SCM Academy Seoul 7 10 September Mr Jacob

SCM Academy Seoul, 7 – 10 September Mr Jacob Rye, Gambro Mr Martin Richardson, Trivector 1

Agenda ISC - Korea (September 7 - 10, 2004) Tuesday (start 9: 30) - Introduction to Simplicity - ISC and slim. SUPPLY - SCM Academy Wednesday ( 9: 00) - SCM Academy How much and when to order - Supply chain process Forecasting demand Thursday (9: 00) - Introduction to stock target setting Friday (start 9: 00) - Verify stock targets - Set action plan - Hands-on training with slim. SUPPLY safety stock model lunch break - SCM Academy Inventory Management Forecasting - Supply chain process Replenishment - Safety stock target setting - Feedback and evaluation - i 2 overview s Dinner / work 2

Integrated Supply Chain Introduction General communication pack (ISC) 2004 -09 -07 © Copyright and date

Content • GRP’s need for action • Simplicity • Integrated Supply Chain 4

Actuals Consistent under-delivery on strategic plan targets EBIT Percent of sales SP/BP SP 2001– 03 SP 2002– 04 SP 2003– 05 Draft SP 2004– 06 Reported EBIT margin Source: GRP reporting, Draft Strategic Plan 2004– 06 from June 13, 2003 (Berlin meeting) 5

Staying on the downswing means to deliver significantly below expectations Adjusted EBIT margin Percent 10. 7 Trajectory shift needed to achieve strategic plan - GRP's current performance still shows a downward slope 5. 7 F 03 Source: GRP reporting, team analysis 6 ESTIMATE

Market conditions will remain tough or even worsen Government/regulation • Large cost pressures on public sector budgets, e. g. , – Reimbursement levels grow below inflation (US) – Change in reimbursement criteria in Germany • Greater scrutiny of reimbursement practices (e. g. , in U. S. ) Customers • Customers facing ongoing cost and reimbursement pressures (e. g. , U. S. clinics); price erosion likely to continue • Many customers unwilling to pay a premium for a standard ”box” and a relationship sale • Requirements for value-added offerings tailored to different customer segments, produced and delivered efficiently GRP Competitors • FMC and others aggressive on pricing with strong volume focus • Asahi/Nikkiso a fourth force expanding in Europe • Competitors have a less complex product portfolio • 5– 8% improvements annually necessary to compensate for inflation and price erosion pressure • External forces acting on GRP indicate that additional improvements are likely to be needed • Improved cost and process management is not an option – it is an imperative in order to stay competitive 7

Content • GRP’s need for action • Simplicity • Integrated Supply Chain 8

The purpose of Simplicity is to… …strengthen GRP’s competitiveness by improving productivity, margins and cash flow 9

The four Simplicity projects Product Portfolio Optimization We get clean… Overhead productivity Simplicity Integrated Supply Chain We get slim… World Class Manufacturing We get lean… 10

The four Simplicity projects • Overhead Productivity – Analyze and implement possible shared services within GRP • Product Portfolio Optimization – Identify optimal product portfolio for GRP and propose an implementation plan • World Class Manufacturing – Develop a manufacturing strategy for GRP – Implement lean production at all GRPs manufacturing sites • Integrated Supply Chain – Reduce inventory levels at GRP – Reduce total logistic cost at GRP 11

Content • GRP’s need for action • Simplicity • Integrated Supply Chain 12

GRP Supply Chain Vision internal external PPO, WCM… ”To be recognized by customers worldwide for the best supply chain in our industry” 13

the Supply Chain The suppliers supplier Customer demand GAMBRO Suppliers OEM Raw. mat WIP DC Satellites Sales Customer 14

The supply chain management concept Good, but we can do better… Tactical Planning Shortage Planning Capacity Central Marketing Factory Manager Global Supply Chain Planner i 2 Parameters Sales Forecasts Order Stock Sales Planner Sales Subsidiary Net Requirements Plan Replenishment Plan Stock Levels Production Plans Regional Supply Chain Planner Satellite / Other DC Customer Agreement § Production Planner DC Factory Agreement § 15

Background and purpose ISC Long term purpose – 2002 actual vs. 2006 actual • GRP management requires an inventory reduction of GS and Sales inventory from 12, 7 WOS to 8, 5 WOS by end of 2006 (ITO from 4, 1 to 6, 1) • GRP management requires a total logistic cost reduction – incl. financial cost for inventory – from 9, 1% to 8, 3% by end of 2006 To be delivered in 2004 – 2004 budget vs. 2004 actual • GRP management requires an inventory reduction of GS and Sales inventory from 12, 1 WOS to 10, 8 WOS during present year • GRP management requires a cost reduction – incl. financial cost for inventory – from 9, 4% to 9, 3% during present year 16

