Cost Cutting through Root Cause Analysis

WICMA - Magazine Feb 2015

I want things cheaper so when I bought this pair of jeans from a retail outlet I was gushing at the discount I got compared to a branded one which I had bought earlier. It is a different thing that the fitting was not right and the material felt rough. But I sidetracked those concerns considering the savings. However, after few rounds of wash, the stitching started getting frayed and the material stretched unevenly. In the end I was pretty upset that my great bargain deal was such a flop. Well, it was bound to be for obvious reasons!

Everyone wants everything cheaper these days but the best of the quality. How much cheaper? Honestly, most people don’t know the answer to this question so anything lesser than the price currently being quoted is great. Why don’t people know how much cheaper? Because they don’t have the capability to figure out the method to calculate or are too lazy to do the legwork.

This is a constant demand in our packaging business too. Customers want cheaper cartons while insisting that we stick to their quality requirement. Most purchasers consider this to be the easiest way of saving costs. There are quite a few reasons; one of them being priority of payment. Packing material suppliers are the last ones to be considered while scheduling payment. There is too much competition in this segment and the work is not rocket science hence, every supplier can be replaced easily (well most of the time).

But the chief reason is lack of hard work and analysis. If one really wants to save costs, they need to fundamentally change the product and processes not the 1 or 2% of the packaging cost. There are ample scope for improvements and waste reduction if the basic product itself is analyzed and redesigned. But this requires serious involvement and hard work. It requires time and resolve to conduct root cause analysis. There is need for data collection, analysis, testing and rechecking. Most people are hence content with reducing the packing material cost which is least hard work and creates the illusion of saving and becoming cost competitive! It is when more international biggies come into the market will these companies realize what is competitive edge?

Businesses do not understand that there are other ways of properly reducing packaging costs. One good idea is to put some serious brains into design and drawing specifications. The designer quite often simply copies an existing template and changes dimensions. If you ask why they need BS of 20 and not 15, rarely will you get a clear answer. Often the specifications are more than what is truly required which jacks up the price. Everyone wants to play safe by adding unnecessary buffer and to cover for shortcomings.

Another way is to focus on advance planning. Now the larger buyers want “just-in-time” since they do not know what they want and when. If a corrugator is given proper forecast of requirement then they can build up inventory to meet the delivery dates instead of stocking up for anything anytime. Inventory turns will be more and the carrying cost will be less.

Let us take an example of Company A and B.

Company A has random requirements and n-number of carton sizes designed and developed by people over a period of time. They are not following any forecast method to identify which type of cartons will be required when. When the item is ready or nearing completion, the carton suppliers are asked to deliver the cartons. At the time of seeking payment, Company A delays at random without any reason. Often they feel humiliated if the suppliers follow up for payment or show a laid back approach towards releasing payment. The adage – customer is king is often taken too literally by many buyers. But they forget that the kingdom prospers due to its many subjects and not just the king.

Company B has created a standardized set of cartons to pack all their items in atleast one of them. (This is what today’s E-commerce companies are practicing). They have a clear system of tracking which items are being ordered, manufactured and are at what stage of completion. There is a visibility of status in the process. This company also has a data stating how much time is needed to make one item and ship. Based on this, whenever an item goes into production, all the relevant suppliers are intimated of the same. This gives every supplier time to plan their production and delivery schedules. Company B also believes in sharing historical data, future plans and planning schedules on a regular basis with their suppliers. Taking a step forward, they also communicate the material receipt and payment processing dates creating good levels of transparency and timely information delivery.

It is obvious that the supplier of Company B is not going to stock too much inventory and buy as required. They will also supply as per the time schedule and have a fair idea of the payment cycle. Continuous procurement will also help the supplier to plan production at their end. Payment and order cycle reliability automatically will impact cost of production and price of the item. Company B will surely demand good quality at lower rates and get it too.

The reliability of timely payment trumps all the other options. If a supplier is assured of timely payment and the commitment is honored regularly, the offered rates will be automatically cheaper. However, no one sticks to the payment cycle, everyone delays and hence, somewhere there is a compromise in quality or buffering in costs.

