Black & Decker 2015 Annual Report Download - page 37

23
The Stanley Fulfillment System (SFS)
SFS employs continuous improvement techniques to streamline operations (front end & back office) and drive efficiency
throughout the supply chain. SFS has five core principles that work in concert: sales and operations planning (“S&OP”),
operational lean, complexity reduction, global supply management, and order-to-cash excellence. S&OP is a dynamic and
continuous unified process that links and balances supply and demand in a manner that produces world-class fill rates while
minimizing DSI (Days Sales of Inventory). Operational lean is the systemic application of lean principles in progressive steps
throughout the enterprise to optimize flow toward a pre-defined end state by eliminating waste, increasing efficiency and
driving value. Complexity reduction is a focused and overt effort to eradicate costly and unnecessary complexity from the
Company's products, supply chain and back room process and organizations. Complexity reduction enables all other SFS
elements and, when successfully deployed, results in world-class cost, speed of execution and customer satisfaction. Global
supply management focuses on strategically leveraging the company’s scale to achieve the best possible price and payment
terms with the best possible quality, service and delivery among all categories of spend. Order-to-cash excellence is a
methodical, process-based approach that provides a user-friendly, automated and error-proof customer experience from intent-
to-purchase to shipping and billing to payment, while minimizing cash collection cycle time and DSO (Days Sales
Outstanding). Other benefits of SFS include reductions in lead times, rapid realization of synergies during acquisition
integrations, and focus on employee safety. The core SFS principles helped to mitigate the substantial impact of material and
energy price inflation that was experienced in recent years.
SFS is also instrumental in the reduction of working capital as evidenced by the 56% improvement in working capital turns for
the Company from 5.9 (excluding HHI) at the end of 2010, after the merger with Black & Decker, to 9.2 at the end of 2015.
The continued efforts to deploy SFS across the entire Company and increase turns have created significant opportunities to
generate incremental free cash flow. Going forward, the Company plans to further leverage SFS to generate ongoing
improvements both in the existing business and future acquisitions in working capital turns, cycle times, complexity reduction
and customer service levels, with a goal of ultimately achieving 10 working capital turns.
In addition, the Company has embarked on an initiative to drive from a more programmatic growth mentality to a true organic
growth culture by more deeply embedding breakthrough innovation and commercial excellence into its businesses, and at the
same time, becoming a significantly more digitally-enabled enterprise. A new breed of digital technologies is changing the
competitive landscape at unprecedented rates, creating both threats and opportunities, and it is clear that organizations that
stand still will be left behind.
To that end, the Company has spent considerable time and effort developing the next iteration of the successful SFS program,
which has driven working capital turns to world-class levels and vastly improved the supply chain and customer-facing metrics.
Entitled “SFS 2.0” this refreshed and revitalized business system will continue the progress on core SFS, but importantly,
provide resources and added focus into functional transformation, digital excellence, commercial excellence and breakthrough
innovation. SFS 2.0 was launched in 2015 and immediately created a positive impact on 2015 results by driving organic
growth, improving margins and reaching new levels of innovation and digitization across the entire organization. The
Company is making a significant commitment to SFS 2.0 and management believes that its success will be characterized by
more consistent organic growth in the 4-6% range as well as expanded operating margin rates over the next 3 to 5 years as the
Company leverages the growth and reduces structural SG&A levels.
The expanded SFS 2.0 will transform the Company by focusing its employees on the following five key pillars:
• Core SFS, which targets asset efficiency, remains as the foundation for the Company's operating system and despite
the significant advances made in improving working capital turns and free cash generation, opportunities still remain
for further working capital improvements and supply chain efficiency to enhance the Company's already strong asset
efficiency performance.
• Functional Transformation takes a clean-sheet approach to redesigning the Company's key support functions such as
Finance, HR, IT and others, which although highly effective, after 80 or so acquisitions are not as efficient as they can
be, based on external benchmarks. This presents the Company with an opportunity to reduce its SG&A as a percent of
sales and becomes a cost effectiveness enabler with the side benefit of providing the funding mechanism for the
following other aspects of SFS 2.0, which together act as enablers for outsized organic growth and margin expansion.
• Digital Excellence uses the power of digital to be disruptive and more effective and far reaching through the
Company's products, solutions and analytics. Digital Excellence means leveraging the power of emerging
technologies across the Company's businesses to connected devices, the Internet of Things, and big data, as well as
social and mobile, even more than what is being done today. Digital will touch all aspects of the organization and
feeds into and supports the other elements of SFS 2.0 - enabling better asset efficiency through core SFS, greater cost