World Class Operation How to gain and sustain a competitive edge

VAS WCO Intro - 2 © The Delos Partnership 2004 Causes of Service Opportunities What are the main signs of Customer Service Opportunities ?

VAS WCO Intro - 3 © The Delos Partnership 2004 Fundamental needs Satisfy the Customer: –Right Product –Right Value –Right Time Satisfy the Shareholders –Right Profit Measures Right First Time Price On Time in Full ROCE

VAS WCO Intro - 4 © The Delos Partnership 2004 ABC Company “‘We deliver Quality products to our customers, competitively priced, delivered on time. Employees consider this a fun place to work. The environment is our paramount concern. Shareholders will receive exceptional returns” said the statement at the entrance. Marketing is in the middle of a special price deal, which has suddenly been arranged. The extra volume has only just been announced to operations, who are frantically in touch with all of their suppliers. Sales have just negotiated a deal with a new distributor in USA, and the volumes that he plans to buy are really exciting. It should mean achieving around 10 % above the business plan. It is not long till year end, and if they get the orders then the Sales and Marketing Director will get a bonus for exceeding her target. The Supply Chain department has heard the rumour about a 'big order.‘ But they've heard about these before. So they are proceeding with their plans to cut back volumes with their suppliers based on current forecasts. The Logistics Director meets monthly, individually, with the Marketing 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. They know all about Sales and marketing forecasts and how wrong they can be! 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 Supply Chain Director has just come back from a Purchasing course. He has come back with ideas on creating supplier partnerships. Key to this approach is to ensure that we manage risk by buying in large quantities from 2/3 suppliers for most of the major components, and to make sure that all suppliers hold consignment inventories of all their products. Prices will be set on a 10 % year on year reduction path. 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.

VAS WCO Intro - 5 © The Delos Partnership 2004 Fundamental “opportunities” Backlogs Too much inventory Not enough Inventory Rejects Wrong data/inaccurate data EOMC/EOQC/EOYC Fire-fighting Finger-pointing Crisis management –Thank goodness for the last minute or nothing would get done

VAS WCO Intro - 6 © The Delos Partnership 2004 The Answer is not in the Technology ERP JIT Total Quality Six Sigma CRP Design for Manufacture MRP II

VAS WCO Intro - 7 © The Delos Partnership 2004 The Delos Model For Business Integration Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply

VAS WCO Intro - 8 © The Delos Partnership 2004 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.

VAS WCO Intro - 9 © The Delos Partnership 2004 Basic Equations Item Data BOM’s And Routes Stock And Capacity Master Schedule ForecastsOrders Suppliers Factories What do they Want ? What have We got ? What does it need ? What do we need to do ?

VAS WCO Intro - 10 © The Delos Partnership 2004 Enterprise Resource Planning 1960’s1970’s1980’s1990’s2000’s Order Point MRP 1 MRP II Enterprise Resource Planning Advanced Planning and Scheduling

VAS WCO Intro - 11 © The Delos Partnership 2004 Management of Innovation DESIGNDESIGN MAKEMAKE SELL

VAS WCO Intro - 12 © The Delos Partnership 2004 Integration of Innovation Needs integration of Functions –Design –Purchasing –Customer –Manufacturing and Planning Needs co-ordination of Plans –Programme Management

VAS WCO Intro - 13 © The Delos Partnership 2004 The Delos Model For Business Integration Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply

VAS WCO Intro - 14 © The Delos Partnership 2004 Run Set up Set up Business Flow Receive Suppliers Inspect Store Pick Set up Set up Queue Inspect Operation 10 Queue Set up Set up Run Operation 20 Inspect Store Queue Inspect Store Customers Operation 30

VAS WCO Intro - 15 © The Delos Partnership 2004 Velocity Measure STORESTORE STORESTORE INSPECTINSPECT INSPECTINSPECT RECEIVERECEIVE RECEIVERECEIVE PICKPICK PICKPICK RUNRUN RUNRUN INSPECTINSPECT INSPECTINSPECT STORESTORE STORESTORE RUNRUN RUNRUN INSPECTINSPECT INSPECTINSPECT STORESTORE STORESTORE Elapsed Time VA Velocity % = sum of Value Added Time [VA] Total Elapsed Time

