6 Effective Next-wave Strategies to Reduce Operational Costs

Dec 14, 2011 10:30 PM  By

During the height of the recession and since, multichannel merchants have succeeded to varying degrees at reducing and better containing operational expenses.

Unfortunately, as economic recovery continues to sputter, improvement in consumer and b-to-b spending is likely to be slow-going, at best. Indeed, we may never see a return to pre-recession levels. Significantly sharpened marketing initiatives, while crucial, can go only so far in relieving margins increasingly pressured by rising business costs.

Now what?

FUNDAMENTAL CHANGE REQUIRED

By now, most companies have been through every major department in their quest to realize savings. But many have mostly picked the low-hanging fruit.

Once the quick, obvious changes have been made, further progress on the cost front requires a willingness to tackle the fundamentals. It’s time to engage in a no-holds-barred, zero-based, holistic re-examination of operations and business practices.

While this next wave is difficult (even painful), I can assure you that redoubled, unflinching reassessments are enabling even quite tightly-run companies to find additional, substantial savings, get significantly leaner, and even improve customer service in the process.

Deriving maximum results from next-wave cost-reduction initiatives requires re-evaluating the full gamut of operations and devising creative new systems and process solutions within each area. A partial list includes inventory, supply chain, receiving, product/stock location, picking and packing, and maintenance systems.

Where to begin? Here’s a “hit list” of the areas and strategies that generally yield the greatest leverage, and likely deserve the first focus.

1. Take charge of freight costs

2. Take a hatchet to slow-moving inventory

3. Improve your vendor compliance program

4. Streamline the customer contact center

5. Implement daily “stand-up” meetings

6. Grow your supervisors and managers

Curt Barry is president of F. Curtis Barry & Co., a multichannel operations and fulfillment consulting firm.

1. Take charge of freight costs

With fuel prices driving up freight costs, this is where multichannel companies are now realizing the biggest cost reduction and containment benefits. Implementing better strategies frequently yields savings of 10% to 15% on both inbound and outbound freight.

For inbound, join a consortium with a volume-discount track record. These companies can provide an objective report on a representative number of months of paid freight bills and your projected savings, and some offer rate or savings guarantees.

Outbound is more complex because of the plethora of accessorial charges — and it’s also more subject to rate inflation due to the limited number of alternative outbound carriers.

Competitive bidding is essential, as is ongoing auditing of freight bills and service plans, either internally or through a service. Many companies report that investing in an expert analysis of current outbound (and inbound) freight rates/vendors and possible alternatives is money well spent.

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2. Take a hatchet to slow-moving inventory

Since inventory is the largest balance-sheet asset in most companies, this is another hot spot. “Systems” don’t take into account the total costs of owning slow-moving inventory (occupancy, interest on the investment, distribution center labor to maintain and control it, etc.). Only management can analyze these expenses and methodically reduce them.

Even companies that manage inventory well can uncover ways to do it better. A zero-based reassessment of inventory levels, turns, systems and practices will almost certainly reveal eye-opening inefficiencies and limitations that are undermining cost control.

In many companies, small purchasing/inventory departments are being overwhelmed by ever-increasing product assortments. SKU counts aren’t being optimized. “Good buys for discount” take far longer to sell through than planned.

Frequently, inadequate systems are a core problem. Some typical inventory/fulfillment systems problem areas to investigate:

Do your systems provide truly accurate data-tracking/histories for sales and stock plans? Are they incapable of helping re-buyers spot where they should be taking action on under- and over-stocks?

Do the systems provide views of aged inventory by time slices (one to 30 days, 31 to 60 days, etc.) to the SKU level? If not, a walk through your distribution center to see how long products have been there should quickly convince you of the need to get these systems capabilities in place.

Do the systems lack sufficient capabilities for managing unlisted products (products currently not included in an active or planned promotion)?

Streamlining needs to go beyond systems upgrades, however — that’s why a holistic approach is so important.

Case in point: A $40 million multichannel business was struggling to stay within its merchandising budget. Senior management had been unable to reach consensus on the root causes or solutions. Our review of all aspects of the business revealed multiple problems. The company does need a major system upgrade to enable efficient identification of overstocks within their large assortment. But it also needs a stronger inventory manager, and it’s actually understaffed. Inventory control’s plans aren’t in synch with marketing’s goals. Plus, off-price cadence promotions have conditioned customers to wait for these sales.

This company can cut inventory levels by 30% and realize major cost benefits (even with added inventory staff) — if senior management is willing to implement changes that require fundamentally different business rules/operational methods.

Turns, in particular, are vital signs of the effectiveness of your inventory management. Dig into all of the factors behind turns, and you’ll discover multiple areas ripe for improving efficiencies.

