7 June 2006Blakemore Consulting International Dr John Blakemore National President ManSA Chairman...

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7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Dr John BlakemoreNational President ManSAChairman Blakemore Consulting InternationalMartin Place masc@blakemore.com.au +61 2 9238 7670Mob 0414 970758

Australia’s Manufacturing Future in a Global

Marketplace

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Questions

• Which Industries? Only those where we have a Strategic Advantage (SAW)?

• How much protection? None? Have we moved too fast?

• CAD and Foreign Liabilities too High?• 40% world’s Uranium but not Nuclear? • Why is Business R&D lowest in OECD?

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

The New Rules 1 • Battle Present Vision and Global Drivers• Blending of Civilisations & Cultures?• New world order based on Culture. • Companies larger than countries• Massive Debts of poorer countries• Western world trading deficits huge• Continuous global conflicts• Global Warming and Peak Oil.• Wealth Spread very uneven, ageing.• Decline of USA, growth of China & India

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

New Rules 2

• Move from Mass Production To Agile Made to Order • Don’t size demand to fit Capacity Fit Capacity to fit Demand• Low cost and high quality

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

New Rules 3

•Low Working Capital and Low Inventory and rapid response• Satisfy all members of the value chain•Superiority of Knowledge Capital•Digital data available instantaneously•Compression of Lead time and elimination of Non Value Added steps

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Leading Edge Trends

• Why does it cost the consumer $150 for gym boots that cost $2 to make?

• Why does a digital download music Album cost the consumer $16 when the cost including royalties is $2?

• The supply chains will compress and prices fall, the answer is speed and elimination of steps in the physical supply chain as variety increases.

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

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7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

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Sales Sourcing Autos

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

New Generation Manufacturing 1

• Use Digital data to maximum advantage• Choose those industries where we have a

natural Comparative Advantage eg Uranium, Energy, Aluminium, Food etc

• Build integrated digital supply chains• Plus high value goods like scientific

instruments, sensors, medical devices, • Focus R&D efforts where we have a SAW• Modular fusion of new technology.

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

New Generation Manufacturing 2

•Recognise the value chain• Rapid use of digital data from the source to any position in the value chain•Mass to build to order

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

New Generation Manufacturing 3

•Establish knowledge networksTo supplement in house Limitations•Increased emphasis on speed and R&D and innovation of process and product

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

New Generation Manufacturing 4

Human Resources

• Control core competencies• Collaborate and Synergise• Reward Innovative knowledge developers• Continuous learning • Imagination +Knowledge= Discovery

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Agile General Principle

Process Innovation to Continuously Improve capability of B and then all processes so that the Pull (MTO) process can pull from further back in the Supply Chain. Manufacturing Capability to match Demand not Supply to match Manufacturing Capability.

1 2 B 4 Customer Point of Sale

Supplier

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

R&D IP Design

Manufacture Anywhere

Assemble @ Market

Sell BTO

NGM IP Model Oz1

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Industry Group

NGCROCSIRO, Unis

Overseas Exp

Output to Intermediate Stage

Each Company Develops Own SAW

Government Support

Data Mining

NGM R&D Model Oz2

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Product

Use & Monitor

Re Use

Waste Minimisation

NGM Green Model Oz3

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Process Innovation Product Development

NGM All Co Model Oz4

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Plant Capacity + Sales Forecast

Parameters

Mon Tues Wed Thurs Fri Sat Sun

Manufacturing Sequence

Booking System

Order Entry

Inv C

1

Suppliers 2

NG Pull IT Model Oz5

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Hardware Old ………………………Hardware New

Pharmacies Old……………………………….Pharmacies New

Zara Fashion New

NG Retail Models Oz6

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Where do we Start ? Macro

• Convince and Lobby Politicians and Business Leaders so that they understand the need to take a long term view.

• Convince Business Leaders that it is their best interests to have R&D representation on the Board.

• Educate the Industry Bodies.• Focus our Research efforts not spread

them thinly like the CSIRO• Make Universities Commercially

accountable through Cooperative R&D using Japanese model

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Where Do You Start?Micro

1. Integrate processes and systems, pull by customer, then spread out both ways.2. Substitute pull for MRP3. Use internal digital data on shorter periods4. Hook up digitally with customers & suppliers5. Eliminate forecasting as much as possible6. Educate Industry Bodies.

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Manufacturers Need Agile Systems

We must embrace change, globalise, and Innovate continuously. If this means supply from low wage countries then accept this butcontrol the IP from here and manufacture for the world in a modular design for higher volume or customise where we have a comparative advantage, but the overriding rule is that we must be agile and flexible like Australia 2 in 1983 and replace labour with capital and use blue sky strategies, and use digital data more cleverly.

