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TRANSFORMING STRATEGY & PRODUCT FOR LONG-TERM PERFORMANCE <ul><li>Prepared By: W.D.FERME C.Eng. </li></ul><ul><li>Fermeng ...
LECTURE CONTENT <ul><li>SHAPING YOUR STRATEGY FOR DOMESTIC & GLOBAL MARKETS </li></ul><ul><li>COST REDUCTION MEASURES THAT...
WORLD MANUFACTURING TRENDS <ul><li>INCREASING GLOBALISATION </li></ul><ul><ul><li>China is going for 50% of the world manu...
 
RIVIERA GROUP Worldwide Operations <ul><li>Builder of Luxury Motor Boats </li></ul><ul><ul><li>30 to 60 Feet Long & Custom...
PRODUCT PLATFORMS <ul><li>The goal of developing a diverse customer base and, as a consequence, a multiplication of produc...
PLATFORM for a TOASTER <ul><li>1.Create a Platform Team </li></ul><ul><li>2.Voice of Customer/QFD </li></ul><ul><li>3.List...
TYPICAL AGRICULTURAL EQUIPMENT MANUFACTURER <ul><li>Develop Families of “Global” products, with as many models as possible...
PRODUCT PLATFORMS ROAD MAP <ul><li>Technology, Platform & Product-Line Plans can be clearly documented by using Road Maps:...
TRACTOR FAMILY SPECIFICATIONS Tractor Family 1 2 3 4 Rated Engine KW 30-55 60-90 90-125 135- 210 Market Trend Units  Down ...
PRODUCT PLATFORM BENEFITS <ul><li>Greater Ability to Tailor Products </li></ul><ul><li>Reduced Development Cost & Time </l...
LEAN MANUFACTURE <ul><li>Leading Approach in Australia </li></ul><ul><li>Based on Ford & Toyota Philosophies </li></ul><ul...
PHILOSOPHY LEAN THINKING ROOTS IN TOYOTA   <ul><li>Doing it all for the Customer </li></ul><ul><li>Leveled Production </li...
LEAN = LEAD-TIME COMPRESSION <ul><li>Value is only added to Products between 0.05% to 5% of Total Lead-Time </li></ul><ul>...
LEAN MANUFACTURING IMPLEMENTATION RESULTS <ul><li>Lean Achievers – Basis: Inventory Turnover Trend, most recent 10 or more...
LEAN MANUFACTURE IN SMALL TASMANIAN COMPANIES <ul><li>Increase in Net Profits </li></ul><ul><li>Reduction in Inventories <...
RATIONALISATION <ul><li>In an business era of “Stick-to-the-Knitting and Strategic Focus, rationalisation is a constant ta...
CUSTOMER RATIONALISATION <ul><li>The costs of marketing, selling & distribution expenses have been increasing rapidly in r...
CUSTOMERS X & Y Customer X Customer Y Gross Margin $166000 $159000 Marktg/Tech supp $7000 $54000 Travel/Customer $1200 $72...
PRODUCT RATIONALISATION <ul><li>Variety Reduction Program </li></ul><ul><ul><li>1.Fixed versus Variable Parts </li></ul></...
 
PRODUCT RATIONALISATION <ul><li>- COST REDUCTION </li></ul><ul><ul><li>Total Costs=V Costs + F Costs + C Costs </li></ul><...
SUPPLY CHAIN MANAGEMENT ( SCM ) <ul><li>Supply Chains contain between 30 to 60% of a companies costs. </li></ul><ul><li>Co...
SUPPLIER INTEGRATION <ul><li>OPPORTUNITIES for: </li></ul><ul><ul><li>Materials Cost Savings </li></ul></ul><ul><ul><li>Re...
REALIGN PORTFOLIO <ul><li>FOCUS ON GROWING, ATTRACTIVE MARKET SEGMENTS </li></ul><ul><li>PORTFOLIO MANAGEMENT </li></ul><u...
