4 Surefire Steps
to Recession-Proof Your Business
By Jay Arthur
When the economy falls off a cliff like it did in September
2008, is your business going to survive or even thrive? Most
companies reacted to the downturn by cutting the usual costs:
training, travel, raises, bonuses, headcount and 401(k) matching
contributions. The bad news is these kinds of cuts also put
employees in a funk that crushes productivity by one-third or more.
Some companies are cutting corners on quality, but customers
are even more savvy in a recession. These shortcuts may save a few
dollars now, but ultimately they kill the cash cow because your
customers will start shopping around.
So how do you cut the red ink without cutting corners or
killing the cash cow? Fortunately, there are simple things you can
do right now to cut the red ink, build customer loyalty and
recession-proof your business. And, since employees may not be as
busy as they used to be, now is the perfect time to simplify,
streamline and optimize your business.
Step 1: Spring
collects clutter: unused forms, materials, equipment, etc. Borrowing
from the principles of Lean manufacturing, the first step is the
five S’s: sort, straighten, shine, standardize, and sustain the
workplace. Go through every nook and cranny and sell or throw out
anything that you no longer use or need, because it just takes up
space and wastes time and energy. Then organize and label
everything. Then put a procedure in place to keep it clean and tidy.
Even computer hard drives and servers can benefit from these five
Inventory is Evil:
Evaluate the levels of raw and finished goods inventory maintained.
Do you have a warehouse of unused raw materials? Do you have another
warehouse full of finished goods? How much does it cost to manage
this inventory? How can you redesign your inventory system to
minimize raw materials and redesign your production systems to
minimize finished goods?
Step 2: The Fast
Eat the Slow:
Spring cleaning will start to give you some idea about the existing
workflow. Businesses grow and expand organically, but rarely in an
organized fashion. A process that started simple may have become
wildly complex, slow and error-prone. The gaps between steps in the
process are killing productivity and creating too many opportunities
for mistakes. The next step is to streamline the workflow.
The 3-57 Rule:
employees work on the product or service for only three minutes out
of every hour of elapsed time. The product or service (and customer)
are waiting for something to happen for the other 57 minutes. Most
people don't believe this until they map the workflow and put times
on each activity and the time between activities. Ninety-five
percent of all delay is in the gaps between processing steps.
Most companies fail because they try to make their employees faster;
the secret is to make your product faster.
While haste makes waste when you focus on the 3
minutes employees work on the product or service, speed makes
profit when you eliminate the 57 minutes of delay.
The 15-2-20 Rule:
Every 15 minute reduction in delay will double productivity
and increase profit margins by 20 percent according to Stauk
and Hout, authors of Competing Against Time (1990). By
redesigning the workflow to eliminate delays, it's not unusual to
reduce total time by 75 percent or more. Use a pad of Post-it™ notes
to diagram the process; put times on every activity and gap; then
redesign the process to minimize delays. It's that easy.
Simplifying and streamlining the workflow can be done quickly
with the wisdom of employees, many of whom have been waiting for an
opportunity to tune up the flow.
Step 3: Optimize:
ever stop and check your order before leaving a fast food drive
thru? Why? Experience has taught you restaurants make too many
mistakes and you can't afford to drive back. You've become an unpaid
inspector in the fast food company's workflow, just as your
customers have become an unpaid inspector in yours.
What is the cost of billing adjustments, discounts, rework,
repeat repairs, and so on? What are the return and warrantee costs?
How often does a service need to be repeated to satisfy a customer?
Probably too often. In most companies, one employee out of every
three is engaged in the “Fix-It Factory,” correcting mistakes made
by the other two. But don't blame the people blame the process,
because it let the employee make the mistake.
Once you've simplified and streamlined the workflow, the next
step is to reduce the primary causes of mistakes, errors and defects
in the product or service.
The 4-50 Rule:
While most people mistakenly believe that errors are evenly
distributed over the business like butter on bread, less than four
percent of the business is causing over 50 percent of the mistakes,
errors, defects, rework, and lost profit. The only way to find and
fix these process problems is to start counting and categorizing the
First, start counting every mistake, error, glitch or defect.
Then categorize each mistake and give it a label. Where did it
occur? Was the error in ordering, purchasing, billing, fulfilling,
or paying? Did it occur in a certain location, machine, plant or
Then summarize the mistakes. A short period of data
collection will start to pinpoint the most error-prone processes,
steps, machines, or whatever. Then ask why, why, why, why, why? The
most common wrong answers to these questions are: the people
aren't trained or we don't have enough people, time or money. You
don't need more people, training, time or money. You need a better
Hint: Don't try to
fix your people or your product, fix your process:
Redesign the process so that it's impossible, even for
an untrained employee, to make the mistake. Redesign the product so
that it's impossible to put it together incorrectly. Redesign
the service so that employees cannot miss a step or do one twice.
Redesign the Web site so customers cannot make a mistake when
ordering. It takes more creativity and thought to figure out how to
mistake-proof your process, but it will prevent problems forever.
It will prevent customer calls to the service desk. It will prevent
the loss of customers to competitors.
Don't try to do this everywhere because it invokes the dark side of
the 4-50 rule: 50 percent of the effort will only produce four
percent of the benefit.
Step 4: Repeat:
The good news is you can start today to simplify, streamline and
optimize your business to make it recession proof. The bad news is
you will never be done. Products change. Services change. Markets
change. Technology changes. There will always be something to
simplify, streamline or optimize.
The economy will
recover, but will you survive until then? These methods are easy to
apply to start trimming the red ink without cutting corners or
killing the cash cow. When the next downturn comes, as they always
do, will you be recession proof?
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