Double Your Profits by Better Management
Jan 24, 2019
By Jay Arthur
With the economy faltering, customers hesitating and suppliers balking, every company worries about sustaining profits. All right, you may not be able to sell your way to higher profits. However, you can actually double your profits by internal efforts.
1. Simplify. Everyone has some out-of-date equipment and materials. Keeping that junk costs money and clutters the workspace. To trim costs and boost profits, go through and throw out anything that isn’t related to the current way work is done. Once the clutter is gone, it’s easier to streamline.
Now locate and label the materials and equipment to find them easily. It's not unusual for work materials to be spread all over a workplace. Make it easier to find what is needed, when it is needed.
2. Streamline. Streamline the business by removing barriers and redesigning the work to minimize resistance and delays. All businesses suffer from Lazy Product Syndrome (LPS). While employees work on the product or service for three minutes out of every hour, the product sits idle for 57 minutes (the 3–57 rule). That's why the elapsed time from order to delivery can take weeks instead of hours.
Follow a customer's order from start to delivery and notice how little time is spent working on the order. How much time does it spend in an inbox or a queue? Notice how much longer to the next step. The order spends 95% of its time waiting.
Have employees wear pedometers and record how far they walk. Then rearrange the materials and equipment to reduce their travel time by half. Using this technique in a 2,400 square-foot hospital lab revealed that technicians traveled three to four miles per day. Redesigning the workspace freed up 400 square feet for other uses. After putting the high volume equipment closer to arrival area, they were able to reduce travel by almost 60%. 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 company had presses that could print a million magazines daily, but the bindery could only handle 200,000 per day. The other 800,000 had to be stored. These unbound magazines took up space and were subject to forklift damage, resulting in scrap and reprints. Printing only 200,000 daily freed up the press to handle other jobs, while still meeting the bindery's needs.
Simplifying and streamlining the workflow can cut costs by 20% 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.
3. Optimize. Every business makes mistakes, errors, and glitches that result in rework, scrap, and lost profit. To optimize the delivery of products or services, start counting and categorizing the mistakes.
Count the following:
- 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 bolts required for assembly?
Categorize the following:
- What are the most common type of errors, mistakes or defects?
- At which step in the process are these mistakes made?
- How costly is each type of mistake?
By categorizing defects in a variety of ways, it's easy to discover they cluster in a few areas. In fact, four actions out of every 100 cause over 50% 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 90% of all errors. Don’t forget: 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. Mistake proofing!
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, more people, or more training. Changing the process to prevent problems often solves the issue.
Even profitable companies spend $25 to $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 to $10 out of every $100. Adding 20% 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 in six to twelve months.
So get started today, even if it's just your own workspace. Start simplifying, streamlining, and optimizing now!
About The Author
Jay Arthur, the KnowWare Man, is author of Double Your Profits: Plug the Leaks in Your Cash Flow. He has spent the last 20 years helping companies maximize revenue through the "Lean Six Sigma Simplified System. For more information: https://www.qimacros.com/trial/30-day/