purchasing free cash flow improvement kaizen
TRANSCRIPT
June 22, 2009
Mike Pfohl, Lesly Costello, Travis Brown, Neil Jackson, Alfredo Yanes, JoAnn Wooten, Tarsha Gibbs, Gordon Ecklund, Michael Honeycutt, Kevin Martin, Jack Jolley, Rick Brinker, Josh Gibbons
Purchasing Free Cash Flow Improvement KaizenReport-Out
6/22/2009Free Cash Flow Improvement Kaizen Report-Out1 For Internal Use Only
Why Choose a Kaizen to Tackle Free Cash Flow?
• Kaizens offer the opportunity to train around specific topics.
» Free Cash Flow is not a common topic in operational training.
» Free Cash Flow is one of the key metrics for Avery.
• Kaizens offer the opportunity to improve current processes and procedures NOW!
6/22/2009Free Cash Flow Improvement Kaizen Report-Out2 For Internal Use Only
What Did We Cover In The Training?
• Finance Training» Free Cash Flow
» Working Capital
• ELS Tools Training» Pareto Charts
» Process Mapping
» FMEA
• Training Highlights» Enthusiasm for Subject
» Identified Rules for Purchasing that Can Be Implemented ASAP
Dollars 25000 20000 17000 10000 8500 6000 5000 4000
Percent 26.2 20.9 17.8 10.5 8.9 6.3 5.2 4.2
Cum % 26.2 47.1 64.9 75.4 84.3 90.6 95.8 100.0
Cost
Other
Jan Sug.
Safety Supp.
Jan. Supp.DRSF
Solvents
Security
100000
80000
60000
40000
20000
0
100
80
60
40
20
0
Dollars
Percent
Pareto Chart of Cost
6/22/2009Free Cash Flow Improvement Kaizen Report-Out3 For Internal Use Only
What Did We Choose to Attack and Why?
• FCF Calculation: + YTD Net Income
+ YTD Depreciation & Amortization
- Change in Op Working Capital
- Capital Expenditures
= Free Cash Flow
• NI becomes a positive cumulative factor for FCF
• YTD Depreciation has a positive cumulative effect
• Capital spend has negative cumulative effect
• Change in Operational Working Capital is all about timing!
Dramatic results can occur based on activity of just 1 day!!!
6/22/2009Free Cash Flow Improvement Kaizen Report-Out4 For Internal Use Only
• Operational Working Capital (WC) =
+ Accounts Receivable
+ Inventory
- Accounts Payable
• Accounts Receivable: Current Focused Activities from Finance and Logistics Yielding Positive Gains
• Inventory: Current Focused Activities from Logistics and Operations Yielding Positive Gains
• Accounts Payable: Opportunities for Focused Improvement
What Did We Choose to Attack? (cont.)
6/22/2009Free Cash Flow Improvement Kaizen Report-Out5 For Internal Use Only
What Was Our Baseline?
Trade A/P Versus AOP
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Mar
-08
May
-08
Jul-0
8
Sep-0
8
Nov-08
Jan-
09
Mar
-09
May
-09
Jul-0
9
Sep-0
9
Nov-09
A/P
in
$1000's
Actual Plan
Kaizen Held
5-19 to 5-21
6/22/2009Free Cash Flow Improvement Kaizen Report-Out6 For Internal Use Only
How Did We Apply the Training?
Areas of Delay In the Creation of A/P In The System
6/22/2009Free Cash Flow Improvement Kaizen Report-Out7 For Internal Use Only
How Did We Apply the Training? (cont.)
Ex.: New Vendor Set-Up Had High RPN
6/22/2009Free Cash Flow Improvement Kaizen Report-Out8 For Internal Use Only
How Did We Apply the Training? (cont.)
Ex.: Invoice Sent to Wrong Location
6/22/2009Free Cash Flow Improvement Kaizen Report-Out9 For Internal Use Only
What Were Our Results?
• Maximize Quarterly Consumables Purchases
» Identified 11 indirect “spending buckets” that offer opportunity to purchase in bulk on a schedule.
» Prioritized buckets based on the following criteria:
› Cost
› Space
› Durability
» These purchases are NOT increases to AOP, but changes in the timing and of already planned purchases.
6/22/2009Free Cash Flow Improvement Kaizen Report-Out10 For Internal Use Only
What Were Our Results? (cont.)
• Review List of All Current Vendors to Confirm Payment Terms
» Scrubbing List for Out of Date Information
» Identified Large Opportunity to Negotiate Favorable Payment Terms
6/22/2009Free Cash Flow Improvement Kaizen Report-Out11 For Internal Use Only
How Are We Going to Track Improvements?
• Continue Working Capital Report-Out in Monthly Clydesdale Meetings
• Begin Working Capital Report-Out in Monthly Tier 4 Meetings in Floyd’s
• Set Goal of Exceeding AOP Quarter End A/P Metrics
Q2 Goal: Increase A/P By $100,000