Chapter 11. Look Outside Your Four Walls to Lower Costs Inside

Developing an Extended Enterprise Mentality Can Help You Capitalize on Cost Reduction Opportunities with Suppliers and Distributors

With Jeff Howard, Chris Kennedy, and John Smith

There comes a point in every Lean Six Sigma deployment when leaders realize that the best way to drive more cost reduction inside the value chain is to look outside that chain. Or, rather, to extend their view of that value chain both upstream and downstream.

What does it means to extend the view of your value chain? Here's an example:

A year after launching a very aggressive Lean Six Sigma program, the CEO of a global heavy equipment manufacturer was impressed that the initial $30 million investment had already paid for itself. The CEO then began to wonder what kind of opportunities he might be missing by focusing only internally. So he expanded the program both upstream and downstream, developing partnerships with both suppliers and dealers. The company paid to help train staff inside suppliers, identified projects both within the suppliers and joint projects that crossed organizational boundaries, and began developing partnerships with dealers (the companies that sold to the final customer). The benefits were immediate, and included those listed here.

Upstream Improvements

These are changes within suppliers that directly affected performance and/or costs to the manufacturer.

  • Significantly reduced scrap, both at suppliers and in the company's own ...

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