west intro 1 © the delos partnership 2005 integrated enterprise leadership an introduction

West Intro 1 © The Delos Partnership 2005

Integrated Enterprise Integrated Enterprise LeadershipLeadership

An Introduction


ABC Company ABC Company

“We want to deliver quality products to our customers, competitively priced, delivered on time. We will ensure that our employees are satisfied with their work, and we will take care of the environment.” said the mission statement at the entrance.

Marketing is in the middle of a special promotion, which has suddenly been arranged. The artwork – as usual - is having to be arranged at short notice for the packaging. Sales have just quoted for a big contract which will mean significant extra business above the business plan. It is two months until year end, and if they get the order then the Sales and Marketing Director will get a bonus for exceeding her target. Customer Services will be working late tonight to catch up with the backlog of orders.

Operations has heard the rumour about a 'big order‘. But they've heard about these before. So they are proceeding with their plans to cancel overtime. The Operations Director meets monthly, individually, with the marketing managers to get a feel for the market. Then he meets with his Production Planner, compares his ideas with past history and they finalise the forecast and production plan, largely based on history.


ABC Company .. ABC Company .. Cont’dCont’d

Corporate are short on cash flow, and hence have told the division to implement a cost reduction programme, and to reduce inventory by 20%. The Finance Director is working on ways to do this, however is reluctant to make any write-offs of current obsolete inventory, so is wanting to restrict any further purchases.

The Manufacturing Manager has just come back from a course with ideas on Total Productive Maintenance, and Operating Equipment Effectiveness. He wants a smaller product range and bigger batches. His basic manufacturing philosophy is that lower costs are achieved through maximising utilisation of machines, keeping direct labour at maximum levels of output.

The Development department are in the middle of developing a revolutionary new product, that will dramatically increase market share. However, a minor modification to the product will reduce costs, and enhance the quality. Customer response is excellent. Unfortunately it will delay the launch to Quarter 3 of the next year.

The Chairman and the Chief Financial Officer just met with a key group of Stock-market analysts, and have said that cash-flow will improve this year through a radical cost reduction and inventory management programme. Sales and Profit will rise by 20 % next year, which should mean an increase of 25 % in Earnings per share, due to an exciting new product to be launched in Quarter 4 of this year.


Signs of problems in Signs of problems in companycompany

• What are the major reasons for failures in providing the customer with what they want and when they want it ?

• What are the major signs of problems in an organisation when looking around a manufacturing site ?


Signs of problems within Signs of problems within the companythe company


Causes of InventoryCauses of Inventory

What are the main causes of inventory ?


Conflicting objectivesConflicting objectives

Inventory

Customer Service

ManufacturingCosts

ManufacturingFlexibility


Conflicting objectivesConflicting objectives

Finance

Marketing

Manufacturing Sales


Disintegrated Business Disintegrated Business PlanningPlanning

Long termplan

Short termPlan

Medium TermPlan


Vertical Functional Vertical Functional OrganisationOrganisation

MDMD

SalesSales MarketingMarketing TechnicalTechnical OperationsOperations FinanceFinance HRHR

R& D

R& D

MKTG

MKTG

SALES

SALES

OPS

OPS

ACCTS

ACCTS

HR

HR

Directors

Managers

Supervisors/Team Leaders


Lack of VisibilityLack of Visibility

05

10152025

303540

4550

Sales Cont'n Net Profit

Last YrBudgetYTD

Year to date is below budget and last year, and therefore there is an urgent need to cut costs, and reduce inventory, in order to improve cash flow…


Functional MeasuresFunctional Measures

Actual Volumevs Budget

Actual Salesvs Budget

InventoryLevel

ProjectCosts

Leads to Silo Management Mentality Leads to Silo Management Mentality

Manufacturing Director

Manufacturing Director

Sales Director

Sales Director

Finance Director

Finance Director

Development Director

Development Director

ManagingDirector

ManagingDirector


The informal companyThe informal company

• Multiple sets of numbers• Multiple spreadsheets• Multiple ways of working• Confusion over real objectives• Defensive functional behaviour• Rumours around the corridor• Ad hoc communication• Short-term focus• Heroes are favourites


