Competing on low cost: Rationalisation

Most popular case study for Rationalisation is from Gillette in its 2004 supply chain turnaround. Aimed at reversing a major inability to fulfil orders reliably, it embarked on four improvement initiatives: minimising complexity, improving demand-supply planning processes, improving supply planning processes and establishing optimal support systems. SKU rationalisation was central to the first objective, minimising complexity.

The results at Gillette were astonishing. Customer service levels rose by 10%. Inventories decreased by 25%. Overall costs decreased by 3%. Demand planning was simpler, less resource-intensive and more accurate. Production processes became more flexible because there were fewer constraints. Inventory turns increased through the elimination of redundant, slow-moving and sometimes dead SKUs.

Rationalisation can be achieved by:
– Strategic sourcing
– Outsourcing
– the seven types of waste; 
– the 5S approach to workplace organisation; 
– total quality management (TQM); 
– total productive maintenance (TPM); 
– cellular manufacturing; 
– diagnostic tools such as the 5 Whys, the plan-do-check-act (PDCA) cycle, value stream mapping, work sampling, root cause analysis and throughput analysis.
– SKU rationalisation
– Optimising transportation including Mode selection, Cross-docking and DC bypass, Equipment pooling, Tier-skipping
– Supplier kaizen
– Consignment and vendor-managed inventory
– Design for manufacturability