Complexity Management

Transcription

1 Complexity Management Drive Cost Savings to Fund the Future

2 Webinar Overview I. Introductions II. Overview of Kalypso III. Today s Challenge IV. Product Proliferation V. Complexity Reduction VI. Case Studies VII. Results VIII. Complexity Management Methodology IX. Q&A

3 Introductions Brian Sharp Practice Leader Brian brings over 0 years of experience in business management, marketing, and commercial development. He leads the firm s Pricing & Value Management Practice. Brian s client work is focused on the integration of business strategy and commercial execution with value science. Brian is currently leading several large scale value management engagements at leading global technology companies. Prior to joining Kalypso, Brian was with Lord Corporation, a high tech industrial manufacturer serving the Aerospace & Defense and Auto industries where he led their global automotive business. Prior to that, he held a variety of commercial leadership roles in Europe, Latin America and Asia with BP and Castrol. He received a BS in Chemical Engineering with a concentration in Bio-medical Engineering, from the University of Texas at Austin. Scott Gamble Senior Manager Scott brings over 0 years of professional experience to our clients, with a strong background in strategy development, product/brand management, innovation leadership, and business transformation in the food industry. Prior to joining Kalypso, Scott s professional experience included Sales, Marketing and Innovation leadership roles with Dow Chemical, Kellogg s, Pillsbury and the Schwan Food Company. Scott has extensive experience in leading cross functional brand, innovation and business teams with accountability for sales and profit objectives. Scott has led numerous business transformation and process improvement initiatives including portfolio management and value based management. Scott has a passion for winning with new products and working collaboratively with cross functional partners to deliver Innovation leadership. Scott holds a MBA from the Carlson School of Management, University of Minnesota; a MIM from Thunderbird Global School of Management; and a BBA in Finance from the University of Iowa. 3

4 The Kalypso Difference Kalypso is a consulting firm focused exclusively on innovation. Our people are leading business professionals who combine experience in select industries with product and process innovation expertise. 4

5 Kalypso Capabilities Our services are designed to help companies become more innovative and provide a systemic view of new product & service development. 5

6 Industries We Serve Technology Consumer Business Life Sciences Manufacturing Automotive Public Sector Aerospace & Defense Energy 6

7 Today s Challenge Firms that invest in innovation during downturn win during recovery How do you invest in innovation in challenging times? Tony Hillier, Sustaining Marketing Spend During Tough Times A Strategic Imperative Backed by Evidence from PIMS 7

8 Portfolio Management Shift Source: 8

9 Holistic approach to Portfolio Management 9

10 A Common Cause of Complexity is Product Proliferation Product proliferation occurs when organizations market large numbers of similar products in the same market segment, product line, price band or distribution channel. Dilution of brand power and shelf space clutter amongst other factors. Difficulties forecasting sales, ultimately resulting in increased inventory and transportation costs. Frequent setups and short production runs, driving up manufacturing costs. Supplier fragmentation leading to loss of buying leverage and ultimately higher material costs. 0

11 Our Experience with Product Proliferation Companies have increased the number of active products which has resulted in reduced sales/item and added complexity across the value chain. Products are developed with minimal innovation causing overlaps in market segmentation, price band, product lines and/or distribution channels. Acquisition and mergers create proliferation of products and brands. Sales and Marketing incentives are tied to revenue growth which does not account for profitability. Poor visibility to true product profitability. "Allocated costs distort profit impact. Lack of clear accountability and difficulty with gaining organizational alignment to take action. Lack of portfolio management throughout entire lifecycle. New products are often launched and old products are rarely discontinued.

12 Our Experience with Complexity Reduction The bottom 0-40% of existing products are profit dilutive, consume scarce resources and drive organizational complexity Fuel for Growth Manufacturing efficiencies Procurement efficiencies Inventory turns Storage, transportation & distribution Forecasting Working capital and people resources Reducing proliferation and organizational complexity through Kalypso s process can save up to 50 basis points of profit margin

13 Case Study Situation Approach 4B oil & natural gas products and service provider Weak profitability Overrun with complexity About to migrate product data from legacy system to SAP Improve profitability, reduce operating complexity and costs throughout divisions Reduce SAP data migration costs Obsoleted 66% of active products and 380k part numbers prior to SAP data migration Increased price on least profitable products Implemented portfolio management reducing complexity from new products Results 00M cost savings Reduced operational complexity Product support Training Manufacturing Planning Deliver significant cost reductions through rationalization and economies of scale Improved inventory turns Improved profitability by eliminating or re-pricing least profitable products.5mm SAP data conversion savings 3

14 Case Study Situation Approach.5B food company Difficulty managing raw material complexity Raw material proliferation Diseconomies of scale Complex raw material management About to migrate product data from legacy system to SAP Create common base platforms across multiple products Platforms must allow for modular design that has the flexibility to cater to customer need Deliver significant cost reductions through rationalization and economies of scale Results 40MM of annual savings Developed product platforms that optimized operational efficiencies while still managing to facilitate customized products through modular designs. Built platforms that reduced raw materials by 40%. Ingredient platform A: 600 to 80 Ingredient platform B: 0,000 to,000 Reduced complexity Increased purchasing leverage Reduced inventory 4

