Discover Real Savings: Modify and Simplify
by Christine S. Pardiñas
Who or what are your business’ worst enemies? Are these your competitors? The SARS scare? The open markets? The economic downtrend? Whoa, before you go on a “witch hunt,” look inside your operations first. It has been said that waste and inefficiency are full-time agents that work round the clock against any business.
Operations analysis or work simplification can pinpoint inefficiencies and facilitate improvements to reduce costs. This involves eliminating non-essential operations and simplifying-standardizing the remaining essentials. It implies working smarter, not harder. Simple? Not quite. One challenge you have to face is the natural resistance to change by people in your organization.
Idea Generation
Cost reduction programs lie in a wide spectrum. On one end are obvious ideas suggesting changes that do not require in-depth analysis. For example, a quick look at your car use policies may result in changes like limiting car trips unless really necessary or establishing guidelines for justifications and reimbursements.
On the other end are complex programs that may involve comprehensive studies especially on savings estimates. Major investments, for example, in Information Technology to improve productivity will require detailed cost-benefit analysis. Streamlining processes first before automating is always compulsory to be more cost efficient. For small enterprises, where costs of computer systems can be overwhelming, extensive planning is highly recommended.
Your priority should be those projects with greater potential savings. Here, you have to evaluate not only tangible but intangible values as well. For instance, you will have to spend more in order to produce and deliver a rush order by a valued customer. However, the value of such service may be repaid many times by future transactions from the grateful client.
Tangible results, on the other hand, are usually measured in pay-off time; returns from investments put in; or total savings over a certain period (e.g. per hour, per day). It is also necessary that all factors be considered when implementing changes in operations. For instance, eliminating or altering a certain process might result in lower costs in one section but higher processing costs in the next. Set aside pet projects. Select those that are realistic and show higher cost savings.
You can easily come up with a number of ideas and methods in operations analysis. Subjects may cover office standards, production operations, systems analysis, time averages, and so on. The following areas can give you some hints where to start best.
Production
Start your analysis by looking at the cost of your products or services. If you always get budget variances, you may need to update obsolete production process, improve quality practices, or dig up purchasing inefficiencies.
Explore the option of outsourcing part of your production volume. Compare the cost of in-house production with prices charged by suppliers. Take care, however, that you produce in quality to avoid even higher costs. Examine also cycle time requirements.
Check your equipment. These may already be obsolete and disposing them for newer models might save you significant maintenance costs.
Don’t hesitate to ask your suppliers to contribute cost improvement ideas. It could be as simple as changing how your raw materials are stored or as complex as modifying your whole production process. Either way, suppliers can be a great source of new ideas, so call them now and set a meeting to start your cost reduction program rolling.
Payroll Costs
Streamline your operations and then update your employees’ job descriptions. Alongside these new functions and targets, introduce productivity incentives in your compensation plan. It’s never a bad move to motivate your employees by giving rewards or recognition for significant contributions and a job well done.
Remember that 80% of your profits come from the top 20% of your products or services. So prioritize and focus your employees’ time on the most important efforts e.g. product quality, customer satisfaction, growth markets, etc.
Hire the right people. Identify the competencies required in your operations and save on training costs, reduce employee turnover, and avoid endless demoralization. You may also want to consider outsourcing some functions e.g. human resource, accounting or warehouse staff and save on hiring, training and turnover costs.
Marketing Expense
Take care of your customers. Your most cost-effective marketing technique is retaining your most valuable clients.
Test your marketing/advertising activities and see which ones are the most cost-effective. Make customer service everybody’s concern. Empower your employees and give them responsibility to build customer relationships.
Scout for free advertisements. Some newspapers and other mass media organizations offer deals in exchange for some services or favors.
And lastly, win back your lost customers. This will cost much less than trying to get new ones. In the process, you may also get valuable feedback from them on how to do your business better.
Overhead Costs
Look around your office or factory. Is the place too bright or too dark that employees are having difficulty working? You may need to remove excess lights or upgrade old bulbs with more energy efficient ones. Or you may only need to clean up to brighten the place.
Check your water consumption, communication expense, or office supplies expense. Explore the wonders of internet faxing, using phone cards to control calls or simply limit long distance calls. You may also want to check your mailing procedures and switch to bulk mailing – or online correspondences. You can also save time, mailing and paperwork costs by using electronic bills payment. This works especially for recurring monthly bills such as Meralco, PLDT, credit cards, etc. You can even stretch your working capital by timing your bill on the last due date of their payments.
Streamline your inventory management system. Try to reduce on storage space requirements.
Maintain records. Ensure that you always have documents to go back to when analyzing operations and identifying high cost areas.
Review how you do things. Set policies, standardize procedures and come up with a manual. A manual sets things straight and can resolve confusion.
Track Your Success
Operation changes do not always work promptly and perfectly. However, by staying on top of implementation until it is working smoothly, you improve your chances for success. .
Monitor any income or savings generated by your programs, such as lower costs of goods sold, lesser percentage of rejects, reduced purchasing costs, recycling revenues, etc.
The questions below can prepare you for the difficulties you might encounter in promoting changes in your organization:
- What will be the impact of the change/s on the operation?
- Can implementation be achieved through a succession of steps to minimize interference with operations?
- Who will be affected by the change/s and how will it affect their current functions?
- To what degree are training courses necessary and for whom?
- What is the total time requirement for the whole program?
- Should the new system be implemented completely or a parallel program with the old system necessary?
- What is the best way to communicate the changes to encourage support and participation?
