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matters By John Darker, AM B M
How consultants boost profitability
WHEN consultants are asked to look at a transport or distribution problem their preliminary survey is likely to be done by one or two people with razor-sharp eyes for possible money saving or revenue earning opportunities. Large consultancy firms charge a great deal for their services. They know that the client must be convinced that consultancy fees will be more than recovered within a measurable time.
A major review of a company's activities or of its long-term strategy may be suggested. The consultants will be looking for promising clues—perhaps following up hints from the company seeking advice—which will enable the main lines of approach to problem-solving to be defined. In broad terms, a great many "nails" are visible; the consultant's task is to hit the right ones quickly.
The approach I recently talked to a number of specialists on the staff of P.A. Management Consultants Ltd. P.A. are well known for their work in distribution; they have been equally active in the bus industry. P.A. is a very large British-based international firm with over 1000 staff world wide offering breadth of "generalist" consultancy and depth of "specialist" facilities. Their work is based on the belief that success hinges on effective co-operation between people. P.A. consultants aim to blend with client's staff in order to produce teamwork with a single purpose—a more effective and profitable organization.
Divisional manager Mr S.E. Holloway defined the PA approach to PDM—physical distribution management—as being concerned with the design, administration and operation of systems to control the movement and storage of raw materials and processed goods. It starts with the movement of raw materials from the source of supply to the productron line and ends with the movement of finished products from the end of the production line to the consumer including such functions as: 1, materials handling; 2, freight transport; 3, protective packaging; 4, warehousing; 5, inventory control; 6, plant and warehouse site location; 7, communication and data processing.
PDM is also concerned with the interaction between these activities and corporate planning, production, marketing and general company administration.
Mr Holloway suggested the following as client problems inviting specialist advice.
1. A situation following rationalization or take-over where it may be possible to integrate two or more fleets and depot networks.
2. In cases of expansion—where existing warehouse or transport facilities are too small.
3. Where cost reduction may be imperative as a result of recent legislation and wage awards.
4. Where customer service may need attention. Competition, credit restrictions and the buying power of supermarkets and voluntary chains are compelling suppliers to look to customer service levels.
A consultant talking to a prospective client about distribution will look for such symptoms as:— Poor delivery service—frequent stock-outs; No knowledge of delivery achievement; Customer complaints; High costs—recent increases relative to industry average; No breakdown of costs; No breakdown of outlet costs; Overcrowded warehouse; Many depots; Old vehicles; Poor vehicle maintenance; Low vehicle-utilization; Damage to products; Excessive stocks.
A systematic method of approach is clearly necessary if—jointly with the client firm—improvement is to be made. The optimum service level defined by delivery period, percentage of items in stock, etc, would have to be decided. It would be helpful to analyse the geographical pattern of demand. Some attempt could be made to quantify sales volumes by major product groups for five to 10 years. The level of finished goods stocks could be decided. The current unit costs for warehousing, both variable and fixed costs, could be worked out.
The cost of deliveries and trunking would need to be broken down both as regards own fleet, contractors and carriers. Capital investment on distribution functions—vehicles, warehouses, etc. would need a thorough examination. So too would the current methods of work of transport and warehousing staff to evaluate the scope for productivity improvements.
With this spadework completed, "models" of possible distribution systems can be prepared. For example, the present system working at improved efficiency can be compared with one where the number and location of depots have been changed. The advantages of using more or less carriers or contractors can be assessed.
Feasible models Feasible models are then evaluated, with computer assistance if necessary in terms of: transport, warehousing and stockholding costs; capital investment, flexibility, customer service, disruption. The "sensitivity" of the proposed solution must be checked to consider the effects of errors in data used, particularly in sales forecasting. The final recommendations are then prepared showing costs and savings and if desired, a fully worked out implementation plan.
What savings are possible with this thorough approach? Modestly, P.A. reckons about 10 per cent of distribution cost can be made. P.A.'s records show some examples of 30 per cent reduction in vehicle strength; particular facets of distribution can yield quite spectacular savings, in annual operating costs, stock reduction economies and labour savings.
P.A. assignments concerned with incentive payment schemes for bus maintenance staffs were described to me by Mr H. S. (Wilkie) Wilkinson. They revealed scope for large economies in overall maintenance costs. In studies undertaken for 17 NBC companies in England and Scotland it was evident that the depth and frequency of vehicle inspection and service varied greatly. No one at P.A. quarrelled with the principle of preventive maintenance; the question was how much of it was vital? Some fleet engineers, it was felt, played safe and carried out much more stripping down and component changes than was called for, possibly to justify the employment of over-large staffs.
"Spreading the load" of necessary major overhauls for statutory purposes was something that cried out for attention_ Work scheduling was much facilitated by putting all maintenance operations on a time basis—some companies favoured a mileage
basis for quite logical reasons. This replanning of operations enabled greater productivity to be achieved by work shops dealing with the repair and reconditioning of chassis and engine units.
Wilkie Wilkinson insists that a prerequisite for the effective introduction of incentives in maintenance shops is level work-loads. P.A. achieved this by rephasing maintenance programmes and by redeploying staff when necessary. The routine application of long-proved method study techniques was not a major problem; much more difficult was the job of educating supervisors and shop stewards. Management leadership was called for to build up confidence in the people doing the planning: effective communications were a vital ingredient of success.
Vehicle maintenance P. A. favours a simplified approach to method study on vehicle maintenance applications. A thorough study is made of the principal jobs undertaken by a department (the foreman is likely to know the average time taken and also the extent of variations) and a schedule of time-values is built up. Attitudes of employees and supervisors are regarded as much more significant than precise accuracy of job-times. There will always be a range of jobs for which no time-study man can predict times accurately—broken studs or, to quote Wilkie, lin. Whitworth nuts on a jin. BSF thread" are Liable to throw out the best theoretical estimates of job performance. In any case, as the bulk of bus operation costs are fixed the saving from super-accurate work-study time values is relatively small.
Not surprisingly—for P.A. stands for Personnel Administration--P.A. believes that employee attitudes to work study can be favourably shaped by training shop floor personnel in their use. There is an enormous reservoir of talent available, in Mr Wilkinson's view. If an experienced and trusted fitter is trained as a work study officer he is likely to carry the confidence of a great majority of his colleagues on the shop floor.
Levelling out peaks and troughs of work and "winding up the boys afterwards", in Wilkie Wilkinson's graphic phrase. enabled P.A. to save around £500.000 in labour costs alone for the National Bus Company. Increased productivity varying between 60 and 100 per cent was achieved. When the investigations began the consultants found people working at around 40 per cent efficiency instead of around 90 per cent. Poor pay encouraged the men to create overtime. The introduction of incentive bonus schemes increased the tempo of work and enabled major staff economies to be effected in some depots. Stabilized earnings—bonus being calculated as the average of four weekly pay-weeks—was popular.
P.A.'s consultancy services cover a vastly wider field than the aspects covered in this article. The approach is always to analyse the problem, to diagnose faults in organization and to prescribe an effective remedy yielding profit to the client company and human satisfaction to employees.