Peter McClelland, Luxottica - Lean Six Sigma, a Driving Force behind Shared Services Success

13th Annual Australasian Shared Services & Outsourcing Week

Lean Six Sigma:

A Driving Force Behind Shared Services Success

Global leader in eyewear 1

Who is The Luxottica Group

Sales FY 2008: €5.2 billionRetail: 60%

Key financial figures Retail

over 6,250 stores

l di i ti l t il iWholesale: 40%

EBITDA FY 2008: €1.01 billion

Net debt/EBITDA 2008: 2.9x

leading premium optical retailer in:North AmericaAsia-PacificChina

leading specialty premium sun retailer worldwide

Market Capitalization(1): €5.9 billion leading operator of leased optical departments in host stores environment in North America

Wholesale Manufacturing

130 countries, 5 continents

Approximately 50 direct subsidiaries in key markets, accounting for 95% of sales

Six manufacturing plants in Italy

The only premium eyewear manufacturer with two wholly-owned plants in China

Reaching approx. 200,000 doors

Over 110,000 units shipped every day

One manufacturing plant in India

Two Oakley manufacturing plants in the US

Dedicated lens R&D and manufacturing facility in


g yItaly

(1) As of December 31, 2008

Our Australian Retail Business - Optical Retail Stores


Our Australian Retail Business - Sunglass Retail Stores


Finance at Luxottica APAC

70 people 10% total shared service costs10% total shared service costsFirst in Luxottica to adopt the principles as a ‘whole of department’ culture and process improvement initiative Complexity due to business models and country specific regulations

OPSM Laubman Budget Bright Eyes Sunglass

Luxottica wholesale

Shared Services

Business to

Business

Optical Retail Sun Retail

& Pankg

Eyewearg

Hut

Finance Department

Commercial Accounting

Financial Accounting

Loss Prevention

Legal & Compliance

AccountsPayable

AccountsReceivable

Internal Audit

CashManagementProcurement

AUS & NZ AUS AUS AUS All APAC All APAC All APAC AUS & NZ


Finance Team Transformation – Defining our value

Impact on the

Business Insights &

InformationDrive Enterprise Value, wow our

Organisation

Finance process efficiency

customers

Compliance, recording, Risk

y

Maintain


Grow

High Performance Culture

Leadership profile Continual improvementOpEx

Luxottica characteristics

Behaviours

improvement

Strong customer service orientation

OpEx+

Managing Performance


Finance Team Transformation


A platform for success…

A burning platform or an engagement model?

The myth of the burning platform change only starts

The truth of the engagement model – change is gradual andplatform – change only starts

when there’s a crisis that persuades “unmotivated” employees to accept the need for

model change is gradual and requires a down-to-earth, pragmatic, committed-to-excellence process (a framework) to keep on track for the l h l

p y pchange. long haul.


2008 OpEx Transformation Journey

Tools and full Engagement

5 S Paper challenge

Gather VOC

2008 Christmas Challenge

Teams to establishhow measures should be displayed and

Complete Just Do It’s

& Quick

SIPOC Challenge

Certify 6xYBs + 2xGBs

displayed and review period

DashboardChallenge

Wins

Scope Projects

PROCESSMANAGE-MENTACTIVITIES Build

Level 2 Processesidentified Journey

l i f Deliver projects

Projects

Timings Dec 07 Feb, March April, May June, July Aug, Sept, Oct Nov, Dec

Build SIPOCs

planning for 2009

projectsVoices survey

Customer and Supplier requirementsCurrent performanceKey process steps

OutcomesMotivationUse of toolsBenefitsTeam workCommon agreement to process

Visible management of processes Clear ownership Team buy in to measuring and displaying key results

JDI and Quick Win’s completedProjects scopedGB projects completed


process names

30 mins at monthly Finance meeting (from March): Project Presentations, Quick Wins, external speakers etcQuarterly review of Five S results

Identification & Execution of Just Do It’s & Quick Win initiatives (from August)

Ongoing

The Finance Transformation

20102008 2009

Key messages

What does Finance do?

Culture of continuous improvement

How does Finance do what they do?

Living continuous improvement

How can we do finance better?

Understanding and reducing

Method Introduce OpEx tools &

improvement

Right-sizing talent

Process mapping of key activities

Living continuous improvement

One view of activity

Partnering with the business

Understanding and reducing variation in the performance of the whole finance team

Consolidation of OpEx learningptechniques

Quarterly ‘challenges’ led by OpEx team

Team structure & location

pp g y

‘Challenges’ led by OpEx team

Project plans of all activity

Procurement category management

Co so da o o Op ea g

‘Challenges’ led by Finance management

PMO for business

Procurement skills transfer

Outcomes

Create professional procurement function

“Our Voices” survey

Customer perspective

management

Profile talent outside finance


Regular identification & Cross team initiatives to deliver

Procurement skills transfer


Outcomes Customer perspective

OpEx tools part of everyday language

Team willingness to learn & change

Regular identification & completion of improvement ideas

Cost consciousness across the business

Talent recognised outside finance

Cross-team initiatives to deliver business outcomes

Finance recognised as enabling business agility

Sustainable control & process


Strong talent base OpEx thinking embeddedp

optimisation

Talent movement in and out of finance

The initial challenge – 5S


The SIPOC

• SIPOC maps are a one page, visual description of the entire process

• They provide an overview and help to establish boundaries and

The Basic Structure of a SIPOC:

help to establish boundaries and purpose

The Basic Structure of a SIPOC:

