One thing you want to do as a business is to be aware and purposeful with your spending.
Whatever you are spending your budget on, we all understand that if the organisation can’t see a return on investment then they are going to be looking to cut costs.
Your first step if this is the case should be to look firstly at how you can cut costs by making changes internally, your second step is to ensure that these efforts aren’t just a one-off. This is where continuous improvement comes in.
In this article, we’ll go over how it’s possible for companies to cut costs smartly by practicing continuous improvement.
Let’s start by exploring what we mean by cutting costs before we expand on continuous improvement and what steps you can take to get started.
What Does Cutting Costs Mean
Cutting costs in business means making the correct decisions to avoid overspending or spending on anything that leads to lean waste.
Overspending can show up in a variety of ways. Investing too much in a product and being left with additional inventory, work being duplicated, suppliers being paid for work that is not useful, or on tools that say they will help you run your sales cycle better and faster.
The tools or materials that are being used may end up costing you more in the long run. All of these cases can lead you down the rabbit hole of lean waste.
Lean waste refers to any step in your business process that does not provide value to the customer. Your customer has not paid for you to do this, so your doing it is really a financial loss to the company. If we think of it in terms of overspending, it means the supplier you are paying may be a costly decision that is no longer needed as you are not generating enough revenue to support it.
There are eight different kinds of waste that you will want to keep track of to help you cut costs. They are:
- Transport – Anything that involves the movement of people, tools, inventory, equipment, or products farther than necessary is considered waste. As an example, consider sourcing materials needed for production nearer to the location of the factory where they are used. Adding travel time will only slow down the entire process.
- Inventory – In terms of waste, we mean excess inventory. Having too many products that are not being sold can lead to defects, damaged materials, longer production processes, inefficient allocation of capital, and problems being hidden away in inventory. It makes it difficult to detect problems in production and leads to greater problems down the line as products have to be re-made to correct these defects, while the original ones sit as excess inventory taking up space. Examples of excess inventory can be anything from unused records to additional products, to older machines that are no longer used but are taking up space.
- Motion – Motion is any unnecessary movement of people, equipment, or machinery. Any walking, lifting, bending, reaching, stretching, or moving that is required but does not serve the customer. Tasks that require too much motion need to be re-designed, not only for efficiency but also to increase health and safety levels in the work environment.
- Waiting – Waiting is any moment in a business manufacturing process in which someone is waiting for another action to be completed in order for the process to continue. The mishandling of this dead space can have catastrophic results if it is not managed correctly, so shortening wait times are always of the utmost importance. Examples include customers waiting to receive their product, waiting to receive email responses or approval, and waiting on materials to arrive at a factory.
- Overproduction – Overproduction is when a particular product is manufactured before it is asked for or required. It leads to excess inventory, higher storage costs, hidden defects, and higher costs overall as new products have to be made regardless. Some examples of overproduction include making extra copies, excessive reports that go unread, making more products than customers demand, or in higher batches.
- Over-processing – This is when you overcomplicate your product or service, requiring the customer to complete more work, components, or steps. Examples of over-processing are utilisng higher quality equipment than necessary, running more analysis than needed, preparing more detailed reports than needed, and unnecessary steps in purchasing such as too many signatures on a document.
- Defects – Whenever your product or service is not fit for use. This means reworking or scrapping it, which are not real solutions. After all, both add additional costs to your operation without delivering any value to the customer. There is no clear line between their purchase and the costs you take on in this case. An example is a product that is missing a part or that is the wrong colour.
- Skills – This is the under-utilised skills and talent of your employees. It happens when organisations separate management from employees too strongly, resulting in a lack of knowledge and expertise from the frontline needed to improve processes. The way this plays out is usually a lack of training, poor incentives, not asking for feedback, or providing employees with the wrong tools for the job.
When we talk about cutting costs, we talk about taking actions that will directly affect one of these eight wastes. By doing so, you’ll make your business run smoother, leaner and it’ll be a lot more affordable.
