Complexity Management - Kalypso

121 downloads 192 Views 3MB Size Report
Scott holds a MBA from the Carlson School of Management,. University of ... the Aerospace & Defense and Auto industr
Complexity Management Drive Cost Savings to Fund the Future www.kalypso.com

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

www.kalypso.com

2

Introductions Brian Sharp Practice Leader

Scott Gamble Senior Manager

Brian brings over 20 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 brings over 20 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.

www.kalypso.com

3

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.

www.kalypso.com

4

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

www.kalypso.com

5

Industries We Serve

Technology Technology

Consumer Consumer Business Business

Life Life Sciences Sciences

Manufacturing Manufacturing

Automotive Automotive

Public Public Sector Sector

Aerospace Aerospace & & Defense Defense

Energy Energy

www.kalypso.com

6

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

www.kalypso.com

7

Portfolio Management Shift

Source: www.tech-clarity.com

www.kalypso.com

8

Holistic approach to Portfolio Management

www.kalypso.com

9

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.

www.kalypso.com

10

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. www.kalypso.com

11

Our Experience with Complexity Reduction The bottom 20-40% 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 250 basis points of profit margin www.kalypso.com

12

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 • $100M 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 • $1.5MM SAP data conversion savings www.kalypso.com

13

Case Study Situation

Approach

• $2.5B 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 180 • Ingredient platform B: • 10,000 to 1,000 • Reduced complexity • Increased purchasing leverage • Reduced inventory www.kalypso.com

14

Complexity Management Results - Example CPG firm saved $13.5 million in complexity management to reinvest in innovation and growth initiatives Pre Post % Change 208 155 -25.5% $ 1,000.0 $ 976.0 -2.4% $ 43.0 $ 56.5 31.4%

# of SKUs Revenue ($Millions) Operating Profit ($Millions)

Post Complexity Management

Pre Complexity Management 160%

120%

% of SKU's

140%

100%

% of Revenue

120%

% of Operating Profit

100%

% of SKU's % of Revenue % of Operating Profit

80%

80% 60%

60%

40%

40% 20%

20%

0%

0%

-20%

-20%

-40% High Productivity SKU's

Medium Productivity SKU's

Low & Negative Productivity SKU's

High Productivity SKU's

www.kalypso.com

Medium Productivity SKU's Low & Negative Productivity SKU's

15

Complexity Management Methodology Strategic Phases Phase 1: Assessment

Phase 2: Development

Business Unit

Cross-Functional Rationalization Workshops

Segment 1

Segment 2

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 (1 - least complex, 5 - most complex) Supply Chain MFG Proc. QA R&D PKG

Aosta

40000001Pepperoni

France

5

3

2

1

1

1

Aosta

40000002Sausage

France

2

1

1

2

1

1

Aosta

40000003Ham

France

1

4

4

5

5

1

Aosta

40000004Turkey

France

2

1

1

1

1

1

Aosta

40000005Chicken

France

2

4

2

1

3

5

www.kalypso.com

Grow

Improve

Hand off to Tactical Plan

Exit

16

Rationalization Workshop Process External Assessment Tool

Product Product Brand Code Name Market Channel XYZ 40000001 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

40000002 Sausage 40000003 Ham 40000004 Turkey 40000005 Chicken

National Retail National Retail Regional PL Regional PL

Low Low High Low

Medium Low Negative Negative

Grow Maintain Harvest Harvest

2 4 1 2

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 (1 - least complex, 5 - most complex) Supply Country Chain MFG Proc. QA R&D PKG

Aosta

40000001Pepperoni

France

5

3

2

1

1

1

Aosta

40000002Sausage

France

2

1

1

2

1

1

Aosta

40000003Ham

France

1

4

4

5

5

1

Aosta

40000004Turkey

France

2

1

1

1

1

1

Aosta

40000005Chicken

France

2

4

2

1

3

5

www.kalypso.com

17

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

$

(24.0)

Cost of Sales COGS Storage & Distribution

$ $ $

706 590 116

70.6% $ 59.0% $ 11.6% $

680 572 108

69.7% $ 58.6% $ 11.1% $

(26.0) (18.0) (8.0)

Gross Profit

$

294

29.4% $

296

30.3% $

2.0

0.9%

Operating Expense Sales Expense Marketing Expense General & Admin Expense R&D Expense

$ $ $ $ $

251 72 85 78 16

25.1% 7.2% 8.5% 7.8% 1.6%

$ $ $ $ $

240 69 83 72 16

24.5% 7.1% 8.5% 7.4% 1.6%

(11.5) (3.0) (2.0) (6.0) (0.5)

-0.6% -0.1% 0.0% -0.4% 0.0%

Operating Profit

$

43

4.3% $

57

13.5

1.5%

Number of SKU's Division A Division B Division C

Develop Tactical Execution Plans

Grow

(in $Millions) Revenue

Pre-Rationalization Actual 208 68 75 65 % of Revenue $ 1,000

Rationalization Targets 155 58 45 52 % of Revenue $ 976

Post Rationalization Change -53 -10 -30 -13 Pt. Change

$ $ $ $ $

5.8% $

Strategic Imperative: Operating Income Improvement Initiative: Product Rationalization Timeframe: Jan 2008 - Dec 2008

Executive Sponsor: Name Initiative Leader : Name

Strategy: Improve operating Income by 1.5pts. or $14m through product rationalization and complexity reduction Rationale: Escalating commodity prices and increased business complexity have eroded 1.5 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 1,250 pts. of distribution (125 v 2007)

VP Sales



SKU Reduction

Rationalize 53 SKU's by March 2008

VP Marketing



Net Revenue

Deliver $976m in 2008

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 (-0.1 pts)

VP Sales



$2.0 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

www.kalypso.com

Portfolio Management Process 18

-0.9% -0.4% -0.5%

Scorecard Establishes Clear KPI’s that Drive Accountability and Results Rationalization Scorecard

www.kalypso.com

19

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 www.kalypso.com

20

Thank You • Email questions or comments to [email protected] or [email protected] • We will email you today’s presentation • For more information about Kalypso, visit www.kalypso.com

www.kalypso.com

21