Scope of ISC • Finished goods within GRP – Products produced by GRP, starting with Europe – Global OEM and DP • Global supply and Sales – All DCs – All Satellites – All Sale subsidiaries with inventory • All supply chain areas – – Inventories Processes Transportation etc 17

Connection to other projects • Product portfolio optimization – Decides on GRP’s product portfolio the products ISC should consider • World class manufacturing – Optimize the manufacturing process sets lead-time and service level conditions for ISC Supplier GRP Operations GRP Global Supply WCM GRP Sales GRP customer ISC PPO 18

ISC fleet… 19

High level time plan ISC 2004 ATP, order and delivery MIR– Monitor Inventory Reduction SP – Spare part mgmt strategy slim. SUPPLY analyze Implement (sweden) Italy germany france Pilot I – Dry. Cart pre-study US/Asia Lead-time attack WCM & ISC IT-updates/upgrades Second cut IT-updates/upgrades First cut IT-next steps First class supply Pilot II Jan Feb March April May June July Aug Sept Oct Nov SCM-Academy Dec 20

Project organization ISC Sponsor Klas Arildsson Steering group Management Committee Project Management Alexandra Malmquist (PL) Jacob Rye (SCM) Christoph Jeckelmann (CM) Niclas Jonasson (Controlling) ATP Order+ Del. Process Do • S. Ericsson * ne slim SUPPLY • P. Johnson IT updates (i 2) • C-J. Rijpma Spare parts* MIR • D. Kerr * • M. Romani First Class Supply • TBD ! Consulting: M. Nygren, DC Managers, other ad hoc experts, Trivector, Roce, R 5 * Own Steering Group 21

slim. SUPPLY Goals • • Train all GSCP/RSCP/DC managers + the ISC team in SCM Implement a standardized working model for GSCP/RSCP Short/medium term target stock calculated and agreed Roll-out of the new target stock agreed (incl a process how to measure the roll-outs) • Follow up and secure performance Status • Started training of planners and GS mgmt team in SCM-Academy • Started implementing the updated and shared planning process • The detailed analysis of the major European produced disposables was finalized in week 25 (after summer Concentrates, Catheters, OEM/DP will follow) • Start applying the new working process and targets as we go along • S&OP meetings used as a natural follow up forum 22

Stock optimization execution flow (GSCP / slim. SUPPLY) Optimal stock target setting Validation by DC Mgr / RSCP (GSCP / RSCP) GS Op S&OP (MC) Mgmt Comt. approve financial consequence M Validation by S&OP of the financial consequences of stock reduction. Implementation of new stock targets Controllers update FO 3 -9 All locations apply new targets (Controllers / Sales / Sat) Consequence for Sales / Satellites Stock targets for the Satellites / Sales companies will be calculated and set by the Global planner. The final agreed target and implementation plan will be set by Global planner/Regional planner/Sales planner. The stock targets will optimized while still ensuring we keep high product availability. 23

Supply Chain Process Map Path: Insight/GRP projects/Simplicity projects/ISC/GRP Process guide 24

Summary ISC PROJECT DEP/ARR STATUS ATP landed baggage slim SUPPLY departed on time MIR D: may 2004 boarding First class supply D: august 2004 go to gate Spareparts D: august 2004 go to gate … 25

…for the best supply chain ”It´s not the strongest nor most intelligent of the species that survive; it´s the one most adaptable to change” (by Charles Darwin) 26

SCM Academy Seoul, 7 – 10 September Mr Jacob Rye, Gambro Mr Martin Richardson, Trivector 29

Agenda Ø Introduction to inventory management Ø Forecasting and forecast errors Ø How much to order Ø When to order 30

Reasons for having inventory Make/buy more than what’s directly required to cover a customer order Set up cost Ordering cost Allow shorter delivery lead times than manufacturing/distribution lead times The market requires short lead times Provide high service levels The market requires high availability Uncertain of customer demand Forecast errors Variation in demand Long lead times Uncertainty in supply Poor PSL Custom clearance Product quality issues 31

Useful and unnecessary inventory Useful inventory Unnecessary inventory Total inventory 32

Useful and unnecessary inventory Operating cost Inventory Useful inventory Unnecessary inventory 33

