Stephan Mohr, an associate principal in McKinsey’s Munich office, Ken Somers, a consultant in the Antwerp office, Steven Swartz, a principal in the Chicago office, and Helga Vanthournout, s a consultant in the Geneva office jointly authored an article published in McKinsey Quarterly, 2012 June on the theme Manufacturing Resource Productivity.
They observed that cost of inputs especially raw materials and energy are going up as production and consumption of manufactured goods is going up in emerging countries. Therefore variable cost is going up as a proportion of production expenses.
But companies have a visible opportunity of reducing these variable costs. Companies who make use of these opportunities will have operational stability compared to organization who ignore them and hence likely to suffer volatility.
The opportunities are in four areas: Production process redesign, Product redesign, Value recovery from used products that are with consumers, and Supply circle management.
Processes can be redesigned to save 20 to 30% energy.
Product redesign can be undertaken to reduce material use by 30%. At the same time design changes can be brought in to their potential for recycling and reuse.
The benefit can go up to 50% if the mechanism and recycling and reuse are put in place with bringing consumers into the loop to recover used products from them.
Once a company is successful with these initiatives, it can implement them in its supply partner organizations.
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