How to Boost Profits Even in Tough Times: Refocus Your Fix-It Factory
By Jay Arthur
With the revenues shrinking and costs rising, it's easy to get upside-down in the profit column. With credit markets just starting to thaw, it may be difficult to get the cash needed to continue operations. And tight-fisted customers aren't going to let you sell your way back to profitability. How is it possible to boost profits without increasing sales? The easiest way is to downsize your costs.
Ever noticed how some companies seem to thrive in economic downturns and blow past their competitors? Wouldn't you like to be one of them?
You can! There are hidden gold mines in your day-to-day business operations that you've been unable to tap using common sense, gut feel, and trial-and-error. Across the ordering, billing, purchasing, payments, and fulfillment processes, your customers may experience a 6-12-18% error rate-an error rate that is devouring your profits.
In a recession you can't market or sell your way out, because customers are tightening their purse strings. You can't innovate your way out, because customers want proven solutions, not new, untried ones.
You can, however, systematically improve your mission-critical operations -eliminating defects, delay, and waste that translate into immediate profits. No waiting! And best of all, your processes are totally within your control - you don't have to rely on anyone else to achieve your goals.
This means that you can fill your revenue dips with money that had been lost in operations. You can turn your employees' attention to solving operational problems forever.
While most companies are cutting the usual expenses - travel, training, bonuses, pay, and headcount - a few are using this economy as an opportunity to optimize their operation so they can weather this economic storm and future ones as well. They know what only a rare few seem to know: one out of every three employees is working in the company's "Fix-It" factory.
The Fix-It Factory
Every company has two factories:
- one that creates and delivers your product or service
- and a hidden "Fix-it" factory that cleans up all of the mistakes and delays that occur in the other factory.
How can you tell if you have a "Fix-It" Factory? Just pay attention to how much time you spend on overtime, fire fighting and crisis management. Do you consistently rely on heroics to save the day? Do you reward fire fighting, but not fire prevention? Do you have hordes of employees inspecting the finished product or service? If so, the "Fix-It" Factory is costing $20-$40 out of every $100 you spend.
If you're a $1 million company, that's $250,000-$400,000. If you're a $100 million company, that's $20-40 million. Just think what saving a fraction of that money could do for your profitability!
Fix Your Process, Not Your Product or Your People
When there's a problem in a product or service, someone always wants to place the blame. Most often, the blame falls on the head of the person who created the problem, made the mistake or caused the error.
Wrong! Blame the step-by-step process that allowed the person to make the mistake, error, or defect. Instead of punishing the person, ask him to figure out how to change the process to prevent the error in the future. This is called mistake-proofing.
We all benefit from mistake-proofing. You can't start a modern car without a foot on the brake. Mistake-proofing! You can't plug in an electrical cord with the prongs reversed. Mistake-proofing! With a little bit of concentrated thought, there's a way to mistake-proof any process.
Focus For Maximum Benefit
While most people think that mistakes are spread evenly over the business like butter on bread, the truth is that mistakes tend to cluster in a few key steps of the process. All you have to do is:
- Count the number of mistakes made.
- Categorize them by process step, location or other grouping.
- Tackle the biggest category of mistakes first.
- Analyze the root cause of the mistake.
- Change the process to prevent the mistake.
As little as four steps out of every 100 cause over 50 percent of the mistakes, errors, and defects. Correcting these errors in the "Fix-It" Factory can cost 10 to100 times more than doing it right the first time. Poof, there goes your profit.
Most companies already count their errors, but few do anything with them except flog employees at the annual review. Will you be one of the rare few who use these numbers to find ways to mistake-proof processes and shift employees out of the "Fix-It" Factory into the service of customers?
With a slow economy, there will never be a better time to work on these issues than right now. Then, when the economy turns around - as it always does - you will not only have more money, but be able to offer better prices than your competition and still make enormous profit.
The Top 10 Ways to Spot a Fix-it Factory
- Heroes routinely do battle to prevent delivering a bad product or service. One company prided themselves on "doing the impossible everyday."
- Customer complaints. For every customer who complains about your product, there are 16 more that won't tell you. Each of these tells eight other people about why they don't like your product or service. Word of mouth can kill you!
- Supplier complaints. Do your suppliers complain about the irrational last minute demands you make and how long it takes to get paid? Word of mouth can kill you!
- Employee whining: "I can't do my job because so-and-so doesn't do their job!" Employees want to do a good job. What's stopping them?
- Blaming people for poor quality. Ninety-nine percent of the problem is in your systems and processes, not your people. Focus on the business operations.
- Knee jerk fixes that fail. Common sense and gut feel stop working at a 3 percent error rate. That's when you need the "common science" of these tips to take you to the next level.
- Margins are low, expenses are high, growth is stalled. Defects and delay eat away at margins and inflate expenses.
- Failures in the field. How big is your warranty or repair department? How many people does it take to handle your customer service and tech support calls?
- Too many inspectors checking quality. You can't inspect quality into your product or service, but you can build it in.
- Absenteeism and turnover. Employees hate doing a poor job for customers. Employees get angry when the internal system prevents them from doing a good job. How are your systems preventing your employees from doing a good job?
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.