Integrating Sales & Marketing ~ The Lean Business Model

1. Integrating Sales & Marketing~The Lean Business Model

2. “But we’re different” So we have to devise a way to deploy these principles that takes advantage of our unique circumstances Therefore we should keep doing things the way they have been always been done in our company

4. 2 COMPANIES – BOTH EXPERIENCING 5% AVERAGE ANNUAL GROWTH ONE IS PROFITABLE – ONE IS NOT

5. THE DIFFERENCE IS IN HOW THEY MANAGE CAPACITY sales capacity THE UNPROFITABLE COMPANY HAS MANUFACTURING CHASING SALES AND IS ALWAYS IN A CAPACITY MISMATCH

6. THE PROFITABLE ONE USES PRICING AS THE MECHANISM TO KEEP THE TOTAL COST AT THE ‘SWEET SPOT’ OF OPTIMUM CAPACITY UTILIZATION capacity sales

7. THIS IS THE CONCEPT OF “FACTORY FIRST” AND IT IS THE ULTIMATE EXAMPLE OF COMPLETE INTEGRATION OF SALES AND MARKETING WITH OPERATIONS IN PURSUIT OF A COMPANY STRATEGY

8. The Concept of ValueBecoming a Value Driven Manufacturer

9. Most companies take the simplistic, but logical, view that PROFIT is a function of PRICES minus COSTS PRICES There is a bit more to it than that COSTS If they can raise prices and lower costs they will make more money

10. You and your competitors want to charge a price that covers your cost and yields a profit PRICE PRICE PRICE PRICE TOTAL COST COMPETITOR 2 waste waste TOTAL COST YOU waste TOTAL COST COMPETITOR 1 TOTAL COST COMPETITOR 3 waste What competitor 2 spent to create actual value What you spent to create actual value What competitor 3 spent to create actual value What competitor 1 spent to create actual value

11. Your customers could not care less about either your costs or your profit PRICE PRICE PRICE PRICE They only care about what you are charging versus the value your product offers waste TOTAL COST COMPETITOR 2 TOTAL COST YOU waste TOTAL COST COMPETITOR 1 waste waste TOTAL COST COMPETITOR 3 What competitor 2 spent to create actual value What you spent to create actual value What competitor 3 spent to create actual value What competitor 1 spent to create actual value

12. Your customers could not care less about either your costs or your profit PRICE PRICE PRICE PRICE The money you waste on non-value adding activities does not enter into the price waste waste waste waste What competitor 2 spent to create actual value What you spent to create actual value What competitor 3 spent to create actual value What competitor 1 spent to create actual value

13. Your customers could not care less about either your costs or your profit PRICE PRICE PRICE You can charge more than these guys because you provide superior value What you spent to create actual value What competitor 3 spent to create actual value What competitor 1 spent to create actual value

14. Your customers could not care less about either your costs or your profit PRICE PRICE You better charge less than this guy because his product offers greater value What competitor 2 spent to create actual value What you spent to create actual value

15. PRICES PRICES PRICES WASTE WASTE WASTE What you spent to create actual value What you spent to create actual value What you spent to create actual value

16. PRICES PRICES Increasing Value Adding as a percentage of total spending is the critical objective – not reduction of overall costs WASTE WASTE What you spent to create actual value What you spent to create actual value

17. PRICES PRICES WASTE WASTE The VALUE ADDING RATIO Value Adding Expenses ÷ Total Spending Is the Lean Metric What you spent to create actual value What you spent to create actual value

18. Its companion is the Sales To Value Adding Ratio Sales ÷ Value Adding Expenses PRICES PRICES WASTE WASTE What you spent to create actual value What you spent to create actual value It assures that you have identified Value correctly and are effectively turning Value into revenue

19. YOU YOUR CUSTOMER END CUSTOMER The end customer in the chain determines Value Not You Not your customer VALUE is a combination of: QUALITY UTILITY RELIABILITY

