Calculating the Value of Cutting 100 Steps

This entry is part 15 of 18 in the series Interview Tom Marine Gets Right Upfront

MM: Then at that point, you applied
activity-based costing. We already identified that the current-state workflow entailed 300 steps. How many steps did the new, enhanced workflow—entail?

TM: 200.

MM: So clearly, a third of the steps went away?

TM: Absolutely.

MM: Now activity-based costing allowed you to calculate with fairly good accuracy the economic value of eliminating those 100 steps.

TM: That’s correct.

MM: And do you recall what that was?

TM: I couldn’t put my finger right on that number, but I know it was more than the cost of the software.

MM: Right. So in the course of that, you also were able to estimate gains in cycle time. Is that right?

TM: Yes. In fact, that was a major thrust. We knew that we wanted to produce the catalog twice. At that point, we were only producing it once a year.

MM: So basically, you were going to be able to double your cycle time. Not double, but cut it in half.

TM: Cut it in half.

MM: So once you identified that that was a change worth making, the pain associated with the gain would be that there were 100 steps missing with economic value of $500,000 or $400,000. And halving the cycle time would produce incremental sales—as a function of being able to get refreshed content out there.

TM: Yes.

Ancillary Benefits

MM: The other benefit is that now you had your website and your catalog more closely synchronized.

TM: Right.

MM: So you didn’t have one price one place and another in another.

TM: Right.

MM: That would reduce a certain number of customer service cycles. Or discounts that were more like “make-goods,” as a function of satisfying the customer. Right?

TM: Right.

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