{"id":1660,"date":"2019-07-12T15:39:05","date_gmt":"2019-07-12T15:39:05","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/?p=1660"},"modified":"2021-08-12T09:20:17","modified_gmt":"2021-08-12T13:20:17","slug":"strategic-cost-reduction-for-supply-chain-success","status":"publish","type":"post","link":"https:\/\/www.certitrek.com\/nlpa\/blog\/strategic-cost-reduction-for-supply-chain-success\/","title":{"rendered":"Strategic Cost Reduction for Supply Chain Success"},"content":{"rendered":"

Strategic Cost Reduction for Supply Chain Success \u2013 Reduce Spend, Risks & Cost<\/strong><\/p>\n

The are many avenues to realizing cost reduction, including the traditional areas of price, delivery, quality, warranty, and payment terms. In this blog, we will explore many other avenues for cost reduction realization. We will examine the methodology and benefits of a big picture, strategic systems thinking the approach to cost reduction. This dynamic approach requires the application of a number of tools, cross function acumen, and thought processes. The required thought processes are anchored in understanding or at least striving to comprehend one\u2019s business and operational landscapes. Yet the underpinning is the convergence of vision, purpose, technical, interpersonal, and strategic alignment.<\/p>\n

A relentless focus on value and value creation should be the focal point of all operational, supply chain, and procurement philosophies. In the Body of Knowledge of this blog, 5 critical domains of Cost Reduction are mentioned and 4 will be the points of reference.<\/p>\n

The Critical Domains of Strategic\u00a0Cost Reduction for Supply Chain<\/a>\u00a0Success are:<\/strong><\/p>\n

1. Rationalization of Customers | Supply Chains
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\nMaking future decisions to continue to serve particular customer segments or not is a huge opportunity for cost reduction. Similarly, decisions around choosing one supply chain methodology versus another can provide significant\u00a0cost reduction opportunities<\/strong>. Measuring the Total Cost to Serve Customers of Supply Chain types provides an impetus for such analysis. Total Cost to Serve is the assessment of the cost of servicing customers at the product and customer levels.<\/p>\n

Table 1, Total Cost to Serve Matrix, for Customer Rationalization<\/p>\n

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From the above Total Cost to Serve Matrix we notice that Customer A contributes less revenue but is more profitable because of lower planned and unplanned costs. Each of the planned and unplanned items is cost reduction opportunity<\/strong>. The same framework can be leveraged to determine the Total Cost to Serve by Supply Chain Type. We are assuming that both are customers in a C2C environment.<\/p>\n

The key objective is for organizations to configure their systems to deliver the appropriate service levels for their customers and to determine the degree of value customers represent<\/p>\n

2. Product Analysis<\/strong><\/p>\n

This is the assessment of the profile of products and services to identify areas for improvement. Quality Function Deployment is a methodology that can be leveraged to probe for\u00a0cost reduction opportunities<\/strong>\u00a0in existing products and to build new products with profitable cost structures. Quality Function Deployment (QFD) also known as House of Quality is a methodology to translate Prioritized Customer Requirements (the \u201cWhat\u2019s\u201d) into Prioritized Design, and Production Parameters (the \u201cHow\u2019s\u201d). QFD aides in the organization and documentation of product and service design thought processes to ensure no critical elements are left out.<\/p>\n

Some notable benefits of QFD<\/em>\u00a0are up to a 50% Reduction in Time to Market, a significant reduction in costly late-stage re-design and re-engineering, and reduction of the 6 Big Losses in business.<\/p>\n

Table 2, QFD, House of Quality Matrix<\/p>\n

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The above House of Quality Matrix was constructed by a team which comprised of a Continuous Improvement Engineer, General Manager, Procurement Manager, and Production Manager. The matrix prioritizing product design based on critical customer requirements and the actions that must be taken to realize these requirements. The matrix also facilitates benchmarking against competitor products<\/p>\n

The idea is not to over or under engineer products and services. If current product designs focus on features that are not required by customers, they should be eliminated. Also, QFD enables the effective allocation of design budgets and prevents overspending. Another methodology for\u00a0Strategic Cost Reduction<\/strong>\u00a0is Product Portfolio Management. In this methodology, existing and new products are assessed against critical business and customer criteria referred to as Strategic Buckets. Decisions are then made to eliminate or continue existing products and launch or not launch new products. This can be a major source of cost avoidance and cost and risk reduction.<\/p>\n

Table 3, Product Portfolio Management Matrix<\/p>\n

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Products B, L, H, and E should never be launched, and this action will result in cost avoidance. Products Scoring less than 90 should be put on hold and re-engineered until they score 90 or above, before being launched<\/p>\n

3. Process Analysis and Improvement<\/strong><\/p>\n

This is the study of process elements to identify\u00a0cost reduction opportunities<\/strong>. In this activity, steps that do not add value are quantified and documented. These non-value add elements are usually from the domains of what is known as the 8 Deadly Wastes in Business, which are captured in the Total Cost to Serve Matrix or the Hidden Factory. Value Stream Process Mapping is one of the most effective ways to detect 7 of the Deadly Wastes<\/p>\n

Table 4, Cost Reduction and Process Improvement Opportunities from Waste Reduction<\/p>\n

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The above table is a framework of Cost Reduction via the Hidden Factory or 8 Daly Wastes.<\/p>\n<\/div>\n

NLPA has identified 29 areas for Cost Reduction via the Hidden Factory<\/p>\n

Processes must be improved to increase:<\/strong><\/p>\n