As per yesterday’s post and a recent article on Inbound Logistics, when Finding Cost Savings: It’s the Whole Package! Sometimes the only way you can save money is to first spend money.
The article, which says this is counter-intuitive (although it really isn’t), gives the example of an electronics manufacturing company that had a relatively low 2% damage rate, but needed to reduce shipping damage even further due to the high value of it’s products. They decided to work with their pallet provider to reduce the strength of, and add strength to, their pallets and boxes. The new packaging cost more to produce, but the smaller footprint reduced their LTL shipping costs and their reduced damage rate of a mere 0.1%, which was 20 times better than their previous damage rate, saved them considerably more than what they spent on improved packaging.
This goes back to yesterday’s post where true, sustainable, savings only come from the perfect order. If anything screws up, any cost savings you identified earlier in the process are more than negated by any screw-up that comes later. But even getting the order perfect from the supplier isn’t enough if you’re buying products for resale and then they get damaged when you ship the product from your facility to the customer’s location. The perfect order isn’t just from the supplier to you, it’s from the supplier to the end customer. The perfect order crosses the entire supply chain from the initial obtainment of the raw materials for the product three tiers down until the final product arrives in the hand of the end customer.
The other issue, as pointed out by the article, is sustainability. Your brand reputation might depend upon your commitment to sustainability and Corporate Social Responsibility – ignoring it to cut a few cost corners could result in a consumer backlash that will take significantly more off of your bottom line than the few pennies you save buying non-fair trade coffee or conflict diamonds.
Moreover, true sustainability always delivers cost reductions, especially where the consumption of natural resources is concerned. While there will be an upfront cost to install new technologies that reduce water and energy consumption, or to build new solar arrays and wind turbines to produce more sustainable power, which will be stored in a battery array for dark and calm times, this is a one-time up-front cost. Ongoing costs will be significantly reduce as the sun and the wind is free – unlike coal and oil which gets more expensive by the year. As the article says “any wasted money is wasted over and over again” and even if it takes three to five years to recover the investment made to prevent money being wasted, a company in it for the long haul will make it up four times over in the following twenty years.
So always look at the big picture – then true cost savings opportunities will emerge!