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For the Lowest Costs Recheck a Process Before Automating It

Mar 17, 2008
Despite admonitions to automate the best of what's possible, most automation simply reduces costs somewhat for yesterday's obsolete practices. You only avoid that stalled approach by rechecking a process before you consider the possibilities for automation:

-Eliminate the unnecessary.

-Employ an efficient business-model design.

-Cancel delays.

-Simplify, simplify again, and simplify some more.

-Help the unskilled avoid accidents.

Such a recheck will often locate additional business model, process, and implementation improvement opportunities. Consider Kroger's use of information technology in this regard. When the company first began looking at automation possibilities in the 1990s, the venerable retail grocery chain realized that it had a large cost disadvantage versus Wal-Mart, its ever more important competitor.

Rather than consider how automation could reduce the cost of what the company was already doing, Kroger looked at how automation might be a bridge to better processes that would eliminate the unnecessary for its stakeholders. Here's an example: The accounts payable process had become an albatross. Invoices reflected initial shipments, and credits for returned goods lagged. Until everything matched up, Kroger didn't pay. Vendors were annoyed, and bookkeeping time soared.

Kroger decided to replace that system with one that paid automatically against bar code scans of received and returned goods. After educating vendors about the benefits of this system, a new accounts payable process was installed.

The new process eliminated almost all of the accounts payable processing costs while allowing vendors to reduce their costs and prices, too. The result was a double saving for Kroger and its customers. Suppliers were thrilled to be paid sooner, which improved their willingness to provide Kroger with better merchandising programs.

What can a more efficient business model design do if enabled by automation? Prior to considering automation, Kroger had operated like a traditional retailer. Many tons of goods were piled up in warehouses and even more goods were stockpiled in the backs of stores. But the shelves were often missing the frequently purchased items that experienced seasonal demand. Those goods were sitting back in a vendor's warehouse somewhere else. Such a system had high costs, required large working capital investments, and was even more expensive in terms of lost sales and profits due to popular items being out of stock.

Kroger changed to a process that reordered goods from most suppliers based on checkout scanner purchase records of what was being bought minute by minute from each of its stores. Instead of sending piles of identical goods through each stage of the process, shipments from vendors were consolidated into just what each store needed for the next day or two (JITL -- just in-time logistics).

Many of these shipments went directly from the manufacturer to the Kroger store. A store-specific shipment could then move directly from the truck onto the shelves in a few minutes, knowing that there would be just the right amount of space to receive these recently purchased and received items. Almost all of the volume that used to go through Kroger warehouses and be held at the back of stores was now eliminated as was the handling involved.

Eliminating long, slow steps in the distribution process also served to reduce delays. Kroger was able to pay vendors based on bar code scans. These processes also turned up shipment errors sooner so that the appropriate items could be received where they were needed most.

Kroger decided that one way to simplify further was to put its automated processes in place a bit at a time, rather than waiting to install a large, integrated package. The strategists believed that such an incremental approach would permit time for Kroger to observe what else could be done to simplify and improve a process before linking that process to another newly automated system. That decision proved to be wise when many processes turned out to offer additional simplification opportunities.

Kroger also discovered that even its best operators didn't always get the message. During a tour of a store offering the latest processes, executives were chagrined to find that store management didn't realize that it could stop performing many of the old processes. The store managers were doing double the work and wanted to know why. After spending more time letting store managers know that the old processes should have been dropped months earlier, the company installed new methods for ensuring that the conversion from old to new processes was better timed.

Be sure to improve your processes as much as possible before automating them!
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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