Releasing Hidden Capital
To Maximise Profitability
How to be Creative,
Innovative, Fast & Flexible
Dr. John Blakemore
Principal Innovation Blakemore Consulting Int.,
masc@blakemore.com.au, www.blakemore.com.au, 0414970758
National President Manufacturing Society of Australia
Advisor to Previous Australian Government on Innovation and
Research and Development
Sources of Hidden Capital
And Costs
1. Inventory (RM, WIP, FG )
2. Consignment Stock
3. Old Inventory
4. Excess labour
5. Waste in all forms
6. Product made greater than EPR
7. Debtors > Creditors
8. Interest rates overdraft > borrowings
9. Repairs and rework and errors
10. Defective product and process.
11. Not optimizing cycle time and lead time etc…
Lessons from The Best
Companies in the World
1. John Blakemore recently visited some of the
best companies in the world including,
Honda, Toyota, Canon, Mazda, Kawai,
Panasonic as part of an investigation to add
to our understanding of Creative Lean Flow.
2. These lessons can be applied to all
Enterprises for both information flow and
product flow.
3. To the list of TQM, and Lean we now need to
add Kyosei, and the German Meister system.
4. Demand=Production=Supply
Flow
Raw
Materials
Supplier
Parts
Customer
Component
Assembly
Retail
Final
Assembly
Distribution
Simulation of Creative Flow
Information and Product
Simulation Results
Production Time
1 Traditional Processes
2 Cellular Proc Interaction
3 Pull Batch 0ne
4 Flexible Pull Batch One
Gain Loss Percent
Err/Rew WIP
3
9.6
17
18
7
7.6
31
30
14
1.9
4
6
22
1
3
6
733%
-89%
-82%
-67%
Strategy
What we need to Know
1. Your Business
2. Industry Trends
3. Organisational
Effectiveness
4. Market Opportunities
5. Competitive Position
6. The Environment
7. Global Trends
Strategic Advantage
for Winning (SAW)
Match Vision With
Capability and put in
Control Systems
Strategic Plan
Action
Plans
Buying Decision in the
Value Chain
Value Creation
Service
Value
Creation
Core
Process
Customer
Customer
Value
Strategic
Advantage
for
Winning
Buying
Decision
People
Marketing&Sales
Innovation
Finance
Operations
S
U
P
P
L
Y
In
gh
t
In
M
Position in the Chain
Di
sp
Cu
s
to
m
er
Di
st
rib
60
Tr
an
s
Lo
ad
W
IP
Pa
rt s
80
Ou
t
p
Tr
an
s
As
s
Si
te
Bn
d
On
In
W
IP
W
IP
Co
m
As
s
As
s
Fi
n
Pr
e
Co
m
p
m
p
Co
at
er
ia
l
Ho
us
e
Bo
u
Ra
w
Days of Inventory
Inventory Profile in the Supply Chain
120
100
Worst
Avrage
Best
40
20
0
Waste and
Sustainability..Canon Toride
Canon classifies waste as
1.Material
2.Expenses
3.Planning
Expenses and Material waste
Are easy to measure. What about
Planning Waste?
Process Flow Before
Innovation
Shipping
Warp & Fill yarn
N / H rolls
Inspection
Stage 1 Improvement
Shipping
Warp & Fill yarn
Shipping
Heatset
N/H
rolls
Inspection
Pirelli ..Output & Defectives
140
120
Output
100
80
60
40
Defectives
20
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37
Months
What Has Been Done (Shaw (USA) in
Australia)….see IPO $300M T/O
38% to 95% OTD, D=P=S, GM up 5%,FG Inv
Down $18M
EBITA for 6 Months Periods
25
20
Millions of Dollars
15
10
5
0
July Dec2001
Jan-June2002
Jul-Dec2002
Jan-June2002
-5
6 Months Period
Jul-Dec2003
Fcast
Precision Valve Australia
Incorrect Measurements
Percent Defective per Week
50
45
40
Per cent Defective
35
30
25
20
15
10
5
0
1 2 3 4
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41
Weeks
Sales by Week Hi Vol line
Sales Volume per Week for One Year
2500
Number of Units
2000
1500
1000
500
0
1
3
5
7
9
11
13
15
17
19
21
23
25
Week
27
29
31
33
35
37
39
41
43
45
47
Value Added
PROCESS PARTS (6)
1
1
2
3
4
5
6
2
-
3
4
5
6
Setup (Preparation)
Run(The Value Added Step)
Maintenance (Preventive)
Breakdown(Errors & rework)
Idle(available to run but not utilised
Cleanup
VA = 2,(3)? = Run + Preventive Maintenance
Eliminate • Breakdown • Idle • Setup? ( SMED)
• Cleanup  Concurrent Engineering
Conventional P&L
Conventional Profit and Loss Account
Mass
Sales
Lean
$
2,500,000
$
2,500,000
$
2,500,000
Purchases
$
924,000
$
637,000
$
448,000
Inv Start
$
576,000
$
576,000
$
576,000
Inv Fin
$
576,000
$
200,000
$
100,000
GP
$
1,576,000
$
1,487,000
$
1,576,000
Dir Lab
$
958,000
$
958,000
$
958,000
Ind Man Costs
$
465,000
$
465,000
$
465,000
Expenses
$
1,423,000
$
1,423,000
$
1,423,000
Net Profit
$
153,000
$
64,000
$
153,000
Cash Flow
$
153,000
$
440,000
$
629,000
Sales
Lean 2
The problem is that the finished goods inventory is added to
the revenue to calculate the gross margin *** GP = S -COS , COS = Inv St +P - Inv Fin
Defect % versus
Control
35%
31.70%
30%
Normal
Truncate
25%
20%
15.80%
15%
10%
4.60%
2.30%
5%
0.30%
0.15%
0.02%
0.01%
0%
1
2
3
4
Industry
Control (σ)
Some
1
Hospitals
2
Good Co’s
3
Top Japanese
6
Honda Siama
7
Culture Change
Improving the way we do it.
Change is successful when people:

