Tag Archives: cost management

Smart Business Process: Wal-Mart Proves (Again) That Reducing Costs & Adding Customer Value Leads to Profits

Wal-Mart aired its latest performance data today and revealed that, despite the recession, they have maintained profitability. Shining a light on Wal-Mart is kind of silly given that virtually no other organization in the world (and most countries, for that matter) are in the same league.  The point is that we can all learn from their lessons. The lessons this week are absolutely central to the argument for  smarter business process management. Wal-Mart applied several elegant tactics with what appears to be precision execution. Firstly, they reduced their inventory which contributed to the goal of reducing costs by 6%. Secondly, they recognized that their customers are facing deep income cuts of their own and identified which product discounts would be perceived as most helpful. They leveraged their world-class inventory data to identify specific products and discounted prices considerably. The result was an influx of new customers who compensated for lower sales per customer thereby producing profits that exceeded everyone’s expectations.

Lessons Learned – What Small Business, Non-profits and Governmental Organizations Can Take-Away From Wal-Mart (without stealing)

In the spirit of keeping it simple, the following lessons can be brought home to your organization:

  1. Visualize, illustrate and understand your supply-chain
  2. Negotiate discounts with your suppliers
  3. Reduce your inventory and reduce inventory costs
  4. Ask your customers what they believe will add value to their lives and modify your offering to reflect that demand…now
  5. Let your prospects and customers know that you have satisfied their demands – promote yourself effectively
  6. Establish clear and specific performance expectations including those for positive financial results
  7. Measure and report results openly (even the bad news)

It doesn’t matter how big or small you are and it is frankly irrelevant which industry you hail from…you can apply all of these lessons and tactics. I have done so in commercial for-profit enterprises, governmental programs as well as in non-profit settings.

BPM – whether it is enabled by software or not – is key to each and every one of these tactics.

  • If you cannot “see” your supply chain;
  • if you cannot model how you will reduce inventory;
  • if you cannot illustrate how you will engage and interact with customers to understand where and how you can create value in your value-stream;
  • if you cannot develop a straightforward mechanism for gathering, measuring and reporting performance data, then you will find managing your business very difficult compared to those who can.

The best strategy and the best intentions will be trumped by lousy, inefficient and absent business processes. Between you and me – when I run across reasonably successful organizations that lack identifiable and manageable business process and controls, I know they are successful quite by accident. Ignorance in managing organizations and performance is not bliss.

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Managing Costs with BPM Hinges on Identifying the Right Process Metrics from the Beginning

The opportunity to manage, control and cut costs in a process improvement context is well-known but for those of you who are new to the practice, the savings may be as elusive as they are in high demand right now. 

 

There is no shortage of evidence in our economy that costs must be controlled. As much as I detest lay-offs, it is clear that many hundreds of thousands of workers are losing their jobs every month. Therefore, every ounce of process cost management may translate into pounds of saved jobs. Of course, there is only so much you can do to create efficiency. Some jobs will have to be trimmed until consumers can afford to consume again. The urgency with which you approach your process improvement project in a lean economy (to say the least) is critical for a number of reasons:

·        You’re likely to save jobs by creating process efficiency

·        You’ll innovate and disrupt the market to some degree, attracting much needed positive attention

·        You’ll become more competitive in the process

·        You’ll learn something valuable about the people you involve in the process which may make staffing decisions easier

 

Having made the decision to improve your processes and discover efficiency this year, make cost core to your analysis. While you may have focused squarely on throughput, volume, inventory reduction, pull rates, time in queue and other metrics just a few short months ago, I am suggesting you calculate the costs associated with everything you measure, and modify today.

 

Establish cost-cutting and control goals. Communicate them clearly in your project charter and hold everyone accountable for measuring impact and results. All of the more sophisticated BPM suites include cost factors in their application. If you’re running Visio in your shop, analyze your costs using simple Excel calculators. As long as your math isn’t flawed, it doesn’t matter how you collect and report your findings.

 

Present and report cost control findings and recommendations. Measuring quality improvements in a BPM initiative? Tell your story inclusive of costs.  

 

Costs can be identified in terms of:

  • Level (pay scale) of staff performing tasks
  • Number of staff and impact on capacity
  • Resource allocations (high, low)
  • Technology in use (high, low)
  • Automation of manual tasks
  • Time
  • Cost of raw materials (suppliers)
  • Cost of inventory
  • Cost of marketing and sales in bringing products and services to customers

Now more than ever, executives and board members will be looking to justify everything and every decision in terms of cost. Sad but true. BPM analysts and process owners must be sure to lead from a position of cost control before they’re made to.

 

Let me know what you think.

 

Can Business Process Change Really Help Control Costs?

Kapalign’s Lean Self-Assessment Tool: Print Me!

It’s central to business process management that process variables are going to become known, managed, quantified and improved. It’s also a core concept that we go to this trouble in order to affect certain outcomes including: compliance, quality improvement, productivity and efficiency improvements and the facilitation of new product development. In the process, what kinds of changes wind up making a difference to the bottom-line? Without some degree of cost-control (which would produce a cost-neutral outcome or worse), I would strongly suggest opportunities are being missed. I contend that this is true in those cases where quality or compliance is your highest priority. It’s our job to quantify the savings and build the business case for the changes we’re recommending.

