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Cost Reduction Essential To Competition

Dec. 8, 2005
A global look at costs gives the big picture and a big advantage.

Can effective supply-chain management help deliver substantial cost reductions year over year while continuing to achieve substantial improvements in cash-to-cash cycle time and customer satisfaction?

While these objectives can sometimes seem mutually exclusive, at Lexmark, the answer is yes.

We make and sell printers and printing solutions for the home and office markets. Ours is a hyper-competitive industry, and the ability to significantly reduce costs is essential to being competitive.

Donna Covington, vice president/customer services, Lexmark International Inc.Over the past four years, we have targeted a significant reduction in both direct and indirect costs each year and have achieved hundreds of millions of dollars in annual savings, delivering greater value for both our customers and our shareholders.

Three important factors have helped us to achieve our cost reduction goals: creating deeper relationships with fewer suppliers, having a strong organizational structure that helps us get control of costs more quickly and, finally, a relentless focus on execution.

When we look at costs, we look at them on a global basis, not just by division or geography. This gives us the big picture and the scale with which to drive work to have the most impact.

In 2001, we strengthened an already strong focus on cost reduction. We began in the logistics area, where it quickly became clear that we were working with too many suppliers. We responded by reducing the number of suppliers, and by creating win-win situations as we did so.

Win-wins mean a greater share of our business for the suppliers remaining. And this, in turn, allows them to achieve efficiencies of scale and to win bids for which they may not have been competitive in the past.

Having fewer suppliers also means that we have more clout with those with whom we do business. This translates into tangible savings, but it also has other benefits. Our suppliers get to know us better. They understand our business better. And they are better partners, allowing us to work together to jointly achieve operational productivity improvements.

Lexmark International Inc.
At A Glance
Another important key to our success in reducing costs year-over-year has been our organizational structure, which brings IT, purchasing, logistics and supply chain all under one roof.

These organizations all are part of my team, giving us the ability to both see and quickly influence all of the major drivers of direct and indirect costs.

Together, we view our jobs as driving change and driving continuous improvement.

In the end, however, achieving and sustaining cost reductions come down to a matter of execution.

Executing on a consistent and sustained basis requires commitment, a focus on metrics, and the undivided attention of management across the organization.

Lowering the cost of doing business is an imperative in our industry, but it is not enough. The true measure of effective supply-chain management is the ability to simultaneously reduce costs while also delivering improvements in cash-to-cash cycle time and in customer satisfaction.

In addition to the substantial cost reductions Lexmark has achieved, we have delivered a 45% reduction in our cash cycle over the past four years while continuing to improve customer satisfaction.

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