Task 5 Cost Reduction Initiatives

The suggestions in this category focus on the type of cost to be reduced. So the initiatives here are overlapping. For example, the cost of quality initiative will reduce personnel cost if less rework is performed. It will also reduce material cost to the extent supplier quality improvement increases yields in the supply chain. 

Chapter 24 pointed to the root causes of unnecessary cost. Chapters 25 through 29 describe five root causes and ways to deal with them. Approaches to addressing the root causes are often pursued as flavor of the month efforts. Table 31.2 shows some the techniques and the associated root causes. 

Personnel productivity Staff productivity plans tailored to the type of work done. 

Material cost reduction Action plans focused on material categories designed to reduce costs in this category. Can also include partnerships for the same purpose. 

Balance sheet improvement Action plans for improving working capital (inventory, receivables) and fixed asset categories (facilities and equipment). 

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Task 5, Removing Cost from the Supply Chain, has the longest time line. Normally, it can t be totally complete until systems changes are implemented. Certainly there is opportunity to reduce cost in most cases within the current systems environment. This is reflected by the shorter arrow, which shows a completed initiative in Phase 2. Also a cost reduction initiative may be based on a reconfiguration of physical locations — which usually requires a longer-term transition. 

What is new about supply chain management is the idea that it is a chain of multiple companies that delivers products and services, not chains of individual departments. To avoid one department or trading partner reducing its own costs at the expense of another, it is particularly important that cost reduction be a cross-functional and cross-company initiative. This discipline also addresses the way numbers are collected, allocated, and reported. So, Finance should be an important contributor to task execution. 

They could also be organized by solution type. Examples would be systems, production technology, or organization development and skills enhancement. Another alternative for sorting is by end result. Examples include cost reduction, cycle time reduction, quality improvement, or revenue enhancement. A "six sigma" program is an example of an end result approach. Another alternative set of initiatives might be our five tasks for SCM. 

Deliverables for this task are the most likely to look alike, at least structurally, from sphere to sphere. The subsequent initiatives, such as systems design or cost reduction, will vary greatly based on the activities in the sphere. But the process proposed here should produce similar sets of Phase 1 deliverables. 

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