Vodafone's Creative EPS Improvement Plan: Doing More Than Slashing Heads to Massacre Costs

I find it almost humorous that the business and trade press so often equate corporate cost reduction with nothing more than layoffs or, as the Brits like to say, redundancies. Consider the case of Vodafone, which The Guardian reported just announced "a 2.4% increase in half-year operating profits -- to £5.9bn -- as a result of its existing cost-saving plan and a strong performance from its American joint venture Verizon Wireless". Moreover, "Vodafone is ramping up its cost-cutting programme, looking to save a further £1bn over the next two years, as the world's largest mobile phone operator battles with the global economic slowdown." Perusing the many articles on the subject on Google News this morning, none that I could find mentioned that Vodafone is driving a significant percentage of this cost reduction through procurement and supply chain initiatives vs. simply slashing heads.

Consider how Detlef Schultz, Vofafone's CPO, explained a few years back how his organization is making creative use of strategic sourcing processes and technologies. In a bylined whitepaper Schultz notes that "rather than use e-auctions to source commodities, Vodafone uses them in complex areas. One recent success includes an auction of an entire network including services and traffic management. This success was achieved by conducting a reverse auction which was followed by a Dutch auction. The process began with a Vodafone-determined asking price which increased until a participant was willing to accept the auctioneer's prices." But Vodafone's cost reduction efforts don't just stop with strategic sourcing.

As one example, it's worth examining how they’re working closely with suppliers to engineer total lifecycle costs out of the sourcing equation. I previously pointed to "the case of Vodafone's cellular network base stations". In this area, "to reduce power consumption on these units, Vodafone is working closely with their suppliers to reduce the size of the power supply needed by alleviating the need for cooling/air conditioning in some areas of these units. Moreover, by reducing the size of units, Vodafone reduces the amount of material used in the production process. Vodafone is also working to engage suppliers to use new materials and designs to eliminate the need for excess material. For example, Vodafone no longer needs to put a water/wind proof box around one class of new base stations because new supplier designs are weatherproof."

Also consider how "New designs are also reducing energy consumption. In the case of one new design for a 'lean base station' Vodafone expects to cut daily energy consumption in half from 350W to 175W. Their suppliers are doing this by leveraging smaller footprints and overall new designs that use lighter weight infrastructure and lighter weight cables. Moreover, these designs include a combination of 'solar, battery and wind' power for use in remote areas. They're also shifting the location of various components on stations, such as the location of solar panels, to both reduce cooling requirements and also theft (i.e., if you place panels further off the ground, they're less likely to be seen and stolen by would-be thieves)."

By taking both traditional and creative approaches to cost savings -- while also targeting sustainability -- there's no question that Vodafone has saved hundreds of millions if not billions of dollars to date through cost take-out not related to head count reduction. In our own research on Schultz's accomplishments as CPO, one of his colleagues remarked that he's "a serious thinker -- not just about traditional procurement, but about game theory and how best to save on a total cost basis". And he's also got a "strong understanding of the intersection of technology and process". A perfect recipe for savings in the downturn while saving jobs? You bet.

Jason Busch

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