1 © the delos partnership 2003 strategic operations planning one set of numbers at all times
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1 © The Delos Partnership 2003
Strategic Operations PlanningStrategic Operations Planning
One set of numbers at all times
2 © The Delos Partnership 2003
ABC CompanyABC Company“‘We want to deliver Quality products to our customers, competitively priced, delivered on time. We will ensure that are employees are satisfied with their work and will consider this a fun place to be, and we will take care of the environment.” said the mission statement at the entrance.Sales have just tendered for a big contract which will mean significant extra business above the business plan. It is not long till year end, and if they get the order then the Sales and Marketing Director will get a bonus for exceeding his target. Customer Services will be working late tonight to catch up with the backlog of orders.Logistics 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 Logistics Director meets monthly, individually, with the Sales Manager to get a feel for the market. Then he meets with his Master Scheduler, compares his ideas with past history and they finalise the Forecast and Production Plan. 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.The Manufacturing Director has just come back from a course. He has come back 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 Distribution director believes that demand is increasing, so is going to open a Central Distribution centre just outside Paris. Development 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. The result has been a “buy” recommendation for the shares.
Would you buy the shares in this company ?
3 © The Delos Partnership 2003
Objectives for Strategic Operations Objectives for Strategic Operations PlanningPlanning
• One set of numbers at all times
• Integrated Plans
• Teamwork
• Decisions made in timely fashion
• Consistent performance measures
4 © The Delos Partnership 2003
Conflicting objectives ?Conflicting objectives ?
Inventory/Capacity
Customer Service
ManufacturingCosts
ManufacturingFlexibility
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Conflicting objectivesConflicting objectives
Finance
Marketing
Manufacturing Sales
6 © The Delos Partnership 2003
Vertical Functional OrganisationVertical Functional Organisation
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
7 © The Delos Partnership 2003
Functional MeasuresFunctional Measures
Paul RobinsM anufacturing D irector
J ames RobertsSales and M arketing D irector
Chris EvansFinance Drector
Phil H ouseT echnical D irector
J ohn SmithM anaging D irector
Actual Volumevs Budget
Actual Salesvs Budget
InventoryLevel
ProjectBudgets
Leads to Silo Management Mentality Leads to Silo Management Mentality
8 © The Delos Partnership 2003
Disintegrated Business PlanningDisintegrated Business Planning
Long termplan
Short termPlan
Medium TermPlan
9 © The Delos Partnership 2003
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…
10 © The Delos Partnership 2003
Disintegrated Business PlanningDisintegrated Business Planning
Annual operatingPlan
Master ProductionSchedule
SupplierSchedule
FactorySchedule
£’s/Euros
18 months
1/ year
SKU’s
12 weeks
1/week
11 © The Delos Partnership 2003
Strategy vs ExecutionStrategy vs Execution
““It is not so much the strategy that causes It is not so much the strategy that causes the failure. 80 % of companies fail to the failure. 80 % of companies fail to execute their strategy”execute their strategy”
- Kaplan and Norton : “Strategy Focussed - Kaplan and Norton : “Strategy Focussed
Organisation”Organisation”
““It is not so much the strategy that causes It is not so much the strategy that causes the failure. 80 % of companies fail to the failure. 80 % of companies fail to execute their strategy”execute their strategy”
- Kaplan and Norton : “Strategy Focussed - Kaplan and Norton : “Strategy Focussed
Organisation”Organisation”
12 © The Delos Partnership 2003
An Alice in Wonderland World ?An Alice in Wonderland World ?“Cheshire Puss” – said Alice – “ Would you tell me, please, which way I ought to go from here ?”
“That depends a good deal on where you want to get to” said the cat.
“I don’t much care where, so long as I get somewhere” said Alice
“Then it doesn’t matter which way you go” said the Cat.
