© 2005, 2008 by IDEA, LLC All rights reserved© 2005, 2008 by IDEA, LLC All rights reservedElucidate Conceptual Introduction
For: Companies that hold physical
inventory
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The Goal
A simple desire with two prerequisites
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An Obvious Action
In order to spend less, reduce inventory levels
Because of:
lower carrying costsfewer disposals
etc.
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A Conflict
To protect availability, add stock. How to take both actions – must we compromise?
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The Less Preferred Option
There is an upside and a down side …
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The Less Preferred Option
… and we’d spend more in carrying and obsolescence costs – definitely a last resort
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The Preferred Option
If we stock less, how do we get good enough availability to sell more?
?
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Reality Intrudes
Demand and resupply fluctuate, making it harder to consistently keep either extra profit or cash
X
X
X
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The Benefits of a Solution
What would it mean to me, if I could have both better availability and lower inventory?
First of all, we could stop fighting fires all day long, just to serve customers
We could pay off some debt or buy out a competitor
Maybe sales would finally appreciate purchasing
and vice versa
Shoot, we could knock out some of
those big projects we never have
time for
We’d really be making a difference. Employees would be happier.
We’d finally have real stability
© 2005, 2008 by IDEA, LLC All rights reserved© 2005, 2008 by IDEA, LLC All rights reserved
The Benefits of a Solution
What would it mean to me, if I could have both better availability and lower inventory?
(millions) SalesGross ProfitExpensesProfit
InventoryTurns% Return
Current$200
504010
$305
33%
ElucidateFuture
$200504010
$207.5
50%
BetterTurns
7.5
We’d have considerably better turns +$10 million
What about financial benefits?
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ElucidateFuture
$200504010
$207.5
50%
ElucidateFuture
$212534013
$217.5
61%
The Benefits of a Solution
What would it mean to me, if I could have both better availability and lower inventory?
(millions) SalesGross ProfitExpensesProfit
InventoryTurns% Return
Current$200
504010
$305
33%
We’d have considerably better turns
We’d sell 6% more, if we
just stayed in stock
+$10 million
InStock
$123 03
+$9 million
+$3 million
BetterTurns
7.5
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ElucidateFuture
$212534013
$217.5
61%
ElucidateFuture
$216574017
$217.5
80%
The Benefits of a Solution
What would it mean to me, if I could have both better availability and lower inventory?
(millions) SalesGross ProfitExpensesProfit
InventoryTurns% Return
Current$200
504010
$305
33%
BetterTurns
7.5
We’d sell 6% more, if we
just stayed in stock
Without surpluses, we wouldn’t have
to discount
InStock
$123 03
+$9 million
+$3 million+$7 million
LessDiscounts
$44 04
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ElucidateFuture
$216574017
$217.5
80%
ElucidateFuture
$216584018
$217.5
85%
The Benefits of a Solution
What would it mean to me, if I could have both better availability and lower inventory?
(millions) SalesGross ProfitExpensesProfit
InventoryTurns% Return
Current$200
504010
$305
33%
BetterTurns
7.5
Without surpluses, we wouldn’t have
to discount
We’d sure have fewer inventory disposals
InStock
$123 03
+$9 million
+$7 million+$8 million
LessDiscounts
$44 04
FewerDisposals
$01 01
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ElucidateFuture
$216584018
$217.5
85%
ElucidateFuture
$216604020
$217.5
96%
The Benefits of a Solution
What would it mean to me, if I could have both better availability and lower inventory?
(millions) SalesGross ProfitExpensesProfit
InventoryTurns% Return
Current$200
504010
$305
33%
BetterTurns
7.5
We’d sure have fewer inventory disposals
If we didn’t have to beg suppliers to expedite, we could negotiate
better costs
InStock
$123 03
+$9 million
+$8 million+$10 million
LessDiscounts
$44 04
FewerDisposals
$01 01
BuyingBetter
$02 02
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ElucidateFuture
$216604020
$217.5
96%
ElucidateFuture
$236654223
$237.5
99%
The Benefits of a Solution
What would it mean to me, if I could have both better availability and lower inventory?
(millions) SalesGross ProfitExpensesProfit
InventoryTurns% Return
Current$200
504010
$305
33%
BetterTurns
7.5
If we didn’t have to beg suppliers to expedite, we could negotiate
better costs
Better availability
ought to be a huge seller
InStock
$123 03
+$9 million
+$10 million+$13 million
LessDiscounts
$44 04
FewerDisposals
$01 01
BuyingBetter
$02 02
WinningShare
$205 23
+$7 million
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ElucidateFuture
$236654223
$237.5
99%
ElucidateFuture
$256704426
$257.5
105%
The Benefits of a Solution
What would it mean to me, if I could have both better availability and lower inventory?
