As a savvy business owner, you know there’s more to running a successful business than solid sales. While consistent orders for your products and services are vital, it’s equally important that you minimize waste in your business operations.
Your business could be booming but still not very profitable if your company is suffering from excess waste. Every venture will create some waste during production, but excess amounts can eat drastically into profits.
The following supply chain dynamics tend to create excess waste for a business. Discover how you can identify and minimize the waste in these areas, so your business is more profitable.
As an investment, inventory equals money and time. While you always want to have enough stock to service your customers, too much inventory can cause a great deal of waste for your business. This is especially true if your products have a limited shelf life. Check your inventory regularly so you know what’s available for use and what should be used quickly before the expiration date.
The key to controlling inventory is keeping a handle on ordering. To determine best ordering practices, study your sales data against inventory requirements. Keep in mind that 80 percent of sales tend to rely on 20 percent of inventory products. This is known as the Pareto Principle (80-20 Rule). If possible, refocus your production process so you’re only ordering based on current customer product demand.
Prevent excess inventory by categorizing and prioritizing your required supplies prior to purchase. Ensure you order enough top-priority items and the minimum of lower priority items. For example, rather than stockpiling office supplies, get just what you need.
Keep a handle on your inventory by regularly performing audits. Some businesses count their inventory on an annual basis, but try to do inventory once every month (or two) if you want to control waste. This will alert you to any excesses as well as what needs to be ordered. Knowing about excess inventory can also motivate you to find a way to use it more quickly.
Overproduction increases inventory
Overproducing to account for some expected waste or damage is often necessary to a certain extent. This business growth tactic becomes problematic when you create excess without good data about acceptable losses. If you don’t have any solid numbers to rely on, guesstimating can cause your company a great deal of money.
Examine your sales figures so you can make informed decisions. You can then compensate effectively, rather than overcompensating. Keep in mind that overproduction can still occur with service-based items. For example, employees may put too much time and effort into a project that you won’t make up for in sales.
Downtime refers to the amount of time your products and services wait during production. This could mean waiting for parts to finish a process or waiting on approvals before the next step in the process occurs. Whatever the cause of the wait, downtime ends up costing your company time and money.
If there are unnecessary gaps of idle time between steps in your production process, identify and close them. Reduce the downtime in the production process, and you will improve cash flow and shrink overall costs. This often requires improving the efficiency of the production process. For instance, if approvals are necessary between steps, put a cap on how much time is allowed before those approvals are considered delinquent.
Motion and processing waste
Not surprisingly, workspace disorganization and resulting inefficiency lead to a great deal of waste in company business operations. If you or your employees must sift through paperwork or a messy inventory storeroom to find what is necessary to create products and services, your profits will suffer.
Pay attention to any wasted motion. Do employees have to walk to several locations to retrieve items necessary for completing a task? Providing employees with ergonomic, well-designed, well-organized workstations can improve motion, reduce wasted time, and increase productivity and profits.
Ensure employees have everything required to complete their work. If there are required items that can’t be stored at the workstation, see that they are located in a convenient, accessible place.
Defects in products
Defects in your products can be costly for your business. In addition to losing money from the loss of the materials used to make the merchandise, you’re also out the money you paid your employees to make the product or your own valuable time.
If the product ended up in the hands of a customer, you have additional return costs. You or an employee must also take the time to provide stellar customer service in response to retain the client.
To prevent defects in the first place, take a close look at your company’s production process. Mistakes leading to defects generally occur because of lack of training, improper equipment, or insufficient time to do a job well. Rush jobs are sometimes necessary, but try to avoid mad races to the finish line that result in unusable products.
Transportation time and process
In the supply chain management process, transportation tends to cause a great deal of unnecessary waste. This could be as simple as moving products around your facility or as complex as the journey your products take to get to customers.
Limit wasted time or effort during transportation by tracking products through the process. The flow should be seamless, unimpeded, and efficient. If the product waits for an extended period at any point in the transportation process, determine the holdup, and eliminate the wait. This will greatly reduce waste in your logistics.
Running a lean company from a business operations standpoint takes some work and finetuning, but the results are essential to owning a profitable business. For informative articles on successful business operations, visit the Swyft Filings Learning Center.