3. Improve your vendor compliance program

Effective vendor compliance policies and processes greatly reduce distribution center costs. Their many benefits include minimizing time spent on handling supplier glitches/exceptions, accelerating inventory’s ready-for-sale times and movement through the distribution center, and improving overall product quality. All of which also enhances delivery times and customer satisfaction levels.

Organize a team of key players within your distribution center, merchandising, inventory control and accounting departments to review all aspects of compliance policies and procedures, make recommendations, and implement improvements.

Re-evaluate all policies — for instance, instituting or better enforcing vendor charges for excessive noncompliance. Scrutinize product specification sheets, standards for all paperwork (purchase orders, invoices, etc.) and inbound freight procedures. (Formal inbound freight-routing guides should be standard, regardless of company size.)

Get vendor input. Are there reasonable procedural/policy changes that might enable them to improve your terms? Can they offer value-added services at minimal or no extra cost?

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4. Streamline the customer contact center

While there are many ways to reduce contact-center costs, these are among the most effective:

  • Invest in workforce management
    Large centers have made a near-science of scheduling personnel, staggering work schedules and adjusting staffing models. However, they’ve also learned that short-interval call-flow management — in addition to effective call-flow integration — is crucial to controlling costs and service levels. Investing in a commercial workforce software program, rather than having employees dedicated throughout the day to monitoring call-flow and alerting supervisors to make adjustments, can save and contain expenses year after year.

  • Improve Internet and systems training
    In many companies, investing in better rep training will pay dividends in reduced call times, operational expenses and lost sales — not to mention enhanced customer satisfaction and retention. The web and online shopping have greatly heightened consumers’ expectations of fast, seamless transactions and immediate, effective customer assistance. Reps need to be capable of exceeding, not just meeting, those expectations. They must be thoroughly familiar with your website and all aspects of the consumer experience/transaction process, and prepared to efficiently and courteously guide the customer through it and answer any/all questions.
  • Set up or improve call-monitoring processes
    If you’re serious about controlling costs and service levels, call monitoring is essential, not optional. Get these processes in place, or focus on improving them.

    Have you sufficiently defined the specific actions/hard skills and demeanor (soft skills) required of reps — including greetings, transaction data verification procedures, helpfulness throughout the call, completing the sale and upselling, and offering further assistance before closing with a thank-you for shopping with your company?

    Have you assigned logical, reasonable metrics to these requirements? Are you assessing each rep’s performance several times per month, at minimum (more often, as required)? Are you providing ongoing, useful feedback and guidance for improvement to all reps?

    How often (if ever) do senior management executives (not just supervisors) listen to and critique calls? In addition to reinforcing service standards, hearing customers express their needs and questions first-hand provides management with important marketing and merchandising insights.

  • Experiment with home agents
    More call centers are incorporating home-based reps into their staffing models to improve staffing flexibility and lower benefit and occupancy costs. With proper screening, support and monitoring, these reps can be as or more productive than center-based staff.

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5. Implement daily “stand-up” meetings

Are you providing employees with the practical, day-to-day guidance that helps them translate your streamlining/cost-reduction priorities into action? Holding brief, daily start-of-day (and start-of-shift) meetings with department managers is a more effective way of reinforcing priorities than flooding staff with reports and memos.

The meetings should be 10 minutes or under and, yes, employees should stand — this keep things moving, and signals that everyone will soon be back at work.

Tight focus is the key. Stick to clarifying the present day’s priorities and action plans, using checklists of key metrics/areas for review.

Warehouse metrics reviewed should include updates on orders processed, order carry-over, unworked receipts and backlogged returns, followed by today’s expected orders and receipts, quality control issues and staffing requirements. Call-center checkpoints should include any new promotions hitting, forecast call volumes, abandonment rates and other service levels, staffing required, etc.

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6. Grow your supervisors and managers

The success of your efficiency/cost-control initiatives and customer service performance hinge on the strength of your first-line and mid-level managers. While promoting from within whenever possible is a best practice, insufficient development of managerial skills — knowing how to manage both up and down — is a weak link for more than a few companies.

Assuming that operations employees can transition to management roles based on intuitive leadership qualities and whatever management skills they may have absorbed during the course of their jobs is short-sighted. Adequate training and support enables operations-savvy individuals to realize their full potential and value to your company. Without this, they may be lost to other, more supportive companies.

Managerial development options include subsidizing or paying the fees for regional business-management courses/programs (with funding perhaps contingent on course performance); bringing in business-management faculty or training consultants; and creating internal training and mentoring programs.

Starting an in-house “university” program that’s led by senior managers and conducted during off hours is one effective, inexpensive solution. Another is implementing regular “lunch-and-learns,” in which a senior manager offers insights about a key management skill or topic, followed by discussion. These formats should be interactive, not just lectures.

You’ll be impressed by new managers’ response to these programs and how their growing skills pay off in tangible improvements in your operation.

Curt Barry is president of F. Curtis Barry & Co., a multichannel operations and fulfillment consulting firm.