Historically, the price of production has dominated the price of production: it created most of the business value (and therefore the price) of products. This has changed over the last decades: now more than half of the value comes from other costs or “intangible assets”. A couple of decades ago, tangible assets created 80% of business value, this has dropped to just 15%.
Let us explore the difference:
Tangible assets: factories, raw material (“items you can touch”)
Intangible assets: workforce adding “labour”, transport, marketing, sales, administration, finance, IT, etc. (“tasks and processes”)
Management has become very apt to manage the “creation process”, in which products are manufactured. Most other jobs are performed by knowledge workers, which create the bulk of intangible asset cost.
Workforce is regarded as expenses, and most companies try to manage these costs with an attitude of ”reduce and contain”. However, a more effective way of dealing with these costs would be to increase efficiency. This would need a change of mindset from “what” to “how”.
One might think that managing tangible assets would be a lot different from intangible assets. Is that the case? A tried and tested approach is setting a “budget”. This could take form as “price per sale” for the sales department, “price per lead” for marketing or “price per processed order and/or invoice” for the administration. Obviously strict productivity and quality levels must be set and measured.
Knowledge workers lose an average of 40% of their time handling tasks that could have been avoided. This means working on error correction, rework, and over-service. If left alone, the old adagio “reduce and contain” will not change this. At best this would trigger the discussion of “too much work, too little time”.
Consider the following example: a large lightbulb factory produces in highly automated plants that can almost be workforce-free. But the bulbs need to be sold through retailers, which order through a manual process (fax, pdf or what have you) and they are invoiced manually too. This would take a large group of people to handle. They do the data-entry, correct inconsistencies, contact the retailers is case of error, handle return goods, etc. It would become even worse when people call in ill. High costs, delays, and inconvenience…
If not for a breakthrough in thinking, normal budgets would be met, and things would continue as before. Evolution could only help so much, in this case a revolution is needed.
The engineering way of solving this would be to standardize communication using structured messaging, to cover all needs of the administrative process, then implement. Order entry would no longer exist, and invoice processing could be highly automated. Exception handling could be done by 10% of the original workforce. In other words: in this particular exemple EDI would be the answer to gain efficiency.
Intangible asset value will drop, creating value for both supplier as well as buyer.
Neksus can assist in any standardization or EDI project. Gaining efficiency is as easy getting the right information available to the people who need it, at the time they need it!