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Profit Enhancement

How to make your business “lean”

Let’s face it: the economy is going through a major transformation that is driven by technology, commoditization, globalization and increasing productivity. Add to this an extended period of little to no growth and most, if not all, businesses have had to look inwardly to improve performance and maintain profitability. How can companies cope with this uncertainty? The answer: make your business lean.

Lean as a concept for creating a more profitable business is migrating to all types of businesses and industries. Originally evolved in the manufacturing arena, these tools and techniques are now being used effectively to improve productivity in all businesses. Having seen the successes achieved in all arenas, consultancy organizations like Sax Macy Fromm are encouraging clients to get onboard as a means to help them meet the challenges they face in today’s business environment.

What is “lean” and why should you pursue it as a strategy?

Lean is a process aimed at optimizing the use of all your business resources—labor, equipment and materials—by eliminating non-productive waste from your business using lean practices and tools. Waste that easily goes unrecognized or is routinely stepped over by your employees eats up profits. Everything you do in your business is done with a process, documented or not.  These processes, many times inherited from past practice, need to be methodically challenged, scrutinized and improved to yield the optimum result for your business’s success.

Lean is no longer just a methodology to improve profitability. In the very tough competitive environment we find ourselves in today, the companies that will best survive are the ones that figure out how to deliver world class results. To achieve world class results—delivering the best possible services and products to your customers for the lowest possible cost when they want them—you have to find ways to maximize all the assets available to you.

Many other industries are using lean techniques and methodologies to enhance company profitability and performance. These techniques might pave the path to success for your company.

The key to any successful lean program

The key to any successful lean program is involving all the company’s employees in the process—and that means every employee. Companies can no longer afford to just rule from the top while the rest of the employees are passive bystanders who come to work to execute the tasks they are assigned. Each and every employee must be involved in and contribute to improving the business processes they are responsible for. This will drive a change in culture that leads to a very profitable organization with a healthy, happy work environment.

An example of going lean comes from one construction company client who was struggling, with fewer projects and lowering gross profit margins. In their ‘lean journey’ they formed several mistake proofing teams to attack problems that had been plaguing their business for years.

One of the challenges involved job site late starts and early quits by employees, resulting in paying workers for time not worked and delayed job completions.  The mistake proofing team, comprised of employees, came up with the solution of having each worker sign a form relating to on-the-job injury. This was signed both at the beginning of the work day and at the end of the work day. These forms were to be signed at the gang box at the start and end of the work day in front of the foreman—no form no pay or at least the threat of no pay. Thus, the employees were there to sign the documents.  My personal solution probably would have involved bar-coding an assigned badge or something along those lines. However, if it was that easy the company probably would have solved the problem long before.

The solution the employees came up with worked and saved the company $175,000 and improved job time lines. It did not matter how elegant the solution was, only that it was the solution they came up with and wanted to implement.  Because it was their idea they made it work!

What are some of the lean strategies that have proven to be successful?

Mistake proofing your business processes is by far the first and best lean initiative because it gets all your people involved in making your business a more productive and pleasant place to work . This involves training all your employees to methodically examine each business process they use and make appropriate changes to make them more robust. This prevents future errors or mistakes from occurring.

Applying the tools and methods of mistake proofing and problem solving tools will dramatically lower your costs. Solutions, self-identified by your employees, fix problems and can save your company thousands of dollars.

Mistake proofing works in practice because the solutions are the ideas of the people that do the work.  They invest in making them work, not just on paper but in practice!

These are very simple techniques that anybody can learn to apply quickly. One of our clients in the construction business, around $50,000,000 in size, saved over $1,800,000 after training the first 30 employees. They resolved issues like: communicating specification and plan changes after the job was started, using the wrong material, ordering the wrong materials or double ordering, not capturing billing costs on change orders, missing equipment during takeoff, time cards coded incorrectly, good material thrown away at the job site. Keep in mind: your people know where your problems are.

The cross functional self-directed team is another useful mechanism in the lean tool box.  These teams usually have five to eight members and should include people from different functions in the organization. Members of the team are given an easily definable and measurable challenge, a stretch goal and a deadline.

An example of this challenge might be: save $3,000,000 in purchase costs over the next 10 months.  The team would be given the authority, responsibility and accountability to meet the challenge.  The leader of the business would commission the team and see that they operate without interference by others in the organization as long as they adhere to all the company’s existing policies and procedures.

The magic comes in giving the team the authority to fire members who don’t perform (fire from the team not the company). This is done by unanimous team vote, of course. We have all been part of teams where you have eight members and only three do all the work. This all but eliminates this inequity and applies a tremendous amount of peer pressure to perform.

The second element of magic comes into play when the business leader calls on the team to present their progress in a formal setting.  This should be done a couple of months after the team is formed and with the company’s leadership present.  The entire team must be present for the presentation.  This method works well because, well, who wants to get up in front of their boss and say we have been working on this problem for two months and haven’t accomplished anything?

The self-directed team in the example above which was challenged to save $3,000,000 in eight months actually reached its goal in six months and then went on to save another $1,000,000. Originally, before the Self-Directed team was formed, the Company’s goal was to save just $17,000 for the year.  A powerful performance from average people achieving above average results when trusted with a stretch goal and being backed by management!

Above we have only discussed two of the many tools in the lean tool box: mistake proofing and self-directed teams.  Sax Macy Fromm has many more exciting Lean ways for your people to improve your Company’s profitability.

Robert Devine is a Principal at SMF Strategic Leadership, the consulting arm of Sax Macy Fromm, where he applies strategic management process and techniques across industries to help companies eliminate inefficiencies and waste, drive effective change, and achieve greater organizational performance and increased profitability.  He is the coauthor of the book Lean Competitive Advantage – Lean Drivers for The New Economy.

Ron Buckley is a Director at SMF Strategic Leadership and author of four books on lean business practices: Continuous Improvement; Winning in a Highly Competitive Manufacturing Environment; No Eraser Needed – Mistake Proof Your Business and My Toaster’s Grandfather – A Simple Look at Lean. He is coauthor of Lean Competitive Advantage – Lean Drivers for the New Economy.

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Meadowlands USA

Meadowlands USA

Meadowlands USA is a North Jersey regional publication that reaches people who live and work in and around the Meadowlands (including the Bergen, Hudson, Essex and Passaic County corridor), as well as visitors to our region. The blog edition is updated regularly and the print edition is released six times a year.

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