© 2005, 2008 by IDEA, LLC All rights reserved Elucidate Conceptual Introduction For: Companies that...

© 2005, 2008 by IDEA, LLC All rights reserved© 2005, 2008 by IDEA, LLC All rights reservedElucidate Conceptual Introduction

For: Companies that hold physical

inventory

© 2005, 2008 by IDEA, LLC All rights reserved© 2005, 2008 by IDEA, LLC All rights reserved

The Goal

A simple desire with two prerequisites


An Obvious Action

In order to spend less, reduce inventory levels

Because of:

lower carrying costsfewer disposals

etc.


A Conflict

To protect availability, add stock. How to take both actions – must we compromise?


The Less Preferred Option

There is an upside and a down side …


The Less Preferred Option

… and we’d spend more in carrying and obsolescence costs – definitely a last resort


The Preferred Option

If we stock less, how do we get good enough availability to sell more?

?


Reality Intrudes

Demand and resupply fluctuate, making it harder to consistently keep either extra profit or cash

X

X

X


The Benefits of a Solution

What would it mean to me, if I could have both better availability and lower inventory?

First of all, we could stop fighting fires all day long, just to serve customers

We could pay off some debt or buy out a competitor

Maybe sales would finally appreciate purchasing

and vice versa

Shoot, we could knock out some of

those big projects we never have

time for

We’d really be making a difference. Employees would be happier.

We’d finally have real stability




(millions) SalesGross ProfitExpensesProfit

InventoryTurns% Return

Current$200

504010

$305

33%

ElucidateFuture

$200504010

$207.5

50%

BetterTurns

7.5

We’d have considerably better turns +$10 million

What about financial benefits?


ElucidateFuture

$200504010

$207.5

50%

ElucidateFuture

$212534013

$217.5

61%





Current$200

504010

$305

33%

We’d have considerably better turns

We’d sell 6% more, if we

just stayed in stock

+$10 million

InStock

$123 03

+$9 million

+$3 million

BetterTurns

7.5


ElucidateFuture

$212534013

$217.5

61%

ElucidateFuture

$216574017

$217.5

80%





Current$200

504010

$305

33%

BetterTurns

7.5

We’d sell 6% more, if we

just stayed in stock

Without surpluses, we wouldn’t have

to discount

InStock

$123 03

+$9 million

+$3 million+$7 million

LessDiscounts

$44 04


ElucidateFuture

$216574017

$217.5

80%

ElucidateFuture

$216584018

$217.5

85%





Current$200

504010

$305

33%

BetterTurns

7.5

Without surpluses, we wouldn’t have

to discount

We’d sure have fewer inventory disposals

InStock

$123 03

+$9 million


LessDiscounts

$44 04

FewerDisposals

$01 01


ElucidateFuture

$216584018

$217.5

85%

ElucidateFuture

$216604020

$217.5

96%





Current$200

504010

$305

33%

BetterTurns

7.5

We’d sure have fewer inventory disposals

If we didn’t have to beg suppliers to expedite, we could negotiate

better costs

InStock

$123 03

+$9 million


LessDiscounts

$44 04

FewerDisposals

$01 01

BuyingBetter

$02 02


ElucidateFuture

$216604020

$217.5

96%

ElucidateFuture

$236654223

$237.5

99%





Current$200

504010

$305

33%

BetterTurns

7.5

If we didn’t have to beg suppliers to expedite, we could negotiate

better costs

Better availability

ought to be a huge seller

InStock

$123 03

+$9 million


LessDiscounts

$44 04

FewerDisposals

$01 01

BuyingBetter

$02 02

WinningShare

$205 23

+$7 million


ElucidateFuture

$236654223

$237.5

99%

ElucidateFuture

$256704426

$257.5

105%





Current$200

504010

$305

33%

BetterTurns

7.5

Better availability

ought to be a huge seller

We could add new product lines or buy a

competitor

InStock

$123 03

+$7 million


LessDiscounts

$44 04

FewerDisposals

$01 01

BuyingBetter

$02 02

WinningShare

$205 23

+$5 million

Reinvest-ment$20

5 23


ElucidateFuture

$256704426

$257.5

105%





Current$200

504010

$305

33%

BetterTurns

7.5

We could add new product lines or buy a competitor

Wait a minute. Where’s the

proof?

WOW! More stability and

performance. I want it.

InStock

$123 03

+$16 million

LessDiscounts

$44 04

FewerDisposals

$01 01

BuyingBetter

$02 02

WinningShare

$205 23

+$5 million

Reinvest-ment$20

5 23


Proof

Quantify your opportunitywithout any risk

What you have to do:

• Pick 25 representative products

• Provide a year’s worth of sales and replenishment data for each

Typical time to complete: 2 hours

Simulations are performed at no charge

Summary of 25 Representative Products

Actual Days Out of Stock

Elucidate Days Out of Stock

Actual Average

Inventory

Elucidate Average

InventoryInventory Reduction

% Inventory Reduction

Totals 410 40 102,261$ 59,015$ 43,246$ 42%Count 20 12

Duration 21 3 54 31Availability 97.04% 99.71%

Days of Inventory

Wait a minute. Where’s the

proof?


Benefits of the Status Quo

Good things I’d leave behind if I agree


• Think clearly

We are working on lots of projects right now

I’ve made promises. How can I do this and still meet them?

I am comfortable now

Today, I am an expert in my business

What would I have to give

up?

If you add them all up, are they as good as this?

Less firefighting means more time, not less

Being more competitive is even more comforting

You’ll be a cash rich Elucidate expert in 3 mo


Risks of Accepting Elucidate

Bad things that might happen, if I say “Yes”


• Think clearly

IT is already backed up. They can’t get anything done soon.

