Improving Profits
Ben Franklin once said "A penny saved is a penny earned" that is more true today than ever. In today's highly competitive market place it is more important than ever to gain an edge over your competition. A price advantage is one of the best ways, but increasing your costs is not an answer in our ever competitive global market. That leaves us with cost reduction, but how do you cut your costs? The answer lies in the processes that your company does to produce your products or deliver your services.
The old method for calculating the price of your goods or services was:
- Cost + Profit margin = Price
That will not work today due to the global economy and price competition. Today the model is:
- Price (market place) - Cost = Profit or Loss
Note: The market place is typically fixed or falling due to global competition
Before we can improve a process we have to understand what value is. Strictly speaking:
- "Value is whatever the customer is willing to pay for; everything else is some form of waste.
To add value the process must do three things:
- It must be important to the customer; important enough for them to pay for the product or service
- There must be some kind of physical change that occurs by doing the process to make the product or preform the service
- It must be done right the first time
George Eckes, a well known author and consultant in this field, once said that processes are measured by two things, how efficient and how effective they are. He stated the following facts about efficiency and effectiveness:
- Most companies have processes that are at most 50% efficient
- Seven out of ten are effective at meeting their goals and objectives
Wow, what a statement! The processes that are performed in our companies are at best meeting their objectives 50% of the time and get a 'C' grade at doing them. This tells us that there is a lot of waste in our processes; it does not mean our employees are ineffective at doing their work. It means that our processes need to be systematically improved.
We can think of this waste as a bank account full of money. We need to learn how to make withdrawals!
The key to profitability is continuous improvement to provide the highest quality and the lowest cost, in the shortest time by continually eliminating waste.
Through the application of Lean, Six Sigma and Process Management techniques JJBlack & Associates, Inc. can help improve your bottom line by helping you remove the waste from the processes that drive your business.
