Cycle time savings $110,000

Measuring the time that repetitive operations take from start to finish (cycle time) gives you the opportunity to make better use of time. One business, for example, examined the time it took for customer service to process orders and found that by making several process improvements they could reduce their headcount and save $110,000 per year.

 

Another business looked at cycle times and found that they could run a number of operations concurrently rather than sequentially and were able to increase productivity and revenues significantly.

 

It doesn’t matter if you are making pizza or processing an order. Cycle time information is fundamental to understanding the capacity and throughput of any manufacturing or business operation.

 

Time is money. Time is opportunity gained or lost. Reference “Instant Profits: Making Your Business Pay” which contains examples of how to apply cycle time and time lines for business improvement.

Reduce Your Cost for Space

Have you thought about your space lately?

Space is an asset until it is no longer producing adequate income. Then it becomes an anchor on profits. The costs of using space go far beyond rent, lease payments, mortgages, taxes and utilities. Here are four steps to take to see if you can reduce your space costs:

  1. Dig deep and find out what the true cost of ownership is for every space you have.
  2. Review how productive each space is for your business. How much revenue does it support or generate? Retail space is usually measured in revenue per unit space (e.g. $/square foot).
  3. Ask yourself what would happen if we reduced or eliminated this space?
  4. Once you know the answers to #3, see if you can eliminate the space, reduce the space or put it to other productive uses.

One of our clients that did this reduced costs by $95,000 per year and then sold an entire building for a significant profit.

Who is Stealing Your Profits

The question for you is not “if” your profits are being stolen but the only question is “Who is stealing how much?”

The estimate of embezzlement for the US alone in 2018 was almost $50 billion. This included robbery, cargo theft, larceny and burglary. The top incidents were organized retail crime, employee theft, fraud, burglary, counterfeiting and robbery. Note that employee theft far exceeded the losses due to robbery. In a 2017 survey by Hiscox* the median dollar amount for small or mid-sized businesses (under 500 employees) was $289,864. The median loss for companies with over 500 employees was estimated to be $452,025.

Hiscok provides the following common characteristics to look out for:

  1. Intelligent and curious – eager to know how everything in the office works
  2. Extravagant – often flaunt their wealth
  3. Egotistical risk-taker – rule breaker on and off the job
  4. Diligent and ambitious – beware of the person who does not take vacations
  5. Disgruntled – feel treated unfairly and may want to even the score

I’ll add one more from experience: They are the manager, accountant, controller, bookkeeper or clerk who just can’t get the reports straight and on time. They love disorder in which to hide their own dealings.

According to the National Retail Federation retail goods shrinkage of $48.9 billion is due to four major sources: employee theft (30%), shoplifting (36.5%), administrative error (21.3%), vendor fraud/error (5.4%) and unknown loss (6.8%).**

None of these figures include the billions of dollars lost to employee time that is deliberately wasted, time card falsification, inflated expense accounts, office supplies that end up at home and countless other ways in which employees waste company time and money. Excuse me while I check my FB account…

A number of years ago a senior sales executive (over 25 years with the company) warned me not to make him work from home because he assured me that he would extract the “cost” from the company in any number of ways that the company could never detect. I was no longer with that company when that move was finally made to save money so I don’t know how much, if any, this long-term employee extracted in “payment.”  I often wondered which of his supervisors allowed him to harbor such a terrible attitude.

Just within this year two priests in my city have been indicted for embezzling hundreds of thousands of dollars from their churches. Prevention is a wise thing to do and don’t forget to help keep your employees honest with good systems and audits while you are locking the front door. Embezzlement and shrinkage is just two aspects of the element of Loss which is part of the Profit Equation.

How much of your hard-earned profits can you afford to allow the thieves within and outside your business to take?

Contact us if you would like to learn how to reduce your Losses now.