13 © The Delos Partnership 2003
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
14 © The Delos Partnership 2003
Setting the VisionSetting the Vision
•Simple•Owned by the Managing Director•Understood by everyone•Visible•e.g. Simply the best
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StrategyStrategy
Clear Focus on overall strategy– Strengths/Weaknesses/Opportunities/
Threats– Market Position– Competitive Position– Technological Position
17 © The Delos Partnership 2003
Strategic ChoicesStrategic Choices
Key Strategic Choices– Operational Excellence
– Customer Intimacy
– Product Leadership
18 © The Delos Partnership 2003
WorkshopWorkshop
Where are you now, and where do you want to be in 5 years time ?
• OPERATIONAL EXCELLENCE
• CUSTOMER INTIMACY
• PRODUCT LEADERSHIP
19 © The Delos Partnership 2003
TeamworkTeamwork
With a common vision and a strategy there is a chance to develop common
•Objectives
•Commitment
•Team direction
20 © The Delos Partnership 2003
Supporting ProcessesSupporting Processes
There are three key supporting processes– Innovation
• New products• New processes
– Customer Relationship management• Sales linkage• Marketing linkage
– Supplier Relationship management
21 © The Delos Partnership 2003
Delos Business ModelDelos Business Model
Strategy
PrioritisationPrioritisation
Changes
Vision
Demand Supply
Support
22 © The Delos Partnership 2003
Management of InnovationManagement of InnovationNeeds Management across all the projects
23 © The Delos Partnership 2003
Demand Planning Needs a Simple Demand Planning Needs a Simple ProcessProcess
FilterDemand
Execute Forecast
CaptureActual
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
Review Commercial Plans
Review ExceptionalDemand
Hold Demand Review
Assumptions written down and agreed
24 © The Delos Partnership 2003
Master SchedulerMaster Scheduler
Strategy
Master Scheduler
Sales Forecasts
CustomerOrders
ManufacturingPlan
PurchasingPlan
MRPSystem
Balanced PlanBalanced Plan
25 © The Delos Partnership 2003
In Balance ?In Balance ?
0
20
40
60
80
100
120
140
1 3 5 7 9 11
Demo Cap
Req Cap
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PrioritisationPrioritisation
• Which customer gets preference
• Spares or Original Equipment
• New product versus existing product
• Which market gets supply
Must be balanced
27 © The Delos Partnership 2003
SOP Gap AnalysisSOP Gap Analysis
Strategic planStrategic plan
Time Now
SOP ForecastSOP Forecast
Actual statusActual status
years
profitprofit
outputoutput
revenuerevenue
profitprofit
outputoutput
revenuerevenue
What is the GAP and what are the action plans to close it?What is the GAP and what are the action plans to close it?
28 © The Delos Partnership 2003
Strategic Operations PlanningStrategic Operations Planning
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
29 © The Delos Partnership 2003
MeasurementMeasurement
What gets measured is whatGets done
What gets measured is whatGets done
Actual versus Budget
Actual versus target
Actual versus Budget
Actual versus target
Traditional Measures
30 © The Delos Partnership 2003
On track …On track …“From looking at the wake behind the ship, I cansee we are still on course…”
31 © The Delos Partnership 2003
Delos Business ModelDelos Business Model
Strategy
PrioritisationPrioritisation
Changes
Vision
Demand Supply
Support
32 © The Delos Partnership 2003
Goal DeploymentGoal Deployment
EmployeesOwner
Supply ChainOwner
InnovationOwner
CommunityOwner
CustomerOwner
ShareholderOwner
TARGETSSenior Management
Business Support
Supply Management
Demand Management
New Activity Management
PERSPECTIVE
Process Owners
GOALS
Objectives
PROCESS
33 © The Delos Partnership 2003
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
34 © The Delos Partnership 2003
Integrated BusinessIntegrated Business
VisionAnd Strategy
Processes
People
Improvement
Measures
CustomerService
ShareholderPerformance
Innovation
Suppliers
35 © The Delos Partnership 2003
Strategic Operations PlanningStrategic Operations Planning
• Needs a vision and strategy
• Requires integration of the key processes
• All-embracing performance measures– Measuring processes and not people
• Aim is to manage change effectively in pursuit of increased shareholder value