S I P O CSuppliers Inputs Outputs CustomersProcess


pp p p

SIPOC Example


Process Improvement

Cheque Banking

Banking Process for 3rd Party Contracts

mer

Cust post CHQ to

Luxottica

Cus

to

Collects CHQ from Opens envelopesCalculate the

cheques to ensure Write Westpac Research invoice number and code

Enter all cheque details and create Place all data inPrint deposit slip

1 mins 1.5 mins 2.5 mins .5 min .5 min 1.5 mins .5 min .5 min

2880 min

1 mins 1.5 mins 2.5 mins .5 min .5 min 1.5 mins .5 min .5 min

2880 min

ount

s R

ecei

vabl

e Collects CHQ from mail room

Opens envelopes and sort by Brand

cheques to ensure balance back to

deposit slip

pBag and complete a bank deposit slip

number and code the cheques with

cust no.

details and create deposit slip

(FF68)

Record totals on cheque listing

d h t

Place all data in the bag and seal.

p pfrom SAP & save attach to banking

Open manual deposit slip in SAP

(FEBA)

Save transaction and it will direct you to items on

Locate invoice on account

Allocate Payment and close invoice

Walk to the bank & back to bank

h

File documentation for

dit

Acco spreadsheet (FEBA) y

the account cheques audit or query

1440 min

1 mins 1 mins 3 mins 10 mins 7 mins 25 mins 1 mins1 mins 1 mins 3 mins 10 mins 7 mins 25 mins 1 mins

Bank Payment is seen

on bank statement the next

day Value add = 12%


VA = Va lue A ddedBVA = Business v a lue addNVA = Non v a lue added

Total Time = 56.5 mins (samples of 10 chq)

(4320 min not included wait time)

VA = 7 mins

BVA = 2 mins

NVA = 47.5 mins

Process Improvement

TO BE PROCESS

tom

eras

h ge

men

tC

ust

1440 min

unts

va

ble

Ca

Man

ag

10 min

Value add = 100%

Acc

oR

ecei

v

VA = Value AddedBVA = Business value add

Total Time = 14 mins (1440 min not included wait time) VA = 3 mins BVA = 11 mins

Value add 100%AR

1min 2 min 1 min


BVA Business value addNVA = Non value added

BVA 11 minsNVA = 0 mins

Customer-centric measures

We not only understand our processes better through process mapping, we use dashboards to monitor their performance – through the only eyes

that really matter the customer’s

TimelinessTimeliness Total Measurements of Accuracy

20

25

Mi i

that really matter, the customer s.

0

5

10

15

20

Budget Consol L&P Lux SS OPSM OPSM SGH SGH HK SGH NZ SGH SGH

No

of Is

sues

MissingDoesn't reconcile InadequatePrevious Month

Dial chart indicative onlyDial chart indicative only

BudgetEyewear

ConsolElim

L&P Lux SS OPSMAust

OPSMNZ

SGHAust

SGH HK SGH NZ SGHSing

SGHW/H

Brand

T o p 3 $ 'sR e c u r r in g Is s u e s b y D e p t

$ 0 .2


$ 0 .2


$ 0 .2

$ 0 .5$ 0 . 3

I s s u e s - $ m

1 01 0

2

Measurements of Accuracy –

Inadequate Only$ 0 .5$ 0 . 3

I s s u e s - $ m

1 01 0

2

$ 0 .5$ 0 . 3

I s s u e s - $ m

1 01 0

2


Inadequate Only


Inadequate Only


Inadequate Only


P a y r o l l F in a n c e P r o p e r ty

I s s u e s - q ty

Age & No of issues indicative onlyP a y r o l l F in a n c e P r o p e r ty

I s s u e s - q ty

P a y r o l l F in a n c e P r o p e r ty

I s s u e s - q ty

Age & No of issues indicative onlyAge & No of issues indicative only

Results

Eff t

• P2P • Electronic Invoicing

C ll tiEffort • Collections process

• Automate Stock take Posting• Wholesale KA Price Lists

• Quick Wins

• Amex processing

• Auto Bank recons •Audit process Review

• Re-engineer budget process

• OpEx Challenges

• Just Do Its

• Amex processing

Consolidated Invoices• Legal advice library

• OpEx Challenges

• DILO

• Cheque Reduction

• Consolidated Invoices• Reconciliation macro


Return

Professional ProcurementTODAY ASPIRATION

Structure of Cost

DecentralisedLimited procurement skill set

Hybrid modelCentralised some categoriesBusiness Partner

TODAY ASPIRATION

Management System support limited Recognise the unique skill setCategory management approachPurchasing policy & GuidelinesEstablish sourcing strategies & g gprocessesP2P system

ContractSpot purchases for current material needs

Full life cycle cost managementP2PContract

Sophisticationcurrent material needs. P2P

Category StratificationStandard contracts

Based on personal Supplier stratification & strategiesSupplier

ManagementrelationshipsAd Hoc

Supplier Performance ReviewsSLAs to define relationshipsSupplier consolidationGlobal Sourcing


Coms CFO yelling Symbols – GangbustersSkill transfer / training

Results

PerformanceReduction in major risksMonth end reporting reduced to 4-daysAbility to integrate new businesses without cost increaseAbility to integrate new businesses without cost increaseIncreased value added time through budgeting

Cost10% FTE reduction through process improvement

Sustainable control andg p p

$8m cost reduction through procurementAudit Fee 17%6% reduction in costs

control and optimisation of processes that

enable b i ilitPeople

33% increase in employee engagement surveyPresentations in challenges – we need new judging criteriaNo regretted losses in 2-yearsNew Skills

business agility without

increasing our risk profileNew Skills

Culture“Our Voices” resultsAbility to implement new tools without challenge

p


Ability to implement new tools without challenge

Peter McClelland, Luxottica - Lean Six Sigma, a Driving Force behind Shared Services Success

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