Executive Briefings

ROI and the Elephant in the Room

How can companies best navigate the people issues-more specifically, headcount reduction-when it comes to new automation that in the end really depends on those moves to deliver the ROI? That's the question Dan Gilmore, editor of Supply Chain Digest, posed recently. He points out that ROI is often the proverbial "elephant in the room" when it comes to implementing new initiatives and achieving the expected results turning productivity gains in a distribution center into true bottom line benefits.

It seems we are in an era now where it is relatively easy (or at least easier than in the past) to shutter whole factories or outsource large functional areas or processes, but still (understandably) very difficult to do at a more micro-level. In many cases, things are a little easier in distribution, where for lots of companies turnover is quite high, often approaching 50%.

It would seem in many cases that no one should fear automation from a headcount reduction issue, since the core group of associates that don't turn wouldn't normally be affected even if total headcount is reduced. It's also easy, in a sense, for fast growing companies. Often, investments in DC automation are not sold or justified on the basis of reducing current headcount, but on slowing or stopping the growth in headcount versus projected requirements based on expected throughput growth over some period of years. Sometimes the growth happens-but sometimes it doesn't.

Gilmore spoke earlier this year with a VP of transportation for an industrial company that had recently moved from a decentralized transportation operation to a centralized one. Each of several dozen ship sites previously had local transportation managers; now a much smaller central group was managing the whole process enterprise wide, and the efficiency gains in overhead for transportation were significant. When asked if the local transportation managers were still there, the answer was yes-but mostly doing other things, was the response.

Gilmore points out that management often dances around issues when it comes to investments in process improvement. In many cases fear or concern on the people impact has kept companies from investing in automation or technology that would reduce headcount requirements, blue collar or white collar.

On one hand, he says, it isn't right to make investments based on theoretical cost improvements that in reality never really show up on the company books; or to strongly resist clear opportunities for process improvement in this hyper-competitive market environment. On the other hand, he asks how does management keep up morale and get employees to provide the critical buy-in to the process when the end result might be a RIF for themselves or a co-worker. That's the question to ponder when dealing with the ROI Elephant in the Room.
http://www.scdigest.com

How can companies best navigate the people issues-more specifically, headcount reduction-when it comes to new automation that in the end really depends on those moves to deliver the ROI? That's the question Dan Gilmore, editor of Supply Chain Digest, posed recently. He points out that ROI is often the proverbial "elephant in the room" when it comes to implementing new initiatives and achieving the expected results turning productivity gains in a distribution center into true bottom line benefits.

It seems we are in an era now where it is relatively easy (or at least easier than in the past) to shutter whole factories or outsource large functional areas or processes, but still (understandably) very difficult to do at a more micro-level. In many cases, things are a little easier in distribution, where for lots of companies turnover is quite high, often approaching 50%.

It would seem in many cases that no one should fear automation from a headcount reduction issue, since the core group of associates that don't turn wouldn't normally be affected even if total headcount is reduced. It's also easy, in a sense, for fast growing companies. Often, investments in DC automation are not sold or justified on the basis of reducing current headcount, but on slowing or stopping the growth in headcount versus projected requirements based on expected throughput growth over some period of years. Sometimes the growth happens-but sometimes it doesn't.

Gilmore spoke earlier this year with a VP of transportation for an industrial company that had recently moved from a decentralized transportation operation to a centralized one. Each of several dozen ship sites previously had local transportation managers; now a much smaller central group was managing the whole process enterprise wide, and the efficiency gains in overhead for transportation were significant. When asked if the local transportation managers were still there, the answer was yes-but mostly doing other things, was the response.

Gilmore points out that management often dances around issues when it comes to investments in process improvement. In many cases fear or concern on the people impact has kept companies from investing in automation or technology that would reduce headcount requirements, blue collar or white collar.

On one hand, he says, it isn't right to make investments based on theoretical cost improvements that in reality never really show up on the company books; or to strongly resist clear opportunities for process improvement in this hyper-competitive market environment. On the other hand, he asks how does management keep up morale and get employees to provide the critical buy-in to the process when the end result might be a RIF for themselves or a co-worker. That's the question to ponder when dealing with the ROI Elephant in the Room.
http://www.scdigest.com