Patricia E. Moody CMC

Author, agent, book developer and editor, management consultant

NEWSLETTER

April 4, 2007

NEW BOOK DUE THIS FALL FROM COST GURU JIMMY ANKLESARIA: AIM & DRIVE®

THESE LEADERS SAVED MILLIONS!
IBM - HP – Motorola – Nokia – Chevron – BP - American Airlines – DuPont – Kodak - Sara Lee - Philips - Anglo American - Phelps Dodge – Deere - Texas Instruments - Nordstrom – Alcatel – Agilent - Robert Bosch - Pinnacle-West (formerly Arizona Public Service)

Does the idea of saving a few million dollars appeal to you today?

COST MANAGEMENT FOR THE HIGH PERFORMANCE SUPPLY NETWORK – BEYOND NEGOTIATION!!

Want to really understand supply chain costs? Need to find ways to pinpoint and cut real costs – not negotiated, or standard costs, but real costs? Get ready for AIM & DRIVE®, the book from the leading cost management guru, Jimmy Anklesaria, coming from AMACOM Books, NYC, summer/spring 2007. You’ll be in good company – cost leaders IBM, Motorola, and dozens of others have benefitted from this unique and comprehensive approach to real cost management.

AIM & DRIVE® provides companies with a winning methodology to manage and reduce costs through the supply chain.

The 21st Century has seen a dramatic change in how companies view the importance of supply chain management. From a rather prosaic, reactive, non-value added function, supply chain organizations are now viewed as strategic, proactive and highly valued by most successful companies. Much emphasis, lately, has been on new technologies including e-auctions, ERP systems and data-base management. While many companies have been carried away by the “wow factor” that comes with these technologies, great companies like IBM, Hewlett-Packard, Motorola, Texas Instruments, Chevron and others have concentrated their efforts on generating breakthrough ideas from their respective supply chain partners.

AIM & DRIVE® is a collaborative strategy building process that is designed to harness the inherent knowledge of a supply chain. The focus of the process will move your company beyond negotiation and generate ideas that bring genuine and permanent savings to the members of a supply chain. This methodology was first introduced at Hewlett-Packard and John Deere in the early nineties. Since then, companies like IBM, Texas Instruments, Kodak, DuPont, Sara Lee, Philips, Motorola, Anglo American and many others around the world, have used the process to save billions of dollars through the implementation of cost management strategies. This book will give the reader a clear description of the process and its implementation. The book is filled with illustrations and real life examples showing how the process has worked at some of the leading companies in various industries around the globe.

Who needs this book? If you are in senior management, you’ll want to understand the importance of leveraging ideas to bring about double digit savings. Procurement managers, engineers, cost estimators and accountants will appreciate a clear process that helps them go beyond negotiations to generate breakthrough cost solutions. Suppliers who have participated in AIM & DRIVE sessions have been represented by senior management, sales and marketing, engineering and operations, accounting and finance and by their own procurement people. Many suppliers will choose to engage in this process with their own suppliers to drill down further on cost opportunities from the AIM & DRIVE methodology.

FOR MORE INFO, WRITE TRICIA@PATRICIAEMOODY.COM


April 2, 2007

Here's a quick up-date on my two new major book projects I have nearing their pub dates:

Jimmy Anklesaria's Aim & Drive, a Roadmap to Cost Management (AMACOM, NYC), and Mary Gardiner Jones', Breaking Down Walls, One Woman's Triumph (Hamilton Books, Md).

First, Mary Jones' book - here's her bio:

The last scion of New York's blue blood Gardiner and Jones families, Mary Gardiner Jones grew up living a paradox: outwardly a successful career woman with several "firsts" to her credit, inwardly tormented by self-described "demons." Alarmed by the widening separation between these two conflicting versions of herself, she turned to psychoanalysis for healing and credits it with restoring her personal and professional confidence.

