In a recent article by Greg Marshall titled "Why Value Added Per Employee Can Improve Your Cost Per Action," he makes the case for examining the impact of value added models on cost reduction across the entire supply chain. What are some of the models he looked at? Read on to find out.
Price-cost competition. One of the problems we face today is that companies are competing not only for the best price but also for the best manufacturing value added per employee. So what metric drives purchasing decisions in your organization? Value added per employee is simply a financial metric of how much total product was purchased vs. how many actual employees worked over that period. Are these statements true or false? To answer this question you must apply analysis to current pricing, planning, and deployment of resources.
Inventory bottlenecks. Another factor which deters businesses from implementing a value-added model across all supply chains is that they believe this is an extremely complex, time-consuming task, and that it will just add too many obstacles to an already challenging process. But the reality is that any good ERP system can identify bottlenecks in any given production process and even help to drive improvements. For example, once your ERP has identified a handful of warehouse locations in your production area where inventory is exceeding the current maximum capacity, it can design a special order processing strategy to ensure that inventory is delivered in excess when your customers place orders. By applying simple economic principles to a warehouse full of unlimited number of items, your ERP will identify inefficiencies which are in the routine supply chain and help to reduce costs or improve efficiency.