Useful and unnecessary inventory Operating cost Change the operating environment Useful inventory Improve inventory management efficiency Inventory Unnecessary inventory 34

Types of inventory Useful inventory Unnecessary inventory Cycle stock Safety stock Coordination inventory Seasonal inventory Obsolete inventory 35

Cycle stock Replenishments Stock level 36

Safety stock Stock level 37

Coordination inventory I Stock level Required replenishment date Delivery date 38

Coordination inventory II Stock level Required replenishment date Product A Stock level Required replenishment date Product B Stock level Required replenishment date Product C Delivery date for product A, B och C 39

Seasonal inventory I Volume Demand Production Inventory J F M A M J J A S O N D 41

Seasonal inventory II Volume Demand Production Inventory J F M A M J J A S O N D 42

Forecasting issues Ø Forecasts based on judgment Vs based on calculations Ø Forecast errors Ø Outliers Ø Forecast consumption Ø Forecast netting 43

Demand variation and product groups Demand for products group 1 -3 Demand per product 1 2 3 44

Demand variation and time period Demand per month 45

Three common demand pattern Random variation Trend Season 46

Moving average F(13) = D(1) + D(2) +. . . D(12) 12 F(13) = Forecast month 13 D(1) = Actual demand month 1 D(2) = Actual demand month 2 etc 47

Moving average principle Actual demand 12 15 15 18 20 22 Forecast 48

Moving average example Month Demand 1 2 3 15 12 18 Forecast 4 5 15 Forecast month 4 = (15 + 12 + 18) / 3 = 15 Month Demand Forecast 1 2 3 4 15 12 18 21 15 5 17 Forecast month 5 = (12 + 18 + 21) / 3 = 17 49

Weighted Moving Average May June July Aug Sept Oct Demand Weight period with Moving average Weighted per Period 20 % 8% 20 % 15 % 12 % 40 % 25 % 50

Weighted 3 months Moving Avr. example Month Demand 1 2 3 15 12 18 Forecast 4 5 16 Forecast month 4 = 0. 2 * 15 + 0. 3 * 12 + 0. 5 * 18 = 16 Month Demand Forecast 1 2 3 4 15 12 18 21 16 5 18 Forecast month 5 = 0. 2 * 12 + 0. 3 * 18 + 0. 5 * 21 = 18, 3 51

Considering trend D(i) D(i+1) Trend = D(i+1) - D(i) 52

Considering trend 30 30 34 36 38 40 42 30 Basic forecast 30 32 44 Trend: 2 per month 53

Time series with trend 2003 January 271 July 108 February 262 August 189 March 253 September 287 April 245 October 339 May 114 November 325 June 165 December 442 Total Jan – June =1. 310 Total July - December = 1. 690 Trend per six month = 1. 690 – 1. 310 = 380 Trend per quarter = 380 / 2 = 190 Forecast 2004 Jan - March = 1. 690 / 2 + 190 = 1. 035 54

Seasonal index Average demand in period i Seasonal index period i = Average demand in all periods D(i) D(m) 55

Calculating seasonal indices January February March April May June July August September October November December Total 35 48 51 60 48 41 37 33 30 26 28 32 469 0. 89 1. 23 1. 30 1. 54 1. 23 1. 05 0. 95 0. 84 0. 76 0. 67 0. 72 0. 82 12. 00 S (January) = 35 / 469 / 12 = 0. 89 56

Considering seasonal variations 50 50 1. 30 1. 54 1. 23 1. 05 0. 95 0. 84 77 61 53 42 Basic forecast 0. 89 1. 23 Seasonal index 44 61 65 48 Seasonal adjusted forecast 57

Forecasting issues Ø Forecasts based on judgment Vs based on calculations Ø Forecast errors Ø Outliers Ø Forecast consumption Ø Forecast netting 58

Mean absolute error 1 n MAD = F(i) - D(i) Month Jan Feb Mar Apr Forecast 20 22 24 26 Demand 18 25 21 28 20 -18 + 22 -25 + 24 -21 + 26 -28 4 = 2+3+3+2 = 4 2, 5 59

Forecast errors in different situations Forecast / actual demand Forecast error 1 2 Actual demand Forecast 60

Mean forecast error MFE = 1 n = ( F(i) - D(i) ) Month Jan Feb Mar Apr Forecast 20 22 24 26 Demand 18 25 21 28 (20 -18) + (22 -25) + (24 -21) + (26 -28) 4 = 2 -3+3 -2 4 = 0 61

