. - Forbes, June 2012

- For

bes,

Jun

e 20

12

Seven U.S. anesthesiologists have reported that drug shortages resulted in deaths of their

patients, according to a new survey from the

American Society of Anesthesiologists. - ABC News Medical Unit, April 2012

Dozens of common drugs are in such short supply in the NHS that the health of patients with life-threatening conditions such as cancer is in peril, an inquiry into the problem has revealed. About 80% of 60 health trusts in England and Wales are experiencing "unacceptable" delays in obtaining drugs - The Guardian, June 2012


FDA Advanced Drug Shortage Notification Makes IBP Especially Relevant to the Pharmaceutical Industry


In keeping with the Agencys guidance, Hospira is defining exception management protocols through IBP for: Sole Supplier Medically Necessary Critical Support Products

Regulations surrounding Drug Shortage Notification Make Planning Processes critical for todays leading Pharmaceutical / Biologics companies


This is a supply chain crisis that has ties to almost every area that is considered in IBP: Demand Planning Inventory Policy & Management Master Scheduling Capacity Planning Third Party Manufacturing Raw Material Planning Product Lifecycle Management

FDA Advanced Drug Shortage Notification Makes IBP Especially Relevant to the Pharmaceutical Industry

When rumors surface of an impending shortage, some pharmacies rush to buy up more than they need, likely leading to bigger shortages, analysts and other pharmacists said Some distributors and manufacturers prevent hoarding by allocating drugs based on historical demand. - Reuters, June 2012


Integrated Business Planning: What is it? And what ever happened to S&OP? What does IBP mean at Hospira?


Integrated Business Planning The next-generation of S&OP

IBP is the common and synchronized process for business review and decision making, to optimize business performance and drive business strategy through to execution.

Traditional sales and operations planning (S&OP) processes and supporting technologies are no longer sufficient in todays high-pressured business environment. Sales and Operations Planning has evolved to become Integrated Business Planning. It is a truly cross-functional, multi-dimensional process that includes all elements of demand, supply and financial analysis in relation to the business goals and strategy. - Technology Strategies for Integrated Business Planning, June 2006

The broader strategic mandate for S&OP is key to superior returns. S&OP leaders are aggressively converting S&OP from an operations level demand-and-supply balancing process to the mechanism of choice for integrated business planning and strategy deployment - Next Generation S&OP: The Path to Bottom-Line Value, Stephen Hochman


Integrated Business Planning develops the common and synchronized plan for operations & commercial.

Demand Review Operations Review Business Review

Pre-S&OP / S&OP

ES&OP Consensus Demand Planning

Operations Planning

Business Planning

Key Customer(s): Commercial Stakeholders: Operations, Finance

Key Customer: Operations Stakeholders: Commercial, Finance

Key Customer: SLT Stakeholders: Regions

Inventory

Production

Warehouse & Transportation Channels

Geographies

Statistical Models

Portfolios

Latest Financial

Plans


Issues Managed by Exception

IBP is a cycle of planning activities and reviews that gives the business a regular & repeatable cadence

Consensus Demand Planning

Operations Planning

Business Planning

S&OP Pre-S&OP

Operations Review

Demand Review Demand Planning

Supply Planning


The same time-tested Sales & Operations Planning steps are at the heart of IBP IBP is a cyclical process, with each cycle feeding assumptions and guidance to the next The process is driven by exception and focuses on decision making

Simple by design But process deals with complex integrations and interactions


Operations Planning

Business Planning


Markets (Global)

Portfolios (US)

Regional Demand Review (US)

Regional Demand Review (CND/LA) Device

US Pharma Intl Pharma

Third Party Supply Planning

Ops Reviews US

S&OP US

Pre-S&OP

CND/LA S&OP

CND/LA Pre-S&OP

EMEA S&OP

EMEA Pre-S&OP

APAC S&OP

APAC Pre-S&OP

India Pharma

ES&OP

Markets (Global)

Regional Demand Review (EMEA)

Markets (Global)

Regional Demand Review (APAC)


Each IBP Sub-Process advances the plan from Unconstrained Demand through to the completed LBE

