Cost reduction, cost improvement, cost control, profitability, productivity improvement, or just good management? All of the above. The name is not as important as the actions.
First, consider your entire organization, not just direct labor, to optimize results. Where to look? Start with the Pareto Principle applied to business that predicts that a few line items will contribute the majority of costs and, therefore, the majority of cost reduction potential. Get the best bang for the buck.
Specific High-Value Cost, Plus Reduction Opportunity
- Find the highest value opportunities in your unique circumstances. "Opportunity" combines both the overall cost and the potential to create an improvement.
- Cut waste. Just what is waste? A March 2009 Business Week article presents this test:
- Will a customer pay for this activity?
- Will my service fail without this activity?
- Will I go to jail if I eliminate this activity?
- Answer "no" to all three, and the activity can essentially be defined as waste.
- Sounds good to us.
- Find and manage constraints, bottlenecks, and delays that extend the cycle time of any activity.
- Quantify expectations, measure performance, and ask for accountability.
- Cherry pick on the floor; look for delay, workload imbalance, and high scrap. Target issues that are relatively easy to find and correct.
- Cherry pick at the management level, non-value-added activity, or inventory policy that causes changeover or out-of-stock. Match throughput to customer demand and match facilities and workforce to customer demand. Do your internal operating practices or paperwork interfere? Is the quality expectation appropriate? Some of these opportunities are not difficult to implement once they get the attention they deserve.