Considerations. Change your viewpoint. Understand and pursue The Primary Metrics

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1 Considerations Change your viewpoint o After response time compression in your manufacturing/operating platform o You re no longer a manufacturing company that happens to manage inventory..you re an inventory management company that just happens to manufacture the good. Understand and pursue The Primary Metrics o Customer Perfect Order Delivery & Fill Rate o Cost Value Chain Expense o Cash Free Cash Flow, Cash Conversion Cycle, Cash Conversion Ratio Copyright Point All Rights Reserved. 1

2 The shift must be made from the right histogram to the left histogram. Otherwise, efforts to streamline the value chain are severely limited..as people will mitigate risk using inventory as the hedge. σ σ Copyright Point All Rights Reserved. µ = Hours/Days µ = Weeks 2

3 Customer order policies must be established downstream and supplier replenishment rhythms established upstream. Otherwise, the response improvements within the production facility are not properly leveraged. Reduced WIP in factory drives increased Raw Material unless demand is shared with suppliers and provisioning is pulled from suppliers as factory consumption occurs. Reduced cycle time and increased capacity drive increased Finished Goods unless customer integration enables reliable true demand picture Copyright Point All Rights Reserved.

4 Chain Complexity not a one-size-fits-all strategy Master Planning Push Flow Push Flow Push Order to Ship Optimization Copyright Point All Rights Reserved.

5 Architecting an overall supply chain strategy will help align activities, embed process, and prevent Random Acts of Lean. DEMAND Revenue, Receivables & Inventory Working Capital/ Cash SUPPLY Inventory, Payables & Assets The Served Market Fulfillment & Replenishment Seasons & GTN Forecasting/Distribution Channel Service level Design & Perfect Order Delivery Cycles & Replenish; drive to pullbased Design Rhythms Order Cycle 98% Pull to Pull to Pull to Replenish Time (logistics rhythms) Inventory Policies Order To Cash Communicate needs in Advance Postponement Sales & Inventory Plan min vs. Actual Network Optimization VAS Co-Pack Production Response Throughput min Procurement Capability Supplier Capability Management Models & min Visibility Flexibility Time Lean / Six Sigma-based capacity planning Volatility Cost & Mixed-Model Strategic Flexibility Response & min Requirements Integration Sourcing Customer Profile Understand External Profile Manage Product Position Throughput Consistency, Predictability, Repeatability Supplier Integration Remove Volatility & Variance Overall Goals: Improved service levels, cost, speed-to-cash Copyright Point All Rights Reserved.

6 Architecting an overall supply chain strategy will help align activities, embed process, and prevent Random Acts of Lean. DEMAND Revenue, Receivables & Inventory Working Capital/ Cash SUPPLY Inventory, Payables & Assets The Served Market Fulfillment & Replenishment Seasons & GTN Forecasting/Distribution Channel Service level Design & Perfect Order Delivery Cycles & Replenish; drive to pullbased Design Rhythms Order Cycle 98% Pull to Pull to Pull to Replenish Time (logistics rhythms) Inventory Policies Order To Cash Communicate needs in Advance Postponement Sales & Inventory Plan min vs. Actual Network Optimization VAS Co-Pack Production Response Throughput min Procurement Capability Supplier Capability Management Models & min Visibility Flexibility Time Lean / Six Sigma-based capacity planning Volatility Cost & Mixed-Model Strategic Flexibility Response & min Requirements Integration Sourcing Customer Profile Understand External Profile Manage Product Position Throughput Consistency, Predictability, Repeatability Supplier Integration Remove Volatility & Variance Overall Goals: Improved service levels, cost, speed-to-cash Copyright Point All Rights Reserved.

7 Free Cash Flow is best served when customer demand is matched to capable supply. Sustained working capital reduction only occurs when the overall supply chain is architected versus elements that seldom tie. Cash Management is a function of forecasting, collecting, disbursing, investing, and planning for the cash a company needs to operate smoothly. Net Income + Amortization/Depreciation - Changes in Working Capital - Capital Expenditures = Free Cash Flow Core Discounted Cash Flow driver for Wall Street, Investors and Enterprise Valuations (Higher Free Cash flow and outlook = Higher Stock Price) Copyright Point All Rights Reserved. 7

8 While many companies assume they are demand-driven, nothing could be further from the truth Misconception #1 We are demand-driven because we have complex forecasting tools Misconception #2 We are demand-driven because we have implemented Lean manufacturing Misconception #3 Misconception #4 The marketing department has detailed data on all customers which will allows us to become demand-driven The corporate forecast is a demand visibility signal Misconception #5 Sales and Operations Planning allows us to be a demand-driven company Misconception #6 Becoming demand-driven is a technology project Misconception #7 -Driven starts and ends with the factories Copyright Point All Rights Reserved. 8

9 Considerations Change your viewpoint o After response time compression in your manufacturing/operating platform o You re no longer a manufacturing company that happens to manage inventory..you re an inventory management company that just happens to manufacture the good. Understand and pursue The Primary Metrics o Customer Perfect Order Delivery & Fill Rate o Cost Value Chain Expense o Cash Free Cash Flow, Cash Conversion Cycle, Cash Conversion Ratio Copyright Point All Rights Reserved. 9