Lean Changes

Lean Methodology offers many kinds of variables you can analyze, modify, design, validate and simulate for the purpose of finding a bottom-line impact. However, Lean is not just about cost-efficiency so think more broadly than that. There are other variables and factors that produce savings if you know what to look for. Let’s start with Lean opportunities for MEASURABLY doing more with less. They include (arguably, with some overlap):

  • less human effort
  • less transportation and movement from place to place
  • less inventory and fewer carrying costs
  • less over-production and related waste
  • less set-up and “change-over” time
  • less time spent waiting in queue
  • less non-value-add time (usually between 90-98% of process time)
  • finding added capacity for production, quality improvement or innovation
  • fewer wasted parts and material resources

Lean Change Fundamentals

Essentially, Lean ought to be producing three core changes:

  1. Less Variability in the process
  2. Fewer Inter-Dependent Steps in processes
  3. Less Uncertainty in process

Other Changes to Control

The following categories or classifications of change can be addressed in your business process analysis, re-engineering and improvement initiatives. Further, you can continue to consider and modify these as long as you’re interested in finding cost savings in a process-driven fashion.

  • Changes in Frequency – consider changing an activity, step or task to hourly, weekly, monthly or strictly on-demand. What happens to your cost?
  • Changes in Scope – what happens to cost if you change your scope to the level of activity, process, department, or company-wide?
  • Changes in Role – what impact can you have on cost by assigning role/responsibility to a consultant, systems analyst, business analyst, line-of-business manager?
  • Changes in Mode – if you change your medium for an activity like customer service from the phone to IM or email, what impact can you have on cost?
  • Changes in Trigger – can changing from internal to external or business partner to customer triggers have an impact on cost?
  • Changes in Predictability – by changing the degree of certainty you have in a process, do you positively impact cost?
  • Changes in Duration – by modifying the process timeline, does change decrease costs?

Making the Business Case for Change

By assessing, simulating, or otherwise analyzing the cost side of these changes (despite my gross, over-generalized examples), you’re informing your cost-benefit analysis and can make a very strong business case for the changes you’re proposing. Stay focused on scenarios and provide leadership with pictures and data you can validate. Proving the cost control inherent in BPM is not only possible, it’s relatively straightforward and absolutely critical for good business decisions. Just bear in mind (in a process-oriented way) that some changes may have the “appearance” of cost savings at first but produce unintended and costly consequences later so devote some time to simulating and validating your assumptions.

All the best,

Patrick

Business Process Reengineering: The Right Skills And Roles For The Task Will Save You Money

Notwithstanding the horror story about child labor in Iowa’s agribusiness this week, business process management represents an ideal opportunity to examine Skills, Roles and Costs. The idea, of course, is that you can begin to identify the right people at the right pay grade for the task. Sound simple? Take a look around your shop today.

Ask Yourselves…

  1. what skills are really required for the task being performed in this process?
  2. what level of training and education are required?
  3. what level of authority is required?
  4. how much time is reasonably required to conduct the task?
  5. what value (to the customer) does the task deliver?
  6. what impact does this task have on quality where the product or service is concerned?
  7. are there any legal requirements being satisfied by this action?

Now Ask…

  1. who is performing this task now?
  2. do their qualifications, experience, and place in the organizational structure match the requirements of the task?
  3. based on the time required, how much does this task actually cost us? (really do this math)
  4. what can be done to the task to either push it “down” or “up” the organizational structure where it might more appropriately belong?
  5. is the cost worthwhile in my customer’s estimation? (really ask this question)

Myth-Busting: Most Likely Savings Now

Having done this many times myself, I can attest to the immediate results. Given the state of our economy and your need for immediate relief, I strongly urge you to examine your processes from this perspective if it’s all you do. I assure you that savings are there somewhere if you simply ask: “what if someone with a lower pay grade were to do this?”

See It, Change It, Save It

If you don’t have current process models and diagrams, then get some. If the work and process is invisible to you, chances are the savings are too. If the process is visible, you won’t be able to help yourselves from asking “why do we do it that way?!” particularly after you cost the individual tasks out within a process.

Decisions Are Most Likely Culprit

For my money, I believe 95% of organizations include way too many “Get Supervisor Permission” and “Get Executive to Decide” steps in their processes. I promise you, take a close look at how your business rules (and lack thereof) are causing people to run down the hall and seek permission or guidance. Want to save money? Knock this bad habit off.

The Solution Is In The Business Rules

If it’s required that an employee take an action, define why. If your definition can be challenged, do so. Document your business rules and make sure that they are accessible to those who would seek permission and guidance. Would your competition enforce such a rule? Are they paying for it?

Executives Doing Executive Work

The other half of the solution is in managers doing management work, supervisors doing supervisory work and executives doing executive work. Trust me, this is the sticky part. It’s at this point that you will encounter executives who love to micro-manage and derive self-esteem from being the permission-granter and guide for their flock. It’s also where mediocre performers hide. The unconscious calculation is something like this: “If I fill my day with answering questions and guiding my flock, I don’t have to do my executive grade work.”