Fuel Costs, Inventory Turns

Economic and financial pressures are accelerating the cable industry’s ongoing quest for greater efficiency in technical operations.

As the variable cost of fueling trucks has risen, for instance, so has the imperative for reducing the number of truck rolls by preemptive network monitoring and smart customer call center intervention. Pumped-up pump prices also impact any numbers an operator is running on certain architectural shifts, such as moving to all-digital.

The reason is that, while not part of a capital expenditure budget for acquiring the necessary customer premises equipment, truck rolls are an important if sometimes sometimes overlooked component of rolling out all-digital services. Optimized capital Earlier this decade, Wall Street analysts began focusing on free cash flow (operating cash flow less capital expenditures), a metric less easy to manipulate than earnings and one that had long eluded capital-intensive businesses such as cable.

As cable operators began to report cash-flow positive numbers starting in 2003, the public intensity of that focus diminished. Part of what happened was that capital expenditures became a sort of tripwire for publicly traded companies; go beyond a certain amount, and an operator might slip back into the negative territory.

The idea of maximizing cash flow, however, is not only about reducing (or postponing or disguising) capital expenditures. There are also more and less efficient ways – perhaps better known to accountants than technologists – of working any number of assets, including inventory.

Granted, cable is not a retail business. But as anyone who has ever visited a cable warehouse or witnessed the propensity of cable technicians to "switch out" (rather than troubleshoot) equipment can attest or surmise, operators traditionally have kept plenty of spare parts on hand.

That may be changing, from both internal logistics management and partnerships with major suppliers such as CommScope.

"We’ve been able to bring two months of inventory down to two weeks," said Tom Maguire, director of sales operations for CommScope Broadband, which created a real-time service model for its customers called Advantage Inventory Management (AIM).

Two months is traditional, said Maguire, in part because of legacy of the builds and overbuilds (and materiel scarcity) of the late ’90s. Today, however, the talk is of "inventory dollars per subscriber."

To jumpstart a customer’s efforts at reducing inventory on hand and increasing turnover ratios, CommScope launched AIM 1.0 with scanners, a database and a Web site.

"We wanted to develop a program that would be no cost to our customers, as far as investing in the program," Maguire said.

Within a year, CommScope upgraded AIM to a 2.0 version, which replaced scanning barcodes with a more direct updating from a customer’s inventory records.

"There’s a simple FTP format that we use, and then we work with (a customer’s) IT group to develop the transport mechanisms, but then on our end, we invested about $2 million to develop this automated replenish function," Maguire said.

Maguire said that a strong global supply chain allows CommScope to ensure operators that it can keep the pipe flowing, even during events disruptive to production, such as Hurricane Katrina in 2005.

Overall improvements to cash flow resulting from the use of AIM by CommScope customers amounts to about $3 million, Maguire said.

– Jonathan Tombes Read more news and analysis on Communications Technology‘s Web site at http://www.cable360.net/ct/news/.