Making More Profit the Sustainable Way

Costs are going up.  That means it costs you more to produce something or provide something.  What can you, the Small Business owner, do about that?

Many would answer…” why I would have to increase my prices.” Or “I might have to reduce my workforce.”  Or “I might have to sell more”, or, “I might have to find new suppliers.

You may not have to do any of that and you could still increase your profits.  What I am suggesting is getting more at a better value for the same cost.  Do I have your attention yet?  In other words, how can you produce or provide more, at a lower cost, without sacrificing the quality of the goods or services you provide?

I am speaking to what is commonly called Velocity but most people simply call it becoming more efficient.  This efficiency involves the management of:

Waste – like it or not all businesses produce waste.  From the wrong size materials to the standard by-product of making anything, waste is natural.

Continuous Work Flow – How your process works, step by step, will impact your efficiency and add or decrease costs.

Idle Time – Waiting to work is either unpaid time or time you have to pay an employee who is waiting on another employee.  This is a loss.

Delivery – Getting your product or service to the customer has a cost involved, getting your materials to you has a cost involved.

Problem Solving – The ability to solve a problem quickly and efficiently with a more efficient process, material or product is critical.

There are 6 basic elements that affect your efforts at reducing your production costs.  They are:

Materials – what you use.

Methods – how you do it.

Machines – the tools you have or don’t have to use.

Manpower – who does the work.

Measurements – how you measure your processes and outcomes.

The Environment – where you do the work as well as what things outside your control impact the work and its end product.

Each of these is components of your Company value stream.  Your value stream is nothing more than a sequence of activities required to design, produce and provide a specific good or service.  It includes your costs for information, materials and cash flows involved in delivering those goods or services.  They require waste reduction and the elimination of the costs associated with non-value added time and space.  The goal, of course, is to achieve more production and greater value, without more expense.  In other words, containing your costs.

The real strength of becoming more efficient is that it eliminates waste.  Wastes are cost added activities present in almost any service or production cycle.  They are:

Processing – the procedures you use.

Idle Time – time paid for without financial return.

Overproduction – making or providing too much.

Motion – the way you do things.

Transportation – receiving and delivering materials, products or services.

Inventory – too much or too little harms your business.

Scrap and Rework – waste and error.

Transactions – any process that involves people, forms, and supporting activities.

You may ask yourself, how can processing be a waste?  Simple.  The process can be improved, eliminated, reduced, combined, accomplished somewhere else; it can use different materials.  It can be improved through re-engineering, standardization or better design.  One common component of each of these eight wastes is time.  Time is money, reducing time without reducing quality or quantity is a critical part of making each waste area more efficient.

The ultimate goal of efficiency is to remove all obstacles and interruptions to the continuous flow of a job, any job.  Efficiency is customer centric.  In order to become proficient at it, you must look at value added through the eyes of the customer.

From everything that happens at every step, beginning at the moment of order entry through product concept, through all time and space required to obtain supplies, through the set up of projects, the cycle or run time to produce and on to delivery.  Efficiency attacks the interruption in this process.  Attacking the interruption reduces waste, reducing waste reduces costs of goods sold, reducing that improves your operating margin and improving your operating margin improves your profitability.  It is all connected and nothing any of us can do will break that connection.  All we can do is make it more efficient.