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The Profit Generator Community Increasing Efficiency One of the Profit Generators in Your Business
Key Points There are two prominent market forces right now – dealing with the commoditization forces and the move to increasing efficiency Increasing efficiency immediately impacts your net profit Your team are your secret weapon to look for areas in your business to become more efficient – they will see opportunities doing their job every day that you would miss Rapidly changing technology is driving the increasing efficiency The Commoditization pressure you feel (forced to compete on price) should also be applied to your vendors Change opens up opportunity if you are looking for it.
Success Training © 2011, Copyright by The Profit Generator. All Rights Reserved.
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1. The Impact of Decreasing Expenses There are two dominant forces in the marketplace right now: • Commoditization – being forced to compete on price if you don’t differentiate the value • Increasing Efficiency – the drive to lower business costs and increase workflow Consider these two scenarios:
Sales $100.00 COGS $80.00 Gross Profit $20.00 Expenses $16.00 Net Income
$140.00 $112.00 $28.00 $22.40
$4.00
$5.60
Sales $100.00 COGS $80.00 Gross Profit $20.00 16 Expenses $14.40
$140.00 $112.00 $28.00
Net Income
$5.60
$22.40 $5.60
Commoditization is actually the force driving businesses to decrease expenses and increase efficiency. For some businesses, streamlining their operations and decreasing expenses allows them to compete with the price pressure and it becomes their competitive advantage. Harnessing the commoditization forces to realign and re-evaluate your business practices is one of the essential activities to thriving and growing. How do you do that? Look at every area of your business and engage your team to evaluate based on what you know is this the best way to do what you are doing. This is also one of the reasons it is so important to track your financials every month especially your income compared to expenses. Success Training © 2011, Copyright by The Profit Generator. All Rights Reserved.
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2. Using Technology to Increase Efficiency Technology is rapidly evolving – sometimes it feels overwhelmingly so. The advantage for you with your business is to apply new technology to decrease costs and increase efficiency and productivity. For example many of us have smart phones (Blackberry, iPhone, Android). With the apps and functions of the phones we are walking around with hundreds of thousands of software on our $500 device. A client I was working with installed a new phone system about two years ago – not only did he get dramatically greater functionality (direct lines, ability to transfer between different locations) but his per month carrying cost went down. This is what we are looking for with new technology – new or added capability while reducing cost. Moore’s Law (Gordon Moore, co-founder of Intel) states that computing power will double and the cost to produce the chips will halve every 18 months. The law has held true since the 1960’s. What are possible areas for technology improvements in your business? • Phone – “land” lines and cell phones • Internet – connection, website, capability • Conference lines & online meetings • Computer equipment • Software – workflow, inventory, management, project management • Equipment And many more! Technology is impacting every area of our lives. A newspaper article stated the grocery stores of the future will not just sell us food, but help us manage our kitchens.
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Success Training © 2011, Copyright by The Profit Generator. All Rights Reserved.
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3. Reworking Workflow Your systems will continually need to be evolved as your business expands – for example in a pharmacy with three technicians, adding a fourth technician may overwhelm the whole system – too many cooks in the kitchen! A possible solution would be to have the technicians specialize in different areas, or to increase technology or robotics before adding the fourth technician. Look for areas of inefficiency or bottlenecks. For example if you offer delivery service (or you have service trucks on the road) is there a way to manage the routes and delivery times to increase efficiency and productivity? Two important concepts for this to work well: 1) Involve your team in continually looking for improvements in your workflow. Your team is critical for you to maximize your workflow and processes. Each team member is the expert at their job because they do it all day every day. They will be the best placed to look for simple improvements to what they do and how their role functions and works with the rest of the team. 2) Kaizen (continuous improvement philosophy) – regular small improvements usually outperform major ones. It is the improvement thinking that is important – to constantly look for ways to improve what you are doing. While kaizen (at Toyota) usually delivers small improvements, the culture of continual aligned small improvements and standardization yields large results in the form of compound productivity improvement.
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Success Training © 2011, Copyright by The Profit Generator. All Rights Reserved.
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4. Applying Commoditization Force to Your Advantage The marketplace forces and challenges that you have been experiencing in your business should also be applied to your vendors and suppliers. Which means challenging your vendors and suppliers to offer you more, decrease their prices and provide you with solutions not just products or services. One distribution company managed their customers inventory levels as well as sold them component parts (documenting saving the companies hundreds of thousands of dollars in inventory management and waste) This also means you need to be aware of other suppliers and vendors and what they are offering. Now the main message in the Profit Generator Program is that it’s not about the price! However most companies have not adjusted their thinking to solution based rather than product or service based – and it is up to you to make sure you are getting the best value in your supplies and support.
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5. The Move to Energy Efficiency As energy prices has increased, the drive to decrease our energy use both by “turning off or down” the lights and by using alternative or energy efficient options. Do an energy audit on your business and identify simply ways to decrease your energy consumption. A manufacturer decided to lower their monthly hydro bill and had a hydro audit done – turns out 40% of their monthly energy bill was due to three baseboard heaters in the office! It may be as simple as turning off the lights when no one is there, or turning down the thermostat (or up in the winter) when the office is closed. When you replace your vehicles does it work to use an alternative option such as diesel or hybrid? Or change the light bulbs in your business to energy efficient ones? Success Training © 2011, Copyright by The Profit Generator. All Rights Reserved.
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6. Making Increasing Efficiency Easy Increasing efficiency and productivity are essential – and yet can feel overwhelming while also operating, marketing and managing your business. The problem is you are leaving money on the table, and possibly some of your competitive advantage, if you are not on top of efficiency. Here are some ways to integrate increasing efficiency into the day to day of your business. Tip 1: Peter Drucker (considered the management guru of the 20th century) recommended creating a team that is a cross section of your company and having them meet once a month to review all facets of your business – one at a time. And for each area of your business that they are reviewing ask the question:
“Knowing what I know now would I make the same decision?” I call this the “Peter Drucker Question”. Peter’s theory was that we all make the best decision possible based on what we know at the time – that isn’t the issue. The issue is that we don’t go back and review the initial decision over time to see if it still holds true. Start with one area of your business at a time – it may a product line, or a workflow process – and using the Peter Drucker Question evaluate if there are improvements to be made, changes, or should you discontinue it. Tip 2: When you are evaluating making an investment, a purchase or change ask yourself “Do we need this? What is the end cost/benefit in two years? In five years? Add in a check and balance AND consider the decision over time, not just right now.
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Success Training © 2011, Copyright by The Profit Generator. All Rights Reserved.
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Increasing Efficiency To-Do List (Tip: post this) Involve your team – what are ways they see to decrease expenses or increase productivity? Look for small ideas (Kaizen) Conduct an energy audit Review technology for ways to increase capability and efficiency Implement a monthly meeting to review areas of your business – one at a time
To reach Patti:
[email protected] 905-873-9802 direct phone 866-293-3053 fax
Success Training © 2011, Copyright by The Profit Generator. All Rights Reserved.
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