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Are you ready for a recovery?

Innovators will enter into a journey toward operational excellence

by Howard Coleman

A recent Aberdeen Group study indicated that during this recession, more than 70% of distributors cut discretionary spending, 39% cut or deferred projects that required capital spending, and many distributors eliminated jobs or put employees on reduced hours.
So, as we enter 2011, some distributors may be concerned that they lag behind. If we have, in fact, entered a period of economic recovery, it will be critical to catch up with those that were able to make investments. We are entering another period of "Innovators" vs. "Followers."

So, what now?

• Are your process transaction and activity costs really under control? How much could your business improve if you could achieve double-digit savings that go directly to the bottom line?
• Are your people aligned with your goals and are they motivated?
• Are you technology focused, not for the sake of technology, but do you understand the operational improvements possible utilizing technology?

How you answered these questions could provide the impetus to embark on an operational excellence journey.

Operational excellence, simply defined, is a focus on three elements:

1) Process improvement – Organizing for continuous improvement and better resource utilization; focusing on adding value to customers (being innovative, and easier to do business with); standardizing the way you do things (front and back office); and increasing interoperability (and less friction) across your
company's operating locations

2) Organization - Assessing, understanding and focusing on your people's attitudes toward change, their motivations and the organizational commitment required to align the organization

3) Technology - Incorporating the appropriate technologies and infrastructure, applications and functionalities

Taken one at a time, innovators will be focused on:

• Additional incremental improvements that result in cost reduction. They will focus on driving cost out of the business throughout the total value stream, not just from attacking the low-hanging fruit or chopping more heads. Cost will always be a driver. Have you considered lean concepts? Have you sufficiently driven waste, time and unnecessary complexity out of your company's processes?

• Inventory investment and efficiency. This goes to the issue of improving cash flow and working capital. Traditionally, distributors have used inventory to buffer (think safety stock) against what you project to happen vs. what actually happens. Is enough attention being given to informed inventory replenishment decisions? Can you realistically sustain the same approach? The days of 2.5 to 4.0 inventory turns need not be part of the future. You must rationally drive inventory out of your supply chains and not accept results previously deemed acceptable. Think differently about how your supply chains operate. What are you doing to lower overall supply chain costs? Have you sufficiently considered a "pull replenishment model" vs. the old "push" model?

• Greater supplier collaboration. Revisit this with your supply partners. Focus on opportunities for mutual advantage. Look at the growing need for point-of-sale information and the growth of vendor-managed inventory (VMI) programs that have occurred.

• The number of SKUs you sell. In this low-growth, price-sensitive environment, suppliers need and want to drive more production efficiencies so you both can carry less inventory and sell more of a fewer number of SKUs. Cut your losers faster. Use tools such as GMROI and other velocity measures.

• Your distribution model/network. Is consolidation of DCs or hub locations in the picture? How frequently do you replenish branch locations and how well does it balance inventory with actual customer needs and the costs to replenish? Have you considered new routing schemes?

• DC assessment. A properly conducted and detailed DC assessment can provide new ideas. It can lead to improvements in layout, WMS configuration or other technology that can improve storage methods, product location/slotting techniques, etc.

• Measure and "dollarize" the results of your operational excellence efforts, as opposed to just evaluating perceptions. What's your mandate for measurement? How will you foster a culture that focuses on continuous improvement and the metrics that are customer focused and aligned with your overall business goals?

• Talent management and employee engagement. Make sure your employees are engaged and willing to take ownership for success. Stress employee coaching and performance development, ask about your employees' opinions and job satisfaction, and improve talent succession planning.

As we progress through this economic recovery, the followers will leave substantial potential gains on the table. The innovators will be positioned to reap the benefits of their operational excellence journey.

 

Howard Coleman is principal of management and consulting firm MCA Associates. Contact hcoleman@mcaassociates.com or (203) 732-0603, or www.mcaassociates.com.

This article originally appeared in the Jan./Feb. 2011 issue of Industrial Supply magazine. Copyright 2011, Direct Business Media.

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