Supply Chain Optimisation represents a holistic approach towards reducing the cost of procuring goods and/or services, and can achieve dramatic results, typically savings of between 20% and 40%. The essence of the technique is to analyse every step in the complex chain of events involved in manufacturing, delivering and using the good or service, and then seeking opportunities to remove unnecessary cost, to the benefit of both buyer and supplier. For instance, are there multiple inspections when one will suffice ? Could the specifications be relaxed to make manufacturing cheaper ? Would it be more economic to provide a service (eg "compression") rather than a good (eg a compressor) ? What scope is there for economies of scale ?
For example, a supply chain optimisation project recently removed $10m/year (over 25%) from the cost of procuring steel pipework. This was done by detailed analysis of the entire supply process, starting with delivery of iron ore at the mill to deployment of the pipes at the worksite many thousands of kilometres away.
Supply chain optimisation requires great openness and therefore trust on the part of both the buyer and supplier. The true cost savings opportunities will be discovered only if they agree to work together as a team of equals so as to understand each other's systems, constraints and priorities, while not using the privileged information so gained to the detriment of the other.
The idea is not for the buyer to squeeze the profit margins of the supplier. Rather, it is to find out how BOTH parties can make more money, in a true win-win confluence.
Key Benefits
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Significant cost savings for the buyer |
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Significant cost reductions for the supplier |
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Therefore, significant increased profitability for both |
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Partnership-style relationship, usually long-term, which leads to further cost improvements as time goes on |
Tallrite's Capabilities & Contribution
Tallrite can help you achieve your cost-saving objectives through facilitating the supply chain optimisation approach. There are typically two major steps involved.
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The first is to secure the commitment of senior managements of both the buyer and the supplier to the openness, trust and changed relationships required, and to select the preferred supplier for the given good or service. This is not an easy step nor an overnight one, especially where the existing culture between buyer and supplier has been somewhat adversarial and has involved multiple suppliers for the same good or service. |
Tallrite's role will be to explain the pros, cons and risks of the supply chain optimisation approach to the senior managements and other employees most closely affected by the proposed project. It will be necessary to convince them of the potential money to be made if they proceed.
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The second major step is to conduct the supply chain optimisation project itself. A team of 4-6 knowledgeable people from the buyer and supplier organizations will be put together to scrutinise in great detail, in the premises/sites of both the buyer and supplier, the entire supply chain and thereby to identify the cost-removal opportunities. As a minimum, they will need to have expertise and credibility in the production area, the user area, sales and procurement, and must be given the authority to share all technical and cost information as required. Any "no-go" areas will have to be clearly spelled out. This team will be responsible for coming up with proposals to the respective senior managements, who will decide on implementation. |
Tallrite will join the team and facilitate the entire process, providing guidance and encouragement, as well as participating fully in the brainstorming sessions necessary to dig out the many hidden savings that will undoubtedly be there.
Our staff have considerable experience and expertise in the Supply Chain Optimisation process and have made big additions to the bottom lines of the companies that have used them.
The downside is minimal, the upside spectacular. Can you afford not to explore Supply Chain Optimisation ?
