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Integrating Sales & Integrating Sales & MarketingMarketing
~~The Lean Business The Lean Business
ModelModel
“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
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2 COMPANIES – BOTH EXPERIENCING 5% AVERAGE ANNUAL GROWTH
ONE IS PROFITABLE – ONE IS NOT
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THE DIFFERENCE IS IN HOW THEY MANAGE CAPACITY
THE UNPROFITABLE COMPANY HAS MANUFACTURING CHASING SALES AND IS ALWAYS IN A CAPACITY
MISMATCH
capacity
sales
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THE PROFITABLE ONE USES PRICING AS THE MECHANISM TO KEEP THE TOTAL COST AT THE ‘SWEET
SPOT’ OF OPTIMUM CAPACITY UTILIZATION
sales
capacity
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
The Concept of The Concept of ValueValue
Becoming a Value Driven Becoming a Value Driven ManufacturerManufacturer
COSTS
PRICES
Most companies take the
simplistic, but logical, view that
PROFIT is a function of
PRICES minus COSTS
If they can raise prices and lower
costs they will make more money
There is a bit
more to it than
that
What you
spent to create actual value
What competit
or 1 spent to create actual value
What competit
or 2 spent to create actual value
What competit
or 3 spent to create actual value
waste
waste
waste
waste
TOTAL COST
YOU
TOTAL COST
COMPETITOR 1
TOTAL COST
COMPETITOR 2
TOTAL COST
COMPETITOR 3
PRICE
PRICE
PRICE
PRICE
You and your competitors want to charge a price that covers your cost and yields a profit
What you spent to create
actual value
What competitor 1 spent to
create actual value
What competitor 2 spent to
create actual value
What competitor 3 spent to
create actual value
waste
waste
waste
waste
Your customers could not care less about either your costs or your profit
PRICEPRICE
PRICE
PRICE
TOTAL COST
YOU
TOTAL COST
COMPETITOR 1
TOTAL COST
COMPETITOR 2
TOTAL COST
COMPETITOR 3
They only care about what you
are charging
versus the value your
product offers
Your customers could not care less about either your costs or your profit
The money you waste
on non-value
adding activities does not enter into the price
PRICEPRICE
PRICE
PRICE
waste
What you spent to create
actual value
What competitor 1 spent to
create actual value
waste
What competitor 2 spent to
create actual value
What competitor 3 spent to
create actual value
waste
waste
Your customers could not care less about either your costs or your profit
You can charge
more than these guys because
you provide superior
value
PRICEPRICE
PRICE
What you spent to create
actual value
What competitor 1 spent to
create actual value
What competitor 3 spent to
create actual value
Your customers could not care less about either your costs or your profit
You better charge less
than this guy
because his product
offers greater value
PRICEPRICE
What you spent to create
actual value
What competitor 2 spent to
create actual value
PRICES
WASTE
What you spent to create actual value
What you spent to create actual value
WASTE
PRICES
What you spent to create actual value
WASTE
PRICES
PRICES
WASTE
What you spent to create actual value
What you spent to create actual value
WASTE
PRICES
Increasing Value
Adding as a
percentage of total
spending is the critical objective –
not reduction of overall
costs
PRICES
WASTE
What you spent to create actual value
What you spent to create actual value
WASTE
PRICES
The VALUE ADDING RATIO
Value Adding Expenses ÷
Total Spending
Is the Lean Metric
PRICES
WASTE
What you spent to create actual value
What you spent to create actual value
WASTE
PRICESIts companion is the
Sales To Value Adding Ratio
Sales ÷ Value Adding Expenses
It assures that you have identified Value
correctly and are effectively turning Value into revenue
YOUEND
CUSTOMERYOUR
CUSTOMER
The end customer in the chain determines Value
Not You
Not your customer
VALUE is a combination of:QUALITYUTILITY
RELIABILITY
YOUEND
CUSTOMERYOUR
CUSTOMER
You create value by improving your customer’s Value Adding
Ratio
VALUE
WASTE
YOUEND
CUSTOMERYOUR
CUSTOMER VALUE
WASTE
YOUEND
CUSTOMERYOUR
CUSTOMER VALUE
WASTE
Jumping out to the end of the chain to
get a clear understanding of
value is Wahl Clipper’s forte
YOUEND
CUSTOMERYOUR
CUSTOMER VALUE
WASTE
While Kolberg-Pioneer and Barry-
Wehmiller have proven adept at
eliminating customer waste
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."
