Manage Workflow and the Local Optima Problem

It is a very widely held belief in business that each station in a production line should be working as hard as it can in order to maximise its efficiency. This might be a car assembly line or an accountant’s office processing tax returns using several different stages in the accounting process.  In other words, each stage is working at its Local Optimum.  Generations of Cost Accountants have encouraged this and spend endless amounts of time trying to split, for example, the cost of electricity over each work stage in the production cycle. This is probably seriously flawed thinking.  Blue Belt

 

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.

SM4.1 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 Profit Acceleration optimization toolkits; Double Profit in 100 Days and Double Growth and Profit in 365 Days.

Audio/visual Materials: none

Degree of Difficulty: Yellow (entry level) .  Not hard to do but requires perseverance.  It is the first article in a series on managing waste to improve your profit

C2.4.1 Target Costing

Not all costs should be treated the same. Target costing can be split into 2 groups: Group One: Strategic Costs: Costs that are incurred producing a Profit on the bottom line. In a sales organisation this is face to face sales people (but not their managers) and advertising if it is working. Group Two: Non-Strategic […]

C2.4.10 Cost Reduction – Reduce Staff Cost

Earlier on we wrote about the importance of having “the right people on the bus”. It is crucial to reduce Staff Cost to boost your Profit. At this point in the project you have decided: What products and what locations you want to retain What products and locations that you no longer need. There are […]

C2.4.9 Cost Reduction – Research & Product Development Cost

Research & Development (R&D) costs are an issue to address if you have any significant amount of money expended in this way. Make sure that your product development costs are economical. Scientists may have difficulty explaining to you, in “English”, about why the product development project is important and why the costs are necessary.  Push […]

C2.4.8 Cost Reduction – Reduce Fixed Costs

Fixed Cost or Overhead Cost are those that will exist even if the business does not hypothetically produce anything. Alternatively, they can be thought of as costs that do not vary directly with production output. They include things like office and factory space, furniture & fittings and realistically speaking include all labour other than casual labour. […]

C2.4.7 Cost Reduction – Reduce Inventory Cost

Does your business rely on inventory? Then there are quite substantial savings to be made with improved inventory management. Reduce inventory cost and reap the benefits. This comes from two directions: Reduce the total Inventory you hold. Thereby reducing the amount of Working Capital tied up in Inventory. Reduce your debt and associated interest charges. […]

C2.4.6 Cost Reduction – Supplier Relationship

One of the easiest, and least painful, places to start a cost cutting exercise is by looking at your supplier relationships. Any activity in this area can have good pay offs. Example: Assume that about half of your expenditure is on products purchased from suppliers. These could be: Manufacture: Variable Costs Retail: Cost of Goods […]

C2.4.5 Optimise100 – Zero Based Budget

One discipline applied to costs by high performing organisations is known as “Zero-based Budgeting”. Zero-based Budgets are built from the ground up each year instead of taking last year’s budget as a starting point. Start from the ground up instead of adding a little or taking a little away. Cost Centre Managers – Zero Based […]

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