VAS WCO Intro - 16 © The Delos Partnership 2004 Quality is a function of Time TIME QUALTIY

VAS WCO Intro - 17 © The Delos Partnership 2004 Cost of Quality SCRAP INSPECTION OBSOLESECENCE DELIVERY DELAYS POLITICS EMPIRE BUILDING OVERHEAD REDESIGN CORRECTIVE ACTION TEAM CUTOMERRETURNS WARRANTYCLAIMS LOSS OF MARKET SHARE REWORK REWORKAREA TRANSPORTCOSTS PANIC EMERGENCY AIR FREIGHT INVENTORY OVERTIME

VAS WCO Intro - 18 © The Delos Partnership 2004 Prevention is better than cure

VAS WCO Intro - 19 © The Delos Partnership 2004 Integration of Ideas On Time DeliveryCostQuality TQ/6s Needs to useImprovesEssentialTool JITLeanImprovesEssentialToolChallenges ERP II PlanningEssentialTool Feeds Data Uses data

VAS WCO Intro - 20 © The Delos Partnership 2004 The Delos Model For Improvement Integration Vision Strategy Prioritisation Prioritisation Innovation Innovation Demand Support Supply Supply

VAS WCO Intro - 21 © The Delos Partnership 2004 People Values TraditionalNowFuture Process problems Not my jobOwnershipAccountability Management Style SuperviseFacilitator/ Team Leader Coach Working Style IndividualTeamEmpowered Teams Training and Education Non-existentLuxuryNecessity KnowledgeIgnorantUnderstandsExpert Attitude to People LiabilityCostAsset

VAS WCO Intro - 22 © The Delos Partnership 2004 Challenge Tradition FactorHistoricalNowFuture DeliveryPromiseRequiredNeed SuppliersAdversariesPartnersSeamless QualityAcceptable 6 sigma Zero defects ScheduleForgetFollowAdhere InventoryAssetLiabilityZero MaintenanceRemedialPreventEliminated ComplexityNormalReducedEliminated TeamworkRareCIT’sConstant PeopleFollowersThinkersLeaders

VAS WCO Intro - 23 © The Delos Partnership 2004 Behavioural problem If you measure me rationally I will behave rationally But if you measure me irrationally I will behave irrationally If you measure me rationally I will behave rationally But if you measure me irrationally I will behave irrationally

VAS WCO Intro - 24 © The Delos Partnership 2004 Vertical Functional Organisation MD Sales Marketing Technical Operations Finance HR R&DR&D R&DR&D MKTGMKTG MKTGMKTG SALESSALES SALESSALES OPSOPS OPSOPS ACCTSACCTS ACCTSACCTS HRHR HRHR Directors Managers Supervisors/Team Leaders

VAS WCO Intro - 25 © The Delos Partnership 2004 Functional Measures Actual Volume vs Budget Actual Sales vs Budget Inventory Level Project Costs Leads to Silo Management Mentality Manufacturing Director Manufacturing Director Sales Director Sales Director Finance Director Finance Director Development Director Development Director Managing Director Managing Director

VAS WCO Intro - 26 © The Delos Partnership 2004 Integration CULTURE/ BEHAVIOUR TECHNOLOGY WAYS OF WORKING Consumer And Customer Focussed Simplicity Itself Delivering Shareholder Value

VAS WCO Intro - 27 © The Delos Partnership 2004 Change Minds not just systems Successful change CULTURE TEAMWORK SHARED VISION COMMUNICATION WAYS OF WORKING ACCURACY AND DISCIPLINE POLICIES AND PROCEDURE HARDWARE SOFTWARE ACCURATE DATA VALID SCHEDULES SYSTEM

VAS WCO Intro - 28 © The Delos Partnership 2004 Real challenge Acceptance of common sense Avoid initiatives Make the “routine” routine Eliminate firefighting and expediting Free up time to do the important and think strategically Be proactive and not “responsive” Get it right first time every time