Forecast error to expect Level of aggregation Minimum Average Maximum Product group 4% 10 % 20 % Product 10 % 15 % 25 % SKU 22 % 42 % 80 % Source: Closs, D. – Mc. Connell, J. , Forecasting and its uses in logistics, CLM explores, Vol 1, 2004. 63

Forecast monitoring MFE = 1 n ( F(i) - D(i) ) + k * MAD Period 1 2 3 4 5 6 7 - k * MAD 64

Forecasting issues Ø Forecasts based on judgment Vs based on calculations Ø Forecast errors Ø Outliers Ø Forecast consumption Ø Forecast netting 65

Forecast consumption Week 1 2 3 4 5 6 Forecast 20 20 20 Customer order 26 Scheduled to deliver 66

Forecast consumption Week 1 2 3 4 5 6 Forecast 20 20 20 18 20 20 Customer order Scheduled to deliver 26 18 18 26 67

Forecast netting Week 1 2 3 4 5 6 Forecast 20 20 20 Delivered 14 New forecast 69

Forecast netting Week 1 2 3 4 5 6 Forecast 20 20 20 Delivered 14 20+2 20 20 New forecast 70

Forecast netting Week 1 2 3 4 5 6 Forecast 20 20 20 Delivered 14 20+2 20 20 20 -1 20 20 New forecast Delivered New forecast 28 71

The basic inventory control issues How much to order? When to order/deliver? Inventory INVENTORY Available to promise capability Differentiating customer service 72

Available to promise Week 1 2 3 4 5 6 Allocated to customer 60 25 40 15 5 0 - - 100 30 5 65 50 45 145 Planned replenishment Calculated on hand 90 73

Available to promise Week 1 2 3 4 5 6 Allocated to customer 60 25 40 15 5 0 - - 100 30 5 65 50 45 145 5 5 45 45 45 145 Planned replenishment Calculated on hand Available to promise (ATP) 90 74

Agenda Ø Introduction to inventory management Ø Forecasting and forecast errors Ø How much to order Ø When to order 75

Costs related to how much to order Ordering cost Administrative ordering cost Handling cost Issues Receipts Inspection cost Set up cost Transportation cost Carrying cost Capital cost Storage cost Risk cost Insurance Deterioration Obsolescence 76

Costs related to how much to order Cost per year Ordering cost Carrying cost Order quantity 77

Costs related to how much to order Cost per year Total cost Ordering cost Carrying cost Order quantity 78

Example H 12 -4000 Price € 18, 85 D 140 000 pieces/year Ordering cost € 30 Inventory carrying cost 18% Bi-Cart SET 1 Price € 7, 78 D 10 000 pieces/year Ordering cost € 30 Inventory carrying cost 18% 79

Economic order quantity The Wilson formula: Q = D = S = P = IC = 2 * D * S P * IC Economic order quantity Demand period Ordering cost per order Price Inventory carrying cost period (%) Example: D = S = P = IC = 3000 per year 40 € 30 € 20% Q = 2 * 3000 * 40 30 * 0, 20 Q = 200 80

Inventory projection with fixed order quantity Week 1 2 3 4 5 6 7 8 9 Demand 80 80 60 60 80 80 70 Order quantity 200 Stock on hand 120 200 40 180 120 200 60 0 120 200 40 170 81

Economic number of periods P = Q *N/D Q P D N Example: = = Economic order quantity Number of weeks coverage Year demand Number of weeks per year Q = 200 D = 3000 N = 50 weeks / year P = 200 * 50 / 3000 82

Inventory projection with fixed number of periods Week 1 2 3 4 5 6 7 8 9 Demand 80 80 60 60 80 80 70 Order quantity 220 Stock on hand 140 70 0 180 60 0 120 230 60 0 150 83

Sensitivity of non-optimal order quantities Cost per year Order quantity 84

Reorder point system Stock level Reorder point Safetystock Lead time 85

Reorder point calculation – Reorder point systems ROP = D * LT + SS where D = Demand per day LT = Lead time in days SS = Safety stock Example: D = 900 units per day LT = 5 days SS = 1000 units ROP = 900 * 5 + 1000 = 5500 86

Agenda Ø Introduction to inventory management Ø Forecasting and forecast errors Ø How much to order Ø When to order 87

Example – Safety stock 1 2 3 4 5 6 7 8 9 10 370 639 615 410 512 418 490 576 540 438 11 12 13 14 15 16 17 18 19 20 595 519 612 348 479 552 433 610 528 439 88

Ways to determine the size of safety stock • Manual estimate ”based on experience” • Percentage of demand during lead time • Calculated from shortage costs • Calculated from service level 89

