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Tuesday, June 22, 2010

Guest Post: The “Process” to Improve Your Bottom Line

Today I am pleased to be able to share a guest post by Thomas Pesaturo.  Tom is a Principal at Exceeda Consulting, Inc. in Seekonk, MA.  He has over 20 years of lean operations experience in Fortune 500, small to large, multi-site, domestic and international companies.  At Exceeda Consulting, they believe "only people raise the bar by continually improving processes, technology supports it, so people can raise it again."   Tom is active in the local Lean community where we met.  He also shares a number of great lean examples on Exceeda's Facebook page.  I encourage you to visit his website and facebook page for great Lean tidbits.  In this post Tom is going to demonstrate a value added process approach that can improve the bottom line in your business.

The "Process" to Improve Your Bottom Line
by Tom Pesaturo

We need to change our thinking about cost reduction from the traditional approach of slashing overhead to the sustainable "process approach".  By modifying your internal business culture, you can directly, and positively, impact your bottom line.

Instead of using the traditional approach of overhead expense reduction to cutting costs, which is often not enough or sustainable, organizations must take a more disciplined process approach.  This type of approach reviews work actions and evaluate their value with the goal of eliminating non-value added activities.  Non-value added activities add waste and ultimately, cost to your business.

The purpose of using this value-added analysis is to identify potential areas of improvement.  To deliver a product or service, we perform actions and these can be classified as "value-added" or "non-value added".  Non-value added is defined as waste, or "MUDA", and a key concept in the design of a Lean system.  The Japanese term "MUDA" is defined as any human activity that absorbs resources, but creates no real value.  Estimates have placed non-value added activities in most businesses as high as 95%!!!  These non-value added activities can be classified as avoidable or unavoidable.  The goal is to eliminate the avoidable and streamline the unavoidable so they are performed in the fastest, most efficient and least costly manner possible.

What do you see?
Step back and look at your operation with a critical eye.  Complicated office layouts, customer orders taking too long to be filled, in-baskets that fill up and never get emptied in a day, poorly planned meetings, teams with incomplete or no direction, duplication of work, correcting other peoples work, quotations not completed in time, extra signatures needed that hold up completion, documents handled too many times by too many people . . . all examples of "waste" and non-value added activities.

The first and most critical step is to abandon the "if it's not broken, don't fix it" mentality.  You should ask the questions: "what value does the task deliver" and "how much does this task actually cost us".  It is vital to see the operation yourself, remember, if the work and process are invisible to you then chances are the savings are too!

Implementing the process approach:
Choose one problematic process and draw out the current state "as-is" process (how it is done today) in the form of a flowchart, with each box representing one step in the process.  Then evaluate every step to see if it is needed.  When complete, eliminate non-value added steps from the process and then design the future state "to-be" process (the way you want it done in the future).  Remember to design steps to be done simultaneously instead of in sequence whenever possible and avoid unnecessary hand-offs between people, typically a large source of error and waste.  Always, always, always chose error reduction over speed.

The most successful way to improve profitability is to effectively and permanently eliminate waste which reduces cost.   Using the process approach explained in this article will lead to enhanced profitability and cash flow and will provide a model for sustainability.  In conclusion, you should consider a "fresh set of eyes" to examine your process.  An outsider can avoid the company culture and politics that often cause a faulty diagnosis and can also recommend best practices from other companies and industries.

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