(millions) SalesGross ProfitExpensesProfit
InventoryTurns% Return
Current$200
504010
$305
33%
BetterTurns
7.5
Better availability
ought to be a huge seller
We could add new product lines or buy a
competitor
InStock
$123 03
+$7 million
+$13 million+$16 million
LessDiscounts
$44 04
FewerDisposals
$01 01
BuyingBetter
$02 02
WinningShare
$205 23
+$5 million
Reinvest-ment$20
5 23
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ElucidateFuture
$256704426
$257.5
105%
The Benefits of a Solution
What would it mean to me, if I could have both better availability and lower inventory?
(millions) SalesGross ProfitExpensesProfit
InventoryTurns% Return
Current$200
504010
$305
33%
BetterTurns
7.5
We could add new product lines or buy a competitor
Wait a minute. Where’s the
proof?
WOW! More stability and
performance. I want it.
InStock
$123 03
+$16 million
LessDiscounts
$44 04
FewerDisposals
$01 01
BuyingBetter
$02 02
WinningShare
$205 23
+$5 million
Reinvest-ment$20
5 23
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Proof
Quantify your opportunitywithout any risk
What you have to do:
• Pick 25 representative products
• Provide a year’s worth of sales and replenishment data for each
Typical time to complete: 2 hours
Simulations are performed at no charge
Summary of 25 Representative Products
Actual Days Out of Stock
Elucidate Days Out of Stock
Actual Average
Inventory
Elucidate Average
InventoryInventory Reduction
% Inventory Reduction
Totals 410 40 102,261$ 59,015$ 43,246$ 42%Count 20 12
Duration 21 3 54 31Availability 97.04% 99.71%
Days of Inventory
Wait a minute. Where’s the
proof?
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Benefits of the Status Quo
Good things I’d leave behind if I agree
What you have to do:
• Think clearly
We are working on lots of projects right now
I’ve made promises. How can I do this and still meet them?
I am comfortable now
Today, I am an expert in my business
What would I have to give
up?
If you add them all up, are they as good as this?
Less firefighting means more time, not less
Being more competitive is even more comforting
You’ll be a cash rich Elucidate expert in 3 mo
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Risks of Accepting Elucidate
Bad things that might happen, if I say “Yes”
What you have to do:
• Think clearly
IT is already backed up. They can’t get anything done soon.
If we hold less inventory, we could more easily run out
I’d have to pay IDEA hefty fees for a while
Managers here have their own priorities. I’d risk more friction by forcing them.
I don’t want to mess up
my company
Assign them to work on the best thing 1st
Remember, simulations showed 10X less outages
Every year, you’ll add far more profit … forever
Good one. Let’s discuss how to overcome it thoroughly.
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Gaining Full Buy-in
People easily choose things that are clearly good for them. We have something for everybody
What you have to do:
• Prioritize the Elucidate project that multiplies profits while conserving cash
• Inform top management of Elucidate’s goals and priority
• Set a meeting to fully share Elucidate w/ top management
• Get top management’s input and buy-in
Typical time to complete: 1 full week off site
There is a significant charge for revealing the full solution
Guarantee: If your team doesn’t see value in the workshop, you may request a partial refund
Even a great solution won’t implement itself“70% of improvement initiatives fail to achieve
expected results”
IDEA has done this before. We pick clients very carefully 100% success rate.
Elucidate Strategies and Tactics Workshop
We guarantee the team will gain consensus and decide to implement Elucidate
- Harvard Business Review
I don’t want to mess up
my company
OK, I’m crazy not to try it
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Proof of Concept
A live test quantifies the benefits
What you have to do:
• Help us pick a subset of products and locations to demonstrate Elucidate
• Agree on the full engagement details
Typical time to complete: 3-6 months
Pay us a fixed monthly fee
Terminate the Proof of Concept at any time, for any reason
1st prove Elucidate live to be extra cautious
• Ensures everything is working
• A chance to practice first on a small scale
• Proves Elucidate to get doubters off the fence
• See results before committing to an engagement
All Product-Locations
Proof of Concept
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Solution Overview
Elucidate: to enlighten
What you have to do:
• Communicate that Elucidate is the top priority
• Follow up on progress in daily 5 minute meetings
• Support the implementers with resources, as needed
Elucidate implements in a 4 short tasks.
