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Capt Will Rogers _Dave's Doughnuts Brief_

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					Strategic Sourcing:
Effective Tools for
      Action
       Presented by
    CAPT Will Rogers, Jr.
 Cost Accuracy & Precision
   Precision             Accuracy



                  VS.



Precisely Wrong     Approximately Right
             FA Timeline

FA Planning / 4-6 weeks                    Plan for
                                          significant
  Map AS-IS Process / 6-8 weeks           overlap…

        Benchmarking / 4-8 weeks

               Develop TO-BE Process / 6-8 weeks

                     Performance Measures / 2-4 weeks

                           Implementation / 16-24 weeks


           Length of FA… 28-56 weeks
              How to Get Started

 Gain top management support
 Define project scope & develop plan of action
 Use automated systems/tools
 Train team
 Gather and analyze information
 Build the models
 Refine the model/methodologies
 Integrate into business management
               Planning for the FA

   Form the Functionality Assessment Team
   Change Management
   Developing a Vision
   Defining the Scope
   Determining the Viewpoint
                     Dave’s
                   Doughnut
                      Shop
 A Functionality
Assessment (FA)
    Example
               Dave’s Strategic Plan

   Mission
    – To provide doughnuts and coffee to the local
      community.
   Vision
    – The doughnut shop of choice in the local
      community.
   Customer
    – Business commuters and families in the local
      community.
                Analyze the “As-Is”

   Identify customers, products, and services

   Document current processes

   Perform process/activity analysis

   Identify process redesign opportunities
              IDEF-0 Activity Modeling:
               Fundamental Concepts

 An Activity Model is a graphic representation
  of the activities that compose a Mission
  process and show the flow of information and
  objects used and created by activities
 Activity Modeling Objectives:
    Develop an understanding of the Mission
     processes being analyzed
    Communicate and validate this
     understanding
                IDEF-0 Activity Modeling:
                 Fundamental Concepts

   Good Activity Models are:
     Complete - all significant activities are
      included
     Accurate - reflects reality
     Understandable - easily interpreted and
      used by people not involved in the
      modeling effort
           IDEF-0 Modeling Benefits

 Identifies improvement opportunities
 Provides visibility on information flow
  relationships
 Highlights redundant activities
 Documents the “AS-IS” organization for
  baseline evaluation
 Supports reengineering from the “AS-IS” to
  the “TO-BE”
ICOM
BASIC IDEF-0                 CONTROLS
MODELING
BUILDING BLOCKS                     ELEMENTS RELATED TO THE ACTIVITY
                                    THAT CONSTRAIN OR GOVERN HOW
                                    THE ACTIVITY IS CONDUCTED
INFORMATION OR MATERIAL
USED TO PRODUCE THE
ACTIVITY OUTPUT



 INPUTS                      ACTIVITY                  OUTPUTS

                                         INFORMATION OR MATERIALS
                                         PRODUCED BY OR RESULTING
                                         FROM THE ACTIVITY
 THOSE THINGS THAT PERFORM
 OR PROVIDE ENERGY TO THE
 ACTIVITY

                          MECHANISMS
                   IDEF0 - CONTEXT DIAGRAM
                                    Menu Recipe
                       Customer
                        Demand                           Health & Safety
                                                         Regulations


      Order from
                                                             Satisfied Customer
      Hungry Customer

     Ingredients & Supplies          Provide
                                    Doughnuts                Doughnut Sales
     Inventory
                                                   A0

CONTEXT DIAGRAM: Single
diagram which illustrates the     Facility   Equipment    Personnel
highest level activity and its
information of materials

A0       Provide Doughnuts                        Viewpoint: Dave
                                 IDEF0 - NODE TREE
NODE TREES: Graphically                     Provide
portray activities in a                    Doughnuts
hierarchal format                                                   Activity
                                                   A0




 A1     Plan             A2     Acquire       A3        Make        A4    Market            A5   Sell
                                Ingredients             Doughnuts         Doughnuts              Doughnuts

                                                                                                 Component
                                                                                                   Activities
      A21    A22   A23    A24        A31    A32    A33        A41   A42   A43   A44   A45




                                    Hierarchical
                                   Decomposition
A0          Provide Doughnuts                                       Viewpoint: Dave
               IDEF0 - DECOMPOSITION DIAGRAM
 Customer
               Menu                                               Health &      DECOMPOSITION
  Demand                                                             Safety     DIAGRAM:
                                    Budget     Recipe           Regulations     Represents activity
Hungry   Take                                                                   refinements by showing
Customer Orders                                                                 its lower level activities
                                Logged                                          and their information
                      A1        Order                                           relationships
                                             Obtain             Order
                                             Supplies           Prioritized

                           Supplies                                                         Sold
                                                        A2                                  Doughnut
                                                                              Make
                           Ingredients                                        Doughnuts
                                                                                            Updated
 Inventory                                                                                  Inventory
                                                                                      A3
       Order          Order Entry                            Inventory
                                               Baker
       Clerk          System                                 System
                                                                                 Baker

