Why Not Minimize Labor Expenses and Maximize Sales Revenue Today?
April 13, 2011 6 Comments
A great way to minimize labor expenses and maximize sales revenues is to improve our processes. Strategies such as, Business Process Improvement (BPI) and Total Quality Management (TQM), encourage organizations to change, to communicate and to involve the whole organization in meeting the business objectives set in strategic planning sessions.
Supporting the strategic goals are the methodologies used to create change and improve processes. However, even when a direction is set, and balanced scorecards and key performance indicators are established, it can be difficult to know where to start. What processes need improvement, and where can we get our best return, are questions we might ask.
For those of us acquainted with Lean Principles, the answer might be to use Kaizen, for continual process improvement. Yet, for others it might start with processes that continue to produce poor quality. Poor quality frequently indicates variability in our processes and where there is variability; often there is excess labor expense. Where this is the situation, perhaps a Six Sigma approach is employed.
Regardless of the strategies, methodologies or process used for improvement efforts, the implications of Return On Investment show how important it is do the work.
For example: If my fully burden labor rate is $30 per hour and I improve a labor process by 20 seconds, and the process produces 20,000 parts per month, I save $3,333.33 per month and $ 40,000.00 per year!
| Process Time Saved | Monthly Quantity | Monthly Labor Expense Savings |
| 20 Seconds | 20,000 | $3,333.33 |
| Process Time Saved | Annual Quantity | Annual Labor Expense Savings |
| 20 Seconds | 240,000 | $40,000 |
Taking this concept one step further is to consider that the opportunity described in the table above is only one process. We all operate more than one process in our businesses. What if we were able to save 20 seconds on 2, 3 and 4 other processes?
Process improvement is an investment and it can be difficult to develop initiatives, communicate, implement and maintain our efforts. However, the benefits of our efforts surely out weigh the alternative.
We want to hear from you! What has your experience been with process improvements?
Click here to download your free Return On Process Improvement tool to start understanding how small process improvements can produce large savings throughout the life of your product. Get the information needed to start making process improvements today!
It is interesting how we resist change even when we have a niggling idea that everyone would benefit from even a small change. Seeing the benefits of making a small change in work process is startling. Do you think that same cost/benefit ratio works with personal Change as well?
Hi Colleen, Thanks for your comment! Yes, I do think the same potential exists for personal changes. Consider the impact of changes in diet. If we ate a little less at each meal, say, 50 less calories, we could shave 150 calories per day and about 4,500 per month and 54,000 per year. Since it is said that 3,500 calories=1pound, then I could lose more than 1 pound a month and about 15 pounds per year. Of course this example is a little less “scientific”, but something I like to consider. What do you think?
Sara, another incredible blog article. You must get a column in a prominent magazine. Vicki
Thanks Vicki, your comment means a lot! It would be a fun and interesting challenge to write for a magazine.
I rceokn you are quite dead on with that.
Hi Micheal, Thank you for reading my blog article and commenting. Yes, I believe these number are correct, however, not always visable in today’s complex accounting systems.