One of my key principles in stabilising and growing a business is to Follow the flow.
Obviously that doesn’t mean just going along with whatever happens.
This is a process of tracking every activity, as it happens, in terms of the cost and value to the ultimate customer. We track each activity, in detail, from demand forecasting through to delivery and eventual payment from the customer. We can then apply actual or average costs to these activities.
I don’t mean the process as we think it happens on a good day. I mean what is really happening down there in the trenches.
Customer value is whatever cost, in terms of value, the customer would be happy to pay for as an obvious value to them. Any other cost incurred which can be identified as adding no customer value to the product or service is waste.
Such wastes must be systematically removed or at least minimised.
Have you ever discussed with your customer their true value perception of what you are invoicing? Do you know what they perceive as value? What they believe they are paying for?
In the Sales and Marketing process we try to identify our unique values and their competitive advantages. We then agree an acceptable price for these.
However, a detailed flow analysis of what we are actually doing on a day to day basis will almost always identify systematic or ad-hoc activities which are incurred merely to satisfy internal system or process failures.
Elimination of these will increase margins, free up staff for more value-add activities and give us room for price reductions, should the need arise.
Examples of such wastes are:
- Checking other peoples work
- Overproduction (documents, reports products etc.)
- Researching and correcting errors
- Having to re-do work
- Unnecessary or unproductive meetings
- Searching for documents, information, materials or equipment
- A cluttered work environment which always causes inefficiencies
- Waiting for information, documents or materials
i.e waste of materials, time or resources because we don’t plan, organise and control every aspect of our business process.
The list can go on for pages..
If our customer realised that they were directly or indirectly paying for these wasteful activities would they be happy to be charged for them?
When these are eliminated, or at least minimised, through process analysis and error proofing, our margin goes up and resources are freed to focus more on customer value activities and growth.
Keep this in mind: If we double our business volumes we can also double the waste.
Analyse it, cost it, eliminate the waste.
Enjoy the journey.
John O’Sullivan – Business Consultancy
John is part of the Beacon Initiative, Grow Programme Virtual Management Team, which can assist qualifying SME’s to grow through the provision of management expertise that may not be accessible to them currently