So what’s the fascination with price?

Firstly, I do appreciate that all companies should, indeed must, look to minimise their cost of goods. However, in recent times I have witnessed an increasing focus by purchasing departments on price and price alone.
Much of this price focus is driven by Senior Management looking for “cost down”.
Most people will be aware of the expression “If all you have is a hammer, everything becomes a nail.” I would like to add another expression to the melt; –
“The Price is NOT the Cost”.
As a Consultant with an Engineering background, I working with businesses who are looking for cost savings. But what do those look like? What most companies think of as cost is infact price; that is the amount of money you pay for a given part or service.
In that situation, the statement to a supplier is “we want a price reduction”.
At best this is short-sighted. When you start talking about mission critical items it can lead to bigger issues.
The Fiat car company was brought to its knees when they got a ‘bargain’ on some Russian Steel in the ‘70s. This steel turned out to be more steal than steel! The steel rusted so quickly that some cars were crumbling after only 2 British winters and some even failed the UK MOT Test and were deemed scrap after only 3 years. Sales of Lancias which had predominantly been made using this steel collapsed and the division withdrew from the UK market, returning after more than 20 years but under the Chrysler banner.
What did this ‘bargain’ steel cost Fiat? – impossible to say but certainly loss of sales/reputation will run into billions of dollars
In the manufacturing arena, there are very few companies who use Total Cost of Ownership (TCO) when they evaluate a supplier.
Time and again I see companies saying to their suppliers “what if I buy a year’s worth”. Well that might be fine if the item is very low value and small so it takes up minimal warehouse space (and assuming it doesn’t degrade in any way). When you get into large expensive objects, why would you want to hold large quantities? You must find space (and warehousing isn’t cheap), you have to count it, keep it warm, move it, transact it and pay people to do all of this.
All of these things cost so what initially seemed cheap, by the time you add on all the extras proves more expensive than a more considered option. And then there is the effect that these ‘cheap’ goods have when they hit the shopfloor.
If the raw material is of poor quality you can inspect/sort/accept or reject it but you won’t replace what isn’t there (unless you want to rework the part(s) internally with all the costs that go with it). And what do you do with the scrap parts if they are low value and the supplier is on another continent? This is not the best way to run a business AND can rapidly escalate operating costs
So sometimes it is better to ask a different question:
• If we pay a little more, what more can you do for us?
• Can you help us make our relationship more effective?
• What ideas do you have?

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Marginal Gains – is this the new Lean or is it just another fad??

Matthew Syed -Black Box Thinking, could this be the next Lean? (probably not, but it’s a good start).

Books

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So when you say Lean, do you really mean L.A.M.E.??

Mark Graban is a friend of mine and a long time advocate and practitioner of Lean, in his blog article, he addresses some misconceptions with Lean.

I couldn’t agree more with his words so I will let him speak uncommented;

http://www.leanblog.org/2014/03/is-it-leans-fault-or-the-old-management-systems/?utm_content=buffer037d8&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

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Creating the Process from Pilot to Launch and Beyond

A case study from our M.D.’s early days in Production Management

It’s not all about machinery and processes..

Case Study L4B Chartex

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How green is your warehouse? – WHAT!!!!

I was emailed by a team from one of the London Boroughs inviting me to attend A 1-day high level conference on how to green your warehouse?

I replied to the email saying that they were really asking the wrong question.

I took a phone call a few minutes later by a confused lady asking what I meant..

Actually, it’s very simple, in a similar way to the ‘greenest’ car being the one that is already built, the greenest warehouse is the one that doesn’t exist!

So rather than having a meeting about turning out lights, making sure their roof was well insulated and recycling the rainwater to flush the toilets, how about a seminar that shows companies how to not have a warehouse in the first place?

If this resonates with you then do get in touch.

Lean 4 Business offer game changing strategies and tools which give their clients competitive advantage whatever market they operate in.  0845 108 3949

Please contact us with any comments on this article or to discuss how we can give your organisation competitive advantage.

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A study of the …

A study of the top 50 game changing innovations over a 100 year period showed that nearly 80% of those innovations were sparked by someone whose primary expertise was outside the field in which the innovation breakthrough took place.

http://www.digitalsparkmarketing.com/innovation/facts-on-innovation/

This quote is attributed to Dan Pink and has been quoted again and again over the years.

So the question is: What are you going to take from other people, industries, sectors to make a difference to your business?

Because the scary thing is that if you don’t, someone else will!

 

 

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Another article which shows that Lean works anywhere!

Once again, McKinsey have produced an article on Lean and its uses outside of car-making.

http://www.mckinsey.com/insights/operations/when_toyota_met_e-commerce_lean_at_amazon?cid=manufacturing-eml-alt-mkq-mck-oth-1402

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What’s your business worth?

Why did you start your business? – this is often a question asked by people of business owners.  However, there is a better one; When are you going to STOP your business?

By stop your business, we don’t mean just not turn up and shut up shop, but rather; what is your exit point?  And by that we mean when will your business be in such a position that you could either:-

a) Walk away and it would run itself

or

b) Sell it with some value attached beyond the value of any stock or fixtures & fittings.

So in order to judge what a business is worth, here are some criteria;

What are typical businesses of this type worth?

What is the multiple for the industry?

What is the market like for the product?  i.e. growing, shrinking

What are the follow-up products?

What is the turnover?

What is the stock holding?

How well structured is the company? –

What are future sales projected to be?

There are also intangibles which are, by their nature, less easily measured; these are the elusive ‘goodwill’ or other feel good things about the business

However, there also tangible things you can do which will increase the value you are likely to obtain when you exit;

  • Make sure your business is systemised and documented, you cannot sell something which you can’t write down.
  • Get everything out of your head (and preferably written down!!).  If the business won’t run without you, you don’t have a business, you have a job!
  • Make sure you have KPIs for your business.  These will vary according to your business but measuring things is another indicator that you are taking your business seriously!

So some things you can effect and some, like the economy, you can’t.  But if you do truly want to exit your business and maximise its value, then you should consider how many of the things you can effect you have got in place.

Reasons why people buy businesses:

  • The prospective buyer sees growth in the market and an opportunity to increase the company’s turnover
  • The buyer is looking for stable income/lifestyle
  • An investor is looking for growth prior to exiting

In any of these situations, the prospective buyer will pay more based on proof that these aims can be achieved.

So, to use the 5S acronym, Sort, Shine, Standardise, Systemise and prove it’s all sustainable (and preferably able to grow!).

Simple really!

If any of this resonates then do call us on 0845 108 3949 or have a look at http://www.lean4business.co.uk

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Lean and Green

Following on from Lean 4 Business’ previous postings about how Lean processes can also help with the green agenda, here is an article we agree with..
http://j.mp/1bhzXay

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Putting the spark back into High Voltage Manufacturing

An example of where our M.D. used his manufacturing knowledge to transform a niche business.

Case Study L4B AD1

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