SSCX : Lean Six Sigma - Accelerating Cost Transformation

Accelerating Cost Transformation Intercontinental Mid Plaza – August 12th, 2009

Menara Rajawali 11th Floor Mega Kuningan Jakarta 12950 T +62 21 576 2727 F +62 21 576 2736 www.SSCXinternational.com

Topics Covered Today  Accelerate business growth with Lean Six Sigma  How LSS will benefit your business  Integrating Change Management into LSS  Tranforming Cost with business process improvement  LSS in Service, Manufacturing, and Mining

Prolog The New Normal

The New Normal  Reduced consumer demand  Higher customer bargaining power  Rising costs but limited pricing power due to globalization and intense competition  Reduced access to liquidity and expensive financing  Rising unemployment  Threat of global recession  Volatile energy prices  Weak investor confidence

What Can Should We Do? Translating Pressure into Competitive Advantage

Tyranny of the OR

Need for Improvement Business Business is Facing Margin Turnaround Crisis! Crisis! Situation great! Pressure Time Low High Very High Extreme Urgency Too Risky Let's Do It Act Now Do It! Do It! • 'Risk-free' • SG&A • SG&A • SG&A process • COGS • COGS • COGS Primary Cost improvement • Infrastructure • Infrastructure Lever • Financial Restructuring Time Long term Medium to long Short to medium Short term Expectancy Choice No Choice

Typical Reaction  Big Squeeze – Collecting A/R aggressively DEBT COLLECTOR – Suppressing A/P to suppliers ruthlessly – Cutting inventory all over

Cost Transformation vs Future Growth  Organizations tend to cut cost all over for short term without considering longer term growth  Impact: – You survive,… for now. – But, to bounce back?

Recommended Steps Align business objectives and priorities Develop and maintain a healthy financial forecast Identify forecast risk and take appropriate actions Improve efficiency in working capital Aggressively manage costs Exercise discipline in capital investments

Our Perspective on COST  Cost is everywhere  Cost tends to increase along with business complexity  Good news is you can manage the complexity  Area with cost reduction opportunity is not always obvious! Cost-cutting measures will not only keep a business running efficiently in a downturn, but also position the company to take advantage of the market when it eventually snaps back.

Aggresively Manage Cost  Obvious Cost  You are certain Obvious  eg: Defects and Errors  Suspected Cost Suspect  Doubtful -ed  Can we eliminate it? Hidden  eg: transportation, discount?  Hidden Cost  You do not aware  Biggest portion of managing cost.

Approach to Cost Transformation High STRUC- TURAL PROCESS Complexity CHANGE LOW HANGING FRUIT Low Low Length of Time High

Instead,..  How can ZARA not only stay competitive, but also leading in retail?  What are their competitive advantages?  What are the lessons that we can take and use for our business?  LEAD TIME: Shorter lead time from concept to stores  SCARCITY: Smaller quantity per style  VARIETY: Many more styles per year

Which one will you choose?

What about this? 

Lean Six Sigma THE Methodology to Improve Business Process Performance, hence Cost Structure

Many ways to get the apple.

Cut down the tree

Outsource

Hire professors

Practice ZEN, do the opposite, see what happens

Use technology

Okay, Let’s Agree on What We Need • Strategic Alignment and Integration between process improvement, cost transformation, and strategy – Selected and prioritized portfolio of initiatives (projects) – Calibrated vision and business objectives, top down • Proven Change Infrastructure (change management, people, monitoring process) – Skilled change agents with technical know how and people skills – Power of Mass • Diciplined Execution of initiatives/projects with comprehensive skill set and methodology – Robust factual-approach methodology – Wave by wave by wave

Okay, Let’s Agree on What We Need • Strategic alignment and integration between process improvement, cost transformation, and strategy – Selected and prioritized portfolio of initiatives (projects) LEAN SIX SIGMA – Calibrated vision and business objectives, top down • Proven Change Infrastructure (change management, people, monitoring process) – Skilled change agents with technical know how and people skills – Power of Mass A• rose by any other of initiatives/projects as sweet! Diciplined Execution name would smell – Robust factual-approach methodology – Wave by wave by wave

What Is Six Sigma?  Benchmark, Measurement : 3.4 defects per million opportunities (dpmo)  Problem Solving Methodology : D-M-A-I-C (define-measure-analyze-improve-control)  Six Sigma has been OVER SIMPLIFIED

So,… What Is Six Sigma?  Change Management effort, deployed consistently, aggresively throughout organization  Business Strategy to accelerate growth by creating value for stakeholders and reducing non-value-added cost.  Six Sigma is now REDEFINED

D M A I C S

More on Change Management Compelling Aligned Enduring Quick Wins Confusion, Reason Infrastructure Capability and Stories Unmotivated Clear and Aligned Enduring Quick Wins “Change is Shared Vision Infrastructure Capability and Stories not a Priority” Clear and Compelling Enduring Quick Wins Slow , Bumpy Shared Vision Reason Capability and Stories Change Clear and Compelling Aligned Quick Wins Frustration Shared Vision Reason Infrastructure and Stories Clear and Compelling Aligned Enduring Losing Shared Vision Reason Infrastructure Capability Enthusiasm Clear and Compelling Aligned Enduring Quick Wins Succesful Shared Vision Reason Infrastructure Capability and Stories CHANGE

Hernan Cortez. 1551.

Trying to conquer Aztec.

McKinsey Survey Result (1)

McKinsey Survey Result (2)

Take Aways  Cost is everywhere and can be in any form  We need to balance short term and long term benefit for the organization, by looking at the big picture  We need an initiative with: – Strategic Alignment and Integration – Proven Change Infrastructure Lean Six Sigma – Diciplined Execution  Lean Six Sigma is the way to improve business process performance, hence cost structure  Change Management is critical to ensure success!

Sources  Internal research report and study from Premysis Consulting, SSCX.  SSCX’s Executive Briefing modules.  Publicly accessible report and research reports from Bain, Booz Allen, BCG, PWC, McKinsey & Co, Deloitte LLP.  Built to Last, Jim Collins.  Cut Cost and Grow Stronger, S. Banerji, P. Leinwand, C. Mainardi, 2009.  Images : strategy2c and other free-to use licensed images.

SSCX : Lean Six Sigma - Accelerating Cost Transformation

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