Cost-Cutting Ideas for Christmas

Nov. 1, 2001
'Tis the season to retrofit and replace equipment, as well as explore opportunities for buying used equipment to upgrade your systems.

Cost-Cutting Ideas for Christmas

The events of September 11 pose great challenges to material handling logisticians. In one day, a lot of what MHM has preached for years about leaner inventories and the need for fewer warehouses seemed to have been overruled. Now some experts are saying companies should be thinking about holding more inventory. That will heighten your costs. Transportation costs will also increase as more is spent on security.

Technology and smart use of resources can help you cut those costs. For example, at HK Systems’ recent users’ conference, customers heard how distributed controls and material handling system modularity make it easier to buy used material handling systems at a fraction of the cost of new ones and “remission” them. Successful remissioning depends on the age and condition of the equipment, but generally the cost comparison to a new system is favorable.

But remissioning isn’t right for everyone. Retrofitting and replacement should also be considered. Replacements are initially high cost but offer higher performance and life. Retrofits can be lower cost initially, but more costly to maintain over the long term if not thought out. The key is finding the right cost-cutting idea for your application.

Simulation software can help. It lets you test theories on how your operations would run, test ROI expectations, play what-if scenarios, and change project direction if necessary.

If you’re just starting with automation, you may need to start with basic computer technology. You can lease equipment for a short time to determine its viability. You can even lease information technology (IT) people to staff up or down as the scenario requires. One company involved in this explained recently that Wall Street likes companies with fewer permanent staffers. The cost to recruit an IT professional is $8,000 to $10,000, and an outsourcing agency absorbs that as well as the cost of benefits.

Of course, as relationships to build and apply technology get more complex, more attention needs to be paid to contracts and their terms. Critical elements to include in writing are:

• Acceptance; at what point have buyer and seller met their obligations?

• Warranties; what will you get for your money after acceptance?

• Liability; what are the consequences of failure?

• Changes; how do parties change any of the above in mid-stream?

• Termination; how can parties end a relationship and what will it cost? Will you allow one more chance to fix the problem before termination?

Another option is to leave everything to a third party to help you meet customer service needs. A new study, “The Use of Third-Party Logistics Services,” conducted by Dr. Robert Lieb, professor of supply chain management at Northeastern University, says third-party logistics offerings have broadened, not only in terms of services, but also in terms of regions served. Some even offer financial services and purchasing support.

Our annual Editors Roundtable covers a year full of trends that have inspired ideas like the ones I just mentioned. For an extra helping of Cost-Cutting Ideas, check Cost-Cutting Idea File. You’ll find a holiday edition of this monthly department. Consider it our Christmas present to you.

Happy Holidays.

Tom Andel

chief editor

[email protected]

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