Applications, strategy, and cost reduction
Roberto Michel, editor -- Manufacturing Business Technology, 12/1/2003 12:00:00 AM
One of the key findings of MSI's recently completed salary survey—detailed in this issue—is that manufacturing executives see the pressure to reduce costs as their top challenge. If the economy continues to improve, perhaps other priorities will emerge, but for now, getting to that next level of cost take-out is top of mind.
But what's the best route to further cost reduction? It's a vexing question because many manufacturers have implemented each major wave of applications software and made some gains, and executives are still under pressure to cut costs.
The answer will vary by company, but ultimately, business improvements are driven as much by strategy as by some newfangled application. This point was brought home recently when I had a chance to speak with Kurt Doelling, VP of supplier management and operations strategy at Sun Microsystems.
Sun is struggling to fend off not only its traditional high-end server rivals, but also vendors of PC-based servers. While it remains to be seen if Sun can regain momentum, it has had success in streamlining its supply chain over the last few years through what Doelling says is a mix of packaged applications, custom-developed portal capabilities, and strategy.
For instance, Sun uses FreeMarkets software to power its strategic sourcing initiative. Doelling says the program's competitive, Web-based bidding has cut "huge" costs on both stock components and semi-custom parts. What makes this strategy more than just a cost squeeze is that only qualified suppliers are invited to the sourcing events, says Doelling, and it's not a "winner take all" scenario. "It's more about adjusting the share that we give to suppliers," he says. "These tools also take time out of the negotiation process."
New strategies, says Doelling, include a merge-in-transit initiative in which server hardware is delivered direct to customer sites rather than being staged in a warehouse, cutting distribution costs. A related initiative, he adds, is a "merge-in-the-factory" program in which whole systems will be set up and tested in Sun's factories, then shipped to and reinstalled at customer sites. This will cut distribution costs, says Doelling, but more important, decrease deployment time in customer data centers by 90 percent while reducing early life failure.
To back up its initiatives, Sun has an ERP system from Oracle and planning software from Manugistics to ensure that the proper inventory will be on hand. But clearly, much of what Sun is doing to streamline its supply chain is about strategy, not software.
Executing strategies that reduce costs while better serving customers isn't easy. We're all reminded of this when, as consumers, we call one of those automated call centers with a complicated question, and get caught in menu hell.
Yet as tough as it is to hold down costs while better serving customers, it remains the overarching challenge today. The new levels of agility being attained by manufacturers will be key to meeting this ongoing challenge.
