by Dave Garwood
bottom line is shrinking and it's time to tighten our belt -- again. With
the current (or perceived) recession, we see many companies once again
launching another round of cost reduction programs. Read today's newspapers
or business magazines and you will find at least one story about another
cutback. The key concern is whether they will cut to the bone and mortgage
the company's future. If done right, the surgery can be done without damage.
In fact, the company may be stronger -- better poised for profitable growth.
The objective is to slow the flow out of the bank account while taking
better care of our customers. Possible? Absolutely! Let's first discover
what we are spending the money on.
Does the Money Go?
And the answer is: doing 100,000 tasks each day. Think about it. Everyday
there is a steady stream of things to be done. We fix equipment. We administer
the employee benefit program. We produce and ship product. We call on customers
and hopefully get some orders. We create new products and all of the associated
documentation. We cash checks and pay bills. We plan material to buy. We
talk to security analysts. We process inventory transactions and produce
financial statements. We go to meetings - this may account for 50% of the
tasks! And the list goes on and on. Who does all these tasks? People. Lots
of them. And they spend a lot of money doing them.
which of these tasks are necessary? "All of them in my department," quips
one proud manager. "But look around in some of the other departments and
you'll find a lot of wasted time." No one seems convinced the scalpel is
needed in their area. So how do we cut costs? One choice is to just send
a bunch of people home without pay and let the chips fall where they may.
While this is often the tactic of choice, this is a dangerous alternative
with disastrous, long-term side effects. In the 1950's and 60's it was
called ... "you have been fired." In the 70's it was called ..."letting
people go or laid off." In the 80's and 90's they were downsized. Then
right sized. Then re-engineered. Wonder how the same action will be labeled
in the new millennium? No matter what term you use, the action and impact
are the same. People are put out on the street, not because they didn't
do their job, but because we finally recognized that we couldn't afford
all of the100,000 tasks any longer. Something had to go. Individuals became
the victims. Reduce the number of people and let the survivors independently
pick and choose what will no longer be done was the default action. The
result is like passing out hymn books to the choir and telling them to
each pick a song and start singing. Each choir member has a great voice,
sings his heart out, but the choir sounds bad -- really bad! So, what's
Eliminate Work, Not Workers
The key to effectively reducing costs is to first eliminate the tasks.
Who knows which tasks could be eliminated without any negative impact on
the business? The same people we were going to "let go" and the ones we
"let stay" while fearing that they may be next to get axed. Not exactly
an ideal atmosphere for spawning innovative ideas to cut costs when it
means me or my buddy will get canned. So, the first step is to create a
safe environment. This means a strict policy that nobody loses their job
if they come up with a better way to get the job done with fewer people.
The executive leadership has to be patient.
The next step in the cost reduction process is to locate tasks currently
done, but unnecessary. Unfortunately, most of this low-hanging fruit has
probably already been picked. The juicy fruit is near the top. And harder
Theory of Re's
Are there any tasks necessary today but could be made unnecessary? The answer
is always yes. One group of these tasks are the Re's ... tasks that had
to be re-done because we didn't get it right the first time. Here are a
because we didn't meet spec on the first pass.
because the product was so bad it couldn't be reworked.
because we got the pricing wrong the first time.
because the initial transactions were done incorrectly.
the bills of material because manufacturing methods and planning needs
weren't considered by engineering on the initial design
the delivery date to the customer because we missed the first promise.
the picture? Can we get it right the first time at least 90+% of the time?
Yes! The quality revolution produced a proven process to drive defects
to near zero. It usually requires a change in mindset and often some new
tools. Would eliminating these tasks reduce costs without impacting the
company's future. Yes! In fact, it would enhance the company's future.
This is not cutting to the bone. This is making the company stronger and
a less frustrating place to work.
to test the potential of this approach in your company? Next time you have
a meeting, take 10 minutes at the start of the meeting. Explain the "Theory
of Re's." Break the attendees into groups of 4-5. Ask each group to list
all the Re's they can identify in the business today. Offer doughnuts,
pizza or $5 for the team with the most Re's. I have done this often. The
average group finds at least 50 Re's in 10 minutes. They can't all be eliminated
in 24 hours, but you will be surprised at what can be done in 90 days,
once the group starts thinking about it.
the Necessary Tasks Unnecessary
Another opportunity is to just stop doing some of the 100,000 tasks. Are
they all necessary? Why? The most frequent responses are ... "we have always
done it that way"...."that's the industry standard" .... "our customers
or government regulators require it." Maybe. More often than not, current
practices have to do mostly with the individual's comfort zone or old habits.
As one manager confessed to me, "I know we are doing it wrong, but we're
good at it!"
of these 100,000 tasks are done because that is the way someone decided
a long time ago to run the business. Here are a few examples of tasks that
may be necessary today but could be made unnecessary:
- Taking a
separate bills of material for Engineering and Manufacturing
- Staging material
between operations before working on it at the next operation
these tasks cost money? You'd better believe it! Big bucks. Are these tasks
necessary? Many would argue yes because today inventory records are not
accurate, suppliers send defective material, you can't trust sales, etc.
But the question is, could they be made unnecessary? Absolutely. It will
likely require major paradigm shifts in how we do our jobs. What if ...
- the daily
transactions were done right the first time?
- we worked
with the suppliers to insure they understood the specs and inspected the
goods before shipping?
- we had an
effective demand planning process that built company-wide confidence in
the sales forecast?
- the supplier
and plant schedules were valid and done on time?
planning and engineering worked jointly to understand each others needs
in the bills and structured them to meet both needs?
- we dedicated
equipment to a work cell so that material flowed nonstop through the plant,
never sitting and waiting?
Can these approaches really be done? Of course they can! They are being
done everyday by the leading edge companies. The costs are slashed but
the stakeholders -- customers, employees, investors -- see nothing but
good. This approach to cost reduction makes the company a stronger, not
When is the Right Time to Right-Size?
The best time to make these changes is before net profits start shrinking.
This less threatening environment allows management to be more patient
as new ideas are implemented. They are not as tempted to pull a hair trigger
and kill the source of the innovative ideas. The executive leadership can
afford to let natural attrition shrink the headcount.
get proactive before a financial crisis is at our doorstep. Launch a double
barrel program today -- simultaneously looking for the Re's and necessary
tasks that can be made unnecessary and eliminated. Reward, not punish,
the bounty hunters who return with the cost saving opportunities. Cost
reduction can become a fun and rewarding exercise for all. Do it before