Daily Archives: March 4, 2009

Cutting the Right Costs with Technology

A recent article in Industry Week, which advocated that you cut the fat, not the limb, reminded us that there are a number of strategic projects, based on appropriate supply chain technology, that can provide a far greater internal rate of return than merely slashing costs. After all, companies that layoff employees, consolidate suppliers, reduce product offerings, and halt key projects may inadvertently get rid of the very things that made them successful in the first place!

As Jim Thompson pointed out, in his Supply Chain Brain article, cut, cut, cut is NOT a cost reduction strategy. The only real strategy for cost reduction is the strategic reduction of fat in capital and operating costs … which is easily exposed by technology designed to root out inefficient and redundant processes. Now, more than ever, managers need to look at innovative and aggressive technology projects that will provide increases in operational efficiency.

And, as per the Industry Week article, three great places to start are:

  • Excess Inventory
    Synchronizing actual inventory to recorded inventory provides the data necessary for sound purchasing decisions based on good forecasts.
  • Manual Processes
    Unnecessary manual processes lead to errors and wasted time. Error-handling, re-processing, and lost productivity costs add up, especially if these costs can be affordably eliminated.
  • Supply Chain Weak Links
    Vendor Managed Inventory and longer-term collaborations offer opportunities for both parties.

And when you’ve mastered these, you can move on to the ideas chronicled in Dead Company VII: Even More Ways to Avoid the Graveyard.

The Value of AfterMarket Service in a Down Economy

MCA Solutions recently released a white-paper entitled The Value of AfterMarket Service in a Down Economy by Morris A. Cohen, the Panasonic Professor of Manufacturing and Logistics at The Wharton School of the University of Pennsylvania. In it, the author puts forward initiatives for your service business that he, and MCA, believes will generate revenue and profit for your business in 2009.

Aftermarket service presents some unique opportunities that make it a prime candidate for delivering value in the current financial climate. When you consider that many companies have slashed their budgets for new product and service acquisitions, it should be obvious that many companies will be looking to get more life out of their current products and services and looking to aftermarket service providers to help them.

According to the white-paper, increasing your market share of aftermarket parts and services will allow your company to generate a more predictable, high-margin revenue stream that will also increase customer satisfaction and retention. In addition, leading enterprises such as Cisco Systems, KLA-Tencor, Boeing and Tellabs have proactively undertaken strategic service management initiatives and have seen ROI benefits (in as little as two months) that include:

  • Cash flow improvements of 10%
  • Inventory reductions of 15% to 50%
  • Service level improvements of 5% to 20%
  • Customer retention through new and differentiated service offerings
  • Dramatically increased service revenues
  • Higher levels of global coordination

So what are some of the areas of opportunity?

  1. Reconfigure the Service Supply Chain to Respond to Changing Costs and Customer Requirements
    Best-in-class companies view inventory as a competitive weapon
    and typically employ multi-echelon inventory optimization and other resource deployment strategies to achieve superior product and service availability.
    However, these days, service
    providers must also look to optimize the design and configuration of their service support network (locations, repair capacities, customer assignments, etc.) as a key strategy for achieving the lowest total cost and maximized customer service solution
  2. Reduce Overhead and Increase Time-to-Value Through Outsourcing and SaaS
    Service providers can expand their capability with a lower cost structure by outsourcing non-core capabilities to their suppliers. Logistics, warehousing, IT services, etc. can all be outsourced to low-cost, high-quality providers — freeing you up to focus on what you do best.
  3. Reduce Cost Through Optimization of Service Value Chain Resources
    Companies who use traditional planning tools developed for finished goods supply chains often hold far too much inventory with the wrong mix of parts. Getting the right mix of parts in the right places can lower overhead costs, improve service, and increase overall service profitability.
  4. Increase Revenue Generation with Customer-Focussed Service Offerings
    In a downturn, customers demand higher levels of performance from aftermarket service providers. This can be achieved through appropriately designed differentiated service offerings on a pay-per-performance model that will set you apart from the competition.

These are all great suggestions and each of them will help you save money while increasing the value you can bring to your customers. For more suggestions, as well as insight into how to approach each of these areas of opportunity, I recommend checking out the full white-paper that dives into these opportunities in detail. It’s worth a read.