Show Me The Money! (Supply Chain Cost Reduction Opportunities)

Show Me The Money!

Sorry to disappoint you, but this isn’t a post about Cuba Gooding Jr., whom all of you action fans will remember as recurring minor character Billy Colton in MacGyver near the end of the series.

Instead, this is a post about how you can Show Me The Money by applying the proper technology at the proper places and proper times in your supply chain to save big, even with rising material costs, inflation, and the global talent war.

The reality is that unless you are best-in-class, and the harsh reality is that, by definition, the vast majority of you are not, your supply chain is hemorrhaging cash. And in all likelihood, lots of cash. Where?, you ask. Everywhere!

Let’s take a simplified PC supply chain for example. Raw materials are mined and shipped to a processing plant where they are refined and shipped to base part manufacturers. These base parts (such as chips, wires, etc.) are then shipped to component manufacturers who produce circuit boards, hard drives, cables, etc. These base components are then shipped to an assembly plant where the PC is assembled. From the assembly plant it is shipped to a central distribution center where it is then shipped to either a regional distribution center, store, or your home, depending on the sophistication of the distribution center.

Furthermore, the specifics of your supply chain depend on who you choose to buy from, who your suppliers choose to buy from, who is chosen to handle your transportation requirements, and who you choose to sell to.

From this example, we derive the following fundamental sources of cost:

  • Labor (inc. raw material collection, processing, & subsequent part and component handling)
  • Parts (inc. design, component raw materials, & built in production operations)
  • Operations (inc. part production, handling, & overhead)
  • Transportation (inc. raw materials, parts, components, & finished product)
  • Buying (who you buy from, where, & when)
  • Selling (who you sell to, where, & when)

However, from a savings viewpoint, not all of these are equally important, since only some of these are really hemorrhaging cash, despite their absolute value on the cash flow statements.

  • Labor is more or less defined by market rates. Moreover, companies that pay more for more productive people often have a higher ROI per person than those that pay less.
  • Selling is marketing, materials, and labor. The first is generally not under your purview, and again the issue is not cost, but results; the second is covered by buying; and the third we just discussed.

This tells us that the fundamental sources of cost, and thus the fundamentally sources of unnecessary costs, ripe for saving, have to do with:

  • Parts
  • Operations
  • Transportation
  • Buying

And those of you reading regularly will know what the answers are.

But back to the point – how do you Show Me The Money? You use these solutions to identify where you are hemorrhaging cash, tackle the issues head on, and stop the leak. And then you point to the big, fat increase on the balance sheet as your doing. And that’s how you Show Me The Money!

It’s also why I keep talking about companies like the following:

They may be small, they may be new, but they are trying to build a solution that will help you find those savings leaks that you are not likely to find on your own. So keep reading!

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