How To Boost
Profits Even In Tough Times:
Refocus Your Fix-It Factory
By Jay Arthur
shrinking and costs rising, it's easy to get upside-down in the
profit column. With credit markets just starting to thaw, it may be
difficult to get the cash needed to continue operations. And
tight-fisted customers aren't going to let you sell your way back to
How is it possible
to boost profits without increasing sales? The easiest way is to
downsize your costs.
Ever noticed how
some companies seem to thrive in economic downturns and blow past
their competitors? Wouldn't you like to be one of them? You can!
There are hidden goldmines in your day-to-day business operations
that you've been unable to tap using common sense, gut feel, and
trial-and-error. The very techniques that allowed you to bootstrap
your business and grow it to the current level will hit a wall and
stop working at about a 1-2-3 percent error rate. This means that
across the ordering, billing, purchasing, payments, and fulfillment
processes your customers experience a 6-12-18 percent error rate –
an error rate that is devouring your profits.
In a recession you
can't market or sell your way out, because customers are tightening
their purse strings. You can't innovate your way out, because
customers want proven solutions, not new, untried ones. You can,
however, systematically improve your mission-critical operations
–eliminating defects, delay, and waste that translate into
immediate profits. No waiting! And best of all, your processes
are totally within your control – you don't have to rely on anyone
else to achieve your goals.
This means that you
can fill your revenue dips with money that had been lost in
operations. You can turn your employees attention to solving
operational problems forever. While most companies are
cutting the usual expenses – travel, training, bonuses, pay, and
headcount, a few are using this economy as an opportunity to
optimize their operation so that they can weather this economic
storm and future ones as well. They know what only a rare few seem
to know: one out of every three employees is working in the
company's Fix-It Factory.
The Fix-It Factory:
every company has two “factories:” one that creates and delivers
your product or service and a hidden “Fix-it” factory that cleans up
all of the mistakes and delays that occur in the other factory.
How can you tell if
you have a Fix-it Factory? Just pay attention to how much time you
spend on overtime, fire fighting and crisis management. Do you
consistently rely on heroics to save the day? Do you reward fire
fighting, but not fire prevention? Do you have hordes of employees
inspecting the finished product or service? If so, the Fix-it
Factory is costing $20-$40 out of every $100 you spend. If you’re a
$1 million company, that's $250,000-$400,000. If you’re a $100
million company, that’s $20-40 million. Just think what saving a
fraction of that money could do for your profitability!
Fix Your Process,
Not Your Product or Your People:
Whenever there's a problem in a product or service, someone
always wants to place the blame. Most often, the blame falls on the
head of the person who created the problem, made the mistake or
caused the error.
Wrong! It's the
step-by-step process that allowed the person to make the
mistake, error, or defect. Instead of punishing the person, ask them
to figure out how to change the process to prevent the error in the
future. This is called mistake-proofing.
We all benefit from
mistake-proofing. You can't start a modern car without a foot on the
brake. Mistake-proofing! You can't plug in an electrical cord with
the prongs reversed. Mistake-proofing! With a little bit of
concentrated thought, there's a way to mistake-proof any process.
Focus For Maximum
While most people
think that mistakes are spread evenly over the business like butter
on bread, the truth is that mistakes tend to cluster in a few key
steps of the process. All you have to do is:
Count the number of mistakes that are made.
Categorize them by process step, location or
Tackle the biggest category of mistakes first.
Analyze the root cause of the mistake.
Change the process to prevent the mistake.
As little as four
steps out of every 100 cause over 50 percent of the mistakes,
errors, and defects (the 4-50 Rule). Correcting these errors in the
Fix-It Factory can cost 10-to-100 times more than doing it right the
first time. Poof, there goes your profit.
already count their errors, but few do anything with them except
flog employees at the annual merit review. Will you be one of the
rare few that use these numbers to find ways to mistake-proof the
mission-critical processes and shift employees out of the Fix-It
Factory into the service of customers?
With a slow
economy, there will never be a better time to work on these issues
than right now. What else have you got to do? Then, when the economy
turns around as it always does, you will not only have more money,
but be able to offer better prices than your competition and still
make obscene profits.
The Top 10 Ways To
Spot a Fix-it Factory
routinely do battle
to prevent delivering a bad product or service. One company I worked
with prided themselves on "doing the impossible everyday."
2. Customer complaints.
For every customer who complains about your product, there are 16
more that won't tell you . Each of these tells eight other people
about why they don't like your product or service. Word of mouth
can kill you!
3. Supplier complaints.
Do your suppliers complain about the irrational last minute demands
you make and how long it takes to get paid? Word of mouth can
4. Employee whining:
"I can't do my job
because so and so doesn't do their's. Employees want to do a good
job. What's stopping them?
5. Blaming people
for poor quality.
99% of the problem is in your systems and processes, not your
people. Plugging the Leaks focuses on business operations. It's
the process, stupid!
6. Knee jerk fixes
that fail. Common
sense and gut feel stop working at a 3% error rate. That's when you
need the "common science" of Plug the Leaks to take you to the next
7. Margins are low, expenses are high, growth is stalled.
Defects and delay eat away at margins and inflate expenses.
8. Failures in the field.
How big is your warranty or repair department? How many people does
it take to handle your customer service and tech support calls?
9. Too many inspectors
You can't inspect quality into your product or service, but you can
build it in.
10. Absenteeism and turnover.
doing a poor job for customers. They get angry when the internal
system prevents them from doing a good job. How are your systems
preventing your employees from doing a good job?
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