What you
spent to
create actual value
WASTE
With lots of room forserious discussion
in between
ScrapInspection
Paper PushingMaterial Handling
Direct MaterialsApplied Direct Labor
Machine Operating Costs
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
PRICES
Use 2 simple ratios to drive your business:
VALUE ADDING COSTS
NON-VALUE
ADDING COSTS
#1Value 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?
#2Sales to Value Adding Costs
Are the costs to create value for your customers translating into higher sales?
PRICES
Value proposition is key – not lowest cost
production
VALUE ADDING COSTS
NON-VALUE ADDING COSTS
The result is a much higher proportion of their spending goes
into value creation
Resulting in premium pricing
And higher sales
VALUE ADDING COSTS
NON-VALUE ADDING COSTS
PRICES
The beauty of it is that by focusing on value rather
than total cost, lean manufacturers typically become the lowest cost
VALUE ADDING COSTS
NON-VALUE ADDING COSTS
WE HAVE A PROBLEM WITH
ACCOUNTING FOR MANUFACTURING
WE GOTTA GET THESE PEOPLE ON THE SAME PAGE
Investment Criteria
Quality Systems
Organizational
Structure
People Policies
Performance Metrics
Production & Inventory
Control
ROIInventory is an
asset
Flow basedCash & Production
Inspection Based
Variable Cost
Hierarchical Functional
ROI – Labor Cost
Subordinate Measures
Push ERP
Control at the source
Fixed Cost
Flat – Value Streams
Quality Flexibility
Bottom Line
Pull Kanban
Investment Criteria
Quality Systems
Organizational
Structure
People Policies
Performance Metrics
Production & Inventory
Control
Flow basedCash & Production
Control at the source
Fixed Cost
Flat – Value Streams
Quality Flexibility
Bottom Line
Pull Kanban
This is all about
creating value by
accelerating flow across the entire
business at the lowest possible
fixed cost base
FACTORY
Best cost is achieved by simultaneously …
Driving down the non-value adding
cost base
And continually increasing the rate of
flow (cycle time) across that cost base
You can’t take away my standard costs !!!
How am I going to set prices if I don’t know what anything costs ???
SALES & MARKETING
OPERATIONS
CUSTOMERS
MARKET SHARE
COMPETITORS
HOW VALUEIS DEFINED
STANDARD COSTS
MACHINES SUPPLIERS
CAPACITY
HOW VALUEIS CREATED
Using a standard cost based approach to pricing, the products below some arbitrary rate would be candidates for
a price increase, or being discontinued
We trashed these traditional unit cost/price
numbers,rather than try to
improve them
But we increased profits from $151,250 to
$172,050
We did it by running price volume scenarios,
Note that 3 prices actually decreased and 1
increased
Strategic pricing is an effort jointly driven by:
Sales & Marketing
Operations
Accounting
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?
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?
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?
The objectives are to:
“Right Size” our share of the markets we are in
Find the capacity ‘sweet spot’ that provides the best overall cost/volume combination
Maximize value stream profitability (who cares about individual products?)
We have to focus the entire organization on
profit
No more worrying about functional departmental
goals!
Replace Annual Budgeting with …
Ongoing Strategic Planning
&
SOFP
Sales & Operations Financial Planning
Pro Forma SOFP
The format for …
Customer selection &
Pricing
Capital investment decisions
Supplier selection and
pricing
Make versus Buy
Every relevant management
decision
What you
spent to
create actual value
WASTE
With lots of room forserious discussion
in between
ScrapInspection
Paper PushingMaterial Handling
Direct MaterialsApplied Direct Labor
Machine Operating Costs
Your consensus understanding of the value proposition will
be continually sharpened
