Don't Just Cut Waste: Create Value
By
Rick
Harris
January 13, 2010
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Manufacturers and distributors should work together to reduce costs, writes Rick Harris of DECO Tool Supply.
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Now is the time when manufacturers and suppliers should be looking at their supply chain together and creating value,
not just cutting waste.
When times are good, and the volume of business covered inefficiencies,
it was easy to capture cost savings by picking the low-hanging fruit. It becomes easy to show the value of integrated
supply with a lot of small wins such as reduced inventories on high-moving items or increased production on long-running
manufacturing operations.
The projects that become "high-priority" may,
during the good times, mean less to your bottom line and more to the overall visibility the project has around the facility.
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Well
the good times are not as good as they use to be, and now is the time to dig deep for projects
that will mean the most to the shareholders, the bottom line, the profit center and the overall budget. But it's not about
price.
So if it is not about price, then what is it about?
It's
about increasing communication. If you are not communicating more today with your strategic partners than you were last year,
you will be forced into someone else's cost-cutting measures instead of sharing in them and creating value.
Reduction in inventory can be the most visible tool you can use to increase your
bottom line, but are we always looking in the right place? Our first reaction is to look at how much inventory is on the floor
at the end user's facility. Where is it stocked, how much is needed, and how often? This may seem simple taking into consideration
the stocking and ordering requirements based on overall demand vs. predictable consumption, lead time, and
package quantity.
But this may only be one-third of the inventory because the distributor
and the manufacturer have their own inventory and their own stocking requirements. That is why each link needs to be a part
of overall cost reductions. When communication on inventory requirements flows from the end-user, to the distributor, to the
manufacturer, and back again, they can all benefit. Special manufactured items become catalog items, package quantities reflect
customer needs, and return or exchange policies become proactive instead of reactive. The project will then transform itself
from a cost reduction at the end user to a value-added link that strengthens the entire supply chain.
It
becomes easy to create value by simply creating communication that flows along all links of the supply chain.
Rick Harris is Upper Midwest Manager for the Prism Division of DECO Tool Supply, Davenport, Iowa. He may be reached
at rharris@decotool.com.
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Great blog but,I wouldn't expect anything less from a person with your experience. Proud of you!