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 Situation Urgency Business is great! Low Too Risky 'Risk-free' process improvement Facing Margin Pressure High Let's Do It SG&A COGS Turnaround Time Very High Act Now Crisis! Crisis! Extreme Do It! Do It!

Primary Cost Lever

SG&A SG&A COGS COGS Infrastructure Infrastructure Financial Restructuring Short term

Time Expectancy

Long term

Medium to long Short to medium

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?

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

www.SSCXinternational.com

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 eg: Defects and Errors
Obvious

Suspected Cost
Doubtful Can we eliminate it? eg: transportation, discount?

Suspect -ed

Hidden

Hidden Cost
You do not aware Biggest portion of managing cost.

Approach to Cost Transformation

High

STRUCTURAL PROCESS CHANGE LOW HANGING FRUIT

Complexity

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? J

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

www.SSCXinternational.com

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, Lets 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, Lets 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

LEAN SIX SIGMA

Proven Change Infrastructure (change management, people, monitoring process)

A rose by any other of initiatives/projects as sweet! Diciplined Execution name would smell
Robust factual-approach methodology Wave by wave by wave

Skilled change agents with technical know how and people skills Power of Mass

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 Reason Clear and Shared Vision Clear and Shared Vision Clear and Shared Vision Clear and Shared Vision Clear and Shared Vision Compelling Reason Compelling Reason Compelling Reason Compelling Reason Aligned Infrastructure Aligned Infrastructure Aligned Infrastructure Enduring Capability Enduring Capability Quick Wins and Stories Aligned Infrastructure Aligned Infrastructure Enduring Capability Enduring Capability Enduring Capability Quick Wins and Stories Quick Wins and Stories Quick Wins and Stories Quick Wins and Stories Confusion, Unmotivated Change is not a Priority Slow , Bumpy Change

Frustration

Losing Enthusiasm Succesful 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 Diciplined Execution Lean Six Sigma

Lean Six Sigma is the way to improve business process performance, hence cost structure Change Management is critical to ensure success!

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

www.SSCXinternational.com

Sources
Internal research report and study from Premysis Consulting, SSCX. SSCXs 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.