VALUE-ADDING MEASUREMENT <ul><li>These measures are used widely to measure the productivity of people & capital in Japan a...
CONCLUSIONS <ul><li>1. Manufacturing Companies to cope with increasing change should have a current Business Plan. </li></...
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Transforming Strategy &amp; Product For Long Term Performance

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Transcript of "Transforming Strategy &amp; Product For Long Term Performance"

  1. 1. TRANSFORMING STRATEGY & PRODUCT FOR LONG-TERM PERFORMANCE <ul><li>Prepared By: W.D.FERME C.Eng. </li></ul><ul><li>Fermeng Pty.Ltd. </li></ul><ul><li>CPA Australia Manufacturing </li></ul><ul><li>Conference </li></ul><ul><li>March 2006 </li></ul>
  2. 2. LECTURE CONTENT <ul><li>SHAPING YOUR STRATEGY FOR DOMESTIC & GLOBAL MARKETS </li></ul><ul><li>COST REDUCTION MEASURES THAT WORK ACROSS ALL BUSINESS LINES </li></ul><ul><li>BUSINESS RATIONALISATION: ANALYSING & TRANSFORMING ASSETS & PRODUCT LINES FOR PROFIT GROWTH </li></ul><ul><li>IDENTIFYING SYNERGIES & REMOVING NON-PERFORMING ASSETS TO ACHIEVE A LEANER, MORE PROFITABLE ORGANISATION </li></ul>
  3. 3. WORLD MANUFACTURING TRENDS <ul><li>INCREASING GLOBALISATION </li></ul><ul><ul><li>China is going for 50% of the world manufacturing market </li></ul></ul><ul><ul><li>Global Industries:Automotive, Electronics, Pharmaceuticals </li></ul></ul><ul><ul><li>75% of the Value of Public US Companies:Intangible Assets </li></ul></ul><ul><ul><li>Manufacturers downstream to Services </li></ul></ul><ul><ul><li>Overt & Covert Protection: USA Steel & Machine Tools </li></ul></ul><ul><ul><li>Product Platforms becoming crucial for survival </li></ul></ul><ul><ul><li>Takeovers, Mergers & Strategic Alliances </li></ul></ul><ul><ul><li>Companies turning into Virtual Organisations </li></ul></ul><ul><ul><li>Manufacturers Power to Giant Retailers:Price Pressure </li></ul></ul><ul><li>TECHNOLOGY ACCELERATION </li></ul><ul><ul><li>Technology is copied more quickly </li></ul></ul><ul><ul><li>Increasing Product Complexity: More IT in Products </li></ul></ul><ul><ul><li>Shorter Product Life Cycles </li></ul></ul><ul><ul><li>More Product Variety & Customisation </li></ul></ul><ul><ul><li>Soaring Product Development Costs </li></ul></ul><ul><ul><li>Material technologies range increasing </li></ul></ul><ul><ul><li>Environmentally designed Products </li></ul></ul><ul><li>MANUFACTURING IS TIME-BASED </li></ul><ul><ul><li>Lean Manufacturing Principles </li></ul></ul><ul><ul><li>Supply Chain is a source of major competitive advantage </li></ul></ul><ul><ul><li>Increasing Quality Requirements:ISO Standards </li></ul></ul><ul><ul><li>Outsourcing of Functions including R & D & Production </li></ul></ul><ul><ul><li>Companies locating closer to Markets </li></ul></ul><ul><ul><li>More Advanced Manufacturing Technology: Automation/IT </li></ul></ul>