But how to cut costs intentionally to see a real solution – by practicing continuous improvement. This is a long-term solution for your organisation.
What Is Continuous Improvement
Continuous improvement is a philosophy that calls for a constant, incremental improvement to your business processes leading to higher efficiency and thus greater success for your business.
By practicing continuous improvement, you are always in the know of what your company is doing and aware of where there may be spots you can improve on. Having this information available and handy is key for strategic decision-making, allowing you to adjust to new trends, new technology, or any disruptions that may happen.
As a philosophy, continuous improvement provides you with a set of tools and techniques you can use to best lead your company to success. It’s subdivided into four key components:
- Involve everyone. A big component is the involvement of everyone in your workforce to think of ways to improve and monitor existing business processes. By involving them so directly, you also foster loyalty and a positive feedback loop can be established, as they can understand exactly how their work contributes to the business’s success, and thus their success too.
- Continuous improvement culture. Establishing a culture of continuous improvement from the get-go will be entirely beneficial to your business. You don’t have to re-train people, simply make it part of their everyday tasks and they themselves will begin to think of ways that your existing processes can be fixed. This fosters communication and helps avoid issues such as the doubling of paperwork or tasks unnecessarily. It also helps keep responsibilities clear.
- Map your processes. To find the areas of improvement, you need to have your processes mapped and as true to life as possible. Without these maps, you’re the blind leading the blind, and unlikely to see much improvement. Map your different processes, involve your team in doing so, and involve your team in reviewing them. Those troublesome bottleneck spots will be easy to find and solve by making the right fixes and changes.
- Find the right tool. Finally, you want to find the right tool that helps you achieve continuous improvement in a way that is easy and sustainable for your business. For some, this means having their company knowledge spread out over several Google sheets and docs, for others it means making use of tools such as Visio or Nintex Promap. At Skore, we like to help companies centralise their knowledge and have everything accessible, from documentation to external information, in one location.
Remember, in continuous improvement, everyone is always wanting to identify and fix any business process inefficiencies.
An inefficiency that you will find is fixed over time as a result?
How Continuous Improvement Leads to Cutting Costs
Because you are constantly looking for inefficiencies in your business processes, it will be quite easy to find areas where you can cut costs. You want to maximise efficiency to run smoothly, and that involves improving your spending practices.
You may find that the manual tool that requires manual follow-ups to all leads is actually quite draining on your employee’s time and your wallet, so you switch that up for a more automated option instead.
Constantly checking on trouble spots also means you’re aware of how much is being spent in certain parts of the process. And if what you’re making from those deals does not match up with how much you are spending, you’ll know you need to start trimming the fat and find ways to spend less.
How to best practice continues improvement?
That’s where software such as Skore comes in.
You’ll have your collection of process maps in your shared process library, so that all involved employees can study the relevant processes constantly. On Skore, it’s possible to set up a monthly process review. Because you can also add all the relevant data, it’ll be quite quick to see how your processes are doing numerically and thus, easily compare revenue vs spending.
The minute the numbers are not adding up, you can start looking into why and trying different solutions on Quantify.
Unique to Skore, Quantify can help you identify the bottlenecks in your process that are resulting in hidden costs. It can help determine what you should change in your process, and it can help you predict what those changes will look like in a month, quarter, or even a year. Your decision-making will be a lot easier, and a lot quicker with the numerical data backing you up.
No more worrying about hidden costs.
Instead, easily cut costs by practicing continuous improvement using a tool such as Skore, that will keep this information safe and accessible to you in a process library you can re-visit any time.
Businesses need to take care of their bottom line if they are going to succeed.
This means keeping track not just of money coming in, but also of money going out.
And finding ways to minimise how much of that money is going out.
The best way to do so? As we saw, continuous improvement will lead to smart decision-making and changes that will help you cut costs while retaining your business’ efficiency.
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