Consider These Innovative Ways to Cut Your Organization's Expenses
By Patricia E. Moody

Think you've squeezed that last nickel out of your spend all the usual ways? You've consolidated vendors, negotiated discounts for on-time payments, even considered buying a consortium for your heavy hitters? Well, don't make the mistake of thinking you've reached the limit of what you can save. The extended enterprise is an endless network of un-mined savings opportunities.

We created a blog to collect savings ideas, and we were avalanched with ideas from industry leaders and unknowns, everywhere from auto suppliers and aircraft, hotels, electronics, cell phones, to the biggest energy companies in the world, metals recycling, even specialty shippers. It was overwhelming - it took three weeks to dig out. We deleted the spam, condensed the long suggestions, and categorized into MRO, transportation/logistics, packaging, basic kaizen stuff and even health care/benefits ideas.

We "planted" the blog suggestions in a business novella called The Big Squeeze, and posted each one at the back of the book. Here are a few of the goodies:

Cash, The Gift That Keeps on Giving!

Mike Gray, Supply Chain Evangelist at Dell, believes "it's all about cash. That's why you do supply chain." He offers innovative approaches to managing cash conversion focused on three sources - inventory, receivables and payables. Now we all know that we've worked inventory to death in the last 15 years of lean crusades - in some cases, our well-intentioned efforts border on corporate anorexia. In North America, for example, where 5000 miles, three or four climates, and a series of big disasters hit every year, inventory might not be all bad!

But there is money in receivables and payables. Offer incentives for early payment and you raise your receivables; hold off on payables, and bingo, same effect. "If you want to cut 10% out of your business right away," Gray recommends, "extend payables by ten days and see what happens, or reduce your inventory, or do both. Not only will you save your enterprise cash today, it's the gift that keeps on giving!"

George Bordon, Vice President of Procurement and Supply Management at Clarke American, a producer of checks and other related products for financial institutions, recalls that 7 years ago Clarke had few procurement processes. Gradually, the company geared up with category management, supplier consolidation, scorecards, a consortium and some supplier development - in total these efforts yielded 19% of annual spend. Not bad for beginners, but after 3 years Bordon noticed a plateau, "the low and even medium-hanging fruit had been picked."

Bordon's team widened their vision to draw suppliers in earlier on new products and service development. They worked on customer satisfaction, adopted the Baldrige quality framework and communicated more intensively. After five years, the plateau had segued into 24.9% savings! "But," says Bordon, "we still had not reached the rate of savings capture seen in the early years." So the company ratcheted up the focus with engagement workshops for suppliers and key company project teams, plus a supplier recognition program. Clarke picked up another 3.7% savings.

Next steps? The team is taking a hard look at logistics, and more long-term arrangements with suppliers. Bordon says "we're on track to deliver another 5.2% savings in year 7, and to deploy new product offerings with our suppliers that will drive significant additional revenue and profit."

The Half Million Dollar Glove Story

Here's a classic quick savings story to help your team get back into the savings mode. John Deere's fifteen North American plants purchased in one twelve-month period over 424 different SKUs of gloves totaling $1.4 million. That's over 424 different part numbers for a planner to track, schedule, receive, pay for and occasionally expedite.

Supply Management suspected that there was cash to be recaptured in MRO, so they assigned a summer intern to dig the data. There was no central data base that would provide all the answers - what items were purchased from which suppliers, and even how much they cost over the life of many purchase orders. But the intern was persistent and creative - she found that by talking with key suppliers, as well as digging through accounts payable files, she was able to construct a good image of Deere's MRO spend.

Invoices for one item in the thick, yellowed accounts payable file attracted her attention - gloves. Every order covered a different part number - different sizes, materials, linings, palm configurations, colors. And the prices ranged from $6.00 per pair to over $7.50 for the same glove! Hmmm... A discrete call to the supplier revealed an even more interesting fact - the same welding glove that Deere bought for $7.50 was also purchased by a big yellow competitor for $1.50. Plus Big Yellow washed and sent the gloves out to the line for other uses after welding, while Deere operators ran to the stockroom for a fresh pair after each and every use!

Deere planners realized that their $7.50 custom solution was overkill, cash thrown into the trash at the end of every shift. Planners came up with a simplified solution - they estimated that instead of 424 different SKUs, Deere production could easily "make do" with only 25 varieties for an immediate savings opportunity of 35%, or about one half million of the $1.4 million glove spend!

Commercial Metals Company

Ellen Lasser is vice president of strategic sourcing for the Recycling Division of Commercial Metals Company, a Fortune 500 company based in Texas. "We buy metals from manufacturers, scrap, demolition, and process it, bale it or put it through shredders. My experience," says Lasser, "is that the savings are where you least expect it. You might think, 'We're going to combine all our spend, and buy all our forklifts from one place, and get big savings.' But the truth is you aren't going to get huge savings - they are already cut to the bone, but there are tons of opportunity in the little areas."

Take for instance the big mobile shears that chop up metal so it can be baled. Shears use blades. Lasser consolidated, went out for bid, and found one good vendor that yielded 20% savings.

Uniforms proved to be another huge opportunity. CMC has 12,000 employees worldwide, 9,000 in the US. "Not only were we using every company that made uniforms in each location, but we also had a huge array of uniforms. Some people had the very least expensive, some were dressed in all different colors; some divisions had very fancy uniforms." Lasser put a team together and created a uniform policy. CMC now has one vendor for five basic uniforms, for another 20% savings!

Another area to look for savings involves trains, ships and planes. Logistics represent nearly $1 trillion worth of costs every year. Transportation/logistics, packaging and distribution are neglected functions relegated to areas we don't understand and would prefer not to manage. But with so much material moving globally, especially in and out of China, it makes sense to take a second, or even a third look, at all the potential profits being spent to keep trains, ships and planes in constant motion.

When the blog entries started coming in, we were delighted to see the value of transportation/logistics and distribution underscored. For small and medium-sized businesses, manufacturing and purchasing alike, these areas offer great untouched opportunities.

Blog examples from the book, The Big Squeeze, illustrate the opportunities to achieve savings.

• Milk runs. [Such] runs save transportation money and build more consistency into your supply network. If you are a small company, consider buddying up -consolidating - with another small company with similar needs, and the two of you will save money.
• Keep that driver moving. Carriers want to do business with "easier or friendly freight"-easy delivery, easier pickups that don't tie up the driver and no last minute changes. Freeing up a driver's time is paramount.
• Electronic interchange. Only do business with providers who are reliable and provide electronic interchange. When you tender a load to them, do they accept it electronically? Do they follow through on that commitment and then provide status [reports] along the life cycle? Do they report once the shipment has been delivered in a timely way?
• Drop-trailer. Another money-saving solution is the drop-trailer program enabling the driver to come in, pick up a preloaded trailer, and move on.
• Order picking. Pickers spend more time traveling, whether walking or riding a vehicle, going up or down than they spend doing everything else combined, including handling products, referring to paperwork, using a computer and scanning. So if you're going to do one specific thing in your distribution center to reduce your costs, attack order pickers' travel.
• Packaging. You can cut transportation costs in half if you make the package half the size.
• Substitute plastic for cardboard. Cardboard is not a world-class material! Have suppliers use plastic totes for transporting inside the plant. Cardboard is expensive, and it is the number one cause of dust and some quality issues in plants. The initial investment for plastic will pay for itself.

Patricia E. Moody is a writer and management consultant in Boston. Visit her on the Web at www.patriciaemoody.com, or click here to find out more about her book, The Big Squeeze.

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