15 Complexity Management Results - Example CPG firm saved 3.5 million in complexity management to reinvest in innovation and growth initiatives Pre Post % Change %, % % # of SKUs Revenue (Millions) Operating Profit (Millions) Post Complexity Management Pre Complexity Management 60% 0% % of SKU's 40% 00% % of Revenue 0% % of Operating Profit 00% % of SKU's % of Revenue % of Operating Profit 80% 80% 60% 60% 40% 40% 0% 0% 0% 0% -0% -0% -40% High Productivity SKU's Medium Productivity SKU's Low & Negative Productivity SKU's High Productivity SKU's Medium Productivity SKU's Low & Negative Productivity SKU's 5

16 Complexity Management Methodology Strategic Phases Phase : Assessment Phase : Development Business Unit Cross-Functional Rationalization Workshops Segment Segment Segment 3 Segment 4 Segment 5 Segment 6 Obvious cuts for immediate return & system clean-up Internal Assessment External Assessment Financial Assessment Internal Assessment External Assessment Brand Product Code Product Name Country Complexity Rating ( - least complex, 5 - most complex) Supply Chain MFG Proc. QA R&D PKG Aosta Pepperoni France 5 3 Aosta Sausage France Aosta Ham France Aosta Turkey France Aosta Chicken France Grow Improve Hand off to Tactical Plan Exit 6

17 Rationalization Workshop Process External Assessment Tool Product Product Brand Code Name Market Channel XYZ Pepperoni National Retail Market Market Share Growth (High or Rate (High Productivity Strategy External Low) or Low) Segment Positioning Score Low High High Grow 3 XYZ ABC ABC ABC High Low Low Low Sausage Ham Turkey Chicken National Retail National Retail Regional PL Regional PL Low Low High Low Medium Low Negative Negative Grow Maintain Harvest Harvest 4 Segmentation process to identify strategic action plan for all SKUs in project portfolio Cross Functional Rationalization Workshops Low and Negative SKU Universe Collaborative Collaborative facilitation facilitation process Functional Functional area decision area decision makers Internal Assessment Tool Brand Product Code Product Name Complexity Rating ( - least complex, 5 - most complex) Supply Country Chain MFG Proc. QA R&D PKG Aosta Pepperoni France 5 3 Aosta Sausage France Aosta Ham France Aosta Turkey France Aosta Chicken France

18 Complexity Management Methodology Tactical Phases Phase 3: Implementation Plan Phase 5: Ongoing Management Phase 4: Execution Establish Implementation Teams Measure Improvement Hand off from Strategic Plan Execute Plans Developed in Phase 3 Financial Assessment Tool (Insert Company Logo) P&L Improve Scorecard Exit (4.0) Cost of Sales COGS Storage & Distribution % 59.0%.6% % 58.6%.% (6.0) (8.0) (8.0) Gross Profit % %.0 0.9% Operating Expense Sales Expense Marketing Expense General & Admin Expense R&D Expense % 7.% 8.5% 7.8%.6% % 7.% 8.5% 7.4%.6% (.5) (3.0) (.0) (6.0) (0.5) -0.6% -0.% 0.0% -0.4% 0.0% Operating Profit % % Number of SKU's Division A Division B Division C Develop Tactical Execution Plans Grow (in Millions) Revenue Pre-Rationalization Actual % of Revenue,000 Rationalization Targets % of Revenue 976 Post Rationalization Change Pt. Change 5.8% Strategic Imperative: Operating Income Improvement Initiative: Product Rationalization Timeframe: Jan Dec 008 Executive Sponsor: Name Initiative Leader : Name Strategy: Improve operating Income by.5pts. or 4m through product rationalization and complexity reduction Rationale: Escalating commodity prices and increased business complexity have eroded.5 pts. of operating income. Legend for Success Criteria: S C O R E C A R D KPI GOAL OWNER Above threshold G/Y/R Below threshold KPI External Performance Measures Within risk range GOAL OWNER G/Y/R Internal Performance Measures Distribution Deliver,50 pts. of distribution (5 v 007) VP Sales SKU Reduction Rationalize 53 SKU's by March 008 VP Marketing Net Revenue Deliver 976m in 008 VP Sales COS Reduction 0.9 pt COS reduction to 69.7% VP Supply Chain Net Revenue Recapture 8m of revenue from rationalized SKU's by September VP Sales Sales Expense Reduction 3.0 m expense reduction (-0. pts) VP Sales.0 m expense reduction (no pt. change) VP Marketing G&A Expense Reduction 6.0m expense reduction (-0.4 pts) President R&D Expense Reduction 0.5 m expense reduction (no pt. change) VP R&D Marketing Expense Reduction Portfolio Management Process 8-0.9% -0.4% -0.5%

19 Scorecard Establishes Clear KPI s that Drive Accountability and Results Rationalization Scorecard 9

20 Summary Messages Complexity Management can provide up to 5.0 points of profit margin improvement, supply chain efficiency gains and improved resource utilization with near term payback Complexity Management can provide fuel for your innovation growth in challenging times Kalypso provides an integrated comprehensive approach to complexity management to deliver real sustainable results Nimble, flexible, and responsive to your needs. Working beside and behind you every step along the way Your trusted partner for tough challenges. Committed to you and the success of your organization 0

21 Thank You questions or comments to or We will you today s presentation For more information about Kalypso, visit