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
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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.
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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.
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Kalypso Capabilities Our services are designed to help companies become more innovative and provide a systemic view of new product & service development.
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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
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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
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Portfolio Management Shift
Source: www.tech-clarity.com
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Holistic approach to Portfolio Management
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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.
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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
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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
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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
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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
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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
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Medium Productivity SKU's Low & Negative Productivity SKU's
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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
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Grow
Improve
Hand off to Tactical Plan
Exit
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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
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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
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Portfolio Management Process 18
-0.9% -0.4% -0.5%
Scorecard Establishes Clear KPI’s that Drive Accountability and Results Rationalization Scorecard
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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
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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
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