  4. 5. RIVIERA GROUP Worldwide Operations <ul><li>Builder of Luxury Motor Boats </li></ul><ul><ul><li>30 to 60 Feet Long & Customised </li></ul></ul><ul><li>Based in Coomera, Queensland </li></ul><ul><li>2005 Sales $315m ( 70% Exports ) </li></ul><ul><ul><li>$262,500 Sales per Employees </li></ul></ul><ul><ul><li>Value-Added $160,000 per Employee </li></ul></ul><ul><li>1200 Employees( 200+Apprentices ) </li></ul><ul><li>Global Operations with One Brand </li></ul><ul><ul><li>30 Countries with 50 Dealerships </li></ul></ul><ul><ul><li>8 Retail Partnerships in Australia/NZ </li></ul></ul><ul><li>Integrity part of Company Values </li></ul><ul><li>Has Alliances: NV Design, Genmar </li></ul><ul><li>Wide use of CAD/CAM/AMT </li></ul>
  5. 6. PRODUCT PLATFORMS <ul><li>The goal of developing a diverse customer base and, as a consequence, a multiplication of products and be economically efficient is achieved by the platform approach. </li></ul>
  6. 7. PLATFORM for a TOASTER <ul><li>1.Create a Platform Team </li></ul><ul><li>2.Voice of Customer/QFD </li></ul><ul><li>3.List desired Offerings: </li></ul><ul><ul><li>2/4 Slice Household Model </li></ul></ul><ul><ul><li>4 Slice Commercial Model </li></ul></ul><ul><li>4.Market segmentation </li></ul><ul><ul><li>First Time Purchasers ( Inexpensive ) </li></ul></ul><ul><ul><li>Second Time Users ( More Affluent ) </li></ul></ul><ul><ul><li>Large Family & Commercial Users </li></ul></ul><ul><li>4.List Design Options </li></ul><ul><ul><li>Different Layouts for each member </li></ul></ul><ul><li>5.Determine Platform Options </li></ul><ul><ul><li>Components that could be shared </li></ul></ul><ul><ul><ul><li>A. Electrical Control Board </li></ul></ul></ul><ul><ul><ul><li>B.Heating Elements </li></ul></ul></ul><ul><li>6.Compare Platform Design Options </li></ul>
  7. 8. TYPICAL AGRICULTURAL EQUIPMENT MANUFACTURER <ul><li>Develop Families of “Global” products, with as many models as possible in each Family </li></ul><ul><li>Use Product Platform Road maps </li></ul><ul><li>Standardise Sub Assemblies & Components </li></ul><ul><li>Adapting & Improving Product Development Methodologies </li></ul><ul><li>Investing in a Variety of Configurations </li></ul>
  8. 9. PRODUCT PLATFORMS ROAD MAP <ul><li>Technology, Platform & Product-Line Plans can be clearly documented by using Road Maps: </li></ul>Product A A1 A2 A3 Product B B1 B2 Technology a b c Year 2006 2007 2008 2009
  9. 10. TRACTOR FAMILY SPECIFICATIONS Tractor Family 1 2 3 4 Rated Engine KW 30-55 60-90 90-125 135- 210 Market Trend Units Down Level Up Up No. of Functions Moderate High Very High High Diesel Eng. 3 Cyl 4 Cyl 4 Cyl 6 Cyl Gear Box Synch 3 Speed 4 Speed Full Axle Concepts FWD FWD FWD FWD
  10. 11. PRODUCT PLATFORM BENEFITS <ul><li>Greater Ability to Tailor Products </li></ul><ul><li>Reduced Development Cost & Time </li></ul><ul><li>Reduced Manufacturing Cost </li></ul><ul><li>Reduced Production Investment </li></ul><ul><li>Reduced Systemic Complexity </li></ul><ul><li>Lower risk </li></ul><ul><li>Improved Service </li></ul>
  11. 12. LEAN MANUFACTURE <ul><li>Leading Approach in Australia </li></ul><ul><li>Based on Ford & Toyota Philosophies </li></ul><ul><li>Success in application has been in two manufacturing Modes: Batch & Line Production </li></ul><ul><li>Applying Lean Manufacture no guarantee for Survival </li></ul><ul><li>Mainly applied in Large/Medium Companies </li></ul><ul><li>Basically applied in Manufacturing </li></ul><ul><li>Basically the old Industrial Engineering Approach </li></ul><ul><li>Like all investments it needs to be justified </li></ul><ul><li>USA Consultants introduced Value-Stream Mapping </li></ul>
