1. SPI Intro 1 © The Delos Partnership 2005 Integrated Enterprise Leadership Introduction

2. SPI Intro 2 © The Delos Partnership 2005 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.

3. SPI Intro 3 © The Delos Partnership 2005 ABC Company (cont’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 Distribution manager believes that demand is increasing, so is going to open a Central Distribution centre just outside New York. 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.

4. SPI Intro 4 © The Delos Partnership 2005 Conflicting objectives Inventory Customer Service Manufacturing Costs Manufacturing Flexibility

5. SPI Intro 5 © The Delos Partnership 2005 Conflicting objectives Finance Marketing Manufacturing Sales

6. SPI Intro 6 © The Delos Partnership 2005 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

7. SPI Intro 7 © The Delos Partnership 2005 Disintegrated Business Planning Long term plan Short term Plan Medium Term Plan

8. SPI Intro 8 © The Delos Partnership 2005 Lack of Visibility 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…

9. SPI Intro 9 © The Delos Partnership 2005 The 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

10. SPI Intro 10 © The Delos Partnership 2005 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

11. SPI Intro 11 © The Delos Partnership 2005 Objectives of Integrated Enterprise Leadership One set of numbers at all times Integrated Plans Realistic Plans Visibility and transparency Teamwork Communication of goals and objectives Decisions made in timely fashion More planning, less fire-fighting Consistent performance measures Delivery of the strategy

12. SPI Intro 12 © The Delos Partnership 2005 The Delos Model For Business Integration Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply

13. SPI Intro 13 © The Delos Partnership 2005 Sales and Operations Planning Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply SalesOperations 1980’s

14. SPI Intro 14 © The Delos Partnership 2005 Sales and Operations Planning Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply SalesOperations 1990’s Innovation

15. SPI Intro 15 © The Delos Partnership 2005 Integrated Enterprise Planning Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply SalesOperations 21 st Century Innovation Support

16. SPI Intro 16 © The Delos Partnership 2005 Strategy vs. Execution “It is not so much the strategy that causes the failure. 80 % of companies fail to execute their strategy” - Kaplan and Norton: “Strategy Focussed Organisation” “It is not so much the strategy that causes the failure. 80 % of companies fail to execute their strategy” - Kaplan and Norton: “Strategy Focussed Organisation”

17. SPI Intro 17 © The Delos Partnership 2005 Vision and Strategy Vision –Clear statement of direction –Understood by all Strategy –Means of getting there –Requires clear focus Operational Excellence Customer Intimacy Product Leadership

18. SPI Intro 18 © The Delos Partnership 2005 Setting the Vision Simple Owned by the Chief Executive Understood by everyone Visible Relevant

19. SPI Intro 19 © The Delos Partnership 2005 Strategic Choices Key Strategic Choices –Operational Excellence –Customer Intimacy –Product Leadership

20. SPI Intro 20 © The Delos Partnership 2005 Workshop Where are you now, and where do you want to be in 5 years time ? –OPERATIONAL EXCELLENCE –CUSTOMER INTIMACY –PRODUCT LEADERSHIP Where are you now, and where do you want to be in 5 years time ? –OPERATIONAL EXCELLENCE –CUSTOMER INTIMACY –PRODUCT LEADERSHIP

21. SPI Intro 21 © The Delos Partnership 2005 Management of Innovation Integrated Project Management – Programme Management

22. SPI Intro 22 © The Delos Partnership 2005 Forecasting Needs a Simple Process FilterDemand Computeforecast CaptureActual C O N S E N S U S F O R E C A S T C O N S E N S U S F O R E C A S T Hold Demand Review Agree commercial plans plans Agree Exceptional demand Assumptions written down and agreed ReviewAccuracy

23. SPI Intro 23 © The Delos Partnership 2005 Master Scheduler Strategy Master Scheduler Sales Forecasts Customer Orders Manufacturing Plan Purchasing Plan MRP System Balanced Plan

24. SPI Intro 24 © The Delos Partnership 2005 Integrated Enterprise Planning Annual Operating Plan Monthly Review Master Production Schedule Supplier Schedule Factory Schedule Volume [Family] Value 42 months horizon Volume [Family] Value 30 months horizon Volume SKU Value 18 months horizon Volume [Part number] Value 18 months horizon