  Personnel           Point of Sale System


A0           Provide Doughnuts                                    Viewpoint: Dave
                  IDEF-0 Benefits for
                   Dave’s Doughnuts

   Minimize waste… efficient use of resources
   Optimum baking times & quantities
   Best store hours
   Effective process for each product line
   Correct order of activities
                       Context
                       Diagram           HIERARCHY OF BUSINESS
                  A0
                                          MODELING PROCESSES

A0




                                             A0                NODE TREE

A1                     A2                         A3                        A4


            A21 A22    A23    A24      A31    A32      A33    A41   A42 A43      A44 A45



                                                                            Decomposition
                              FEO                               1
                                                                              Diagram
              1
                             Diagram
                                                                        2

                       2
                                                                                  3


     A3F1
                                                         A3
   Activity Model to Data Model
Activity Model
                    Noun                       Noun
     Verb                        Verb                         Verb
                   ICOM                       ICOM
    Take orders    customer        Make       customer Sell doughnuts
                  requirement    doughnuts    payment

Data Model
                     Verb                      Verb
     Noun                        Noun                         Noun
                  Relationship               Relationship
    Customer       submits        Order       results in    Doughnut sale
               IDEF-1X Data Modeling

   Gives other side of picture… IDEFs work
    together
   Systematically organizes data revealed by
    the activity model
   Cross references with activity model
   Eliminates ambiguity and redundancy
                 IDEF-1X Benefits for
                  Dave’s Doughnuts
   Facilitates mapping for an efficient and effective
    database.
   Streamlines information needed for effective
    management decisions regarding store hours,
    payroll, inventories, and equipment.
   Help’s in planning, integration, administration.
   Supports decisions on store expansion, additional
    stores, product line management, etc.
                Activity Based Costing
 A methodology that measures the cost and
  performance of resources, activities, and cost
  objects based on the activity consuming the cost.
 Produce numbers that reflect the way various
  products differ in their use of resources.
    – Translates into decision information.
    – Gives accurate picture of output costs.
   Ties performance metrics to the cost of achieving
    that performance.
   ABC FUNDAMENTAL CONCEPTS
Traditional                     Activity-Based Costing

 A system that allocates        An overhead allocation approach
overhead to products based      that assigns cost to products
primarily on the direct         based on the resource consuming
labor content… factors that     activities required to produce the
   may or may not be the        product
   cost drivers

Designed to capture cost        Designed to capture the diversity
differences at the department   in products and processes within
level but usually not the       a department
difference between products
within a department
             Activity-Based Costing
             vs. Traditional Costing
• Traditional Costing           • Activity-Based Costing
   – The Premise:                  – The Premise:
      Labor and direct                 » Activities cause costs through the
        materials cause costs            consumption of resources, and the
                                         demand for products causes
   – The Model                           activities to be performed
                                   – The Model
  Direct            Product
                       A        Resource
Resources                                                          Cost
                                                   Activity
                                                                   Object
                    Product     Resource
Overhead               B                                            Cost
                                                   Activity
                                                                   Object
                    Product     Resource
                                                                    Cost
                       C                           Activity
                                                                   Object
                                Resource
           ABC Benefits
 Enables incremental process
  improvement…
 Enables process
  reengineering…
 Links activities to mission
                                           Mission
                              Activities
  value (value-added)…                      Value

 Links resources consumed
  to mission benefits…        Resources
                              Consumed
                                           Benefits
                                           Received
    ABC FUNDAMENTAL CONCEPTS
            ABC MODEL
      Activity Centers        Resources
                                                 Resource Drivers
Cost Pools                                                  Activity Centers




                     Cost Elements        Cost Elements
                                                                    Activity
 Direct                                                             Drivers
Charges


                           COST OBJECTS
 Dave’s ABC Process
              Work Process
                   Ordering
                   Material
 Personnel                       Raised
                                Doughnuts
                   Receiving
                   Material
                                  Cake
 Facilities                     Doughnuts
                   Storing
                   Material
                                  Coffee
 Equipment         Making
                  Doughnuts
                                  Day-Old
  Supplies         Selling       Doughnuts
                  Doughnuts



Resources      Activities      Products & Services
    Dave’s Traditional Approach
   Total Overhead $500,000.
   Direct Labor Hours Used As Cost
    Allocation Base
    – Direct Labor Hours Totaled 1000 hours
          600 hours for Raised Donuts
          350 hours for Cake Donuts
           50 hours for Coffee
    Dave’s Traditional Approach
   Based on Direct Labor Hours, the $500,000
    of Overhead Would Be Applied:

    – $300,000 to Raised Donuts

    – $175,000 to Cake Donuts

    – $ 25,000 to Coffee
              Dave’s ABC Approach
                     TOTAL OVERHEAD     RAISED DONUTS    CAKE DONUTS     COFFEE

