Create Your Own Stimulus Plan

 
By: Jay Arthur
 

Businesses seem to be waiting for government stimulus money to trickle down into their cash flow. Unfortunately, few people seem aware of the glacial slowness of big government. Rather than wait on the Fed, businesses can create their own stimulus plan.

While in this economy, it’s hard to increase sales, it’s easy to focus on reducing costs. Every dollar saved goes straight to the bottom line. According to the July-August 2009 Harvard Business Review survey (“How Bleak Is The Landscape?”):
•    27 percent of businesses are streamlining product or service offerings
•    34 percent are reengineering processes
•    37 percent are improving products, services, or customer support

Shouldn’t your coatings contracting business be using this opportunity to improve your own value chain? Why not create your own stimulus plan? The following three steps will help you get started.

Step 1: Simplify

Every business collects clutter over the years in offices, truck beds, warehouses, inventory, product, or service lines. Now is the perfect time to put your crew to work eliminating the flotsam and jetsam of the past. For example, do you have old cans of paint that may be past their prime? Now is the time to toss them. When the clutter is gone, it will be easier to see where to focus on the next step: Streamlining.

Step 2: Streamlining

Far too many businesses make product and then try to sell it. Instead of trying to push products or services onto the customer, change the business to let customers pull products or services when they need them. This is called Lean Thinking. Any business can employ the principles of Lean Thinking to deliver what the customers want when they want it.

Pushing products or services on customers results in excess inventory, both finished goods and raw materials. Remember those cans of paint? Pull companies only make the product or deliver the service when the customer requests it. Think of it this way: Inventory is fundamentally evil. It has to be stored, managed, moved, and so on. It eats up time and money that could be employed elsewhere.

Pushing causes the ordering of large batches of raw materials and the production of large batches of product. Using a Pull system results in the ordering and production of as small a batch as possible. The ultimate form of this is called “one-piece flow.”

When people hear this, they often ask, “What about economies of scale?” GM and Chrysler are two examples of the problems that result from the “economies of scale” model – too much inventory. Consider a better alternative: economies of speed.

Pushing products or services results in delays between steps in the value stream that slow the delivery of product or services. Even though employees seem to be working hard, if you watch the product or service, it spends a lot of time waiting on the next step in production. Even if the production line is fast, the delays between an order, scheduling, production, delivery, invoicing, and payment are often excessive. This has been called the 3-57 Rule as studies have shown that employees work on the product or service for as little as three minutes out of every hour, resulting in 57 minutes of delay. Most people doubt this, but, when managers shift their attention from the employees to the product, they discover that this holds true in all areas: in the office, in the field, during the billing process, etc. Try it in your own business – you’ll be surprised by how much time is wasted with distractions.

Now for the good news. Every 15 minute per hour reduction in delay will:
•    Double productivity
•    Increase profit margins by 20 percent
How is that for stimulus? Having worked on many projects to reduce delays, it is often easy to reduce delays by 75 percent or more (45 minutes per hour), which can increase profit margins by 60 percent! Instead of having to work harder, employees discover that they have more time to do it right the first time. Why? Because they aren’t constantly picking up and putting down the product or service. In true one-piece flow, the product is worked non-stop, which results in far fewer errors and faster delivery, which in turn delights customers.

Many business owners think that they can’t apply the principles of Lean Thinking, but nothing could be farther from the truth. Hospital emergency rooms provide a service, don’t they? Press Ganey, which monitors emergency room turn-around times, recently reported that the average emergency room stay is four hours! Robert Wood Johnson Hospital (winner of the 2005 Baldridge Award for Quality) turns discharged patients in 38 minutes and admitted patients in 90 minutes. Healthcare professionals gasp when they hear these turn-around times. And the hospital has had a double-digit growth rate and has had to build a new wing to handle the load coming out of the emergency room. If it can work in a hospital, it can work on a coatings job site. Companies that reduce cycle times by eliminating delays grow three times faster than their competition. Encourage your crew to start streamlining their processes today.

Step 3: Optimize

Once businesses remove the slack from their value chain by switching to a pull system, it’s time to start optimizing the process to eliminate defects and deviation.
Every business makes mistakes. Every product or service process varies slightly. Fixing and finding mistakes, errors, and variations in the finished product can eat up 25 to 40 percent of the total budget. And as little as four percent of the business produces over 50 percent of the defects and deviation. This is known as the 4-50 Rule.

Eliminating defects is easy:
•    Count the number of mistakes, errors, or defects in a process (e.g. job site errors, billing errors, etc.)
•    Categorize the defects by process step (e.g. overspray, cavitation, etc.)
•    Change the process so that it is impossible to make the same mistake again

Too many businesses get caught up in blaming employees for mistakes. Systems and processes let employees make mistakes. When the system or process gets changed so that it is impossible to make the mistake, employees stop making them. Tip: Blame the process, not the people.

Eliminating deviation is a little bit more challenging, but not that difficult.
•    Measure the variation in the product or service (usually some plus-or-minus, over/under variation of length, eight, time, etc.)
•    Evaluate the root causes of the deviation from the customer’s target value (e.g. machine set-up, maintenance, etc.)
•    Change the process to minimize the deviation
•    Implement a measurement and monitoring process to make sure the machines or processes don’t drift from the target. This usually involves some form of statistical process control (SPC). Hospitals, for example, measure infection rates; manufacturing plants measure dimensions; banks measure customer wait times, etc. Inexpensive Excel-based SPC software can do this easily. Also, be sure that your environmental monitoring devices and testing equipment are properly calibrated and in good working order according to manufacturer’s recommendations.

Jump Start Your Stimulus Plan

You can wait on the government to throw some money your way. Or you can start finding way to simplify, streamline, and optimize your coatings contracting business to squeeze more profit out of the existing revenue stream. Engage you employees in getting rid of the clutter, eliminating unnecessary inventory and delays, and reducing or eliminating defects or deviations in work patterns. It will stimulate your business, your crew, and most importantly, your paying customers.

Jay Arthur is the author of Double Your Profits: Plug The Leaks In Your Cash Flow and Lean Six Sigma Demystified. He has spent the last 20 years helping companies maximize revenue through the “Lean Six Sigma System,” a collection of audio, video, books, and software. To sign up for free Lean Six Sigma lessons on-line, visit http: //www.qimacros.com/freestuff.html or call (888) 468-1537.
 

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