  12. 13. PHILOSOPHY LEAN THINKING ROOTS IN TOYOTA <ul><li>Doing it all for the Customer </li></ul><ul><li>Leveled Production </li></ul><ul><li>Pull System’ </li></ul><ul><li>Continuous Flow Production </li></ul><ul><li>Takt Times </li></ul><ul><li>Multi-Skilling/Work Cells </li></ul><ul><li>TQM/Kaizen/Set-Up Reduction </li></ul><ul><li>TPM/ 5S Methodology </li></ul><ul><li>Poka Yoke </li></ul><ul><li>SPC/Visual Controls </li></ul><ul><li>Standardised Work/ SMED </li></ul>
  13. 14. LEAN = LEAD-TIME COMPRESSION <ul><li>Value is only added to Products between 0.05% to 5% of Total Lead-Time </li></ul><ul><li>Productivity Increases </li></ul><ul><ul><li>For every Quartering of Lead Time, Productivity Doubles & Costs Reduce by 20% </li></ul></ul><ul><ul><ul><li>Boston Consulting Group </li></ul></ul></ul><ul><li>Prices can be Increased </li></ul><ul><ul><li>Electrical Components </li></ul></ul><ul><ul><ul><li>Time advantage 2: 1 Price Premium 59% </li></ul></ul></ul><ul><ul><li>Locks </li></ul></ul><ul><ul><ul><li>Time Advantage 3: 1 Price Premium 25% </li></ul></ul></ul><ul><li>Risks Fall </li></ul><ul><ul><li>Faster Response to Customers </li></ul></ul><ul><ul><li>Less Inventory of Products/Parts </li></ul></ul>
  14. 15. LEAN MANUFACTURING IMPLEMENTATION RESULTS <ul><li>Lean Achievers – Basis: Inventory Turnover Trend, most recent 10 or more years. </li></ul><ul><li>Results for 1,080 + Companies </li></ul><ul><li>in 27 Countries & 35 Industries: </li></ul><ul><li>- Clear Sustained Improvement- </li></ul><ul><li>Only 34% </li></ul><ul><li>- Same but Lapsed last 5 – 7 Years – </li></ul><ul><li>14% </li></ul><ul><li>- No Pattern or Decline – 52% </li></ul><ul><li>- Dr.Richard J.Schonberger, Sept.2004 </li></ul>
  15. 16. LEAN MANUFACTURE IN SMALL TASMANIAN COMPANIES <ul><li>Increase in Net Profits </li></ul><ul><li>Reduction in Inventories </li></ul><ul><li>Batch to Flow Manufacture </li></ul><ul><li>Major Increases in Productivity </li></ul><ul><li>Major Machine Utilisation Increases </li></ul><ul><li>Plant Layout to Cells </li></ul><ul><li>On-Time Deliveries Improved </li></ul><ul><li>SMED Savings </li></ul><ul><li>Working Capital Reductions </li></ul><ul><li>Rework Reduced </li></ul><ul><ul><li>Creative Innovative Company Program Report 4, 23-8-05 by Dr.J.Blakemore, Sydney </li></ul></ul>
  16. 17. RATIONALISATION <ul><li>In an business era of “Stick-to-the-Knitting and Strategic Focus, rationalisation is a constant task. </li></ul><ul><li>Methodologies: </li></ul><ul><ul><li>Financial Analysis </li></ul></ul><ul><ul><li>Value-Added Measurement </li></ul></ul><ul><ul><li>Core Competences </li></ul></ul><ul><ul><li>80/20 Rule </li></ul></ul><ul><li>Types of Rationalisation: </li></ul><ul><ul><li>Customer </li></ul></ul><ul><ul><li>Product </li></ul></ul><ul><ul><li>Organisation </li></ul></ul><ul><ul><li>Manufacturing </li></ul></ul><ul><ul><li>Vendors </li></ul></ul><ul><ul><li>Distribution </li></ul></ul>
