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Small Business Cost Reduction Strategies: Process Improvement

Progress in Action - Process ImprovementBrad Power had it right in his Harvard Business Review article Achieving Sustained Cost Reduction: “right sizing departmental silos usually doesn't affect the cost structure permanently. Because the underlying work hasn't gone away, the fat creeps back. The cost reductions last only until everyone goes back to their old ways. … To perennially keep costs down companies need to change the way that work is accomplished — the business processes of the organization.”

7 Steps to Cost Reduction Through Process Improvement

1. Identify
Identify the processes that regularly cause pain within your business (e.g., customer complaints, rework, delays, credits/refunds, spoilage, etc.).

2. Prioritize
Prioritize the processes that offer the most significant opportunity for improvement (e.g., reduce order to install timeframe from 60 days to 30 days, enabling the business to collect revenue 30 days earlier on every order).

3. Document
Document each step of the process from beginning to end. Be sure to capture the information that is passed from step to step and what procedures, systems or tools are used to perform each step.

4. Determine Opportunities
Find the opportunities for improvement. Be on the lookout for the following:

Bottlenecks – steps where an order backlog develops. Look for cases of “swivel chair automation” where data from one system, form, tool, etc. is manually entered into another system, form, tool, etc. Also look within the workflow of this step for work performed by entities outside of your organization.

Rework – steps where stakeholders must send orders back to a previous step for correction, clarification or additional information.

Irrelevancy – steps where there is no clear purpose for the step. In other words, the step should add value to the customer or aid in the completion of the process step. Often this manifests itself as “checkers checking checkers” to repeatedly check information provided or work performed earlier in the process.

5. Identify Root Cause(s)
Conduct root cause analysis to identify the cause(s) of bottlenecks, rework and irrelevancy.

6. Define Process Improvement Plan
Define an action plan to eliminate the cause(s) of bottlenecks, rework and irrelevancy.

Bottlenecks – balance the workflow, increase efficiency through automation, tools, training, etc.

Rework – update documents and/or systems to capture and communicate the information needed in each step of the process.

Irrelevancy – eliminate irrelevant steps.

7. Implement Process Improvements
Implement the improvements, then regularly measure and review the performance of the new and improved process versus the old unimproved process.

By following these seven steps, you will keep your business processes lean, mean and profitable. Remember, sustained business cost reduction is achieved through gains in efficiency. Cash flow increases when your business collects revenue from customers more quickly because product/service delivery process cycle times are decreased and customers are happier because the customer experience has improved.

1 responses to "Small Business Cost Reduction Strategies: Process Improvement"
  1. cam fen
    05-Nov-2012 07:01 PM

    i would add that at the beginning you need to define the current processes, before you can identify improvements.

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