It’s long been understood how challenging it can be to achieve an increase in growth and an increase in profit simultaneously. It has been normal to target growth and then consolidate in order to maximise profitability.
Our 2023 Business Leader Survey highlighted that the number one theme for this year is “profitable growth”. Is this possible and if so what is driving this change in mindset?
There are a number of circumstances that are unusual if not exceptional. We are in the post Covid world which I believe has had a significant impact on the way people think about their lives, their futures and their business. We are in Brexit world and the practical consequences of that including staffing and paperwork. And we are experiencing inflation and increasing interest rates.
These are all challenges we have to overcome as Business Leaders and I believe are causing people to stop and really question what they want (or need) from their business and how they will make it happen. The number of clients and prospects reaching out to us for help has never been greater. People often talk about being busy fools, but it now feels like this is more than just a flippant comment; people really do want to use their time wisely. Why grow the business if it doesn’t result in more profit?
Putting all these issues together it is perhaps no surprise that our conversations with clients are around right sizing and resetting. If there is no real prospect of finding the workers you need to do the work you have, you need to reset in order to make increased profit with the resources you already have.
Waste elimination is one of the most effective ways to increase profitability in a business. Processes either add value or add waste to the production of an item or service. To eliminate waste it is important to fully understand exactly what waste is and where it can be found. Toyota, the Japanese automobile manufacturer, after years of work to remove waste, identified seven wastes as the most prominent ones.
1. Overproduction
To produce more than is needed to meet a customer’s need or to produce it before it is required. It is the result of producing to the ‘Just in Case’ scenario instead of ‘Just in Time’.
2. Waiting
This occurs whenever time is not being used efficiently. Much of a product/services lead time is tied up in waiting for the next operation. This usually is because the material flow may be poor, the production run too long or the distances between work centres are too great. It is not unusual for a product/service to spend 99% of its time waiting. Waiting may sometimes seem to contradict overproduction, but time can be used to add value by improving the processes. In a service business waiting is also applicable and includes waiting to get paid, waiting for information, waiting for customers, etc.
3. Transporting
Customers do not want to have to pay for transportation between processes, so this is a clear source of a non-value cost. Also, every transport event is an opportunity for damage/loss to occur and the quality to deteriorate.
4. Inappropriate Processing
Can be easily explained by using the analogy ‘using a sledgehammer to crack a nut’. Are you using the right tool/process for the job? Are you using big expensive high precision equipment when simpler tools would suffice? Are you using the right person for the job?
5. Unnecessary Inventory
Work in Progress (WIP) is a direct result of overproduction and waiting. Reducing WIP allows the other problems to surface. The analogy often used is that of a ship sailing along on a sea of WIP which hides rocks below the water level. Lowering the water level of the sea of WIP allows the problems to be addressed as they surface. If this is not done there is a high probability that the ship will run aground.
6. Unnecessary Motions
This waste is related to ergonomics and is seen in instances of bending, stretching and reaching or moving around the building.
7. Defects
Cost money either now or later and impact directly on the bottom line. They can be internal defects found before sale and incur the costs of scrap, rework or delays. They can also be external defects which have been delivered to customers and incur the costs of warranty claims, on-site repairs and potential loss of customers.
Our waste audit workshops with your team will identify the low hanging fruit and prioritise where you need to focus initially. We encourage clients to undertake the exercise at least annually as waste will creep back into every organisation and technology is continually developing and offering new opportunities.
Now really is the time to work smart and a waste audit is the ideal place to start.
Will Abbott heads up the business advisory and coaching team – you can book a free advice clinic to discuss your business needs by contacting him on 01242 776000 or emailing will.abbott@randall-payne.co.uk.