References:

*THE 2017 HISCOX Embezzlement Study

** 2017 National Retail Security Survey

Reconcile Now or Pay $600,000

A local law office recently reported that they lost well over $600,000 to embezzlement by their bookkeeper over a 5 year period. The perpetrator was caught, convicted and sentenced to jail for up to 4 years and to pay restitution of $400 per month for 16 years ($76,800).

There are two primary reasons for reconciling your bank accounts every time a statement comes out.

  1. The reconciliation allows you to maintain the accuracy of your accounting records and those of the bank. The sooner an error is caught, the easier it is to correct.
  2. A bank reconciliation is an opportunity to detect fraud and theft.

Either of these reasons should be adequate so don’t let reconciliations fall through the cracks. Small businesses with small accounting departments are especially vulnerable to fraud and theft so it is wise to use this powerful and inexpensive tool. Oh yes, it is absolutely necessary that someone you trust do the reconciliations.

If your business has been subject to loss by theft at some level from office supplies to money, you are probably the only one in the world. Think about it. The theft of time happens every single day.

Seven Symptoms of Costly Chaos

The president sat in his high backed chair behind a desk piled high with files and a credenza spilling off onto the floor. “Steve,” he said, “I just don’t understand why we are not making money. Cash is running out the door. What can we do?” The phone rang and he yelled at the person on the other end for about two minutes before abruptly hanging up. He then told me that he was about to fire the caller because even after 10 years they just could not get the orders right. “He’s my problem, him and the other fools that I have hired.”

I asked the president what system they were using to track orders. He showed me a computer program that was functionally obsolete. It did not track order details from inception to completion. It failed to communicate the critical information needed by the dozens of people involved in the process. They were supposed to “know what to do” from past practice. It did not integrate with the accounting system or the inventory system.

When asked why he had not upgraded to an integrated system he said that it cost too much money and would be a distraction to implement. Couldn’t I see that they were too busy? His people did not need systems and training; they needed to pay attention to the details and do their jobs.

Here are seven of the symptoms of chaos that indicate you might be paying too little for your systems, management, training and other methods of chaos reduction:

1) Piles of papers where they don’t belong
2) Quality problems
3) Disorder in the office and in the plant
4) Surplus materials accumulating
5) A frequent need for troubleshooting and problem solving
6) Safety problems and/or accidents
7) You do not have an effective continuous improvement process

A continuous improvement process like the Profit Improvement Process engages the entire team in making order out of chaos and putting cash back into the company where it belongs.

PS: I left this president in his office when he started yelling out the door at another incompetent employee about another mistake. He seems content to be paying the price of chaos. I estimate they’ll last another year at this pace. Then chaos will win.

Don’t let chaos beat you.

The Ultimate Dashboard Metric

Velocity is the ultimate dashboard metric. The velocity at which your business resources generate free cash flow is the ultimate determination of success.

The realities are simple. If cash flows out faster than in, you must find working capital to replace it. When you can no longer replace it, the business is finished. If cash flows in at a higher velocity than out, you have the opportunity to sustain or grow.

If you measure nothing else, measure and forecast your cash flow. To the extent that you can determine the cash contribution margin of every significant current and planned activity of your business, you have the opportunity to manage your business.

Leading businesses use this information to either fix, fire or exploit their product lines and services for maximum near- and long-term value.

One of my clients doubled their profits within 6 months by using this simple dashboard metric. This set the stage for a doubling in top line revenues over a period of just 48 months.

Too Much of a Good Thing

Stock Keeping Unit (SKU) proliferation is a tempting thing. It can be hard to argue against the logic of adding another product or service type to your catalogue to increase sales.

The problem is that every SKU carries real costs with it. In an article published in the Journal of Operations Management “Too much of a good thing: The impact of product variety on operations and sales performance” Xiang Wan and his colleagues examine the sales and operational performance of a major US soft drink bottler that distributed 328 SKUs from a network of 108 distribution centers where the range of SKUs ran between eight and 114. They determined that the optimal number of SKUs was 84. Below 84 there was opportunity to better serve customer niches and above that the cost of lower operational performance exceeded any benefits.

