Double Your Profits
By Jay Arthur
With the economy faltering, customers hesitating and suppliers balking, every company worries about sustaining profits. In the face of these market forces, companies can rarely sell their way to higher profits. Although executives and employees can't do much about the external forces, they can have a major impact internally.
Faced with shrinking profits, companies invariably try to cut costs by reducing staff, paying suppliers more slowly or "cheating" the customer by using inferior quality materials. These quality shortcuts can cripple and even kill a company in the long run.
Earnings shortfalls make everyone look for a quick fix. They settle for cheap tricks that damage the company's reputation instead of focusing on ways to simplify, streamline and optimize the business to cut costs, boost profits and retain customers.
There is a better way that doesn't take forever or cost a fortune.
Every work area collects out-of-date equipment and materials. Keeping that junk around costs money and clutters the workspace. To trim costs and boost profits, start by going through every nook and cranny and throwing out everything that isn't related to the current way work is done. Once the clutter is gone, it's easier to streamline the workflow.
Then, organize and label the materials and equipment into consistent locations. It's not unusual for work materials to be spread all over a workplace, making it difficult to find what is needed, when it is needed.
The next step is to streamline the business by removing barriers and redesigning the work to minimize resistance and delays in the workflow. All businesses suffer from Lazy Product Syndrome (LPS). While employees work on the product or service for perhaps three minutes out of every hour, the product sits idle for the other 57 minutes (the 3-57 Rule). That's why the elapsed time from order to delivery can take weeks instead of hours; hours instead of minutes; or minutes instead of seconds.
Take this test: Follow a customer's order from start to delivery and notice just how little time is actually spent working the order. Notice how much time it spends in an inbox or an outbox or a queue somewhere. Notice how much time it spends waiting on the next step in its journey. The order spends 95percent of its time waiting for something to happen.
Have employees wear pedometers and record how far they walk each day. Then rearrange the materials and equipment to reduce their travel time by half. Using this technique in a 2,400 sq. ft. hospital lab revealed that technicians traveled three-to-four miles per day. Redesigning the workspace freed up 400 sq. ft. for other uses. After redesigning the space to put high volume equipment closer to arrival area, they were able to reduce travel by almost 60percent. In a year, the savings per technician equaled the distance from Denver to Pittsburgh. It also saved seven hours per day.
Another option for manufacturing businesses is to stop making more than can be used. One magazine printer had presses that could print a million magazines each day, but the bindery could only handle 200,000 per day. The other 800,000 had to be stored for up to five days. These unbound magazines took up space and were subject to forklift damage that resulted in scrap and reprints. Printing only 200,000 per day freed up the press to handle other jobs in a more timely fashion while still meeting the bindery's needs.
Tip: Make your product or service faster, not your people.
Simplifying and streamlining the workflow can cut costs by 20percent or more, and double productivity. Oddly enough, businesses can be faster without working harder. Simplifying and streamlining also reduces mistakes and the high cost of rework by up to 50percent. It's an easy way to start cutting costs and boosting profits.
Once the workplace and workflow has been simplified and streamlined, it's time to start optimizing the work process. Every business makes mistakes, errors, defects, glitches and hitches that result in rework, scrap and lost profit. To optimize the delivery of products or services, start counting and categorizing the mistakes, errors or defects.
Count: How many mistakes are there in the product or service? Include everything from the initial sales order to customer acceptance.
How many times a day do fast food outlets fail to provide everything ordered at the drive in window? How many products have a shortage or oversupply of the nuts and bolts required for assembly?
Categorize: What are the most common type of errors, mistakes or defects? Where are they most often made? At which step in the process? How costly is each type of mistake? By categorizing defects in a variety of ways, it's easy to discover that they aren't spread all over; they cluster in a few key areas. Only four actions out of every 100 cause over 50percent of the mistakes, errors, defects, scrap, rework and lost profit (the 4-50 rule).
One wireless phone company had thousands of order errors every day. Only six errors out of 200 error types accounted for over 90percent of all errors. One New England hospital had three wrong side brain surgeries in one year. Not that many mistakes, but probably costly ones. While it might seem easy to blame the surgeon or nursing staff, the root cause lies elsewhere.
People don't make mistakes; processes do.
Properly designed, a process will not let a person make a mistake. This is called mistake proofing. Most modern cars will not start unless the driver's foot is on the brake and the transmission is parked or neutral. That's mistake proofing. Electrical plugs have a fat and a thin blade to ensure that they are inserted correctly into outlets. Mistake proofing! Grocery shoppers use shopping lists to make sure they get everything they need in one trip. Mistake proofing!
Tip: Fix your process, not your people.
By letting error categories narrow the improvement focus, it's easy to identify the root causes and potential solutions. Oddly enough, one rarely needs more money or more people or more training. Changing the process to prevent problems often solves the issue.
One business switched from stamps to an online postage service, which not only provides postage, but verifies addresses before sending anything. That cut returned mail by 75percent. And it provides delivery confirmation for free!
Double Your Profits
While companies may not be able to control what happens in the economy, they can control what happens inside of the company. Even profitable companies spend $25-$40 out of every $100 on their "Fix-It" factory. By simplifying, streamlining and optimizing operations, any business can cut those figures down to $5-$10 out of every $100. Adding 20 percent or more back to the bottom line could easily double your profits. And it doesn't have take forever. Aggressive application of these principles can cut costs to these levels in six to twelve months.
Tip: You don't have to fix everything, just start with the important ones.
The good news is that any company can start today by simplifying and streamlining. These two steps will take profits half the distance to the goal.
So get started today, even if it's just your own workspace. Talk about these concepts with coworkers. Stop waiting for permission to make work better, smoother and faster. Start simplifying, streamlining and optimizing today.
About the Author
Jay Arthur, the KnowWare Man, is author of "Double Your Profits: Plug theLeaks in Your Cash Flow." He has spent the last 20 years helping companies maximize revenue through the "Lean Six Sigma Simplified System," a collection of audio, video, books and software. Jay is also the author of "Lean Six Sigma Demystified" and created the "QI Macros SPC Software" for Excel.