LOGISTICS FIRM SEES SAVINGS IN SUPPLY CHAIN
By Lee Ann Flickinger
Managing Automation January 1998
In the ever-present struggle to control corporate costs, businesses are often forced to make difficult decisions about where to cut spending. Too often, companies feel that cutting labor costs is the best or only way to curb expenses. However, there is a better answer, according to ProAction LLC, (Chicago, IL), a global consulting firm specializing in supply chain solutions.
Labor costs for most manufacturing companies represent approximately 5% to 15% of the overall cost of doing business, as opposed to the 50% to 70% of costs relating to the purchase of materials and distribution of finished goods, says John McKay, a partner with ProAction. Yet, many companies still cling to labor reduction as a means of cutting business costs rather than looking at long-term, operational based supply chain solutions. Companies can reduce costs and increase profits more substantially than labor cuts would allow, while maintaining high levels of productivity which can often be lost through excessive personnel depletion. Executives can find a quick fix by laying off employees, but that’s all it is, continues McKay.
In today’s global environment, often with extended supply chains, cross-functional understanding and communications are critical to achieving focused purchasing and distribution solutions. "Functions such as distribution cannot operate in a vacuum," says McKay. "If true cost savings are to be achieved, it is essential that all business functions such as finance, marketing, purchasing, logistics, ad top management work together. There must be a thorough understanding of company strategies and risk management by all functions within the organization."
Cutting costs through long-term logistics solutions requires more in-depth strategic planning than downsizing; however, efficient, integrated supply-chain management results in significant long-term benefits not achieved through downsizing. "When we work with clients to help them define their best areas for cost-cutting and increased productivity, we focus on purchasing and distribution," says McKay. "Then we help implement cross-functional agreements and alliances with third-party carriers and vendors."
These improvements require a close study of the entire supply chain study of the entire supply chain, starting with the customer and extending backward. Reduced costs, lower inventory levels, and improved utilization will all produce sustainable savings, something that cannot be gained simply through downsizing.
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