Cost per SKU should take into account factors including the following:

  • Capital for production
  • Capital for  inventory
  • Productivity losses due to changeovers
  • Labeling and cataloging
  • Storage
  • Obsolescence and damage losses
  • Picking
  • Shipping
  • Reduction in inventory turns
  • Increased forecasting problems
  • Cost of stock-out
  • Clogged supply chain
  • Added complexity
  • Customer confusion

The bottom line is to apply the Pareto Principle wisely when tempted to add SKU’s. You just might find that you have too much of a “good thing” and that less is more. I have personally worked with clients who have put hundreds of thousands of dollars back into cash and increased profitable sales significantly just by eliminating 10-20% of their SKU’s.

People Expense or Asset?

The mantra of Profit Improvement is: “You cannot cut your way to long term success.” Reference: Achieving World-Class Profit Improvement.

You must engage and empower your people to have any chance of success. Engage them with leadership and empower them with training.

Do you look at your payroll and think “expense” or “asset?”

When the pressure is on to increase profits it can be very challenging to answer this question properly. The right answers can be vital to success or, in some cases, survival.

The reality is that people cost money but without their productive efforts most businesses will fail. You have two questions you can ask when you look at payroll:

  1. How can I cut payroll costs?  This is the “expense” question that infers that payroll is a burden.
  2. How can I increase revenues and profit from my existing payroll?  This is the “asset” question that infers that payroll is a source of revenues.

Best practices asks both of these questions but asks #2 first. It is incumbent upon management to maximize the revenue generating capability of their staff before resorting to cutting head count.

The mantra of Profit Improvement is: “You cannot cut your way to long term success.”  Reference: Achieving World-Class Profit Improvement.

You must engage and empower your people to have any chance of success. Engage them with leadership and empower them with training.

What’s it worth?  It’s worth everything.

Save Money on Fees

The other questions to ask your financial people and your bankers are what hidden fees are you paying and what hidden costs are you incurring. These show up in the form of minimum account balances, accounts that don’t earn interest and quite often in lower than market interest rates earned.

How much are you spending on bank fees?  It could easily be hundreds to thousands of dollars annually. Even if you think it is zero how much do you think you are paying in hidden fees?

This can be a tough one to answer so you might want to pass this one on to your company bookkeeper or controller.

We all know about the usual highly visible fees such as those associated with minimum deposits, check processing fees, account maintenance fees, returned check fees and on and on. What you may not be aware of, however, is the fact that banks are continuously adding new fees to try to bolster their profits. The easiest approach might be to have someone sit down with representatives from your banks and ask them to explain what fees you have paid in the last 6 to 12 months and how to reduce them.

The other questions to ask your financial people and your bankers are what hidden fees are you paying and what hidden costs are you incurring. These show up in the form of minimum account balances, accounts that don’t earn interest and quite often in lower than market interest rates earned.

Reconcile Now or Lose Big

Small businesses with small accounting departments are especially vulnerable to fraud and theft so it is wise to use this powerful and inexpensive tool. Oh yes, it is absolutely necessary that someone you trust do the reconciliations.

A local law office reported that they lost well over $600,000 to embezzlement by their bookkeeper over a 5 year period. The perpetrator was caught, convicted and sentenced to jail for up to 4 years and to pay restitution of $400 per month for 16 years ($76,800).

Once you look for them, you will see that the news feeds are filled with similar stories of embezzlement and the miss-use of funds.

There are two primary reasons for reconciling your bank accounts every time a statement comes out.

  1. The reconciliation allows you to maintain the accuracy of your accounting records and those of the bank. The sooner an error is caught, the easier it is to correct.
  2. A bank reconciliation is an opportunity to detect fraud and theft.

Either of these reasons should be adequate so don’t let reconciliations fall through the cracks. Small businesses with small accounting departments are especially vulnerable to fraud and theft so it is wise to use this powerful and inexpensive tool. Oh yes, it is absolutely necessary that someone you trust do the reconciliations.