Saving Money Everywhere: Uncovering
Waste's Hiding Places

by David A. Goldsmith & Lorrie Goldsmith

How would you like to stop wasting money and start keeping more hard-earned dollars? Corporate waste is more prevalent than most people realize. The good news is that once you know where to look, preventing waste and pocketing profits is an easy task. We'll start by exploring four hiding places: qualifications of employees, staff education, systemized purchasing, and productive use of time. Then we'll wrap up with some things you can do today to get quick results.

Smart hiring, a winning environment, and reasonable pay attract qualified employees. When you have competent people in place, they can troubleshoot more accurately. You want people who can identify a problem and fix it in the most efficient manner. Case in point: a small pneumatic pump was once ordered to replace a distinctive part. The cost for the replacement was around $150.00 and was ordered in via next day air just because an individual made the decision the part was necessary, adding another $20.00 onto the ticket. Months later when working one of our 24/7 shifts, management had to fill in to get the order out the door. Surprisingly the problem still existed in the machine. A few checks by management of the device and a little analysis uncovered that a small ball of lint had gotten into a part. Once the lint was removed, the unit worked like a charm. Unfortunately this discovery also uncovered the aforementioned "new" part. still in its original box, unopened. Next Day Air label still affixed.

Make training and education a priority. The cost of ignorance adds up fast. Mistakes made by multiple people multiply into big losses. Decision makers from the top level to the lowest ranking manager often make errors in judgment. If you're cost conscious at all, saving those $10, $20 and $50 tickets end up to be real money. If you have 50 employees each making a judgment error or systems error of $25.00 per week, that adds up to losses of $1250 per week and $65,000 per year. If you don't think it's common, take a look around. Chances are you're making the same mistakes at home. Have you ever bought a can of paint or any other item, only to find that you indeed already had it "in stock?" That extra paint can is a $32.00 mistake. Could this have just as easily been a $4000 surgical patch in an operating room kept on hand for the rare case of specific head trauma? This same thing happens with office supplies, extra tuna for a restaurant, or a second skid of chemicals for a lawn care business. Maybe you'll actually use the supplies ... or maybe they will go to waste as in the case of a construction firm only needing 58 I beams of a certain customized size, and not 116.

Systemize order processing and purchasing to reduce waste and save money. The best methodologies come down to inventory controls and/or centralized order processing. We want to be clear, here. Everything doesn't have to go through purchasing for a 3-bid process, nor must you take the controls of making purchases away from the people who need the stock. This is about setting up a system that works for both. With technology as it exists today, the system must continue to put choices on the front lines. But there can always be better controls.

One way to systemize your inventory is to develop a partnership with one reliable vendor. Here's an example. A professional firm, having offices in two locations, had over 200 people purchasing supplies whenever and from whomever, when stock ran low. This developed a high probability of rush service, including freight charges and interoffice paperwork. Everyone knew that over a certain dollar amount some offices were choosing to purchase extra inventory just to hit the delivery firms' free delivery levels adding unneeded stock. The solution was to bring in several firms to bid on the entire company's office needs and then to have the suppliers manage their customer's stock rooms. The chosen supplier would bar code the shelves and always make sure a minimum balance was kept on hand never to run out. The prices the firm received were far more economical; they were lower than the $200.00 per hour waste generated by employees who lacked the proper tools. To enable individuals to continue to use the items they preferred, employees simply marked a form using the vendor's catalog or emailed the vendor as to a change in inventory stock. Inventories were also balanced between venues so that any pattern shifts prevented over-purchasing and excess reports.

Finally, when you or your staff make mistakes that cost money, you also have the element of lost time. Not only did you pay the first time to do something incorrectly --- money that is gone forever - but you have to bump current profitable activity to correct the error. If you have a skilled worker off the job to run out and pick up a supply across town, that is wasted productivity. Lost time is lost money, too.

Turnover in staff, building an educated employee base, streamlining purchasing systems and incorporating more productive use of employee time are solutions that evolve over time. Start working on those areas, and you could see drastic improvements to your bottom line.

Here are some things that you can do today to start saving money:

1. Pay attention to vendors' invoices that are a continuous stream and look to create a system to bundle purchases. Then ask several vendors how they can help since they most likely have seen this scenario before.

2. Pay attention to employees that must make a "run" to get a needed supply. The "run" means a loss of control and missed calculations. Put in place a preemptive structure so that "runs" never happen. Don't get confused here and believe that over purchasing will solve the problem; it just delays it.

3. Pay attention to FedEx, UPS, Airborne and any other carrier services that have next day air or additional charges. These could be symptoms of system breakdown and employee decision-making errors. If they are the result of customer error, check to see that you're billing customers accordingly.

4. Pay attention to senior management. The shipping personnel are not always at fault. Did the person responsible for finishing the package go to a business golf "meeting," missing the normal ship date for ground? Does management hold unreasonable expectations of production and staff to deliver when conditions make delivery impossible? When people lack necessary resources, resulting in parts, inventories, supplies needing to be aired in, you could be losing all profits.

5. Pay attention to vendors by asking them, "How can we improve our efficiency without just signing contracts?" Some companies do this annually, but there is no set rule. If you need to do it earlier, do it!

Every business leader must look at their entire organization every day. And as we always say, the key role of management is to think and plan. Thinking with the big picture in mind builds businesses that efficiently operate through well-greased systems. Those systems, in turn, eliminate errors and emergencies that produce waste. If you were to talk to an exterminator, s/he would tell you that for every cockroach you see, there are many more hiding in the walls. Applying that to your business, for every lost dollar you see, there are many more that are being wasted. Now that you know where to look, roust waste makers from their hiding places. Exterminate them and watch your bottom line thrive.


David and Lorrie Goldsmith are managing partners of MetaMatrix Consulting Group, LLC. Their firm offers consulting and speaking services, as well as conducts seminars for senior level management. They can be reached at (315) 476-0510; email business@davidgoldsmith.com and http://www.metamatrixconsulting.com/ .

Many more articles in Performance Improvement in The CEO Refresher Archives

   


Copyright 2003 by David and Lorrie Goldsmith. All rights reserved.

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