Want to Cut Your Spend! Take A Walk!

Rust and Dust

And here’s my favorite, no doubt a major contributor to our current problem of unplugged, rusted out, patchwork ERP systems.  Samelson warns us about unrealistic manufacturing schedules in the MRP system.  “It happens when you have multiple people trying to use the same limited resources.  They'll drive materials in so that materials shortages can't stop production, but they're all scheduling a constrained resource so the parts just sit.  This can also be caused by out-of-control sales commitments or customer service people jockeying for position for their customers.”  Wow, does that actually happen in the real world?    But who can answer that loaded question, because without great spend management and analytics, not every action has a direct, trackable consequence.  Hmmmm.

Another clue for excess spend hunters… dust.  That’s right, dust.  “Look for dusty boxes, period, in the stockroom.” he recommends.    “If materials are sitting around long enough to gather dust, there's something wrong with the way they are being brought in.  Even in those cases where it made economic sense to buy a large lot of parts, dusty boxes indicate lack of activity.  If you see dusty boxes on the main thoroughfare of your stockroom, you have slow-moving material interfering with the efficient operation of the stockroom.  Consolidate them and move them someplace away from the action - or get rid of them.”  Where stockrooms have been replaced by staging areas or lineside storage, same dust dictum applies. 

Can part numbering schemes “lose” parts and drive up your spend?

One last recommendation from Samelson that caused me to stop and think about part numbering schemes, especially random vs. derived part numbers at the heart of the part master file. “Working at smaller operations, I observed that it was perfectly understandable to start out storing parts in part-number sequence.  But if the operation grows very much, that becomes completely inappropriate.  It seems like this is very much like the ‘how to boil a frog’ story.  People just don't notice that things are getting out of control because they're not using random storage.  At one company, people would force additional containers of a part number into position when there really wasn't any room left.  Other containers would get shoved to the shelf behind.  Parts would ‘wander’ up and down the length of the shelving, and of course they could never be found when they were needed.  So we'd buy more - and then have to write off the "lost" parts when they were found again!” 

It’s really easy to get seduced by a particular idea or tool, whether it is JIT or lean or SPC or Lean Six Sigma, and forget that they are all just tools, they are not the goal.  The goal is profits, or lower costs, or improved productivity – and a good supply chain or materials manager will evaluate how various tools can be applied to achieve the goal.

Target Costs, Should Costs, and Actual Costs

So much for the obvious, but what about how data can be used to show us spend patterns?  If it’s true that companies could easily cut their spend 20 – 30%, it’s equally true that they don’t know the true cost of at least that much of their spend.  I learned from watching Honda and its suppliers work over their spend that this can be a labor intensive exercise, and it’s true that most companies don’t have IT in place to tell them accurately and in sufficient detail what their products and parts really cost to make – not the negotiated supplier price, but the actual calculated cost.  Some companies have developed great history capturing what products cost at various stages of the life cycle, and a few really adept companies have on-line resources that allow engineers and buyers to derive target or should costs.  But most companies don’t have access to actual costs until well  after products have shipped.  It shouldn’t be that way, and with good category and spend management in place, actual costs get clearer. 

One last caution about the power of spend management.  When your company works hard at spend reduction by either working with suppliers, or changing specifications, even just shopping around, good spend management practice dictates that the savings from your hard work shouldn’t get buried in next year’s new phone system, or some unrelated, untrackable boondoggle.  This is a toughie.  You’ll want to preserve the savings and move them to the bottom line, and that requires documentation.  If you save it, don’t spend it!