KNOWHOW
Six
Big Ideas
I
n an economy experiencing the type of growth China has over the past decade, the primary focus of business becomes managing
growth and increasing market share. Best-practices are often sacrificed for expediency, resulting in extra cost and risk. Although
gross profit may be increasing, profit margins definitely are not. Eventually growth comes to an end, whether by competition or
economic conditions, and companies scramble for cost containment. This edition of ‘Supply Chain 101 - Back to the Basics.’ a regular
CHaINA column, outlines six non-capital intensive ideas you can consider to get control of your costs and quickly improve profitability.
1
- Align the Organization kanban container/lot sizes. Stress manufacturing processes to
In the frantic scramble to eliminate cost, one of the most reveal bottlenecks and islands of WIP. Partnering with suppliers
critical responsibilities of Senior Management is to map out a sus- will reduce RM and components. Start cycle counting. Ratio-
tainable strategic plan. But merely having a plan is not enough. nalize/optimize transportation networks and pipeline inventories.
Not only must it be understood throughout the entire organiza- Apply Lean ideas to DRP (Distribution Resource Planning).
tion, rewards mechanisms must be quickly installed to reinforce
it and ensure alignment throughout the value chain. Internal and 5
- Rationalize Customers
Perform a Pareto analysis on your customers based on net
external functional entities must be aware of their respective roles profitability. Total cost-to-serve must be thoughtfully allocated
and how each relates to the others. Communication should be in an equitable manner. A careful analysis of ‘C’ customers will
copious and corrective action swift and precise. reveal net losers which should be shed from your customer port-
2
- Process Mapping folio: let your competitors deal with the high-maintenance, costly
W. Edwards Demming said, “A bad process will beat a good customers.
person every time”. The first step is to clearly understand the
desired end state. Then mapping a process can be as simple as 6
- Apply Lean Manufacturing Principles
The principles of Lean Manufacturing are universal. The first
diagramming an operation by observation; interviewing, no mat- step in any Lean initiative should be to know the customer and
ter how sincere, is never accurate. Often merely creating the dia- clearly and unequivocally understand what s/he values. This is
gram will reveal some wasted steps. The final step is to thought- the fulcrum of any profitable business transaction. Without it, you
fully compare the diagram with the desired end state, eliminate cannot know what is a value-add and what is waste.
superfluous steps and modify the process to close the gaps.
3
- Partner with Suppliers
Suppliers should be considered esteemed upstream part- Step 7
- Moving For
ward
Stephen R Covey calls it “Sharpen the Saw”.
ners of the value chain. Quickly renegotiate supplier contracts to Womak and Jones call it “Managing towards Perfection”. The
reflect the new economic realities. Offset IP risks with frequent Japanese call it ‘kaizen’. Total Quality Management calls it “Con-
visits, close relationships, collaborative forecasting and mutual tinuous Process Improvement”. Consultants refer to it as “Sus-
planning. Capture vendor’s loyalty by tying their success to yours. tainability”. Whatever you choose to call it, success in dynamic
New cost savings must be shared with upstream partners as you business environments requires continuous, relentless analysis
are both investing in mutual survival. and thoughtful, never-ending course correction.
4
- Manage Inventory
Think about inventory in new ways. Categorize inventory Chris R Deans CPA, CPIM has been in Supply Chain
based on its application then consider how to deal with entire
Management over 20 years. He has crafted SC strat-
categories. Review EOQ calculations based on the new economic
egy and managed large-scale operations for several
realities. Inventory is a function of time and information: cutting
Fortune 100 companies and FEMA. Currently per-
forming Lean consulting in Asia, Chris also teaches
lead times or getting more accurate information has a direct im-
Supply Chain Management for Webster University’s
pact in inventory balances. True kanban will slash WIP. Re-think EMBA program and is a published author.
52 MAY/JUNE 2009
www.chainaonline.com
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