If we hold less inventory, we could more easily run out

I’d have to pay IDEA hefty fees for a while

Managers here have their own priorities. I’d risk more friction by forcing them.

I don’t want to mess up

my company

Assign them to work on the best thing 1st

Remember, simulations showed 10X less outages

Every year, you’ll add far more profit … forever

Good one. Let’s discuss how to overcome it thoroughly.


Gaining Full Buy-in

People easily choose things that are clearly good for them. We have something for everybody


• Prioritize the Elucidate project that multiplies profits while conserving cash

• Inform top management of Elucidate’s goals and priority

• Set a meeting to fully share Elucidate w/ top management

• Get top management’s input and buy-in

Typical time to complete: 1 full week off site

There is a significant charge for revealing the full solution

Guarantee: If your team doesn’t see value in the workshop, you may request a partial refund

Even a great solution won’t implement itself“70% of improvement initiatives fail to achieve

expected results”

IDEA has done this before. We pick clients very carefully 100% success rate.

Elucidate Strategies and Tactics Workshop

We guarantee the team will gain consensus and decide to implement Elucidate

- Harvard Business Review

I don’t want to mess up

my company

OK, I’m crazy not to try it


Proof of Concept

A live test quantifies the benefits


• Help us pick a subset of products and locations to demonstrate Elucidate

• Agree on the full engagement details

Typical time to complete: 3-6 months

Pay us a fixed monthly fee

Terminate the Proof of Concept at any time, for any reason

1st prove Elucidate live to be extra cautious

• Ensures everything is working

• A chance to practice first on a small scale

• Proves Elucidate to get doubters off the fence

• See results before committing to an engagement

All Product-Locations

Proof of Concept


Solution Overview

Elucidate: to enlighten


• Communicate that Elucidate is the top priority

• Follow up on progress in daily 5 minute meetings

• Support the implementers with resources, as needed

Elucidate implements in a 4 short tasks.

None are particularly difficult or time consuming.

Don’t let less important matters slow progress.

X

X

X


Solution Overview

Decide to improve inventory flow.Injection 1: Set initial buffers

X

X

X

Enough to handle

• the heaviest demand and• late delivery but• no more.


• IT provides historic sales data

• IT automates a daily sales download

Typical time to complete: 2 days

• For exceptions where history is a poor predictor, Sales estimates high demand levels

Typical time to complete: 1 day

X

X

X


Solution Overview

Injection 2: Buy up to the buffers


• Cancel some existing orders

• Place fewer orders for a whileBuffers signal

when NOT to buy

No more need to raise stocks.

The conflict is broken.


Solution Overview

Injection 2: Breaks the conflict


• Cancel some existing orders

• Place fewer orders for a whileBuffers signal

when NOT to buy


Solution Overview

After a short lull, daily ordering can overload purchasing.


• Order consumption daily

• Batch orders as necessary to reduce cost or freight


Solution Overview

Injection 3: Automate replenishment




• IT automates the upload

Typical time to complete: 1 week


Solution Overview

Injection 2: Has more side effects




Usually, the extra load on receiving is not completely

offset by smoothing their load


Solution Overview

Buffers are (were?) sized to protect availability


What if these changes are more than the buffer can handle?


Solution Overview

Protection can erode over time



Solution Overview

Injection 4: Dynamic Buffer Management


• Nothing


Solution Overview

This completes Phase I of an Elucidate Engagement


• Add staff in receiving, if needed

• Enjoy a more stable operation

• Decide how to best use your new cash and profits – the larger and more stable the base, the bigger the next jump

Normally, the interest on cash (which we have not counted) is more than enough to pay extra salaries here


Solution Overview

Phase II: Getting suppliers to help


• Understand and improve our supplier presentation to sell them on a new business deal

• Prioritize top suppliers – usually start with about 20

• Observe us enlist a few suppliers, followed by review

• We observe you enlist a few suppliers, followed by review

• You enlist remaining suppliers

Typical time to complete 2 hours/supplier

The impact of Phase II is to reliably reduce lead time from suppliers.

Elucidate automatically takes advantage of it


Solution Overview

Phase III: Capitalizing on a decisive competitive edge in availability


• Understand and improve a customer presentation to sell them on a new business deal

• Prioritize a list of existing customers to convert and a list of prospective customers

• Observe us enlist a few customers, followed by review

• We observe you enlist a few customers, followed by review

• You enlist the remaining customers

Typical time to complete 2 hours/customer

Smoothes demand from customers

Elucidate automatically takes advantage of it


Solution Review

Big investmentBigger return

Investment = $100,000/yr / 250 days/yr X 50 days + IDEA feesIDEA fees

= $20,000 + IDEA feesIDEA fees

Return = 4 years X $16,000,000 change in profit/yr + 5,000,000

= $69,000,000 + Stability

Investment byGaining

Buy-inProvide Data

Automate Upload

Enlist Suppliers

Convert Customers

Win new customers

Total

Top Mgmt4 people x 5 days

20 man days

IT1 person x 5 days

1 person x 2 day

1 person x 5 days

12 man days

Sales16 salespeople

x 1 hour50 meetings

x 2 hours*50 meetings

x 2 hours*2 man days

Sales manager1 person x 5 days

1 day20 Meetings

x 2 hours*20 Meetings

x 2 hours*6 man days

Purchasing1 person x 5 days

20 suppliers x 2 hours

10 man days

Total35 man

days5 man days 5 man days 5 man days

(Elapsed time 2 months)

(Elapsed time 2 months)

50 man days

* Part of normal job - displaces lower value added work.


IDEA’s Contingency Approach

• Full engagement

• Fixed monthly fees and

• Success fees

Enjoy an Enormous Improvement

Keep What You Have Now

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© 2005, 2008 by IDEA, LLC All rights reserved Elucidate Conceptual Introduction For: Companies that...

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