Targeting 1–3 Points of Reduction in SG&A as % of Sales
Core SFS and Industry 4.0 are integral enablers for driving operational efficiency and supporting margin expansion. Engrained in SFS is our proven approach to first test, try, prove and then scale new ways of driving efficiency. Our “Lighthouse Factories” have proven the benefits of these new technologies, and we have begun rolling out Industry 4.0 solutions across our global enterprise. Simultaneously, our Functional Transformation initiative is elevating the effectiveness and efficiency of our back office.
Industry 4.0, also known as the fourth industrial revolution, encompasses the latest in manufacturing execution systems, machine learning, robotics, cloud computing, 3D printing, predictive manufacturing and advanced materials. We are not here to keep pace, but to get out front in this digital and technological revolution sweeping the industrial world.
Having piloted Industry 4.0 successfully in our Lighthouse Factories, we have begun rolling out its principles and solutions to all of our manufacturing facilities worldwide, and intend eventually to fully digitize our supply chain. Deploying Industry 4.0 in our factories will generate a wealth of data about our internal operations and supply chain. Our SFS toolkit has expanded to embrace Big Data and the industrial Internet of Things to drive the next wave of flexibility, cost efficiency, quality improvement, and customer and end user intimacy.
Our Industry 4.0 team is focused on increased operational flexibility, driving lean manufacturing and speed-to-market of our great new products. The goal is essentially waste-free, predictive manufacturing and supply chain — very flexible and very quick to market.
Industry 4.0 will be involved at some level in 80% of all of our cost of manufacturing by 2019.
To guide our ongoing deployment and evolution of Industry 4.0, we are opening Manufactory 4.0 — an Advanced Manufacturing Center of Excellence — in downtown Hartford, Connecticut. Named after the original Stanley Bolt Manufactory founded by Frederick Stanley in 1843, Manufactory 4.0 will serve as the epicenter for the latest technologies, processes and strategic guidance to successfully transform our manufacturing environment.
We also have partnered with Techstars to launch the STANLEY+Techstars Additive Manufacturing Accelerator, co-located with the Manufactory. In year one, the mentorship-driven, entrepreneurial incubator program will identify 10 startups and work with them to grow their ideas into viable businesses that bring new technologies to market.
Our localization strategy is manifested in numerous ways across our global footprint. In recent years, we have added new design and manufacturing facilities in India, Brazil and Argentina. We have also continued building out our Made in the USA capabilities in our North American sites, and recently began power tool assembly in the UK. This year alone we announced the building of two new plants in the U.S. and the expansion of several more. Everywhere we produce our goods, we are rethinking our processes and introducing new methods. Our goal is to be able to produce and serve our customers at an on par cost anywhere in the world.
This “make where we sell” strategy is allowing us to meet local needs with products and solutions that local end users find relevant. In emerging markets, for example, our mid-price-point segment customers and end users prioritize durability, repairability and affordability. We deliver those features with high quality, great efficiency and compelling value.
Localization scales us appropriately to individual markets and eliminates a great deal of global logistics and shipping, creating flexibility and shortening lead times in our supply chain. It also protects us from volatility in the macro environment relative to currencies, geopolitics and variable GDP growth by country. Make where we sell also demonstrates social responsibility and our commitment to the communities where we do business and where our people work and live — bringing good and thriving commerce to local economies.
In the last three years, we have moved from 30% to 45% make where we sell.
In the last three years, we have produced over 1.5 billion products in the U.S.
Our first “Lighthouse Factory” debuted in 2016 at Tools & Storage’s site in Jackson, Tennessee, piloting disruptive manufacturing technologies to support Stanley Black & Decker’s Industry 4.0 evolution. The Jackson team continues to explore areas of automation, additive manufacturing, digital simulation and asset monitoring — helping transform the way work is done while also driving productivity improvements and best practices. Two additional Lighthouse Factories were concurrently added by STANLEY Engineered Fastening in its Chesterfield, Michigan, and Giessen, Germany, facilities. The focus has been on deploying a digital control that incorporates feeds from production data, environmental health and safety, quality, planning and dispatch with fully interactive touchscreens that provide dashboard level and drill-down capability to all of the linked databases/systems. In all three Lighthouse Factories, real-time data transparency has created a collaborative learning environment, while also driving an operations mindset change as we incorporate advanced robotics and human-machine interfaces.
We began our functional transformation journey in 2015. While we have been performing well compared to the S&P 500 and our peers, the fact was, our SG&A costs were about 23% of sales versus a peer average of 20%. Stanley Black & Decker is an acquisitive company, absorbing more than 100 acquisitions in just over a decade, and while the integrations were broadly successful, there was more opportunity for efficiency and standardization in the back office. Functional transformation was conceived as one way to fund SFS 2.0 growth investments while supporting margin expansion goals — driving cost effectiveness with a “clean sheet” zero-based approach to completely rethink and re-tool key functions. We were looking to do more than just make the back office efficient, but to ensure we become a more effective, digitized global industrial. This has been an essential step toward becoming a more sustainable and scalable enterprise to drive future growth.
Initiatives include: rationalizing ERP systems and retiring outmoded ones; creating an information technology sourcing center for all tech purchases; modernizing our data centers and adding a state-of-the-art third-party provider; standardization of our wide-area network landscape; standardizing telecom; and, making enabling investments to support indirect purchasing and a global human resources application suite. In addition, we have established two new shared service centers, in Malaysia and Colombia, to complement our existing centers in Poland and India, with the goal of moving the current percentage of Controllership and General Accounting from 25% shared services and 75% in our businesses, to 75% shared services. Implementation is underway, encompassing low cost sourcing, lean processes, automation and other levers to achieve results.