Safety stock as percentage of demand during lead time Product A: Demand per week: 18 - 21 - 19 - 20 - 18 - 22 - 20 - 19 - 23 Average demand per week: 20 Product B: Demand per week: 44 - 0 - 4 - 8 - 12 - 0 - 48 - 20 - 64 Average demand per week: 20 90

Costs related to safety stock Shortage cost Back order cost Extra transportation cost Lost sales Lost customer Carrying cost Capital cost Storage cost Risk cost Insurance Deterioration Obsolescence 91

Costs related to safety stock Cost per year Total cost Shortage cost Carrying cost Safety stock 92

Service level definitions There is two methods to calculate safety stock levels which are called SERV 1 and SERV 2: SERV 1 = Probability of shortage during one inventory cycle Product A Safety Stock When using SERV 1 method, the calculated safety stock level is the same no matter how often you replenish and expose your stock for stock outs. 93

Service level definitions SERV 2 = Percentage of total demand per year that can be delivered from stock Product B Safety Stock When using SERV 2 method, the calculated safety stock level is bigger the more often you replenish and expose your stock for stock outs. 94

Service level definitions The preferred method used in Gambro is SERV 2 because: SERV 1 only consider the risk for shortage during one inventory cycle, which means that the safety stock level is the same for low volume products (like spare parts) as the safety stock for high volume products. Safety Stock SERV 2 consider the increased risk for stock outs, when there is a high number of replenishments. Safety Stock 96

The normal distribution 1 = 68, 3 % 2 = 95, 5 % 3 = 99, 7 % Average 97

Demand variation according to the normal distribution Stock on hand Average demand during lead time C A B Replenishment lead time 98

Calculating the standard deviation σ = 1, 25 * MAD = 1, 25 * ( D(i) – D(m) ) / n where D(i) = demand in period i D(m) = average demand during n periods Day Demand 1 6 2 4 3 11 Average demand = (6 + 4 +11) / 3 = 21 / 3 = 7 MAD = ( 6 -7 + 4 -7 + 11 -7 ) / 3 = (1 + 3 + 4) / 3 = 2, 67 σ = 1, 25 * 2, 67 = 3, 34 Actual demand Average demand 99

Calculating the standard deviation from forecast error σ = 1, 25 * MAD = 1, 25 * ( D(i) – P(i) ) / n where D(i) = actual demand in period i P(i) = forecasted demand in period i Day Demand Forecast 1 6 7 2 4 7 3 11 7 MAD = ( 6 -7 + 4 -7 + 11 -7 ) / 3 = (1 + 3 + 4) / 3 = 2, 67 σ = 1, 25 * 2, 67 = 3, 34 Actual demand Forecast 100

Forecast errors in different situations Forecast / actual demand Forecast error 1 2 Actual demand Forecast 101

Forecast error Vs safety stock Forecast / actual demand Product B Product A Actual demand Forecast 102

Demand variation according to the normal distribution Stock on hand Average demand during lead time C A Data collecting period B Replenishment lead time 103

Standard deviation and lead time σ(Lead time) = σ(Period) * √ LT σ(Lead time) = Standard deviation during lead time σ(Period) = Standard deviation per forecasting period LT = Lead time in periods Example: σ(Month) = 40 Lead time = 5 days 1 Month = 20 days σ(Lead time) = 40 * √ 5 / 20 = 40 / 2 = 20 104

Service level definition To calculate the safety stock: 1 Probability of shortage during an inventory cycle (SERV 1) 2 Percentage of demand that can be delivered directly from stock (SERV 2) The safety stock is calculated according to the following formula: SS = k · σ When using definition 1, k is picked from the normal distribution When using definition 2 the service function E(z) = (1 – SERV 2) · Q / σ and k is picked from the service function table. 105

Demand variation according to the normal distribution Stock on hand Average demand during lead time C A B Maximum demand with the probability corresponding to the service level k*σ Replenishment lead time 106

Safety factor and the normal distribution Service level in % Safety factor 50 0, 00 75 0, 67 80 0, 84 85 1, 04 90 1, 28 95 1, 65 98 2, 05 99 2, 33 99, 5 2, 57 99, 99 4, 00 107

Safety stock based on SERV 1 Bicart 650 g Average demand per week: Standard deviation per month: Lead time: Service level: 2000 1200 2 weeks 98 % 14, 000 4, 500 5 Weeks 98% SS = k * σ(Period) *√ LT = 2, 05 * 1200 * √ 2 / 4 = 1739 2. 05 x 4500 x √ 5 / 4 2. 05 x 4500 x 1. 118 = 10, 314 108