None are particularly difficult or time consuming.
Don’t let less important matters slow progress.
X
X
X
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Solution Overview
Decide to improve inventory flow.Injection 1: Set initial buffers
X
X
X
Enough to handle
• the heaviest demand and• late delivery but• no more.
What you have to do:
• IT provides historic sales data
• IT automates a daily sales download
Typical time to complete: 2 days
• For exceptions where history is a poor predictor, Sales estimates high demand levels
Typical time to complete: 1 day
X
X
X
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Solution Overview
Injection 2: Buy up to the buffers
What you have to do:
• Cancel some existing orders
• Place fewer orders for a whileBuffers signal
when NOT to buy
No more need to raise stocks.
The conflict is broken.
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Solution Overview
Injection 2: Breaks the conflict
What you have to do:
• Cancel some existing orders
• Place fewer orders for a whileBuffers signal
when NOT to buy
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Solution Overview
After a short lull, daily ordering can overload purchasing.
What you have to do:
• Order consumption daily
• Batch orders as necessary to reduce cost or freight
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Solution Overview
Injection 3: Automate replenishment
What you have to do:
• Order consumption daily
• Batch orders as necessary to reduce cost or freight
• IT automates the upload
Typical time to complete: 1 week
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Solution Overview
Injection 2: Has more side effects
What you have to do:
• Order consumption daily
• Batch orders as necessary to reduce cost or freight
Usually, the extra load on receiving is not completely
offset by smoothing their load
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Solution Overview
Buffers are (were?) sized to protect availability
What you have to do:
What if these changes are more than the buffer can handle?
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Solution Overview
Protection can erode over time
What you have to do:
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Solution Overview
Injection 4: Dynamic Buffer Management
What you have to do:
• Nothing
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Solution Overview
This completes Phase I of an Elucidate Engagement
What you have to do:
• Add staff in receiving, if needed
• Enjoy a more stable operation
• Decide how to best use your new cash and profits – the larger and more stable the base, the bigger the next jump
Normally, the interest on cash (which we have not counted) is more than enough to pay extra salaries here
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Solution Overview
Phase II: Getting suppliers to help
What you have to do:
• Understand and improve our supplier presentation to sell them on a new business deal
• Prioritize top suppliers – usually start with about 20
• Observe us enlist a few suppliers, followed by review
• We observe you enlist a few suppliers, followed by review
• You enlist remaining suppliers
Typical time to complete 2 hours/supplier
The impact of Phase II is to reliably reduce lead time from suppliers.
Elucidate automatically takes advantage of it
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Solution Overview
Phase III: Capitalizing on a decisive competitive edge in availability
What you have to do:
• Understand and improve a customer presentation to sell them on a new business deal
• Prioritize a list of existing customers to convert and a list of prospective customers
• Observe us enlist a few customers, followed by review
• We observe you enlist a few customers, followed by review
• You enlist the remaining customers
Typical time to complete 2 hours/customer
Smoothes demand from customers
Elucidate automatically takes advantage of it
© 2005, 2008 by IDEA, LLC All rights reserved© 2005, 2008 by IDEA, LLC All rights reserved
Solution Review
Big investmentBigger return
Investment = $100,000/yr / 250 days/yr X 50 days + IDEA feesIDEA fees
= $20,000 + IDEA feesIDEA fees
Return = 4 years X $16,000,000 change in profit/yr + 5,000,000
= $69,000,000 + Stability
Investment byGaining
Buy-inProvide Data
Automate Upload
Enlist Suppliers
Convert Customers
Win new customers
Total
Top Mgmt4 people x 5 days
20 man days
IT1 person x 5 days
1 person x 2 day
1 person x 5 days
12 man days
Sales16 salespeople
x 1 hour50 meetings
x 2 hours*50 meetings
x 2 hours*2 man days
Sales manager1 person x 5 days
1 day20 Meetings
x 2 hours*20 Meetings
x 2 hours*6 man days
Purchasing1 person x 5 days
20 suppliers x 2 hours
10 man days
Total35 man
days5 man days 5 man days 5 man days
(Elapsed time 2 months)
(Elapsed time 2 months)
50 man days
* Part of normal job - displaces lower value added work.
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• Fixed monthly fees and
• Success fees
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