How do we reduce costs?
In today’s business environment, organizations want to reduce costs and grow at the same time.
While there are many ways to reduce costs, executives want to be sure they’re choosing the best methods for the organization. Studies have proven that 85-90% of an organization’s problems are process based. Therefore, implementing process improvement in your organization will effectively reduce cost while improving efficiency. So in essence, you reduce costs while growing your organization.
Process improvement is a management philosophy. It’s strategically centered, management driven, customer focused, and employee supported. So, where do you start? Start by looking at your core processes. If you can reduce the amount of time it takes to accomplish your core processes, remove non-value added steps, and improve productivity, it will have a fast and tremendous impact to your bottom line.
One of the tools utilized in process improvement allows you to build upon your current processes, but adds the element of speed. This customized process allows you to eliminate waste and non-value added steps. These additional steps generate costs, and most times there aren’t appropriate revenues to cover the expense of them. One company that implemented this process actually reduced one of its core processes by 50%. With the savings generated, the company purchased a new tracking system, which helped the client reduce its annual complaint rate to only 2%. A new inventory tracking system was created which increased efficiency by 518%. The hours necessary for inventory tracking were reduced from 3,626 hours to 700 hours. Another process, which contained 118 steps, was whittled down 57% to 68 steps. The improvements to the inventory control processes translated into a cost savings of $700,000.00 – that’s quite a reduction in cost!
Another proven tool utilized in process improvement allows you to reduce variation in a process. Variation is something that occurs in a process, which hasn’t been anticipated and it alters the expected outcome. Because it’s not something that happens all of the time, when it does occur the result is rework, replace, retype, etc., and all of these cost the organization. By reducing variation, the organization is able to prevent problems from occurring by building in quality rather than inspecting out defects, which saves the company money. One company used this process and obtained more than a 50% reduction in scrap. Another client reduced production times from the norm of 8 hours to 12 hours down to 4 hours to 8 hours on first production runs.
Organizations continue to face change and an uncertain business climate. Are you looking to strengthen your organization by reducing costs in the most effective ways?
If these are the questions being asked by you or your company, we have the answers.