Ordering Materials            $35,000          $17,500         $10,500     $7,000

Receiving                     $40,000          $24,000         $10,000     $6,000
               Difference
Storing       in Overhead     $45,000          $22,500         $18,000     $4,500

Mixing
               Allocation     $25,000          $15,000         $10,000        $0

Equipment Use                 $50,000          $32,500         $17,500        $0

Display                       $30,000          $18,000          $9,000     $3,000

Selling                      $275,000         $151,250         $55,000    $68,750



ABC                          $500,000         $280,750        $130,000    $89,250

Traditional                  $500,000         $300,000        $175,000    $25,000
   Activity Based Costing
            versus
 Activity Based Management

        A method that assigns resources cost to
       activities based on their use of resources, and
ABC    assigns activity costs to cost objects based on
                    their use of activities



      A process of focusing on the management of
ABM    activities to identify and drive improvement
                        opportunities
              ABM Benefits
   Determine product/service cost
   Identify/justify reimbursable costs
   Reallocate resources to meet mission priorities
   Improve performance
   Evaluate outsourcing
   Meet strategic goals
   Manage projects
   Manage budget reductions
   Support reengineering
   Survival
  ABC FUNDAMENTAL CONCEPTS
           Value Analysis
Value Added vs. Non-Value Added Work

 Non-value added (NVA) analysis:
    Could this activity be eliminated if some prior activity
     were done differently (or correctly)?
    Does the technology exist to eliminate this activity?
    Could this activity be eliminated without changing the
     form, fit, or function of the product?
    Is this activity required by an external customer and will
     that customer pay for this activity?
                                                  No
 DECISION TREE                                IS IT
                                            REQUIRED
   FOR VALUE                             TO OPERATE THE
                                          FUNCTION AS A
                                                                 NON-VALUE ADDED
                                                                 NON -MANDATORY

ADDED ANALYSIS                              BUSINESS?      Yes

                                                  No

     CAN                                      DOES IT
  ELIMINATE     Yes                     IMPROVE FUNCTION
   WITHOUT                                EFFICIENCY OR
IMPACTING THE                               ENHANCE
  PRODUCT?                                  PRODUCT?       Yes

        No            NON-VALUE ADDED
                                                  No

  ELIMINATE                                 DID THE
IF PRECEDING
ACTIVITY DONE
                               Yes         CUSTOMER
                                            REQUEST
 CORRECTLY?     Yes                           IT?
                                                           Yes

        No                                        No

                                            IS THE
VALUE ADDED                                ACTIVITY                NECESSARY
                                          MANDATORY?
                                                           Yes
          Benchmarking
 Measures processes against recognized
  leaders
 Helps establish priorities and targets
  leading to process improvements
 Begins by…
    identifying processes to benchmark and
     their key characteristics
    who to benchmark
    collecting and analyzing data
    determining “best of class”
    evaluating the process in terms of goals
      Dave’s Benchmarking
                 Dave’s      Dip’n    Crispy     Mother’s   Industry
                Doughnuts   Dognuts   Critters    Maid      Average

 Doughnuts
                 140 DZ     195 DZ    240 DZ     165 DZ     150 DZ
  per Hour

 Complaints
                   3          11         8          7          9
 per Month

  Doughnut
                 18 DZ       8 DZ     12 DZ       13 DZ     11 DZ
 Waste / Day

  Sales per
                 $59,000    $76,100   $83,200    $51,000    $74,300
Employee / Yr

Gross Margin
                 $29,500    $40,333   $45,760    $24,990    $39,400
per Employee
                      Developing
                Performance Measures

   Review benchmarking data

   Develop a set of performance measures

   Develop a data collection process

   Compare measures to Business Strategy and
    Vision
           Developing
              the
            “To-Be”

Smoke &
Mirrors?
                   Developing the “To-Be”

          Major Tasks                             Deliverables
   Review Business Strategy and Vision      Reengineered process
   Develop and analyze alternative          Calculated improvements and
    process designs                           impacts
   Assess and quantify impacts              Model of new process (What)
                                             Implementation Plan (How)
   Develop preliminary performance
    measures                                 Changes communicated to
                                              organization
   Identify new process
    recommendations
   Communicate anticipated changes to
    Organization
        Added




Moved
               Implementation

 Conduct implementation planning and
  drafting sessions
 Develop strategy for, and obtain,
  management approval
 Hold kick-off meetings
 Monitor and meet with Implementation
  Teams
          Don’t Forget…
      Report the Data in FAMIS
   FA Number                    Number of Civilians
   Title of FA                  Number of Military
   Command Code                 Number of NAF
   State                        As-Is Numbers
   Current Status               To-Be Numbers
   Initiation Date              Assessment
   Last Updated                  Completion Dates
   Congressional Districts      Comments…

				
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