Cost of Over and Under Stocking

In a manufacturing or retail environment, having too much inventory of products your customers don’t want and/or too little inventory on hand of what products your customers do want will cost you money and, consequently, profit.  Many service businesses also have inventory even if it is items like stationary incidental to their main operation.  This article  shows you why under and over stocking costs and how to reduce the damage.

Efficiency of Labour

The efficiency of labour and therefore the costs of labour, in your production cycle, may be due to two factors. Wage Increases Have your salaries to casual staff increased between time periods? Yes:   Have you passed this cost along to your customers as an increase in price to compensate? It will take a while for […]

Dice Games Simulate Profit Game

READY TO PLAY A GAME? SIMULATE YOUR PROFIT GAINS. Throughout 12Faces we talk about several different Workflow and Inventory Models. The Simulation Dice Game will quickly give you an impression of HOW these models work in practice. Think that YOUR business doesn’t have a Production Line? That this doesn’t apply to YOUR business? Restaurant – raw […]

How to Tune Buffer Management

Buffers, used strategically, will enable you to “smooth” out the flow of work through your system.  This is important to maximise production. 

How to Reduce Variable Costs for Better profit

Summary

Especially in a manufacturing business, the variable cost of parts, resources and energy etc are likely to be a substantial part of your overall costs. This 12Faces Menu is a collection of distilled business wisdom relating to managing and reducing these costs.

Variable costs are those that are directly tied to your level of production.  If you produce more of an item, more inputs are required.  If you produce less, you will have less variable costs.  They might be physical inputs to production, goods purchased at wholesale for retail resale or services purchased from others and sold by you on a commission basis.  

They are also often referred to as “Cost of Goods Sold”

By and large, you can’t remove a variable cost because it is, by definition, a necessary part of your production system otherwise it would not be there but you can often reduce them.

This is a collection of short  topics relating to variable cost reduction.  Its purpose is to raise possibilities and processes in your mind to assist you with your management of this class of costs. Labour is not really a variable cost (unless you have a lot of piece workers) so this material will not focus on reducing labour costs

Read this if: you have substantial variable costs in your operation.  The more you have and/or the larger they are as a proportion of your sales income, the more opportunity you will have to reduce them.  .

Related to: 80/20 Rule, accounts payable 

Degree of Difficulty: Yellow (entry level) Belt

SM4.0 Business Efficiency: Waste Reduction Introduction

Eight Types of Waste

The well-known Toyota car company identified seven types of waste that had an impact on Productivity and Profit.  An eighth has been added more recently.  By gradually reducing these wastes, you can improve the Productivity and Profit of your business.  In Japanese, this is referred to as reducing “muda” (pronounced Moo-da).  This article discusses how these types of waste might show up in your business; and what to do about them.  Waste reduction is an ongoing and probably never ending process.  This article gives lots of examples of waste in each of the categories.   To be most effective, you should tackle the largest waste items first so as to make the largest gains first. Waste reduction is a team effort ideally as those on the front-line probably already know what is wasteful; they are just not empowered and trained to combat waste.

Read this if: you are working on making your business operate more efficiently.

Relates to: 80/20 Rule for finding the biggest issues, Kaizen for incremental improvement, Constraints and bottlenecks.  Our Campaigns; Optimise100 and Grow 365.

Degree of Difficulty: Yellow (entry level) .  The Skills Module on managing waste to improve your Profit is not hard to do but requires perseverance. 

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Importance of Small Batches Tool

There are merits to reducing the size of the batches you manufacture and/or hold in stock at any point in time.  This might sound counter-intuitive because of the oft-quoted ‘economies of scale’ and the time cost of pulling down tool set-ups and changing them to manufacture another project.  But, in the words of the song; “it ain’t necessarily so!” Learn the importance of small batches.

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