Un-Constrained Demand Plan

Constrained Supply Plan

Constrained Sales Plan S&OP / LBE

Hospiras Global Integrated Business Planning Process

Regi

onal

Glob

alS&

OP

Out

put

Week TwoWeek One & Two Week Three Week OneWeek Four


Demand Review

Supply Planning / RCCP

Product Supply Review

Un-Constrained

Demand Plan

Pre-S&OP S&OP

Constrained Supply Plan

Constrained Sales Plan

Integrated Business

Plan / LBE

Decisions Deployed to

Next IBP Cycle

Approved Regional Plan

ES&OP


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June IBP Cycle for July LBE

Hospira Global Integrated Business Calendar

Global Product Supply ReviewsPre-PS Reviews

ConstrainedSupply Reviewsw/ Regions

ConstrainedDRP Run (APO)

Regional S&OPMeetings

Regional Demand Review

Demand Pass(SW >>APO)

Planning BatchJobs (APO)

Demand Forecasting

Post June Gross Sales History to SW

Post June NetSales History to SW

Load SAS Plans(SAS>SW>ISIS) Global

ES&OPMeetingRegional & Global Finance Reviews

Deploy ES&OP Decisions

Final Feed to LBE(SW>>ISIS)

Regional Pre-S&OP Reviews

July LBEDeadline

Global Supply Planning

StatisticalModel Run (SW)

Preview LBE(SW>>ISIS)

Cycle Roll (SW)

BusinessReview (SLT)

Regional Consensus Demand Planning Reviews

Post May GrossSales Actuals to SW

Cycle Roll (SW)

Post May Net SalesHistory to SW

The IBP Process is Tightly Orchestrated


Bottom Up Demand Forecast

Business goals/objectives should be deployed through a defined data that is an integral part of IBP

Execution Tactical Strategic

Top Down Plans

Objective Assigned

0-3 months 4-12 months 12-18 months

Total Consensus Demand

Gap to Budget

Risks Associated with LBE Tasks if they are not operationalized as part of the IBP process Creates an alternate plan vs. the one common set of numbers Results in service issues if added to the plan w/o evaluating supply capacity Results in excess inventory if commercial plans are not fully evaluated / delivered

Execution-able plans only


What is Integrated Business Planning? And Why are Companies Implementing IBP?

It helps run the business more efficiently and effectively It is a consolidation process that brings together and aligns the various

business functions in developing one integrated set of plans. It synchronizes business planning with operations planning cycles

as well as regional with global planning calendars. It is a monthly re-planning process designed to make key business

decisions in the most efficient manner.

It provides the basis - typically a rolling 18-24 month forecast- for planning resources, capital and financials.

It is a vehicle for strategy deployment and connects planning & execution

And helps to deliver the business objectives Predict & shape future demand to give the most profitable sales plan Formulate the most cost effective supply chain response Provide the forum for alignment and decision making


Most Profitable Sales Plan Most Cost Effective Supply Aligned Decision Making

IBP Data Structures , Analysis and Review Topics Should Provide Insight and Feedback to Strategic Initiatives


Innovation Strategy

Operations Strategy

Expansion Strategy

Channel Strategy

Procurement Strategy

Strategic Planning

Financial Planning & Analysis


Connecting ES&OP with eS&OP Integration with execution S&OP Activities


Operations Planning

Business Planning

S&OP / ES&OP Pre-S&OP

Operations Review

Demand Review Demand Planning

Supply Planning

Week-to-Week execution S&OP activities

From Big ES&OP to little eS&OP Effective Integrated Business Planning processes (monthly) connect to week-to-week planning processes so decisions are deployed in real-time and close-coupled with execution.

Decisions, direction, insights and information deployed in real-time


Integrated Business Planning @ Hospira It is the single process for forecasting the business

All products, all regions, all channels in a single, integrated system

It is both a volume and financial planning process

Pricing and cost assumptions are built in to provide a Rough-Cut P&L

It is hardwired to the LBE (Latest Best Estimate)

The IBP forecast directly feeds the LBE consolidation tool

It is responsible for supply chain resource planning

The single forecast directly feeds: Demand & Supply Balancing Capacity Planning

It is integrated into our planning execution systems for a closed loop planning process

Central planning feeds plant scheduling, the final forecast drives deployment & inventory planning

It sets the business cadence All markets,, regions and global planning processes follow a synchronized calendar

It is a decision making process design to drive alignment & coordinated execution

Exception based process that facilitates issue escalation and resolution


How are we doing?

