1 © The Delos Partnership 2003 Strategic Operations Planning One set of numbers at all times

2 © The Delos Partnership 2003 ABC 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 Planning 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 ? Inventory/ Capacity Customer Service Manufacturing Costs Manufacturing Flexibility

5 © The Delos Partnership 2003 Conflicting objectives Finance Marketing Manufacturing Sales

6 © The Delos Partnership 2003 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 © The Delos Partnership 2003 Functional Measures Actual Volume vs Budget Actual Sales vs Budget Inventory Level Project Budgets Leads to Silo Management Mentality

8 © The Delos Partnership 2003 Disintegrated Business Planning Long term plan Short term Plan Medium Term Plan

9 © The Delos Partnership 2003 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…

10 © The Delos Partnership 2003 Disintegrated Business Planning Annual operating Plan Master Production Schedule Supplier Schedule Factory Schedule £’s/Euros 18 months 1/ year SKU’s 12 weeks 1/week

11 © The Delos Partnership 2003 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”

12 © The Delos Partnership 2003 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 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 Vision Simple Owned by the Managing Director Understood by everyone Visible e.g. Simply the best

15 © The Delos Partnership 2003 Vision – Messier Dowty

16 © The Delos Partnership 2003 Strategy Clear Focus on overall strategy –Strengths/Weaknesses/Opportunities/ Threats –Market Position –Competitive Position –Technological Position

17 © The Delos Partnership 2003 Strategic Choices Key Strategic Choices –Operational Excellence –Customer Intimacy –Product Leadership

18 © The Delos Partnership 2003 Workshop 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 Teamwork With a common vision and a strategy there is a chance to develop common Objectives Commitment Team direction

20 © The Delos Partnership 2003 Supporting 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 Model Strategy Prioritisation Changes Vision DemandSupply Support

22 © The Delos Partnership 2003 Management of Innovation Needs Management across all the projects

23 © The Delos Partnership 2003 Demand Planning Needs a Simple Process Filter Demand Execute Forecast Capture Actual C O N S E N S U S F O R E C A S T Review Commercial Plans Review Exceptional Demand Hold Demand Review Assumptions written down and agreed

24 © The Delos Partnership 2003 Master Scheduler Strategy Master Scheduler Sales Forecasts Customer Orders Manufacturing Plan Purchasing Plan MRP System Balanced Plan

25 © The Delos Partnership 2003 In Balance ?

26 © The Delos Partnership 2003 Prioritisation 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 Analysis Strategic plan Time Now SOP Forecast Actual status years profitoutputrevenueprofitoutputrevenue What is the GAP and what are the action plans to close it?

28 © The Delos Partnership 2003 Strategic Operations 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

29 © The Delos Partnership 2003 Measurement What gets measured is what Gets done What gets measured is what Gets done Actual versus Budget Actual versus target Actual versus Budget Actual versus target Traditional Measures

30 © The Delos Partnership 2003 On track … “From looking at the wake behind the ship, I can see we are still on course…”

31 © The Delos Partnership 2003 Delos Business Model Strategy Prioritisation Changes Vision DemandSupply Support

32 © The Delos Partnership 2003 Goal Deployment Employees Owner Supply Chain Owner Innovation Owner Community Owner Customer Owner Shareholder Owner TARGETS Senior Management Business Support Supply Management Demand Management New Activity Management PERSPECTIVE Process Owners GOALSGOALS Objectives PROCESS

33 © The Delos Partnership 2003 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

34 © The Delos Partnership 2003 Integrated Business Vision And Strategy Processes People Improvement Measures Customer Service Shareholder Performance Innovation Suppliers

35 © The Delos Partnership 2003 Strategic 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