Mary Jones lives in Georgetown just three miles from the White House where President Lyndon B. Johnson met with her to inform her of her appointment as the first woman on the Federal Trade Commission. While serving at the FTC she championed consumers' rights and actively sought redress for their concerns.

Breaking from the norms of an elitist upbringing that had discouraged countless women from professional careers, Mary Jones graduated from Wellesley College and went on to the Yale Law School where she was the first woman managing editor of Yale's Law Journal. She worked as an attorney in the law firm of General William Donovan, former director of the Office of Strategic Services (forerunner of the CIA) and also acted as his special assistant. As a nationally recognized lawyer she has worked in the U.S. Justice Department's Anti-Trust division where she won recognition for winning an international cartel case that broke new law by establishing jurisdiction over foreign watch companies. After her appointment as a full professor in the business and law schools at the University of Illinois, Ms. Jones once again broke the "glass ceiling," becoming a corporate executive with Western Union, their first Consumer Affairs Vice President.

Since retiring Mary Jones has continued her advocacy of consumer issues and has won numerous awards for her role as a full-time advocate for the mentally ill, abandoned and abused children and the elderly, and as an outspoken defender of Civil Rights.

Ms. Jones is available for interviews. Contact her through tricia@patriciaemoody.com.

* * *

Oct. 10, 2006
THIS IS A NOTE FROM LT. COL. DAVID REESE, A MEMBER OF 'THE GENE POOL,' ONE OF THE FRIENDS AND BENFICIARIES OF GENE RICHTER'S EXPERTISE.

AFTER SEPT. 11, WHEN GENE WANTED TO DO SOMETHING TO HELP OUR COUNTRY, HE CONSULTED GRATIS FOR THE AIR FORCE TO HELP THEM IMPROVE THEIR PROCUREMENT FUNCTION. NATURALLY, CONSOLIDATING AND LEVERAGING THE SPEND WAS A BIG CHALLENGE.

I'm happy to say we're pretty much settled in now here at Izmir.

It's always an adventure getting settled in overseas for the first few months, and Izmir hasn't been an exception to that rule for sure. But, we've got all the basic essentials finally in working order here, including Internet access at home for the last couple of weeks. Hard to believe we've been here a little over two months already. I pick up our car tomorrow (yea!!), so we'll be fully mobile here shortly. (Thank goodness the public transportation here is plentiful. And thank goodness for buying an iPod before I left...what a cool gadget, especially for my 1-hr commute on the noisy buses!)

Izmir is nice and working for NATO is an interesting change. My job here is not in the purchasing realm at all. I'm basically the executive assistant for a Turkish colonel who is one of the division heads here at NATO's southern regional air headquarters. Our division handles all the major military exercises conducted across Europe with our assigned forces, and it also handles all the training issues for the command. Mostly I keep all the paperwork, taskers, and information flowing to/from the division and making sure our division gets everything done on time. Although different, the job is certainly stretching my knowledge base, and I'm appreciative of the international experience I'm gaining. The work is somewhat frustrated by the language barriers amongst our HQs staff...some 19 countries represented. English is the official work language, and everyone who gets assigned here is supposed to have the right reading/writing/comprehension skills in English, but let's just say it's still a big challenge. Things that should go quickly usually don't just because the language/cultural gaps. In my division alone, we have one Albanian, two Americans, two Slovenians, three British, two German, two Greek, one Hungarian, four Spanish, and four Turkish personnel....challenging to say the least.

(I'm reminded daily of a basic reason our US Air Force is the best in the world: individual empowerment. The staffing processes here are certainly more bureaucratic and bottlenecked than ours. For example, I spent all day recently working with my boss and a one-star general to get a correspondence package prepared to go through the command chain to our 3-star for approval/signature...and the same action in the USAF would have taken about 15 minutes and would have been done by one of our junior Airmen via a single e-mail probably. Oh well...we aren't in Kansas anymore....adapt & overcome.)

