Taking Advantage of the Tortoise and the Hare: A Cost Reduction Fable

I've always heard that "slow and steady wins the race," but when you're facing tough economic times, sometimes the rules change. Slow and steady are still part of the plan, but sometimes you need to act swiftly, like removing a Band-Aid.

I've had lots to say about approaching cost reduction aggressively and intelligently. And that should be your #1 priority. However, to reach your more near-term supply chain goals, there are certain "cost buckets" that present significant cost reduction opportunities. So, I say, "You need to take advantage of the benefits of the tortoise as well the hare to win the race." And before I forget it, I'd like to thank my good friend and colleague Gene Tyndall for identifying these buckets.

Here are five of these cost buckets that companies need to pay close attention to today in order to improve bottom-line results in the near-term.

1) Inventories: Talk about "decisions, decisions," something I usually say comically when choosing between simple items like strawberry or chocolate ice cream, or which shirt to wear. However this is a little more serious.

Although you have forecasts to make decisions about the amount of inventory to purchase or have on hand, these forecasts are always subject to error. Always! With the right knowledge and tools, this number can be more exact, saving you money and headaches.

2) Total Delivered Cost: This measurement captures all the costs that go into the product to reach its purchase point at the end consumer. While many of you may be measuring total landed costs, which is based on costs of freight, duties, taxes, and logistics from the source to the company destination, the key measure for determining pricing and margins is total delivered cost.

3) The Supply Chain Network: Check out your locations of production and logistics facilities. Fixed capital, operations, taxes, leasing expense, selling general and administrative expense (SG&A), and others are driven by the network. By rationalizing your global network, you may find savings in the operations at each facility, the routing of product flows between facilities, and in the ownership and operational management of the facilities through outsourcing or contract manufacturing alternatives.

4) Logistics Outsourcing: If done effectively, logistics outsourcing can reduce costs dramatically and remove assets (as well as liabilities) from the balance sheet. You may also see continuous cost improvements, especially with service level agreements, which create close relationships between clients and service providers and are geared toward efficiency and productivity gains.

5) Supply Chain Technologies: Although it can be frustrating at times, technology is a wonderful thing. Companies usually find near-term savings in rapid implementations, better use of existing technologies, and greater alignment of the technology enablers to operations. I can't tell you how many times I have seen existing technologies not being fully utilized. I don't like to see companies throwing their money out the window like this. If you don't know the advantages, find someone who can help.

When the economy is down, I don't want to have to pick between being the tortoise or the hair. I'll take both, and I hope you do too. It takes a long-term strategic plan and a short-term tactical plan. And it's really about crossing the finish line and coming out on the other side not about who wins the race.

Go!Go!Go! But make sure your set your pace with near-term goals to have mini-successes along the way.

Tompkins Associates