A vast amount of data is being collected but little is being used to effect change.

There is value in facts, statistics and data only if use is made of this collected information to effect change. There are too many examples, even in well-run companies, where facts are collected and then not used. Collecting data merely as an exercise is expensive and a waste of resources. The sole purpose of the data collection activity is to have facts to analyze the current situation, make changes, and monitor the progress of those changes.

For more information read: Graphs and Charts are not Wall Art.

Margins on long-term contracts are lower than forecasted.

Companies strive to win large, long-term contracts. Frequently, in an effort to secure contracts of this type a bid is submitted with a lower than normal price. There is a belief that the incremental value of large, long-term contracts will absorb overhead particularly if the operation is near capacity. There are two doses of reality that should be recognized, which run counter to this belief. In a significant economic downturn the volume in these contracts generally is reduced so some of the benefit does not materialize. In addition, too frequently, the expected gross margin, which was calculated with rosy predictions and was always optimistic, is not achievable.

All of the focus is on direct labor productivity while little attention is focused on office/white collar productivity.

A very common occurrence, that is difficult to understand, is the emphasis on direct labor productivity while frequently ignoring the potential to improve white collar and administrative productivity. If cost reductions are necessary to save money an attempt should be made to save the most money. A manager may make five times what an hourly employee makes. It is therefore logical that getting a 20% gain in productivity out of a manager has the same benefit as laying off a direct hourly employee. There exists enormous potential to increase the productivity of the administration overhead at most companies. Too often this fact is understood but not acted upon while a great deal of scrutiny is focused on direct employee productivity and cost.

You must do more than just cut costs.

It is not simple to cut costs and it may be necessary to cut costs a number of times to achieve the necessary result. Generally this is done to lower the cash break even level for the company. This is a necessary and obvious process that must be undertaken for the benefit of the company. This process allows companies to survive but survival is only short-term thinking. It is frequently impossible to just cut costs and become profitable. To become profitable the operation must grow.

You are not getting the most out of what you already have.

Before capital is expended on additional capacity or new systems an analysis of the current machinery and systems should occur. The purpose of this review is to establish if the business is receiving the maximum benefit from those assets that it already possesses before it rushes to purchase new assets. A common problem with office administrative systems or machinery in a manufacturing plant is the underutilization of these assets. Before additional equipment purchases of any type are made, including software, this thinking should occur.

For more information read: How to Spend lots of Money and Not Improve your Productivity.

Largest customer goes bankrupt.

If a company’s largest customer goes bankrupt the company is generally placed in peril. If this customer represented 90% of the company’s volume there may be little to be done. If this customer represented 20% of the company’s volume it must embark on replacement orders at lightening speed while reducing costs. Generally this customer, the company’s largest, would have been provided the lowest price and although the company will have less revenue gross margins may actually increase.

GDP falls 2% and your market segment falls 7%.

The contraction of the GDP and a slowing overall economy are macro economic facts that should cause a company to adjust its plans to remain competitive and survive. In this defined example the company must once again look at all operating details and implement changes to react to this deteriorating economic situation.

Pay and benefits must be cut.

Reducing pay levels and benefits are cost cutting actions that may be necessary but will obviously be unpopular. It is part of those necessary actions needed to conserve cash and lower the cash break even level for a company. Executives must deliver this message with candor, and if possible attach an upside with the message, or the productivity is going to take a short term hit and maybe a long term hit. Tell the employees when the pay levels will be reinstated. This may not be achievable with a specific date but define the target that needs to be attained that would allow for reinstatement of the old pay scales and benefits. Employees can then work towards those goals.

For more information read: Maintaining Productivity when Pay and Benefit Cuts are Unavoidable.

Quality deteriorates.

Frequently a reduction in quality occurs as companies downsize in poor economic times. There are two major occurrences that trigger a reduction in both product quality and service quality. The first is a consequence of the contracting employee pool. Employees trained for one activity are required to perform new and additional activities and errors occur as a result of inexperience and familiarity. In addition a general sense of dismay may enter into the atmosphere of the company being downsized and employees cease to focus on their jobs. Only management can rectify this second situation by clearing the atmosphere and return employees to focusing on their responsibilities within the company.

Competitor releases redesigned product that has lower costs and a lower selling price.