Safety factor and the service function Safety factor 0, 40 0 0, 30 0, 22 0, 25 0, 35 0, 20 0, 49 0, 15 0, 67 0, 10 0, 90 0, 05 1, 26 0, 01 1, 94 0, 005 2, 19 0, 0015 2, 59 109

Safety stock based on SERV 2 Average demand per week: Standard deviation per month: Lead time: Order quantity Service level: 2000 1200 2 weeks 200 98 % E(z) = (1 – SERV 2) · Q / σ = (1 – 0, 98) · 200 / (1200 · √ 2 / 4) = 0, 047 SS = k * σ(Period) * √ LT = 1, 29 * 1200 * √ 2 / 4 = 1095 (SERV 1의 1, 739보다 작다) 110

Demand supply variations LT = Lead time in periods to replenish stock D = Demand period σD = Standard deviation in demand period σLT = Standard deviation in lead time σDDLT = Total standard deviation 111

Calculated Vs achieved service levels 113

Calculated Vs achieved minimum service levels 114

Safety stock Vs service level Safety stock Service level 50 % 100 % 115

Service level definitions To calculate the safety stock: 1 Probability of shortage during an inventory cycle (SERV 1) 2 Percentage of demand that can be delivered directly from stock (SERV 2) To measure achieved service level: 1 Percentage order lines that can be delivered directly from stock 2 Percentage complete orders that can be delivered directly from stock 116

Calculated service levels Vs order line service 117

Relationship order line service and order service Order line Number of order lines service 90% 2 81 3 73 5 59 10 35 15 21 20 12 50 1 Order line service 95% 90 86 77 60 46 36 8 Order lineservice 98% 96 94 90 82 74 67 36 118

Reorder point system Q Reorder point Q 119

Reorder point calculation – Reorder point systems ROP = D * LT + SS where D = Demand per day LT = Lead time in days SS = Safety stock Example: D = 900 units per day LT = 5 days SS = 1000 units ROP = 900 * 5 + 1000 = 5500 120

Periodic reordering system Max inventory level Q Q Order interval 121

Maximum inventory calculation Max = D * ( LT + P ) + SS SS = K * σ * √ LT + P where K = Safety factor σ = standard deviation per day D = Demand per day LT = Lead time in days P = Order interval in days SS = Safety stock Q = Max – IL ; IL = Inventory level when ordering Example: D = 900 units per day LT = 5 days P = 5 days SS = 1000 units Max = 900 * ( 5 + 5 ) + 1000 = 10000 122

Actions to reduce inventory • Cycle stock – Smaller ordering quantities/more frequent replenishments • Safety stock – Reduce demand variations • More frequent deliveries to the customer • VMI 123

Gambro Supply Chain Process 128

Agenda Ø Introduction to process Ø Forecasting Demand Ø Setting stock targets Ø Replenishment 130

One common and shared SCM Process Map process, set responsibility and describe activities in the process • • • Match IT Communicate systems and Follow-up and educate organisation to monitor proorganisation in the activity cess and the process requirements performance of the process ”Speaking the same language” by common process Ensure the best practise is applied Faster introduction of new employees and more flexibility on resources Helps to create diciplin in the organisation Requirement to succeed with Integrated Supply Chain 131

Useful and unnecessary inventory Operating cost Change the operating environment Useful inventory Improve inventory management efficiency Inventory Unnecessary inventory 132

Supply Chain Process Map Process map on Insight: Projects/Simplicity/ISC/GRP Processes 133

Process map templates Process Triggers of activities Where customer value is created Results of value adding activities 134

How to read the process map • Either object A or B is required to start the activity. • The object out of the activity is either object C or D. 135

How to read the process map • Both object A and B is required to start the activity. • The object out of the activity is both object C and D. 136

How to read the process map Alternative flows – either Activity A or Activity B is triggered 137

How to read the process map Parallell flows – both Activity A and Activity B are triggered 138

Stock reduction execution flow (GSCP / slim. SUPPLY) Optimal stock target setting Validation by DC Mgr / RSCP (GSCP / RSCP) GS Op S&OP M Validation by S&OP of the financial consequences of stock reduction. (MC) Mgmt Comt. approve financial consequence Implementation of new stock targets Controllers update FO 3 -9 All locations apply new targets (Controllers / Sales) 139

i 2 overview 140

Agenda • • • Introduction to i 2 Process overview Gambro i 2 model Interfaces Data & Reports Enhancements & To be 145

