More on Cost Cutting…

Mike Arenth at Ariba, Inc wrote on 13 January

Faced with tightening finances, deflation and increased supply chain risk, business ranging from industrial manufacturing to high technology must find ways to ensure their financial health and, ultimately, their survival.

As the global financial crisis continues, executives are being asked what their bailout strategy is.  And for an increasing number, the answer is spend management – the discipline of controlling and optimizing the yield of every penny that you spend. 

Our thoughts…

Obviously, it makes sense to find ways to ensure your company’s financial health and, ultimately, its survival. 

The answer is ‘spend management’?  Isn’t that just fancy marketing jargon for cost cutting?

He does mention an interesting cost containment idea – Purchase contract management software to ensure that agreements [contracts] are negotiated and finalized according to company policy and then implemented and complied with quickly.

We see this as the Quote-to-Order process.  This is a very key process for most companies and we don’t know of any company using software to manage this process.  Some reasons manage contracts include:  negotiated agreement is recorded; the price quoted has been approved and you will make a profit on the deal; the details of the order have been approved; the order is entered; the customer has been involved in the process; etc.

I have said this before and it is still true…

No matter how bad the economy may seem now, there is light at the end of the tunnel – recessions and economic slowdowns do not last forever.  Good times will return.  Be prepared to hit the ground running when they do by taking action now.

The real question is – Are you prepared to hit the ground running?

Your Thoughts…

See previous blog for the background to this blog...

A response from Terry Schurter, Director of International Process and Performance Institute…

The opportunity here is far greater than even your insightful (but modest) article presents...
It all starts with one basic premise. Process improvement, when done right, Reduces Costs, Enhances Service (to the customer) and these two things combine to Increase Revenues.
Let's look at that again. Regardless of what our motivation is to improve our business processes, when we do so by eliminating the very causes of work (the right way to improve process), we eliminate internal hand-offs, non value-add work, and extraneous customer touch points that are such a huge source of customer dissatisfaction.

That means it costs less for us to do the work we normally do and there are fewer places for deviations to occur that negatively affect our customers.

So if we can decrease our costs and increase our customer satisfaction level by doing so - why wouldn't we do that? Why wouldn't we do that every place we can, regardless of economic conditions? Why wouldn't we do that when our competitors aren't doing it, and give ourselves significant competitive differentiation?

What the economic conditions should be telling us is that what we are investing in now is not what we should be investing in (its why we are here), that keeping our customers is more important now than ever, and that taking steps to improve our customers' satisfaction level while reducing our costs of doing business (at the same time, with the same actions/investment) is the one thing we can't afford not to do.

Or we can crush budgets, make everyone miserable with restrictive policies, trigger widespread frustration by dumping the burden on employees already over-worked, and moan and groan about the wicked trick fate has played on us.

Not a hard decision from where I'm sitting...

Our Thoughts…

I think that this response takes my ‘Ideas’ for cost cutting from last week to its logical conclusion.

I think this says it all and says it simply – ‘Process improvement, when done right, Reduces Costs, Enhances Service (to the customer) and these two things combine to Increase Revenues’.

Your Thoughts…

I would really like to see your thoughts on this topic.

More on Six Sigma & Efficiency…

During my research on Six Sigma, I discovered a written piece that I thought was informative. The author put forth 6 themes for Six Sigma and I will share them with you.

1. Genuinely focus on the customer [deliver customer value]
2. Manage with data and facts [not opinions and assumptions]
3. Processes are where the action is [focus on managing and improving processes]
4. Proactive management [define ambitious goals and review them frequently]
5. Boundary-less collaboration [break down barriers and improve teamwork]
6. Drive for perfection / Tolerance for failure [you will never get there if you don’t try]
   

Our Thoughts…

When your company is flying high, you don’t really have the time to focus on the basics [like delivering customer value] - You do have the time when sales are down.

Many companies have failed because they forgot about delivering customer value. As an example, Microsoft is hoping that Vista is going to deliver customer value - The difference between success and failure will be measured in $ Hundreds of Millions.

Processes are where the action is. Companies are made up of a bundle of processes and if you are looking to get lean [cut costs] then this is where you make it happen.

Throughout this decade, companies are looking anywhere in the world for the necessary resources to run their company. We see companies doing engineering in the US, manufacturing in China, assembly and test in Mexico. This kind of geographic company depends on the ability to collaborate in a boundary-less fashion.

When a company is in its hay-day, like Google is now, they are in the mode of driving for perfection with a tolerance for failure. When a company is in a downward cycle, like SGI, there is very little tolerance for failure. That tentativeness will not bring back a company to prominence.

Six Sigma is all about Efficiency. And, processes are where the action is.

Your Thoughts…

Has your company embraced any of these 6 themes? Have you uncovered other themes that you believe have made your company more Efficient?

Efficiency has been my topic for many of these ‘Ideas’ newsletters. Even though a company may not actually say their objectives for 2007 are Efficiency, its components [increased revenues and/or decreased costs] are always mentioned as candidates.

If your company is in manufacturing, you may be embracing Six Sigma principles to become more Efficient. The main thrust of Six Sigma is to reduce manufacturing defects [which will decrease costs]. And, half of the 6 steps to Six Sigma deal with process. They even have a couple of different 6 step processes to define and improve their processes [DMAIC & DMADV].

Our Thoughts…

Six Sigma is about Efficiency.

Since our focus is on defining and improving business processes [not just manufacturing processes], we have come up with a ‘process loop’ that is very similar to the Six Sigma DMAIC process.

The DMAIC process is: define, measure, analyze, improve and control the process.

We see the process of improving processes as a loop:

1. Define the process - Confirm the definition is correct by testing it, edit and retest, measure
2. Automate the process - Where can you automate? Where could you eliminate steps? etc.
3. Manage the process - Implement the solution and manage your processes
4. Integrate the process - Integrate your process with other processes/software where feasible
5. Monitor the process - Monitor the process against people changes, environment changes, etc.
6. Improve the process - Implement the improvements in the definition

The last step calls for you to edit your process to input the changes. The process loops from step 6 back to step 1. This should be an ongoing process.

Note: Most Six Sigma writings state that Zero defects is unachievable. However, these same writers recommend continuous process improvements. The Six Sigma Academy contends that ‘black belts’ can save companies $230k per project and they can complete 4 to 6 projects per year.

The savings are there - it is all about Efficiency.

Your Thoughts…

Has your company embraced process improvements? Have you uncovered strategies that you believe have made your company more Efficient?