We're enjoying being back in Turkey though. Although the Western restaurant choices seem to be a little more limited here than in Ankara where we were previously, the Turkish food is still very good. Once we get our car, we'll also be able to explore out & beyond the city too a whole lot more, which will be nice since there are so many historical and beautiful coastal places on this side of Turkey. We have a very comfortable home in a very nice & quiet seaside community on the south side of Izmir. It was a challenge getting the home "broken in" to our American comfort standards :-) but life is pretty much "normalized" now.

I ventured onto your website before writing this e-mail also, after reading again your comment about your newsletter in your previous e-mail. I couldn't view the newsletter archives for some reason, but I signed up my e-mail address for future distro and just rec'd the automated e-mail confirmation back. You're also a dollar or two richer (hoping it's at least that much for all your effort) as I ordered "The Big Squeeze" from Barnes & Noble while I was surfing your site also. I'm looking forward to reading it!

However frustratingly slow, our AF is making progress toward better consolidation & leverage of our mammoth spend. I've been at the decentralized end of the spectrum for a couple of years since my Pentagon time, so I haven't been able to follow all the progress from the top, but I'll try to find a few of the larger success stories and send them your way if you're interested. While at our mid-level professional development school back in 2004, I wrote a research paper about some of the challenges the AF was facing. Although I wrote the article just to fulfill an academic square (don't judge me too harshly if you read it, especially since the editors of the journal where it was published introduced several errors into the manuscript), it gives pretty good overview of the challenge. It's short on the solution set, but I wrote it more to get some of our senior leadership's attention than anything else. Anyway, the reason I mention it is that if you'll go to the following link (warning it's a big file), on the third page or so of the journal in the prologue just before my paper ("Centralized Purchasing Power: Why Air Force Leadership Should Care")it discusses some of the more recent successes (or at least recent at that time in 2005) the AF had since I wrote the article.

http://www.aflma.hq.af.mil/lgj/Vol%2029%20No%201%20WWW-1.pdf

There's still much room for future improvements still, as you can probably imagine, but we'll take whatever forward incremental progress we can get in our large & bulky institution. I was watching the Redskins and Giants play on TV today, and it made me think of Gene Richter again--him being the consummate Redskins fan. Gene's initial efforts in getting our leadership's attention is still paying dividends with our AF today and will for years to come I'm sure. At Hurlburt Field, it was neat to expose my folks to experts like Jimmy Anklesaria, Joe Sandor, and Theresa Metty while I was there. There's so much opportunity even at the "end of the food chain" that hopefully our AF leadership will help us capitalize fully upon someday.

Well, as Theresa will attest to you as well, my e-mails aren't always brief. Sorry, but I get rolling sometimes when I'm writing. I took blatant liberty at ignoring your "keep it brief" guidance on your website . . . hoping you wouldn't mind since this was more of a "catching up" personal e-mail rather than a "here's-what-we've-been-doing-at-Chevron" type of e-mail. :-)

I hope your summer has gone well for you (your blog makes the area in which you live sound very nice), and look forward to hearing from you again down the road. If by some strange chance you're ever on your way to Turkey in the near future, do let us know.

Best Regards,
David

Lt Col David Reese
PSC 88 Box 2183
APO AE 09821
---------------------------------------------------



NEWSLETTER

Good news! New Consulting Alliance with R. David Nelson, former supply management chief at Honda, TRW, John Deere and Delphi, co-author of Powered by Honda, The Purchsing Machine, and The Incredible Payback

Executive Briefings:

* Beyond Lean (tm), Best Practices in Lean Supply Management (tm)
* The Incredible Payback Cost Blitz (tm)
* Assessment
* Gap Analysis
* Training
* (tm)
Raising the Bar on Human Performance (tm)

Copyright Patricia E. Moody CMC 2006, All Rights Reserved


CONTENTS
The Big Squeeze Newsletter is still all about the money, but do you know how good you really are? It’s that time of year again – Report Cards are out!

