Tuesday, 6 December 2011

My attempt at a narrative about a sticky situation

The aim of my business (like most I guess) is profitability. I work in the supply chain, and once the hygiene factor of product availability has been met, we are only able to impact profitability through reducing costs.

This has led to the implementation of a concept of "cost improvement projects" or CIPs. In the early days, these were genuine attempts to remove unnecessary costs from the business. The projects chosen were true opportunities to reduce cost, and were in addition to any business planning. this meant, if they succeeded, that was good news, and if they failed, well, it was not the end of the world.

Since then, the idea of CIPs has become quite a divisive instrument in the business.

Our organisation is structured along functional lines - which leaves us vulnerable to silo thinking (or smoke stacks in the olden, non American days!) where each function is really only concerned with achieving their own targets. This structure is relatively new, so there is a strong desire on the part of the functional leadership to prove that the structure is a good one, and that it is driving tangible benefits to the business... And that each functional head is better than their colleagues...

So, back to the CIPs. THey started life as voluntary incremental projects, which would improve the costs beyond the business plan commitment. CIPs have now become an integrated part of the business planning process.

As a functional cost centre owner, I submit my best estimate of how much it will cost to run the department for the following year. Once that has been submitted, an incremental CIPs target is handed out to each cost centre.

At this point, all business leaders clamour to stake a claim for incremental projects, that may even not belong in their remit, in order to meet their CIPs target.

High levels of resource and effort is expended in arguing about who owns each CIP project. In addition, predictably, CIPs tend to be contradictory (as an example, this year there are two initiatives - one to reduce transportation costs, which will increase leadtimes.... and another to reduce inventory in the warehouses...)

This is now at the extreme point that a department has been established to "manage the CIPs list". One of their primary functions is to arbitrate CIPs ownership claims from the various functions.

Perhaps the most disappointing part of this sticky situation is that even after all that effort, it is virtually impossible to hold anybody accountable for delivery of the promised saving which often does not materialise. This means that the overall profitability of the business is impacted. Sadly, this then increases the pressure on finding more CIPs and puts more strain on the inter-functional relationships.

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