Nov
24
Cost reduction methods that achieve results.
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Saving costs rarely goes out of fashion. Wasteful and bureaucratic processes which lack appropriate compliancy and controls result in higher cost which in turn results in reduced profit. For many organizations this is sufficient rationale to develop cost reduction strategies. Higher cost is also inextricably linked with agility and efficiency. Inefficient processes more often than not affect competitiveness and as such provide even greater rationale to develop appropriate steps to reduce cost.
Appropriate thought and strategic focus needs to go into developing cost reduction strategies. Cutting cost for the sake of it can be detrimental – unknowingly reducing aspects of the business that actually add value. Savings should be linked to improving. The business still needs to remain agile with sufficient resources to react to customer requirement.
But if your embarking on cost reduction initiatives where should you start? Firstly of key importance is – know your numbers – knowledge about your product – its key cost drivers is vital if your are to focus on areas that will bring about change. Secondly develop the knowledge about the processes that support your production – whether that’s design, manufacture or the processes relating to material flow such as procurement and logistics.
Many businesses when faced with a cost reduction drive carry out a slash and burn technique, reducing staff numbers and pushing suppliers for significant discount (whilst often maintaining existing contractual terms). Far better is to a considered and thought through strategy that focus’s on key cost drivers (and value add to the business) and sets out a scheduled for change. For many organizations this will include the following
Process Optimization
Process optimization is the activity where processes are reconfigured in order to improve a parameter (cost or performance) whilst not enhancing or realizing risk. Optimization can often be facilitated through re-engineered processes, kaizen/six sigma events or in many cases through introducing new tools or software (P2P for example). Cost reduction is a common goal for process optimization and there are dedicated off the shelf tools and methods that can be used to help realize benefits.
Outsourcing
Outsourcing refers to the process of utilizing a third party organization to undertake a service that is currently provided in house usually for either enhanced levels of service or for reduced cost. There are a variety of processes that can be outsourced from procurement, logistics to financial services. Outsourcing has become commonplace but there are still pitfalls. Businesses must be sure of service levels, capabilities and cost when passing work to a third party. Consideration should also be given to the strategic importance of the process being outsourced – outsourcing core capabilities can often dilute the end product or in worst case reduce the competitiveness of the business. However implemented correctly outsourcing offers a simple and effective method of reducing cost.
Improved Sourcing
One of the key opportunities for cost reduction is strategic sourcing. Optimizing the demand signal, the supplier base and your strategic relationships can reap significant reward. For many businesses savings can be realized through tendering processes for key commodities or establishing formal contracts or long term agreements for materials. Many organizations will benefit from simple but effective techniques such as consolidating spend into fewer suppliers or from reviewing the geographical spread of suppliers and incorporating more suppliers in emerging economies.
Design to cost/manufacture
It should not be forgotten that one the principle cost driver within a business is the product. Design to cost or design to manufacture workshops can produce a variety of initiatives – from improving assembly times, through to swapping out components for cheaper alternatives. The success of design to cost depends upon where the product is in its lifecycle, impacts to serviceability and principally whether changes are cost effective to deploy.
Summary
Cost saving initiatives are here to stay – businesses need to develop a strategic approach– slash and burn cost saving techniques rarely work in the long term. A considered approach that reviews key cost drivers and established plans to target these is much more likely to deliver benefits without placing the business at greater levels of risk.
Nov
24
Attributes of successful supply chain managers
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Many of us are familiar with different management methods, styles and techniques. But what about the qualities of the managers themselves, the individuals that are expected to carry organizations, motivate staff and deliver the results? Organizations require a leadership/managerial team that excels with a mix of styles able to cope with various scenarios. Not surprisingly attributes and ability vary between individuals with external factors such as organizational culture (and pressure) having much influence over management styles.
So then, whilst it would appear that management techniques are generic with similar methods used whatever the function, given the often complex and varied nature of tasks and workload in the supply chain sphere, what are the qualities that sets an excellent supply chain manager apart from a mediocre one?
I believe that there are four key areas worth reviewing
Effective task management
All roles require getting things done. Getting things done or managing tasks requires close attention to schedule and deliverable. These attributes are typically associated with projects or issue resolution. Supply chain’s are unsurprisingly full of projects – consider
• Outsourcing
• Supplier rationalization
• Strategic sourcing
• Cost reduction
• Technology deployment
• New Product Introduction
• Obsolescence
• Etc etc
These tasks are often of critical importance to the business and the disciplines required for achieving success are modestly different than merely managing staff or transactions. Indeed the disciplines required to deliver a task often do not require significant functional competence in the technical aspect of the task (that’s not to say that no supply chain knowledge is required). Merely if schedule and risk are managed appropriately and the deliverable is obtained the business is satisfied.
Managers will interact with staff to review deliverables, timelines, and issues but often where things are going well the actual management time can be limited to staff meetings. As a result, staff morale resides with the criticality of the task and the performance of the team in its execution.
This style of management is often required in times of crisis. Consider your own business which may transfer personal who excel at this style of management to manage specific projects. These individuals are often very driven and clearly focused on their customer (often to the detriment of day to day activity).
Effective staff management
The skills associated with managing staff are associated with building and improving the efficiency and effectiveness of a team whilst delivering day to day tasks (specifically transactional/execution and customer issue resolution).
For staff managers the strength is in their team rather than their own capabilities, typically comprised of individual staff members with different skills and attributes. True staff management takes the strengths and weaknesses of a group of individuals and develops them to match the continuing requirements of the business.
Managing staff will involve, motivating team members, measuring performance, developing processes, dealing with inputs/outputs (suppliers/customers) the staff manager will be concerned as to how a team executes their task and how that task fits into the broader processes of the business.
For staff managers – close interaction between themselves and their team is key – issues such as their work environment, training, personal development (including remuneration and career development) are of far more importance than they are in a task or project environment.
Expertise and Experience
Without appropriate skills and experience, could anyone excel at supply chain management? Probably not – within any business discipline there is a learning curve where subject knowledge acts as a barrier to performance. Whether this knowledge is acquired through training or simply through on the job experience it is still a necessity. Indeed you could argue that in recent years –the entry level knowledge required within supply chain has grown given the innovations in the market (P2P, outsourcing, global supplier networks etc). Expertise and experience leads to competency which reduces business risk.
Leadership
Leadership is perhaps a bit more intangible – it is the business x-factor that separates a good manager from a great manager. What is leadership? Perhaps its best described as a means to influence. Leadership results in one person developing and communicating a strategy and enlisting and mobilizing the work force to execute it. Leaders don’t necessarily do the activity but have attributes such as ability, trust, charisma and gravitas which enables buy in from the workforce.
Summary
There are different styles of management. There is typically a requirement to position people in roles that match their skills and attributes. Some people are great at managing tasks but are not great at managing people or transactions so businesses find themselves being selective.
A world class supply chain manager is likely to contain a mix of these skills – having the industry knowledge and experience to devise a strategy, being able to create momentum for tasks with enough attention to detail to ensure execution processes go off without issue.