Now we recognize that operations at different levels of competency and power cannot all generate the same incredible savings, such as the $12B in cash that Gene Richter turned in during the 1990’s IBM turnaround. George Borden of Clark American, for instance, found the going tough when his organization plateau’d. After revving up the campaign, Borden’s group racked up 29% reduction in the spend over 6 years!

Good news! Dave Nelson, a legendary figure in global supply management operations, and I are collaborating to bring proven methods to Best Practice operations – let us know how can we help you and your suppliers achieve your goals!

Want to find new places for big savings? Look down, at your feet - on the floor that is. According to warehouse expert Ken Ackerman, that’s where potholes in the warehouse can really cost you.

And finally, one of my favorite design gurus, Mike Kennedy, is hard at work on the follow-up to his breakthrough work bringing the Toyota Product Development System to North America.

For the rest of the story...
----------------------------------------------------------------------


1. Report Cards
It’s that time of the year – school’s out, the teacher is handing out report cards. You can’t wait to grab yours and run – ‘scuse me – walk, then run – down the stairs and out. Want to know how you did in supply management – ask your suppliers and then assess your organization for critical skills and opportunities. Who said in business grades don’t count?

For supplier surveys used by Motorola, Honda, IBM and others to gather useful feedback from suppliers that will allow them to do more for their customers, check out my old classic, Breakthrough Partnering from John Wiley and Sons.

Assess yourself!
For maturity assessments of your own supply management organization, check out the slide presentation delivered to Pittsburgh ISM, containing the Maturity Index, or write to us at staff@patriciaemoody.com, for copy.


2. Good news! R. Dave Nelson Executive Briefings, etc.

Dave Nelson and I have begun working together to help companies improve their supply management performance. Dave is the former chief of global procurement at Honda, where I met him and collaborated on our Powered by Honda BP book, John Deere, TRW, and Delphi. We’ve produced three books together, not including the yet-to-be-published book with Gene Richter called Money Machines. Dave is former Chairman of ISM (The Institute for Supply Management), winner of their Shipman Gold Medal for lifetime achievement, head of the ATKearney Center for Supply Management Leadership, and most recently he was inducted into the Shingo Academy. As the world’s leading supply management executive, Dave believes that companies who level up their focus on big numbers – profitability and growth – in the supply chain, can achieve long-term benefits.

Together we’ve worked with companies such as Respironics, where we mapped out a new supply management strategy that enabled 67% growth as the company restructured its supply chain and organization. We believe we can offer great assists through a combination of consultative tools – Executive Briefings, Assessments, Gap Analysis, Supply Management Benchmarking, Trouble-shooting, and Supplier Training. Let us know how we can help you and your suppliers achieve Best Practice levels!
Write to us at tricia@patriciaemoody.com.


3.I’m floored - Ken Ackerman, leading warehousing expert, warns of an expensive problem that’s totally fixable!

The most critical element in any warehouse is the floor. Surprisingly, it is often the most neglected. Bad floors damage lift trucks, and they cause spills that damage merchandise. Bad floors are difficult, and occasionally impossible, to fix. The average contractor does not fix floors - he just patches them so they can go bad later. A proper fix may involve pumping the subsoil where it has settled, and it also requires proper application of some expensive chemicals that will provide a relatively permanent repair job. The best people we know in this business are Metzger-McGuire, a New Hampshire firm that makes the chemicals and provides advisory services to fix bad floors. If you have a warehouse with an imperfect floor, you have an accident waiting to happen. Fix it without delay, and spend the money to fix it right!

According to Steve Metzger of Metzger and McGuire, bad floors not only disrupt warehouse traffic, they damage warehouse equipment. “We’ve been in this business for 45 years and Walmart is our biggest customer. They do 1.2M square foot distibution centers. And we’ve been pushing this message for 30 years. Companies will invest milions in new material handling vehicles with maximum speed and production, and then put them out on floor where drivers end up moving slower than the equipment was built for, so repairing floors is a good return on investment.”