  17. 18. CUSTOMER RATIONALISATION <ul><li>The costs of marketing, selling & distribution expenses have been increasing rapidly in recent years </li></ul><ul><li>Many of these expenses do not relate to individual products or product lines but are associated with: </li></ul><ul><ul><li>Individual Customers </li></ul></ul><ul><li>Companies need to understand the cost of selling to & serving their diverse customer base </li></ul><ul><li>Customer Profitability </li></ul><ul><ul><li>Most profitable 20% of customers generate about 80% of total profits </li></ul></ul><ul><ul><li>Middle 70% of customers break even </li></ul></ul><ul><ul><li>Least Profitable 10% : Dump! </li></ul></ul>
  18. 19. CUSTOMERS X & Y Customer X Customer Y Gross Margin $166000 $159000 Marktg/Tech supp $7000 $54000 Travel/Customer $1200 $7200 Dist.Sales Catalog $100 $100 Service Customers $4000 $42000 Handle C/Orders $500 $18000 Warehouse Invty $800 $8800 Ship to Customers $12600 $42000 Total Activity $26200 $172100 Operating Profit $139800 ($13100) Profit % 43.7% ( 4.2% )
  19. 20. PRODUCT RATIONALISATION <ul><li>Variety Reduction Program </li></ul><ul><ul><li>1.Fixed versus Variable Parts </li></ul></ul><ul><ul><li>2.Combination of Parts </li></ul></ul><ul><ul><li>3.Multifunctionality/Integration </li></ul></ul><ul><ul><li>Modularity </li></ul></ul><ul><ul><li>4.Range of Dimensions </li></ul></ul><ul><ul><li>5.Trends </li></ul></ul><ul><li>Where to Use: </li></ul><ul><ul><li>Fixed & Variable and Combination techniques to change the configuration method for the Parts & Production Processes </li></ul></ul><ul><ul><li>Multifunctionality/Integration technique to simplify & optimise the systems & specifications </li></ul></ul><ul><ul><li>Trend & Range techniques for establishing dimensional/volume values that incur minimal costs </li></ul></ul>
  20. 22. PRODUCT RATIONALISATION <ul><li>- COST REDUCTION </li></ul><ul><ul><li>Total Costs=V Costs + F Costs + C Costs </li></ul></ul><ul><ul><li>V ( Variety ) Costs </li></ul></ul><ul><ul><ul><li>Variety of Part Types & Production Process Types </li></ul></ul></ul><ul><ul><ul><li>Expenses for Retooling, metal dies & equipment </li></ul></ul></ul><ul><ul><ul><li>Skills Training </li></ul></ul></ul><ul><ul><ul><li>Opportunity Loss-related costs </li></ul></ul></ul><ul><ul><li>F ( Function ) Costs </li></ul></ul><ul><ul><ul><li>Material Costs </li></ul></ul></ul><ul><ul><ul><li>Processing Costs </li></ul></ul></ul><ul><ul><ul><li>Assembly Costs/Shipping & Packing Costs </li></ul></ul></ul><ul><ul><ul><li>Inspection Costs </li></ul></ul></ul><ul><ul><li>C ( Control ) Costs </li></ul></ul><ul><ul><ul><li>Design </li></ul></ul></ul><ul><ul><ul><li>Ordering Costs </li></ul></ul></ul><ul><ul><ul><li>Item Control/Quality Control Co </li></ul></ul></ul>Mass Prod Special-Order V Costs 20 – 30 % 20 – 30% F Costs 50 – 70% 40 – 60% C Costs 10 – 30% 30 – 40%
  21. 23. SUPPLY CHAIN MANAGEMENT ( SCM ) <ul><li>Supply Chains contain between 30 to 60% of a companies costs. </li></ul><ul><li>Companies are now competing on their supply chain performance </li></ul><ul><li>Companies are creating an integrated supply chain: Suppliers to Customers </li></ul><ul><li>Inventory Turnover Ratios ( Sales/Inventory) in Australia average about four ( USA about 9 ) </li></ul><ul><li>Carrying Cost of Inventory is about 25% of Value </li></ul><ul><li>Companies should use Value Analysis with suppliers to reduce purchase costs </li></ul><ul><li>Use the ABC Analysis to re-align their inventories with demand </li></ul><ul><li>Supply Chain Technologies: EDI/Net/RF </li></ul>
