Online Exclusive: A Methodical Approach to Cost-Saving Initiatives

May 18, 2007
Today, a number of proven cost-saving strategies and projects are available to shippers of all sizes. These include but are not limited to the implementation

Today, a number of proven cost-saving strategies and projects are available to shippers of all sizes. These include but are not limited to the implementation of logistics management software and improved business practices, integration of FTL and LTL carriers, outsourcing to a third-party logistics provider, and converting to reusable shipping containers.

Why are some shippers more reluctant than others to invest in such initiatives to reduce costs? Perhaps because of uncertainties surrounding the selection and implementation of any new technology or process that erode confidence in a successful outcome. To increase the likelihood of achieving the targeted cost savings from such initiatives, shippers should follow these steps for each cost-saving project: operational assessment, implementation with the support of senior management, and follow through.

Conduct an Operational Assessment

Before starting a cost-savings project, perform an operational assessment to determine baseline metrics by which to measure successes and identify the biggest opportunity for improvement. The initial assessment should consider elements of your organization such as IT capabilities, personnel responsibilities, operating costs and budgets. This assessment is crucial since selection of the wrong solution or a failed implementation can be costly and poison the environment in which to introduce a better solution.

Next, estimate the costs of each project or process change, including personnel, time, money and impact on the existing organization. Then, estimate expected benefits to the organization and its customers and the time frame to realize the benefits. Last, prioritize the opportunities and develop business cases for those that are most promising.

For example, one of our clients in the pharmaceutical industry wished to install machine vision systems on its production equipment to validate the accuracy of date and lot codes on 100% of labels prior to shipment. Labels that contain incorrect information or are illegible can result in consumer backlash or FDA regulatory enforcement action.

Prior to the proposal of the project to management, we conducted a feasibility study to determine:

  • Potential cost of shipment of faulty labels
  • Potential for defects to elude machine vision inspection
  • Cost of hardware
  • Options to integrate machine vision equipment with plant floor and IT systems
  • Implementation and training timeline
  • Potential cost reduction due to fewer product returns or recalls and eliminated cost of intermittent manual inspection
  • Alternatives to the project.
Implement with Support of Senior Management

To improve the chances of achieving the targeted goals of a new technology or new way of doing things, shippers should only try to implement projects that have the full support of senior management. Company leaders have an understanding of the organizations' overall goals and budget, and must help select the cost-reduction opportunities with the most potential.

To ensure the continued involvement of senior managers, an organization should form an executive steering committee for improvement projects. Direct involvement of top managers can increase the status of a project and motivate members of the project team.

A focused team is critical to project success. Too often, projects fail or experience significant delays due to lack of accountability or low priority of the project to the team. This is especially true in matrix organizations where people report to more than one boss. To mitigate the risk of project failure, the executive steering committee should appoint project managers, ensure available capacity of the project team and define high-level expectations for the project. Project leaders should then assemble focused teams to perform project tasks and define responsibilities of the team members.

If new software or equipment is required for a project, team members should conduct a thorough vendor selection process to determine the best solution. During the process, consider any unique tools, methods or support that vendors might possess to help with implementation in addition to any proposed hardware or software.

Once they have selected the best solution, the team should revisit the baseline metrics and set realistic goals for the outcome of the project. Goals should be based on current performance, industry standards, vendor projections or analyst studies.

The implementation plan should be applicable to the project. It should also consider the overall success of the solution to the entire organization. Often, the determination of a project's success depends heavily on the performance of new technology. As such, shippers should determine how the technology could change their operating models and how people and processes will have to adapt to the updated model. But keep in mind that fully functioning technology is seldom the primary requirement for a project's success.

At a high level, a well-rounded implementation plan should include the following five criteria:

  • Management and measurement standards. Project milestones, risk assessment and mitigation plan, stage gates, communication procedures and performance standards and project closure requirements.
  • Technology. Implementation plan, pilot program and lifecycle.
  • Quality standards. Overall solution and integration into organization and quality from internal and customer perspectives
  • People. Training plan and organizational and cultural changes
  • Process. Definition and implementation plan of updated operating model

After approval of the pharmaceutical project, senior management at the client had the foresight to assign the project to a production leader familiar with the environment for the new hardware who would directly benefit from a successful implementation. We developed goals for the project, plans to integrate and test the system on the first of several lines and introduce the equipment to plant personnel.

The production leader's strong interest in the work helped ensure efficient use of resources, support of senior management and smooth integration of the machine vision system and process into the production workflow.

Follow through to validate success

In marksmanship and golf, follow through is an important element of each cycle of execution. The same is true of project implementation. Before the close-out phase of a project is complete, the project team and executive steering committee should review the early results and capture information to use to improve the long-term outcome of the project.

The follow through should confirm proper integration of the project with the organization and the success of the revised operating model. The team should compare baseline data with post-implementation results.

Project team members should capture lessons learned from the team, others in the organization and customers for use in future improvement initiatives. The team should also archive reports, results of tests and other documentation that may be useful after the close of the project.

On the pharmaceutical project described above, after a trial run of several shifts, the production leader was pleased to learn that the machine vision equipment was able to detect poor and marginal-quality date and lot codes on labels. The trial allowed his team to make adjustments to the label printer to improve legibility of the labels and train operators.

Based on the results, the production leader recommended continued use of machine vision inspection on the line and expansion to similar lines. Additional observation and record-keeping led to improved configuration of the vision processor and procedures to help maintain accuracy of inspections.

By following the above basic guidelines, shippers can select the most suitable cost-savings solutions, implement the solutions and monitor the contribution to their organizations.

Donald Humphries, CPIM, is a manager with Charter Consulting (, a division of Technology Solutions Company, based in Chicago, Illinois. He can be contacted at [email protected].

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