Taking cost out of your operations is easy, if you know where to look. But taking cost out consistently year-after-year can be very challenging, especially if your Corporate Strategy focuses only on bottom-line productivity as an alternative to top-line sales growth.
I recall going through a particular difficult time during our annual productivity reviews. My staff could not satisfy the variable cost-out hurdles, resulting in tough meetings with upper management. For the previous three years we had exceeded the 7.5% productivity targets, but now we had hit the proverbial ‘wall’ and could not figure out how to reduce more labor out of our operations. We were left with presenting a measly 3% plan, which we knew would be met with significant pushback. This was a critical time for our factory because if we resorted to cutting the workforce just to meet a target number we would sacrifice all the gains in service level metrics that
we had been carefully cultivated. Instead, here’s how we tackled the problem:
I gathered my team… a group of hard-working, dedicated engineers who were eager to try new ideas. We discussed the situation at hand, and I explained that now was the time to get creative by putting on our “big hat”. What I meant was in the past we had always looked internally for cost-out ideas. We managed the labor force by minimizing overtime here and there, using Lean principles (such as Single Minute Exchange of Dies – SMED) to improve productivity, implementing energy savings, or working with the Sourcing group to find an alternate material. These were still vital concepts, but only focused on what we controlled within our four walls. Now we were at a cross-roads. We had to look outside for inspiration. I asked each member to visit at least one internal or external customer. The idea was to look beyond the factory to understand our customer’s pain-points, which we could then use to generate either a cost-out idea or fuel growth for more orders.
By doing this we identified several key ideas which broke the productivity barrier. We soon implemented several concepts which led to huge cost savings for our business, including:
- Leveraging our raw materials through vendor managed inventory agreements.
- Working with Engineering to simplify our products by consolidating hardware designs.
- Collaborating with the Logistics team to improve our delivery ‘milk runs’ while lowering expedite fees and,
- Beefing up our product packaging to cut Return Material Authorizations in half.
By poking our heads outside of our own little house, we managed to propel cost savings and growth over the next three years. Oh, and those annual productivity reviews were significantly smoother.