20. WASTE YOU YOUR CUSTOMER END CUSTOMER VALUE You create value by improving your customer’s Value Adding Ratio

22. WASTE YOU YOUR CUSTOMER END CUSTOMER VALUE

25. WASTE YOU YOUR CUSTOMER END CUSTOMER VALUE Jumping out to the end of the chain to get a clear understanding of value is Wahl Clipper’s forte

26. WASTE YOU YOUR CUSTOMER END CUSTOMER VALUE While Kolberg-Pioneer and Barry-Wehmiller have proven adept at eliminating customer waste

27. After years of spending $17 on bottles of Matrix shampoo and conditioner, 28-year-old Ms. Ball recently bought $5 Pantene instead. “… I don't know that you can even tell the difference."

28. WASTE What you spent to create actual value The critical role of marketing is to define the Value Proposition The critical role of management is to create a clear understanding of it The critical role of accounting is to identify and track it Direct Materials Applied Direct Labor Machine Operating Costs With lots of room for serious discussion in between Scrap Inspection Paper Pushing Material Handling

29. Use 2 simple ratios to drive your business: #2 Sales to Value Adding Costs Are the costs to create value for your customers translating into higher sales? PRICES VALUE ADDING COSTS NON-VALUE ADDING COSTS #1 Value Adding Costs as a % of Total Costs How much of the money you spend is going to creating value in the eyes of your customers?

30. Value proposition is key – not lowest cost production PRICES The result is a much higher proportion of their spending goes into value creation VALUE ADDING COSTS NON-VALUE ADDING COSTS Resulting in premium pricing And higher sales

31. The beauty of it is that by focusing on value rather than total cost, lean manufacturers typically become the lowest cost PRICES VALUE ADDING COSTS NON-VALUE ADDING COSTS VALUE ADDING COSTS NON-VALUE ADDING COSTS

32. WE HAVE A PROBLEM WITH ACCOUNTING FOR MANUFACTURING

33. WE GOTTA GET THESE PEOPLE ON THE SAME PAGE

34. ROI Inventory is an asset Flow based Cash & Production Quality Systems Inspection Based Control at the source People Policies Variable Cost Fixed Cost Organizational Structure Hierarchical Functional Flat – Value Streams Investment Criteria ROI – Labor Cost Quality Flexibility Performance Metrics Subordinate Measures Bottom Line Production & Inventory Control Push ERP Pull Kanban

35. Flow based Cash & Production This is all about creating value by accelerating flow across the entire business at the lowest possible fixed cost base Quality Systems Control at the source People Policies Fixed Cost Organizational Structure Flat – Value Streams Investment Criteria Quality Flexibility Performance Metrics Bottom Line Production & Inventory Control Pull Kanban

36. Best cost is achieved by simultaneously … Driving down the non-value adding cost base FACTORY And continually increasing the rate of flow (cycle time) across that cost base

37. You can’t take away my standard costs !!! How am I going to set prices if I don’t know what anything costs ???

38. MARKET SHARE HOW VALUE IS DEFINED COMPETITORS SALES & MARKETING CUSTOMERS STANDARD COSTS HOW VALUE IS CREATED OPERATIONS SUPPLIERS MACHINES CAPACITY

40. Using a standard cost based approach to pricing, the products below some arbitrary rate would be candidates for a price increase, or being discontinued

43. We trashed these traditional unit cost/price numbers, rather than try to improve them

44. But we increased profits from $151,250 to $172,050

45. We did it by running price volume scenarios, Note that 3 prices actually decreased and 1 increased

46. Strategic pricing is an effort jointly driven by: Sales & Marketing Operations Accounting

47. Sales & Marketing Input: What is the sales strategy? Where do prices have to be to meet the target volume? What are the price volume relationships in each channel? Where are our competitors prices?

48. Operations Input: Where are the constraints? What is our capacity and how much is available? How much volume can we take on before we have to substantially add to our fixed cost base?

49. Accounting Input: Are we using the right numbers? If we cannot meet the pricing necessary to succeed in the market profitably, what are the targets for fixed cost reduction necessary to succeed? What are the implications of investments in constraint capacity?