How Incremental Change Can Improve Your Bottom Line
James Aherne, a director at Renault-Nissan Consulting discusses how incremental changes will improve the bottom line.
When it comes to running a business, the saying goes that ‘revenue is vanity, profit is sanity’. And by carefully managing your bottom line – i.e your costs – you can help to ensure your organisation is more likely to have a healthy profit margin.
After all, even the most successful businesses in terms of sales can fail due to the expenses they incur. Incremental change and a culture of continuous business improvement can have a significant impact on the bottom line of your business, in the following five ways.
1. Perfect procurement
One of the most fundamental elements of Lean Six Sigma or any business improvement programme is the review of your costs and suppliers. This task doesn’t have to be managed exclusively at a director or senior level. All employees who are involved in ordering or sourcing goods to help your organisation operate should be accountable for what they spend.
Costs that can be reviewed include fixed expenditure such as electricity and rent, or variable costs such as printing, the purchase of materials, transportation or client entertainment. No matter what the department, it is likely that your employees or colleagues will need to place orders with external suppliers at some point.
The principles of Lean Six Sigma and continuous improvement mean that everyone understands their role in keeping costs to a minimum, which in turn reduces or improves the company’s bottom line.
2. Fewer defects, more money
One of the core principles of the Lean Six Sigma or continuous improvement is the weeding out of errors or faults. Take the production of a computer, for example. If a laptop manufacturer produced 20 different components to build its computers and 1% of the screens were damaged during the build process, this would have a catastrophic effect on the bottom line of an organisation. Weed out these defects and you improve the amount of money wasted on repairing or replacing damaged goods, which in turn improves the bottom line.
3. Watch your waste
Incremental change involves the continuous review of where resources or materials are wasted.
To help explain this we can look at the example of car manufacturing, where the concept of ‘Kaizen’ and Continuous Improvement was first developed. Over-ordering or holding more parts than a production plant or factory requires places a burden on the business in a number of ways. Firstly, this is a cost that didn’t need to be incurred. Secondly, there are secondary costs as a result of the organising and storing of any excess materials or components.
Incremental change involves operating a Lean organisation. That means ordering in quantities that are immediately or imminently required, therefore keeping the cash spent on goods or suppliers to a minimum.
4. Don’t let lead times lag
Unhappy customers can lead to unnecessary costs for any business. That’s why it’s crucial to keep the time spent producing goods or providing a service to a minimum. This is known as lead time in most businesses and when it comes to the principles of Continuous Improvement it refers to the time it takes to get tasks done.
In many cases, a reduction in lead times results in more orders, which in turn can mean more revenue. More orders or sales can often also lead to better economies of scale when it comes to ordering or procuring materials or other supplies, helping to reduce the bottom line further.
5. Improving efficiency of your team
Continuous Improvement comes from individuals within your business. At every level, the principles must be instilled so that everyone involved is clear on the role they play in reducing waste and improving productivity.
Businesses that encourage a culture of incremental change are likely to see an increase in the amount of work their employees are capable of. This is because the review of how time is spent and where changes or improvements can be made inevitably leads to tasks being carried out quickly and by fewer people.
The result is a reduction in head count or the amount of people required to carry out particular tasks, which is one of the most certain ways to reduce the bottom line.