Strengths Ever improving collaboration between functions Integration with finance and clear financial objectives Strong engagement / involvement with the process Completeness of the core S&OP process design Global integration & synchronization Collaboration tools assist data and workflow management

Opportunities

Longer term focus / continue driving strategic purpose Consolidate other redundant processes into IBP Improve supply modeling capabilities & systems integration

with execution (2012 focus) Improve issue content / analysis (problem solving skillsets)


IBP Development Model A construct for implementing IBP

Critical Competencies The core skills and knowledge

areas for S&OP / IBP practitioners and stakeholders.

Process Proficiencies The common threads that are

keys to success in each step of the S&OP / IBP process.

Foundational Capabilities The key capabilities that support and provide source systems for

the S&OP / IBP process.


The Foundational Capabilities: How are we enabling the process?


Process & Project Overview: Collaborative Forecasting... The core infrastructure of IBP

Collaborative Forecasting


Project Summary: Collaborative Forecasting

Objective/Scope Implement a consensus demand collaboration tool, an enabling technology, with product / channel / regional data structures, integrated volume and financials and statistical forecasting models.

From To Separate/disconnected S&OP and LBE forecasts Global, collaborative, integrated and

synchronized planning

Revenue, unit volume, pricing and cost in multiple systems

Central tool to develop and maintain the plan one source of truth

No differentiation between unconstrained and constrained plan

One common plan for commercial and finance based on constraints

Aggregate forecasting Global LBE at the specific List #

All Type

TC_DC DC_DT List #

All

Channel

All

Region

Sub-Region

Country

Weekly process

Monthly process


Process & Project Overview: Rough Cut Capacity Planning Balancing demand & supply.

Collaborative Forecast

Rough Cut Capacity Planning


Project Summary: Rough Cut Capacity Planning

Objective/Scope Gather detailed capacity data for each site, and for all products, configure APO capacity planning parameters and build capacity utilization requirements into the IBP process

From To Poor visibility to capacity constraints past the ~4-5 month horizon.

Provide early warnings signals of future demand / supply imbalances

Lack of understanding of the ideal capacity required to support the unconstrained demand

Provides visibility to the unconstrained supply requirement versus the current MPS

No monthly capacity check in the PS Review Time phased capacity utilization by critical resource for each site


Process & Project Overview: Inventory Optimization Right sizing our inventory.

Collaborative Forecasting


Inventory Optimization


Project Summary: Finished Goods Inventory Optimization

Objective/Scope Statistically determine recommended safety stock levels based on demand & supply variability and implement exception based inventory management practices.

From To Qualitative methods used to determine safety stock levels

Statistically determined safety stock and replenishment quantities

Stocking levels unresponsive to business changes

Exception based processes used to identify and review recommended changes

Inventory parameters not adequately maintained in central planning systems

Parameters updated based on recommended settings and used for deployment planning

Investment Service


Process & Project Overview: DRP Driven Master Scheduling Bringing it all together.


DRP Driven MPS

Collaborative Forecast

Inventory Optimization


Project Summary: DRP Driven Master Scheduling Objective/Scope Re-engineer the APO planning system & processes to plan using a DRP-driven planning signal approach and to improve integration with Integrated Business Planning

From To Ad hoc capacity management over a limited planning horizon

Capacity modeling and load leveling capability over the full IBP horizon

MPS planning against aggregate inventory & demand totals.

DRP driven production signals based on net inventory & statistical safety stock targets at end shipping locations.

Planning limited to unconstrained demand Separate unconstrained planning vs. constrained plan execution


Insights into Successful IBP Implementations

Some Keys to Success Apply simplifying concepts to the complexity Ensure alignment/synchronization with master data Incorporate cross-functional data structures and hierarchies Integrate with finance to drive fastest adoption Position the S&OP process as a decision making process Link S&OP cycle to the established business review process Establish well defined process facilitation / workflow steps Inputs should be specific, tangible and actionable Support the process with the right technology Focus on change management


Demand / Supply Planning Sales & Operations Planning Integrated Business Planning

Process Evaluation Technology Selection Business Process Design

Solution Architecture Process Facilitation Change Management

Integrated Business Planning Associates the power of planning

Thank you!

IBP2 Contact: Bill Nienburg Executive Director +1-630-881-5002 [email protected]

Integrated Business Planning Process

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