Lean and Your Top & Bottom Lines
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Karen Martin's presentation discusses the importance of lean management and its financial implications for businesses, highlighting strategies to improve margins and engage executives. It emphasizes the need for measurable improvements in processes and outlines various methods to reduce expenses while increasing capacity and revenue. The document also stresses the significance of calculating financial results in daily kaizen efforts to ensure the legitimacy and impact of improvement initiatives.
Lean and Your Top & Bottom Lines
- 2. Consultant – We help clients deploy Lean management & achieve business performance excellence. Author & Speaker: Karen Martin, President The Karen Martin Group, Inc. @karenmartinopex 2 www.ksmartin.com/subscribe Shingo Award winner! Shingo Award winner!
- 3. You will learn… • How to calculate the financial impact of your improvement efforts. • Ways for improving margins (profit) through expense reduction (but not layoffs!). • Improvements that help grow your top line (revenue/sales). • How to engage executives in the process
- 5. © 2015 The Karen Martin Group, Inc. 5 Engage Executives Create Job Security Engage Employees
- 6. © 2015 The Karen Martin Group, Inc. 6 Improved processes can’t just feel better. They need to be measurably better. p. 117, The Kaizen Event Planner Karen Martin & Mike Osterling
- 7. 7 When Does Money Matter?
- 8. ALWAYS
- 9. Proper Financial Priorities © 2015 The Karen Martin Group, Inc. 9 1. Grow Margins (Profit) 2. Grow Top Line (Gross Sales) 0 2 4 6 8 10 12 2011 2012 2013 2014 Gross Sales Expenses Profit
- 10. Ways to Reduce Expenses Hard Dollars; Bottom-Line Results • Less expensive processing • Reduced paid overtime • Less expensive shipping • Eliminate unused software licenses • Insourcing to existing teams • Less electricity/water use • Reduced rent due to smaller footprint needed • Supplier renegotiation • Attrition without backfilling Soft Dollars; Cost Avoidance; Freed Capacity • Lower turnover • Fewer sick days • Fewer workers comp claims • Litigation mitigation • Fine avoidance • Reduced proportional hiring • Reduce reliance on third parties for greater bandwidth • Freed capacity
- 11. © 2015 The Karen Martin Group Inc. 11 Key Metrics: Lead Time and Process Time Lead Time (LT) Work Received Work passed to next process or department Process Time (PT) Lead Time – aka Elapsed Time; Throughput Time; Turnaround Time Process Time – aka Touch Time; Work Time; Cycle Time Work is Idle Work is Idle
- 12. Value-Adding Process Time Necessary Non-Value-Adding Process Time Delivery Unnecessary Non-Value-Adding Process Time Work is idle Request Lead Time Three Types of Process time
- 13. (Current State PT in hrs – Future State PT in hrs) x occurrences/year Available work hours per year * Calculating Freed Capacity Time FTEs (annualized) Labor Dollars (annualized & unburdened) (Current State PT – Future State PT) x occurrences per time period (Current State PT in hrs – Future State PT in hrs) x occurrences/year x hourly pay * Next slide
- 14. Available Hours Per Year © 2015 The Karen Martin Group, Inc. 14 # hours paid per year # hours paid holidays # hours paid time off # hours standing meetings # hours required training Minus Minus Minus Minus (Typically 2,080 hrs) (Typically 48-88 hrs) (Varies widely) Typically ranges from 1,750-1,975 hours per year
- 15. SNAP Main Tech DEPT HEAD C.O. SK DAAS BO1 ITEM MGR ISEA SUPV CRANE SUPPLY PEO IWS2 CRANE DEPOT STOCK POINT Main Tech C.O. ISEA SUPV PEO IWS2 STOCK POINT SNAPDEPT HEAD SK DAAS BO1 CRANE SUPPLY DOCKSIDE Current State Future State Process Touch Points Handoffs = 47 Lead Time = 486 hrs (60.7 days) Process Time = 108 hrs (13.5 days) Handoffs = 10 (78% improvement) Lead Time = 90 hrs (11.3 days) Process Time = 58 hrs (7.3 days)
- 16. P/U AFrame Power Pole Water Before: Floor hand walk distance = 3,095 feet per rig-up • Reduction of 2600 feet walked per floor hand per rig-up. • Reduction of >5,900 miles of walking per year (1000 rig-ups per month). After: Walk distance = 300 - 500 feet
- 17. 50 hours x 250 occurrences per year 1,750 hours per employee per year Calculating Freed Capacity = 7 FTEs • Absorb additional growth without commensurate labor expense gain • Reduce paid overtime • Reduce unpaid overtime; better work-life balance • Get to know one’s customers better • Add greater customer value in new ways • Make improvements
- 18. Ways to Reduce Expenses Hard Dollars; Bottom-Line Results • Less expensive processing • Reduced paid overtime • Less expensive shipping • Eliminate unused software licenses • Insourcing to existing teams • Less electricity/water use • Reduced rent due to smaller footprint needed • Supplier renegotiation • Attrition without backfilling Soft Dollars; Cost Avoidance; Freed Capacity • Lower turnover • Fewer sick days • Fewer workers comp claims • Litigation mitigation • Fine avoidance • Reduced proportional hiring • Reduce reliance on third parties for greater bandwidth • Freed capacity
- 19. © 2015 The Karen Martin Group, Inc. 19 Why isn’t inventory reduction on your list?
- 20. Top Line Improvements • Create new products (goods and services). • Command max price for existing products. • Create new product features for existing products. • Go into new markets. • Attract new customers in existing markets. • Retain existing customers (reduce churn). • Increase sales volume/frequency per customer. • Charge for all chargeable services. • Reduce write-offs; improve collections.
- 21. © 2015 The Karen Martin Group, Inc. 21 Annualized freed capacity = 1,150 hrs = 28.8 wks = 0.6 FTEs = $36,937 labor dollars (unburdened)
- 22. © 2015 The Karen Martin Group, Inc. 22 Should you calculate financial results for daily kaizen?
- 23. The Bottom Line It’s tough for anyone to take improvement seriously if you don’t measure and communicate real, tangible results.
- 24. © 2015 The Karen Martin Group, Inc. 24 Karen Martin, President 858.677.6799 @karenmartinopex Blog & newsletter: www.ksmartin.com/subscribe