Tue, Jul 8, 2008

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The Five Speed Bumps that Halt Your Company’s Profits…and How to Eliminate Them

By Jay Arthur

 

If you want to be competitive in today’s marketplace, you have to do one main thing: Serve customers ten times faster than you do now. “What?” you may be thinking. “How is that possible? I’m already too busy and overworked.”

Realize that everyone thinks they’re already too busy. Unfortunately, a large part of people’s busy-ness is the fact that they’re repeatedly picking things up (products, parts, paperwork, etc.) and putting them down. In the process of picking the thing up, you have to remember what you were originally doing with it and what you need to do next. In the process of putting it back down, you have to bookmark it somehow so you can continue working on it later. On top of that you have delays and redundant or unnecessary processes that slow you down. So while you are indeed very busy, you’re often not productive.

The fact is that the slower you are to meet customer demands, the more money your company is losing. Things like long lead times, slow turnaround times, unnecessary steps, and sheer carelessness cost you in terms of repeat business and referrals. So what exactly is causing all the redundancy and slowness? The five speed bumps of business. Beware of these five things in your own company so you can reclaim your lost profits.

 

1. Making products before customers ask for them is expensive.

Granted, if it takes you a long time to make your product, then you may have to manufacture the product well in advance of customer demand. For most companies, however, actual production time is minimal. What takes a long time is the sales process. To save money, make your products right on time. For example, on average, General Motors has a six month inventory of cars sitting unsold, eating up both capital and time. Toyota, on the other hand, only has a three week inventory of cars. Week one is on the floor; week two is traveling to the car lots; week three is being built. Which company do you think has better cash flow? You want to get to the point where you can produce something when a customer wants it, and not a moment before. So stop overproducing and making big batches of things. You’ll be better off making one or two products that are specific to what people want. Remember: Don’t keep your people busy; keep your products busy.

2. Stocking large amounts of inventory is expensive.

How much inventory do you have sitting on your shelves or in your warehouse every month? Many people think that large warehouses and fully-stocked shelves are a good thing. In reality, it’s a huge money-waster, because the carrying costs of inventory are expensive. Not only are you paying people to make the unused product, but you’re also paying for warehouse space, people to manage the inventory, utilities at the warehouse, etc. The costs quickly add up. If necessary, close down production for a week so you can use up some of your inventory. Have the production workers clean the plant or fix the machinery—anything other than make additional products. Let your inventory get down to a manageable level that requires less storage space and therefore less money. Remember: If you don’t make it, you don’t have to store it.

3. Unnecessary movement of products is expensive.

When you make too much inventory, you often have to