  22. 24. SUPPLIER INTEGRATION <ul><li>OPPORTUNITIES for: </li></ul><ul><ul><li>Materials Cost Savings </li></ul></ul><ul><ul><li>Reduced Inventory Levels </li></ul></ul><ul><ul><li>Higher Quality Service: Approved Suppliers </li></ul></ul><ul><ul><li>Reduced Expenditure on Administration </li></ul></ul><ul><li>STORES </li></ul><ul><ul><li>ABC classification </li></ul></ul><ul><ul><li>Minimum Stocks, say 1% of Sales </li></ul></ul><ul><li>GOODS INWARDS </li></ul><ul><ul><li>Received Parts on a JIT Basis </li></ul></ul><ul><li>VENDOR QUALITY </li></ul><ul><ul><li>Minimum Inspection </li></ul></ul><ul><ul><li>Facilitate Continuous Improvement </li></ul></ul><ul><ul><li>Feedback on Total Performance </li></ul></ul><ul><li>PURCHASING </li></ul><ul><ul><li>Reduce Number of Suppliers </li></ul></ul><ul><li>SUPPLIER DEVELOPMENT </li></ul><ul><ul><li>Collaboration via People & Systems </li></ul></ul><ul><li>SUPPLY CHAIN TECHNOLOGIES </li></ul><ul><ul><li>RF Data Capture/eSignatures etc. </li></ul></ul>
  23. 25. REALIGN PORTFOLIO <ul><li>FOCUS ON GROWING, ATTRACTIVE MARKET SEGMENTS </li></ul><ul><li>PORTFOLIO MANAGEMENT </li></ul><ul><ul><li>Exit mature, unprofitable, Low Value-Added & Non-Core Divisions </li></ul></ul><ul><li>ACCELERATE GROWTH </li></ul><ul><ul><li>Allocate money & effort to Growing Segments which can sustain a competitive future: </li></ul></ul><ul><ul><li>Innovate on new Business Model </li></ul></ul><ul><ul><li>Improve the Geographical Footprint </li></ul></ul><ul><li>IMPROVE PRODUCT MIX & ADDED VALUE </li></ul><ul><ul><li>Improve Product Mix </li></ul></ul>
  24. 26. VALUE-ADDING MEASUREMENT <ul><li>These measures are used widely to measure the productivity of people & capital in Japan and can be linked to conventional financial measures. </li></ul><ul><ul><li>People Productivity </li></ul></ul><ul><ul><ul><li>Value-Added per Employee </li></ul></ul></ul><ul><ul><li>Capital Productivity </li></ul></ul><ul><ul><ul><li>Value-added per Total Assets </li></ul></ul></ul><ul><li>Two Methods of calculating Value-Adding ( VA ): </li></ul><ul><ul><li>Subtraction Method: </li></ul></ul><ul><ul><ul><li>VA = Sales – Materials & Services </li></ul></ul></ul><ul><ul><li>Addition Method: </li></ul></ul><ul><ul><ul><li>VA = Labour Cost + Interest + Taxation + Depreciation + Profit </li></ul></ul></ul>
  25. 27. CONCLUSIONS <ul><li>1. Manufacturing Companies to cope with increasing change should have a current Business Plan. </li></ul><ul><li>2.A Product Platform gives a company the ability to introduce new products on an organised basis which minimises costs. </li></ul><ul><li>3.Lean Manufacture needs to be a focused activity to achieve benefits. </li></ul><ul><li>4.Company Rationalisation is mandatory in these fast moving times. </li></ul><ul><li>5.The realignment of a Companies Portfolio is an on-going task for all organisations. </li></ul>
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