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© 2005, 2008 by IDEA, LLC All rights reserved Elucidate Conceptual Introduction For: Companies that hold physical inventory.

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Presentation on theme: "© 2005, 2008 by IDEA, LLC All rights reserved Elucidate Conceptual Introduction For: Companies that hold physical inventory."— Presentation transcript:

1 © 2005, 2008 by IDEA, LLC All rights reserved Elucidate Conceptual Introduction For: Companies that hold physical inventory

2 © 2005, 2008 by IDEA, LLC All rights reserved The Goal A simple desire with two prerequisites

3 © 2005, 2008 by IDEA, LLC All rights reserved An Obvious Action In order to spend less, reduce inventory levels Because of: lower carrying costs fewer disposals etc.

4 © 2005, 2008 by IDEA, LLC All rights reserved A Conflict To protect availability, add stock. How to take both actions – must we compromise?

5 © 2005, 2008 by IDEA, LLC All rights reserved The Less Preferred Option There is an upside and a down side …

6 © 2005, 2008 by IDEA, LLC All rights reserved The Less Preferred Option … and we’d spend more in carrying and obsolescence costs – definitely a last resort

7 © 2005, 2008 by IDEA, LLC All rights reserved The Preferred Option If we stock less, how do we get good enough availability to sell more? ?

8 © 2005, 2008 by IDEA, LLC All rights reserved Reality Intrudes Demand and resupply fluctuate, making it harder to consistently keep either extra profit or cash X X X

9 © 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? 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

10 © 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) Sales Gross Profit Expenses Profit Inventory Turns % Return Current $ $ % Elucidate Future $ $ % Better Turns 7.5 We’d have considerably better turns +$10 million What about financial benefits?

11 © 2005, 2008 by IDEA, LLC All rights reserved Elucidate Future $ $ % Elucidate Future $ $ % The Benefits of a Solution What would it mean to me, if I could have both better availability and lower inventory? (millions) Sales Gross Profit Expenses Profit Inventory Turns % Return Current $ $ % We’d have considerably better turns We’d sell 6% more, if we just stayed in stock +$10 million In Stock $ $9 million +$3 million Better Turns 7.5

12 © 2005, 2008 by IDEA, LLC All rights reserved Elucidate Future $ $ % Elucidate Future $ $ % The Benefits of a Solution What would it mean to me, if I could have both better availability and lower inventory? (millions) Sales Gross Profit Expenses Profit Inventory Turns % Return Current $ $ % Better Turns 7.5 We’d sell 6% more, if we just stayed in stock Without surpluses, we wouldn’t have to discount In Stock $ $9 million +$3 million +$7 million Less Discounts $

13 © 2005, 2008 by IDEA, LLC All rights reserved Elucidate Future $ $ % Elucidate Future $ $ % The Benefits of a Solution What would it mean to me, if I could have both better availability and lower inventory? (millions) Sales Gross Profit Expenses Profit Inventory Turns % Return Current $ $ % Better Turns 7.5 Without surpluses, we wouldn’t have to discount We’d sure have fewer inventory disposals In Stock $ $9 million +$7 million +$8 million Less Discounts $ Fewer Disposals $

14 © 2005, 2008 by IDEA, LLC All rights reserved Elucidate Future $ $ % Elucidate Future $ $ % The Benefits of a Solution What would it mean to me, if I could have both better availability and lower inventory? (millions) Sales Gross Profit Expenses Profit Inventory Turns % Return Current $ $ % Better Turns 7.5 We’d sure have fewer inventory disposals If we didn’t have to beg suppliers to expedite, we could negotiate better costs In Stock $ $9 million +$8 million +$10 million Less Discounts $ Fewer Disposals $ Buying Better $

15 © 2005, 2008 by IDEA, LLC All rights reserved Elucidate Future $ $ % Elucidate Future $ $ % The Benefits of a Solution What would it mean to me, if I could have both better availability and lower inventory? (millions) Sales Gross Profit Expenses Profit Inventory Turns % Return Current $ $ % Better Turns 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 In Stock $ $9 million +$10 million +$13 million Less Discounts $ Fewer Disposals $ Buying Better $ Winning Share $ $7 million

16 © 2005, 2008 by IDEA, LLC All rights reserved Elucidate Future $ $ % Elucidate Future $ $ % The Benefits of a Solution What would it mean to me, if I could have both better availability and lower inventory? (millions) Sales Gross Profit Expenses Profit Inventory Turns % Return Current $ $ % Better Turns 7.5 Better availability ought to be a huge seller We could add new product lines or buy a competitor In Stock $ $7 million +$13 million +$16 million Less Discounts $ Fewer Disposals $ Buying Better $ Winning Share $ $5 million Reinvest- ment $

17 © 2005, 2008 by IDEA, LLC All rights reserved Elucidate Future $ $ % The Benefits of a Solution What would it mean to me, if I could have both better availability and lower inventory? (millions) Sales Gross Profit Expenses Profit Inventory Turns % Return Current $ $ % Better Turns 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. In Stock $ $16 million Less Discounts $ Fewer Disposals $ Buying Better $ Winning Share $ $5 million Reinvest- ment $

18 © 2005, 2008 by IDEA, LLC All rights reserved Proof Quantify your opportunity without 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 Wait a minute. Where’s the proof?

19 © 2005, 2008 by IDEA, LLC All rights reserved 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

20 © 2005, 2008 by IDEA, LLC All rights reserved 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 1 st 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.

21 © 2005, 2008 by IDEA, LLC All rights reserved 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

22 © 2005, 2008 by IDEA, LLC All rights reserved 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 1 st 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

23 © 2005, 2008 by IDEA, LLC All rights reserved 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

24 © 2005, 2008 by IDEA, LLC All rights reserved 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

25 © 2005, 2008 by IDEA, LLC All rights reserved Solution Overview Injection 2: Buy up to the buffers What you have to do: Cancel some existing orders Place fewer orders for a while Buffers signal when NOT to buy No more need to raise stocks. The conflict is broken.

26 © 2005, 2008 by IDEA, LLC All rights reserved Solution Overview Injection 2: Breaks the conflict What you have to do: Cancel some existing orders Place fewer orders for a while Buffers signal when NOT to buy

27 © 2005, 2008 by IDEA, LLC All rights reserved 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

28 © 2005, 2008 by IDEA, LLC All rights reserved 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

29 © 2005, 2008 by IDEA, LLC All rights reserved 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

30 © 2005, 2008 by IDEA, LLC All rights reserved 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?

31 © 2005, 2008 by IDEA, LLC All rights reserved Solution Overview Protection can erode over time What you have to do:

32 © 2005, 2008 by IDEA, LLC All rights reserved Solution Overview Injection 4: Dynamic Buffer Management What you have to do: Nothing

33 © 2005, 2008 by IDEA, LLC All rights reserved 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

34 © 2005, 2008 by IDEA, LLC All rights reserved 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

35 © 2005, 2008 by IDEA, LLC All rights reserved 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

36 © 2005, 2008 by IDEA, LLC All rights reserved Solution Review Big investment Bigger return IDEA fees Investment= $100,000/yr / 250 days/yr X 50 days + IDEA fees IDEA fees = $20,000 + IDEA fees Return= 4 years X $16,000,000 change in profit/yr + 5,000,000 = $69,000,000 + Stability

37 © 2005, 2008 by IDEA, LLC All rights reserved IDEA’s Contingency Approach Full engagement Fixed monthly fees and Success fees Enjoy an Enormous Improvement Keep What You Have Now Share a Piece with IDEA

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