Dan Dodd - Challenges & Value of Deploying S&OP (2.0) (2)
- 1. Integrated Business Planning Summit March 29 & 30, 2012 - The Alexander Hotel - Miami, Florida Dan Dodd, Vice President of Operations and Supply Chain
- 2. My Background 15+ years in operations • Princeton engineering • Systems Engineer at PB Farradyne • Michigan dual MBA and ME in Manufacturing • Supply chain strategy across Lucent • Two operations turn-arounds, including – implementing S&OP across $6B Cooper Industries • Operations management at three start-ups – implemented S&OP at all three What % here is ops?
- 3. Presentation Structure • The value of S&OP – And operational excellence – At Cooper and OIC • The challenges – General guidelines – Personal experiences Please make this interactive
- 4. Operational Excellence – Two Keys 5 24 month Demand, Supply, & Inventory plans Management Business Review Demand Review Supply Review Product Review Finance IR Review Start (Begin Month) MRP • Executive led • One plan aligned with financials Doing the Routine Routinely Sales & Operations Planning Modern operational excellence is 75% lean and 25% S&OP in terms of effort/focus, but S&OP comes first because it sets the direction
- 5. How Well Does It Work? Danaher stock significantly outperforming: • General Electric • Berkshire Hathaway • Dow Jones • Even Microsoft Cooper Industries prior to Danaher attempted acquisition, underperforming to Dow Jones Cooper tracking to Danaher since …significant value creation Who has heard of Danaher?
- 6. Are There Opportunities in Healthcare? Why wait for the government to deal with it?
- 7. 1.1 2.3 2.5 1.1 3.6 1.9 1.2 2.9 42.6 15.3 7.8 5.9 0 2 4 6 8 10 Inventory Turns The Opportunity in Med Device The opportunity for operational excellence is significant Medical device/orthopaedic companies, avg=2.1 ||Other
- 8. = = Stabilizing Technology 80% are commodities • A screw, is a screw, is a screw • One 510k after another
- 9. The Barriers/Current Focus 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Gross Margin A relationship-driven industry (sales reps) These great margins are going to SGA (37%) and R&D (6%)
- 10. Is the SG&A and R&D paying off? Market share is stable – is it all hot air? 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2004 2005 2006 2007 2008 2009 2010 Other(1) Zimmer Wright Stryker Smith&Nephew DePuy Biomet
- 11. And The Margins Aren’t Sustainable
- 12. Historical Key Industry Dynamics Cost Delivery Quality Cost is #1 for High- tech, CPG, etc Med Device Regulations (FDA) define the industry: • Slow-moving • Not cutting edge
- 13. A Changing Landscape Operational excellence is coming • 55% of practices are now hospital owned (up from 30% in 2003) • IP for 75% of devices expired/ing • More outpatient and commodity surgeries….don’t need the rep in the OR
- 14. Next Steps In Medical Device S&OP • X 1 Lean Six- Sigma • X 3 • Significant value Operational excellence has meant life or death in other industries
- 15. What Is S&OP? 18+ month Demand, Supply, & Inventory plans (units & $) Management Business Review Demand Review Supply Review Product Review Finance IR Review Start (Begin Month) MRP System • Executive led • One plan aligned with financials Routine and obvious
- 16. #1 Reason For Lackluster S&OP More than one plan!...which is relevant to all industries Executives not understanding IBP
- 17. #2 Challenge Routine=boring • The right amount of relevance/detail • The plan for the business should be of great interest
- 18. A Quick Point Sales Marketing Two significantly different demand communities: – Require different processes and systems – Sales is about targets and confidence levels – Marketing is more of a model – The assumptions are always the key: you can only guarantee the plans will be wrong How to deal with optimism?
- 19. Cooper Industries • Cooper: $6B diversified retail/industrial • Drove S&OP across all nine divisions – Developed Cooper S&OP playbook – Inventory, forecast accuracy, delivery improved – Interesting differences by industry: • In the S&OP process • Importance of high forecast accuracy • Never added up all nine divisions
- 20. TranS1 • Spine startup that reached a high of $35M • Hired after supply chain was established • Implemented S&OP – Too much push with lead times ~ 12 weeks – Sales input too optimistic, and not used – Developed a good marketing plan (sales rep model) • Put implants on kanban • Significant sales downturn was foreseeable and hit hard – Reacted far too slowly in the plans -> too much inventory – Implants fared best
- 21. Orthopaedic Implant Company • Progress to date: – Decent input from sales (50% accurate) – Fully comprehensive monthly Integrated Business Planning (will we run out of cash?) – Shared every month with suppliers • Enabling – Consignment and kanban across the board – Raising funding Operational excellence
- 22. Thank you! Dan Dodd Vice President of Operations and Supply Chain p: 775-636-8281 x105 e: dan.dodd@orthoimplantcompany.com Questions?
Editor's Notes
- #9: But don’t take my word for it.
- #12: Implants cost rising, Surgeon/Hospital Reimbursement dropping
- #14: Doctors are aligning with hospitals 55% of practices are now hospital-owned Up from 50% in 2008, and 30% in 2003 While 65% of physicians who changed jobs in 2009 moved to a hospital-owned practice ..and hospitals pay for the devices Well over 100 pedicle screw companies Commons devices are rolling off patents The medical device is a relatively new industry, dating to antibiotics 75% of the orthopaedic implant industry consists of devices that are expired or soon to be expired IP (intellectual property) …and don’t need a sales rep in the OR Procedures have almost doubled in the past 10, but prices are 60% higher A generic medical device industry is developing, similar to the pharmaceutical model …and they care about cost The big players are starting to feel the heat …they are hiring and building up lean expertise …but will they react like Lucent did to Cisco or like Cooper did to Danaher?
- #15: The established players will be able to get the rep out of the OR, but can they adopt operational excellence?