Thursday 5th Sep 2019 - Logistics & Supply Chain

The shift to value

The automotive after-sales market offers companies two distinct competitive opportunities: profits and customer satisfaction. It is estimated that the parts distribution function for large automotive companies delivers between 15 and 18 per cent of the profit contribution and often higher, as opposed to 1 to 3 per cent for vehicle sales. And the impact of the block exemption legislation will further affect the after-sales market in Europe.

In this market, the need to control costs is important but reduction of cost often leads to unintended consequences. Just as managing a warehouse with unlimited inventory, space and resources is unwise, the other extreme, to manage a business with no inventory, no space, and no people, would be catastrophic.

Instead of managing by cost, a shift to value provides clear insight into the process, and facilitates the changes that are required to balance the selling ‘price and profit’ equation. Becoming lean is all about providing value. Value can be defined as performing operations that a consumer is willing to pay for.

Methods of identifying non-value add processes include process flow mapping or value stream mapping. At a high level, the basic steps are to document the process flow and identify the value-add of each operation. Lean principles involve reducing costs through the systematic elimination of all non-value-adding processes, which we can call waste.

An understanding of the forms of waste is imperative for their identification and elimination. Waste can be defined as any activity that consumes time or resources for which the customer is unwilling (or unlikely) to pay. Catalyst has identified these as – faster than necessary pace, waiting, conveyance, processing, excess inventory, unnecessary motion and correction of mistakes.

In the past, organisations have tried many techniques to improve their operations. While these initiatives have had limited success, they have missed the mark on two major points: they are not focused on value to the customer, and they offer no guide as to how successfully to transform an organisation.

The ‘lean’ approach provides companies with a culture and a process that can make for real change.

Simon Shorthose is sales and marketing director, EMEA, for Catalyst International

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