CI 101

How do you reduce operating expenses?

There are two ways to increase profits, to increase revenue or reduce costs. Operating expense is a common headache for business owners, are you one of them?

These days consumers have more choices and more information than ever. They know that with so many competitors, they have multiple options for the needed product or service. To survive and be successful in this environment, cost reduction is critical. How do you reduce operating expenses?

Unfortunately, when it comes to cost reduction, the first thought is to reduce team members. Another common idea is to cut materials cost by buying inferior quality. You can not afford to do anything that affects the quality of the service or product. The best solution to cost expenses is to identify and reduce waste.

Waste reduction has to be an everyday activity, it is not a one-time event. With the help of your employees, you can improve your business working with continuous improvement basics. The basic activities of CI are housekeeping and organization, waste reduction, and standardization. You know already what waste is, in the next weeks I will talk about the other two.

Assessment of your business processes to identify waste reduction, standardization and organization opportunities is the best way to improve. Do not start this process as an excuse to cut manpower. Reducing team members is not, and never will be a continuous improvement goal.

CI 101

How can you create changes in your business?

Often business owners see something that tells them that something different needs to be done. Perhaps it is a recurring problem or realizes that the business is not reaching financial goals. What is the solution? You need to identify what areas need change and prioritize. How can you create changes? There are two major ways to create change: innovation and continuous improvement.

More often than not, innovation is a high-cost solution. While it is necessary to keep yourself ahead of the game, I like to start somewhere else. My first stop in creating improvements is to use common sense, low-cost solutions.

What are common-sense solutions? It is to approach a problem using good judgment. For example, let’s use one of my favorite low-cost tools: housekeeping and organization. Will you agree that keeping a clean and organized workplace is common-sense? Why do you think it is? Perhaps because you know some of the following facts:

  • Clutter and disorganization are against productivity, reduces the ability to concentrate.
  • A messy workplace causes anxiety, stress, and has the potential to foster a negative state of mind, like feeling overwhelmed.

Your good judgment tells you that an efficient workplace is cleaned and organized. A lack of cleaning and organization is a visual indicator of inefficiency. You know that this condition has to change.

To improve housekeeping, you can buy a fancy computerized program or use a simple low-cost solution. Your new high-cost application will help you to create checklists, assign responsibilities and follow up on the cleaning activities. But it will not help you to ensure the workplace is clean and organized.

An alternative is to use 5S, a housekeeping and organization program. This program along with waste elimination and standardization are the basics of practicing continuous improvement. CI is about creating small changes using common-sense solutions that are easy to implement and follow. When you add up all those changes you will see a huge improvement in the overall performance of your business.

CI 101, Customer Satisfaction

What are your business goals?

One of your goals as a successful business owner is to deliver high-quality products to the customer at the lowest cost. The goal of lean or continuous improvement is to provide the customer with the highest quality, at the lowest cost, in a shorter time. It sounds to me that both goals are the same, what do you think?  

Continuous improvement achieves the goal by continuously eliminating waste, and you need to learn what it is and eliminate it. Waste is any activity that the customer is not willing to pay. They don’t have problems paying for activities that transform materials into finished goods or processed information. We call those activities value-added.  

The customer does not pay for the cost of fixing errors, waiting time, or excess inventory. These activities are non-value-added or waste, and the target of continuous improvement is to eliminate them.

Waste has seven categories: transportation, inventory, motion, waiting, over-production, over-processing, and defects. There is another category added later, which is underutilization of people’s talents.

  • Transportation is an essential part of operations, but it does not act any value from the customer perspective. The goal of CI is to minimize transportation to the minimum necessary.
  • Inventory of raw materials is also a necessary evil, but you do not want to have excess inventory. Excess inventory is at risk of being damaged or become obsolete.  
  • Any motion of a person’s body that is not related to adding value is waste. Poor ergonomic designs make people move their bodies more than necessary causing safety and productivity issues. 
  • Waiting for materials, for approvals, for a phone call, or for shared equipment to become available are all examples of waste.  
  • Over-production is when we make too much because we are producing ahead of the real demand. Over-production creates more waste in the form of inventory, motion, waiting, and others.
  • Over-processing is doing more than what the customer requires. A common example of this is when you receive items in a box that is three times the appropriate size.
  • defect is when we make a mistake, or produce defective items. Fix defective products comprise time, material, and other resources.  
  • Underutilization of people’s talents is not letting people work at their full capacity. Examples of this are lack of training, not trusting in their capacity to improve processes and siloed thinking.

You can use a process map to highlight the waste on the process. Make sure that you eliminate or minimize waste while designing the new process. Your strategy to increase profitability is to eliminate waste.

