Time is money" is an old adage, which most of us are familiar with. This quote is linked to Benjamin Franklin. The quote refers to the notion that time is valuable and money is wasted, when the time is not used productively. In fact, the message is so important for cost control purposes that CEOs, CFOs, FMs and other top management must paste this quote on to their work desk, as a polite daily reminder.
One of the main areas of cost reduction is through time reduction. Yes, ‘Time is money’ makes lot of sense in business world. We know about ‘future value’ and ‘present value’ of money. Time also plays an important role in cost control/ reduction techniques.
Doing things faster saves time and reduces cost. Let us discuss an example from real life. A global consumer products company that is engaged in the production and distribution of a broad spectrum of clothing, footwear and accessories at numerous factories in multiple countries, faced a serious problem of slow moving stocks. Designing, manufacturing and distributing the products took careful planning, large-scale production, and complex logistics — and it took time. If the company takes too much time to spot and respond to changing consumer preferences and manufacture the goods, they may not only miss sales opportunities but may find stuck with goods nobody wants.
After in-depth system analysis and brain storming sessions, it was evident that they should identify and apply methods and techniques to reduce the time taken for those finished goods to reach the market. Based on extensive deliberations with the Consultant, they targeted a 30%-50% reduction in order-to-delivery-to-sale cycle. After studying different options, they relied on a lean manufacturing initiative to help achieve the goal.
On successful implementation, the number of days from an initial request for a product to its delivery was slashed to 60 days (from 90 days). The improvement was possible due to the accumulation of gains in different areas, such as set up time, production time, packaging, delivery and transportation. Amongst others, the factories shifted from batch-and-queue processes to continuous flow operations.
The reduction of 30-days made a big difference. Inventories dropped 12% from a year earlier and efficiency of receivables improved i.e. while sales grew by 10%, the receivables increased by just 4%. In view of the drop in inventory and other operating efficiencies, the company was able to reduce the net debt by 10%. This resulted in interest cost savings. Moreover, it solved the original problem of stock obsolescence (i.e. sharp reduction in stock write offs), as the faster order-to-delivery-to-sale cycle ensured that the production was in line with the market demand. This also resulted in improved sales. The reduction in inventory levels also brought in its own cost savings in the form of lower holding costs.
All this involved a coordinated effort on the part of company and Consultant. Many CEOs, CFOs and FMs would love to provide relentless focus on cost containment and its management while strategizing various ways to reinvigorate their companies. However rather than leave one priority behind in favor of another, they will have to balance various responsibilities with the ability to provide analytical truths and points of view that help shape overall strategy. Managing the various conflicting goals is a real challenge. In such cases, a cost reduction consultant could act as the trusted advisor/ partner of the CEO/CFO in maintaining a cost conscious organization to ensure continued success.
For more info please email to ciby@prfmc.com
One of the main areas of cost reduction is through time reduction. Yes, ‘Time is money’ makes lot of sense in business world. We know about ‘future value’ and ‘present value’ of money. Time also plays an important role in cost control/ reduction techniques.
Doing things faster saves time and reduces cost. Let us discuss an example from real life. A global consumer products company that is engaged in the production and distribution of a broad spectrum of clothing, footwear and accessories at numerous factories in multiple countries, faced a serious problem of slow moving stocks. Designing, manufacturing and distributing the products took careful planning, large-scale production, and complex logistics — and it took time. If the company takes too much time to spot and respond to changing consumer preferences and manufacture the goods, they may not only miss sales opportunities but may find stuck with goods nobody wants.
After in-depth system analysis and brain storming sessions, it was evident that they should identify and apply methods and techniques to reduce the time taken for those finished goods to reach the market. Based on extensive deliberations with the Consultant, they targeted a 30%-50% reduction in order-to-delivery-to-sale cycle. After studying different options, they relied on a lean manufacturing initiative to help achieve the goal.
On successful implementation, the number of days from an initial request for a product to its delivery was slashed to 60 days (from 90 days). The improvement was possible due to the accumulation of gains in different areas, such as set up time, production time, packaging, delivery and transportation. Amongst others, the factories shifted from batch-and-queue processes to continuous flow operations.
The reduction of 30-days made a big difference. Inventories dropped 12% from a year earlier and efficiency of receivables improved i.e. while sales grew by 10%, the receivables increased by just 4%. In view of the drop in inventory and other operating efficiencies, the company was able to reduce the net debt by 10%. This resulted in interest cost savings. Moreover, it solved the original problem of stock obsolescence (i.e. sharp reduction in stock write offs), as the faster order-to-delivery-to-sale cycle ensured that the production was in line with the market demand. This also resulted in improved sales. The reduction in inventory levels also brought in its own cost savings in the form of lower holding costs.
All this involved a coordinated effort on the part of company and Consultant. Many CEOs, CFOs and FMs would love to provide relentless focus on cost containment and its management while strategizing various ways to reinvigorate their companies. However rather than leave one priority behind in favor of another, they will have to balance various responsibilities with the ability to provide analytical truths and points of view that help shape overall strategy. Managing the various conflicting goals is a real challenge. In such cases, a cost reduction consultant could act as the trusted advisor/ partner of the CEO/CFO in maintaining a cost conscious organization to ensure continued success.
For more info please email to ciby@prfmc.com
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