Understand the reasons for the change

Understand

how the change will work

what their role in it will be

the anticipated consequences.

Influence the planning, implementation and control of the change

Trust the initiator of change is acting in their best interests.

See that top management genuinely supports the change and acts
in the same way.

See the benefits are worth the cost paid.

See it as being gradual with team members becoming leaders.

Use good communication skills

Encourage participation in change

Use pilot studies to demonstrate benefits.

The Chief Executive sets the Culture of the organisation
25 Lean, Green, Rules
1. People (1,2,3)
2. Integration (4 to 9)
3. Planning(10 to 16)
4. Operations(17 to 25)
Cochlear and Toyota
1. Cochlear is Australia’s most innovative company.(Ibis
2005)
2. Blakemore Consulting consults to Dr Chris Roberts
and has redesigned all major manufacturing systems
using Lean
3. USA hospitals were losing money fitting Cochlear
Implants until they studied the Toyota system in
Japan…now profitable.(ref Chris Roberts 2005)
4. GM was the world’s biggest carmaker but Toyota
could have bought all of GM with last years profit
alone (Ref The Australian 2005)…since then GM, Ford
and Chrysler are virtually bankrupt
Concepts
•Cooperative Team Based Culture
•Continuous learning and improvement
•Kaizen and Kyosei
•Continuous Flow, Max Value Added
•Optimize the Whole
• Pull by Customer on Demand
•Lead Time Reduction (Velocity)
•Quality Cost Delivery
• Recognize 6 parts of a process
•Measure and improve the VA step
•Do Not Change the plan but reduce plan time
Recent Achievements
using 25 Rules (Innovation)
1. Hazard: significant productivity gains in 18months
2. Pirelli : Output doubled, NP from –5% sales to 15% profit
3. CSFB: $40M fr WC , OT D 38% to 95%, Loss to $40M EBITA
4. Tannery: Colour defects eliminated from 15% defective
5. Steel Fabricator: Plant redesign, Mat Handling $ halved
6. Computer Supplier: Loss $60,000 to profit $1.0M I year
7. Aluminium Fabricator: Productivity doubled in 6 months
8. Speedo: QR to retailer, inventory down, service up.
9. 14 Plastics Companies: All increased bottom line in 1 yr.
10.Geelong Cement: Productivity Gain of 25% in 6 months
11.Warkworth Mine: Productivity Gain of 16% in 6 Months
12. BHP to PVA: RM Inventory reduced from $1.5M to $60,000
The End
Acknowledgements
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Blakemore Consulting is very conscious of the importance of the
confidentiality we afford to our clients. All results and comments presented
here have been supported by the relevant executives and in particular we
would like to thank the following clients:
Dr. Ezzelino Leonardi Tech Director Pirelli Cables
Dr Chris Roberts CEO Cochlear
Mr. Michael Gerakios MD Albany International
Mr. Norris Little President Shaw USA
Dr. Bob Blake, Mr Barry Connell, MD Precision Valve Australia
Mr. Brendan Dalton Ausindustry Canberra
Mr. Gary Lingford GM Geelong Cement
Mr. Nick Stump MD Comalco Australia
Mr. Don Mathews President SCAHA
Mr. Chuck Smith CEO Moore Business Systems
Mr Richard Hammond CEO Adelaide Brighton
Mr Bob McCallum, CEO Panasonic Australia
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