TAKING CARE OF BUSINESS

Four surefire steps to recession-proof your biz.

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When the economy falls off a cliff like it did in September 2008, is your business going to survive or even thrive? Most companies reacted to the downturn by cutting the usual costs: training, travel, raises, bonuses, headcount and 401(k) matching contributions. The bad news is these kinds of cuts also put employees in a funk that crushes productivity.

Some companies are cutting corners on quality, but customers are even more savvy in a recession. These shortcuts may save a few dollars now, but ultimately they kill the cash cow because your customers will start shopping around.

So how do you cut the red ink without cutting corners or killing the cash cow? Fortunately, there are simple things you can do right now to cut the red ink, build customer loyalty and recession-proof your biz.

Step 1: Spring Cleaning
Any workplace collects clutter: unused forms, materials, equipment, etc. Borrowing from the principles of Lean manufacturing, the first step is the five S’s: sort, straighten, shine, standardize, and sustain the workplace. Go through every nook and cranny and sell or throw out anything that you no longer use or need, because it just takes up space and wastes time and energy. Then organize and label everything. Then put a procedure in place to keep it clean and tidy. Even computer hard drives and servers can benefit from these five S’s.

Inventory is Evil: Evaluate the levels of raw and finished goods inventory maintained. Do you have a warehouse of unused raw materials? Do you have another warehouse full of finished goods? How much does it cost to manage this inventory? How can you redesign your inventory system to minimize raw materials and redesign your production systems to minimize finished goods?

Step 2: The Fast Eat the Slow
Spring-cleaning will start to give you some idea about the existing workflow. Businesses grow and expand organically, but rarely in an organized fashion. A process that started simple may have become wildly complex, slow and error-prone.

The 3-57 Rule: employees work on the product or service for only three minutes out of every hour of elapsed time. The product or service (and customer) are waiting for something to happen for the other 57 minutes. Most people don’t believe this until they map the workflow and put times on each activity and the time between activities. Ninety-five percent of all delay is in the gaps between processing steps.

While haste makes waste when you focus on the three minutes employees work on the product or service, speed makes profit when you eliminate the 57 minutes of delay.

The 15-2-20 Rule: Every 15-minute reduction in delay will double productivity and increase profit margins by 20 percent according to Stauk and Hout, authors of Competing Against Time (1990). By redesigning the workflow to eliminate delays, it’s not unusual to reduce total time by 75 percent or more. Use a pad of Post-it™ notes to diagram the process; put times on every activity and gap; then redesign the process to minimize delays. It’s that easy.

Step 3: Optimize
Do you ever stop and check your order before leaving a fast-food drive-thru? Why? Experience has taught you restaurants make too many mistakes and you can’t afford to drive back. You’ve become an unpaid inspector in the fast food company’s workflow, just as your customers have become an unpaid inspector in yours.

What is the cost of billing adjustments, discounts, rework, repeat repairs, and so on? What are the return and warrantee costs? How often does a service need to be repeated to satisfy a customer? Probably too often. In most companies, one employee out of every three is engaged in the “Fix-It Factory,” correcting mistakes made by the other two. But don’t blame the people blame the process, because it let the employee make the mistake.

The 4-50 Rule: While most people mistakenly believe that errors are evenly distributed over the business like butter on bread, less than four percent of the business is causing over 50 percent of the mistakes, errors, defects, rework and lost profit.

First, start counting every mistake, error, glitch or defect. Then categorize each mistake and give it a label. Where did it occur? Was the error in ordering, purchasing, billing, fulfilling or paying?

Then summarize the mistakes. A short period of data collection will start to pinpoint the most error-prone processes, steps, machines or whatever. Then ask why, why, why, why, why? The most common wrong answers to these questions are: the people aren’t trained or we don’t have enough people, time or money.

Hint: Don’t try to fix your people or your product; fix your process.

Redesign the process so that it’s impossible, even for an untrained employee, to make the mistake. Redesign the product so that it’s impossible to put it together incorrectly.

Tip: Don’t try to do this everywhere because it invokes the dark side of the 4-50 rule: 50 percent of the effort will only produce four percent of the benefit.

Step 4: Repeat
The good news is you can start today to simplify, streamline and optimize your business to make it recession-proof. The bad news is you will never be done. Products change. Services change. Markets change. Technology changes. There will always be something to simplify, streamline or optimize. •