Surviving and thriving in an unfavorable business environment requires solid business strategies that help reduce costs across the total supply chain.
You’ve cut back on staff and overhauled shifts and schedules to maximize productivity without breaking the bank. Excessive spending has been scaled back to a minimum, and company bonuses have been on ice ever since the economic recession hit full force a few years ago. Your firm is operating efficiently and your company pipeline is respectable, but can you be doing more to get to the next level in this still unfavorable business environment?
If you haven’t examined your supply chain lately, then the answer to that question is “yes.” Internal cost-cutting, marketing cutbacks and layoffs are the most logical moves for most firms when the times get tough, but there are other ways to sustain and even enhance company growth during the down cycles.
In this article, we’ll look specifically at your supply chain – that sophisticated system of organizations, people, technology, activities, information and resources involved in moving your precast products from supplier to customer – and give you a few solid strategies for wringing costs out of it.
When Mike Strain walks into a precast plant, he can discern between the areas in need of improvement and those that the firm has a
good handle on. As president of Seattle-based MJS Management Services, a provider of management solutions for the concrete industry, Strain says excessive inventory levels, poor purchasing practices and loose payment terms (for invoices) tend to take the biggest toll on today’s manufacturers.
Precasters also run into challenges when they try to handle all activities in-house instead of outsourcing non-core tasks to third parties that can take care of them quickly and at a lower, variable cost (versus a fixed cost that’s incurred when employees have to cover the work).
The supply chain is yet another area that many manufacturers ignore despite its potential as a money- and time-saver. One of the biggest problems that precasters grapple with is the misconception that the supply chain starts at the supplier of raw goods and ends at their plant. “They forget that the supply chain goes straight on through to the customer,” says Strain. “This oversight results in missed opportunities to improve processes and remove costs from the total supply chain.”
Precasters looking to squeeze efficiencies from their supply chains should consider the total value stream that starts with the procurement of raw materials, continues through the manufacturing process and ends when the vaults, manholes or staircase pieces arrive on the customer’s doorstep. From taking a lean manufacturing approach (see the sidebar “Going Lean”) to the “wringing” process, Strain says precasters should be able to quickly detect opportunities for improvement.
“The key is to look at every link in the supply chain and figure out how those various components can operate more efficiently,” says Strain. “When that happens, precasters start looking at things differently and develop long-term habits of identifying and maximizing those opportunities.”
Internally, part of that process also includes moving from departmental or spot-type supply chain improvements to system-wide enhancements that create real value. The sales department is a good starting point, according to Strain. After all, salespeople are usually the only company employees who interact with new and existing customers, negotiate contracts and play the important role of turning prospects into paying clients. With fewer of those clients to go around these days, every sale counts.
Maximizing the sales aspect of the precast supply chain requires a close look at how salespeople spend their time, how they add value to each sale and how they interact with customers. “Companies can make their sales functions much more efficient by simply examining these factors,” says Strain, “and figuring out what improvements or changes can be made to make the salespeople even more effective.”
The same exercise can be used to assess external functions, such as those activities that reach back to your raw materials suppliers or out to your customers. A precaster that’s been in business for 50 years and thinks it knows what its governmental customers want, for example, may be surprised that those desires have changed over the last decade. A simple customer survey sent via mail, or a face-to-face meeting between a company manager and a buyer, could reveal areas where the precaster could be selling more to its existing client base.
The same meeting could reveal areas where the manufacturer could afford to cut back and still meet or exceed customer requirements. “Through a simple investigation, you may find out that you’re adding features to your products that the customer doesn’t even need or that no longer add value,” says Strain, who points to product finishes as a logical starting point for this cost-cutting exercise. “Whenever you can reduce or eliminate something that a customer no longer values, you save both money and time.”
When exploring customer preferences, you’ll also uncover products and services that your customers want – but that you’re not providing to them. The precaster that works with general contractors, for example, may find out that their customers want to outsource as many services as possible to avoid spending too much time on site. “We’re seeing an increasing number of contractors asking their suppliers to do more,” says Strain. “That presents significant opportunity for the precaster that takes the time to figure out the customer’s current needs and finds ways to fulfill them.”
Those moves may seem obvious and minor, but they can add up to significant sales increases when compounded over multiple customers. And while this move isn’t necessarily a cost-cutting strategy, it does go a long way in helping precasters maximize their total supply chains. “This is just one more way that precasters can extract more from the total supply chain, as opposed to just looking for ways to save money when buying raw materials.”