What are your business goals? Is one of them to deliver a high quality product at a low cost? Are you targeting to increase your business profitability? Do you want to grow your business? If you answer yes to any of the last three questions, then continuous improvement is the business strategy you are looking for. Contact me, and we will work together to improve your business processes from the customer perspective.

CI 101

Do you know the difference between metrics and KPIs?

How do you know if your business is successful? Do you use metrics? Or do you use key performance indicators? What is the difference between them?

A metric is a measurement you use to track and assess the condition of a process. These measures give you information about how the process is working and provide a baseline for improvements. KPI stands for a key performance indicator. It measures how well the business is doing against a goal. Key performance indicators are strategic, and metrics are tactical.

Let’s use the Yummy Broths restaurant that specializes in soups as an example. One process for Yummy is cooking a plate of chicken soup. To measure the status or condition of this plate, the owner can use the cost per plate, sales per day, or the quantity of the ingredients per batch. One goal for Yummy Broths is to increase the gross margin by 20% before the end of December 2020. The owner decided to track the cost of goods sold (COGS) as the KPI.

KPIs are metrics, but as the name indicates they are key metrics. Not everything is key, otherwise, nothing is. KPIs are like vital signs for the business. Metrics are tactical because they measure the daily business activities that support the accomplishment of the goals. The KPI will let you know If something is wrong, other metrics will help explain why.

The restaurant owner decided to increase profit by reducing the cost of goods sold rather than increasing revenues. The standard is 31% of the sales or less. When the COGS reaches 40%, Yummy Broths owner knows that something is wrong. He knows that for his business profitability, inventory cost is vital. One way to control it is by making sure cooks use the right amount of ingredients to prepare each recipe. Looking at the ingredients used, he realized that compared to the standard, the ingredients per batch are off. Cooks are using more quantity than the recipe asks for. Now he can take action to correct the performance against the goal. Meeting the ingredients per batch standard will support achieving the COGS.

There are two critical things about KPIs, selection, and follow-up. Select indicators that aligned with the business objectives. Always look for the best way to measure the progress towards the goal. Also, since they are critical, monitor them weekly. Do not wait until the month-end because it will be too late to do something if you need it.

Now that you know the difference between metrics and KPIs, go check if you selected the right metrics to measure your business goals.

CI 101

Do you know what a process is?

A process is a series of steps or activities necessary to achieve a goal. Some examples are: cooking, plan an event, create an invoice, and checking out in a store. Everything that we do in steps is a process. Each business consists of processes that together make possible the delivery of a product or service. The effectiveness of those processes and how they work with each other are a big part of business success.

Is your business receiving bad ratings for poor service? Are people complaining because they receive something other than what they ordered? Are you missing deadlines? If you answer yes to any of those questions, then you need to improve those processes as soon as possible. The inefficiency of one or more of them or the flow between them is affecting your pocket. If you adopt continuous improvement, you will create small improvements frequently. That will keep your processes efficient and effective.

The first step to improve business processes is to identify what areas need change and prioritize. Complete an assessment of your business processes. Identify what is working well and what is not. What processes are affecting your organization or customers? Map the process you chose to improve first. With a process map, you can visualize the sequence of steps. Analyze where the flow stops, and see if there are delays or waiting time. What step takes longer to complete? Why does that happen? It is important to find the true cause of these problems to avoid recurrence.

Ask your employees for feedback, involve them in the analysis and innovation. Design a new process based on your findings. Implement and communicate the reason for those changes. After the implementation, you need to review the results. Is it working? Are you getting the expected results? If the answer is yes, then you are ready to tackle the next item on your priority list.

Are you ready to start? Practice continuous improvement to keep making your processes and your business better. Contact Better Process Solutions if you need help to start your improvements!

This article was originally posted in Organization and Efficiency Solutions.

CI 101

What is Continuous Improvement and why you need it?

Do you want to increase the net profit of your business? One way to do this is to reduce the operating expense. How do you do that? Where do you start?

You want to learn and practice Continuous Improvement (CI). CI or Lean is a business management system designed to create customer value with fewer resources. This system is a group of principles, best practices, and tools. Lean born from the necessity to be more efficient and be able to operate with fewer resources, which makes it the ideal tool to reduce costs.

Contrary to common perception, Lean or CI is not for manufacturing companies only. CI works in the office, retail, warehouse, mechanic shops, medical and other types of businesses.

With CI tools you can draw a map to see how the information or product flows in your business and identify inefficiencies or waste. Once you know the problem, you can start working on solutions. In a future post, I will present some of the tools used to assess the process flow and identify waste. Also, I will talk about tools for housekeeping and organization, inventory control, and process standardization.

Do you want to reduce operating expenses? Do you want to start the year knowing what to do? Better Process Solutions offer a simple and effective process improvement solution. Get in touch, and I will help you!