The basic thing to say here is that the competitor has been, up to this point, more nimble and competitive than its opposition has been. Plans must be developed and implemented without delay or the company faces death. This must be done in an organized and detailed fashion.

Improve manufacturing processes.

It is probably possible to improve the company’s manufacturing processes without immediately purchasing new machinery. First look at the information flow, the material flow, the inventory levels, cycle times, and equipment utilization. Much of this information may be immediately available, as it may have been collected for a long period of time but not used to effect change. If this information is being collected a person should be appointed to see if any changes have occurred in the manufacturing process as a result of analyzing this collected information.

Institute profit sharing plan.

Profit sharing plans have generally proved to be very effective tools for improving productivity and improving product quality and customer service quality. They can be used as an incentive or a positive initiative, if a reduction in pay or benefits should become necessary. Profit sharing makes the employee a stakeholder in the company and its success. Profit sharing can be used to excite employees in many ways. Installing a profit sharing plan can be complex so careful preparation is necessary. Profit sharing is a very effective and progressive tool.

For more information read: Profit Sharing and Productivity.

Get more than just lower prices from your suppliers.

In tough economic times it is easy to beat up on suppliers and achieve lower material costs. Companies can play one supplier against another and win many concessions used to achieve lower prices. However a company can and should get more than just lower prices from its suppliers when economic activity is slow.

Use the Internet.

This marvelous tool, the Internet, the World Wide Web, exists and can be a significant tool for improving productivity and reducing costs. It is obvious that every company should have its own web page for advertising its products and selling its products directly. However, over and above that the Internet can be used for all correspondence, for invoicing, for shipping and receiving documents and many other applications. The Internet is a very productive tool that remains tremendously underutilized.

Find a way to use old inventory.

This old inventory is sitting somewhere on the premises. With some imagination some of it may be put to work thus saving some cash. Such a simple and obvious idea is often overlooked. As an extension of this line of thinking it may be possible to trade the old surplus inventory. Think about it.

Training.

Training budgets generally suffer in times of economic contraction and this is a negative action that has negative consequences. In an effort to achieve measurable productivity gains, people, systems, and equipment must operate in an improved fashion. Someone must teach an improved style of operating and this instruction is called training. Many companies have allowed the old operator of equipment to train the new operator of equipment. This action will just lead to subsequent operators knowing less and less about the equipment they operate and for which they are responsible. This also happens with administrative systems where people are not trained but must learn as they go and solve problems without adequate instruction.

Commence tracking and measuring productivity, accurately, and frequently.

The battle to improve productivity comes out “of the end of a pencil”. Do not rely upon happenstance or luck. Planning and decision-making lead to improved productivity. It takes more than just wishing things will change; it takes a plan and then controlled execution of the plan. This means the capture of information that tracks productivity, at numerous levels; including both direct and indirect labor productivity. There may already be useful information being tracked and collected but not being used to effect change. Look for existing information initially before designing new information collection routines.

Receive lower material prices.

The two easiest methods to improve gross margins are to get higher selling prices or get lower material prices. The materials departments of all companies continually attempt to negotiate lower raw material prices. This will continue, with renewed vigor, when times are tough. Looking at material substitutions, purchasing higher-level subassemblies, or some pool purchasing should broaden this activity.

Employee recognition and reward programs commenced.

With the never-ending demands to reduce costs and increase output, morale and energy may begin to suffer. These pressures and demands cannot cease, as there is not a finish line where, upon reaching it, everyone can relax with their job done. Unfortunately if the required goals are not achieved additional demands will need to be placed upon the employees of the company. During these difficult times many actions can be undertaken to maintain morale. Senior management and middle management must become more visible and inspirational. In particular senior management should hold frequent, in person, meetings with large groups of employees and inform the employees of the status of the company and its efforts to improve productivity. In addition employee recognition and reward programs should be implemented to keep morale high. Involve the employees and make them part of the solution.

Eliminate waste.

The simplest method to improve productivity, at all levels, in all types of companies is to live by the creed of eliminating waste. With a mind set that nothing is going to be wasted including paper, electricity, raw materials, shipping supplies and most importantly time, productivity will inevitability improve. Emphasis must be placed on doing a job, once and only once, not making a hash of the activity and having to do it twice.

For more information read: Too Many Meetings.

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