Process Overview Product Manager i 2 AM Product introduction / withdrawal Badfiles Process Global Supply Chain Planner Inventory analysis Replenish -ment Planning Net Requirement Planning Sales Forecasting Regional Supply Chain Planner Production Planner Replenish -ment Planning Production Planning 146

Process Overview in i 2 • • Sales forecast Inventory analysis Replenishment Bad files process Monthly in i 2 DP Weekly in SCP Weekly in i 2 147

Supply Chain Planning processes – i 2 Tactical Planning Shortage Planning Capacity Central Marketing Factory Manager Global Supply Chain Planner i 2 Parameters Sales Forecasts Order Stock Sales Planner Customer Sales Subsidiary Net Requirements Plan Replenishment Plan Stock Levels Production Plans Regional Supply Chain Planner Satellite / Other DC Agreement § Production Planner Factory DC Agreement § 148

Supply Chain Planning processes – i 2 Tactical Planning Shortage Planning Capacity Central Marketing Factory Manager Global Supply Chain Planner i 2 Parameters Sales Forecasts Order Stock Demand Planner Customer Sales Subsidiary Net Requirements Plan Replenishment Plan Stock Levels Production Plans Regional Supply Chain Planner Satellite / Other DC Agreement § Production Planner Factory DC Agreement § 149

Supply Chain Planning processes – i 2 Tactical Planning Shortage Planning Capacity Central Marketing Factory Manager Global Supply Chain Planner i 2 Parameters Sales Forecasts Order Stock Demand Planner Customer Sales Subsidiary Net Requirements Plan Replenishment Plan Stock Levels Production Plans Regional Supply Chain Planner Satellite / Other DC Agreement § Production Planner Factory DC Agreement § 150

Agenda • • • Introduction to i 2 Process overview Gambro i 2 model Interfaces Data & Reports Enhancements & To be 151

Complex supply network Supplier Japan Hechingen Supplier Lyon Lund Canada Supplier Hong Kong Mexico Mirandola Supplier UK 152

SCP at Gambro • • • Provides information on what’s in stock in locations, the demand on the location, and in-transits between locations. Calculates replenishment proposals Unconstrained manufacturing DC 2 Delivery op. FACTORY A DC 1 Distribution DC 3 Manufacturing Distribution Delivery op. Satellite A Delivery op. 155

i 2 network today ü 95 % of GRP total inventory of finished products is planned in the i 2. = DC, Satellite or factory = Sales company actual or consignment stock included in the model 156

SCP inputs & outputs Forecasts Actuals/ Orders Inventory Reporting SCP MODEL Unconstrained manufacturing Other Dynamic Data In-transits On-hand levels Fixed Planned Production Shipments Replenishment Plan Net Requirements Plan 157

SCP model parameters • • • Supply chain network Defined safety stock levels Transportation lead times (pre-process time + transit time) Pallet sizes (not used in planning) No capacity constraints are modelled 158

Inputs: Forecasts • • Monthly forecast is taken from Demand Planner Monthly forecast is split into weeks Weekly forecast is consumed against actual orders in that week Consumed weekly forecast is used in SCP 159

FORECAST split example Split to weekly 130’ *5/30 + 136’ *2/31 136’ *7/31 Net weekly forecast 30440 - 5980 160

Inputs: ORDERS • Only sales orders to markets and customers (not to satellites or DCs) 161

Inputs: OTHER DATA • In-transit shipments • Inventory On hand levels • Fixed plan production 162

Inputs: IN-TRANSIT SHIPMENTS • Sending location gives ’dispatched’ date • SCP shows the in-transit based on dispatched date plus the defined transit time in the bill of distribution. • Receiving location gives a ’goods recieved’ date. • When the ’goods received’ date is received from the local system, the in-transit quantity is removed in i 2 SCP. • Note that processing time at receiving location or custom is not considered! It must be included in the given bill of distribution transit time. 163

INTRANSIT SHIPMENTS example Will be planned to arrive 20040602 164

INTRANSIT SHIPMENTS: Delayed/early shipment l Each receiving location will send records to i 2 of which shipments that have arrived l When i 2 receives a confirmation, and only then, the intransit shipment will be considered to have arrived l Solves both early and delayed shipment 166

INTRANSIT SHIPMENTS: Placed but not dispatched order l As soon as an order is entered in the local system, the order will be transfered to i 2 with a planned dispatch date l The planned dispatch date will be replaced with the actual dispatch date once the shipment has been dispatched 167

