Business and Operations
Create your own stimulus plan
By Jay Arthur
By Jay Arthur
July 24, 2009 – While in this economy it's hard to increase sales, it's easy
to focus on reducing costs. Every dollar saved goes straight to the bottom
line. And employees love finding ways to simplify, streamline and optimize the
business to better serve customers.
According to the July/August Harvard Business Review survey
titled How Bleak is the Landscape?, 27 per cent of businesses are streamlining
product or service offerings, 34 per cent are reengineering processes and 37
per cent are improving products, services or customer support. Shouldn't your
business be using this opportunity to improve the value chain?
Every business collects clutter over the years in offices,
factory floors, inventory, product or service lines. Now is a perfect time to
put employees to work on eliminating the flotsam and jetsam of the past. When
the clutter is gone, it's easier to see where to focus on the next step:
Far too many businesses make stuff and then try to sell it.
Instead of trying to push products or services onto the customer, change the
business to let customers pull products or services when they need them. Any
business can employ the principles of lean thinking to deliver what customers
want when they want it.
Pushing products or services on customers results in excess
inventory, both finished goods and raw materials. Pull companies only make the
product or deliver the service when the customer requests it. Think of it this
way: Inventory is fundamentally evil. It has to be stored, managed, moved, and
so on. It eats up time and money that could be employed elsewhere.
Pushing causes the ordering of large batches of raw
materials and the production of large batches of product. Using a pull system
results in ordering and production of as small a batch as possible. The ultimate
form of this is called one-piece flow. When people hear this, they often ask:
"What about economies of scale?" GM and Chrysler are examples of the
problems that result from economies of scale thinking: too much inventory.
Consider a better alternative: economies of speed.
Pushing products or services results in delays between steps
in the value stream that slow the delivery of the product or service. Even
though employees seem to be working hard, if you watch the product or service,
it spends a lot of time waiting on the next step in production. Even if the
production line is fast, the delays between an order, scheduling, production,
delivery, invoicing and payment are often excessive.
The 3-57 Rule: Employees work on the product or service as
little as 3 minutes out of every hour resulting in 57 minutes of delay. Most
people doubt this, but when managers shift their attention from the employees to
the product, they discover that this holds true in all processes: office,
backroom, billing, purchasing, etc.
Now for the good news: every 15 minute per hour reduction in
delay will double productivity and increase profit margins by 20 per cent! How
is that for stimulus! Having worked on many projects to reduce delays, it's
often easy to reduce delays by 75 per cent or more (45 minutes/hour) which can
increase profit margins by 60 per cent! Instead of having to work harder,
employees discover that they have more time to do it right the first time. Why?
Because they aren't constantly picking up and putting down the product or
service. In true one-piece flow, the product is worked nonstop which results in
far fewer errors and faster delivery, which delights customers.
The business that employees the economies of speed by
reducing delays will garner more customers and more profits than their
competition. Encourage employees to start streamlining their process today.
Once businesses remove the slack from their value chain by
switching to a pull system, it's time to start optimizing the process to
eliminate defects and deviation.
Every business makes mistakes. Every product or service process
varies slightly. Finding and fixing mistakes, errors and variation in the
finished product can eat up 25 to 40 per cent of the total budget. And as
little as four percent of the business produces over 50 per cent of the defects
and deviation (The 4-50 Rule).
Eliminating defects is easy. Count the number of mistakes,
errors or defects in a process (e.g., order errors, product defects, billing
errors, etc.). Categorize the defects by process step (e.g., order entry,
packaging error, etc.). Change the process so that it is impossible to make
Too many businesses get caught up in blaming employees for
mistakes. Systems and processes let employees make mistakes. When the system or
process gets changed so that it is impossible to make the mistake, employees
stop making them. Blame the process, not the people.
Eliminating deviation is a little bit more challenging, but
not that difficult. Measure the variation in the product or service (usually
some plus-or-minus, over/under variation of length, weight, time, etc.). Evaluate
the root causes of deviation from the customer's target value (e.g., machine
setup, maintenance, etc.). Change the process to minimize deviation.
Implement a measurement and monitoring process to make sure
the machines or process don't drift from the target value. This usually
involves some form of statistical process control (SPC). Hospitals, for
example, measure infection rates; manufacturing plants measure dimensions;
banks measure customer wait times; and so on. Inexpensive Excel-based SPC
software can do this easily.
Employee Stimulus Plan
Each of these steps – simplify, streamline and optimize —
can engage employees in the quest for excellence. They've grown tired of
serving customers badly and they've also grown tired of trying to get anyone to
listen to their improvement ideas. By engaging employees in each of these three
steps, they become renewed rather than burned out. It's a simple way to break
the angst over the economy.
Engage employees in getting rid of the clutter, eliminating
unnecessary inventory and delays and reducing or eliminating defects and
deviation. Set BHAGs (Big Hairy Audacious Goals) to reduce delay, defects and
deviation by 50 per cent in six months or less. It will stimulate your
business, your employees and, most importantly, your customers.
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 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.
To plug the leaks in your cash flow, sign up for free Lean Six Sigma lessons
online at: http://www.qimacros.com/freestuff.html or call (888)468-1537.