CONFIDENTIALThisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.LeanOperationsDiscussionAlcoaProductionSystemCaseExampleMarch15th,20022AU1168-LeanPresentation-031202Purposeoftoday’sdiscussionExaminethebasicapproachtotheAlcoaProductionSystem-Successtodate-BriefcaseexampleinsmeltingDiscusshowtotakeyouroperationalimprovementapproachtothenextlevel3AU1168-LeanPresentation-031202Increasinglycompanieshaveutilized“Lean”operationstocreateacompetitiveadvantageValueofUSD100investedfor5years,February2001*Excludingexchangeratefluctuations**Alusuisse,Pechiney,Alcan,KaiserAlu,andCapralSource:Datastream;McKinseyanalysisToyotaJapanAutomobileindex184155AlcoaAluminumcompetition**255139DowChemicalUSChemicalsindexDuPontUSChemicalsindexDomtarUSBasicIndustriesindex228143159139158143LeanoperationscanbeimplementedinprocessindustriesEarlyadopterscangainacompetitiveadvantage4AU1168-LeanPresentation-031202Aleanoperationssystemenablesprocessindustrycompaniesto……outperformcompetitorsbyhavinghigherproductivityimprovementrates,lowercosts,andbetterquality…offersuperiorproductsandservicestoincreasinglydemandingcustomersbyleveragingunderstandingoftruecustomerneedsacrossthesupplychain…growfastandprofitablybothorganicallyandthroughacquisitionsbyreplicatingtheleansysteminnewsegmentsandplantsGrowthCompetitionCustomers5AU1168-LeanPresentation-031202Purposeoftoday’sdiscussionExaminethebasicapproachtotheAlcoaProductionSystem-Successtodate-BriefcaseexampleinsmeltingDiscusshowtotakeyouroperationalimprovementapproachtothenextlevel6AU1168-LeanPresentation-031202Alcoaistheworld’sleadingaluminumcompanySource:Alcoa’swebsite;pressclippings;McKinseyMetalsPractice;teamanalysisCompanysnapshot•World’slargestproducerofaluminaandaluminum•80%aluminum-relatedbusiness•Morethan300operatinglocationsin36countries•140,000employees•MarketvalueUSD29billionBauxiteminingAluminarefiningAluminumsmeltingFoundry/RollingFabrication/finishingRecyclingAlcoaProducts•Bauxite•Alumina•Chemicals•Primaryaluminum•Aluminumingot•Aluminumsheets•Aluminumplates•Finishedproducts,e.g.,–Carframes–Carandtruckwheels–Ventilationsystems–Packagingproducts•SecondaryaluminumContinuousoperations7AU1168-LeanPresentation-031202Alcoahasbeenhighlysuccessfulthelast5years*CAGR:CompoundedannualgrowthrateSource:Alcoa’sannualreports;McKinseyMetalsPractice;teamanalysisRevenuesUSDbillions1996199722.916.315.313.113.3199819992000Annualgrowthrate*15%0246810199519961997199819992000Capitalexpenditures/salesPercent35%reductionsince1996NetincomeUSDbillions199619971.51.10.90.50.8199819992000Annualgrowthrate*30%8AU1168-LeanPresentation-031202AlcoahasoutperformedthecompetitionSource:DatastreamTotalreturntoshareholdersIndex,January1997=100AlcanPechineyAlcoaS&P500USBasicindustries2001199620001999199819973002502001501005009AU1168-LeanPresentation-031202*Alcoa’squarterlynetincomeadjustedforspecialitemsSource:Alcoa’squarterlyreports;LondonMetalExchangeLeanoperationshavehelpedAlcoabreakoutofthealuminumpricecycleAlcoa’sperformancevs.aluminumprices,Q11982–Q120010.40.60.81.01.21.4AluminumspotpriceUSD/poundAdjustednetincome*U...