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

The End

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Supplier Mergers and Acquisitions

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1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Year

Nu

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North America

Europe

Asia

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Manufacturing or Service?

•There is no such thing as a pure Manufacturing Company

• All companies are Service Driven

•What is your Position in the Supply Chain?

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Innovation, R&D and Australia’s Manufacturing

Future

We need to be Creative, Innovative, Fast & Flexible

(Like Australia 2 1983)

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Australia Has a Problem

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

R&D $ & Productivity

Source: OECD Main Science and Technology Indicators, 2005-1 Source: OECD Productivity Database, 17 December 2004

GERD

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

90-91 92-93 94-95 96-97 98-99 00-01 02-03

Year

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Australia Japan Sweden United States

Per cent of GDP Per cent of GDP

MFP Growth

-2

-1

0

1

2

3

4

5

1990

1991

1992

1993

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1995

1996

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-1

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Australia Japan Sweden United States

Per cent Per cent

GERD is defined as total expenditure by all sectors — business enterprise, government, private non-profit, higher education — on R&D that is performed within the boundaries of the country

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

My R&D Observations

• 800 E&M Applications (5yrs)• Approx 5% successful• IP mostly exploited Overseas • Small no. people rich• Little benefit National Benefit

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Reasons for Failure of R&D

Poor Understanding of:1. The Scientific Method 2. The use of the correct resources3. The needs of the market4. Difference between Process & Product

Innovation 5. The need to articulate the concept and plan6. The way to raise funds to support the application7. Financial accounts 8. Cashflow9. Poor measurement of risk

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Agile Rule 3

• Drive Process Innovation with Product Innovation (25 creative Flow Rules)

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Australia Exports & EmploymentExcellent Correlation

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Australia’s Comparative Advantage

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Cash Flow and ProfitMass Smart 1 Smart 2 Smart 3 Smart 4

Sales S Revenue 130,000,000$ 130,000,000$ 140,000,000$ 150,000,000$ 160,000,000$

Purchases P RM Purchases 60,000,000$ 40,000,000$ 60,000,000$ 70,000,000$ 70,000,000$

Inventory Start InvSt RM+WIP+FG 40,000,000$ 40,000,000$ 30,000,000$ 30,000,000$ 30,000,000$

Inventory Finish InvFin RM+WIP+FG 40,000,000$ 20,000,000$ 20,000,000$ 20,000,000$ 20,000,000$

Gross Margin GM GM=S-P-InvSt+InvFin 70,000,000$ 70,000,000$ 70,000,000$ 70,000,000$ 80,000,000$

Direct Labour DirL 28,000,000$ 28,000,000$ 28,000,000$ 28,000,000$ 28,000,000$

Ind Man Exp IndManExp 35,000,000$ 35,000,000$ 35,000,000$ 35,000,000$ 35,000,000$

Expenses Exp 63,000,000$ 63,000,000$ 63,000,000$ 63,000,000$ 63,000,000$

Net Profit NP 7,000,000$ 7,000,000$ 7,000,000$ 7,000,000$ 17,000,000$

Cash Flow CF CF= NP+ Inv Change 7,000,000$ 27,000,000$ 27,000,000$ 27,000,000$ 37,000,000$

Flow InvSt + P - InvFin 600,000,000$ 60,000,000$ 70,000,000$ 80,000,000$ 80,000,000$

Ratio Sales SalesL/SalesM 1.0 1.1 1.1 1.2

Agile Results P&L

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

EBITA for 6 Months Periods

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July Dec2001 Jan-June2002 Jul-Dec2002 Jan-June2002 Jul-Dec2003 Fcast

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What Has Been Done (Carpet)

$300M T/O

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

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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

Output

Smart Production ..Output & Defectives (Loss to Profit)

Defectives

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

CSIRO Exp vs Comparative Adv

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Agile Rule 1

Demand = Production• Make to Order•Pull by Customer•Apply Continuous flow rules

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Agile Rule 2

•Match Manufacturing Capability with Demand• Product Range complexity often creates poor servicing and excess waste and working capital•Tirelessly improve agility by reducing the EPR by removing non value added activities

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Agile Rule 4

• Recognise that Digital Data can be obtained at the POS and sent to any point in the supply chain

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Agile Rule 5

• Reduce Complexity and Modularise

7 June 2006 Blakemore Consulting Internationalwww.blakemore.com.au

Supplier Mergers and Acquisitions

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