Implementing Lean Manufacturing Practices in the Office Will Improve Your Net Profit
Todd Drummond Consulting, LLC
Most people think that lean manufacturing practices are only for manufacturing areas and that there is little to be gained by implementing lean practices in the office. If you think this, you could not be more wrong. First, let us look at what it is costing you for failing to increase the productivity of two key personnel in your office.
We are going to use what is called “opportunity cost,” which is simply what we lose when we do something else in its place. For example, if your component designer or salesperson is busy searching for missing information that someone should have provided, what does this really cost the company? Do you think it is simply the employee’s lost wages as an expense? Maybe what you are potentially losing is what the employee is supposed to be providing the company, which being added gross margin dollars garnered from additional sales.
Let us assume the following…
Designer = approximately $1 million in sales per year.
At 30% gross margin (Sales minus Direct Cost) = $300,000 GM per year
$300,000 / 50 weeks / 5 days / 8 hours / 60 minutes = $2.50 GM per minute
Salesperson = approximately $3 million in sales per year.
At 30% gross margin (Sales minus Direct Cost) = $900,000 GM per year
$300,000 / 50 weeks / 5 days / 8 hours / 60 minutes = $7.50 GM per minute
(Use your current sales numbers for your own gross margin dollars output per employee)
What these numbers mean is that each salesperson and designer could be potentially adding additional gross margin dollars to the bottom line if they spent more time selling and designing. If they are doing any other task that prevents them from selling and designing, then the opportunity cost is the lost GM they could have earned for the company. Therefore, for every minute that is gained for a salesperson to be selling, he or she could be adding an additional $7.50 per minute. The designer can potentially garner an additional $2.50 of GM per minute for every extra minute spent actually designing instead of other time-wasting activities. Simple arithmetic proves to you that if your salesperson had only an extra hour per week that equals to an additional $450 GM every week!
So now, it is time for you to do a simple exercise in your office. Go and ask your salespeople and designers how much time they think they waste doing “other things” beside sales and design. Do you need a list of tasks they are wasting time to complete? Here you go…
- Monitoring Order Process – Following each work order through the completion process to make sure everything is done on time and correctly (salesmen). How much time are your salespeople spending to constantly ask about and physically monitor every process because they fear it will somehow be done incorrectly or simply forgotten?
- Monitoring and Maintaining Schedules – Schedules constantly change (design, production, and delivery), so time is spent calling different people and coordinating with different departments every day to schedule all processes. This is a huge time waster for sales and design.
- Information Updating and Disseminating – Having to physically monitor and to ensure all critical information for each order is properly conveyed to all personnel via phone calls, emails, and face-to-face meetings. Why in the world is this such a tedious and time-wasting process?
- Phone Calls Interrupting Current Task – Why do they spend so much time on the phone, when the information is somewhere within the company? Examples: Schedule boards in the hallway, any information in the job folder, and other physical locations for any type of information. Does this sound familiar in your company? “Hey, how are we doing with job such-and-such? Will it be done in time?” In addition, while this question is constantly being asked, how many people have to be interrupted and involved to be satisfied with the answer?
- Tracking of Any Type of Information – Is an argument about who said what and when a common event in your company? If you wish to view a simple note concerning a customer or work order, was it documented, and if so, where is such documentation located? Did everyone who needed to view the critical note actually read it? What about simple tracking of the order processes: must it always involve multiple people communicating via phone calls, emails, and other manual activities?
Ok, so now is when I give you the simple and easy-to-understand way of implementing lean practices in your office. Implement an automated communication system to convey all the information in your company. You will get the same type of gains that the manufacturing does when automation is implemented, except in this case, the gains are for office personnel.
A perfect example is an automated flag for missing data, such as missing job site delivery address and directions. Simply add it to the manufacturing schedule, and the system will automatically inform the salesperson and customer via an automated email message of the missing required job site information. Also, how about all the “need-to-know-right-now” information that a salesperson would need when speaking to a customer in the field? Why not allow him to access all work order information from any smart phone, which includes all the schedules? Another example would be allowing your customers to view their scheduled orders on their smart phones so they can plan their own schedules via scheduled job site deliveries. All prints, documents, files, emails, text discussions, and schedules are linked to specific work orders for easy retrieval. All information is logged automatically with a date/time stamp for a proper audit trail.
Case Study: Builders FirstSource, Inc.
Todd Berry, site manager BFS Jacksonville
Builders FirstSource, Inc. (BFS) is a national supplier of engineered wood products and installable specialty items for the commercial homebuilding industry. Their use of AppWright JobCenter has been a significant driver of cost reduction and service level improvement in their roof truss and wall panel design and manufacturing areas. BFS also uses AppWright JobCenter to coordinate the purchasing, shipment and installation of specialty items like windows, doors, fireplaces, and other items that BFS supplies to commercial homebuilders. See the full details of Builders FirstSource case study at http://todd-drummond.com/support-files/BFS_Case_Study.pdf
Todd Drummond Consulting, LLC