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Methods to Design
New Process
By becoming more efficient in process, we can use time not as a detriment but as a significant benefit to our business. Step by step, let's take a further look at how time and efficiency plays a great role in your business.
Increase Demand Forecasting Accuracy. We only need enough inventory to satisfy demand, and that is where part of problem exists. If demand can not be accurately forecasted, then we end up compensating for this unknown with inventory.
Increase Manufacturing Cycle Efficiency. How well manufacturing resources are used to produce a product determines cycle efficiency. Defective product, product rework, and long lags between manufacturing cells cause inefficiency, which can be easily calculated. Raw materials should be converted into finished goods as quickly as possible. The speed at which this occurs defines your manufacturing cycle efficiency.
Increase Supply Chain Turns. Increasing number of times purchases are made may increase acquisition costs and unit costs because of smaller order quantities. But you will benefit by increasing your cash flow and eliminating carrying cost of inventory (warehousing, material handling, taxes, insurance, depreciation, interest and obsolescence totaling 25% to 35%).
Eliminate safety stock. Safety stock is really just a buffer for forecasting variance and supplier delivery time. While many levels are set arbitrarily in automated MRP systems, your safety stock levels will need to be reduced due to improvements in demand forecasting accuracy, manufacturing cycle efficiency and supply chain turns.
Reduce purchasing errors. This can reduce overstocking and, more importantly, minimize stock outs that result in expensive expedited purchases. Sell excess and obsolete inventory or return it to your vendor.
Eliminate delivery variance. Do not allow vendors to deliver early or late and make sure delivered quantity does not vary from order quantity. After all, delivery errors cause need to carry more inventory. Instead, provide suppliers with forecasts of future needs.
Train purchasing personnel. Provide your purchasing and material management personnel with formal training. This will arm them with better negotiating skills that will result in better prices and terms.
Procedures Provide Time Savings
So, as we have seen, we should use each element of process to extract most benefit from our business. With time-saving procedures set in place, you will let your efficiency work for you.
Time Savings Provide Cash in Bank
With well-defined processes and procedures in place, you will increase efficiency by increasing inventory turns. And of course an increase in inventory turns means an increase in cash on hand. It’s there - all you have to do is grab it.
Next part of this series, we will look at finding $250,000 in Accounts Receivable - another step as we work toward our goal of 1 million in savings. So not only aim to reap rewards of extra savings to your bottom line, but also see more cash in bank - $1,000,000 to be exact.
Chris Anderson is currently the managing director of Bizmanualz, Inc. and co-author of policies and procedures manuals, producing the layout, process design and implementation to increase performance. To learn how to increase your business performance, visit: Bizmanualz, Inc.