Cost savings come from surprising, and sometimes simple areas. Says Metzger, “Most companies tend to overlook the floor problem, or they look for technological answers to productivity problems – deterioration, vibrations, broken axles, broken transmissions – when the simple solution is to fix the floor!”

Can’t you just lay some Bondo or Marinetex in the cracks? Well yes, but…. It’s difficult to estimate the exact repair cost, says Metzger. “There is no fixed cost to repairing floor. Per square foot repairs of floors vary, from one defect every 15 – 20 feet, to one every 5 feet. There is no fixed cost because it varies from facility to facility.” But Metzger has published a cost study analysis that says that for one typical damaged joint in the floor, a single small defect can, over the span of a year, cost $2000 – $3000 in lost productivity – drivers slow down when they approach that bump.”

-------------------------------------------------------------------------------
Floor Defect Cost Formula for a 2-Second Slow Down

2 x 20 trips/hr = 40 secs/hr
x 8 hrs/day = 320 secs/day
x 5 days/wk = 1600 secs/wk
x 52 wks/yr = 83,200 secs/yr
= 23.1 hrs/yr
x$15.00*/man-hour
= $346.50 cost/yr

*assumed direct labor cost including wages and benefits

If we analyze a facility that operates two shifts per day, six days per week, the cost for that same defect rises:

2 x 20 x 16 x 52
= 199,680 secs divided by 3600
= 55.46 hrs x $15.0
=$831.90 cost/hr

Source: A Path to Increased Productivity, by Steven N. Metzger
---------------------------------------------------------------------------------

Just the damage to equipment - wheel replacement on vehicles, damage to transmissions – the ROI is significant. It’s a common problem, says Metzger. “Most corporations overlook floors, but we see companies recoup their expenses in one year.”

Here’s a frightening example. Metzger recalls visiting a warehouse that had 4 forklifts, two of which were out of service, along with a broken sweeping machine and several other pieces of hand-wheeled equipment. Everybody blamed the floor! The lift truck dealer said he couldn’t afford to carry the maintenance contract any longer! There were big potholes everywhere, the worst warehouse I had ever visited. And the product stored in this warehouse? Light bulbs!”

It’s an ugly story that would be funny if it weren’t so expensive. Seems the owner of the lighting company also owned the building. This was not a short-term lease holder who could not afford to fix the problem, but, says Metzger, “he simply didn’t understand that if you hit a big hole in the floor, you’ll spill the pallet, and when you’re moving fragile goods, there will be damage!”

This California manufacturer just didn’t get it, and he had no idea what the true cost of the floor problem was, although he knew that he couldn’t get anyone to repair his broken lift trucks! “You see,” says “Metzger, "forklifts have hard tires – not pneumatic tires – and when they hit a bump, it hurts. The only forklifts with pneumatic tires are in lumberyards, and that’s why floors absolutely have to be smooth, not one slab 2 inches above the other.”

Sometimes the culprit is swampy subsoil, a not unusual situation in many warehouses. In that case, the problem is fixable, says Metzger, who would use a mud pump to pump the slab up, and then smooth the floor. A smooth floor is absolutely essential, says Metzger, “It’s the most critical part of your warehouse.”

4. Beyond Lean, Mike Kennedy on leveraging technology
Kennedy’s first book, Product Development for the Lean Enterprise, Why Toyota’s System is Four Times More Productive and How You Can Implement It, from Oaklea Press (www.leantransformation.com) was so successful, that Kennedy decided to create a second book, along with the software to help implementers succeed. The experience of exposing North American industry to Toyota design methods has been filled with surprises. Kennedy’s book delivered the first breakthrough in product development methods since Don Clausing’s book Concurrent Engineering, and it has consistently maintained high Amazon.com book rankings, which we take as a good indicator of market response.