Objectives for IntegrationObjectives for Integration

• One set of numbers at all times• Integrated Plans• Realistic Plans• Teamwork• Communication of goals and objectives• Decisions made in timely fashion• Consistent performance measures• Delivery of the Strategy


The Delos ModelThe Delos ModelFor Business Integration For Business Integration

InnovationInnovation

VisionVision

StrategyStrategy

PrioritisationPrioritisation

DemandDemand

SupportSupport

SupplySupply


Strategy vs. ExecutionStrategy vs. Execution

““It is not so much the strategy that causes the It is not so much the strategy that causes the failure. 80 % of companies fail to execute their failure. 80 % of companies fail to execute their strategy”strategy”

- - Kaplan and Norton: Kaplan and Norton:

““Strategy Focussed Organisation”Strategy Focussed Organisation”

““It is not so much the strategy that causes the It is not so much the strategy that causes the failure. 80 % of companies fail to execute their failure. 80 % of companies fail to execute their strategy”strategy”

- - Kaplan and Norton: Kaplan and Norton:

““Strategy Focussed Organisation”Strategy Focussed Organisation”


Vision and StrategyVision and Strategy• Vision

– Clear statement of direction– Understood by all

• Strategy– Means of getting there– Requires clear focus

• Operational Excellence• Customer Intimacy• Product Leadership


A Vision or…A Vision or…

“We don’t so much have a vision,

more a hallucination, really.”

Anonymous senior manager, anonymous multinational


Strategic ChoicesStrategic Choices

Key Strategic Choices

– Operational Excellence

– Customer Intimacy

– Product Leadership


Management of InnovationManagement of InnovationIntegrated Project Management – Programme Management


Forecasting Needs a Forecasting Needs a Simple ProcessSimple Process

Filter Filter DemandDemand

ComputeComputeforecastforecast

CaptureCaptureActualActual

C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T

C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T

Hold Demand ReviewHold Demand Review

Agree commercialAgree commercial plansplans

AgreeAgreeExceptional demandExceptional demand

AssumptionAssumptions written s written down and down and

agreedagreed

AssumptionAssumptions written s written down and down and

agreedagreed

ReviewReviewAccuracyAccuracy


Master SchedulerMaster Scheduler

Strategy

Master Scheduler

Sales Forecasts

CustomerOrders

ManufacturingPlan

PurchasingPlan

MRPSystem

Balanced PlanBalanced Plan


Integrated Enterprise Integrated Enterprise PlanningPlanning

Annual OperatingPlan

Monthly Review

Master ProductionSchedule

SupplierSchedule

FactorySchedule

Volume [Family]Value42 months horizon

Volume [Family]Value30 months horizon

Volume SKUValue18 months horizon

Volume [Part number]Value18 months horizon


Integration of ProcessesIntegration of Processes

Strategic Review

IEP Review Demand Plan

Master Schedule

Project Plan

MRP/CRP/

Activities

WTL/

Orders/

Tasks

How Often Yearly Monthly Weekly Daily Hourly

Who Board Board Managers Computer Computer

Units £’s Families Products Parts/

Activities

Parts/

Tasks

Horizon 3 years 2 years 2 years 2 years 2 years

Focus 1-3 years 0-2 years 0 to Cum Lead Time 0 to Cum Lead Time

Part Lead Time

Time buckets Years Months Weeks Days Hours

DetailDetail


Traditional MeasuresTraditional Measures

• Sales versus budget• Machine Utilisation• Purchase Price Variance• Overhead Recovery• Headcount• Direct Labour Productivity• Inventory Level


