Introduction
Every business, irrespective of their size wants to reduce costs. The smaller the business, the bigger the impact small changes may make.
It is important to conduct cost reduction exercises on a continuous basis. Visit areas for review regularly, because the environment changes and so will the initiative the business must follow.
Where to begin
Make a list of all your functions and underlying processes.
Catalogue of processes
Without a complete catalogue of processes and activities for your business, you will not have a complete picture. Any changes you initiate, may not consider the overall impact on the organisation as a whole. Changes should not be made in isolation. Newton’s third law of motion states, that for every action, there is an equal and opposite reaction. Not to be taken literally in this context, but it gives you an idea of why the business must be considered as a whole.
Hierarchy of the processes
Draw out a hierarchy, starting with the business functions, e.g. Finance, IT and Payroll. List all the processes relevant to each function. So, for the Finance function you may include:
- Ordering and paying for goods
- Selling and invoicing for your product.
Once you have a list of all the processes, start listing the activities involved to complete each process from start to finish. For example:
- Receive supplier invoice
- Log supplier invoice on system
- Match supplier invoice to Goods Receive Note
- Match supplier invoice to Purchase Order number
Make sure you keep the activities high-level. You do not want a spreadsheet with thousands of lines, which becomes unwieldy to manage.
Prioritise the processes
Add further detail for each process, such as:
- The size in terms of the number of employees involved
- Operating costs for each function (do not worry about direct costs or overhead costs at this stage)
- Known issues, from your involvement or from employee, supplier or customer feedback e.g. customers not receiving quotes promptly, suppliers complaining that they are being paid late, employees saying it takes them ages to complete a task because they are waiting for someone else to complete theirs first!
Now you can prioritise the processes you want to investigate first. Select the top 2-3 areas depending on the size of the business. The larger the business, the less you should select in one phase, for remediation work.
Identify improvement areas
Now we can get into identifying where and how to improve the priority processes, identified above. Any improvements should be identified at an activity level.
Example of a problem area identified:
- Suppliers are being paid late.
Possible reasons identified:
- Logging invoices onto the system takes 3-4 days from receipt, thereby eating into the 30 days payment period
- Invoices can be received by any employee, so if the wrong department receives it, logging it on the system can take even longer than the 3-4 days, and in some cases, gets missed completely
- All of this is done manually, so there are invoices being missed due to human error
- The purchase order numbers are not always on an invoice, so they cannot be matched to the supplier account promptly
And the list goes on.
Identify solutions
For each issue within your priority process area, identify ways of improving the problem. This could mean behavioural changes, such as:
- Training staff to log invoices on the day of receipt
- Communicating the importance of such prompt behaviours
- Linking it to their performance targets, so the significance is clear
In addition to this, there could be changes to how the activity is performed, such as:
- Having one inbox for all supplier invoices
- Making it clear to each supplier during onboarding that any invoices sent anywhere else will result in non-payment
Communicate the changes
Once you have identified the target improvement areas and the associated changes required, it is essential to communicate these changes to the wider team.
A cultural shift in performing tasks will be needed. To do this, you, as the business owner or senior management, will need to support the staff through the changes. This can be done as awareness seminars, training sessions or webinars for example. Introduce a transition period for the changes, where the new ways of working run in parallel with the old ways for a set time. This phased approach will allow the business-critical processes to continue without a sudden pause.
Evaluate
Build in regular review slots at 3-6 months intervals, depending on the size of the change. The bigger the change, the longer you may need before evaluating its impact on performance. This will build confidence in the initiative and will allow for refinements to be made along the way. If this is performed in a structured and constructive way, the result will be a sophisticated version of the process you initially started with.
Continuous improvement
Do not rely purely on a formal evaluation schedule to gather feedback. Obtain ongoing input from employees performing the activities, being impacted by the activities, suppliers and customers, as appropriate. Once you get feedback that indicates a refinement is needed sooner than planned, do not wait. Start the review promptly, but always in a structured way. Keep learning and consider new ways of doing things. However, remember to remain grounded and evaluate any changes you are considering on the overall process and any dependent processes.
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This is a snippet of how a business can undertake a process improvement exercise.
I have nearly 20 years of process improvement experience and will be glad to provide any specific or tailored advice to help you and the business.
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