Continuous Improvement -- Are You Focusing on the Trivial?

IndustryWeek (7/22, Keller; AME) – You could be if your cost-saving efforts are centered on the activities within your facility's four walls. The continuing evolution of business models and strategies has led to many organizations outsourcing more and more of their value-adding activities and becoming more like general contractors in managing their supply chains to deliver products and services to their customers.

The impact is that many manufacturers are seeing the direct labor portion of their cost of goods sold (COGS) drop into the single-digit percentages while purchased components and materials often account for over 60% of their COGS (with overhead at 30% or more). What does this mean for the practitioners focused on lean transformation and continuous improvement? The focus now needs to be on the extended supply chain, both upstream and downstream.

By focusing on continuous improvement and waste elimination in this extended supply chain, you can often identify cost-reduction opportunities that are much larger than those you can identify within your own four walls…Expanding your continuous-improvement efforts into the extended supply chain requires the leadership and courage to form true partnerships with suppliers instead of the old-style adversarial relationships that have existed with suppliers for so long. It also requires trusting your downstream distribution channels in serving your final customers. Applying the knowledge and tools of continuous improvement to these extended supply chains is full of opportunity and will be where the action is in the future.