25. SPI Intro 25 © The Delos Partnership 2005 Integrated Enterprise Leadership Overview of the process

26. SPI Intro 26 © The Delos Partnership 2005 Customer Relationship Strategy 1.First Decide if you are Make to Stock or Make To Order 2.Then work out the production plans Inventory Production Make To Stock Sales/ Shipments Order Book Sales Orders Production/ Shipments Make To Order

27. SPI Intro 27 © The Delos Partnership 2005 Inventory Management Inventory is not something that can be managed – it is a result Forecasts Actual SalesActual Production Planned Production

28. SPI Intro 28 © The Delos Partnership 2005 Make to Stock Production = Demand Plan + (Inventory Target - Current Inventory) = 100 + 75 - 50) PRODUCTION STOCK

29. SPI Intro 29 © The Delos Partnership 2005 Integrated Enterprise Leadership -3-2 Demand Plan120 Actual Demand119125132 Difference512 Cum Diff416 Months 123456789 Last Demand Plan120 New Demand Plan Difference Cum Diff Months Q4Q1 360 -3-2 Supply Plan125 Actual Supply119118121 Difference-6-7-4 Cum Diff-13-17 123456789 Last Supply Plan125 120 New Supply Plan Difference Cum Diff Q4Q1 360 -3-2 Stock Plan717681 Actual Stock 66665948 Difference-5-17-33 123456789 Last Stock Plan8691 New Stock Plan Difference Q4Q1 Make – To- Stock : Family Units

30. SPI Intro 30 © The Delos Partnership 2005 Family Summary Major Changes New Product included in Forecast Tender for Russia included Major Assumptions Competition will reduce price by 5 % We Win Russian Tender Major Threats Decisions Required Investment of Eur 0.5 m in Additional capacity for New Product

31. SPI Intro 31 © The Delos Partnership 2005 Workshop Using the information given, develop a revised plan You have thirty minutes. Using the information given, develop a revised plan You have thirty minutes.

32. SPI Intro 32 © The Delos Partnership 2005 Integrated Enterprise Leadership ACTIONACTION Week 1Week 2Week 3Week 4 Innovation Review Innovation Review Customer Demand Review Customer Demand Review Supply Plan Review Supply Plan Review Priority Review Priority Review Stage 1 Stage 2 Senior Team Review Senior Team Review Stage 5 Stage 7 Stage 3 Support Review Support Review Stage 6 Stage 4

33. SPI Intro 33 © The Delos Partnership 2005 Planned Calendar ……. Dates set in advance (annually) Everyone knows when it is Agenda pre-set Preparation happens If nothing to discuss, then no meeting Almost non-voluntary

34. SPI Intro 34 © The Delos Partnership 2005 Characteristics of Integrated Enterprise Leadership Formal set of meetings Agendas “pre-set” Linked series of meetings Focus on right decisions being made at right level Preparation is key Facts not opinions Long-term and not short-term focus

35. SPI Intro 35 © The Delos Partnership 2005 The Delos Model for Business Integration Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply

36. SPI Intro 36 © The Delos Partnership 2005 Traditional Measures Sales versus budget Machine Utilisation Purchase Price Variance Overhead Recovery Headcount Direct Labour Productivity Inventory Level

37. SPI Intro 37 © The Delos Partnership 2005 The Delos Core Measures Customer Order Delivery – the “Perfect Order” Demand Forecast Accuracy Lead Time Reduction - Demand, Supply and Change Quality, Right First Time – Demand, Supply and Change Schedule Achievement – In-house and outsourced New Product Introduction Velocity – all processes

38. SPI Intro 38 © The Delos Partnership 2005 Delos ROCE model ROCEROCE ProfitProfitCapitalCapital SalesSalesCostsCosts MaterialMaterialLabourLabourOverheadOverhead FixedFixedCurrentCurrent StocksStocksCreditorsCreditorsDebtorsDebtors ProjectsProjects

39. SPI Intro 39 © The Delos Partnership 2005 The Core Measures and Financial Effect

40. SPI Intro 40 © The Delos Partnership 2005 Integrated Enterprise Leadership It is not A meeting Planning manager putting together detailed production plans An IT system A recipe for just more meetings An exercise in creating numbers

41. SPI Intro 41 © The Delos Partnership 2005 Integrated Enterprise Leadership A formal process for providing the leadership team with options on which to make decisions Financially based review of current plans A way of identifying gaps and acting early enough Common-sense – reorganised Requires –Integration of all of the business processes –Performance measures of the processes