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Encouraging Each Other

The Bane Called Cost Cutting!

On a simple note, companies can be classified into two categories, namely, good or bad. Good companies are proactive, bad companies are reactive. One builds muscles, while the other builds fat!

Recession or no recession, good companies who have focused on cutting fat & strengthening their muscles (read as internal processes). This they do by sustaining a structured program focused on building operational excellence.

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On the other hand, reactive companies are left clueless in dealing with the slow down. The general tendency is to react to the ever changing environment. However, being reactive will be less helpful than being responsive. If any company which is stock rich and fat (instead of being fit), it losses the ability of responding and in turn compulsorily has to react to the changing markets. This dynamic behavior can be attributed to the amount of stocks lying in the supply chain.

Essential point to appreciate here is that companies don’t compete but the supply chains do. It was found during the slowdowns in the past, that all those manufacturing companies, who had over the years worked on, leaning their supply chains, survived or emerged stronger. They were capable of being flexible with delivery times, batch quantities as they were lean and nimble. Interestingly, higher the amount of inventory in the supply chain, lesser responsive the companies are.

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In contrast, manufacturing companies that had not worked on LEANing their supply chain, witnessed more intense problems. During the tough times they had to drive immediate change in the prices and orders deliveries, which inevitably forced the companies to hastily alter the manufacturing and supply chain practices.
Those companies which managed to adapt to the change survived. Operational Excellence (OE) is one of the cornerstones to Organizational Success and Transformation.

OE ensures the basic stability of the working where the health of machines, continuous flow of material, short throughput time and excellent quality ratio are the parameters that determine the competitiveness of the organization as well as decide customer satisfaction. Needless to say, customer is king and it is essential to heighten his/ her satisfaction levels to delight stage to survive in the market.

The strategic parking position of the inventory decides the responsiveness of the supply chain. Now, to maintain optimum inventory at the upstream levels is the key. If the inventory is upstream that is at the raw material form (towards supplier end) is good. Best would be just in time! Concepts of producing to takt time (customer demand rate) and shortest throughput times (time to manufacture) are not mere concepts there but real requirement.

Readers will appreciate that concept of Just in Time (JIT) is very glitzy. However, to reach the stage of Leanness parameters quoted earlier should be considered. And one can reach this destination of LEAN by a structured program for transformation. It is known by different names; some call it TPS (Toyota Production System), others WCM (World Class Manufacturing), some call it LEAN – all world class companies have different names for the structure. But as it is said, ‘All roads lead to Rome.’ All systems lead to one destination of world class performance.

And, at the cost of repetition, I would like to mention that world class performance was necessary just to survive the storm of the situation. Many organizations resorted to cost cutting initiatives and in turn cut the muscles and not the waste. What we intend to say is rather than attacking the muscles, one should hit the fat – the waste in the system by cost management and not cost cutting.

Identification of bad actors quickly is important and cost – benefit and time – benefit analysis of the problem solution holds key. One should start from the low hanging fruits and keep moving towards tougher targets. Now is not the time to get lost in semantics, one has to identify where the value is lost, identifying their causes and rapidly acting to fix them. Problem solving capability at all levels is vital for the above mentioned points. If we relate this further to the culture of the organization, it should be conducive to highlight problems which lead to improving the current situation.

To conclude, I would like to quote Benjamin Franklin. As he rightly said “Watch the little things; a small leak will sink a great ship!” So, watch out for the waste and sail smoothly even in stormy weather.

5 COMMENTS

  1. Ranjit Jatar
    Reply

    Wise companies are proactive. They create a burning platform even when there is no need for one. For 25 years Bajaj Auto had no competition. They could have slept, allowed prices to go up and not invested in quality control. But by desiring high quality at a time when the market monopoly could have done without it, they prepared for liberalisation. I think every company must adopt Lean solutions as the article rightly says. Always have a list of Opportunities to farm and Risks to be mitigated. If thats always the approach, it will help weather environmental storms which sometimes come unannounced in this global world.

  2. John
    Reply

    You’ve managed a first class post

  3. Kun
    Reply

    A minute saved is a minute earned, and this saved hours!

  4. Faber Admin
    Reply

    Thank you for your feedback.

  5. Manish Prajapati
    Reply

    Very well said….

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