This is the million € question, right?
However there is a very simple answer.
What do everybody when their incomes are reduced?
Reduce their expenses, right? But companies think that this
is very complex, therefore they take the easy way, dismissing people, freezing
salaries, etc.
However the most logical and simple way is completely
different.
Companies have been created just for one thing, EARN MONEY,
if not are not companies, are volunteers organizations.
How can we earn money?
Selling products, collecting money and reducing the
expenses.
But customers demand cheaper prices, so how can we save
money?
If we check the sales price, has two components, cost and
margin.
Margin can´t be reduced as is what keeps the company alive,
then we must reduce the cost.
How?
Cost have several components, raw materials plus operations
costs, plus amortization costs. So in simple words, Raw materials + operations.
Raw materials cost is dificult to reduce as may depend of
global markets as petrol or iron, so we have no much power to negotiate prices.
So, we can reduce the operations costs.
How?
Becoming more efficients, and here is where Lean
philosophy can help.
Lean is just looking for one thing, as his inventor Taichi
Ohno explained:
“From the moment a
customer sends and order till we collect his money, all what we have in the
middle are wastes and stops, our goal is to reduce them as much as posible to
reduce the time between them.
Then, what we need to do is check the quantity of waste (In
japanese MUDA) in the processes from the beggining till we deliver to customer
the required product.
If we reduce the waste, our operations costs will be reduce
in a high percentage, sometimes over 50%
Some people think that this is imposible or can be done only
in huge plants with many robots as the automotive plants.
Not at all, can be done everywhere, and specially in
logistics (where I have been working during the last 20 years), that normally
have been the place where people with no much qualification were working.
“Mr X is not good, ok, send him to the warehouse and may be
he can do something”, is one of the typical sentences.
But is quite interesting that warehouses and logistics are
the áreas in any company with higher costs (stock and machinery) and where
managers normally don´t check in deep.
If we consider that 95% of operations are really waste
(MUDA) and only 5% give value added, there are many things to do and improve.
In many companies after few years of crisis, there is the perception
that we have done everything we could, and there is nothing else to do.
But this is not true, this is the time to think again, not
about what else to do, but to re-invent your own business, and forget about
short time solutions as dismiss people, reduce prices again and pray for the
end of the crisis.
In the old good days, the strategy was to grow anyway, and
now we are paying the bill because we don´t know what to do and how to solve
the situation.
Therefore we need to take complete different solutions, that
may permit give value added to our customers with so good quality, service and
efficiency that our competitors can´t copy.
May be you can say, looks good, but how can we do that?
Solution is in the Lean philosphy is not easy or
comfortable, but the companies that started using it for years have had
outstanding results than rest and even they earn money during the crisis.
Here you have some examples I know:
A car dealer, improved so much their
operations, that they could do a preventive maintenance for a customer in just
26 minutes.
What did they do?
The customer care representative
called the customer to know what kind of works did the car need (change oil,
brakes replacement, etc) and with that information they prepared the spare
parts to be used. Parts and instructions were ready to be used, and therefore
the operator didn´t waste time looking for them.
Then they ask the customer to come
over at certain time during the day (for instance at 11 AM) and they propose
him to drink a cofee, read the newspaper and leave with his car in just 30
minutes.
It seems they have no competitors with that policy.
A Telecomunications
company.
The first year reduced
the temporary people in 25%, reduced the overtime cost in 100.000€ and saved in
total 676.000€
Furthermore they reduced
the space used in 6.000m2 that meant 100.000€ as they used a logistics partner
for the warehouse.
In total 776.000€ in
savings, 4 years later they saved 3.216.000€ that means a 30.4% of the previous
cost.
A food company reduced the stock days from 14 to 2 and the
lead time from their suppliers from 18 days to 3.
They had 5.000 references and increased them to 40.000,
their delivery time passed from 92% to 98.5%
A door manufacturing
company.
Passed in 9 months from 2.500 units per day to 4.100 but at the same
time their delivery lead time passed from 14 days to just 2.
Due to buildings crisis
they reduced their sales in 50% but also their cost in 50%, keeping the same
marging.
An automotive company,
reduced their cost in 20% in 4 months, and an electronics repairing company improved their
delivery lead time in 35% in just 3 months.
All these examples are
real, not theory.
How could they do it?
As lean founder Taichi Ohno said:
“All what we do is looking from the momento a customer sends
and order till the moment we collect the money. And we reduce that time by
eliminating anything that don´t add value”
So Lean just deliver the right part, at the right time and
in the right quantity.
Lean power is that permits to be reactive everyday to
customer demand.
Is not easy, but if it would be, everybody would do it,
right?
Regards.
Luis Perona.
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