INPUTS: ON HAND LEVELS • All locations send inventory levels before the weekend • Opening stock in SCP on Monday morning could differ from the sent number due to in-transits Weekend run 169

Agenda • • • Introduction to i 2 Process overview Gambro i 2 model Interfaces Data & Reports Enhancements & To be 171

Data flow Sales Weekend Transfer FTP Interfac e data flat file ERP ERP Base Data i 2 DP i 2 Data i 2 SCP • • • Data upload into SCP - Supply Chain Model (Static) - Demand, Stock levels, Shipments (Dynamic) Forecast netting performed SCP generates Replenishment plan Planning 172

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Agenda • • • Introduction to i 2 Process overview Gambro i 2 model Interfaces Data & Reports Enhancements & To be 174

Gambro Supply Chain Visibility of shipments from factories to DC’s. SKU 1 150 25/11/02 Hechingen Factory Hechingen Estimated availability dates includes: • in-transit time • Sterilisation Processes Lyon • Hold Times • Quality Inspections France Lund Factory Spain Satellite Portugal Lund DC Italy Factory Mexico USA Japan Factory External Supplier Hong Kong Satellite USA Hong Kong Australia 175

Gambro Supply Chain Visibility Lund Factory France Lyon Lund DC German Factory Spain Satellite Hechingen DC Italy Factory Japan Factory External Supplier Hong Kong Satellite Portugal Visibility of stock and its status being held at DCs, Satellites & EU sales companies. Mexico USA Stock - Available - On-hold Stock - Restricted Stock Australia 176

Gambro Supply Chain Visibility SKU 1 150 25/11/02 Lund Factory France Lyon Lund DC German Factory Spain Satellite Hechingen DC Italy Factory Portugal Visibility of shipments from DC to Satellites Mexico USA Estimated availability date Japan Factory External Supplier Hong Kong Satellite Australia 177

SCP GENERATED PLAN • SCP gives suggestion on the quantity of products that need to be shipped to a DC or Satellite WH to meet expected customer demand at the same time keep the defined safety stock levels SKU 1 150 25/11/03 Korea Satellite Hechingen DC 178

TAKING INTO CONSIDERATION • INPUTS: - Expected future demand (orders + consumed & netted forecast) - Current on hand at supply point and receiving point - Current in-transit shipments - Expected production receipts • SCP MODEL: - Defined safety stock levels - Defined transit lead times 179

SCP PLANNING: Ideal situation ”Frozen” due to lead time (no of frozen weeks varies by location) Customer & dependent demand The only SCP generated figure (pallet size not considered) 180

SCP PLANNING: Demand shortage Original Demand = 500 ”Frozen” due to lead time Fullfilled Demand = 250 Stock=0 indicates that some demand could have been shorted Back to target in this week 181

SCP PLANNING: Safety Stock Target SS on Monday of week (Calculated from Target WOD) Actual WOD (as a result of future demand current weeks Final Stock Target SS on Sunday of week (Calculated from Target WOD) 182

SCP PLANNING: Intransit shipments (has been dispatched) arriving the current week (dispatch date + transit time) Note that orders that have been placed but not shipped are not visible in SCP, but taking into account 183

SCP PLANNING: Propagation in SC, Replenishment Mirandola is supplied from Lund with a one week lead time (process+transit time) 184

SCP PLANNING: Net Requirements Lund DC is supplied from Lund Factory with 2 weeks lead time (process+transit time) Remaining weeks unconstrained manufacturing, i. e also unconstrained replenishment to supplied DCs/Satellites First two weeks only planned production 185

i 2 SCP REPORTS l SCP reports are organized into three folders: - Review Input - Analyze Plan - Replenishment Plan 186

i 2 SCP REPORTS l Review Input - Gives a global overview of the situation in Gambro supply chain - Contains only actual figures (no planning is presented here) 187

i 2 SCP REPORTS l Analyze Plan - Shows the result of the SCP planning: Proposed replenishments Projected stock values Demand fullfillment 188

i 2 SCP REPORTS l Replenishment - A Gambro specific report used for the replenishment process - Essentially the same report as Inventory Analysis 189

Agenda • • • Introduction to i 2 Process overview Gambro i 2 model Interfaces Data & Reports Enhancements & To be 190

Enhancements & To be • • Safety stock target in days European sales company stock visible Handling of in transit shipments Fixed Planned production Fcst netting logic Customer order in Demand Planner Daily Planning (3 uploads per week in EU) Upgrade i 2 SCP and DP to i 2 six – Web based solution instead of citrix 191