I asked Mike (MichaelK@TargetedConvergence.com) to give us some insight on why the Toyota Product Development approach is so powerful, and what it means for the future of product development. Here is his response:

Toyota has effectively changed the product development process from one that is based on “design and iterate until you have it right” to one based on “Learn first about all the sets of possibilities and then design.” We call this Set-Based Thinking. Toyota has mostly enabled this with a manual system of A3 reports and socialized management with intense ongoing mentoring. Our software is intended to support this Learning first system for development.

More specifically, our Set-Based Thinking™ software is designed to support the techniques that we teach in our Set-Based Thinking™ training, including direct support for what we call the LAMDA Learning Cycle, which characterizes the Toyota approach to learning, problem-solving using LAMDA such that the lessons learned are captured into visual models, trade-off analysis building upon those visual models and extending them to cover broader customer interests, knowledge reviews and design reviews to ensure that future designs fully leverage the learning from past designs.

The software is currently in beta testing with a few customers.

5. George Borden of Clarke American (gbordon@sbcglobal.net), on what to do when your cost initiatives have plateau’d

I’m the VP of Procurement at Clarke American. We produce checks for, and offer related products to, financial institution customers, providing world-class service to those customers, acting as a “brand behind the brand” to deepen and grow their relationship with the financial institution.

For the past seven years our procurement operation has been going through a transformation.

Seven years ago, we had a limited number of defined procurement processes. Supply management was left to the various organizations of the company, so we had a pretty decentralized procurement operation. Our journey began with CEO and Sr. Executive Leadership Team buy-in for organizational and process change. They felt that procurement has to align with the business, so they added a VP Procurement and Supply Management to the team.

First, we established category management, bringing in strategic procurement professionals to blend with internal, high-performing associates who had great familiarity with the business. We identified our most significant opportunities and segmented our suppliers based on a combination of total spend and relative strategic value or criticality to the business. This gave us our initial focus.

Over three years, category management, combined with supplier consolidation, the establishment of supplier scorecard metrics, engagement in a consortium and early work on supplier development saved cumulatively 19% of our annual spend.

The Plateau Effect

But after three years, we began to see a “plateau effect” in our cumulative savings as the low-, and even medium-hanging fruit had been picked. We’d moved from “breakthrough” to “continuous improvement”. The team continued to deliver savings, but the annual contribution had decreased to about half the prior rate. So we increased efforts in value management, using cross-functional teams from Clarke American and the supplier to attack costs and eliminate waste across the supply chain (our process, their process, or in between). This allowed us to reduce our costs – even where we had no real leverage.

To add additional value, we used this approach to engage suppliers in new product and service development and to address customer satisfaction issues. Keeping suppliers keenly aware of our end customer is a critical success factor for us. We began to align our approaches more closely with the Malcolm Baldrige quality framework as well. These new efforts brought more savings. We also began to hold quarterly reviews with our business stakeholders and their financial analysts, which helped maintain alignment and gained sponsorship for our initiatives. After five years, cumulative savings had reached 24.9% of annual spend.

While accelerating savings again, we still had not reached the rate of savings capture seen in the early years. So we went to work more heavily on developing our key strategic supplier relationships. In Year 6, we provided engagement workshops to include suppliers on our key company project teams. This helped us work more effectively together and delivered additional value. We also stepped up our supplier recognition program for outstanding suppliers, creating an effective incentive for other suppliers to improve. That got us 3.7% savings, bringing the total over 6 years to approximately 29% of our annual spend.

Our next “breakthroughs” are in the development of strategic alliances or partnerships and an increased focus on logistics and supply chain. We’re putting in place new tools to manage the five or ten most strategic supplier relationships on a strategic, tactical and operational level. These include the development of long-term joint relationship (change the business) goals and measures. We’re on track to deliver another 5.2% savings in year 7 and to deploy new product offerings with our suppliers that will drive significant additional revenue and profit.

For more, see The Big Squeeze, Ten Ways to Cut Your Spend 10% Right Now!, www.leantransformation.com.

We welcome your feedback – write to us at tricia@patriciaemoody.com.





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