“Turbo Charge” The Profits From Quality Management Systems

As organisations strive to become more efficient,  the implementation of Quality Management Systems (QMS), such as 6 Sigma, Lean, Kaizen and Business Process Improvement become a key priority.  The positive impact on profits, from a combination of streamlining, waste and re-work reduction and automation resulting in reduced costs, coupled with more reliable processes improving customer acquisition and retention are well known and proven. Experience though with existing Expense Reduction Analysts clients, suggests that the profit improvement delivered through these programmes could be “turbo charged”  by the addition of a concurrent procurement and supply chain review.

At their core,  all Quality Management Systems follow the steps proposed by W.Edwards Deming in the 1950’s, who stated that business processes be analysed and measured to identify sources of variation that cause products and services to deviate from customer requirements. He recommended that organisations implement a continuous feedback loop, which has commonly become known as the PDCA cycle for Plan, Do, Check, Act:

* PLAN: Design or revise business process components to improve results
* DO: Implement the plan and measure its performance
* CHECK: Assess the measurements and report the results to decision makers
* ACT: Decide on changes needed to improve the process

The vast majority of QMS implementations are internally focused, and whilst accounting for the benefits that improved processes may have on reduced purchasing volumes of raw materials or other supplies, tends to accept unchallenged the unit price of these within the analysis.  This we believe is a grave mistake and potentially misses the opportunity to further enhance the profit opportunity through improved purchasing and supply chain management, whereby raw materials and other input cost could be reduced by:

• Ensuring supplier prices properly reflect the organisations revised purchasing profile;
• Working with client organisations and suppliers to streamline and/or improve  the purchasing, delivery and payment processes to generate savings which could be passed on by way of reduced net input prices;
• Maximising the purchasing power opportunities that exist.

As an example, we were recently asked to review the electricity spend of a large manufacturing company in Belfast, who were initially sceptical of the additional value we could bring given that they had only recently completed a Business Process Improvement Review which had  reduced  annual electricity usage by 103,000 units, through a combination of energy efficiency measures and revised shift patterns. This generating a 13% saving.

Following a full procurement review,  our electricity experts developed a detailed client requirements and usage review . This together  with their  knowledge and expertise of the market and purchasing influence ,  identified an alternative supplier, whose pricing  model matched our clients usage requirements, without any deterioration to the quality of service they enjoyed:

As a result, our client was able to increase their savings by £37,000,  with the total saving increasing by 36% to 49% .