Ever have one of those ‘aha’ moments? When the light bulb comes on and you suddenly have a new level of insight and understanding? I can clearly remember one of my own ‘aha’ moments when I was in my teens, working in the family manufacturing business.
Even back in the 70’s the issue of labour cost was starting to raise its head as an emerging China began to compete in industrial production. The world was shrinking… slowly at first, but looking back all the signs were there and we knew that we had to get smarter to compete.
So back to my ‘aha’ moment… A seismic change happened in our business in the mid 70’s. We went from pouring molten brass into casting boxes in our foundry to produce our brass plumbing ware, to ladelling it into a machine which ‘spun’ the metal out to create a casting.
“So what?”, you might ask.
The ‘what’ is that we had freed up a manufacturing bottleneck and had suddenly increased efficiency by a factor of 10. That’s right - a 1,000% process improvement. For the same labour component and raw material cost, we achieved a huge efficiency gain and reduced our cost to produce and ultimately our overall cost to serve. And importantly, we did it without reducing product quality.
We became faster and leaner in our supply chain without any downside – the shift was game changing. We didn’t use the term then, but now 40 years (and a lot of grey hair) later, I realise I was witnessing Automation with a capital A. In today’s terms we’d call it Robotic Process Automation (RPA).
But back to the present and the latest in my - Supply Chain Automation – where do I start? series. Distributors are between a proverbial rock and a hard place – they’re being squeezed by both their customers (further links in the journey to the consumer) and their suppliers. Retailers today are bypassing traditional wholesale distribution channels and sourcing direct from manufacturers. Manufacturers (and master distributors) are eyeing off the consumer. Both are scrambling to protect and claw back margin.
So if you’re a traditional distribution channel, how do you survive? Whilst business survival is based on a number of elements – service, product, price, and markets, one constant is the need to be more efficient and protect your position in the greater supply chain. You need the ability to reduce or contain your cost to serve without reducing customer satisfaction levels.
Here’s how sales order automation helps.
Let’s say you run a wholesale distribution business and you have Customer Service Reps (CSRs) keying orders into your ERP system. Every minute that you reduce their manual order entry is a cost saving for your business. If you employ 4 CSRs and 70% of their time is spent keying orders, what’s your potential saving through automation?
I’ve used a very basic cost analysis approach in the table below. As you can see, the Cost to Serve saving is greater than 1 full time employee.
|
# of CSRs |
Hourly rate per CSR with associated costs |
Total hourly rate all CSRs |
Order Entry cost per hour @ 70% of job function |
Cost to Serve reduction per hour with 50% Automation |
|
4 |
$30 |
$120 |
$84 |
$42 |
While it’s true that many organisations are not looking to reduce headcount through automation, the above saving enables a company to leverage a number of benefits on the way to reducing cost to serve. Options include:
So how do you get started? Use my simple analysis tool and punch in your own numbers. There’s your business case.
If your CSRs are spending a reasonable percentage of their time manually entering customer purchase orders into your ERP, you may be able to immediately reap a cost to serve benefit through automation.