The Delos Core MeasuresThe Delos Core Measures

1.1. Customer Order Delivery – the “Perfect Order”Customer Order Delivery – the “Perfect Order”

2.2. Demand Forecast AccuracyDemand Forecast Accuracy

3.3. Lead Time Reduction - Demand, Supply and ChangeLead Time Reduction - Demand, Supply and Change

4.4. Quality, Right First Time – Demand, Supply and Quality, Right First Time – Demand, Supply and ChangeChange

5.5. Schedule Achievement – In-house and outsourcedSchedule Achievement – In-house and outsourced

6.6. New Product IntroductionNew Product Introduction

7.7. Velocity – all processesVelocity – all processes


The Core Measures and The Core Measures and Financial EffectFinancial Effect


Velocity MeasureVelocity Measure

STORE

STORE

INSPECT

INSPECT

RECEIVE

RECEIVE

PICK

PICK

RUN

RUN

INSPECT

INSPECT

STORE

STORE

RUN

RUN

INSPECT

INSPECT

STORE

STORE

Elapsed Time

VAVA VAVA

Velocity % = sum of Value Added Time [VA]-------------------------------------

Total Elapsed Time


Values of A Six Sigma Values of A Six Sigma CompanyCompany

Issue Classical Six sigma

ProblemsProblems FixingFixing PreventingPreventing

AnalysisAnalysis ExperienceExperience DataData

Process AdjustmentProcess Adjustment TweakingTweaking Statistical Process Statistical Process ControlControl

FocusFocus ProductProduct ProcessProcess

BehaviourBehaviour ReactiveReactive Pro-activePro-active

ReasoningReasoning ExperienceExperience StatisticalStatistical


Measuring Forecast Accuracy Will Measuring Forecast Accuracy Will Improve the ProcessImprove the Process

-25

-20

-15

-10

-5

0

5

10

15

20

25

Feb Mar Apr May Jun Jul Aug Sep Nov Dec Jan Feb Mar Feb Mar Apr May

Upper Accuracy Lower


Integration of IdeasIntegration of IdeasOn TimeOn Time

DeliveryDelivery

CostCost QualityQuality

TQ/6sTQ/6s Needs toNeeds to

useuse

ImprovesImproves EssentialEssential

ToolTool

JITJIT

LeanLeanImprovesImproves EssentialEssential

ToolTool

ChallengesChallenges

ERP IIERP II

PlanningPlanningEssentialEssential

ToolTool

Feeds DataFeeds Data Uses dataUses data


People ValuesPeople Values

TraditionalTraditional NowNow FutureFuture

Process problemsProcess problems Not my job Ownership Accountability

Management Management StyleStyle

Supervise Facilitator/

Team Leader

Coach

Working StyleWorking Style Individual Team Empowered

Teams

Training and Training and

EducationEducation

Non-existent Luxury Necessity

KnowledgeKnowledge Ignorant Understands Expert

Attitude to PeopleAttitude to People Liability Cost Asset


TeamworkTeamworkWith a common vision and a strategy there is a chance

to develop common

– Objectives

– Commitment

– Team direction


Integration – focus and Integration – focus and resultresult

CULTURE/BEHAVIOUR

TECHNO

LOG

YWAYS O

F

WO

RKING

No tools to do thejob

- Frustration

Formal Proceduresin place

But nothing to use themWith !



CULTURE/BEHAVIOUR

TECHNO

LOG

YWAYS O

F

WO

RKING

No formal procedures

- Automated chaos

Systems in place

But no controlOver how to useThem !



CULTURE/BEHAVIOUR

TECHNO

LOG

YWAYS O

F

WO

RKING

No heartsand minds

-Alienation

System in placeProcedures in place

But no-one uses them !


Integration the right blend!Integration the right blend!

CULTURE/BEHAVIOUR

TECHNO

LOG

YWAYS O

F

WO

RKING

west intro 1 © the delos partnership 2005 integrated enterprise leadership an introduction

Documents

marketing director

year end

major signs of problems

operations director

market share

inventory management

exciting new product

revolutionary new product