How is China so competitive in the manufacturing sector? Cost cutting as a means to remain competitive is a shallow approach. There are larger economic factors at play which pushes up the price. Fuel costs, taxes, cost of operating a business, lack of infrastructure, the labor market all contribute to the increasing costs. If these are contained, automatically our products can become cheaper in the global arena. We need some serious root cause analysis and structured approach to cutting costs as an organization and not squeeze the ever dispensable packaging material supplier.

Though it can also be argued that these suppliers lack organized approach towards pricing, quality and need to work in a framework of specified price band like many paper mills supplying Kraft paper. Is there a scope for improvement amongst us corrugators?  

Create the Change YOU Want

An entire year has passed. What did I learn this year? Some things are really easy to do. Passing frivolous judgment is easy without being accountable. We all can sit on sofas in front of a 42 inch TV and scream at our cricketers or footballers on how they should have played the shot or passed the ball but the ones actually doing it out there are the real protagonists truly making a difference in the outcome – better or worse. During the Sydney seize there was a tweet about so many security teams and only one gunman and still they were unable to crack him in minutes. Such reckless comments are pitiful. I felt like tweeting back to the person – “what would you have done if you were in charge?” 

Barack Obama had said that “Change will not come if we wait for some other person or some other time. We are the ones we've been waiting for. We are the change that we seek.”  Incumbent Prime Minister Shri. Narendra Modi is the true manifestation of this quote and an inspiration. Let me be clear though that I am apolitical. Whatever inspiration I draw from this personality has got nothing to do with his ideology or political stand. He has demonstrated systematically why and how to enter a system, work hard and take the responsibility to change it. Due to his active involvement in politics, he has risen through the ranks and now become the Prime Minister of India. Today he is in a position to actually execute his plans and vision. It all comes down to choices. What we choose to do about a situation really matters. We all get different opportunities in life, what we create out of them makes the difference. We can either choose to sit on the fringes and make noise which no one will hear or get into the thick of affairs and make ourselves heard, seen and create the change we seek

We have strong examples closer to home. TSSIA’s selected office bearers and members have been fighting relentlessly against LBT and Octroi. The level of involvement and dedication is phenomenal. These are people who have chosen to join an association and to work towards creating a change that they desire. What made the difference? It is the decision to act and not just speak and forward messages. It is easy to advice and pass comments but difficult to create an outcome. We often build notions out of nothing and pass crazy remarks without going into the depth or intricacies of why it can or cannot be done. Many of us suffer from half knowledge but do little to improve our condition. In our country, we have a very hands-off approach in general. It does not work. Get your hands dirty, walk the talk, see where the shoe pinches and then work to remove those obstacles. 

About a year back we started facing huge challenges in our business. We were left with two options – to roll up our sleeves and plunge in to reverse the situation or lament about mistakes, the past, current circumstances and the environment. Basically blaming everything but not taking responsibility. However, good sense prevailed and we started facing the obstacles head on thus slowly bring about improvements. The journey is a long one but atleast we embarked upon it. We would often discuss about certain business processes which were not appropriate and should be changed. Today, we are at the center of managing the business bringing in systems and processes that we feel are more effective and yielding good results. We took action and we started creating the change. 

When I look at our business challenges and feel the pressure; I think of the dire opposition that Mr. Modi faced and then came into power with resounding majority. Lesson is – everything is doable once we resiliently move ahead setting aside doubts and insecurities. I realized that the change in our business could happen not when our employees, suppliers and buyers do their part but when we start acting, leading the way and creating a framework to bring forth an outcome of our choice. We have to be the originator, the instigator as no one else will.  

The year is about to change and we can look forward to a newer year of hopes and aspiration. It is time we stop being at the fringes and take the responsibility and toil to create change. Change in our life by starting to exercise, eating better, doing yoga, spending more time with the family.  Your doctor, lawyer or spouse and kids cannot make it happen – only YOU can.

It is tough to take a stand, to get involved and to work with a purpose. It is difficult and time consuming but nevertheless rewarding at the end. We end up gaining more confidence and drive to achieve even more or take up newer causes, motivate others to join in. We have to keep at it and never let our focus waver. At times the journey might seem lonely but who said change was easy. 

Have a wonderful year 2015 ahead with renewed hopes, vigor and resolve.

The secret of change is to focus all of your energy not on fighting the old, but on building the new. ~ Socrates