Do you know what your direct costs really are? Well, of course you do. As a good processor and sound business manager, you work to control these costs every day. But do you know what your indirect and transactional costs really are? Maybe you do, but not as well as you understand your direct costs. Through our assessment process, we repeatedly find opportunities for clients to identify and eliminate waste within their support functions and processes.
Take a look at the following list and ask yourself if you have data to answer these types of questions: How much does it cost to issue a purchase order? How much does it cost to maintain a tool or piece of equipment? Have your preventive maintenance tasks increased or decreased? How much does it cost to conduct secondary inspection? Have your secondary inspection costs increased or decreased? How much does it cost to enter a sales order? How much does it cost to hire a new employee? How much does it cost to launch a new program? How much does it cost to push a design change through your engineering department? How much does it cost to quote a new opportunity? How many iterations of the same quote do you do?
If you have difficulty finding supporting data to answer these types of questions, then it’s time to take a hard look at your transactional costs. The economy is recovering slowly, and the changes you have made in your core functional areas are taking hold and showing positive results, so now more than ever you must ensure that your support functions are aligned and responsive to a new business environment.
It is true that transactional waste is more difficult to identify than physical waste. Transactional waste is harder to see and manifests itself differently in every organization. However, once identified, transactional waste can be eliminated using the same continuous improvement tools you have applied to your business during this economic downturn.
Begin with the following steps and see where the journey takes you:
1. Conduct a Process Quantity Analysis (PQ) within your support functions. You are looking for a data-based understanding of what your support resources spend their time doing and the costs associated with those tasks. For those areas with limited data availability, ask each employee to keep a task inventory of what they do on an hour-by-hour basis for a minimum of 2 weeks.
2. Conduct a Process Flow Analysis (PF), looking at the most time consuming roles, responsibilities or functional processes, such as an engineering change or customer quotation process. Look for redundancy, bottlenecks and balanced workloads during this exercise.
3. Document all key findings from the first two steps and analyze this information, looking for those activities that would be considered waste under traditional lean thinking.
4. Compare and contrast existing roles and responsibilities against current business demands. Do they still fit the business changes that have occurred over the last several years? Consider realignment of responsibility to share similar transactional processes and modify process flows accordingly.
Organizations that have used these initial key steps have realized immediate benefits to their business. One particular company identified enough indirect and transactional waste in its toolroom processes to reduce overall tool repair and preventive maintenance time by more than 50 percent. This reduction occurred in both quantity of backlogged tools and actual repair time, eventually freeing up valuable resource time and allowing employees to take on new responsibilities.
Raising your organization’s awareness of indirect and transactional waste will build additional flexibility within your organization. That flexibility will prepare you to react to the next market demand shift and ensure your resources are aligned with current business practices. Never stop challenging your resources to think differently. There is always a best practice out there somewhere: Let’s go find it and drive our businesses to continual productivity improvement.