dan dodd - challenges & value of deploying s&op (2.0) (2)
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Challenges & Value of Deploying S&OP
Integrated Business Planning SummitMarch 29 & 30, 2012 - The Alexander Hotel - Miami, Florida
Dan Dodd, Vice President of Operations and Supply Chain
My Background
15+ years in operations
• Princeton engineering• Systems Engineer at PB Farradyne• Michigan dual MBA and ME in Manufacturing• Supply chain strategy across Lucent• Two operations turn-arounds, including
– implementing S&OP across $6B Cooper Industries• Operations management at three start-ups
– implemented S&OP at all three
What % here is ops?
Presentation Structure
• The value of S&OP– And operational excellence– At Cooper and OIC
• The challenges– General guidelines– Personal experiences
Please make this interactive
Operational Excellence – Two Keys
5
24 month Demand, Supply, & Inventory
plans
ManagementBusiness Review
DemandReview
SupplyReview
ProductReview
Finance IRReview
Start(Begin Month)
MRP
• Executive led• One plan aligned
with financials
Doing the Routine Routinely
Sales & Operations Planning
Modern operational excellence is 75% lean and 25% S&OP in terms of effort/focus, but
S&OP comes first because it sets the direction
S&OP Lean Six-Sigma
How Well Does It Work?Danaher stock significantly outperforming:• General Electric• Berkshire Hathaway• Dow Jones• Even Microsoft
Cooper Industries prior to Danaher attempted acquisition, underperforming to Dow Jones
Cooper tracking to Danaher since
…significant value creation
Who has heard of Danaher?
Are There Opportunities in Healthcare?
Why wait for the government to deal
with it?
Zimmer
Stryk
er
Medtronic
Smith
& Nephew
Johnson an
d Johnso
n
Integra Lif
escience
s
Synthes
TeleflexDell
Hewlett-Packard
Cooper Industr
ies
Danah
er02468
10
1.1 2.3 2.5 1.1 3.6 1.9 1.2 2.9 42.6 15.3 7.8 5.9
Inventory TurnsThe Opportunity in Med Device
The opportunity for operational excellence is significantMedical device/orthopaedic companies, avg=2.1 ||Other
= =
Stabilizing Technology
80% are commodities
• A screw, is a screw, is a screw
• One 510k after another
The Barriers/Current Focus
Zimmer
Stryk
er
Medtronic
Smith
& Nephew
Johnson an
d Johnso
n
Integra Lif
escience
s
Synthes
Nuvasiv
e0%
20%
40%
60%
80%
Gross Margin
A relationship-driven industry (sales reps)
These great margins are going to SGA (37%) and R&D (6%)
Is the SG&A and R&D paying off?
Market share is stable – is it all hot air?2004 2005 2006 2007 2008 2009 2010
0%10%20%30%40%50%60%70%80%90%
100%
Other(1)ZimmerWrightStrykerSmith&NephewDePuyBiomet
And The Margins Aren’t Sustainable
Historical Key Industry DynamicsCost
Delivery
Quality
Cost is #1 forHigh-tech, CPG, etc
MedDevice
Regulations (FDA) define the industry:• Slow-moving• Not cutting
edge
A Changing Landscape
Operational excellence is coming• 55% of practices are now
hospital owned (up from 30% in 2003)
• IP for 75% of devices expired/ing
• More outpatient and commodity surgeries….don’t need the rep in the OR
Next Steps In Medical Device
S&OP • X 1
Lean Six-
Sigma• X 3
• Significant value
Operational excellence has meant life or death in other
industries
What Is S&OP?
18+ month Demand, Supply, & Inventory
plans (units & $)
Management Business Review
DemandReview
SupplyReview
ProductReview
Finance IRReview
Start(Begin Month)
MRP System
• Executive led• One plan aligned
with financials
Routine and obvious
CompensationS&OP
#1 Reason For Lackluster S&OP
More than one plan!...which is relevant to all industries
Executives not understanding
IBP
#2 Challenge
Routine=boring
• The right amount of relevance/detail• The plan for the business should be of great interest
A Quick Point
Sales
Marketing
Two significantly different demand communities:– Require different processes and systems– Sales is about targets and confidence levels– Marketing is more of a model– The assumptions are always the key: you can only guarantee the plans will
be wrong
How to deal with
optimism?
Cooper Industries
• Cooper: $6B diversified retail/industrial• Drove S&OP across all nine divisions
– Developed Cooper S&OP playbook– Inventory, forecast accuracy, delivery improved– Interesting differences by industry:
• In the S&OP process• Importance of high forecast accuracy
• Never added up all nine divisions
TranS1• Spine startup that reached a high of $35M• Hired after supply chain was established• Implemented S&OP
– Too much push with lead times ~ 12 weeks– Sales input too optimistic, and not used– Developed a good marketing plan (sales rep model)
• Put implants on kanban• Significant sales downturn was foreseeable and hit hard
– Reacted far too slowly in the plans -> too much inventory– Implants fared best
Orthopaedic Implant Company
• Progress to date:– Decent input from sales (50% accurate)– Fully comprehensive monthly Integrated Business
Planning (will we run out of cash?)– Shared every month with suppliers
• Enabling – Consignment and kanban across the board– Raising funding
Inventory Inventory Inventory
CUSTOMERSOICSUPPLIERS
ALL PLANNED (NOT PUSHED)
VIA S&OP
KANBAN & CONSIGNMENT
Operational excellence
Thank you!
Dan DoddVice President of Operations and Supply Chainp: 775-636-8281 x105e: dan.dodd@orthoimplantcompany.com
Questions?
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