Global Specification Management for the Process Industries – early findings on Best Practices

1. Global Specification Management for the Process Industries – early findings on Best Practices Alison Smith Sr. Research Analyst Manufacturing & Production Operations AMR Research asmith@amrresearch.com

2. Big drivers for manufacturing agility • Global markets • World-wide competition • World-wide product visibility – complex supply networks • Standardized quality – demographic products • Technology • Increasing demand for innovation & shorter product lifecycles • Time-to-market & Time-to-volume – plummeting NPD times • Technology convergence - RFID • Cost • The “China Price” • Six sigma, lean mfg • Outsourcing • Regulatory compliance • Sarbanes-Oxley, 21 CFR part 11, Tread, WEEE, RoHS, etc…

3. Manufacturing Processes will adapt to: • More Dynamic Supply Networks • Fleet of Plants – distributed production assets • Ongoing reconfiguration of sources / destinations • Network of suppliers, plants, co-packing, distribution – many 3rd parties • Better Short Term Demand Visibility • Closed loop with S&OP, frequent schedule adjustments in the plants • Product segmentation, price management • Shorter New Product Development & Launch (NPD&L) • Global specification management • Automated workflow for product spec & packaging launch at plant • Faster scaling and rollout to additional plants globally • More product variants • Global specification management, Retailer specific requirements (sizes, packing, promotion), Localization requirements (recipe & labeling)

4. Brand Owner Suppliers Suppliers Facility n Facility 1 Brand equity management is more of a challenge than ever before Perfect Order Performance: Right Product, Right Place, Right Time, Right Price Contract Manufacturers Suppliers Contract Manufacturers

5. Information velocity & process traceability • Escalates need for: • Near real-time exchange of key product/process requirements • Performance feedback between business level and execution systems • Requires: • Definition of “key” information (product specifications, process specifications, quality, compliance, performance, costing data) • Who owns the master data? • Delineation of functional ownership/stewardship – who’s going to synthesize the information, and what are the systems of record for each class of information?

6. AMR’s research on global specification management in Process Industries • Active dialogues: • Industry leaders who have or are implementing global specification management systems: Chemicals, Pharma, Biotech, CPG, Food&Bev • About: • Drivers, budgets, timeframes & benefits • Best practices: project planning, implementation, team makeup, governance models, training & rollouts • Technology approach • “If you had a chance to do it again …?” • Key lessons learned

7. New Product Formulation Process Development Manufacturing (In-house or Contract) & QA Packaging (In-house or Contract) & QA Logistics Customer S88 Common specifications and business process stakeholders Product Lifecycle Management / Enterprise Materials and Resource Planning • Manufacturing (Bill of process, bill of materials, bill of equipment, bill of test) • Raw Materials Specifications • Equipment specification • Supplier CoAs • Intermediates Specification • Process Specification • Testing Specification • Packaging Specification • MSDS, labeling specs • Delivery & Handling specs • Certificates of Analysis • Site Recipe • Master Recipe • Control Recipe • Research & Development of New Products or Product Variants to meet customer specifications • Raw Material (ingredient) • Specification • Formula • Process Specification • Testing Specification • General Recipe • Packaging Specifications • MSDS, labeling specs • Delivery & Handling • Specs • Fulfillment • Retailer Specifications • Product Information • Delivery & Handling Specs • Certificates of Analysis

8. Production “asset-centric” related business processes are the largest consumers of specifications 100% 50% Suppliers Customer Warehousing, Transportation & Logistics Process Development/ Product & Packaging Product Development Materials Management/ Procurement Packing & Co-packing Production & Production QA

9. Source: AMR Research 2005 Global Specification Management for Process Manufacturers: A High (Return) Road to MDM

10. GSM project benefit potential is large Source: AMR Research 2005 Global Specification Management for Process Manufacturers: A High (Return) Road to MDM

11. GSM project findings to date • Initial project budgets start in 800$K range – more recent (w/in past 2 years) projects have initial budgets of around 2$M • Starting points vary (raw materials, ingredients, attributes versus finished goods view) • Final costs approach ~10$M • Timelines converge at ~ 10 years – no strong correlation between number of SKUs or number of specifications managed • Manufacturing is not tightly integrated 90% of time Global companies, multiple sites (5 – 85), 10K – 100K product codes, various technology platforms

12. Production “asset-centric” related business processes are the largest consumers of specifications 100% 50% Suppliers Customer Warehousing, Transportation & Logistics Materials Management/ Procurement Process Development/ Product & Packaging Product Development Packing & Co-packing Production & Production QA

13. Consider the case of Global Recipe Management Today – Process sheets delivered in electronic form – plant engineering manually transforms into site, master and control recipes. • Processing information • No equipment listed • Used primarily for planning • or investment decisions or • activities General Recipe • Site-specific information • In local language • Based on local raw materials • Considers site-specific storage • constraints Site (plant) Recipe Site (plant) Recipe Site (plant) Recipe Site (plant) Recipe Master Recipe Master Recipe Master Recipe • Process cell-specific information • Depends on equipment types/classes • Template for control recipes Control Recipe • Equipment-specific information • Batch-specific information: batch ID, batch size, raw • materials used, processing steps ANSI/ISA-S88.01-1995: Batch Control Systems, Part 1: Models and Terminology

14. The information management challenge today General Recipe Management Bill(s) of Materials; Bill of Assay; General Recipe (Process Sheet) raw materials; intermediates; finished goods; ingredients; attributes; suppliers; labeling specs; equipment classes Product Formulation & Specification Management Local raw materials; intermediates; finished goods; ingredients & attributes; Local labeling specs; Site equip. specifications; control recipes; local storage & handling Site Recipe Creation & Management Bill of Materials Bill of Process Bill of Equipment Bill of Assay Site Packaging Management Bill of Packaging Materials Bill of Process Bill of Equipment …

15. The rapidly evolving application landscape • Formulation vendors extending product offerings to encompass collaborative “PLM” processes • ERP extending reach into manufacturing – may require costly “re-optimization” • Classic discrete PLM vendors consider “morphing” to support recipe/formula based products • Best of breed specification management systems adding enterprise capabilities

16. Emerging best practices • Executive-level sponsorship • Cross-functional design teams • Invest heavily in the design and planning phase • Design for greatest level of detail – a bottom-up top-down approach is required • Plan on using best of breed solutions to augment ERP/PLM • Designate clear project ownership • Allocate sufficient resources for implementation required to meet rollout timelines, budget, and M&A activities • Budget for training, training, and more training

17. Common gotcha’s • Transformation of unstructured specification data into structured data • Schema design and organizational buy-in is a time consuming process. • 2+ years identifying & consolidating unstructured data. More for schema design. • Data cleansing • 38 different specifications for water. Cleansing is time consuming and generally underestimated (no one wants to admit their data is that dirty!) • The devil’s in the details • Neglecting to design for scaling, units conversion, chemical compound data, packaging design details can result in large setbacks such as scrubbed project phases, significantly reduced scope, significantly higher costs.

18. Great Global Specification Management Project Quotes • “If we knew then what we know now … we never would have done it … no, just kidding ….really” • “Our real budget? It never would have been approved!” • “It’s like turning over a rock … you have no idea what you’re going to find”

19. Today, global specification management is viewed as a “business essential” by these same companies. Thank you! Alison Smith asmith@amrresearch.com