Manage processes for maximum profit

What is the most valuable process in your business?

Is it acquiring hard-to-find parts, adding value by packaging related items or modifying a product to make it unique? Or are you simply capitalizing on volume?

Manage ProcessesWhenever you or your employees touch inventory, there should be procedures in place to maximize profit, consistency and repeatability. If you believe you have no processes, that's probably not true.

You or your employees have figured out a way to do something on the fly, which specialists call an ad hoc process. But rest assured, you have a process whether it is intentional or accidental – or has evolved over time.

Spend a moment reflecting on what you do in your business that generates the most profit.

Consider the two, three or more processes that are done to accomplish that task.

If you have mapped your processes, you will want to consider next how to maximize your profit by optimizing them. Of course, there are many right ways to accomplish a task. What we're looking for is the best way to do a task so you can systemically teach these processes to everyone in the organization.

If you will spend time examining your most valuable processes, you will discover that there are shortcuts – or simpler, better steps that can make these tasks easier to do, more repeatable or faster.

Henry Ford became famous, not so much for his affordable Ford automobiles but for the assembly line that reduced costs. However, the real magic in the assembly line is that the tasks became repeatable, were done efficiently and were connected together with the assembly line.

To make this use of your time as effective as possible, consider the following steps:

  • Name the top profitability areas of your business. Focus on very few tasks, typically less than five.
  • Identify the top expert or experts in your business for each of these areas. If desired, you can identify an industry specialist to hire as a contractor or consultant. However, you will recognize that your own internal common-sense effort will be the most helpful. The 80/20 rule applies here: 80 percent of the good comes from 20 percent of the effort.
  • List the steps needed to complete each area. Preferably, you will use process mapping as the best approach to understanding the processes in your business.
  • Consider how to make the needed improvements. A simplistic way to think about the improvements is to:
    • Note the errors that are commonly made, and work on ways to prevent these from occurring.
    • Identify the most time-consuming steps, and look for ways to eliminate or reduce the time for these steps.
    • Consider places where automation or automating sooner might reduce work steps. Look at the costs of the automation and the expected benefits.
    • Document the improvements you have identified. Teach these improvements to all your staff. A process that is in your head or not taught to others is no process at all.
    • A few cautions should apply to your process improvements.

Don't be swayed into spending a lot of money on consultants or technologies for promised improvements. You can make small, incremental improvements and potentially net big gains.

If you apply technology, keep it simple, using the KISS principle. For example, barcodes are a proven and inexpensive technology that can make identifying or counting inventory much more rapid.

Vendors like Wasp Barcode offer inexpensive and simple software that can easily accomplish 80 percent or more of the job. Yes, even in technology, the 80/20 rule applies. Even though radio frequency identification (RFID) technology is highly regarded, it's still fairly complex and expensive to implement. By spending a few hundred dollars on a barcode system, you might accomplish almost everything needed to identify and handle inventory.

However, if more sophisticated technology like RFID is needed, build the business case and create an implementation plan before proceeding.

Help staff manage change. They may become confused and not understand why changes are needed. And they may have to learn new methods and processes to accommodate the changes you are requesting. Give them ample time, explanation and support to make the changes.

Listen to your advisers. Whether these are internal experts, hired consultants or front-line people in your organization, listen to what is being said. Filter it for truth, and make an informed decision.

Improving processes is about making your products or services better, more repeatable and more profitable.

Incremental, evolutionary improvements will result in more bottom-line dollars.

While you are improving the business, remember that a revolutionary change or new product idea can be a great boon to the bottom line, too.

 
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