Companies looking to cut supply chain costs and improve efficiencies should start by doing a thorough spend analysis. This will help determine where the dollars are going and help pinpoint areas of improvement, says Cecil Bozarth, professor of operations and supply chain management at North Carolina State University’s Jenkins Graduate School of Management in Raleigh.
Defined as a comprehensive view of commodity spending and supplier relationships, a spend analysis allows the precaster to look closely at procurement information and determine expenditures according to commodities, products, services and suppliers. When completed, the spend analysis should answer the following questions: What are we really spending? With whom are we spending this sum? Are we getting what’s been promised in exchange for these expenditures?
To conduct a spend analysis, the company collects, classifies and analyzes the expenditure data with the goal of reducing procurement costs, improving efficiency and monitoring compliance. Bozarth gives the example of a precaster that spends 50% of its budget on raw materials that are used to manufacture its products. By figuring out where the money is going (who is getting it, what the manufacturer is getting in return, etc.), the precaster may be able to ferret out supplier consolidation opportunities or other ways to save money on raw materials procurement.
“If 30% of your raw materials budget goes to two major suppliers, and if the rest is spent with 20 or 30 other vendors, then there could be significant opportunity to consolidate some of that business and get volume discounts and other perks,” explains Bozarth, who urges precasters to look beyond just materials and to also examine services and other intangibles. “Dive down into the big cost categories and see where you can be saving money. You may be surprised by what you find.”
The spend analysis shouldn’t be a one-time effort, according to Bozarth, who encourages firms to make a habit of examining spending from various different angles, and on a regular basis (in good times and in challenging times). “If you haven’t been doing practical planning on a regular cycle, this is the time to start,” says Bozarth. He sees technology as a facilitator during this process and points to the myriad business, accounting and supply chain management software packages (available in both purchase-and-install and hosted or web-based setups) as viable tools for precasters.
Strain concurs, and says that even small steps – like eliminating excessive document exchange and paperwork generation with a document management system – can go a long way in helping manufacturers save money over time. “Once you get into using lean and other cost-reduction strategies, you’ll find all sorts of opportunities to improve,” says Strain.
And with economic growth expected to remain flat over the next few years, Strain says now is the time to seek out and exploit those opportunities. Get your employees on board with the process, he advises, by creating a corporate culture that revolves around continuous improvements across the total supply chain. “Make it a mindset for your team,” he says, “and not just a one-time exercise that falls by the wayside after a few months.”
The word “lean” is thrown around a lot in manufacturing circles, where the ultimate goal is to make the best possible product at the lowest possible cost. Getting there isn’t always easy, but according to the Lean Institute there are a few key principles that companies can follow to achieve that goal. Here’s the group’s five-step thought process for guiding the implementation of lean techniques:
1. Specify value from the standpoint of the end customer by product family.
2. Identify all the steps in the value stream for each product family, eliminating whenever possible those steps that do not create value.
3. Make the value-creating steps occur in tight sequence so the product will flow smoothly toward the customer.
4. As flow is introduced, let customers pull value from the next upstream activity.
5. As value is specified, value streams are identified, wasted steps are removed, and flow and pull are introduced, begin the process again and continue it until a perfect value is created with no waste.
Paul Akers, president of woodworking products manufacturer FastCap in Bellingham, Wash., is a big proponent of lean and speaks often on the topic for diverse audiences. He says the precaster that’s looking to “lean out” its operations should start by examining how much more efficient it would be if the excess costs and processes were removed from its operations. Toyota and Harley-Davidson are just two of the big-name firms that have already done this and posted significant results from their efforts.
“The most basic principle of lean is the idea that there is waste in everything we do in life,” says Akers. He adds that there is also a series of steps within each process of everything we do, “and lean is all about taking those steps and reducing them to shorten the process.”
Once the steps are reduced, all that’s left behind is the value-added process. Kicking off a lean initiative needn’t be complex, nor does it have to involve your firm’s most intricate manufacturing processes. “Here at FastCap we started with one of our five restrooms,” Akers explains. “We overhauled it and created processes to handle the paper and soap replenishment, and other services that were traditionally taken care of manually.”
From there, FastCap took the model out onto the shop floor and asked employees to make their work areas “look like the restroom.” Employees caught on quickly and responded well to Akers’ “start small” approach. He says a similar strategy can be used in just about any manufacturing plant. “The key to success is to start small,” he says, “and to not even think about rolling out a lean initiative until you are 100% convinced that it’s right for your company.”
Bridget McCrea is a freelance writer who covers manufacturing, industry and technology. She is a winner of the Florida Magazine Association’s Gold Award for best trade/technical feature statewide.
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